U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB/A
                                (Amendment No.1)

     (Mark  One)

          [X]     ANNUAL  REPORT  UNDER  SECTION  13  OR 15(d) OF THE SECURITIES
                  EXCHANGE  ACT  OF  1934

          For  fiscal  year  ended:  December  31,  2004
                                     -------------------

OR

          [  ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                   EXCHANGE  ACT  OF  1934

          For  the  transition  period  from  ___________________to ____________

     Commission  file  number          333-75956
                                       ---------

                                 NS8 Corporation
                                ----------------
        (Exact Name Of Small Business Issuer As Specified In Its Charter)

             Delaware                                             13-4142621
             --------                                             ----------
  (State  or  Other  Jurisdiction                              (IRS  Employer
Of  Incorporation  or Organization                          Identification  No.)

                1420 Fifth Avenue, 22nd Floor, Seattle, WA 98101
    ----------------------------------------------------------------------------
(Address of Principal Executive Offices)                              (Zip Code)

     Issuer's  Telephone  Number  (206) 521-5986
                                  ---------------

Securities  registered  under  section  12(b)  of  the  Act:  None
                                                              ----

Securities  registered  under  section  12(g)  of  the  Act:  None
                                                              ----

     Check whether the registrant (1) filed all reports  required to be filed by
section 13 or 15(d) of the  exchange  act during the past 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 [X]   No
[ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  regulation  S-B  contained  in  this  form,  and no  disclosure  will 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-KSB
or any amendment to this form 10-KSB. [X]


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     State registrant's revenues for its most recent fiscal year:
$0.00
--------


     As of August 28, 2006,  there were  110,383,586  shares of the registrant's
common stock, par value $0.0001 issued and outstanding and 7,090,722 unexchanged
shares of CanOnline  Global Media Inc  ("CGMI").  Of the issued and  outstanding
common shares of the registrant,  approximately  83,594,827  shares were held by
non-affiliates of the registrant. All of the unexchanged shares of CGMI are held
by  non-affiliates  of the  registrant.  The market value of securities  held by
non-affiliates  is approximately  US$5,935,233  based on the average closing bid
and asked bid price of the  registrant's  common stock on August 25,  2006.  The
market  value  of the  unexchanged  shares  of CGMI is  US$503,441  based on the
average closing bid and asked price of the  registrant's  common stock on August
25, 2006, had the unexchanged  shares be exchanged into shares of the registrant
on that date.


Transitional small business disclosure format (check one):
Yes  [  ];   No  [x]

Documents  Incorporated  By  Reference:  None
                                         ----


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TABLE  OF  CONTENTS

Item  Number and  Caption                                                   Page
-------------------------                                                   ----

Forward-Looking  Statements                                                   4

PART  I                                                                       5
  ITEM  1.  Description  of  Business                                         5
  ITEM  2.  Description  of  Property                                        19
  ITEM  3.  Legal  Proceedings                                               20
  ITEM  4.  Submission  of  Matters  to  a  Vote  of  Security  Holders      20
PART  II                                                                     20
  ITEM  5.  Market  for  Common  Equity and Related Stockholder Matters      20
  ITEM  6.  Management's Discussion and Analysis of Financial Condition and
            Results  of  Operations                                          21
  ITEM  7.  Financial  Statements                                            27

  ITEM  8.  Changes in and Disagreements with Accountants on Accounting and
            Financial  Disclosure                                            27
  ITEM  8A. Controls  and  Procedures.                                       27
PART  III                                                                    28
  ITEM  9.  Directors,  Executive  Officers, Promoters and Control Persons;
            Compliance  with  Section  16(A)  of  the  Exchange  Act         28
  ITEM  10. Executive  Compensation                                          31
  ITEM  11. Security  Ownership Of Certain Beneficial Owners And Management  36
  ITEM  12. Certain  Relationships  and  Related  Transactions               37
  ITEM  13. EXHIBITS,  List  and  Reports  on  Form  8-K                     38


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                       STATEMENT REGARDING THIS AMENDMENT

     This Form  10-KSB/A is being  amended to restate the  accompanying  audited
consolidated financial statements.  During the year ended December 31, 2005, the
Company  determined that certain warrants and convertible  debentures  issued in
2004 and 2005 should have been recorded as derivative liabilities. Particularly,
the Company has filed this amended Form 10-KSB/A to:

     o    Revise our consolidated  statement of operations to reflect a decrease
          in our net  loss of  $3,688,882  resulting  from the  effect  of these
          (non-cash)  changes which related to accounting  for these  derivative
          instrument liabilities on our consolidated statement of operations for
          the year ended December 31, 2004;

     o    Revise our  consolidated  balance  sheet as of  December  31,  2005 to
          reflect an increase in our liabilities of $3,486,567 and corresponding
          decrease in stockholders' equity;


     o    Revise our consolidated  statements of comprehensive loss to reflect a
          decrease  in Basic  and  diluted  net loss per share  attributable  to
          common shareholders for the year ended December 31, 2004;

     o    Make  other  revisions  to our  consolidated financial  statements  to
          reflect the changes set forth above;

     o    Add footnote 3 relating to our  obligation to record the fair value of
          the  warrants on our  balance  sheet at fair value with the changes in
          the  values  of  these  derivatives   reflected  in  the  consolidated
          statement of operations as "Gain (loss) on derivative liability;"

     o    Revise  footnote 5 to our  consolidated  financial  statements,  which
          relates to the convertible debentures;

     o    Add a paragraph relating to the Accounting for Derivative  Instruments
          as a significant accounting policy; and

     o    Revise the section "Management's  Discussion and Analysis of Financial
          Condition  and  Results of  Operations"  to reflect the changes in our
          consolidated financial statements.

     o    Revise Item 8A to reflect the current Controls and Procedures in place
          at the time of filing the amended restatements.

In order to preserve the nature and character of the  disclosures as of April 5,
2005, except as specifically  discussed in this Amendment No. 1 to the Report on
Form  10-KSB/A,  no attempt has been made in this  amendment to modify or update
such disclosures for events which occurred  subsequent to the original filing on
April 5,  2005.  This  amendment  should  also be read in  conjunction  with our
amended Annual Report on Form 10-KSB for the year ended December 31, 2005.


Forward-Looking  Statements

     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.  Such  forward-looking
statements  involve  risks and  uncertainties,  including,  among other  things,
statements  regarding our business  strategy,  future  revenues and  anticipated
costs and expenses. Such forward-looking statements include, among others, those
statements including the words "expects,"  "anticipates,"  "intends," "believes"
and similar  language.  Our 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 the section "Management's  Discussion and Analysis of Financial Condition and
Results of Operations" and "Business-Risk  Factors". You should carefully review
the  risks  described  in other  documents  we file  from  time to time with the
Securities  and  Exchange  Commission.  You are  cautioned  not to  place  undue
reliance on the forward-looking  statements,  which speak only as of the date of
this report. We undertake no obligation to publicly release any revisions to the
forward-looking  statements or reflect events or circumstances after the date of
this document.

Industry  Data

In this  report,  we refer to  information  regarding  the growth of  high-speed
internet lines in the United States  between homes and businesses  from the U.S.
Federal  Communications  Commission (the "FCC"), an independent U.S.  government
agency charged with regulating  interstate and  international  communications by
radio,  television,  wire,  satellite  and cable.  We also refer to  information
regarding  households  in the  United  States  that  are  capable  of  receiving
video-on-demand  from  the  Leichtman  Research  Group,  Inc.,  a  research  and
consulting firm  independent of industry  participants  that  specializes in the
broadband, media and entertainment industries. We also refer to information from
Yankee Group Research,  Inc. ("Yankee Group"),  a Boston based research products
and  consulting  services  firm  primarily  serving the  telecommunications  and
wireless  industry,  the consumer,  entertainment  and media  industry,  and the
information  technology  ("IT") hardware,  software and services segments of the
technology industry.  We believe that all of the information in this form 10-KSB
that is based on statements  from the FCC, the Leichtman  Research Group and the
Yankee Group is independent and reliable.

Currency

Unless we  otherwise  indicate in this  registration  statement,  references  to
"USD",  "Dollars" or "$" are to the lawful  currency of the United  States.  Any
references  to "CAD",  "Dollars  Canadian"  or  similar  terms are to the lawful
currency of Canada.


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                                     PART I

ITEM  1.     Description  of  Business

Corporate  History

NS8 Corporation  ("NS8Corp",  the "Company"),  was  incorporated  under the name
Delivery Now Corp. in the State of Delaware on October 3, 2000.

Until December 17, 2003, we delivered  envelopes by bike messengers and packages
by  van in the  New  York  City  metropolitan  area  through  our  wholly  owned
subsidiary BMW Messenger Services,  Inc. ("BMW").  BMW received phone calls from
customers seeking such deliveries and then dispatched its messengers via two-way
radio to deliver the  envelopes  and  packages  via bicycle or van. BMW obtained
these job orders through referrals from existing customers and through its sales
force.

BMW was formed on September 23, 1999 in the State of New York and operated as an
S Corporation  from  inception  through  October 3, 2000 when we acquired it. On
October  3,  2000,  we  acquired  100% of BMW's  common  stock in  exchange  for
2,500,000  shares of our common stock. At the time of the  transaction,  Michael
Conte was our sole shareholder.

On December 17, 2003, we changed our name to NS8 Corporation.

On December 18, 2003, we discontinued the messenger delivery service business in
connection with the merger transaction described below.

     Merger  with  CanOnline  Global  Media,  Inc.

On  November  3, 2003,  we entered in to an  Agreement  and Plan of Merger  (the
"Merger  Agreement")  with  CanOnline  Global  Media,  Inc.   ("CanOnline"),   a
Washington corporation, and DLVN Acquisition, Inc. ("Acquisition Subsidiary"), a
Delaware  corporation.  Acquisition  Subsidiary was our wholly owned  subsidiary
prior to the transaction.

On  December  18, 2003 the  transactions  contemplated  by the Merger  Agreement
closed,  and a merger  (the  "Merger")  was  effected  among us,  CanOnline  and
Acquisition Subsidiary

Pursuant to the Merger  Agreement,  (i)  Acquisition  Subsidiary was merged into
CanOnline with CanOnline becoming the surviving corporation, (ii) the holders of
the 66,670,346 shares of issued and outstanding CanOnline common stock exchanged
their  CanOnline  common  stock for shares of our common  stock at a one for one
ratio,  receiving  in the  aggregate  66,670,346  shares of our common  stock in
exchange  for their  shares of  CanOnline  common  stock,  (iii) the  holders of
options to acquire an aggregate of 14,886,702 shares of CanOnline's common stock
exchanged their options for options to acquire our common stock at a one for one
ratio,  receiving in the aggregate  options to acquire  14,886,702 shares of our
common  stock,  and the 100  shares of common  stock of  Acquisition  Subsidiary
issued and  outstanding  prior to the Merger were  converted  into 100 shares of
CanOnline common stock, with CanOnline becoming our wholly owned subsidiary.


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<PAGE>




Simultaneously  with the closing of the Merger, we transferred all of the issued
and outstanding  stock of our wholly owned  subsidiary,  BMW Messenger  Service,
Inc.  ("BMW"),  to Michael Conte and Brian  Seinwels in exchange for  24,950,000
shares of our common stock. Mr. Conte was our director,  chief executive officer
and president,  and Mr. Seinwels was our Vice President until the closing of the
Merger.  These shares were cancelled and restored to our authorized and unissued
capital stock.

Prior  to the  Merger,  our  operations  consisted  primarily  of the  messenger
delivery  service  conducted  by BMW.  This  business is now wholly owned by Mr.
Conte and Mr. Seinwels and is no longer operated by us.

Our primary operation now consists of the operations of CanOnline.

The number of shares of our common  stock  exchanged  for the  CanOnline  common
stock was determined in arms-length negotiations between our Boards of Directors
and the board of directors of CanOnline.  The negotiations took into account the
value of  CanOnline's  financial  position,  results  of  operations,  products,
prospects and other factors relating to CanOnline's business. At the time of the
Merger, there were no material  relationships between CanOnline and us or any of
our affiliates,  any of our directors or officers or any associate of any of our
officers or directors.

The number of shares of our common stock  transferred  to us in exchange for the
BMW common stock was  determined by our Board of Directors,  which  included Mr.
Conte and Mr. Seinwels.  This transaction was approved and ratified by the Board
of  Directors  of  CanOnline,   which  was  independent  with  respect  to  this
transaction.

The exchange of CanOnline shares for our shares was exempt from the registration
requirements  of the Securities  Act of 1933, as amended,  under section 4(2) of
that Act.

General

We are a  technology  research  and  development  company  focused  on  creating
software tools which secure,  trace and record the  distribution of intellectual
property across internet  protocol based channels.  Our mission is to facilitate
the advanced  distribution of on-demand options to the consumer. We believe this
can be accomplished by concurrently  addressing the security and licensing needs
of content owners while also meeting the bandwidth  delivery and revenue capture
requirements of content  distributors.  Our software is delivered through normal
high-speed internet connections and does not require download or installation on
resident  computer  systems.  We  developed it to use the  Internet's  extensive
network and delivery capabilities without imposing excessive broadband, resident
memory consumption or hardware limitations.

We operate through two wholly-owned  subsidiaries,  CanOnline Media  Corporation
("CMC") and CanOnline.  CMC was  incorporated  on June 18, 1999 and is a British
Columbia,  Canada  corporation.  CMC  conducts  all our  proprietary  technology
research and  development  activities.  CanOnline was  incorporated on March 15,
2000 as a Washington corporation and is focused on the marketing,  licensing and
commercialization of the products and technology of CMC.


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We are a development stage company with minimal revenues to date.

Industry


In 2004,  significant  changes occurred within the competitive and technological
business landscape of providing interactive broadband service to consumers, such
as cable  companies  beginning to deploy voice  services and  traditional  phone
companies beginning to deploy video. We believe that these changes established a
foundation  for the  convergence of services  delivered  over Internet  Protocol
("IP")  based  networks.  The  business  case for  convergence  now rests on the
principles of lowering  network  equipment  and  infrastructure  costs,  network
administration costs and overall costs associated with the delivery of services.
We believe that IP networks are  conducive  to lowering  delivery  costs in that
they can easily be scaled to provide a multitude  of services  and  applications
that can be bundled for sale to interactive broadband consumers.


Convergence has caused the telecommunications industry to expand its traditional
focus by  offering  services  to  compete  within  the  boundaries  of cable and
satellite  service.  Telecommunications  operators  are now  diversifying  their
service  offerings  with  local  exchange,  long-distance  telephone,  wireless,
high-speed Internet and internet video on demand services to remain competitive.
At the same time,  cable  companies have been upgrading  their digital  networks
with capacity to carry larger quantities of data at faster rates that allow them
to offer additional  services such as voice and  video-on-demand  ("VOD").  As a
result,  once  disparate  industries are now competing  head-to-head  by rapidly
rolling out  overlapping  services  and  applications  to capture and keep their
valuable subscribers.

According to the U.S. Federal  Communications  Commission,  high-speed  internet
lines  between  homes and  businesses  in the U.S.  totaled  32.5 million in the
second half of 2004.  VOD has been a driving  force for the adoption of advanced
digital service  packages  delivered to the home. The Leichtman  Research Group,
Inc.  conducted surveys in December 2004 of households in four U.S markets.  The
group,  which specializes in research and analysis on broadband,  found that the
percent of digital cable subscribers who have used VOD is now 50-69%, or roughly
twice the rate found a year and a half ago.  According to the  Leichtman  Group,
there are currently 22 million  VOD-capable  households in the United States,  a
number it expects to grow to 32.2 million by 2008. A 2004 Yankee Group Research,
Inc. study found that the bundling of video,  voice and data services  increases
average revenue per user, while decreasing churn.

We believe that the increase in VOD programming and on-demand  viewers  presents
an opportunity for broadband service  providers,  as well as the advertisers and
merchants  wanting to reach those  growing  viewers.  The  one-to-one  nature of
delivering content and services in an IP based network provides  opportunity for
advertisers to better target and track the  efficiency of their  advertisements.
It  also  offers  retail   merchants  the  opportunity  to  participate  in  new
television-based distribution channels.

We  believe  that  the  large  capital  outlay  by  cable  companies  and  large
telecommunications  firms,  such as SBC  Communications  Inc.,  to upgrade their
digital networks is a validation of the importance these industries are placing


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on  the  delivery  of  VOD  and  other  advanced   interactive   services  as  a
differentiator to their subscribers.  We believe that although VOD will continue
to be  an  important  strategic  differentiator  for  broadband  providers,  the
addition  of  multiple   advanced   interactive   services   bundled   with  and
complimentary to VOD will ultimately be the competitive lynch-pin.

Our  Products  and  Technologies
--------------------------------

We designed our suite of software  products to address five growing  problems in
the industry, namely the inability:

-    to  effectively  protect  digital  content  as  it is delivered through the
Internet;

-    to  accurately account for the usage of the content as it is distributed by
the  service  provider  to  its  consumers;

-    to  accurately  capture  revenue  each  time  digital  content is consumed;

     to  meet  growing  consumer demand for real-time access to digital content;
and

- to provide  consumers  with  complete  portable  media  access  using a single
service provider.

We seek to address these problems through three principal technologies:

- Behavioral Network Management Systems. Our NS8 Library Distribution Management
System is an easy to deploy,  server  rendered  visual  management  console  for
multi-format encoding (MPEG2, WMV, MPEG4), distribution licensing,  distribution
management and media program scheduling of digital content for distribution over
IP networks.

- Persistent Media Distribution  Security. Our NS8 Security Protocol Integration
("SPi") provides  embedded content security aimed at ensuring that  intellectual
property rights,  payment auditing,  territorial licenses,  usage auditing,  and
distribution  polices are enforced on a persistent basis throughout the internet
distribution and consumer usage cycle.  SPi-enabled  files lose usable integrity
if tampered with in any way.

-  Non-Resident  Server Based Software  Systems.  Our NS8  Interactive  Consumer
Programming  and Shopping Guide is a light-weight  server based VOD  programming
and  consumer  interactive  guide  accessible  through PC, MAC and digital  IPTV
set-top-box for a complete portable media viewing  experience that is capable of
running on normal high-speed internet lines such as ADSL, DSL, XDSL and WiFi.

The combination of these technologies  constitutes a patent-pending solution for
content  distribution  via the  Internet  to the  consumer  through  a  personal
computer or an IP-based  set-top box on a  television.  These  technologies  are
comprised of software modules intended to fortify security during distribution


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and  consumer  use,  increase  delivery   efficiency  through  normal  broadband
networks,  ensure  royalty and usage  payment to all  participating  users,  and
improve overall content quality to the consumer.  These software  modules can be
applied as  stand-alone  solutions  or  combined to produce  end-to-end  service
portals  for  specific  industry  verticals,  such as content  studios,  service
providers,  advertising and merchandising  firms. To date, we have developed and
completed  two online  management  platforms.  The first  platform is  Reelindie
Global Network ("RGN"), an online business  collaboration and management system,
targeted at professionals  and businesses in the  entertainment  industry (film,
television,  music,  fashion and  advertising).  The system  includes a suite of
interactive  online services and applications  designed to manage and coordinate
project  planning and  execution,  human  resources,  production  supply chains,
promotions  and  communications.  The  second  platform  is Kaozz  Entertainment
Network  ("KAOZZ"),  an online  distribution and communication  platform for the
secure  commercialization  of digital content and intellectual  property (music,
film, video and software).

We offer RGN and KAOZZ in  combination  with our three  core  technologies  in a
comprehensive  solution called iWaveTM interactive systems for on-demand content
and  interactive  media delivery to the consumers of regional  telecommunication
companies. The iWaveTM system consists of third-party servers to be installed at
the  client's   facilities  and  that  are   pre-installed   with  our  software
applications. Each system configuration is scalable and flexible to the client's
consumer-base   and  distribution   requirements.   We  believe  that  an  open,
custom-integrated  and cost-efficient  solution spanning both asset delivery and
management will prevail in our market space.

On January 13, 2005, we announced  that Long  Distance  Billing  Services,  Inc.
("LDBS") of Brookneal,  Virginia selected us to lead the technology solution and
deployment  architecture for the  implementation  of interactive  computer video
on-demand  (VOD)  systems in Virginia  and Chicago.  On February 22, 2005,  LDBS
filed for bankruptcy  protection  under Chapter 11 of the U.S.  Bankruptcy Code.
LDBS's bankruptcy proceeding is ongoing.  Accordingly, we will not be proceeding
with the  foregoing  commercial  program at this time.  In  addition,  we do not
anticipate  proceeding  with our possible  acquisition of LDBS's parent,  ezTel,
LLC.


Our  target  primary  customers
-------------------------------

We believe that  customers for our products and services will include  owners of
entertainment  and/or advertising  content as well as the retail distributors of
this  content,  multiple  service  operators  ("MSOs")  that sell  direct to the
consumer.  MSOs include  cable,  telephone  and satellite  companies.  There are
potentially thousands of entertainment and advertising content owners around the
world who can use our products and  services.  We are not bound by  geographical
restraints  in the selling of our products and  services.  The market for retail
distributors,   while  considerably   smaller  and  defined  by  geography,   is
nonetheless a substantial market that is seeking competitive  differentiators to
sell  value-added  services  to  consumers.  We believe  that our  products  and
services meet the demands of both market  segments,  and therefore,  we will not
depend upon one or a few major customers.

We break our potential customers down into the following segments:


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-  Owners  of  entertainment  content,  including  motion  picture,  television,
specialty video, and animation for theatrical,  television or DVD release or for
viewing over the Internet;

- Advertising  content owners and  distributors,  such as advertising firms that
place commercial  advertisements and other short-form video insertions  directly
to a consumer environment;

- Regional  telecommunications  companies offering broadband high-speed internet
and related digital services directly to their consumers;

-  Network   management  firms  and  internet  service  providers  that  provide
infrastructure  hardware for internet  services and digital storage  facilities;
and

- Medium  to large  retail  merchandising  companies  wishing  to  extend  sales
channels and offer  direct  interactive  commerce to consumers  over a broadband
operator's network.

Marketing
---------

Our business focus is to provide interactive consumer  distribution and advanced
royalty  management  software platforms as a backbone to the VOD and interactive
internet environment of regional  telecommunication  companies.  In addition, we
seek to address,  within its technological design, the ability to integrate with
Internet Protocol  Television  (IPTV) as part of an integrated  service offering
for customers of those regional telecommunication companies.

We intend to market our technologies and services through:

- An enhanced partnership program through regional telecommunication companies;

- Through third-party hardware providers and partnerships as part of the service
offering of those hardware companies; and

- Through re-sale networks primarily consisting of internet service providers.

We intend to sell our  systems in  complete  turn-key  end-to-end  systems or as
independent  systems to our various  customer  segments.  Although each customer
segment is independent  of each other,  we believe that our iWaveTM system would
integrate each segment toward a single or multiple  service provider system that
serves a large consumer base connected to the internet.

We do not carry  inventory  for our iWaveTM  systems but rather  intend to build
each iWaveTM  system  according to our client's  requirements  once we have been
engaged  to  provide  them  with an  interactive  on-demand  solution  for their
internet services. In addition, we do not intend to carry inventory with respect
to hardware provided by resale  partnerships in order to offer their products to
our customer base.

Our  business  model
--------------------


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We seek to generate revenue from three primary sources:

- The sale and licensing of our software products to our target primary customer
segments,  including  entertainment content owners,  advertising firms, regional
telecommunications   companies,   network  management  firms,  Internet  service
providers ("ISPs") and retail merchants;

- The re-sale of hardware  component  products provided by third-party  partners
including  server  manufactures,  set-top box  manufactures  and other  IP-based
consumer    electronic    products    manufactured   for   converging   regional
telecommunications markets; and

- Revenue sharing with technology re-seller and joint-venture  partners, such as
content distribution firms, network management firms and ISPs.

According to our business  plan,  revenue will come  principally  from the sale,
re-sale or partnered deployment of our following lines of products:

- iWave Interactive  Service Provider  Systems,  a PC or IPTV-based VOD content,
advertising  and  merchandise  catalogue  receiving,  distribution  and  royalty
management system for service providers;

- iWave  Interactive  Content Provider  Systems,  a PC or IPTV-based VOD content
catalogue  placement,  distribution  and royalty  management  system for content
owners and distributors;

-  iWave  Interactive   Advertiser  Systems,  a  PC  or  IPTV-based  interactive
advertisement  catalogue  placement,   distribution  and  consumer  intelligence
management system for advertising and media buying firms;

- iWave  Interactive  Retail Merchant  Systems,  a PC or IPTV-based  interactive
merchandise  catalogue  placement,   distribution  and  transaction  fulfillment
management system for medium and large on-line retailers;

- RGN, an online  business  collaboration  and  management  system,  targeted at
professionals and businesses in the entertainment industry; and

- KAOZZ,  an online  distribution  and  communication  platform  for the  secure
commercialization of digital content and intellectual property.

We  expect  to  license  our  software  products  within  multi-year   licensing
agreements  negotiated  and executed  with  primary  customers,  re-sellers  and
partners, which are comprised of the following fee categories:

-  Annual  variable  technology  licensing,   software  maintenance  and  custom
integration fees;

-    Annual  security  maintenance,  monitoring  and  enforcement  fees;


                                       11


<PAGE>




-    Variable  "per  view"  consumer  usage  fees;

-    Variable  advertisement  placement  and  distribution  fees;  and

- Variable point-of-sale commerce fulfillment fees.

We expect to negotiate and realize on a  case-by-case  basis  revenue  generated
from  third-party  hardware  component  or  service  re-sales  as  well  as from
revenue-sharing agreements executed with partners.

Proprietary  Technologies

We currently have filed, through CanOnline, two U.S. patent applications and one
Patent  Cooperation  Treaty  application.  These  are:

-    U.S. Patent Application filed on February 4, 2004 for "Method and Apparatus
For  Converting  Objects  Between  Weakly  And  Strongly  Typed  Programming
Frameworks";

-    U.S. Patent Application filed on February 4, 2004 for "Method and Apparatus
For  Presenting  Multimedia  Content  And  For  Facilitating  Third  Party
Representation  Of  An  Object";

- Patent  Cooperation  Treaty  Application filed on February 4, 2004 for "Method
and  Apparatus  For  Converting   Objects  Between  Weakly  And  Strongly  Typed
Programming Frameworks".

These  applications  claim priority to U.S.  Provisional  Patent Application No.
60/444,672, filed by CanOnline on February 4, 2003, titled "Method and Apparatus
for Facilitating Third Party Representation Of An Object", which is incorporated
in its entirety in the new filings.

We have also filed one  provisional  patent  application  with the United States
Patent and Trademark Office,  U.S.  Provisional Patent Application filed on July
16, 2004 for  "Method  and System for  Managing  the  Authorized  Use of Digital
Works".

These  patent  applications  relate  to new  developments  within  the  areas of
non-resident  software  systems;  automated coding  architecture;  digital media
formatting,  filtering,  conversion  and  distribution  technologies;  encrypted
signatures,   processing,   sampling,   royalty  and  encoding  methods;  secure
communications and collaboration systems; and business processes.

None of the above-mentioned  patent applications have been granted, or rejected,
at  this  time.  All of  these  patent  applications  have  been  filed  through
CanOnline.

Trademarks

CanOnline filed a trademark  application for the trademark  "CANONLINE" with the
Canadian  Trademark Office on June 18, 2003. On April 30, 2004,  CanOnline filed
an application for the trademark "SPI" with the United States Patent and


                                       12


<PAGE>

Trademark Office. On June 1, 2004,  CanOnline filed applications for two classes
for the trademark "NS8" with the U.S. Patent and Trademark  Office.  On July 26,
2004, CanOnline filed two new applications for the trademarks "SECURITY PROTOCOL
INTEGRATION"  and "SECURE DIGITAL CONTENT  DISTRIBUTION"  with the United States
Patent and Trademark Office.

During 2004, we also  initiated  applications,  through  CanOnline,  to file the
"NS8" trademark in Canada, China, the European Community and Japan, including:

- The  application  for  registration  of the "NS8"  trademark  filed,  with the
priority claim, in Canada on November 30, 2004;

- Separate  applications  filed in Classes 9 and 42, with  priority  claims,  in
China on November 29, 2004;

- The "NS8" trademark  application  filed in Classes 9 and 42, with the priority
claim, in the European Community on December 1, 2004; and

- The "NS8" mark and logo filed as a composite mark in Classes 9 and 42 in Japan
on December 1, 2004.

None of these applications have been granted, or rejected,  at this time. We are
currently  pursuing  the  filing of other  trademarks  with the U.S.  Patent and
Trademark  Office in relation to the  development  of its products and marketing
initiatives.

Competition

Our  products  and  technologies  are part of a highly  competitive  marketplace
covering the end-to-end delivery system of content from the content owner to the
consumer.  Within this delivery system,  we compete in four primary areas.  Each
area contains multiple competitors including  well-established companies such as
Microsoft, Sony and Motorola, as well as medium-sized and start-up companies.

-  Content  Aggregation.   Content  aggregators  gather  content  from  multiple
producers or owners for further distribution to the market.  Primary competitors
in this area include TVN  Entertainment  Corporation  and iN DEMAND L.L.C.,  who
aggregate contact for existing VOD deployments. Starz Entertainment Group L.L.C.
also offers aggregated  programming obtained from major Hollywood studios. Other
competitors  include  ViewNow , who  partners  with video  server and  streaming
provider, Kasenna, IncThe alliance between ViewNow and Kasenna, Inc. constitutes
direct competition to us.

- Digital Rights Management ("DRM"). DRM allows a vendor to control and restrict
use of digital  content as specified by the vendor.  Typically  the content is a
copyrighted work to which the vendor holds specific rights. Cable-based multiple
service  operators   ("MSOs")  have  relied  primarily  on  set-top  boxes  with
integrated  conditional  access  systems  to  control  digital  rights for their
content-on-demand services. The leading providers of set-top boxes are Motorola,
Inc. and  Scientific-Atlanta,  Inc. Other companies offering DRM technologies to
control distribution of digital content on-demand include Microsoft Corporation,
Sony  Corporation,  Nagravision S.A, NDS Group Plc., and Widevine  Technologies,
Inc.


                                       13


<PAGE>




- Video  Server  Systems.  Seachange  International,  nCube  Corporation  (now a
division of C-COR  Incorporated)  and Concurrent  Computer  Corporation  are the
three primary video server/video  streaming software vendors providing equipment
for most current VOD deployments.  These  competitors have focused mainly on the
cable  MSO  sectors  because  it is where  most  current  VOD  deployments  have
occurred.  Other  competitors  include  Kasenna,  Inc.  and N2  Broadband,  Inc.
(recently acquired by Tandberg Television), which supply open-platform (hardware
independent) software solutions for delivering and managing VOD.

- Middleware and Electronic Program Guides ("EPG").  Most of the established and
larger  video  server   companies  offer   accompanying   delivery   management,
back-office,  and usage  reporting  software as part of their  end-to-end  video
delivery  system  package.  nCube licenses its office support  software to third
parties.  Other widely deployed  middleware/EPG system vendors include Microsoft
Corporation (TV Foundation),  Myrio Corporation,  Minerva Networks, Inc., OpenTV
Corporation, NDS Group Plc. and GemStar-TV Guide International, Inc.

Some  competitors  specialize  within one or two  specific  areas,  while others
partner with other  complimentary  specialists and offer a complete  solution to
MSOs. This market sector has attracted top level  technology  providers  because
DRM and server-based  software is the cornerstone of delivering  digital content
on-demand.

Recent  Developments

On February  10,  2005,  we entered  into an Option  Agreement  with ezTel,  LLC
("ezTel")  pursuant to which we were  granted an option to purchase  100% of all
equity,  membership and ownership  interests in ezTel for $1,500,000.  ezTel and
its subsidiaries provide discount long-distance  telephone services and wireless
broadband  internet  services.  On July  30,  2002,  ezTel  and  several  of its
subsidiaries  filed for  protection  under  Chapter 11 of the  Bankruptcy  Code.
EzTel's  bankruptcy  proceeding  is  ongoing.  The  option to  acquire  ezTel is
exercisable  at our sole  discretion,  subject  to  confirmation  of the  Option
Agreement  by the  Bankruptcy  Court  and  confirmation  of a  revised  Plan  of
Reorganization by the Bankruptcy Court in a final, non-appealable order.

As consideration for the Option Agreement,  we advanced a $200,000 term loan due
August 1, 2005 to Long Distance Billing Services,  Inc. ("LDBS"), a wholly owned
subsidiary of ezTel. If we choose to acquire ezTel, ezTel must first repay to us
the amount of the term loan to LDBS plus all accrued  interest.  On February 22,
2005, LDBS filed for protection under Chapter 11 of the Bankruptcy Code.  LDBS's
bankruptcy proceeding is ongoing. Accordingly, at this time we do not anticipate
exercising  our option to acquire  ezTel  pursuant to the Option  Agreement.  We
cannot assure you that the term loan to LDBS will be repaid.

Government  Regulation

The market for VOD and other internet-related business solutions is evolving. We
anticipate that certain countries will be establishing new regulatory bodies and
policies that might have an impact on current telecommunication policies


                                       14


<PAGE>




generally and possibly in the new industry sector where we intend to operate. As
an example,  the U.S. Congress enacted the Digital  Millennium  Copyright Act in
1998 addressing the impact of new digital  technologies  on the  distribution of
content and related copyright infringement issues. Since December 1992, the U.K.
government  has been  working on a  Video-On-Demand  Code of  Practice to ensure
there is  adequate  protection  for  users  through  self-regulatory  processes.
Similar  initiatives  have been pursued in Honk Kong since 1996.  It is possible
that  similar  practices  might be adopted in various  countries  where we might
operate.  It is not possible at this time to properly evaluate the likely impact
of any  such  governmental  initiatives.  However,  due to the  high  degree  of
flexibility  and scalability of our  technologies,  we do not anticipate that we
will  experience  major  problems  in adapting  our  technologies  and  business
practices to future government or industry regulations.

Research  and  Development

We expense all costs as incurred for research and  development  activities.  For
the years ended December 31, 2004 and 2003, the research and  development  costs
were $1,079,824 and $1,382,000, respectively.

Employees

As  of  December  31,  2004,  we  had  35  full-time  employees,  consisting  of
Operations, Marketing and Research and Development. We intend to hire additional
personnel as the development of our business makes such action appropriate.  The
loss of the services of key employees  could have a material  adverse  effect on
our  business.  Since  there is  intense  competition  for  qualified  personnel
knowledgeable  of our industry,  we cannot assure you that we will be successful
in retaining and recruiting needed personnel.

Our  employees  are not  represented  by a labor  union and are not covered by a
collective bargaining agreement. We believe that we have good relations with our
employees.

Risk  Factors

We are subject to various risks that may materially harm our business, financial
condition and results of operations. You should carefully consider the risks and
uncertainties  described below and the other information  described below before
deciding to purchase our common  stock.  If any of these risks or  uncertainties
actually occurs, our business, financial condition or operating results could be
materially  harmed.  In that case,  the trading  price of our common stock could
decline and you could lose all or part of your investment.

We  have  had  no  profits  and  insignificant  revenues  since  inception


We are a  development  stage  company and have had no profits and  insignificant
revenues since  commencement  of operations in March,  2000. For the years ended
December 31, 2004 and 2003, the Company experienced a net loss of $6,093,038 and
$3,925,394, respectively. Our accumulated deficit was $11,568,127 as of December
31, 2004.  Future losses are likely to occur,  as we depend on spending money to
pay for our  operations.  We cannot  assure  you that we will be  successful  in
reaching or maintaining profitable operations. Accordingly, we may experience



                                       15


<PAGE>




liquidity and cash flow problems. If our losses continue, our ability to operate
may  be  severely  impacted.

We  may  need  to raise additional capital or debt funding to sustain operations

Unless we can  become  profitable  with the  existing  sources  of funds we have
available,  we will require  additional capital to sustain operations and we may
need access to  additional  capital or  additional  debt  financing  to grow our
sales.  In addition,  to the extent that we have a working  capital  deficit and
cannot offset the deficit from profitable sales, we may have to raise capital to
repay the deficit and provide more working capital to permit growth in revenues.
We cannot  assure  that  financing,  whether  from  external  sources or related
parties,  will be available,  if needed,  or on favorable terms. An inability to
obtain  adequate  financing  would  result  in the  need to  reduce  the pace of
business  operations.  Any of these  events could be  materially  harmful to our
business and may result in a lower stock price.

We  may  not  be  able  to  continue  as  a  going  concern

Our  consolidated  financial  statements  have been  prepared on a going concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities  in the normal  course of  business.  We have a history of operating
losses that are likely to continue in the future.  Our auditors have included an
explanatory  paragraph in their  Independent  Auditor's  Report  included in our
audited  financial  statements  for the year ended December 31, 2004 and 2003 to
the effect that our  significant  losses from  operations  and our dependence on
equity and debt financing raise  substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any adjustments that
might be necessary should we be unable to continue as a going concern.

We are subject to a working capital deficit, which means that our current assets
on December 31, 2004 were not sufficient to satisfy our current liabilities and,
therefore, our ability to continue operations is at risk

As of  December  31,  2004,  the  date  of our  most  recent  audited  financial
statements, we had a working capital deficit of $1,422,342, which means that our
current  liabilities  as of that date exceeded our current assets by $1,422,342.
Current  assets are assets that are  expected to be converted to cash within one
year and, therefore,  may be used to pay current liabilities as they become due.
We had insufficient working capital meaning our current assets were insufficient
to satisfy all of our current  liabilities  on December  31,  2004.  Our ongoing
operations must begin to provide sufficient profitability to improve our working
capital  position.  If we are unable to become  profitable  we may have to raise
additional capital or debt to fund the operations or curtail future plans.

Our obligations under the secured  convertible  debentures are secured by all of
our assets

Our obligations under the Secured  Debentures which we issued to Cornell Capital
Partners are secured by all of our assets.  As a result, if we default under the
terms of the secured  debentures,  Cornell Capital  Partners could foreclose its
security interest and liquidate all of our assets.  This would cause us to cease
operations.


                                       16


<PAGE>




We  could fail to attract or retain key personnel, which could be detrimental to
our  operations

Our  success  largely  depends  on the  effort and  abilities  of key  executive
officers.  The loss of the services of any of our key executive  officers  could
materially  harm our business  because of the cost and time necessary to replace
and train a replacement. Such a loss would also divert management attention away
from  operational  issues.  We have taken out a Group Accident Policy on our key
executives  effective January 1, 2005, but we do not presently  maintain key-man
life insurance policies on any of our key executive officers. We also have other
key employees who manage our operations,  and if we were to lose their services,
senior  management  would be required to expend time and energy to replace these
employees  and train  replacements.  To the extent that we are smaller  than our
competitors and have fewer resources, we may not be able to attract a sufficient
number and quality of staff.

Severance  payments  are  due to top  executive  officers  if  any of  them  are
terminated without cause

Our Chief  Executive  Officer has a severance  payment  clause in his employment
agreement  for  $450,000.  The  severance  payment would be due if the executive
officer was terminated  without  cause.  The Chief  Executive  Officer and other
Corporate  Officers reside in British  Columbia and are protected by the British
Columbia  Employment  Standards Act, which provides for one week of pay for each
year of service upon  termination.  The officers'  employment  agreements do not
have termination dates.  Payment of the severance payments would have a negative
effect on our  ability  to operate  and may make it  difficult  to remove  these
executive officers without cause.

Our  new  products,  services  and  technologies  may  never  be  profitable

We have made significant investments in research,  development and marketing for
new products,  services and  technologies.  Revenue from new product and service
investments  may not be  achieved  for a number of years,  if at all.  Moreover,
these products and services may never be profitable.

If we fail to adequately protect our intellectual  property rights,  competitors
may use our  technology  and  trademarks,  which  would  weaken our  competitive
position and may result in the failure of our business.

Our success depends upon our proprietary technology. We rely on a combination of
patent pending,  copyright,  trademark and trade secret rights,  confidentiality
procedures and licensing  arrangements  to establish and protect our proprietary
rights.  To date,  we have  filed two U.S.  patent  applications  and one Patent
Cooperation  Treaty  application with the U.S. Patent and Trademark Office,  and
the trademark  applications  described above in the Trademarks subsection of the
Proprietary  Technologies  section.  As of  this  date  none  of  the  trademark
applications have been granted or rejected.  It is possible that other companies
could  successfully  challenge the validity or scope of our patents and that our
patents may not be granted or provide a competitive  advantage to us. As part of
our   confidentiality   procedures,   we  generally  enter  into  non-disclosure
agreements  with our  employees,  distributors  and corporate  partners and into
license agreements with respect to our software, documentation and other


                                       17


<PAGE>




proprietary information.  Despite these precautions, third parties could copy or
develop  similar  technology  independently.  The protection of our  proprietary
rights may not be  adequate  and our  competitors  could  independently  develop
similar technology,  duplicate our products,  or design around patents and other
intellectual property rights that we hold.

We need to establish and maintain strategic and licensing relationships.

Our  success  will  depend in part upon our ability to  establish  and  maintain
licensing relationships with companies in related business fields, including but
not limited to communications  companies,  owners of digital media content,  DVD
authoring   facilities   and   replicators,    consumer   electronics   hardware
manufacturers,  and CD-ROM mastering facilities and replicators. We believe that
these  relationships are needed to allow us access to  manufacturing,  sales and
distribution  resources.  However,  the  amount and  timing of  resources  to be
devoted to these  activities by such other companies are not within our control.
We cannot assure you that we will be able to maintain our existing relationships
or enter into beneficial  relationships  in the future,  that other parties will
perform  their  obligations  as expected or that our reliance on others will not
result in unforeseen problems. We cannot assure you that our potential licensees
will not develop or pursue  alternative  technologies  either on their own or in
collaboration with others, including with our competitors. The failure of any of
our current or future collaboration efforts would have a material adverse effect
on our ability to introduce new products or  applications  and  therefore  would
have a material adverse effect on our business,  financial condition and results
of operations.

We face intense competition from better funded companies.

We face  intense  competition  from  better  funded  companies  in the fields of
Internet software  services,  digital security and asset  management,  and media
distribution.  We expect  that  competition  will  continue  to  intensify.  Our
competitors  may develop  products or services that are superior to ours or have
greater market  acceptance  than we hope to obtain.  If we are unable to compete
successfully  against our competitors our business and financial  condition will
be adversely affected.

A breach of  customer  confidential  information  could  expose us to  excessive
liability

Any breach of security  relating to confidential  information of customers could
result in legal  liability  for us and a reduction  in customer use or the total
cancellation of their  participation.  We anticipate that we will receive highly
confidential  information  from customers that will be stored in our internal or
third-party  computer  systems.  We anticipates  that we will possess  sensitive
customer information or data for storage as part of our services, which could be
valuable  to  competitors  or other  similar  companies  if  misappropriated  or
accessed. We will enter into comprehensive customer services and confidentiality
agreements with all expected customers. Our security procedures and protocols to
protect the customer  against the risk of inadvertent  disclosure or intentional
breach  of  security  might  fail,  thereby  exposing  customers  to the risk of
disclosure of their confidential information.


Our  products  and  services are subject to  government  regulations  which,  if
changed, could adversely affect the availability of our products

The laws and regulations that govern our business with respect to e-commerce and
online content and data distribution are rapidly changing.  The U.S.  government
and the  governments  of other states and foreign  countries  have  attempted to
regulate activities on the Internet.  Evolving areas of law that are relevant to
our business include privacy laws,  proposed encryption laws, content regulation
and  potential  sales and tax laws.  Due to this rapidly  evolving and uncertain
regulatory environment, we cannot predict how such proposed or contemplated laws
and regulations might affect our business. In addition, these uncertainties will
make it difficult to ensure  compliance with the laws and regulations  governing
the  Internet.  These  laws and  regulations  could harm our  overall  growth by
subjecting us to liability or forcing us to change our method of conducting  and
distributing our primary online services and product technologies.

                                       18


<PAGE>

ITEM  2.     Description  of  Property

Our main office is located in Seattle,  Washington. Our research and development
activities and some administrative  functions are located in Vancouver,  British
Columbia,  Canada. We do not own any real property. The following table presents
certain information about our leased properties:


<TABLE>
<CAPTION>


Location                             Square Feet         Use         Monthly Rent     Lease Expiration Date
---------------------------------  ----------------  ------------  -----------------  ----------------------
<S>                                <C>               <C>           <C>                <C>

601 Union Street                                                                      January 12, 2005
Suite 4200                                           Administrative                  (was not
Seattle, Washington 98101                       200  offices       $           3,547  renewed)
---------------------------------  ----------------  ------------  -----------------  ----------------------

600 University Street, Suite 1525                    Administrative
Seattle, Washington 98101                     4,070  offices       $           8,230  December 31, 2007
---------------------------------  ----------------  ------------  -----------------  ----------------------

1311 Howe Street                                     Research and
Suite 700                                            development and
Vancouver, B.C.                                      administrative
Canada                                        3,525  offices       $8,783 (Canadian)  November 30, 2006
---------------------------------  ----------------  ------------  -----------------  ----------------------

1311 Howe Street                                     Research and
Suite 603                                            development and
Vancouver, B.C.                                      administrative
Canada                                        1,380  offices       $3,094 (Canadian)  November 30, 2006
---------------------------------  ----------------  ------------  -----------------  ----------------------

1311 Howe Street                                     Research and
Suite 500                                            development and
Vancouver, B.C.                                      administrative
Canada                                          900  offices       $2,018 (Canadian)  November 30, 2006
---------------------------------  ----------------  ------------  -----------------  ----------------------

HQ Global Workplaces
7701 France Avenue South                                                               May 31, 2005
Suite 200                                            Administrative                   (will not be
Edina, Minnesota                                100  offices       $             150  renewed)
---------------------------------  ----------------  ------------  -----------------  ----------------------
</TABLE>


We  believe that we can obtain additional facilities required to accommodate our
projected  needs  without  difficulty  and  at  commercially  reasonable prices,
although  we  cannot  assure  you  that  we  will  be  able  to  do  so.
Insurance

We have  obtained  directors'  and officers'  liability  insurance and intend to
obtain property and general liability  insurance,  intellectual  property rights
insurance and other insurance coverage in amounts deemed adequate and affordable
by  management  in the future.  We cannot assure you that any future claims will
not exceed applicable insurance coverage. Furthermore, we cannot assure you that
liability  insurance  will be available at a reasonable  cost or that we will be
able to maintain adequate levels of liability insurance in the future.

ITEM  3.     Legal  Proceedings

We aware of neither  any  pending  or  threatened  legal  proceedings  that,  if
adversely  determined,  would  have a material  adverse  effect on us nor of any
proceeding that a government agency is contemplating  initiating  against us. We
anticipate that we might be involved in certain  Bankruptcy Court proceedings in
connection  with the $200,000  term loan that we advanced to LDBS.  That loan is
secured  by a Security  Agreement  charging  substantially  all of the assets of
LDBS. On February 22, 2005,  LDBS filed for  protection  under Chapter 11 of the
Bankruptcy Code. LDBS's bankruptcy proceeding is ongoing.

                                       19


<PAGE>

ITEM  4.     Submission  of  Matters  to  a  Vote  of  Security  Holders

No matter was submitted to a vote of security  holders during the fourth quarter
of the fiscal year covered by this report.




                                     PART II

ITEM  5.     Market  for  Common  Equity  and  Related  Stockholder  Matters
Market  Information

Our common  stock began  trading on the NASD  Over-the  Counter  Bulletin  Board
("OTCBB") on June 7, 2002 under the symbol "DLVN".  Prior to June 7, 2002, there
was no public trading  market on which our common stock was traded.  On December
22, 2003, our symbol  changed to "NSEO" in connection  with our name change from
Delivery Now Corp. to NS8  Corporation.  The following table sets forth, for the
fiscal quarters  indicated,  the high and low bid prices per share of our common
stock as reported on the OTCBB.  The  quotations  reflect  inter dealer  prices,
without retail mark-up,  mark-down or commissions  and may not represent  actual
transactions.




Year Ending December 31, 2003  High Bid   Low Bid

First quarter . . . . . . . .  $     .05  $    .05
Second quarter. . . . . . . .  $     .10  $    .05
Third quarter . . . . . . . .  $     .10  $    .10
Fourth quarter. . . . . . . .  $    1.70  $    .10

Year Ending December 31, 2004  High Bid   Low Bid
First quarter                  $    1.70  $   1.04
Second quarter                 $    1.38  $    .97
Third quarter                  $    1.10  $    .83
Fourth quarter                 $    1.14  $    .46


Our common stock had a 10 for 1 forward stock split on October 24, 2003.

On March 16, 2005, the closing bid price for our common stock was $0.16. Holders
There are  approximately  one hundred 131 record  holders of common equity as of
December 31, 2004.

Equity  Compensation  Plans
On June 29, 2001, we adopted the 2001 Stock Option Plan. On February 4, 2004, we
adopted the 2004 NS8 Corporation  Employee Stock Option Plan. We do not have any
other equity compensation plans as of the date of this report.

Dividends

As of the date of this  report,  no cash  dividends  have been  declared  on our
common stock. We presently intend to retain future earnings,  if any, for use in
our business and have no present  intention to pay cash  dividends on our common
stock.  In  addition,  the  debentures  we issued to  Cornell  Capital  Partners
prohibit the payment of dividends on our common stock  without the prior written
consent of the secured party to those debentures.



Unregistered  Issuances  of  Equity  Securities

Please  see  "Item  6. -  Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations  - Liquidity  and Capital  Resources"  for
information  regarding our issuances of equity securities during 2004 which were
not  registered  under  the  Securities  Act of  1933,  as  amended.  Securities
Authorized for Issuance under Equity Compensation Plans

We adopted our 2001 Stock  Option Plan on June 29,  2001  authorizing  5,000,000
shares under the plan. We have not issued any options or rights under this plan.

We adopted our 2004 Stock Option Plan in February 2004,  authorizing  30,000,000
shares under the plan.  During  2004,  we issued  8,289,412  options to purchase
common shares under the plan to certain of our employees and  consultants.  None
of these  options have been  exercised and  1,036,500  have been  cancelled as a
result of employment terminations.  The balance of the options outstanding as of
December 31, 2004 is 23,176,114.
                                       20


<PAGE>

     The following  table sets forth the  securities  that have been  authorized
under equity compensation plans as of December 31, 2004.



<TABLE>
<CAPTION>

                                                                                   NUMBER OF
                                                                                   SECURITIES
                                                                                   REMAINING
                                                                                 AVAILABLE FOR
                                              NUMBER OF                         FUTURE ISSUANCE
                                            SECURITIES TO                         UNDER EQUITY
                                           BE ISSUED UPON    WEIGHTED-AVERAGE     COMPENSATION
                                             EXERCISE OF      EXERCISE PRICE         PLANS
                                             OUTSTANDING      OF OUTSTANDING       (EXCLUDING
                                              OPTIONS,           OPTIONS,          SECURITIES
                                            WARRANTS AND       WARRANTS AND       REFLECTED IN
                                               RIGHTS             RIGHTS          COLUMN (A))
                                                 (A)               (B)                (C)
<S>                                          <C>              <C>                 <C>
Equity compensation plans approved by
security holders(1) . . . . . . . . .         23,176,114          $0.377           11,823,886

Equity compensation plans not approved by
security holders. . . . . . . . . . . . .       NONE            $     -                 0

TOTAL . . . . . . . . . . . . . . . . . .     23,176,114          $0.377           11,823,886
                                           ===============  ===============    ================
</TABLE>

(1) Includes the Company's 2001 Stock Option Plan.




ITEM  6.     Management's  Discussion  and  Analysis  of Financial Condition and
Results  of  Operations

The following  discussion and analysis  should be read in  conjunction  with the
Consolidated  Financial  Statements and related notes included elsewhere in this
Report.


Restatement

We have restated our previously reported  consolidated  financial statements for
the fiscal year ended  December 31, 2004 to properly  account for the conversion
feature of certain  warrants  and  convertible  debentures  in  accordance  with
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging  Activities",  (SFAS 133). The  restatement  adjustments
resulted in a cumulative net increase of liabilities and  shareholders'  deficit
by $3.5  million as of December 31, 2004 and a decrease in  previously  reported
net loss by $3.7 million for the year ended December 31, 2004 (see Note 13).


Plan  of  Operations

The year ended  December 31, 2004 (the "2004  Period")  represented  a period of
growth and maturity in our corporate  environment  and  technology  development.
During the 2004 Period,  we focused on  completing,  refining and  preparing our
technologies  toward a salable product line. And reached the development targets
that we  established  during  our  planning  stage,  bringing  us  closer to the
commercialization  of our products.  We also prepared our corporate  environment
for  customer  fulfillment,  deployment  and support as we neared the end of our
fiscal year and understood that within our corporate objectives, 2005 would mark
our year of product commercialization.


                                       21


<PAGE>

As part of this  commercialization  process,  we have  put our  Company  under a
management  refinement  microscope to identify where our strengths are and where
to enhance our weaknesses in order to assure a good  preparation  and successful
deployment  for our  commercialization  strategies in 2005. We took our business
processes  and  established  new  development  and  sales  fulfillment  systems,
customer deployment procedures and processes,  and solidified our human resource
requirements  to  ensure  that we have the right  personnel  to  compliment  and
support our go-to-market objectives.

Our plan of  operations  and  commercialization  strategy  targets the owners of
entertainment  and/or advertising  content as well as the retail distributors of
content  and  multiple  service  operators  ("MSOs")  that  sell  direct  to the
consumer.  During  the 2004  period,  we  spent a  considerable  amount  of time
visiting trade events specific to our industry, meeting with key content owners,
service providers and potential  hardware and merchandise  alliances in order to
start  building  awareness of our Company and our  capabilities  in our industry
sector.  In  addition,  we  completed  a  series  of  commercial  alliances  and
relationships in the hardware, storage facilitation,  broadband and distribution
system  providers  that  service  the  telecommunications,  IPTV  and  on-demand
industries.  During 2004, we worked with companies such as Amino  Communications
LLC in the digital set-top-box arena where we successfully integrated and tested
our SPI  security  and LDMS  distribution  environment  to deliver  high quality
content  to  televisions  via the  internet.  We  worked  with  server  hardware
companies such as Midstream  Technologies Inc. and Dell Computer  Corporation to
integrate our software technologies into a deliverable and tangible product line
for our target market.  We entered into a lab agreement with EchoStar  Broadband
L.L.C.  (affiliated  with  EchoStar  Satellite  L.L.C.)  and  currently  conduct
technology  integration  development to certain IP driven devices for testing in
2005.  We were  successful in acquiring  non-public  use content from Disney and
Warner  Brothers  in  order  to test  our  content  distribution,  security  and
management  systems  in our  laboratories  and share  those  results  with those
content providers.  Certain of these  co-developments  and alliances have proven
positive test results for our technologies  that have enabled us to successfully
complete  our first  product  line  called  iWave  Interactive  Systems  in late
December of 2004.

We  plan  to  continue  our  research  and  development  activities  to  further
facilitate the necessary  refinements and enhancements to our iWave product line
to deliver a  successful  and  supportable  product  line that can be  delivered
turn-key or in separate  components  for various  commercial  applications  that
might not require an entire iWave  Interactive  system.  We anticipate that this
product  flexibility will enable us to shorten our sales cycle, expand our value
offering in certain niche or existing customer deployments and provide us with a
greater  opportunity  to effect an immediate sale of our product line during our
2005 commercialization year.

During the next twelve months,  we expect to purchase  additional  equipment for
laboratory  integration,  testing and  customer  support.  Since we do not carry
hardware  inventory  for  our  product  line,  we  expect  to set up a  showroom
environment  at our  facilities  in Seattle,  Washington  so that we can further
demonstrate  our  services  and true value  offering  to this  emerging  digital
content  distribution  and  on-demand  industry.  In  addition  to our sales and
marketing  efforts in 2005, we plan to pursue further  relationships  with other
technology  providers,  content owners and service  providers in order to expand
our sales capabilities and resale opportunities. We plan to continue to solidify
our 2004  relationships  and  alliances  to further our product  validation  and
enhance our distribution opportunities in our target market space.

We  anticipate  changes in the number of our  employees  during the next  twelve
months in order to support the  anticipated  growth and expected  changes in our
operations.

Results  of  Operations

Research and  development  expenses  for the 2004 Period,  decreased by 21.9% to
$1,079,824  from  $1,382,000  during the year ended December 31, 2003 (the "2003
Period").  During  the 2003  Period,  we issued  stock  grants to  research  and
development  employees  which  resulted in significant  compensation  charges of
$687,417.  Conversely,  during  the 2004  Period,  we issued  stock  options  to
research  and  development  employees  which  resulted  in minimal  compensation
charges for the stock options. During the 2004 Period, we employed approximately
19 employees for research and development activities compared to 16 employees in
the 2003 Period.  Wages and benefits  for  research  and  development  personnel
during the 2004  Period  were  $925,014  compared  to  $611,626  during the 2003
Period.  The total research and  development  expense  incurred  during the 2004
fiscal year represents  approximately  11.5% of our total operating expenses for
the 2004 Period.  The majority of these funds were utilized for the compensation
of our research and development personnel, and $143,543 of this amount was spent
on equipment  relating to research and development  activities.  During the 2003
Period,  $82,957 was spent on  equipment  relating to research  and  development
activities.

                                       22


<PAGE>

General and  administrative  expenses for the 2004 Period increased by 330.5% to
$8,323,294 from $2,518,058  during the 2003 Period.  The increase  resulted from
hiring additional staff in each of the following areas: Executives,  Operations,
Sales and  Marketing.  During the 2004  Period,  we  employed  approximately  16
employees for general and administrative activities, compared to 14 employees in
the 2003 Period.  Some of the  additional  staff members are  executives who are
compensated at a much higher level in comparison to the average  employee.  With
this growth,  our office space  expanded  from  approximately  4,425 square feet
during the 2003 Period to 6,405  square feet in 2004 Period.  General  operating
expenses for our Operations also increased as a result of the expansion.  During
the 2004 Period, we hired a public relations firm, marketing company and various
consultants to develop marketing strategies,  along with operations and business
strategies.  As a result,  the  advertising,  promotion and consulting  expenses
increased  from  $182,152 in the 2003 Period to $618,172 in the 2004 Period.  In
addition,  certain  consultants were granted options or warrants as specified in
their  consulting  agreements.  The  compensation  charge  recognized  for these
options and  warrants  during the 2004 Period  amounted  to  $3,541,400.  Travel
expenses for the 2004 Period were $277,144,  up $125,265 from 2003 Period.  This
increase  in travel  resulted  from  meetings  regarding  bridge  financing,  in
addition to marketing  meetings and attendance at technology  conferences.  Fees
for  professional  services in the 2004 Period  were  $1,427,889,  approximately
$1,268,948  higher than for the 2003  Period.  This  increase  results from fees
associated with our financing  arrangements,  legal fees attributed to corporate
financing and securities filings, U.S. patent applications, trademarks, employee
stock option agreements and other employment  matters.  Accounting  expenses for
audit fees and public reporting  obligations also contributed to the increase in
professional service expenses.

We  generated  sales of $0 and $27,594  during the 2004 Period and 2003  Period,
respectively.  The sales  generated in the 2003 Period are  classified  as other
income and are not related to our research and development activities.

Interest  expense  for the 2004  Period  increased  by 678.9% to  $359,069  from
$52,930  for  the  2003  Period.  We  obtained  additional  funding  to  finance
operations through the issuance of promissory notes with detachable warrants and
convertible debentures which resulted in the increase in interest expense.


During the year ended December 31, 2004, we recognized an aggregate other income
of $3,688,882,  related to the debt features and warrants, to reflect the change
in fair value of the  derivative  liability.  During the year ended December 31,
2003,  there was no income or expense items related to convertible debt as there
was none outstanding.

As a result of the foregoing, we incurred a net loss of $6,093,038, or $0.07 per
share, during the 2004 Period, as compared to a net loss of $3,925,394, or $0.07
per share,  during  the 2003  Period.  We  incurred  a loss from  operations  of
$9,403,118  during the 2004  Period,  as compared to a loss from  operations  of
$3,900,058 during the 2003 Period.


Liquidity  and  Capital  Resources

We have financed our research and  development  activities to date with proceeds
from the  sale of our  common  stock,  proceeds  from  the  sale of  convertible
debentures  and loans from our officers and  shareholders.  The following  table
sets forth the amount of funds we  received  from these  sources for the periods
indicated:

<TABLE>
<CAPTION>


                                   Year ended December 31, 2004   Year ended December 31, 2003
                                   -----------------------------  -----------------------------
<S>                                <C>                            <C>
Sale of common stock               $                     400,000  $                   2,445,000
---------------------------------  -----------------------------  -----------------------------
Sale of convertible debentures     $                   1,500,000  $                     600,000
---------------------------------  -----------------------------  -----------------------------
Loans from officers/ shareholders  $                   4,145,000  $                     400,000
---------------------------------  -----------------------------  -----------------------------
Short term loans                   $                     100,000  $                     225,000
---------------------------------  -----------------------------  -----------------------------
</TABLE>

                                       23


<PAGE>


We have  suffered  recurring  losses  from  operations  and have an  accumulated
deficit of  $11,568,127  at  December  31,  2004.  Primarily  as a result of our
recurring  losses and our lack of liquidity,  we have received a report from our
independent  auditors  that includes an  explanatory  paragraph  describing  the
uncertainty as to our ability to continue as a going concern.


Financing  Activities

Our  financing  activities  in the 2004 Period  consisted of loans,  the sale of
secured  convertible  debentures and entering into a Standby Equity Distribution
Agreement.

During 2004, we received loans for various parties, including:

- During  March 2004,  a loan  received  from Turbo  International,  Inc. in the
amount of $250,000.  The loan was due on March 11, 2005 and bore interest at the
rate of 10% per annum.  The due date on the loan has been  extended to September
11, 2005, and the rate of interest is 10% for the  additional  six months.  Upon
repayment  of the loan to Turbo,  we will issue to Turbo  warrants  to  purchase
100,000 shares of our common stock.

- During  April 2004, a loan  received  from 4Com  Corporation  in the amount of
$150,000.  The loan was due on July 25,  2004 and bore  interest  at the rate of
8.5% per annum.  Upon the date of the loan with 4Com, we issued to 4Com warrants
to purchase  75,000  shares of common  stock at an  exercise  price of $0.61 per
share with a term of two years from the date of issuance.  The loan plus accrued
interest was repaid in June 2004, and the warrants remain unexercised.

- During May 2004, a loan received from Turbo International,  Inc. in the amount
of $150,000. The loan is due on due May 12, 2005 and bears interest at a rate of
10% per annum.

- During May 2004, a loan received from Martin Calvert,  a director of ours, for
$95,000.  The loan was  initially  due on May 13, 2005 and bore  interest at the
rate of 8% per annum,  but on June 1, 2004,  the loan plus accrued  interest was
fully  paid to Martin  Calvert.  Pursuant  to the  terms of the  loan,  upon its
repayment, we issued to Mr. Calvert warrants to purchase 47,500 shares of common
stock at an exercise  price equal to the market  price of the shares on the date
the warrants were issued with a term of two years from the date of issuance. The
warrants remain unexercised and have an exercise price of $0.61 per share.

- During August 2004, a loan received from Ming Capital Enterprises, Inc. in the
amount of  $200,000.  The loan is due on demand and bears  interest at a rate of
10% per annum.

- In August 2004, a loan  received  from Martin  Calvert,  then a director,  for
$100,000.  The loan is due on August 12,  2005 and bears  interest  at a rate of
9.5% per annum.  Upon repayment of the loan to Martin Calvert,  we will issue to
Mr.  Calvert  warrants  to  purchase  50,000  shares of our  common  stock at an
exercise  price equal to market price on the date the warrants are issued with a
term of two years from the date of issuance.  A portion of the loan plus accrued
interest was repaid in September  2004.  The balance  remaining on the loan plus
accrued  interest was repaid in December  2004. The warrants were issued with an
exercise price of $0.61 per share and remain unexercised.

- In September 2004, a loan received from Ming Capital Enterprises,  Inc. in the
amount of $175,000. The loan is due on September 7, 2005 and bears interest at a
rate of 10% per annum.

- During September 2004, received a loan received from Turbo International, Inc.
in the  amount of  $175,000.  The loan is due on  September  24,  2005 and bears
interest at a rate of 10% per annum.

- In September 2004, a loan received from Aton Select Fund Limited in the amount
of  $100,000.  The loan is due on September  27, 2005 and bears  interest at the
rate of 10% per annum.

- On October 14, 2004, a loan  received  from Turbo  International,  Inc. in the
amount of  $175,000.  The loan is due on October 14, 2005 and bears  interest at
the rate of 10% per annum.

                                       24


<PAGE>

- On October 28, 2004, a loan  received  from Turbo  International,  Inc. in the
amount of  $175,000.  The loan is due on October 28, 2005 and bears  interest at
the rate of 10% per annum.

- On December 10, 2004, a loan  received  from Cornell  Capital in the amount of
$2,500,000.  The loan bears  interest at the rate of 12% per annum and is due on
July 1, 2005.

In May 2004, we entered into a $1.5 million  Securities  Purchase Agreement with
Cornell Capital Partners for the sale of secured convertible debentures.  On May
19, 2004,  Cornell Capital Partners  purchased  $750,000 principal amount of the
Secured  Convertible  Debenture.  On June 25,  2004,  Cornell  Capital  Partners
purchased the additional  $750,000  principal amount of the Secured  Convertible
Debenture  after we filed on June 22,  2004 a Form SB-2  registration  statement
relating to the shares of common  stock  resulting  from the  conversion  of the
Secured Convertible Debenture.


On May 19,  2004,  we  entered  into a  Standby  Equity  Distribution  Agreement
("SEDA") with Cornell Capital Partners. Under the SEDA, we may issue and sell to
Cornell  Capital  Partners  common  stock  for a total  purchase  price of up to
$20,000,000.  The purchase  price for the shares is equal to their market price,
which is defined in the SEDA as the lowest volume weighted  average price of the
common stock during the five trading days following the date we give notice that
we desire an  advance.  The amount of each  advance  is subject to an  aggregate
maximum  advance  amount of  $750,000,  with no advance  occurring  within seven
trading days of a prior advance.  Cornell Capital  Partners  received a one-time
commitment fee of 925,234 shares of our common stock valued at $990,000. Cornell
Capital Partners is paid a fee equal to 5% of each advance, which is retained by
Cornell  Capital  Partners from each  advance.  The shares of common stock to be
issued to  Cornell  under the SEDA may be resold by Cornell  under an  effective
registration  statement filed by us with the Securities and Exchange Commission.
Cornell  Capital  Partners  will apply the proceeds  from the sale of the shares
issued under the SEDA to the repayment of the loan. In November  2004, we issued
5,597,544  shares of our common stock,  valued at $400,000,  to Cornell  Capital
Partners through the SEDA.

We agreed to escrow twenty-four  requests for advances under the SEDA each in an
amount not less than  $100,000 and one request for an advance  under the SEDA in
an amount not less than $197,808. We issued 5,000,000 shares of our common stock
to David Gonzalez,  Esq.,  Attorney for Cornell Capital Partners,  to be held in
escrow  subject  to the  terms of the  loan.  The  escrowed  shares  are only an
estimation  of the shares of our common stock  necessary to repay the  principal
amount and interest due on the loan.  In the event that  proceeds from the sales
of the  escrowed  shares are  insufficient  to repay all  amounts due to Cornell
Capital Partners,  irrevocable transfer agent instructions have been provided to
our transfer agent, Continental Stock Trust & Transfer, reserving the balance of
the SEDA shares and authorizing the issuance to David Gonzalez, Esq., to be held
in escrow subject to the terms of the loan,  such number of shares of our common
stock so that the  proceeds of the sale of such shares  shall be  sufficient  to
repay all amounts due on the loan. On February 24, 2005, the joint  disbursement
instructions on the promissory note were revised.  Beginning March 14, 2005, the
advance notices and stock  disbursements  schedule was amended,  and the advance
amounts were amended to $50,000 per  advance.  On March 1, 2005,  the balance of
the shares available under the Standby Equity  Distribution  agreement dated May
19, 2004 were issued to David  Gonzalez,  Esq., to be held in escrow  subject to
the terms of the loan. The number of common shares issued was 13,094,045.

Our current cash on hand is projected  to sustain  operations  until April 2005.
Additional  funding is expected to be obtained  through the SEDA or new vehicles
currently being pursued,  however,  we cannot assure you that required financing
will be obtained. Our ability to meet operating and capital requirements depends
upon financing from external sources,  and the ability to generate revenues from
the core  technologies  we have  developed.  We cannot  assure  you that we will
obtain sufficient financing or develop profitable  operations prior to utilizing
all of the current resources available to us. In addition,  if we do not receive
the funds in a timely manner, we may be forced to curtail our operations.

On May 19, 2004, NS8Corp entered into a Placement Agent Agreement with Newbridge
Securities Corporation, a registered broker-dealer, in connection with the SEDA.
Pursuant to the Placement Agent  Agreement,  we paid a one-time  placement agent
fee of 9,346 restricted  shares of common stock equal to  approximately  $10,000
based on our stock price on May 19, 2004.


                                       25


<PAGE>




With respect to the sale of these securities,  all transactions were exempt from
registration  pursuant  to  Section  4(2) of the  Securities  Act of  1933,  and
Regulation D  promulgated  under the Act. In each  instance,  the  purchaser had
access  to  sufficient  information  regarding  us  so as to  make  an  informed
investment  decision.  More  specifically,  we had a reasonable basis to believe
that each purchaser was an  "accredited  investor" as defined in Regulation D of
the Act and otherwise had the requisite  sophistication to make an investment in
the our securities.


The following  table sets forth certain  information  concerning our contractual
obligations and other commercial commitments as of December 31, 2004:

                                              Payments due by Period
                                              ----------------------
                                            Less than    1-3     4-5    After 5
Contractual Obligations:            Total    1 year     years   years   years
---------------------------------  -------  ---------  -------  ------  -------
Short-Term Loans                    325,000   325,000       -       -        -
---------------------------------  -------  ---------  -------  ------  -------
Loans from shareholders, net      3,790,106 3,790,106       -       -        -
---------------------------------  -------  ---------  -------  ------  -------
Convertible Debenture, net        1,160,716           1,160,716      -        -
---------------------------------  -------  ---------  -------  ------  -------
Capital Lease Obligations            15,880    10,010    5,870       -        -
---------------------------------  -------  ---------  -------  ------  -------
Operating Leases                    555,829   226,858   328,971      -        -
---------------------------------  -------  ---------  -------  ------  -------
Unconditional Purchase
Obligations                              -          -        -       -        -
---------------------------------  -------  ---------  -------  ------  -------
Other Long-Term Obligations              -          -        -       -        -
---------------------------------  -------  ---------  -------  ------  -------
Total Contractual Cash
Obligations                       5,847,531 4,351,974 1,495,557      -        -
---------------------------------  -------  ---------  -------  ------  -------

                                Amount of Commitment Expiration Per Period
                                ------------------------------------------
                                  Total
                                 Amounts   Less than  1-3    4-5    Over 5
Other Commercial Commitments    Committed   1 year    years  years   years
------------------------------  ---------  ---------  -----  -----  ------
Lines of Credit                         -          -      -      -       -
------------------------------  ---------  ---------  -----  -----  ------
Standby Letters of Credit               -          -      -      -       -
------------------------------  ---------  ---------  -----  -----  ------
Guarantees                              -          -      -      -       -
------------------------------  ---------  ---------  -----  -----  ------
Standby Repurchase Obligations          -          -      -      -       -
------------------------------  ---------  ---------  -----  -----  ------
Other Commercial Commitments            -          -      -      -       -
------------------------------  ---------  ---------  -----  -----  ------
Total Commercial Commitments            -          -      -      -       -
------------------------------  ---------  ---------  -----  -----  ------


                                       26


<PAGE>




ITEM  7.     Financial  Statements

     The financial  statements  and  supplementary  data are included  beginning
immediately following the signature page to this report.

ITEM  8.     Changes  in  and  Disagreements  with Accountants on Accounting and
Financial  Disclosure

The  disclosure  called for by this Item has been  previously  disclosed  in our
Current Report on Form 10-KSB dated January 13, 2004.


ITEM 8A. Controls and Procedures.

The Company is required to maintain  disclosure controls and procedures that are
designed to ensure that  information  required  to be  disclosed  in its reports
under the Securities Exchange Act of 1934, as amended,  is recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
forms,  and that such information is accumulated and communicated to management,
including the Company's  Chief  Executive  Officer  ("CEO") and Chief  Financial
Officer ("CFO") as appropriate,  to allow timely  decisions  regarding  required
disclosure.

As defined in the Securities  Exchange Act of 1934, as amended,  Rules 13a-15(e)
and 15d-15(e),  management,  under the supervision of the CEO and CFO, conducted
an evaluation of disclosure controls and procedures and have concluded that they
were not effective as of the end of the period covered by this report.

As described in "Management's Discussion and Analysis of Financial Condition and
Results  of  Operations,"  we have  restated  our  previously  issued  financial
statements  for the year ended  December 31, 2004, to reflect the  correction of
the classification of certain warrants and convertible  debentures as derivative
liabilities.

During the  fourth  quarter  of 2005,  the first  quarter of 2006 and the second
quarter  of 2006,  we  undertook  certain  improvements  to  remediate  material
weaknesses  related to our  internal  control  over  financial  reporting,  that
originally  affected  our  year-end  and  quarterly  filings for periods  ending
December31, 2004 and 2005. The deficiencies and remedies were as follows:

1.   Lack of  adequate  segregation  of duties  and  excessive  workload  of the
     Controller led to inaccuracies in data input and resulting errors.

     During the first quarter of 2006, we replaced part-time  accounting support
     with a  full-time  Accounting  Assistant  to allow  further  delegation  of
     operating  activities,   previously  undertaken  by  Controller.  This  has
     provided  the  Controller  with  sufficient  time to  focus  on  accounting
     controls and financial reporting.

2.   Company personnel previously had insufficient experience in the preparation
     of financial statements.

     During the fourth quarter of 2005, we recruited  personnel with  sufficient
     experience  and skills in  accounting  and financial  reporting.  These new
     employees worked  diligently to implement  improved  internal controls over
     financial reporting starting in of 2006.

3.   The  review  process  of the  financial  statements  and  the  Management's
     Discussion  and Analysis of Financial  Condition  and Results of Operations
     was flawed.

     To enhance internal  controls over financial  reporting,  during the second
     quarter  of 2006,  we  adopted  review  checklists  which  were  created in
     accordance  with SEC  guidelines,  thereby  rectifying  the  flawed  review
     process by alerting the  reviewers of  deficiencies  prior to the filing of
     financial statements.

In  addition,  beginning  in the  fourth  quarter  of 2006,  we  began  actively
utilizing our outside firms to continually  oversee the preparation of financial
statements and other SEC filings.


                                       27


<PAGE>

ITEM  8B.  Other  Information.

Not  applicable.

                                    PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(A) of the Exchange Act

Directors serve until the next annual meeting of the  stockholders,  until their
successors  are  elected  or  appointed  and  qualified  or  until  their  prior
resignation or removal. Officers serve for such terms as determined by our board
of  directors.  Each  officer  holds office  until such  officer's  successor is
elected or appointed and qualified or until such officer's  earlier  resignation
or removal.  No family  relationships exist between any of our present directors
and officers.


Our executive officers,  directors and key employees,  their positions and their
ages at March 8, 2005 are as follows:


Executive  Officers,         Age           Position
Directors  and  Key
Employees

Anthony  Alda                 36       Chairman  of  the  Board  of  Directors,
                                       Chief Executive Officer, President and
                                       Chief Technology  Architect

Leslie  J.  Ames              55       Senior  Vice  President,  Legal
                                       Affairs,  Secretary  and  Director

Brent  R.  Bysouth            32       Chief  Software  Architect  and
                                       Director

Ricardo  Rosado               37       Chief  Financial  Officer,  Vice
                                       President  of  Product  Management
                                       and  Director

Melanie  Thomson              28       Chief  Operating  Officer

Michael  W.  Waage            56       Director


Executive  Officers  and  Directors

Pursuant to the terms of the Merger  Agreement,  effective  on December 18, 2003
the directors and senior  officers of CanOnline  became the directors and senior
officers of NS8Corp.

Mr. Alda is one of the founding  principals  of CanOnline  and NS8  Corporation.
From  1999 to  2002,  Mr.  Alda  acted  as its  head  of  business  and  product
development.  Anthony  currently devotes his full-time as the Chairman and Chief
Executive  Officer of NS8  Corporation  (USA),  Chief  Technology  Architect  of
CanOnline  and CMC,  research  and  development  center  (Canada).  He  recently
accepted the additional position of President of NS8 in November 2004. He is the
principal  business and  technology  architect of the Reelindie  Global  Network
(RGN) (2001 to June 2003);  principal creator of Security  Protocol  Integration
(SPI)  (March  2000   completed  in  September   2003);   co-architect   of  NS8
(Non-Resident  Software) designed in July 2002 completed in June 2003;  Morpheus
Video on Demand EPG systems  November  2002;  Kaozz  Entertainment  Distribution
Network  launched in November of 2003; and  co-architect to the NS8-DDN (Digital
Distribution  Network) Server  Management and IPTV  Distribution  System (2004).
Prior to CanOnline  and NS8  Corporation,  Mr. Alda  managed his own  management
consulting firm from 1994 to 1998 where he provided  services to U.S.  companies
in the  areas of  management  buyouts,  corporate  restructuring,  and  start-up
business management.

Since  its  incorporation,  Mr.  Ames  has  served as Corporate Secretary to NS8
Corporation,  and  its  wholly  owned subsidiaries, CanOnline and CMC.  In March


                                       28


<PAGE>




2000,  he was  appointed  to the Board of  Directors  of  CanOnline,  and to the
position of Senior Vice President,  Legal Affairs and since December 18, 2003 he
has also held those positions in NS8 Corporation.  In June 2002, he accepted his
appointment  as General Legal Counsel to the CanOnline  group of companies.  Mr.
Ames graduated  from the University of British  Columbia with a Bachelor of Arts
Degree  (BA) in May 1971 and  received a Bachelor  of Law Degree  (LLB) from the
University  of  British  Columbia  in May 1978.  Mr.  Ames was a Partner  of the
Vancouver law firm of Liddle, Burns & Ames,  Barristers & Solicitors,  from 1989
until 1995.  In 1995,  he  established  Leslie J. Ames Law  Corporation  and has
served as its President since that date.

Mr.  Bysouth  is a founding  principal  and  Director  of  CanOnline,  and since
December 18, 2003, he has also been a Director of NS8  Corporation.  Mr. Bysouth
continues  to serve as a Director and  President of our wholly owned  subsidiary
CMC where all technology and product  development  is currently  conducted.  Mr.
Bysouth  currently   oversees   sensitive   research  and  development  of  core
integration  applications currently deployed on all our products. Mr. Bysouth is
the  principal  developer,  inventor and  co-architect  of several  intellectual
properties  including  AOCA  (Automated  Object Code  Architecture),  SPi Member
Distribution  Security  process and the integrated (AS) converters (the database
conversion-adaptation  system  underlying NS8). Mr. Bysouth has over 10 years of
information technology,  program-engineering and analytical business experience.
During the past  several  years,  Mr.  Bysouth has  participated  in and managed
programming  contracts for large Canadian  corporations such as the Loewen Group
Inc. (1997-1999),  GE Capital (1996-1998),  and Chevron Canada Ltd. (1994-1995).
His   expertise  is  primarily  in  the  areas  of   object-oriented   analysis,
architecture and  programming,  specification  management,  development and test
administration,  and relational database design and implementation.  Mr. Bysouth
attended the University of British Columbia  (Department of Geography) from 1990
to 1995.

Mr. Rosado has served as our Chief Financial Officer and Chief Operating Officer
from  November,  2003 to November 26, 2004.  On November  26, 2004,  Mr.  Rosado
resigned  as  Chief  Operating  Officer  as  part of our  reorganization  of our
executive  officers and assumed the role of Vice President of Product Management
in addition to his  responsibility as Chief Financial  Officer.  Mr. Rosado is a
founding principal and Director of CanOnline and since December 18, 2003, he has
also been a  Director  of NS8  Corporation.  Mr.  Rosado  joined  CMC as Head of
Product Design in November  2000.  Mr. Rosado has  contributed to various of our
intellectual property claims in the areas of virtual collaborative environments,
graphic rendering and video filtering applications.  In October 2002, Mr. Rosado
accepted the position of Chief  Compliance  Officer of  intellectual  properties
until November 2003, when he was named interim Chief Operating Officer and Chief
Financial  Officer of CanOnline.  In November 2004, Mr. Rosado resigned as Chief
Operating Officer so that he could contribute and dedicate more of his expertise
in product  architecture and development  management.  Mr. Rosado brings us over
twelve  years of  multimedia,  film and  television  production  and  direction;
commercial broadcasting and management expertise. Prior to CanOnline, Mr. Rosado
was  one  of  the  original  founders  of   Videocomunicacion  y  Servicios  SCP
(Videocom's),  a renowned  multimedia  production  company in the  southeast  of
Mexico,  where he also  performed as  Director/Producer  and Head of  Multimedia
Development.   Mr.  Rosado  graduated  in  1991  with  a  Bachelor  of  Arts  in
Communications  Science from University of Mayab in his native Merida,  Yucatan,
Mexico. From 1994 to 1996, Mr. Rosado pursued graduate studies obtaining his


                                       29


<PAGE>




Master's degree in Strategic Marketing from the University of Mayab/Anahuac.  He
is currently a Ph.D.  Candidate in the  part-time  program at the  University of
British Columbia.

Ms.  Thomson has been the Director of  Operations  and Human  Resources  for NS8
Corporation  and its  subsidiaries  CanOnline  and CMC from March 2003 until her
recent appointment in November 2004 as Chief Operating  Officer.  Ms. Thomson is
currently  responsible for operations  management,  human  resources  functions,
inter-departmental communication and coordination, establishment and enforcement
of corporate  policies/procedures,  and  coordination  of all SEC filings.  From
December 2002 to March 2003,  Ms.  Thomson held the position of  Operations  and
Human Resources Manager.  In that position,  Ms. Thomson was responsible for the
organization and management of administrative and human resources  activities of
NS8Corp and its  subsidiaries.  From August 2000 to January  2002,  Ms.  Thomson
worked with Novus Telecom Group,  Inc.  located in British Columbia in the Legal
and Human  Resources  Departments  and was a contributor  to the growth of Novus
from start up to operational  maturity.  Ms. Thomson  completed a Human Resource
Management Certificate at the British Columbia Institute of Technology (BCIT) in
2002 and is  currently  enrolled at Simon  Fraser  University  working  toward a
degree in Integrated Liberal and Business Studies.

Mr.  Waage  joined  CanOnline  in  October  1999 to  contribute  to the areas of
management development, sales and strategic partnerships. On March 15, 2000, Mr.
Waage was  appointed to the Board of  Directors of CanOnline  and served in this
capacity  until January 10, 2005. On December 18, 2003,  Mr. Waage was appointed
as a Director of NS8  Corporation  and  continues  to serve in this role.  Since
1995, Mr. Waage has been the president of his own firm that provides  consulting
services in areas of  mergers,  acquisitions  and  turn-arounds  and  management
consulting  throughout  the United States.  He also served in a senior  business
development  position of Advanced Technology  Development for Honeywell from the
period of 1987 to 1994.  At  Honeywell,  he  continued  to provide  service with
respect to sensitive  technology  development  for the department of defense and
was awarded the Honeywell Top  Performers  Award in 1989.  Prior to his business
profession,  Mr. Waage served in the United States Air Force as a Senior Command
Instructor and Fighter Pilot for the Air National Guard.  Mr. Waage retired from
the Air Force in 1995, as a Lieutenant  Colonel,  and received the Distinguished
Meritorious  Service Award in 1991. He was awarded a Masters  Certificate of Jet
Flight Instruction and has been a member in good standing with the United States
Chamber of Commerce,  Association of Old Crows  (Electronic  Warfare),  American
Institute of Aeronautics and  Astronautics  and U.S. Air Force Reserve  Officers
Association (past  President).  He has also been a member of the Alumni board of
Directors of Evangel  University  where he received a Bachelor of Science degree
in  Mathematics  &  Physics  (1970).  Mr.  Waage  also  holds a  Masters  Degree
(equivalent)   from  the   U.S.   Air   Force   (Management,   Leadership,   and
Aviation-Aeronautics) (1990).

Compliance  with  Section  16(A)  of  the  Exchange  Act

Our common stock is not registered pursuant to Section 12 of the Exchange Act of
1934, as amended (the "Exchange Act"). Accordingly,  our officers, directors and
principal  shareholders  are not subject to the beneficial  ownership  reporting
requirements of Section 16(a) of the Exchange Act.


                                       30


<PAGE>




Code  of  Ethics

A Code of  Ethics  that  applies  to our  executive  officers  as well as to all
employees  has been  approved  and  adopted by our Board of  Directors.  You may
obtain a copy of our code of ethics on our website, www.NS8corp.net. We do not
                                                     ---------------
incorporate  by  reference  any  information  from our website into this report.

ITEM  10.     Executive  Compensation

The following table sets forth certain  information  concerning the compensation
paid  to  Anthony  Alda,  our  current  CEO,  and the  four  other  most  highly
compensated  executive  officers who earned at least $100,000 during the periods
described below:


<TABLE>
<CAPTION>

Summary  Compensation  Table

                                                                                        Long  Term  Compensation
                                                                                       -------------------------
                            Annual  Compensation                                         Awards        Payouts
                     ----------------------------------                                ------------  -----------
<S>                      <C>         <C>         <C>     <C>            <C>            <C>             <C>          <C>
                                                                        Restricted     Securities
                                                         Other Annual      Stock       Underlying       LTIP        All other
Name &                   Year ended  Salary      Bonus    Compensation     Awards       Options/SARs     Payouts  Compensations
Principal Position      December 31,  ($)          ($)         ($)            ($)           (#)            ($)        ($)

Peter . . . . . . .          2004   153,241        -           -               -           300,000         -          -
Hogendoorn, . . . .          2003   191,964        -           -               -         1,000,000         -          -
President & CEO (1),(4)      2002      -           -           -               -               -           -          -


Anthony Alda, . . .          2004    256,562       -           -               -           370,000         -          -
Chairman of . . . .          2003    222,718       -           -               -         7,720,000(3)      -          -
the Board of. . . .          2002    154,958       -           -               -              -            -          -
Directors (1),(4)


Leslie J. Ames, . .          2004    209,186       -           -               -           400,000         -          -
Senior Vice . . . .          2003    200,413       -           -               -          1,250,000        -          -
President Legal . .          2002    102,500       -           -               -              -            -          -
Affairs and Secretary (4)


Brent Bysouth,. . .          2004    182,111       -           -               -           350,000         -          -
Chief Software. . .          2003    179,362       -           -               -          1,150,000(3)     -          -
Architect (2),(4) . .        2002    201,309       -           -               -                           -          -


Ricardo Rosado, . .          2004    173,022       -           -               -            350,000        -          -
Chief Financial . .          2003    168,643       -           -               -           1,050,000       -          -
Officer and Chief .          2002         -        -           -               -               -           -          -
Operations Officer.(4)


Thomas Routt                 2004    166,385              -           -              -    2,000,000             -         -
President and                2003       -                 -           -              -        -                 -         -
Co-Chief Architect           2002       -                 -           -              -        -                 -         -

Marc Strauch                 2004    104,167              -           -              -    1,500,000             -         -
Chief Marketing              2003       -                 -           -              -        -                 -         -
Officer                      2002       -                 -           -              -        -                 -         -

</TABLE>


(1) Mr. Hogendoorn served as the Company's President through January 2004 and as
CEO through June 2004. Mr. Alda was appointed CEO on July 15, 2004.


                                       31


<PAGE>




(2)  Includes  amounts  paid to Mr.  Bysouth's  wholly  owned  company,  Phoenix
Management Consulting Group, Inc. (3) Phoenix Management Consulting Group, Inc.,
a British  Columbia,  Canada  corporation  ("Phoenix") holds options to purchase
1,750,000 shares, of the Company. Brent Bysouth owns 100% of Phoenix. Anthony J.
Alda has an option until  January 1, 2009 to purchase 80% of Phoenix for $1,000.
Assuming this option will be exercised for the purposes of this table,  Mr. Alda
is deemed to hold an option to purchase  1,400,000 of our shares and Mr. Bysouth
is deemed  to hold an  option to  purchase  350,000  of our  shares,  out of the
1,750,000 options held by Phoenix.
(4) Annual salary  figures  include wages accrued but not paid under  management
agreements.

Stock  Option  Plans

     2001  Stock  Option  Plan

We adopted our 2001 stock  option plan on June 29, 2001.  The Plan  provides for
the grant of options intended to qualify as "incentive  stock options",  options
that are not intended to so qualify or  "nonstatutory  stock  options" and stock
appreciation  rights.  The total number of shares of common  stock  reserved for
issuance  under the plan is  5,000,000,  subject to adjustment in the event of a
stock split, stock dividend, recapitalization or similar capital change, plus an
indeterminate  number of shares of common  stock  issuable  upon the exercise of
"reload  options"  described below. We have not yet granted any options or stock
appreciation rights under the plan.

The plan is presently administered by our board of directors,  which selects the
eligible  persons to whom  options  shall be granted,  determines  the number of
common  shares  subject to each option,  the exercise  price  therefore  and the
periods during which options are  exercisable,  interprets the provisions of the
plan and,  subject  to  certain  limitations,  may amend the plan.  Each  option
granted under the plan shall be evidenced by a written  agreement between us and
the optionee.

Options may be granted to our employees  (including  officers) and directors and
certain of our consultants and advisors.

The exercise price for incentive stock options granted under the plan may not be
less than the fair  market  value of the common  stock on the date the option is
granted,  except  for  options  granted to 10%  stockholders  which must have an
exercise  price of not less than  110% of the fair  market  value of the  common
stock on the date the option is granted.  The  exercise  price for  nonstatutory
stock options is determined by the board of directors.  Incentive  stock options
granted  under  the  plan  have a  maximum  term of ten  years,  except  for 10%
stockholders  who are  subject  to a  maximum  term of five  years.  The term of
nonstatutory  stock options is  determined  by the board of  directors.  Options
granted  under  the plan are not  transferable,  except  by will and the laws of
descent and distribution.

The  board of  directors  may grant  options  with a reload  feature.  Optionees
granted a reload  feature shall receive,  contemporaneously  with the payment of
the option  price in common  stock,  a right to  purchase  that number of common
shares  equal to the sum of (i) the  number of shares  of common  stock  used to
exercise the option,  and (ii) with respect to nonstatutory  stock options,  the
number of shares of common stock used to satisfy any tax withholding requirement
incident to the exercise of such nonstatutory stock option.

Also,  the plan allows the board of  directors  to award to an optionee for each
share  of  common  stock  covered  by  an  option,  a  related  alternate  stock
appreciation  right,  permitting the optionee to be paid the appreciation on the
option in lieu of  exercising  the  option.  The  amount of  payment to which an
optionee  shall be entitled upon the exercise of each stock  appreciation  right
shall be the amount, if any, by which the fair market value of a share of common
stock on the exercise date exceeds the exercise price per share of the option.

     2004  Stock  Option  Plan

We adopted our 2004 Stock Option Plan on February 4, 2004. The Plan provides for
the grant of "nonstatutory  stock options." The total number of shares of common
stock reserved for issuance under the plan is 30,000,000,  subject to adjustment
in the event of a stock  split,  stock  dividend,  recapitalization  or  similar
capital  change.  We have  granted the  options to acquire  shares of our common
stock to certain  employees  and  consultants  pursuant to the Plan,  and, as of
December 31, 2004, the following options were outstanding:

                                       32


<PAGE>

-    250,000 shares at an exercise price of $1.25 per share;
-    55,000 shares at an exercise price of $1.55 per share;
-    1,500,000 shares at an exercise price of $1.40 per share;
-    2,000,000 shares at an exercise price of $1.33 per share;
-    5,500 shares at an exercise price of $1.10 per share;
-    27,500 shares at an exercise price of $1.05 per share;
-    25,000 shares at an exercise price of $0.85 per share;
-    75,000 shares at an exercise price of $0.90 per share;
-    55,000 shares at an exercise price of $0.96 per share;
-    247,000 shares at an exercise price of $1.01 per share;
-    29,412 shares at an exercise price of $1.36 per share;
-    50,000 shares at an exercise price of $0.62 per share;
-    3,855,000 shares at an exercise price of $0.64 per share;
-    35,000 shares at an exercise price of $0.65 per share;
-    5,000 shares at an exercise price of $0.68 per share; and
-    75,000 shares at an exercise price of $0.93 per share.

Option  Grants  in  Last  Fiscal  Year
The following table sets forth  information  concerning stock options granted to
each of the executives  named in the summary  compensation  table for the fiscal
year ending December 31, 2004:


<TABLE>
<CAPTION>
                                       Percentage of Total of
                   Number of Shares     Options Granted to
                     Underlying         Employees During      Exercise Price
   Name            Options Granted         Fiscal Year           Per Share     Expiration Date
<S>                <C>                 <C>                    <C>              <C>

Peter Hogendoorn        300,000               3.6%                $ .640        Dec. 14, 2009

Anthony Alda . .        370,000               4.5%                $ .640        Dec. 14, 2009

Leslie J. Ames .        400,000               4.8%                $ .640        Dec. 14, 2009

Brent Bysouth. .        350,000               4.2%                $ .640        Dec. 14, 2009

Ricardo Rosado .        350,000               4.2%                $ .640        Dec. 14, 2009

Thomas Routt...       2,000,000               24.13%              $1.330        Feb.  2, 2009

Marc Strauch          1,500,000               18.10%              $1.400        Feb. 18, 2009

</TABLE>

Options Exercised In Last Fiscal Year and Fiscal Year-End Option Values

<TABLE>
<CAPTION>


                     Shares                 Number of Shares                 Value of Unexercised In-the-
                  Acquired on   Value     Underlying Unexercised                  Money  Options  at
Name                Exercise   Realized   Options at  Fiscal Year-End           Fiscal  Year-End  (1)
                                         Exercisable    Unexercisable        Exercisable     Unexercisable
                                        ------------    -------------        ------------    -------------
<S>                 <C>        <C>        <C>             <C>                <C>             <C>
Peter Hogendoorn           -         -    1,000,000       300,000              $460,000          $138,000
Anthony Alda . .           -         -    7,720,000(2)    370,000            $3,551,200          $170,200

Leslie J. Ames .           -         -    1,250,000       400,000              $575,000          $184,000

Brent Bysouth. .           -         -    1,150,000(2)    350,000              $529,000          $161,000
Ricardo Rosado .           -         -    1,050,000       350,000              $483,000          $161,000
Thomas Routt               -         -      833,332     1,166,668              $383,333          $536,667
Marc Strauch               -         -      625,000       875,000              $287,500          $402,500

</TABLE>


(1) Based on the December  31,  2004,  closing bid price for our common stock of
$0.46 per share.

(2) Phoenix  Management  Consulting  Group,  Inc.,  a British  Columbia,  Canada
corporation ("Phoenix") holds options to purchase 1,750,000 of our shares. Brent
Bysouth  owns 100% of Phoenix.  Anthony J. Alda has an option  until  January 1,
2009 to  purchase  80% of Phoenix  for  $1,000.  Assuming  this  option  will be
exercised  for the purposes of this table,  Mr. Alda is deemed to hold an option
to purchase  1,400,000 of our shares and Mr. Bysouth is deemed to hold an option
to purchase 350,000 of our shares, out of the 1,750,000 options held by Phoenix.

                                       33

<PAGE>

Director's  Compensation  and  Committees

We have  not  paid  and do not  presently  propose  to pay  compensation  to any
director for acting in such  capacity,  except for the grant of shares of common
stock or options and  reimbursement  for  reasonable  out-of-pocket  expenses in
attending meetings.

We do not have an audit  committee.  Accordingly,  we have  not  designated  any
director as an "audit committee  financial  expert",  as that term is defined in
the rules of the Securities and Exchange Commission.

The  Board  of  Directors  does  not  have  a  standing  nominating   committee.
Nominations  for election to the Board of Directors  may be made by the Board of
Directors or by any  shareholder  entitled to vote for the election of directors
in accordance with our bylaws and Delaware law.

Meetings may be held from time to time to consider matters for which approval of
our Board of Directors is desirable or is required by law.

Executives'  Compensation  Policies.

Compensation of our executives is intended to attract,  retain and award persons
who are essential to the corporate  enterprise.  The  fundamental  policy of our
executive   compensation  program  is  to  offer  competitive   compensation  to
executives that appropriately rewards the individual executive's contribution to
corporate  performance.  The board of directors utilizes subjective criteria for
evaluation of individual  performance and relies substantially on our executives
in doing so. The Board  focuses on two  primary  components  of our  executives'
compensation  program,  each of which is  intended  to  reflect  individual  and
corporate performance: base salary and long-term incentive compensation.

Executives' base salaries are determined  primarily by reference to compensation
packages for  similarly  situated  executives of companies of similar size or in
comparable lines of business with whom we expect to compete for executive talent
and with reference to revenues,  gross profits and other financial criteria. The
Board also  assesses  subjective  qualitative  factors  to discern a  particular
executive's  relative  value to the corporate  enterprise in  establishing  base
salaries.

It is the Board's  philosophy  that  significant  stock  ownership by management
creates a powerful  incentive  for  executives  to build  long-term  shareholder
value.  Accordingly,  the board believes that an integral component of executive
compensation  is the award of  equity-based  compensation,  which is intended to
align executives' long-term interests with those of our shareholders.  The board
believes that option  grants  should be  considered  on an annual basis.  During
2004,  the Board of  Directors  created a  Compensation  Committee  to formulate
control  policies  with  respect to the  qualification  and  treatment  of cash,
benefits and securities  compensation  for all of our employment  agreements and
consulting  agreements.  The  Compensation  Committee  created the  compensation
guidelines for its executive officers.  The Compensation  Committee is comprised
of up to five  people who  oversee  all  matters  with  respect to  compensation
including the review and  evaluation of the conduct and  performance  of our top
executives for the purpose of assessing their merits and making  recommendations
as to their  respective  compensation.  Currently,  our  Compensation  Committee
consists of Melanie Thomson, Ricardo Rosado, Les Ames and Anthony Alda. In 2004,
the Compensation Committee met four times.


Employment  Agreements  with  Executive  Officers

NS8Corp has executed employment agreements with its top five executive officers.
Below is a summary of the major terms of these employment agreements.

Anthony J. Alda, Co-Chief Architect, Chairman of the Board of Directors and CEO,
signed an employment  agreement with us on May 24, 2002. This agreement does not
have a termination date. Under the agreement, Mr. Alda receives a base salary of
$150,000 per year, a monthly car allowance and expense of approximately  $1,225,
a monthly personal expense account of $2,000,  an annual vacation travel expense
of $6,000,  relocation fees of $9,500 per month,  if necessary,  and a severance
payment of 36 months of salary,  which would  currently  be  $450,000,  if he is
terminated  without  cause.  As of December 31,  2004,  Mr. Alda has $320,659 in
accrued wages which have not been paid.  These accrued wages may be  distributed
at the discretion of management on a pro rata basis if there are sufficient cash
flows available. Mr. Alda also has an employment agreement with CMC, under which
he receives a base salary of $84,000 CAD per year,  a monthly car  allowance  of
$750 CAD per month plus insurance and  maintenance,  a monthly  personal expense
account of $2,000 CAD and severance payments,  if necessary,  in accordance with
the British Columbia Employment Standards Act.

                                       34


<PAGE>

Brent  Richard  Bysouth,  Chief  Software  Architect  and  Director,  signed  an
employment  agreement  with CMC on  December  1, 2004 which  replaces  all prior
employment  agreements with us. The agreement does not have a termination  date.
Under the  agreement,  he  receives a base salary of  $105,000  CAD per year,  a
monthly car  allowance of $750 CAD plus  insurance  and  maintenance,  a monthly
personal expense account of $3,000 CAD and severance payments, if necessary,  in
accordance with the British  Columbia  Employment  Standards Act. As of December
31,  2004,  Mr.  Bysouth  has  $440,530  in  accrued  wages  under his  previous
employment agreement which have not been paid. As per the terms of Mr. Bysouth's
new  employment  agreement,  these  accrued  wages  may  be  distributed  at the
discretion of management on a pro rata basis if there are sufficient  cash flows
available.

Leslie J. Ames,  Senior Vice President,  Legal Affairs,  Secretary and Director,
signed an employment  agreement  with CMC on November 1, 2004 which replaces all
prior  employment  agreements with us. The Agreement does not have a termination
date. Under the agreement, he receives a base salary of $125,000 CAD per year, a
monthly car  allowance of $750 CAD plus  insurance  and  maintenance,  a monthly
personal expense account of $3,000 CAD and severance payments, if necessary,  in
accordance with the British  Columbia  Employment  Standards Act. As of December
31, 2004,  Mr. Ames has $369,769 in accrued wages under his previous  employment
agreement which have not been paid. As per the terms of Mr. Ames' new employment
agreement,  these  accrued  wages  may  be  distributed  at  the  discretion  of
management on a pro rata basis if there are sufficient cash flows available.

Ricardo Rosado,  Chief Financial Officer,  Chief Operating Officer and Director,
signed an employment  agreement  with CMC on December 1, 2004 which replaces all
prior  employment  agreements with us. The Agreement does not have a termination
date. Under the agreement,  he receives a base salary of $90,000 CAD per year, a
monthly car  allowance of $750 CAD plus  insurance  and  maintenance,  a monthly
personal  expense  account of $2,000 and severance  payments,  if necessary,  in
accordance with the British  Columbia  Employment  Standards Act. As of December
31, 2004, Mr. Rosado has $252,142 in accrued wages under his previous employment
agreement  which  have not been  paid.  As per the  terms  of Mr.  Rosado's  new
employment  agreement,  these accrued wages may be distributed at the discretion
of management on a pro rata basis if there are sufficient cash flows available.

Marc Strauch, Chief Marketing Officer, Worldwide business Development, signed an
employment  agreement with us on February 24, 2004. The fixed  remuneration  for
Mr. Strauch was of $125,000 USD per annum for the first year of  employment.  In
addition to his fixed remuneration, Mr. Strauch received (i) 2,000,000 shares of
our common stock as restricted  shares,  and (ii) nonqualified  stock options to
acquire One and One-half  Million  (1,500,000)  shares of our common stock at an
exercise price of $1.40 USD per share, which equaled the closing market price of
the stock as of the effective date of the agreement. Mr. Strauch resigned as our
Chief Marketing Officer effective February 16, 2005. As a consequence, his basic
salary  will be paid up until  March  15,  2005 for a total of  $10,416.66,  and
benefit  coverage will be provided until March 31, 2005.  Mr. Strauch  forfeited
his 2,000,000  stock grants in November 2004, and as a result of his resignation
the 1,500,000  stock option  agreement dated February 20, 2004 was rescinded and
replaced  with  a new  stock  option  agreement  for  525,000  options  as  full
consideration for his employment.

Peter Hogendoorn,  our former CEO and President,  signed an employment agreement
with us on January 15, 2003.  The  Agreement  did not have a  termination  date.
Under the  agreement,  he received a base salary of $150,000 per year, a monthly
car allowance and expense of  approximately  $1,225,  a monthly personal expense
account of $2,000, an annual vacation travel expense of $6,000,  relocation fees
of $9,500 per month, if necessary, and severance payment of 36 months of salary,
which would have been $450,000,  in the event of a termination without cause. In
June 2004, the employment agreement was terminated,  and Mr. Hogendoorn became a
consultant to us. For his consulting  services,  Mr. Hogendoorn  receives $7,000
CAD currency per month and  reimbursement  of business related  expenses.  As of
December  31,  2004,  Mr.  Hogendoorn  has  $227,160 in accrued  wages under his
previous employment  agreement which have not been paid. As per the terms of Mr.
Hogendoorn's consulting agreement, these accrued wages may be distributed at the
discretion of management on a pro rata basis if there are sufficient  cash flows
available.

Dr.  Thomas  Routt  resigned as Chief  Scientist  of NS8  Corporation  effective
January 21, 2005. As a consequence of Dr. Routt's  resignation  his basic salary
would be paid up until  February  28, 2005 for a total of  $22,500,  and benefit
coverage would be provided until March 31, 2005. Dr. Routt is able to retain his
2,000,000  stock  options  for the full term as  specified  in his Stock  Option
Agreement.
                                       35


<PAGE>

Michael Waage resigned as Senior Vice  President,  Global Sales and Marketing of
NS8  Corporation  effective  January 10, 2005. As a consequence  of Mr.  Waage's
resignation  his basic  salary would be paid up until March 15, 2005 for a total
of $16,250,  and benefit  coverage  would be provided  until March 31, 2005.  In
addition, Mr. Waage will receive options to purchase 97,500 shares of our common
stock at an exercise price of $0.20.


ITEM  11.     Security  Ownership  Of  Certain  Beneficial Owners And Management

The following table presents  information  known to us, as of December 31, 2004,
relating to the beneficial ownership of common stock by:

- each person who is known by us to be the beneficial  holder of more than 5% of
our outstanding common stock;

-    each  of  our  named  executive  officers, directors and key employees; and

-    our  directors  and  executive  officers  as  a  group.

We believe that all persons  named in the table have sole voting and  investment
power with respect to all shares  beneficially  owned by them,  except as noted.
Unless otherwise indicated,  the address of each stockholder listed in the table
is care of CMC, 200-1311 Howe Street, Vancouver, British Columbia, Canada.

Percentage  ownership in the following  table is based on  86,310,975  shares of
common stock  outstanding  as of December 31, 2004. A person is deemed to be the
beneficial  owner of  securities  that can be acquired by that person  within 60
days  from  December  31,  2004  upon  the  exercise  of  options,  warrants  or
convertible   securities.   Each  beneficial  owner's  percentage  ownership  is
determined by dividing the number of shares beneficially owned by that person by
the  base  number  of  outstanding  shares,  increased  to  reflect  the  shares
underlying  options,  warrants or other convertible  securities included in that
person's holdings, but not those underlying shares held by any other person.


<TABLE>
<CAPTION>
                                              OPTIONS
                               BASIC          VESTED      OPTIONS                PERCENT
NAME                        OUTSTANDING  (UNEXERCISED)  (UNVESTED)    TOTAL      OF CLASS
--------------------------  -----------  -------------  ----------  -----------  --------
<S>                         <C>          <C>            <C>         <C>          <C>
Brent Richard Bysouth (1).   11,903,105      1,150,000    350,000   13,403,105      13.14%
--------------------------  -----------  -------------  ----------  -----------  --------
Anthony J. Alda (2). . . .    9,748,300      7,720,000    370,000   17,838,300      16.83%
--------------------------  -----------  -------------  ----------  -----------  --------
Martin L. Calvert(3) **. .    4,360,000      2,016,702    375,000    6,751,702       6.88%
--------------------------  -----------  -------------  ----------  -----------  --------
Peter Hogendoorn(4). . . .    8,707,143      1,000,000    300,000   10,007,143      10.11%
--------------------------  -----------  -------------  ----------  -----------  --------
Leslie J. Ames (5) . . . .    3,060,000      1,250,000    400,000    4,710,000       4.76%
--------------------------  -----------  -------------  ----------  -----------  --------
Thomas Routt** . . . . . .                    833,332   1,166,668    2,000,000          *
--------------------------   -----------  -------------  ----------  -----------  --------
Ricardo Rosado . . . . . .    2,545,667      1,050,000    350,000    3,945,667       4.00%
--------------------------   -----------  -------------  ----------  -----------  --------
Michael Waage. . . . . . .    1,350,000        700,000     50,000    2,100,000       2.32%
--------------------------  -----------  -------------  ----------  -----------  ---------
Marc Strauch** . . . . . .                     625,000    875,000    1,500,000          *
--------------------------  -----------  -------------  ----------  -----------  ---------
Melanie Thomson. . . . . .      425,000                   275,000      700,000          *
--------------------------   -----------  -------------  ----------  -----------  --------
David Aisenstat. . . . . .    5,814,286              _               5,814,286       6.31%
--------------------------  -----------  -------------  ----------  -----------  ---------
Total of all Executive . .
Officers and Directors as
a Group (8 persons)          29,032,072     13,328,332  3,836,668   46,197,072      32.92%
--------------------------  -----------  -------------  ----------  -----------  --------
</TABLE>

* Less than 1%.
**  Address:  NS8Corp,  Two  Union  Square Center, 601 Union Street, Suite 4200,
Seattle,  WA  98101


                                       36

<PAGE>




(1) Phoenix  Management  Consulting  Group,  Inc.,  a British  Columbia,  Canada
corporation ("Phoenix") owns 8,279,125 shares, and options to purchase 1,750,000
shares, of Registrant.  Brent Bysouth owns 100% of Phoenix.  Anthony J. Alda has
an option until January 1, 2009 to purchase 80% of Phoenix for $1,000.  Assuming
this option  will be  exercised,  currently  Mr.  Alda has voting  control  over
6,623,300  Registrant  shares  held by  Phoenix,  which is 80% of the  8,279,125
Registrant  shares  held by  Phoenix.  Additionally,  Mr.  Alda has an option to
purchase  1,400,000  options  held by Phoenix to  purchase  1,750,000  shares of
Registrant's  shares,  which is 80% of the options held by Phoenix.  Mr. Bysouth
has voting control over 1,655,825  Registrant  shares held by Phoenix,  which is
20% of the 8,279,125  Registrant  shares held by Phoenix.  Mr. Bysouth also owns
10,247,280 shares of Registrant directly.

(2) In addition to having voting control over 6,623,300  shares held by Phoenix,
and the option to purchase  1,400,000  options held by Phoenix,  Anthony J. Alda
also has voting  control  over the  following  shares:  850,000  shares  held by
Anthony J. Alda in Trust for Brittany Billingsley;  525,000 shares held by Pat &
Lutz Alda; 175,000 shares held by Tamara Billingsley; and 450,000 shares held by
Euro Partners, Ltd. Mr. Alda also owns 1,125,000 shares of Registrant directly.

(3) This  includes  the  following  shares held by the three  minor  children of
Martin Calvert, which Martin Calvert has voting control over: 20,000 shares held
by Spencer Calvert;  20,000 shares held by Callahan  Calvert;  and 20,000 shares
held by Christina Calvert.

(4) This includes the following  shares held by the two minor  children of Peter
Hogendoorn,  which Peter Hogendoorn has voting control over: 100,000 shares held
by Molly Hogendoorn;  100,000 shares held by Thea Hogendoorn; and 500,000 shares
held by Barbara Hogendoorn, Mr. Hogendoorn's wife.

(5) This includes 2,760,000 shares held by Leslie J. Ames Law Corporation.

ITEM  12.     Certain  Relationships  and  Related  Transactions

Transactions  with  David  Aisenstat:

     David Aisenstat loaned  CanOnline  $100,000 on April 30, 2003, and $100,000
on May 27,  2003.  Each loan is subject to 8%  interest,  and due on demand.  On
October  29,  2003,  Mr.  Aisenstat  demanded  repayment  of  $50,000.   In  Mr.
Aisenstat's  demand for repayment he agreed to accept  100,000  common shares of
CanOnline  for the  principle  amount of $50,000.  Mr.  Aisenstat's  election to
convert the debt to shares was agreed to and  accepted by the Board of Directors
of CanOnline.  The balance of the two loans outstanding is $150,000 plus accrued
interest.  On December 20, 2004, we repaid the loans plus accrued interest.  The
total amount repaid was $171,106.85.

Transaction  with  Martin  Calvert:

On May 13, 2004, Martin Calvert, a director of ours, loaned us $95,000. The loan
was initially due on May 13, 2005 and bore interest at the rate of 8% per annum,
but on June 1, 2004,  the loan plus  accrued  interest  was fully paid to Martin
Calvert in amount of  $95,333.15.  Pursuant  to the terms of the loan,  upon its
repayment, we issued to Mr. Calvert warrants to purchase 47,500 shares of common
stock at an exercise price of $0.61 per share. The warrants remain unexercised.


On August 12, 2004, Martin Calvert, then a director of ours, loaned us $100,000.
The loan is due on  August  12,  2005 and bears  interest  at a rate of 9.5% per
annum.  Upon  repayment  of the loan to  Martin  Calvert,  we will  issue to Mr.
Calvert  warrants to purchase  50,000  shares of our common stock at an exercise
price equal to market  price on the date the  warrants are issued with a term of
two years from the date of issuance. A portion of the loan plus accrued interest
was repaid in  September  2004.  The balance  remaining on the loan plus accrued
interest was repaid in December 2004 which amounted to $27,108.21.  The warrants
were issued with an exercise price of $0.61 per share and remain unexercised.


                                       37


<PAGE>

ITEM  13.     EXHIBITS,  List  and  Reports  on  Form  8-K

<TABLE>
<CAPTION>

(a) Exhibit
    Number   Description
<S>          <C>
     2.1     Agreement  and  Plan  of Merger dated November 3, 2003 among Registrant,
             DLVN  Acquisition,  Inc.  and  CanOnline  Global  Media,  Inc.  (1)
     2.2     Correction  Agreement  dated  November  3,  2003  among Registrant, DLVN
             Acquisition,  Inc.  and  CanOnline  Global  Media,  Inc.  (1)
     2.3     Certificate  of  Merger  filed  with  Delaware  Secretary  of  State (1)
     2.4     Certificate  of  Merger  filed  with  Washington  Secretary of State (1)
     3.1     Certificate  of  Incorporation  (2)
     3.2     Amendment  of Certificate of Incorporation-dated October 13, 2003 (3)
     3.3     Amendment of Certificate of Incorporation-dated December 17, 2003 (3)
     3.4     By-Laws  (2)
     3.5     Amended  By-Laws  (2)
     10.1    Stock  Option  Plan  of  2001  (2)
     10.2    Stock  Option  Plan  of  2004
     10.3    Employment  Agreement of Ricardo Rosado with CanOnline Global
             Media  Corp.  (4)
     10.4    Amended Employment Agreement of Ricardo Rosado with CanOnline
             Global  Media  Corp.  (4)
     10.5    Amendment  to Employment Agreement of Ricardo Rosado with NS8
             Corp.
     10.6    Addendum  to  Amendment  to  Employment  Agreement of Ricardo
             Rosado  with  NS8  Corp.
     10.7    Employment  Agreement  of  Anthony Alda with CanOnline Global
             Media  Corp.  (4)
     10.8    Amended  Employment  Agreement of Anthony Alda with CanOnline
             Global  Media  Corp.(4)
     10.9    Employment Agreement of Leslie J. Ames with CanOnline Global
             Media Corp. (4)
     10.10   Amended  Employment  Agreement  of  Leslie J. Ames with CanOnline
             Global  Media  Corp.  (4)
     10.11   Amendment  to  Employment  Agreement  of  Leslie J. Ames with NS8
             Corp.
     10.12   Addendum  to  Amendment to Employment Agreement of Leslie J.
             Ames  with  NS8  Corp.
     10.13   Employment  Agreement  of  Brent S. Bysouth with CanOnline Global
             Media  Corp.  (4)
     10.14   Amended  Employment  Agreement of Brent S. Bysouth with CanOnline
             Global  Media  Corp.  (4)
     10.15   Amendment  to Employment Agreement of Brent Bysouth with NS8
             Corp.
     10.16   Addendum  to  Amendment  to  Employment  Agreement  of Brent
             Bysouth  with  NS8  Corp.
     10.17   Employment  Agreement of Thomas Routt with CanOnline Global Media
             Corp.  (4)
     10.18   Employment Agreement of Ricardo Rosado with CanOnline Media Corp.(4)
     10.19   Amended  Employment  Agreement  of  Ricardo Rosado with CanOnline
             Media  Corp.
     10.20   Employment  Agreement  of Anthony Alda with CanOnline Media Corp.(4)
     10.21   Amended  Agreement  of  Anthony  Alda  with CanOnline Media Corp.
     10.22   Agreement  of  Leslie  J.  Ames  with  CanOnline  Media Corp. (4)
     10.23   Amended  Agreement  of  Leslie J. Ames with CanOnline Media Corp.
     10.24   Agreement  of  Brent  Bysouth  with  CanOnline  Media  Corp.  (4)
     10.25   Amended  Agreement  of  Brent  Bysouth with CanOnline Media Corp.
     10.26   Employment  Agreement  of  Melanie  Thomson  with CanOnline Media
             Corp.
     10.27   Amended  Employment  Agreement  of Melanie Thomson with CanOnline
             Media  Corp.
     10.28   Employment  Agreement  of  Peter Hogendoorn with CanOnline Global
             Media  Corp.  (4)
     10.29   Consulting  Agreement  between  Peter  Hogendoorn  and  NS8
             Corporation,  Inc.
     31.1    Rule  13(a)-14(a)/15(d)-14(a)  Certification  of  Principal
             Executive  Officer
     31.2    Rule  13(a)-14(a)/15(d)-14(a) Certification of Principal Financial
             Officer
     32.1    Section  1350  Certification  of  Chief  Executive  Officer
     32.2    Section  1350  Certification  of  Chief  Financial  Officer

</TABLE>
(1)   Previously  filed  in  Registrant's  Form  8-K/A filed on January 31, 2004
(2)   Previously  filed  in  Registrant's  Form  SB-2 filed on December 26, 2001


                                       38


<PAGE>




(3) Previously  filed in  Registrant's  Form 10-KSB for the year ended September
30,  2003 filed on January 1, 2004 (4)  Previously  filed in  Registrant's  Form
10-KSB for the year ended December 31, 2003 filed on April 15, 2004

(b) Reports on Form 8-K

The Company filed the  following  reports on Form 8-K during the last quarter of
2004:

     1. Report on Form 8-K,  dated  November 26, 2004.  Item 5.02.  Departure of
Directors or Principal Officers; Election of Directors; Appointment of Principal
Officers.

     2. Report on Form 8-K,  dated  December 14, 2004.  Item 2.03  Creation of a
Direct  Financial  Obligation  or  an  Obligation  under  an  Off-Balance  Sheet
Arrangement of the Registrant;  Item 9.01 Financial Statements and Exhibits.  3.
Report on Form 8-K/A,  dated  December 14, 2004.  Item 2.03 Creation of a Direct
Financial  Obligation or an Obligation under an Off-Balance Sheet Arrangement of
the Registrant; Item 9.01 Financial Statements and Exhibits.

     4. Report on Form 8-K,  dated  December  23,  2004.  Item 1.01 Entry into a
Material   Definitive   Agreement;   Item  3.02  Unregistered  Sales  Of  Equity
Securities.

     Registrant  filed a Report on Form 8-K/A on January 30, 2004  reporting  on
the merger with CanOnline. The event reported was amended information concerning
the merger.

ITEM  14.  PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES.

(1)  Audit  Fees

The aggregate  fees billed for  professional  services  rendered by Singer Lewak
Greenbaum & Goldstein,  LLP for the audit of the  Registrant's  annual financial
statements and review of the financial  statements  included in the Registrant's
Forms  10-QSB or  services  that are  normally  provided  by the  accountant  in
connection with statutory and regulatory filings or engagements for fiscal years
2004 and 2003 were approximately $143,878 and $ 44,264, respectively.

(2)  Audit  Related  Fees

There were no audit related fees for  professional  services  rendered by Singer
Lewak Greenbaum & Goldstein, LLP for fiscal years 2004 and 2003.

(3)  Tax  Fees

The fees billed for professional  services  rendered by Singer Lewak Greenbaum &
Goldstein,  LLP for the preparation of the registrant's  tax returns,  including
tax planning for fiscal  years 2004 and 2003 were  approximately  $2,663 and $0,
respectively.

(4)  All  Other  Fees

Not  applicable.

(5)  Audit  Committee  Policies  and  Procedures

The Registrant does not have an audit  committee.  The Board of Directors of the
Registrant  approved all of the services  rendered to the  Registrant  by Singer
Lewak Greenbaum & Goldstein, LLP for fiscal years 2004 and 2003.

(6) Audit  Work  Attributed  to Persons  Other than  Singer  Lewak  Greenbaum  &
Goldstein, LLP Full-time, Permanent Employees.

The  Registrant  has engaged Hall & Company,  Chartered  Accountants  to perform
audit work and tax preparation for CMC.



                                       39


<PAGE>




                                   SIGNATURES

     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                            NS8  CORPORATION
                                           (Registrant)


Date:  August 28, 2006                      By:  /s/  Anthony  J.  Alda
                                                 ----------------------
                                                 Anthony J. Alda, CEO (Principal
                                                 Executive  officer)




     In accordance  with the  requirements  of the Exchange Act, this report has
been  signed by the  following  persons on behalf of the  registrant  and in the
capacities and on the dates indicated.

Date:  August 28, 2006                      By:  /s/  Anthony  J.  Alda
                                            ------------------------------------
                                            Chairman of the Board of Directors,
                                            President and CEO (Principal
                                            Executive  Officer)

Date:  August 28, 2006                      By:  /s/  Ricardo  Rosado
                                            ------------------------------------
                                            Ricardo Rosado, Chief Financial
                                            Officer and  Director

Date:  August 28, 2006                      By:  /s/  Leslie  J.  Ames
                                            ------------------------------------
                                            Leslie  J.  Ames,  Director

Date:  August 28, 2006                      By:  /s/  Michael  W.  Waage
                                            ------------------------------------
                                            Michael  W.  Waage,  Director

Date:  August 28, 2006                      By:  /s/  Brent  R.  Bysouth
                                            ------------------------------------
                                            Brent  R.  Bysouth,  Director


                                       40


<PAGE>




                                                                 NS8 CORPORATION
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                                        CONTENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

                                                                            Page

INDEPENDENT  AUDITOR'S  REPORT                                              F-2

CONSOLIDATED  FINANCIAL  STATEMENTS

     Consolidated  Balance  Sheet                                           F-3

     Consolidated  Statements  of  Operations                               F-4

     Consolidated  Statements  of  Comprehensive  Loss                      F-5

     Consolidated  Statements  of  Shareholders' Equity (Deficit)           F-6

     Consolidated  Statements  of  Cash  Flows                              F-7

     Notes  to  Consolidated  Financial  Statements                  F-8 - F-39


                                       F-1


<PAGE>





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors
NS8 Corporation

We have audited the related consolidated statement of operations,  comprehensive
loss,  shareholders' equity (deficit) and cash flows for the year ended December
31, 2004  (restated),  and the period from June 18, 1999 (inception) to December
31, 2004 (restated) of NS8 Corporation and subsidiaries (a  developmental  stage
company).  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the 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  provided  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the results of their operations and their cash
flows for year ended December 31, 2004 (restated),  and the period from June 18,
1999  (inception)  to  December  31,  2004  (restated)  of NS8  Corporation  and
subsidiaries (a developmental stage company),  in conformity with U.S. generally
accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and  has an  accumulated  deficit.  This  raises  substantial  doubt  about  the
Company's ability to continue as a going concern.  Management's  plans in regard
to these matters are also  described in Note 2. The financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 13, the Company has restated its financial statements as of
December  31,  2004  related  to  the  reclassification  of  certain  derivative
liabilities  and the  subsequent  change in the fair  value of these  derivative
liabilities. We audited the adjustments necessary for these restatements. In our
opinion, such adjustments are appropriate and have been properly applied.


/s/ Singer Lewak Greenbaum & Goldstein LLP
------------------------------------------
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
March 31, 2005, except for Note 13
   as to which the date is April 14, 2006




                                       F-2


<PAGE>






                                                                 NS8 CORPORATION
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                      CONSOLIDATED BALANCE SHEET
                                                    December 31, 2004 (Restated)

--------------------------------------------------------------------------------

                                 ASSETS

Current assets
  Cash and cash equivalents                               $  1,562,040
  Prepaid, consulting services                               3,098,622
  Prepaid, other                                                85,804
                                                          -------------

    Total current assets                                     4,746,466

Property and equipment, net                                    174,395
                                                          -------------

        Total assets                                      $  4,920,861
                                                          =============

                  LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities
  Accounts payable and accrued expenses                   $    351,132
  Accrued payroll and related expenses                       1,695,020
  Current portion of capital lease obligations                   7,550
  Notes payable                                                325,000
  Notes payable - shareholders, net of debt discount
    of $9,894                                                3,790,106
                                                          -------------

    Total current liabilities                                6,168,808


Capital lease obligations, net of current portion                5,155
Derivative liability                                         3,486,567
Convertible debentures, net of debt discount of $339,284     1,160,716
                                                          -------------



      Total liabilities                                      10,821,246
                                                          -------------


Commitments and contingencies

Shareholders' deficit
  Preferred stock, $0.0001 par value
    5,000,000 shares authorized
    no shares issued and outstanding                                 -
  Common stock, $0.0001 par value
    200,000,000 shares authorized

    86,310,975 shares issued and outstanding                      8,631
  Additional paid-in capital                                  5,703,372
  Deferred compensation                                              -
  Accumulated other comprehensive loss                         (44,261)
  Deficit accumulated in the development stage             (11,568,127)
                                                          -------------



      Total shareholders' deficit                           (5,900,385)
                                                          -------------


        Total liabilities and shareholders' deficit       $  4,920,861
                                                          =============


   The accompanying notes are an integral part of these financial statements.


                                       F-3


<PAGE>


<TABLE>
<CAPTION>



                                                                   NS8 CORPORATION
                                                     (A DEVELOPMENT STAGE COMPANY)
                                             CONSOLIDATED STATEMENTS OF OPERATIONS
                                    For the Years Ended December 31, 2004 and 2003
                                                                               and
                                     for the Period from June 18, 1999 (Inception)
                                                              to December 31, 2004
----------------------------------------------------------------------------------

                                                                         For the
                                                                      Period from
                                                                        June 18,
                                             For the Year Ended          1999
                                                 December 31,        (Inception) to

                                     ------------------------------   December 31,
                                      2004 (Restated)      2003      2004 (Restated)
                                     ----------------  ------------  -------------
<S>                                  <C>               <C>           <C>


Operating expenses
  Research and development           $     1,079,824   $ 1,382,000   $  2,678,896
  General and administrative               8,323,294     2,518,058     12,210,274
                                     ----------------  ------------  -------------

    Total operating expenses               9,403,118     3,900,058     14,889,170
                                     ----------------  ------------  -------------

Loss from operations                      (9,403,118)   (3,900,058)   (14,889,170)
                                     ----------------  ------------  -------------

Other (expense) income

  Other (expense) income                     (19,733)       27,594         56,189
  Interest expense                          (359,069)      (52,930)      (424,028)
  Change in fair value of derivative
  Liability                                 3,688,882            -       3,688,882
                                     ----------------  ------------  -------------



    Total other expense                     3,310,080      (25,336)      3,321,043
                                     ----------------  ------------  -------------



Net loss                             $    (6,093,038)  $(3,925,394)  $(11,568,127)
                                     ================  ============  =============



Basic and diluted loss per share     $         (0.07)  $     (0.07)
                                     ================  ============


Weighted-average shares outstanding       88,208,761    58,900,389
                                     ================  ============

</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       F-4


<PAGE>


                                                                 NS8 CORPORATION
                                                   (A DEVELOPMENT STAGE COMPANY)
                                   CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                  For the Years Ended December 31, 2004 and 2003
                                                                             and
                                   for the Period from June 18, 1999 (Inception)
                                                            to December 31, 2004
--------------------------------------------------------------------------------


                                                                   For the
                                                                 Period from
                                                                    June 18,
                                        For the Year Ended           1999
                                            December 31,        (Inception) to

                                ------------------------------   December 31,
                                2004 (Restated)       2003       2004 (Restated)

                                ----------------  ------------  -------------


Net loss                        $    (6,093,038)  $(3,925,394)  $(11,568,127)


Other comprehensive loss
  Foreign currency
     exchange losses                     (9,001)      (37,934)       (44,261)
                                ----------------  ------------  -------------


Comprehensive loss              $    (6,102,039)  $(3,963,328)  $(11,612,388)
                                ================  ============  =============



   The accompanying notes are an integral part of these financial statements.


                                       F-5


<PAGE>

<TABLE>
<CAPTION>




                                                                                                                   NS8 CORPORATION
                                                                                                     (A DEVELOPMENT STAGE COMPANY)
                                                                   CONSOLIDATED STATEMENTS    OF   SHAREHOLDERS'  EQUITY (DEFICIT)
                                                                For the Period from June 18, 1999 (inception) to December 31, 2004
----------------------------------------------------------------------------------------------------------------------------------


                                                                                        Accumulated       Deficit
                                                                                           Other        Accumulated
                                                         Additional                    Comprehensive      in the
                               Common        Stock        Paid-In        Deferred         Income        Development
                             -----------  ------------  ------------
                               Shares        Amount       Capital      Compensation       (Loss)           Stage         Total
                             -----------  ------------  ------------  --------------  ---------------  -------------  ------------
<S>                          <C>          <C>           <C>           <C>             <C>              <C>            <C>
Balance, June 18, 1999                -   $         -   $         -   $           -   $            -   $          -   $         -
                             (inception)
Issuance of shares for cash   4,130,000           413         5,203                                                         5,616
Conversion of debt to
  common stock               29,281,406         2,928        36,885                                                        39,813
Net loss                                                                                                    (31,905)      (31,905)
                             -----------  ------------  ------------  --------------  ---------------  -------------  ------------

Balance, December
31, 1999                     33,411,406         3,341        42,088               -                -        (31,905)       13,524
Exercise of stock options     2,000,000           200          (200)              -
Options granted
  for services                                                3,400                                                         3,400
Issuance of shares for
  services                       20,000             2         1,018                                                         1,020
Issuance of shares for cash   3,239,112           324       283,815                                                       284,139
Issuance of shares for                -
  offering costs                150,000            15        22,485                                                        22,500
Offering costs                  (33,242)                                                                                  (33,242)
Foreign exchange
  translation                                                                                   (681)                        (681)
Net loss                                                                                                   (232,829)     (232,829)
                             -----------  ------------  ------------  --------------  ---------------  -------------  ------------

Balance, December
31, 2000                     38,820,518   $     3,882   $   319,364   $           -   $         (681)  $   (264,734)  $    57,831
Conversion of debt to
  common stock                   35,667             4         5,346                                                         5,350
Exercise of options             450,000            45           (45)                                                            -
Issuance of shares for
  service                        50,000             5           195                                                           200
Buy-back of shares           (1,025,000)         (103)       (2,559)                                                       (2,662)
Foreign exchange
  translation                                                                                  5,873                        5,873
Net loss                                                                                                   (391,930)     (391,930)
                             -----------  ------------  ------------  --------------  ---------------  -------------  ------------

Balance, December
31, 2001                     38,331,185   $     3,833   $   322,301   $           -   $        5,192   $   (656,664)  $  (325,338)
Conversion of debt to
  common stock                7,923,448           793       151,507                                                       152,300
Issuance of shares for
  employee compensation       2,310,000           231        80,619         (56,000)                                       24,850
Cancellation of shares       (1,000,000)         (100)          100                                                             -
Foreign exchange
  translation                                                                                 (2,518)                      (2,518)
Net loss                                                                                                   (893,031)     (893,031)
                             -----------  ------------  ------------  --------------  ---------------  -------------  ------------

Balance, December
31, 2002                     47,564,633   $     4,757   $   554,527   $     (56,000)  $        2,674   $ (1,549,695)  $(1,043,737)
Conversion of debt           12,385,714         1,239       684,782                                                       686,021
Issuance of shares for cash   4,833,334           483     2,444,517                                                     2,445,000
Issuance of shares for                -
  employee compensation       3,720,000           372       947,933          56,000                                     1,004,305
Issuance of shares for
  services                      500,000            50        17,450                                                        17,500
Issuance of shares to
  pre-reverse
  merger shareholders        15,250,000         1,525        (1,525)                                                            -
Foreign exchange
  translation                                                                                (37,934)                     (37,934)
Net loss                                                                                                 (3,925,394)   (3,925,394)
                             -----------  ------------  ------------  --------------  ---------------  -------------  ------------

Balance, December
31, 2003                     84,253,681   $     8,426   $ 4,647,684   $           -   $      (35,260)  $ (5,475,089)  $  (854,239)
Issuance of shares for cash     597,544            60       399,940                                                       400,000
Issuance of shares for
  employee compensation               -                           -                                                             -
Issuance of shares for
  services                      525,170            52       546,947                                                       546,999
Issuance of shares for
  offering costs                934,580            93           (93)                                                            -
Offering costs                                              (21,000)                                                      (21,000)
Compensation charge for
  warrants issued "in the
  money" to non-employees             -                      20,000                                                        20,000
Compensation charge for
  stock options issued "in
  the money" to employees             -                     110,100                                                       110,100
Foreign exchange

  translation                                                  (206)                          (9,001)                      (9,207)
Net loss                              -             -             -               -                -     (6,093,038)   (6,093,038)
                             -----------  ------------  ------------  --------------  ---------------  -------------  ------------


Balance, December

31, 2004 (Restated)                    86,310,975   $     8,631   $5,703,372   $           -   $      (44,261)  $(11,568,127)
$(5,900,385)
                             ===========  ============  ============  ==============  ===============  =============  ============


</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       F-6


<PAGE>



<TABLE>
<CAPTION>

                                                                           NS8 CORPORATION
                                                             (A DEVELOPMENT STAGE COMPANY)
                                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 For the Years Ended December 31, 2004 and
                                                                                  2003 and
                                             for the Period from June 18, 1999 (Inception)
                                                                      to December 31, 2004
------------------------------------------------------------------------------------------

                                                                                For the
                                                                              Period from
                                                                               June 18,
                                                   For the Year Ended            1999
                                                       December 31,          (Inception) to

                                             ------------------------------    December 31,
                                             2004 (Restated)     2003          2004 (Restated)

                                             ------------  ----------------  -------------
<S>                                          <C>           <C>               <C>

Cash flows from operating activities

  Net loss                                   $(6,093,038)  $    (3,925,394)  $(11.568,127)
  Adjustments to reconcile net loss to net

    cash used in operating activities
      Depreciation and amortization               51,183            26,343         95,394
      Compensation charge for
        in-the-money stock options               110,100                          110,100
      Compensation charge for
        in-the-money warrants                     20,000                           20,000
      Accretion of warrants issued as
        a debt discount                          117,138                          117,138
      Accretion of interest issued as

        a debenture discount                      89,287                           89,287
      Issuance of stock for services             547,000            17,500        565,720
      Issuance of stock for compensation               -         1,004,305      1,029,155
      Issuance of warrants for compensation    5,724,021                        5,724,021
      Options granted for services               896,000                 -        899,400
      Change in fair value of derivative
            Liability                         (3,688,882)                -     (3,688,882)

      (Increase) decrease in
        Accounts receivable                            -                 -              -
        Prepaid expenses and other
          current assets                      (3,143,801)          (62,686)    (3,217,658)
      Increase (decrease) in
        Accounts payable and accrued
          expenses                               206,087             8,820        382,153
        Accrued payroll                          476,304           611,366      1,728,252
                                             ------------  ----------------  -------------

Net cash used in operating activities         (4,688,601)       (2,319,746)    (7,714,047)
                                             ------------  ----------------  -------------

Cash flows from investing activities
  Purchase of property and equipment            (116,691)          (90,760)      (220,768)
                                             ------------  ----------------  -------------

Net cash used in investing activities           (116,691)          (90,760)      (220,768)
                                             ------------  ----------------  -------------

Cash flows from financing activities

  Payments on notes payable                  $         -   $        (1,967)  $          -
  Proceeds from notes payable                    100,000                 -        100,000
  Proceeds from convertible debentures         1,500,000           600,000      2,100,000
  Proceeds from issuance of common
    stock                                        400,000         2,445,000      3,157,254

  Proceeds from loans from officers/
    shareholders                               4,145,000           400,000      5,017,650
  Payments on loans from officers/
    shareholders                                (495,000)          (70,361)      (565,361)

  Proceeds from short term loans                                   225,000        225,000
  Payments for redemption of shares                    -                 -         (2,662)
  Offering costs                                 (21,000)                -        (54,242)
  Payments on convertible debentures                   -          (400,000)      (400,000)
  Payments on capital lease obligations           (4,880)          (24,573)       (32,075)
                                             ------------  ----------------  -------------


Net cash provided by financing activities      5,624,120         3,173,099      9,545,564
                                             ------------  ----------------  -------------

Effect of exchange rate changes
  on cash                                        (13,449)          (37,934)       (48,709)
                                             ------------  ----------------  -------------

Net increase in cash and cash
  equivalents                                    805,379           724,659      1,562,040

Cash and cash equivalents,
  beginning of period                            756,661            32,002              -
                                             ------------  ----------------  -------------

Cash and cash equivalents,
  end of period                              $ 1,562,040   $       756,661   $  1,562,040
                                             ============  ================  =============
Supplemental disclosures of
  cash flow information

  Interest paid                              $    92,422   $         6,849   $    118,043
                                             ============  ================  =============

</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       F-7


<PAGE>




                                                                 NS8 CORPORATION
                                                   (A DEVELOPMENT STAGE COMPANY)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                             For the Years Ended December 31, 2004 and 2003, and
              for the Period from June 18, 2000 (Inception) to December 31, 2004
--------------------------------------------------------------------------------


Supplemental  schedule of non-cash investing and financing activities During the
year ended December 31, 2004, the Company completed the following:

-    The  Company  issued  525,170  shares of common stock for services rendered
     valued  at  $546,999.
-    The Company  issued  934,580  shares of its common stock as offering  costs
     pursuant to a Standby Equity Distribution Agreement.
-    The  Company  recorded  a  debt  discount in the amount of $126,857 for the
     valuation  of  warrants  issued  with  notes  payable.
-    The  Company  issued  7,439,504  warrants  for  services rendered valued at
     $5,724,021.
-    The  Company issued 1,700,000 stock options for services rendered valued at
     $896,000.
-    The Company recorded a beneficial  conversion  feature on convertible notes
     payable of $428,571.
-    The  Company  recorded  compensation of $20,000 for warrants issued "in the
     money"  to  non-employees.
-    The  Company  recorded  a compensation charge of $110,100 for stock options
     issued  "in  the  money"  to  employees.


                                       F-8


<PAGE>




NOTE  1  -  ORGANIZATION  AND  LINE  OF  BUSINESS

CanOnline Global Media,  Inc.  ("CGMI") was formed in the state of Washington on
March 15, 2000. On September 12, 2000, CGMI entered into a Share  Consideration,
Assignment,  and Transfer Agreement,  whereby it acquired all of the outstanding
common stock of CanOnline Media Corporation ("CMC") in exchange for an aggregate
of 38,405,517 shares of newly issued common stock. For accounting purposes,  the
transaction  has been  treated  as a  recapitalization  of CMC,  with CMC as the
accounting acquirer (reverse acquisition). Accordingly, the financial statements
of  CGMI  reflect  the   historical   financial   statements  of  CMC  from  its
incorporation on June 18, 1999 in Vancouver,  British Columbia,  Canada, and the
operations  of CGMI  subsequent  to September  12,  2000.  CGMI did not have any
assets  or  liabilities  at the  date of the  acquisition  and did not  have any
operations prior to the  acquisition.  Therefore,  pro forma  information is not
presented.

On December 18, 2003, CGMI closed a merger  agreement with Delivery Now Corp., a
Delaware  corporation  and  publicly  traded  company (the  "Parent"),  and DLVN
Acquisition  Co., a Delaware  corporation  and wholly owned  subsidiaries of the
Parent (the "Merger Sub").  Delivery Now Corp. was  incorporated in the state of
Delaware on October 3, 2000.  As part of the  reverse  merger,  on December  17,
2003,  Delivery  Now Corp.  changed  its fiscal  year end from  September  30 to
December 31 and changed its name to NS8 Corporation ("NS8").

NS8,  CGMI and CMC  (collectively,  the  "Company")  design and  produce  online
business applications in the areas of streaming software,  digital media rights,
data-content management, audio-video communications, and corporate collaboration
systems.

NOTE  2  -  GOING  CONCERN


The  accompanying  financial  statements  have been prepared in conformity  with
accounting principles generally accepted in the United States of America,  which
contemplate  continuation  of the  Company as a going  concern.  During the year
ended December 31, 2004,  the Company  incurred a net loss of $6,093,038 and had
negative cash flows from operations of $4,688,601.  In addition, the Company had
an accumulated  deficit of $11,568,127 at December 31, 2004. These factors raise
substantial doubt about the Company's ability to continue as a going concern.


Recovery of the Company's assets is dependent upon future events, the outcome of
which is indeterminable. Management plans to continue to provide for its capital
needs  during  the year  ended  December  31,  2005 by  issuing  debt and equity
securities  and by the  continued  development  of its  products.  The financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of  recorded  asset  amounts or amounts  and  classification  of
liabilities  that might be necessary should the Company be unable to continue in
existence.


                                       F-9


<PAGE>





NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

Principles  of  Consolidation
-----------------------------
The consolidated financial statements include the accounts of NS8 and its wholly
owned  subsidiaries,  CGMI and CMC. All significant  inter-company  accounts and
transactions are eliminated in consolidation.

Development  Stage  Enterprise
------------------------------
The Company is a development  stage company as defined in Statement of Financial
Accounting  Standards  ("SFAS") No. 7,  "Accounting and Reporting by Development
Stage  Enterprises."  The Company is devoting  substantially  all of its present
efforts to establish a new business,  and its planned principal  operations have
not yet commenced.  All losses  accumulated since inception have been considered
as part of the Company's development stage activities.

Comprehensive  Loss
-------------------
The  Company  utilizes  SFAS No. 130,  "Reporting  Comprehensive  Income."  This
statement  establishes  standards for reporting  comprehensive income (loss) and
its components in a financial statement.  Comprehensive income (loss) as defined
includes  all changes in equity  (net  assets)  during a period  from  non-owner
sources.  Examples of items to be included in comprehensive income (loss), which
are  excluded  from net income  (loss),  include  foreign  currency  translation
adjustments,  minimum pension  liability  adjustments,  and unrealized gains and
losses on available-for-sale securities.

Cash  and  Cash  Equivalents
----------------------------
For the purpose of the statements of cash flows, the Company consider all highly
liquid investments purchased with original maturities of three months or less to
be cash equivalents.

Property  and  Equipment
------------------------
Property and equipment are stated at cost. The Company provides for depreciation
and amortization using the  double-declining  method over estimated useful lives
of five to seven years.  Expenditures for maintenance and repairs are charged to
operations as incurred while renewals and betterments are capitalized.  Gains or
losses on the sale of property and equipment are reflected in the  statements of
operations.

Fair  Value  of  Financial  Instruments
---------------------------------------
The Company's financial  instruments include cash and cash equivalents,  prepaid
expenses and other current assets,  accounts payable and accrued  expenses,  and
accrued   payroll.   The  fair  value  of  these   financial   instruments   are
representative of their carrying amounts due to their short maturities.

                                      F-10


<PAGE>




NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (Continued)

Advertising  Costs
------------------
The company expenses advertising costs as incurred. For the years ended December
31, 2004 and 2003, advertising costs were $181,099, and $103,427 respectively.

Software  Development  Costs
----------------------------
Pursuant to the provisions of SFAS No. 86, "Accounting for the Costs of Computer
Software to Be Sold,  Leased or Otherwise  Marketed," we  capitalize  internally
developed  software and  software  purchased  from third  parties if the related
software product under development has reached  technological  feasibility or if
there are alternative  future uses for the purchased  software.  These costs are
amortized on a product-by-product basis typically over the estimated life of the
software product using the greater of the ratio that current gross revenue for a
product bears to the total of current and  anticipated  future gross revenue for
that product or the straight-line  method over the remaining  estimated economic
life  of  the  product.   At  each  balance   sheet  date,   we  evaluate  on  a
product-by-product  basis the unamortized  capitalized cost of computer software
compared to the net  realizable  value of that product.  The amount by which the
unamortized  capitalized  costs of a computer  software  product  exceed its net
realizable  value is written off. At December 31,  2004,  all costs  incurred to
internally development our software had been expensed.


Accounting for Derivative Instruments
-------------------------------------

In  connection  with the issuance of certain  convertible  debentures in May and
June 2004,  the  debentures  provided for a conversion  of the  debentures  into
shares  of the  Company's  common  stock at a rate  which was  determined  to be
variable. The Company determined that the variable conversion feature was an
 embedded  derivative  instrument  pursuant  to SFAS No.  133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities,"  as amended.  The  accounting
treatment of derivative  financial  instruments required that the Company record
the  derivatives  and related  warrants at their fair values as of the inception
date of the note  agreements  and at fair  value as of each  subsequent  balance
sheet date.  In addition,  under the  provisions  of Emerging  Issues Task Force
("EITF")  Issue No. 00-19,  "Accounting  for  Derivative  Financial  Instruments
Indexed to, and  Potentially  Settled in, a Company's Own Stock," as a result of
entering into the debenture agreements, the Company was required to classify all
other  non-employee  options and warrants as derivative  liabilities  and record
them at their fair values at each balance  sheet date.  Any change in fair value
was recorded as non-operating,  non-cash income or expense at each balance sheet
date. If the fair value of the derivatives was higher at the subsequent  balance
sheet date, the Company recorded a non-operating,  non-cash charge.  If the fair
value of the  derivatives  was lower at the  subsequent  balance sheet date, the
Company recorded non-operating, non-cash income.

During the years ended December 31, 2004 and 2003, the Company  recognized other
income of  $3,688,882  and $0 related to recording the  derivative  liability at
fair  value.  At  December  31,  2004,  the  derivative   liability  balance  is
$3,486,567.


Derivatives  were valued using the  Black-Scholes  Option Pricing Model with the
following  assumptions  during  the  years  ended  December  31,  2004 and 2003:
dividend yield of 0%; annual  volatility of 100% and risk free interest rates of
3.15% and 1.2%, respectively.


Stock-Based  Compensation
-------------------------
SFAS No. 123,  "Accounting  for  Stock-Based  Compensation,"  as amended by SFAS
No.148,  "Accounting for Stock-Based  Compensation-Transition  and  Disclosure,"
defines a fair value based method of accounting  for  stock-based  compensation.
However,  SFAS No. 123 allows an entity to continue to measure compensation cost
related  to stock and stock  options  issued to  employees  using the  intrinsic
method of accounting  prescribed by Accounting  Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees."  Entities electing to remain
with the accounting method of APB Opinion No. 25 must make pro forma disclosures
of net income and earnings  per share as if the fair value method of  accounting
defined in SFAS No. 123 had been applied. The Company has elected to account for
its  stock-based  compensation  to employees  under APB Opinion No. 25 using the
intrinsic value method.


                                      F-11


<PAGE>




NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (Continued)

Stock-Based  Compensation  (Continued)
-------------------------
If the Company had elected to recognize compensation expense based upon the fair
value  at the  grant  date  for  awards  under  its  plan  consistent  with  the
methodology  prescribed  by SFAS No. 123,  the  Company's  net loss and loss per
share would be reduced to the pro forma  amounts  indicated  below for the years
ended December 31, 2004 and 2003:





                                                    2004 (Restated)    2003
                                                    -------------  ------------



  Net loss
    As reported                                     $ (6,093,038)  $(3,925,394)
    Add stock based employee compensation
      expense included in net income, net of tax                             -

    Deduct total stock based employee compensation
      expense determined under fair value method
      for all awards, net of tax                      (1,697,040)     (446,601)
                                                    -------------  ------------


        Pro forma                                   $(7,790,078)  $(4,371,995)
                                                    =============  ============


                                                            2004          2003
                                                    -------------  ------------
  Loss per common share

    Basic - as reported                             $      (0.07)  $     (0.07)
    Basic - pro forma                               $      (0.09)  $     (0.07)
    Diluted - as reported                           $      (0.07)  $     (0.07)
    Diluted  pro forma                              $      (0.09)  $     (0.07)



For purposes of computing  the pro forma  disclosures  required by SFAS No. 123,
the fair value of each option  granted to employees  and  directors is estimated
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for the year ended December 31, 2004: dividend yield of 0%; expected
volatility of 100%;  risk-free interest rate of 3.15%; and expected life of five
years.  The  weighted-average  fair value of options  granted  during year ended
December  31, 2004 for which the  exercise  price equals the market price on the
grant date was $1.273, and the  weighted-average  exercise price was $1.273. The
weighted-average  fair value of options  granted  during year ended December 31,
2004 for which the  exercise  price is less than the  market  price on the grant
date  was  $1.37,  and the  weighted-average  exercise  price  was  $1.321.  The
weighted-average  fair value of options  granted  during year ended December 31,
2004 for which the exercise  price is greater than the market price on the grant
date was $1.311, and the weighted-average exercise price was $1.479.


                                      F-12


<PAGE>




NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (Continued)

Loss  Per  Share
----------------
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share is
computed  by   dividing   loss   available   to  common   shareholders   by  the
weighted-average number of common shares outstanding.  Diluted loss per share is
computed  similar  to basic  loss per  share  except  that  the  denominator  is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common  shares were  dilutive.  Common  equivalent  shares are excluded from the
computation if their effect is anti-dilutive.

The following potential common shares have been excluded from the computation of
diluted net loss per share for the periods  presented  because the effect  would
have been anti-dilutive.




                                    2004 2003
                             ----------  ----------

  Options outstanding under
    the Company's stock
    option plans             23,176,114  14,886,702
  Warrants                    9,112,001           -


Research  and  Development
--------------------------
Research and Development costs are charged to operations as incurred.

Income  Taxes
-------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the  recognition of deferred tax assets and  liabilities for the expected future
tax  consequences of events that have been included in the financial  statements
or tax returns. Under this method,  deferred income taxes are recognized for the
tax consequences in future years of differences  between the tax bases of assets
and liabilities and their financial  reporting amounts at each year-end based on
enacted tax laws and statutory tax rates  applicable to the periods in which the
differences  are expected to affect  taxable  income.  Valuation  allowances are
established,  when  necessary,  to reduce  deferred  tax  assets  to the  amount
expected to be realized.

Foreign  Currency  Translation
------------------------------
Assets and liabilities in foreign currencies are translated at the exchange rate
prevailing  at the balance sheet date.  Revenues and expenses are  translated at
the exchange rate  prevailing at the  transaction  date, and the resulting gains
and losses are  reflected  in the  statements  of  operations.  Gains and losses
arising from translation of a subsidiary's foreign currency financial statements
are shown as a component of shareholders'  equity (deficit) as accumulated other
comprehensive income (loss).


                                      F-13


<PAGE>




NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (Continued)

Estimates
---------
The preparation of financial  statements  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
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.

Concentrations  of  Credit  Risk
--------------------------------
Financial instruments which potentially subject the Company to concentrations of
credit risk consist of cash and cash  equivalents.  The Company  places its cash
and cash equivalents with high credit, quality financial institutions. At times,
such cash and cash equivalents may be in excess of the Federal Deposit Insurance
Corporation  insurance  limit of $100,000.  The Company has not  experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.

Impact  of  Recent  Accounting  Pronouncements
----------------------------------------------

In November 2004, the FASB issued SFAS No.  151,"Inventory  Costs". SFAS No. 151
amends the accounting for abnormal  amounts of idle facility  expense,  freight,
handling costs, and wasted material (spoilage) under the guidance in ARB No. 43,
Chapter 4,"Inventory Pricing".  Paragraph 5 of ARB No. 43, Chapter 4, previously
stated that  "under some  circumstances,  items such as idle  facility  expense,
excessive spoilage,  double freight,  and rehandling costs may be so abnormal as
to require  treatment as current period  charges" This  Statement  requires that
those items be recognized as current-period  charges  regardless of whether they
meet the criterion of "so abnormal." In addition,  this Statement  requires that
allocation of fixed production  overheads to the costs of conversion be based on
the normal  capacity of the production  facilities.  This statement is effective
for inventory  costs incurred during fiscal years beginning after June 15, 2005.
Management does not expect adoption of SFAS No. 151 to have a material impact on
the Company's financial statements.

In  December  2004,  the FASB issued  SFAS No.  152,"Accounting  for Real Estate
Time-Sharing  Transactions".  The FASB issued this  Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
Estate  Time-Sharing  Transactions".   SOP  04-2  applies  to  all  real  estate
time-sharing  transactions.  Among other items, the SOP provides guidance on the
recording  of credit  losses and the  treatment of selling  costs,  but does not
change the revenue recognition guidance in SFAS No.  66,"Accounting for Sales of
Real Estate",  for real estate  time-sharing  transactions.  SFAS No. 152 amends
Statement  No. 66 to reference the guidance  provided in SOP 04-2.  SFAS No. 152
also amends SFAS No. 67,  "Accounting for Costs and Initial Rental Operations of
Real Estate Projects",  to state that SOP 04-2 provides the relevant guidance on
accounting  for  incidental  operations  and costs  related  to the sale of real
estate time-sharing transactions.  SFAS No. 152 is effective for years beginning
after June 15, 2005, with restatements of previously issued financial statements
prohibited. This statement is not applicable to the Company.


                                      F-14


<PAGE>




In  December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets,"  an   amendment   to  Opinion  No.   29,"Accounting   for   Nonmonetary
Transactions".  Statement No. 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance  contained in standards  issued by
the  International  Accounting  Standards Board. The amendment to Opinion No. 29
eliminates  the fair  value  exception  for  nonmonetary  exchanges  of  similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial  substance.  Such an exchange has
commercial  substance  if the future  cash flows of the entity are  expected  to
change significantly as a result of the exchange.  SFAS No. 153 is effective for
nonmonetary asset exchanges  occurring in periods beginning after June 15, 2005.
Earlier  application is permitted for nonmonetary  asset exchanges  occurring in
periods  beginning after December 16, 2004.  Management does not expect adoption
of SFAS No. 153 to have a material impact on the Company's financial statements.

In December 2004, the FASB issued SFAS No.  123(R),"Share-Based  Payment".  SFAS
123(R) amends SFAS No.  123,"Accounting for Stock-Based  Compensation",  and APB
Opinion  25,"Accounting  for Stock Issued to Employees." SFAS No.123(R) requires
that  the  cost  of  share-based  payment  transactions  (including  those  with
employees and non-employees) be recognized in the financial statements. SFAS No.
123(R)  applies  to all  share-based  payment  transactions  in which an  entity
acquires  goods or services by issuing (or offering to issue) its shares,  share
options,  or other equity  instruments  (except for those held by an ESOP) or by
incurring  liabilities  (1) in amounts  based (even in part) on the price of the
entity's  shares  or  other  equity  instruments,  or (2) that  require  (or may
require)  settlement  by the  issuance  of an  entity's  shares or other  equity
instruments. This statement is effective for the Company as of the first interim
period or fiscal year beginning after December 15, 2005. Management is currently
assessing the effect of SFAS No. 123(R) on the Company's financial statements.


NOTE  4  -  PROPERTY  AND  EQUIPMENT

Property and equipment at December 31, 2004 consisted of the following:

     Computer  equipment  and  software               $     155,797
     Furniture  and  equipment                               79,655
     Vehicles                                                27,113
     Leasehold  improvements                                  8,958
                                                      -------------
                                                            271,523
     Less accumulated depreciation and amortization          97,128
                                                      -------------

          Total                                       $     174,395
                                                      =============

Depreciation and amortization expense was $50,327,  $26,343, and $94,538 for the
years  ended  December  31,  2004 and 2003 and the  period  from  June 18,  1999
(inception) to December 31, 2004, respectively.


                                      F-15


<PAGE>




NOTE  5  -  NOTES  PAYABLE

Amounts due under notes payable include the following:

- Short term loans for gross proceeds of $225,000. The loans earn interest at 8%
per annum, and the principal and any unpaid interest are payable on demand.

- Promissory  note  agreement  for gross  proceeds of  $100,000.  The note earns
interest  at 10% per annum,  and the  principal  and any unpaid  interest is due
September 27, 2005.

Future  minimum  payments under these notes payable at December 31, 2004 were as
follows:




Year Ending                            Notes
December 31,                          Payable
------------------------------------  --------

2005                                  $376,885
2006                                         -
2007                                         -
2008                                         -
2009                                         -
    Thereafter                               -
                                      --------

                                       376,885
  Less amount representing interest     51,885
                                      --------

    Notes Payable                     $325,000
                                      ========


Interest expense was $32,638,  $2,040,  and $34,678 for the years ended December
31, 2004 and 2003 and the period from June 18, 1999  (inception) to December 31,
2004, respectively.


                                      F-16


<PAGE>




NOTE  6  -  CONVERTIBLE  DEBENTURES:  RELATED  PARTY

During May and June 2004, the Company issued two convertible  secured debentures
in the amount of $750,000  each to one  Investment  Company for a total price of
$1,500,000.  The  convertible  debentures  bear  interest  at 5.0% per annum and
mature on May 19, 2007 and June 25, 2007.  The  debentures are secured by all of
the assets of the Company.

The secured  debentures are convertible  into the Company's  common stock at the
holder's option any time up to maturity at a conversion price equal to the lower
of:
     -    120%  of  the  closing bid price of the common stock as of the closing
          date,  or
     -    80% of the lowest  closing  bid price of the common  stock  during the
          five trading days immediately preceding the conversion date.

At maturity, the Company has the option to either pay the holder the outstanding
principal  balance and accrued  interest or to convert the debenture into shares
of common stock at a conversion  price similar to the terms described above. The
Company has the right to redeem the  debenture  upon three  business days notice
for 120% of the amount redeemed. Upon such redemption,  the holder shall receive
warrants  equal to 50,000 shares of common stock for each $100,000  redeemed pro
rata.

Each warrant  entitles the holder to purchase one share of the Company's  common
stock at an exercise  price equal to 120% of the closing bid price of the common
stock on the  closing  date.  The  warrant  shall have  "piggy-back"  and demand
registration  rights and shall  survive for two years from the closing  date. If
the  Company  elects  to  redeem a  portion  or all of the  debentures  prior to
maturity  the  amount  allocated  to the  warrants  as a debt  discount  will be
calculated and recognized as an expense at that time.


                                      F-17


<PAGE>




NOTE  6  -  CONVERTIBLE  DEBENTURES:  RELATED  PARTY  (Continued)


In  connection  with the  issuance of the  Convertible  Debentures,  the Company
recorded a debt  discount of  $428,571,  consisting  of an embedded  put option,
which was recorded as a derivative liability upon note issuance.  The Company is
amortizing the discount using the effective  interest  method through June 2007.
The  derivative  liability will be recorded as additional  paid-in  capital upon
conversion or repayment of the debentures. On December 31, 2004, the outstanding
principal of the Convertible  Debenture was $1,500,000,  less the remaining debt
discount of $339,284.  The Company recognized interest expense of $89,287 in the
accompanying statements of operations for the year ended December 31, 2004.

The fair value of the remaining derivative liability related to the embedded put
option is  approximately  $3,486,600 at December 31, 2004 and is included in the
accompanying consolidated balance sheet.


Future  minimum  payments  under these  debentures  at December 31, 2004 were as
follows:



Year Ending                             Notes
December 31,                           Payable
------------------------------------  ----------

2005                                  $        -
2006                                           -
2007                                   1,725,000
2008                                           -
2009                                           -
    Thereafter                                 -
                                      ----------

                                       1,725,000
  Less amount representing interest      225,000
                                      ----------

    Total                             $1,500,000
    Less discount                        339,284
                                      ----------

        Convertible debenture         $1,160,716
                                      ==========


Interest expense was $42,021,  $25,503, and $67,524 for the years ended December
31, 2004 and 2003 and the period from June 18, 1999  (inception) to December 31,
2004, respectively.


                                      F-18


<PAGE>




NOTE  7  -  COMMITMENTS  AND  CONTINGENCIES

Leases
------
The Company leases its facilities under various non-cancelable operating leases,
which require  monthly  payments  ranging from $150 to $8,230 and expire through
December 2007. In addition,  the Company leases various  equipment under capital
lease  obligations,  which require monthly  payments  ranging from $301 to $470,
bear interest at approximately 20% per annum, and expire through May 2006.

Future minimum lease payments under these  non-cancelable  operating and capital
lease obligations at December 31, 2004 were as follows:




Year Ending                           Operating   Capital
December 31,                            Leases     Leases
------------------------------------  ----------  --------

2005                                  $  226,858  $ 10,010
2006                                     220,899     5,870
2007                                     108,072         -
                                      ----------  --------

                                         555,829    15,880
                                      ==========
  Less amount representing interest                  3,175
                                                ----------

                                                    12,705
  Less current portion                               7,550
                                                ----------

    Long-term portion                           $    5,155
                                                ==========


Rent expense was $164,992,  $119,997,  and $327,996 for the years ended December
31, 2004 and 2003 and the period from June 18, 1999  (inception) to December 31,
2004, respectively.


                                      F-19


<PAGE>




NOTE  7  -  COMMITMENTS  AND  CONTINGENCIES  (Continued)

Leases  (Continued)
------
Leased  capital  assets  included in property and equipment at December 31, 2004
were estimated to be as follows:

     Computer  equipment                $     23,128
     Vehicles                                 27,113
                                        ------------

                                              50,241
     Less  accumulated  depreciation          36,480
                                        ------------

          Total                         $     13,761
                                        ============

Depreciation  expense for assets under capital leases was $5,454,  $12,143,  and
$33,852 for the years ended  December 31, 2004 and 2003 and the period from June
18, 1999 (inception) to December 31, 2004, respectively.

Employment  Agreements
----------------------
The Company has entered  into  employment  agreements  with its Chief  Executive
Officer  ("CEO"),  Chief  Scientist,  Chief  Marketing  Officer,  Chief Software
Architect,  Chief Operating Officer,  Chief Financial  Officer,  and Senior Vice
President,  Legal  Affairs,  for annual  base  salaries of  $214,537,  $180,000,
$125,000, $80,672, $64,537, $69,147, and $96,038, respectively. The CEO's annual
compensation  is comprised of two separate  Employment  agreements,  one is held
with NS8 and the other is held with CMC. The CEO's Employment agreement with NS8
has a termination without cause severance payment of 36 months of salary,  which
at December 31, 2004 would be $450,000. The CEO's CMC Employment agreement along
with the other officers who reside in Vancouver,  British Columbia are protected
by the British  Columbia  Employment  Standards  Act, which entitles them to one
week of  compensation  for each year of service with the Company.  Each of these
employment agreements do not have termination dates.

Litigation
----------
The Company may become  involved in certain legal  proceedings  and claims which
arise in the normal  course of  business.  Management  does not believe that the
outcome  of any  such  matter  will  have a  material  effect  on the  Company's
financial position or results of operations.

                                      F-20


<PAGE>




NOTE  8  -  SHAREHOLDERS'  DEFICIT

Preferred  Stock
----------------
The Company has 50,000,000  authorized shares of non-voting preferred stock with
a $0.0001 par value.  The preferred stock may be issued in series,  from time to
time, with such designations,  rights, preferences, and limitations as the Board
of Directors may determine by resolution. The Company did not have any preferred
stock issued and outstanding at December 31, 2004.

Common  Stock
-------------
During the year ended  December 31, 2004,  the Company  completed  the following
transactions:

- In  November  2004,  the Company  issued  5,597,544  common  shares to Cornell
Capital Partners through the Equity Distribution Agreement valued at $400,000.

- In October 2004, the Company issued 500,000 common shares to Maximum  Ventures
in connection with financial advisory services rendered valued at $510,000.

- During October 2004, the Company filed a SB-2 registration  statement with the
Securities and Exchange  Commission  for the purpose of  registering  33,746,226
shares  for sale.  The  shareholders  consist of Cornell  Capital  Partners  who
intends to sell up to 28,297,379 shares of common stock, 18,691,589 of which are
under  the  Equity  Distribution  Agreement,  8,680,556  of which  are under the
Convertible  Secured  Debenture (the "Secured  Debenture")  and 925,234 of which
were  received  from  NS8Corp  as a  one-time  commitment  fee under the  Equity
Distribution  Agreement.  In addition  to Cornell  Capital  Partners,  the other
stockholders  selling  shares  under  this  offering  are  Newbridge  Securities
Corporation  ("Newbridge"),  who intends to sell up to 9,346 shares and MVI, who
intends to sell up to 5,439,501 shares.


                                      F-21


<PAGE>




NOTE  8  -  SHAREHOLDERS'  DEFICIT  (Continued)

Common  Stock  (Continued)
-------------
- In May 2004, the Company entered into an Standby Equity Distribution Agreement
("SEDA")  with Cornell  Capital  Partners.  Under the  agreement the Company may
issue and sell to Cornell  Capital common stock for a total purchase price of up
to  $20,000,000.  The  purchase  price for the  shares is equal to their  market
price,  which is defined in the SEDA as the lowest volume weighted average price
of the common stock during the five  trading days  following  the date notice is
given by the Company  that it desires an advance.  The amount of each advance is
subject to an aggregate  maximum  advance  amount of  $750,000,  with no advance
occurring within seven trading days of a prior advance. Cornell Capital received
a one-time  commitment fee of 925,234  registered shares of the Company's common
stock  valued at $990,000  which has been  recorded  as an offering  cost in the
accompanying financial statements.  Cornell Capital is paid a fee equal to 5% of
each advance,  which is retained by them from each advance. On May 19, 2004, the
Company entered into a Placement Agent Agreement with a registered broker-dealer
in connection  with the SEDA.  Pursuant to the Placement  Agent  Agreement,  the
Company paid a one-time  placement agent fee of 9,346  restricted  shares of the
Company's common stock valued at $10,000.

- In January and February 2004, the Company entered into  employment  agreements
with its  President  and its  Chief  Marketing  Officer  at annual  salaries  of
$180,000  and  $125,000,  respectively.  In  addition,  each officer was granted
2,000,000  restricted,  unregistered  shares of  common  stock  and  options  to
purchase  2,000,000  and  1,500,000  shares of common  stock,  respectively,  at
exercise prices equal to the Company's stock price on the date of the employment
agreement. The stock vests over one year from the date of employment agreements.
The Company  recorded  deferred  compensation of $5,460,000 for the value of the
shares.  In November  2004,  the  employees  voluntarily  forfeited  their stock
grants, 4,000,000 shares were returned to the Company.

- issued  25,170  shares of common stock to a third party for services  rendered
valued at $37,000.

- recorded  compensation cost of $110,100 for the value of stock options granted
to employees at exercise  prices less than the Company's stock price on the date
of grant


                                      F-22


<PAGE>




NOTE  8  -  SHAREHOLDERS'  DEFICIT  (Continued)

Common  Stock  (Continued)
-------------
During the year ended  December 31, 2003,  the Company  completed  the following
transactions:

- issued 2,100,000 shares of common stock for cash totaling  $495,000.  Offering
costs were not incurred in connection with this transaction.

- issued  1,166,667 units for an aggregate of cash proceeds of $1,750,000.  This
offering is being conducted pursuant to Regulation D and Regulation S as adopted
by the  Securities  and Exchange  Commission  pursuant to the  Securities Act of
1933.  Each unit  consists of two shares of the  Company's  common stock and one
warrant to purchase one share of the Company's  common stock at a purchase price
of $1.50 per unit. The warrants vest  immediately  and expire two years from the
date of grant. As offering costs,  the Company issued warrants  exercisable into
233,333  shares of the  Company's  common stock at an exercise  price of $1. The
warrants vest immediately and expire two years from the date of grant. The value
of the warrants was determined to be immaterial.

- issued  400,000  shares of common stock for cash  proceeds of  $200,000.  This
offering  is  being  conducted  pursuant  to  Regulation  D as  adopted  by  the
Securities and Exchange Commission pursuant to the Securities Act of 1933.

- issued  3,720,000  shares of common stock valued at $1,004,305 to employees of
the Company as  compensation.  Between  October 2002 and October  2003,  certain
employees  of CGMI  were  granted  shares  by  CGMI's  Board in  recognition  of
exemplary  service.  The Company did not have a stock ownership plan at the time
of any of the stock  grants.  The shares  vested  over 18 months  from the grant
date.  One of the terms of the  vesting of the shares was that all shares  would
immediately  become  vested if more than 50% of the  voting  shares of CGMI were
sold or  transferred or otherwise  disposed of to an individual or entity.  This
transfer of voting  control was deemed to have  occurred when Delivery Now Corp.
acquired  100% of the  outstanding  shares of CGMI on December  18, 2003 and the
vesting of the shares was  accelerated  so that the shares were fully  vested on
that date.

- issued 500,000  shares of common stock to a third party for services  rendered
valued at $17,500.

- issued  12,385,714  shares of common  stock for the  conversion  of loans from
officers/shareholders and accrued interest payable totaling $686,021


                                      F-23


<PAGE>




NOTE  8  -  SHAREHOLDERS'  DEFICIT  (Continued)

Common  Stock  (Continued)
-------------
During the year ended  December 31, 2002,  the Company  completed  the following
transactions:

- issued  7,923,448  shares of common stock for the conversion of a note payable
of $152,300.

- between  October and December  2002, the Company  issued  2,310,000  shares of
common stock valued at $80,850 to  employees  of the Company in  recognition  of
exemplary  service.  The shares  vest over 18 months  from the grant  date.  The
Company  recognized  $24,850  in  compensation  expense  during  the year  ended
December  31,  2002 for the vested  portion of the  shares  issued and  recorded
deferred  compensation  of $56,000 for the value of the unvested  portion of the
shares issued.

- canceled  1,000,000  shares of common stock that were  transferred  to a Board
advisor as a result of terminating this individual's position on the Board.

During the year ended  December 31, 2001,  the Company  completed  the following
transactions:

- issued  50,000  shares of common stock to a third party for services  rendered
valued at $200.

- issued 35,667  shares of common stock for the  conversion of a note payable of
$5,350.

- redeemed 1,025,000 shares of common stock in exchange for $2,662.

- issued  450,000 shares of common stock upon the exercise of stock options on a
cashless basis.


                                      F-24


<PAGE>




NOTE  8  -  SHAREHOLDERS'  DEFICIT  (Continued)

Common  Stock  (Continued)
-------------
During the year ended  December 31, 2000,  the Company  completed  the following
transactions:

- issued  20,000  shares of common stock to a third party for services  rendered
valued at $1,020.

- issued  2,000,000 shares of common stock upon the exercise of stock options on
a cashless basis.

- granted  500,000  stock  options as payment  for  services  rendered  by third
parties valued at $3,400.

- issued 3,239,112 shares of common stock for cash totaling  $284,139.  Offering
costs consisting of cash of $10,742 and 150,000 shares of common stock valued at
$22,500 were incurred in connection with these transactions.

During the period  from June 18, 1999  (inception)  to December  31,  1999,  the
Company completed the following transactions:

- issued  29,281,406  shares of common stock for the conversion of notes payable
to officers of $39,813.

- issued  4,130,000  shares of common stock for cash totaling  $5,616.  Offering
costs were not incurred in connection with this transaction.


                                      F-25


<PAGE>




NOTE  8  -  SHAREHOLDERS'  DEFICIT  (Continued)

Employee  Stock  Options
------------------------
The following  summarizes the stock options  transactions under the stock option
plans:




                                    Weighted-
                                     Average
                                   Stock Options   Exercise
                                    Outstanding      Price
                                   --------------  ---------

  Outstanding, December 31, 2003      14,886,702   $   0.035
      Granted                          4,342,500   $   1.345
                                   --------------

  Outstanding, March 31, 2004         19,229,202   $   0.331
      Cancelled                         (537,500)  $   1.271
      Granted                            205,912   $   1.017
                                   --------------

  Outstanding, June 30, 2004          18,897,614   $   0.312
      Cancelled                          (50,000)  $   1.028
      Granted                            350,000   $   0.973
                                   --------------

  Outstanding, September 30, 2004     19,197,614   $   0.322
      Cancelled                          (66,500)  $   0.893
      Granted                          4,045,000   $   0.641
                                   --------------

  Outstanding, December 31, 2004      23,176,114   $   0.377
                                   ==============

  Exercisable, December 31, 2004      16,514,694   $   0.164
                                   ==============


<TABLE>
<CAPTION>


                                      Options Outstanding              Options Exercisable
                                 ----------------------------    -------------------------------

                                    Weighted
                    Number           Average         Weighted          Number          Weighted
  Range of      Outstanding at      Remaining         Average      Exercisable at       Average
Exercise         December 31,      Contractual       Exercise       December 31,       Exercise
Prices              2004              Life             Price            2004             Price
-------------  ----------------  ----------------  ------------  -------------------  ----------
<S>            <C>              <C>                <C>           <C>                  <C>
$0.035-$1.00        19,061,702              3.42       $0.1708           14,900,452     $0.0358
$1.00 - $1.55        4,114,412              4.12       $1.3324            1,614,242     $1.3520
               ----------------  ----------------  ------------  -------------------  ----------

                    23,176,114              3.54        $0.377           16,514,694      $0.164
               ================  ================  ============  ===================  ==========

</TABLE>




                                      F-26


<PAGE>




NOTE  8  -  SHAREHOLDERS'  DEFICIT  (Continued)

Employee  Stock  Options  (Continued)
------------------------
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options,  which do not have vesting  restrictions  and are
fully  transferable.  In addition,  option valuation models require the input of
highly  subjective  assumptions,  including the expected stock price volatility.
Because the Company's employee stock options have characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

Warrants
--------
On May 18, 2004, NS8 entered into an Exclusive  Advisory  Agreement with Maximum
Ventures,  Inc. ("MVI"). Based in New York, MVI specializes in business strategy
and corporate  advisory services for emerging growth companies.  Pursuant to the
agreement, MVI agreed to act as a business advisor to NS8 with respect to equity
and debt financings,  strategic planning, mergers and acquisitions, and business
development activities.  Upon the execution of the agreement,  NS8 issued to MVI
warrants to purchase  5,439,501  shares of common stock,  which equaled 4.99% of
the shares of NS8 common stock then  outstanding,  on a fully diluted basis. The
warrants  were issued  with an  exercise  price of $2.00 per share and a term of
five years from the date of issuance.  The Exclusive Advisory Agreement with MVI
has a term of one year. The Company recorded a prepaid expense of $4,134,021 for
the value of the warrants. The Company recorded consulting expense of $2,583,764
for the value of the warrants earned during the twelve months ended December 31,
2004.  During  December 2004, due to  fluctuations in the price of the Company's
common stock all warrants  outstanding  were  re-priced to an exercise  price of
$0.61 per  share.  The  Company  did not record any  adjustments  to  consulting
expense as a result of the warrant re-pricing.


                                      F-27


<PAGE>




NOTE  9  -  INCOME  TAXES

The  provision  for income taxes  differs from the amount that would result from
applying the federal  statutory  rate for the years ended  December 31, 2004 and
2003 as follows:




                                                  2004    2003
                                                 -------  -------

  Statutory regular federal income benefit rate  (34.0)%  (34.0)%
  State income taxes, net of federal benefit       (5.8)    (5.8)
  Change in valuation allowance                    39.7     39.6
  Other                                             0.1      0.2
                                                 -------  -------

    Total                                              %      - %
                                                 =======  =======


The components of the deferred income tax assets  (liabilities)  at December 31,
2004 were as follows:

     Net  operating  loss  carry-forwards     $     4,127,200
     State  taxes                                    (435,500)
     Accrued  payroll                                 799,800
                                                      -------

                                                    4,491,500
     Valuation  allowance                          (4,491,500)
                                                   -----------

          Total                               $             -
                                              ================

The valuation  allowance  increased by approximately  $2,347,000 during the year
ended  December 31, 2004. As of December 31, 2004, the Company had net operating
loss  carryforwards  for federal and state income tax purposes of  approximately
$12,139,000 and $12,139,000,  respectively. The net operating loss carryforwards
begin expiring in 2020 and 2010, respectively.  The utilization of net operating
loss  carryforwards  may be  limited  due  to the  ownership  change  under  the
provisions of Internal Revenue Code Section 382 and similar state provisions.


                                      F-28


<PAGE>




NOTE  10  -  RELATED  PARTY  TRANSACTIONS

Notes  Payable  -  Shareholders
-------------------------------
Loans from  officers/shareholders  at December 31, 2004  consisted of loans from
several  officers/shareholders to finance the Company's operations.  At December
31, 2004, $3,790,106 was due to the officers/shareholders. Various due dates and
interest rates are stated below for the year ended December 31, 2004.

Note  and  Warrant  to  Shareholder
-----------------------------------
On December 10, 2004, the Company  entered into a promissory note agreement with
Cornell Capital for gross proceeds of $2,500,000. The note earns interest at 12%
per annum,  and the principal  and any unpaid  interest is due June 30, 2005. As
disclosed  in the  Shareholder's  Deficit  section,  the Company had  previously
entered  into a Standby  Equity  Distribution  Agreement  ("SEDA")  with Cornell
Capital, pursuant to which the Company agreed to sell shares of its common stock
to the  Cornell  Capital.  The  shares of common  stock to be issued to  Cornell
Capital under the SEDA may be resold by Cornell under an effective  registration
statement  filed by the Company with the Securities  and Exchange  Commission on
November 1, 2004.  Cornell  Capital will apply the proceeds from the sale of the
shares issued under the SEDA to the repayment of the loan.

The Company agreed to escrow twenty-four requests for advances under the SEDA in
an amount not less than $100,000 and one request for an advance in an amount not
less than  $197,808,  and has issued  5,000,000  shares of the Company's  Common
Stock to David Gonzalez,  Esq., to be held in escrow subject to the terms of the
loan.

The escrowed shares are only an estimation of the shares of the Company's common
stock  necessary to repay the  principal  amount and interest due on the loan as
the actual number of shares to be issued is based on a Variable Weighted Average
Price  ("VWAP")  calculation.  In the event that  proceeds from the sales of the
escrowed shares are  insufficient  to repay all amounts due to Cornell  Capital,
Irrevocable  Transfer  Agent  Instructions  have been  provided to the Company's
transfer agent, Continental Stock Trust & Transfer, reserving the balance of the
SEDA shares and authorizing the issuance to David Gonzalez,  Esq., to be held in
escrow subject to the terms of the loan,  such number of shares of the Company's
common stock so that the proceeds of the sale of such shares shall be sufficient
to repay all amounts due on the loan. The Company has classified the amount as a
liability  at December  31, 2004 in  accordance  with SFAS 150,  Accounting  for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity,  as the obligation  will be settled by issuing a variable  number of the
Company's equity shares.


                                      F-29


<PAGE>




NOTE  10  -  RELATED  PARTY  TRANSACTIONS  (Continued)

Note  and  Warrant  to  Shareholder  (Continued)
-----------------------------------
On October 28, 2004, the Company entered into a promissory note agreement with a
shareholder  for gross proceeds of $175,000.  The note earns interest at 10% per
annum, and the principal and any unpaid interest is due October 28, 2005.

On October 14, 2004, the Company entered into a promissory note agreement with a
shareholder  for gross proceeds of $175,000.  The note earns interest at 10% per
annum, and the principal and any unpaid interest is due October 14, 2005.

On September 24, 2004, the Company entered into a promissory note agreement with
a shareholder for gross proceeds of $175,000. The note earns interest at 10% per
annum, and the principal and any unpaid interest is due September 24, 2005.

On September 9, 2004, the Company  entered into a promissory note agreement with
a shareholder for gross proceeds of $175,000. The note earns interest at 10% per
annum, and the principal and any unpaid interest is due September 9, 2005.

On August 23, 2004, the Company  entered into a promissory note agreement with a
shareholder  for gross proceeds of $200,000.  The note earns interest at 10% per
annum, and the principal and any unpaid interest is due August 23, 2005.

On August 12, 2004, the Company  entered into a promissory  note agreement and a
warrant  agreement with a shareholder to purchase 50,000 shares of the Company's
common stock for gross proceeds of $100,000  earning interest at 9.5% per annum.
During September 2004,  $75,000 plus accrued interest was repaid and in December
2004 the balance of the note plus  accrued  interest  was repaid,  the  warrants
remain unexercised.

Each warrant  entitles the holder to purchase one share of the Company's  common
stock at an exercise  price equal to the closing  market  price per share on the
warrant issue date, and expires two years from the date of issuance. The Company
allocates the proceeds  received from debt or convertible  debt with  detachable
warrants using the relative fair value of the individual elements at the time of
issuance. The amount allocated to the warrants as a debt discount was calculated
at $20,319 and will be recognized as interest  expense over the period until the
note matures or is converted. Because the debt was settled prior to the maturity
date, the company  recognized the entire $20,319 as interest  expense during the
year ended December 31, 2004.  During  December 2004, due to fluctuations in the
price of the Company's  common stock all warrants  outstanding were re-priced to
an exercise price of $0.61 per share. The Company did not record any adjustments
to the interest expense as a result of the warrant re-pricing.

                                      F-30


<PAGE>




NOTE  10  -  RELATED  PARTY  TRANSACTIONS  (Continued)

Note  and  Warrant  to  Shareholder  (Continued)
-----------------------------------
On May 13, 2004,  the Company  entered into a promissory  note  agreement  and a
warrant  agreement with a shareholder to purchase 47,500 shares of the Company's
common stock for gross proceeds of $95,000 earning interest at 8% per annum. The
note plus  accrued  interest  was  repaid in June,  2004,  the  warrants  remain
unexercised.

Each warrant  entitles the holder to purchase one share of the Company's  common
stock at an exercise  price equal to the closing  market  price per share on the
warrant issue date, and expires two years from the date of issuance. The Company
allocates the proceeds  received from debt or convertible  debt with  detachable
warrants using the relative fair value of the individual elements at the time of
issuance. The amount allocated to the warrants as a debt discount was calculated
at $20,781 and will be recognized as interest  expense over the period until the
note matures or is converted. Because the debt was settled prior to the maturity
date, the company  recognized the entire $20,781 as interest  expense during the
quarter ended June 30, 2004.  During  December 2004, due to  fluctuations in the
price of the Company's  common stock all warrants  outstanding were re-priced to
an exercise price of $0.61 per share. The Company did not record any adjustments
to the interest expense as a result of the warrant re-pricing.

On May 12, 2004,  the Company  entered into a promissory  note  agreement with a
shareholder  for gross proceeds of $150,000.  The note earns interest at 10% per
annum, and the principal and any unpaid interest is due May 12, 2005.

On April 26, 2004,  the Company  entered into a promissory  note agreement and a
warrant  agreement with a shareholder to purchase 75,000 shares of the Company's
common stock for gross proceeds of $150,000  earning interest at 8.5% per annum.
The note plus accrued  interest was repaid in June,  2004,  the warrants  remain
unexercised.

Each warrant  entitles the holder to purchase one share of the Company's  common
stock at $1.00 per share,  and expires two years from the date of issuance.  The
Company  allocates  the proceeds  received  from debt or  convertible  debt with
detachable  warrants using the relative fair value of the individual elements at
the time of issuance.  The amount  allocated to the warrants as a debt  discount
was  calculated at $34,170 and will be  recognized as interest  expense over the
period  until the note  matures or is  converted.  Because  the debt was settled
prior to the  maturity  date,  the  company  recognized  the  entire  $34,170 as
interest  expense during the quarter ended June 30, 2004.  During December 2004,
due to  fluctuations  in the price of the  Company's  common  stock all warrants
outstanding  were re-priced to an exercise price of $0.61 per share. The Company
did not  record  any  adjustments  to the  interest  expense  as a result of the
warrant re-pricing.

                                      F-31


<PAGE>




NOTE  10  -  RELATED  PARTY  TRANSACTIONS  (Continued)

Note  and  Warrant  to  Shareholder  (Continued)
-----------------------------------
On March 11, 2004,  the Company  entered into a promissory  note agreement and a
warrant agreement with a shareholder to purchase 100,000 shares of the Company's
common stock for gross proceeds of $250,000.  The note earns interest at 10% per
annum, and the principal and any unpaid interest is due on March 11, 2005.

Each warrant  entitles the holder to purchase one share of the Company's  common
stock at $1.00 per share,  and expires two years from the date of issuance.  The
Company  allocates  the proceeds  received  from debt or  convertible  debt with
detachable  warrants using the relative fair value of the individual elements at
the time of issuance.  The amount  allocated to the warrants as a debt  discount
was  calculated at $51,587 and will be  recognized as interest  expense over the
period until the note matures or is converted.  In the event the debt is settled
prior  to the  maturity  date,  an  expense  will  be  recognized  based  on the
difference  between  the  carrying  amount  and the amount of the  payment.  The
Company  recognized  $41,693 as interest expense related to the accretion of the
debt discount during the year ended December 31, 2004.

Future  minimum  payments under these notes payable at December 31, 2004 were as
follows:




Year Ending                             Notes
December 31,                           Payable
------------------------------------  ----------

2005                                  $4,109,349
2006                                           -
2007                                           -
2008                                           -
2009                                           -
    Thereafter                                 -
                                      ----------

                                       4,109,349
  Less amount representing interest      309,349
                                      ----------
  Total                                3,800,000
  Less discount                            9,894
                                      ----------
    Notes Payable- shareholders       $3,790,106
                                      ==========


Interest expense was $76,400,  $18,977, and $95,727 for the years ended December
31, 2004 and 2003 and the period from June 18, 1999  (inception) to December 31,
2004, respectively.


                                      F-32


<PAGE>




NOTE  11  -  CONTRACTS

In November 2004, the Company entered into a consulting  services agreement with
Peter  Hogendoorn.  The  services  to be  performed  by Mr.  Hogendoorn  include
shareholder  communications,  market  and  finance  consultation,  international
finance correspondence,  and any other duties as assigned by Company management.
The term of the  consulting  services  agreement is one year ending  November 1,
2005, unless terminated by Mr. Hogendoorn or the Company on 30 days notice.  Mr.
Hogendoorn  will be paid a consulting  fee of $7,000 CAD per month.  The Company
and  Mr.  Hogendoorn  both  acknowledge  and  affirm  that  Mr.  Hogendoorn  had
previously executed an Employment  Agreement with the Company,  and all previous
Employment Agreements are implied and explicitly deemed cancelled and void as of
August  6,  2004.  All  accrued  wages  due  to  Mr.  Hogendoorn  prior  to  the
cancellation  date  will be paid on a pro rata  basis at the  discretion  of the
Board of Directors as such funds become available.

In November  2004,  the Company  entered into an addendum to the QED  Management
("QED") consulting services agreement.  The Company engaged two consultants from
QED to perform the roles and  responsibilities  of Chief  Executive  Advisor and
Chief  Advisor  Finance.  The  consulting  fees  payable  to  QED  for  the  two
consultants are as follows:

- Chief  Executive  Advisor -  Consulting  fee of  $15,833  per  month,  monthly
personal  expense  allowance and car allowance of $2,000 and $700  respectively,
2,000,000 options to purchase the Company's common stock at an exercise price of
$0.37 per share for a period of five years;  however, the 2,000,000 options will
be held in trust by the Company until September 2, 2005.

- Chief  Finance  Advisor  -  Consulting  fee of  $17,076.96  for the  period of
November 15, 2004 to December 16, 2004,  monthly personal expense  allowance and
car allowance of $2,000 and $700 respectively.

In  October  2004,  SRG LLC  asserted a claim  against  the  Company  based on a
professional consulting agreement dated December 2003. Under the agreement,  SRG
LLC was granted options to acquire 250,000 shares of common stock at an exercise
price of $0.50 per share. SRG LLC had certain piggyback  registration  rights in
the event that the Company filed a registration statement for the sale of common
stock.

The Company terminated the agreement on the grounds of failure of consideration,
non-performance  and material  breach in June 2004.  SRG LLC claimed that it was
entitled to have the shares  underlying the option included in the  registration
statement  filed by the Company on June 22, 2004. In October  2004,  the Company
agreed to settle all of SRG LLC's claims for a cash payment of $70,000,  SRG LLC
released the Company from all  liabilities  and the stock options were cancelled
effective as of December 2003.

                                      F-33


<PAGE>




NOTE  11  -  CONTRACTS  (Continued)

The original  consulting  agreement  with QED was entered into during  September
2004. The services to be performed by QED as outlined in the original consulting
agreement  include  consultation,  special  projects and  representation  of the
Company concerning strategy development, execution and business development. The
term of the consulting services agreement is two years, unless terminated by QED
or the  Company on 30 days  notice.  The  September  2004  consulting  agreement
provided $10,000 per month in consideration  for QED's services,  and subject to
the conditions of the agreement  350,000 stock options to purchase the Company's
common stock. The Company will grant QED the options, as follows:

- 225,000 options issued upon execution of the consulting services agreement, at
an exercise  price of $1.01 per share.  The options  were issued on September 1,
2004,  and vest fully upon  grant  with a term of five  years.  The value of the
options is  $173,250  and is  included  in prepaid  expenses  and other  current
assets.  Compensation expense will be recognized over the life of the consulting
services (two years).

- 125,000 options to be issued one year and one day after the agreement date, at
an exercise  price equal to the market price of the stock on the issue date. The
options will vest fully upon grant with a term of five years. The value of these
options  will be  assessed on the grant date which is one year and one day after
the agreement date.

On September 1, 2005, subject to the satisfactory completion of established work
objectives  the  Company  will pay QED a lump sum of $12,000 and the monthly fee
will increase to $11,000 for the duration of the agreement.

During September 2004, the company entered into a Letter of  Understanding  with
Lifelong Educational Properties Inc. ("LEAP"). LEAP agreed to assist the Company
with the marketing and sales of the Company's  products in certain  countries in
Europe,  Asia and Latin  America.  The term of the  agreement is two years,  and
continues thereafter until terminated by either party on 90 days notice.

                                      F-34


<PAGE>




NOTE  11  -  CONTRACTS  (Continued)

In  consideration  for LEAP's  services,  the Company  will pay LEAP $20,000 per
month,  $10,000 in cash and $10,000 as an accrual of debt. The debt accrual will
be paid when the  Company  has  adequate  capital  from  revenues  or  financing
transactions. At the election of LEAP, the debt accrual may be paid with Company
common stock. LEAP will also earn commissions of 7% of sales it completes and 5%
of compensation  realized from strategic  partnerships it arranges.  The Company
also  issued to LEAP  warrants  to purchase  2,000,000  shares of the  Company's
common  stock.  The  exercise  price is $1.03  per share  for  1,000,000  of the
warrants and $1.13 per share for  1,000,000 of the  warrants.  The warrants were
issued on October 7, 2004, and have a term of five years. The Company recorded a
prepaid  expense  of  $1,590,000  for the  value of the  warrants.  The  Company
recorded  consulting  expense of $198,750 for the value of the  warrants  earned
during the twelve months ended December 31, 2004.  During  December 2004, due to
fluctuations in the price of the Company's common stock all warrants outstanding
were  re-priced  to an  exercise  price of $0.61 per share.  The Company did not
record  any  adjustments  to  consulting  expense  as a  result  of the  warrant
re-pricing.

NOTE  12  -  SUBSEQUENT  EVENTS

Option  Agreement
-----------------
On February 10, 2005, the Company  entered into an Option  Agreement with ezTel,
LLC  ("ezTel")  pursuant  to which the Company was granted an option to purchase
100% of the equity  interests of ezTel for a purchase  price of $1,500,000  (the
"Option").  The Option is  exercisable  at the sole  discretion  of the Company,
subject to confirmation of the Option by the Bankruptcy  Court and  confirmation
of a  revised  Plan  of  Reorganization  by the  Bankruptcy  Court  in a  final,
non-appealable order. The Company is under no obligation to exercise the Option.
If the Company chooses to exercise the Option, the Company's obligation to close
its purchase of the equity  interest in ezTel will be subject to  fulfillment of
certain conditions, including but not limited to:

(i)  Completion  of due  diligence  satisfactory  to  the  Company  in its  sole
discretion;

(ii) Receipt of all necessary  third party  consents,  including (x) approval by
the Bankruptcy  Court and the  confirmation  of the Plan discussed above and (y)
the consent and waiver of certain  negative  covenants  by one of the  Company's
lenders and investors; and

                                      F-35


<PAGE>




NOTE  12  -  SUBSEQUENT  EVENTS  (Continued)

Option  Agreement  (Continued)
-----------------

(iii) Repayment of the Loan discussed  below. If the Company acquires ezTel, the
Company  intends to enter into a management  agreement  with Patric  Boggs,  the
president  and chief  executive  officer of ezTel,  pursuant to which Mr.  Boggs
would provide management services to ezTel.

As consideration  for the Option,  the Company advanced a Term Loan (the "Loan")
in  the  amount  of  $200,000  to  Long  Distance  Billing  Services,   Inc.,  a
wholly-owned  subsidiary  of  ezTel  ("LDBS")  pursuant  to a  Promissory  Note,
Security Agreement and Deed of Covenants. The Loan is in the principal amount of
$200,000,  contains  customary events of default and provides for an annual rate
of interest equal to 12%.

The entire  principal  balance and any  accrued  interest on the Loan is due and
payable on August 1, 2005.  Following  any default  under the terms of the Loan,
the  Company  may elect to (i)  declare  the Note due and  payable,  and/or (ii)
increase the rate of interest  payable under the Loan by three  percent  (3.00%)
per annum.  LDBS's  obligations under the Loan are secured by a pledge of all of
the  assets of LDBS,  and the  Company  will have all the  rights  and  remedies
available  upon default to a secured  party under the Uniform  Commercial  Code.
LDBS will use the  proceeds  of the Loan only for  working  capital,  payment of
outstanding tax liabilities and other costs and expenses approved by the Company
in writing.  Although the  Promissory  Note  evidencing the Loan was dated as of
February 3, 2005,  the Loan  proceeds were not advanced to LDBS until the Option
was executed on February 10, 2005.

On  February  22,  2005  LDBS  filed  for  protection  under  Chapter  11 of the
Bankruptcy Code. The Company  anticipates  taking  appropriate action to protect
its collateral security.  LDBS's bankruptcy proceeding is ongoing.  Accordingly,
at this  time we do not  anticipate  exercising  our  option  to  acquire  ezTel
pursuant  to the Option  Agreement.  We cannot  assure you that the term loan to
LDBS will be repaid.

Notes  Payable
--------------
On  February  28,  2005,  the  company  received an  extension  on the  $250,000
promissory  note due on March 11, 2005. The due date of the promissory  note was
extended six months to September  11,  2005,  the interest  rate remains 10% per
annum.

Stock  Options
--------------
In February 2005, the Company granted stock options to purchase 50,000 shares of
common stock to certain employees

Employee  Resignations
----------------------
On February 18, 2005 the Chief Marketing Officer of the Company  resigned.  As a
consequence of the resignation, the Company agreed to pay one month of severance
totaling $10,416.66, and continuation of employee benefits until March 31, 2005.
The stock  option  agreement  received by the  employee on February 20, 2004 for
1,500,000  stock  options was  rescinded  and  replaced  with a new stock option
agreement for 525,000 options.

                                      F-36


<PAGE>




NOTE  12  -  SUBSEQUENT  EVENTS  (Continued)

Employee  Resignations  (Continued)
----------------------
On  January  21,  2005  the  Chief  Scientist  of  the  Company  resigned.  As a
consequence  of the  resignation,  the  Company  agreed  to pay one and one half
months of severance  totaling  $22,500,  and  continuation of employee  benefits
until March 31, 2005. The employee will retain their 2,000,000 stock options for
the full  amount of the  remaining  term in  accordance  with the  Stock  Option
Agreement.

On  January  10,  2005,  as  part  of a  corporate  reorganization  the  Company
terminated  the Senior Vice  President,  Global  Sales and  Marketing of NS8 and
CanOnline Global Media Inc. In addition, the individual was also given notice of
termination  as  a  Director  of  CanOnline  Global  Media  Inc.;  however,  the
individual  will continue to act as a Director of NS8. As a  consequence  of the
termination,  the  Company  agreed to pay two and one half  months of  severance
totaling $16,250, and continuation of employee benefits until March 31, 2005. In
addition,  Mr.  Waage will  receive  options to  purchase  97,500  shares of the
Company's common stock at an exercise price of $0.20 per share.

Contracts
---------
On March 15, 2005 30 days advance  written notice of  termination  were given to
QED Management.  As per the terms of the consulting agreement, QED shall receive
compensation for any earned but unpaid compensation plus additional compensation
for the 30 days  notice  period at the  compensation  rate  then in effect  plus
expenses  submitted by QED within 30 days of the date of termination.  QED shall
be paid all amounts owing pursuant to the consulting agreement within 10 days of
receipt of the expense statement or invoice.

Conversion  of  Convertible  Debenture
--------------------------------------
As of March 11, 2005, the Company received three conversion notices from Cornell
Capital  totaling  $200,000 which represents a conversion under the terms of the
Convertible  Debenture.  The Company  issued  1,495,536  free trading  shares to
Cornell  Capital  at an  average  price  of $0.13  per  share.  The  Convertible
Debenture  outstanding  is $1,300,000  plus accrued  interest less the remaining
debt discount for warrants.

                                      F-37


<PAGE>




NOTE  12  -  SUBSEQUENT  EVENTS  (Continued)

Conversion  of Promissory  Note
-------------------------------
On January 10, 2005,  Cornell Capital began converting their escrow requests for
advances  under the SEDA into the Company's  common stock.  As of March 21, 2005
Cornell has converted  $550,000 into 2,375,127 common shares. The balance of the
promissory note outstanding is $1,950,000 plus accrued interest.

The Company agreed to escrow twenty-four requests for advances under the SEDA in
an amount not less than $100,000 and one request for an advance in an amount not
less than  $197,808,  and has issued  5,000,000  shares of the Company's  Common
Stock to David Gonzalez,  Esq., to be held in escrow subject to the terms of the
loan.

On February 24, 2005, the joint disbursement instructions on the promissory note
were  revised.   Beginning  March  14,  2005,  the  advance  notices  and  stock
disbursements  schedule  was  amended,  and the advance  amounts were amended to
$50,000 per advance.

On March 1, 2005, the balance of the shares  available  under the Standby Equity
Distribution  agreement dated May 19, 2004 were issued to David Gonzalez,  Esq.,
to be held in escrow  subject  to the terms of the  loan.  The  number of common
shares issued were 13,094,045.

Contribution  of  Capital
-------------------------
During January 2005,  Anthony Alda made a contribution  of capital in the amount
of $34,386.


                                      F-38


<PAGE>






NOTE 13 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During the year ended December 31, 2005, the Company  determined that the manner
in which it  accounted  for the  variable  conversion  rate and an embedded  put
option of  certain  of its  convertible  notes  payable  (see Note 7) was not in
accordance  with  SFAS  No.  133.  The  Company  determined  that  the  variable
conversion feature was an embedded derivative instrument and that the conversion
option was an  embedded  put option  pursuant to SFAS No.  133.  The  accounting
treatment of derivative  financial  instruments required that the Company record
the  derivatives  and related  warrants at their fair values as of the inception
date of the note  agreements  and at fair  value as of each  subsequent  balance
sheet date. In addition,  under the provisions of EITF No. 00-19, as a result of
entering  into the  convertible  note  agreements,  the Company was  required to
classify all other  non-employee  warrants as derivative  liabilities and record
them at their fair values at each balance  sheet date.  Any change in fair value
was recorded as non-operating,  non-cash income or expense at each balance sheet
date. If the fair value of the derivatives was higher at the subsequent  balance
sheet date, the Company recorded a non-operating,  non-cash charge.  If the fair
value of the  derivatives  was lower at the  subsequent  balance sheet date, the
Company recorded non-operating, non-cash income. Accordingly, in connection with
the  restatement  adjustments,  the  Company  has  appropriately  reflected  the
non-operating,  non-cash  income or expense  resulting  from the changes in fair
value.  The  Company  had  previously  not  recorded  the  embedded   derivative
instruments as a liability and did not record the related changes in fair value.
The  following  tables  present  a summary  of the  effects  of the  restatement
adjustments on the Company's consolidated balance sheet at December 31, 2004 and
the  statements  of  operations  and cash flows for the year ended  December 31,
2004:

<TABLE>
<CAPTION>

Consolidated balance sheet at December 31, 2004:

                                      As previously             Adjustments                As Restated
                                       reported
                                   --------------------      ---------------------      ----------------------
<S>                               <C>                       <C>                         <C>
Warrant liability                  $     -                   $      (3,486,567)    (1)    $        (3,486,567)
                                   ====================      =====================      ======================

Additional Paid In
Capital                            $        12,878,821       $       7,175,449     (2)    $        (5,703,372)
                                   ====================      =====================      ======================

 Deficit
 accumulated
 during the
 development stage
 and comprehensive
 loss                              $       (15,301,270)              3,688,882     (3)    $       (11,612,388)
                                   ====================      =====================      ======================




<PAGE>



Consolidated statement of operations for the year ended December 31, 2004:

                                      As previously             Adjustments                As restated
                                       reported
                                   --------------------      ---------------------      ----------------------
Change in fair value
of derivative liability            $    -                    $       (3,688,882)    (3)   $        (3,688,882)
                                   ====================      =====================      ======================
Net
loss                               $        (9,781,920)      $       (3,688,882)    (3)   $        (6,093,038)
                                   ====================      =====================      ======================

Loss per common share
-  basic and
diluted                            $             (0.11)      $             0.04           $             (0.07)
                                   ====================      =====================      ======================

</TABLE>

NOTE 13 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS, CONTINUED


(1) To record the fair value of the derivative liabilities at December 31, 2004.


(2) To record the  reclassification  of the fair value of warrants  and embedded
put option issued with  convertible  notes from  additional  paid-in  capital to
derivative liability.


(3) To record the change in fair value of the derivative liabilities.


                                      F-39