UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark  one)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT  OF  1934
                For the fiscal year ended      December 31, 2001
                                               -----------------

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(D)  OF THE SECURITIES
       EXCHANGE  ACT  OF  1934
                   For the transition Period from           to
                                                 -----------  -----------

                     Commission file number:  000-26881
                                            -------------

                            NETNATION COMMUNICATIONS INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                Delaware                                 33-0803438
    -------------------------------                  -------------------
    (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                   Identification No.)

   Suite 1410 - 555 West Hastings Street
   Vancouver, British Columbia, Canada                      V6B 4N6
  ----------------------------------------               --------------
  (Address of principal executive offices)                 (Zip Code)

        Registrant's telephone number, including area code (604) 688-8946
                                                          -----------------

Securities  registered  under  Section  12(b)  of  the  Act:
     Title  of  Class                    Name  of  exchange  on which registered

          None                                           None
      ------------                                   -------------

Securities  registered  under
Section  12(g) of the Act:             Common Stock, $0.0001  par  value
                           -----------------------------------------------
                                              (Title  of  class)

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

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-K  (Sec. 229.405 of this chapter) is not contained herein, and
will  not  be  contained,  to  the best of registrant's knowledge, in definitive
proxy  or  information  statements incorporated by reference in Part III of this
Form  10-K  or  any  amendment  to  this  Form  10-K. [X]

As  of  March  12,  2002, the aggregate market value of the voting common equity
held  by  non-affiliates of the registrant was $16,330,650, based on the closing
trade  reported  on  the  Nasdaq  Small  Capitalization Market quotation system.
Shares  of common stock held by each officer and director and by each person who
owns  five  percent  or  more of the outstanding common stock have been excluded
from  this  calculation  as such persons may be considered to be affiliated with
the  Company.

As  of  March  12,  2002, the registrant's outstanding common stock consisted of
15,218,002  shares,  $0.0001  par  value  per  share.

Documents incorporated by reference: None

<PAGE>
<TABLE>
<CAPTION>
                                       TABLE OF CONTENTS


Part  Item(s)                                                                         Page No.
----  -------                                                                         --------
<S>         <C>                                                                       <C>
I           1  Business                                                                      3
            2  Properties                                                                   26
            3  Legal Proceedings                                                            26
            4  Submission of Matters to a Vote of Security Holders                          26

II          5  Market for Registrant's Common Equity and Related Stockholder Matters        27
            6  Selected Financial Data                                                      28
            7  Management's Discussion and Analysis of Financial Condition
                 and  Results of Operations                                                 31
           7A  Quantitative and Qualitative Disclosure about Market Risk                    34
            8  Financial Statements and Supplementary Data                                  36
            9  Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure                                                   36

III        10  Directors and Officers of the Registrant                                     37
           11  Executive Compensation                                                       39
           12  Security Ownership of Certain Beneficial Owners and Management               43
           13  Certain Relationships and Related Transactions                               43

IV         14  Exhibits, Financial Statement Schedules and Reports on Form 8-K              44

               Signatures                                                                   45

               Index to Consolidated Financial Statements                                   46
</TABLE>


                                        2
<PAGE>
                                     PART I

ITEM  1:  BUSINESS
------------------

                           FORWARD -LOOKING STATEMENTS

Except  for  the  historical information presented in this document, the matters
discussed  in  this  Form  10-K,  and  specifically  in  the  sections  entitled
"Business"  and "Management's Discussion and Analysis of Financial Condition and
Results  of  Operations,"  or  otherwise  incorporated  by  reference  into this
document  contain  "forward-looking  statements" (as such term is defined in the
Private  Securities  Litigation  Reform  Act  of  1995). These statements can be
identified  by  the  use  of  forward-looking  terminology  such  as "believes,"
"expects,"  "may," "will," "should," or "anticipates" or the negative thereof or
other  variations  thereon  or  comparable  terminology,  or  by  discussions of
strategy  that  involve  risks  and uncertainties. The safe harbor provisions of
Section  21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of  the  Securities Act of 1933, as amended, apply to forward-looking statements
made  by  the  Registrant.  These  forward-looking  statements involve risks and
uncertainties,  including  those identified within the section entitled "Factors
Affecting  Future  Operating  Results"  and  elsewhere  in,  or  incorporated by
reference  into, this Form 10-K. The actual results that the Registrant achieves
may differ materially from any forward-looking projections due to such risks and
uncertainties.  These  forward-looking  statements  are  based  on  current
expectations,  and  the  Registrant  assumes  no  obligation  to  update  this
information.  Readers  are  urged  not  to  place  undue  reliance  on  these
forward-looking statements, and readers should carefully review and consider the
various  disclosures  made  by the Registrant in this Annual Report on Form 10-K
and  in  the  Registrant's  other reports filed with the Securities and Exchange
Commission  that  attempt  to advise interested parties of the risks and factors
that  may  affect  the  Registrant's  business.

                              OTHER MATTERS OF NOTE

Unless  otherwise  indicated  or  the context otherwise requires, all references
herein  to  "NetNation" or the "Company" are to NetNation Communications Inc., a
Delaware  corporation, and its consolidated wholly-owned subsidiaries: NetNation
Communications  Inc.  (the "Canadian Subsidiary"), NetNation Communications (UK)
Ltd.  (the  "U.K.  Subsidiary"),  NetNation Communications (USA) Inc. (the "U.S.
Subsidiary"),  and  DomainPeople  Inc.

NetNation  Communications  Inc.,  NetNation.com,  and  DomainPeople.com  are
trademarks  or service marks of NetNation Communications, Inc.  Other trademarks
and  tradenames  in  this Form 10-K are the property of their respective owners.

                             OVERVIEW OF THE COMPANY

NetNation  competes in the web hosting and domain name registration  markets and
is  focused  on  meeting  the  needs  of  small  and medium-sized businesses and
individuals  who  are establishing a commercial or informational presence on the
Internet.  Management  organizes  its  business  into  two  segments  for making
operating  decisions  and  assessing  performance.  Please  see  Note  10 to the
Company's  audited  financial  statements  for  certain  information  about  the
segments.

Web  Hosting

NetNation  commenced  web  hosting  operations  in February of 1997. Web hosting
services  offered  by NetNation can be described to fit between the creation and
development  of web sites and the direct provision of Internet connectivity such
as  by an Internet Service Provider (ISP). Web hosting encompasses a broad range
of  possible  services,  including  basic  services  such  as  simply  posting a
customer's  web  site  on  the  Internet  using  the  hosting company's computer
hardware  and  software,  to  enhanced  services  such  as  enabling  financial
transactions  over  the  Internet  (E-commerce),  e-mail,  audio  and  video
capabilities,  security,  backup,  load  balancing,  and  monitoring.  Enhanced
services  may  be  developed  internally by the web hosting company or purchased
from  external sources and resold by the web hosting company. NetNation offers a
range  of basic and enhanced web hosting services to businesses wishing to place


                                        3
<PAGE>
their  web  site  on  the  Internet.  These businesses often decide to use a web
hosting  company  in  order  to  avoid  the  financial  cost, time and expertise
requirements of hosting the web site and obtaining enhanced services themselves.

Web  hosting  can be differentiated into shared or dedicated hosting.  NetNation
offers both services.  Shared hosting involves multiple customers who have their
web  sites  hosted  on  a  shared  computer server.  Dedicated server hosting is
available  to  customers  that  prefer  not  to host their web sites on a shared
server.  Dedicated  servers  provide  significantly  more  server  and  network
resources  than  those  available  from  a  shared server and give customers the
ability  to  run  complex,  high  volume  or  high  bandwidth  web  sites  and
applications.  NetNation  offers a number of dedicated server options at various
prices, depending upon the specific hardware configuration, level of service and
data  transfer  rates  required  by  the  customer.

NetNation  hosts  customer  web  sites  and  indirectly  provides  access to the
Internet through its ISP's.  However, NetNation has strategically determined not
to  offer  web  site  design,  development,  or content services.  The person or
company  typically  responsible for assisting in the design and maintenance of a
web  site  is  called  a  webmaster.  This function is labor intensive and would
involve  significant  human resources and time to service a broad customer base.
Consequently,  webmaster  functions  are  typically  performed  by  specialized
companies  servicing  a number of customers.  These customers may also rely upon
their  webmasters  to  direct  them  to  suitable  hosting and/or ISP companies.
NetNation has decided not to provide the services of webmasters to its customers
due  to  the  intensive  use  of  human resources required and the corresponding
impact  on  the ability of the Company to scale quickly.  Instead, NetNation has
developed  a  program  for  resellers  designed  to  provide  incentive  for the
webmasters  to  direct  their  customers  to  NetNation  for  web  hosting.

NetNation also provides server co-location services. Server co-location services
involve  a customer physically placing their computer hardware (referred to as a
"server")  on  NetNation's  premises.  The  customer gains access to NetNation's
technical  support  and  maintenance  services, high-speed Internet connections,
security  systems  and  appropriate  physical  environment  for the server (e.g.
static  free,  air-conditioned).  NetNation's data center also provides for data
backup,  secure  continuous  power  supply,  and 24 hour-per-day, 7 day-per-week
monitoring  by  NetNation's  technical  staff.

Domain  Name  Registration

NetNation is an accredited and operational domain name registrar offering domain
name  registration  through  its wholly-owned subsidiary, DomainPeople Inc. This
accreditation  allows NetNation to register domain names (e.g. Top-level domains
such  as  .com,  .net,  .org,  .info,  and  .biz)  for  individuals  and
companies.

A  business  or  individual  that  wants  a  personalized web address must first
reserve  a  domain  name  (such  as  "mycompany.com").  Customers can register a
domain  name  initially  for a usual minimum one year period, depending upon the
minimum  term  established  for  that  particular domain.  Offering this service
provides  a  marketing  advantage  as  the domain name registration customer may
return to NetNation when selecting a web hosting provider.  NetNation provides a
number  of  incentives  for domain name registration customers to migrate to its
web hosting services, which are expected to generate a recurring revenue stream.

Prior  to  November  30, 1999, registration of .com, .net, and .org domain names
was  exclusively  provided through Network Solutions Inc.  The registration fee,
formerly  payable  to  Network  Solutions  Inc., is now received directly by the
registrars.  Each  registrar,  in turn, submits a fee of $6 per domain name, per
year, to Network Solutions Inc. as its contribution towards the maintenance of a
centralized  database  registry.  To  expand its domain name registration market
share,  DomainPeople  is  forming  alliances and is private labeling domain name
registration  services  for ISPs and other Internet companies worldwide, as well
as  offering  the  new  top  level  domain  names  as  they  become  available.


                                        4
<PAGE>
Marketing  and  Sales

NetNation's  marketing  is  comprised  of  print  and online advertising that is
designed  to  position the Company and increase brand awareness.  NetNation also
has  developed  a  number of initiatives designed to attract resellers, Original
Equipment  Manufacturers  ("OEMs"),  and  other revenue generating arrangements.

Operations

During  2001,  NetNation  had operations in Vancouver, Canada (its head office)
and  London,  England.  The  London, England sales office was closed in November
2001.  Customers  in  Europe are now being serviced from the Company's Vancouver
headquarters;  since  the  Company's inception, all customers have been serviced
from  a  technical  perspective  by  NetNation's  customer service and technical
support  staff  from  its  Vancouver  facility.

                            BACKGROUND OF THE COMPANY

During 2001, NetNation derived 68% of its revenue from its web hosting services.
Web  hosting, which is sometimes referred to as "web site outsourcing", involves
the  rental  of  computer  infrastructure space.  The infrastructure consists of
computer  hardware,  referred  to  as  "servers",  and  computer  software.  The
hardware  and  software facilitate the connection of customers' web sites to the
Internet.  In  addition  to  the basic infrastructure, web hosting companies may
also provide customer support services and access to additional services such as
the  enabling  of  commercial  transactions  on  the Internet.  These additional
services,  which are essentially software packages, may be developed directly by
the  web  hosting  company  or  obtained  under  license  from  third  parties.

To  begin  using  a web hosting service, the typical customer would register and
pay  for a domain name and would set up a billing account with NetNation for web
hosting  services.  The  customer  would  pay  the initial setup fee for the web
hosting  service  and  then  pay a recurring monthly fee.  A customer would then
provide  its  web site to NetNation for placement on a computer server, which in
turn  is  connected  to  the  Internet  through  an  ISP.  If the customer has a
commercial web site, NetNation can assist the customer in meeting its commercial
objectives by making available services that enable commercial transactions over
the  Internet.

Typical  customers  of  web  hosting companies consist of small and medium-sized
businesses  that  wish  to have a web site on the Internet without incurring the
costs  and  time delays involved with developing, maintaining and updating a web
presence  on  their  own.  The  web  site  is  an  informational  or  an
informational/commercial  tool  for  these  customers.  In addition to small and
medium-sized businesses, web hosting services may be purchased by entities, such
as  resellers  and  OEMs, that will resell the services in connection with their
own  web  related  services.

NetNation  can host a customer's web site on NetNation's shared hosting computer
infrastructure for a basic monthly fee ranging from $20-$150. The fee entitles a
customer  to  basic  services,  including disk data storage space on NetNation's
server,  the  ability  to  receive  and transmit data over the Internet, 24-hour
customer  support, e-mail access, and e-mail forwarding capabilities. Additional
services  available for an extra charge include, for example, the ability to add
security  to  data  transmissions,  to carry out financial transactions over the


                                        5
<PAGE>
Internet, to track and send orders, to give a receipt for purchases made through
customer's web site, and to add audio/video capabilities. Additional information
on  the  services  offered  by NetNation is described under the section entitled
"NetNation's  Products  and  Services".

NetNation  believes  that  the  Internet  continues  to  represent a growing and
substantial opportunity for businesses or organizations that wish to interact in
innovative  ways  with  offices,  employees,  customers,  suppliers and partners
around  the  globe.  Both  small  and  large  businesses  are  recognizing their
increasing need to take advantage of the Internet by establishing web sites.  As
a  result, reliable web site hosting services and enhanced services are becoming
increasingly  critical  to most mainstream businesses.  Due to this ever-growing
importance,  many  businesses are outsourcing these functions in order to ensure
reliability,  scalability for rapid growth, sophisticated performance monitoring
and  expert  management.

The  skill  and  technology  demands  of  the Internet can present a significant
barrier  to  in-house development for all but the largest Information Technology
("IT")  departments. To set up an in-house solution, a company would have to buy
the  computing  hardware  equipment,  firewall/switching equipment, power backup
system,  fire  control system, physical security, fast network cable connection,
and  pay  the wages of a system administrator. Management believes it is able to
provide  a significant cost savings to its customers relative to communications,
equipment,  and  labor  costs.


                                BUSINESS STRATEGY

NetNation  has  targeted  the North American and European small and medium-sized
business  markets for a number of reasons.  The percentage of these markets that
utilize  the  Internet  is expected to continue to be one of the fastest growing
segments  internationally.  In addition, as globalization of business continues,
these  businesses  are  required  to  compete  domestically  and internationally
against  better  capitalized  and larger competitors.  They need to be efficient
and  make  use  of  the latest technology in order to gain advantage or survive.
These  businesses may look to outsource their web hosting because they typically
lack the technology, expertise, resources, capital, personnel, and time required
to  install,  maintain  and  monitor  their  own web servers and added services.

The  geographic  location  of  the market for web hosting services is worldwide,
although  NetNation's  marketing plan targets prospective customers in countries
with  high  Internet  use  backed  by  good  ISP and telecommunications support.
Marketing  in all geographic areas includes exposure to prospective customers of
NetNation's  services  through  resellers.  Up to December 31, 2001, NetNation's
marketing  efforts  have  been directed primarily to North American and European
markets.  In  2002,  subject  to  improved  economic conditions, the Company may
consider  further  enhancing  its  strategic  business  efforts  which  require
additional  resources,  such as directing its marketing efforts to expanding its
advertising  coverage, developing strategic partnerships, expanding its reseller
network,  and  increasing  its shared hosting customer base.  To date, NetNation
has  primarily  utilized  print,  marketing agreements with other online service
providers, online media, trade shows, and co-marketing with creators of web site
creation/authoring  tools,  to  effect  its  marketing  plan.

Due  to the constantly evolving nature of the Internet and related technologies,
existing  web  hosting  products and services, such as online commerce packages,
continue  to  be reviewed on an ongoing basis in order to keep pace with changes
in  third  party technologies and generally in how business is transacted on the
Internet.


                                  ORGANIZATION

NetNation  was  incorporated  under  the laws of the State of Delaware on May 7,
1998,  under  the name Collectibles Entertainment Inc. ("Collectibles"), for the
purpose  of  operating  an  online  sports  card and other tradeable memorabilia


                                        6
<PAGE>
distribution  business.  Collectibles  changed  its  name  to  NetNation
Communications, Inc. on April 14, 1999, in conjunction with the acquisition of a
web  site  hosting  business  based  in  Vancouver, Canada. The common shares of
NetNation  currently  trade  on the Nasdaq Small Capitalization Market under the
ticker  symbol  "NNCI".

NetNation  has  three  wholly-owned subsidiaries: NetNation Communications Inc.,
NetNation  Communications  (USA)  Inc.,  and  DomainPeople  Inc.  NetNation
Communications  UK Ltd. ceased operations in November 2001.  Customers in Europe
are  now  being  serviced  from the Company's Vancouver headquarters;  since the
Company's  inception,  all  customers  have  been  serviced  from  a  technical
perspective by NetNation's customer service and technical support staff from its
Vancouver  facility.


NetNation  entered  into the web hosting business through its acquisition of the
Canadian  Subsidiary.  The Canadian Subsidiary is a private company incorporated
under the laws of the Province of British Columbia, Canada on February 19, 1997.
The  Canadian  Subsidiary  became  a  wholly-owned  subsidiary on April 7, 1999,
pursuant to an agreement between the shareholders of the Canadian Subsidiary and
Collectibles  (the  "Share Purchase Agreement").  Pursuant to the Share Purchase
Agreement,  Collectibles  acquired 9,000,000 Class A common shares and 1,000,000
Class B preferred shares of the Canadian Subsidiary, being all of the issued and
outstanding  shares  of  the  Canadian  Subsidiary.  The  purchase price for the
shares of the Canadian Subsidiary was $1,000,000 in Canadian currency, which was
paid  by  the  issuance  of  10,000,000  common  shares  of  Collectibles.  Upon
conclusion  of  the  acquisition,  Collectibles  changed  its name to NetNation.

NetNation  has  a  wholly-owned  subsidiary  in  the  United  States,  NetNation
Communications (USA) Inc., a company incorporated under the laws of the State of
Delaware  on October 20, 1999.  The US Subsidiary was incorporated to facilitate
NetNation's  U.S.  operations.

NetNation has a wholly-owned subsidiary in the United States, DomainPeople Inc.,
a  company  incorporated under the laws of the State of Delaware on November 24,
1999.  DomainPeople  was  incorporated  to  encompass  the Company's Domain Name
Registration  business.

                        NETNATION'S PRODUCTS AND SERVICES

NetNation  offers  a  range  of  Internet  products and services targeted to the
small-  and  medium-sized  business  market.

All of NetNation's services have been designed to meet the specific and evolving
needs  of  its target market.  Customers pay a one-time setup fee and thereafter
pay  monthly  fees  for  the  services they utilize.  NetNation can then provide
enhanced  services  to  these  customers  as  their  needs  evolve.

The  concept behind NetNation's products and services is to enable its customers
to  create,  update,  upgrade  and  expand  their  web presence faster, and on a
substantially  more  cost-effective  basis,  than  the  customers  could develop
internally.  The  services  offered  by  NetNation can be summarized as follows:

Web hosting

1.   Shared  server  web  site  hosting: This service permits a customer to post
     their  web  site  on  the Internet using NetNation's hardware and software,
     Internet  access,  web  site  management  tools  and  support services. The
     customer's  web  site is hosted on a server that is shared with a number of
     other  NetNation  customers.

2.   Dedicated  server web site hosting: This service permits a customer to post
     their  web  site  on the Internet and access NetNation's Internet services.
     The  customer's web site is hosted on a dedicated server that is not shared
     with  any  other web sites. This service is appropriate for those customers
     that  run  complex  or  high  bandwidth  web  sites  and  applications.

3.   Server  co-location:  This  service  permits  a customer to place their own
     server  hardware  in  NetNation's  premises and access NetNation's Internet
     services.


                                        7
<PAGE>
4.   Enhanced  Internet  services:  These  services permit a customer with a web
     site  to add features to that web site such as audio/video, online commerce
     capabilities,  e-mail  and  various  other  features.

5.   Managed  services:  These services are an expansion of our dedicated server
     web site hosting and is for the high-end corporate customer. These services
     can  be  customized  for  the  particular customer and can be configured to
     completely  outsource  the  customer's  entire  web site infrastructure and
     technical  support  and  maintenance.

Domain name registration

NetNation's  ICANN  accreditation  and  operational  status  allows  for  the
registration  of  domain names (e.g. top-level domains such as .com, .net, .org,
..info,  and  .biz)  for  individuals  and  companies.

Reseller  services

These  services  consist  of  services  that  can  be  resold  by third parties.

A  description  of  each  of  the  above  services  is  set  out  below.

Shared  Server  Web  Site  Hosting

A  core component of NetNation's business is the provision of shared web hosting
services  for  individuals  and  businesses  that want an Internet presence at a
reasonable  cost.  Shared  server  means  that  a number of customers will share
space  on  one  server.  NetNation  offers  a  number  of shared server web site
hosting  plans  to  meet  the  needs  of  a  broad  range  of  customers.

NetNation's  entry-level  shared server web site hosting plan is called Starter.
The Starter package of services offers customers up to 1 gigabyte ("GB") of data
transfer  per  month and 20 megabytes ("MB") of disk data storage on NetNation's
web  servers.  Customers  can  store  HyperText  Markup  Language  ("HTML"-  a
programming  language) coded files, graphics, video and audio on their web site.
This  basic  service  meets  the  requirements  of  most individuals, as well as
relatively  small  businesses.

To  allow  customers  to make effective use of their web presence, customers can
establish  e-mail  addresses  using  their  domain  name  and  have their e-mail
forwarded  to  another  computer, establish online chat rooms on their web site,
and even have automated e-mail messages (autoresponders) sent to people who send
them  e-mail.  Support  is also provided for popular web authoring tools such as
Microsoft  FrontPage  and  its  specialized  extensions.

The  more  advanced  and  expensive  web  site  hosting  services offer enhanced
functionality  and  resources.  NetNation  has implemented a variety of tools to
allow  its  customers  to  use  their  sites  more  effectively.  All  of  the
standardized  web  site hosting plans feature detailed web statistics and access
to  raw  log  files,  giving  customers the ability to track the performance and
evaluate the effectiveness of their web sites.  Customers are able to update web
sites  remotely  by  sending  files  through File Transfer Protocol ("FTP").  In
addition,  NetNation  provides  a  number  of  popular  Common Gateway Interface
("CGI",  a programming language) scripts that allow customers to deploy web site
and web page hit counters, guest books, mail forms and discussion forums rapidly
and easily.  NetNation also supports custom CGI scripts that enable customers to
build  unique  functionality  into  their  web  sites.

NetNation  supports  the  following  platforms  and  operating  systems:

     Intel  based  servers
     Sun  servers
     Red  Hat  Linux
     Windows  NT  4.0  and  Windows  2000
     Apache  web  server
     Microsoft  IIS


                                        8
<PAGE>
NetNation  has  developed  a  set  of  utilities  for  its customers called User
Services.  User Services is a proprietary account interface tool that enhances a
customer's web site control and management capabilities.  For example, customers
can  use  User  Services to change passwords, set e-mail forwarding options, and
view  web  site  statistics without the need to converse directly with NetNation
staff.

Dedicated  Server  Web  Site  Hosting

Dedicated  server  solutions are available for customers that prefer not to host
their web sites on a shared server. Dedicated servers are owned by NetNation and
provide  significantly  more  server  and network resources than those available
from  a shared server and give customers the ability to run complex, high volume
or  high  bandwidth  web  sites  and  applications. NetNation offers a number of
dedicated  server options at various prices depending upon the specific hardware
configuration,  level  of  service,  and  data  transfer  rates  required by the
customer.

Server  Co-location

Server  Co-location  is the service of providing a physical space on NetNation's
premises  where  customers  can place their own server while sharing NetNation's
Internet  connectivity, network infrastructure, and physical security. This type
of  service  is  useful  for  those  customers  that do not want to share server
resources  with  other  customers  in  a  hosted  environment and have their own
equipment.  A  typical  candidate  for  server co-location would be someone that
requires  professional,  enterprise  level  Internet  infrastructure  with  fast
connectivity  and  high-level  data  center  security. Co-located servers can be
managed  by NetNation or by the customer using remote access software. Customers
outsourcing  these services are often able to reduce expenses and eliminate many
of  the  problems associated with running web sites, particularly large ones, in
their  own  facilities.


Enhanced  Internet  Services

Due  to  the  rapid  evolution  of  web-based services, NetNation is continually
exploring  complementary  and  new services targeted at the needs of its current
and  prospective  customers.  Other  industry  specific  web  hosting activities
include  audio and video streaming, and electronic commerce solutions, which are
currently  offered  by  NetNation.  Current  areas  of new product focus include
expanded  electronic  commerce  products, simplified web site development tools,
and  automated  marketing  services.  Most of NetNation's service packages are a
combination  of  software  licensed from third parties and enabling/facilitating
software  that  is  developed  in-house  at  NetNation.

NetNation  provides electronic commerce solutions to allow businesses to develop
and  maintain  successful  online  storefronts,  which may replicate many of the
features,  products, services, payment methods, delivery options etc. offered by
land-based  businesses.  Dependent on the level of complexity and their specific
needs,  businesses  can  choose  online  commerce  solutions ranging from simple
online  catalogues  to  complex  full-featured interactive online stores.  These
commerce solutions are distinguished from web site development, in that they are
packaged solutions that are available from a web host.  Some modification may be
required  by the user to ensure the application is specific to the business. Web
site  development, which NetNation does not provide, instead concentrates on the
physical  appearance  of  the  entire  web  site,  including  graphics,  color,
typestyles,  text,  layering  of  pages,  placement  of icons, and other similar
issues.

With  these products, NetNation's web hosting customers can construct customized
online  storefronts  with  integrated  end-to-end  sales  process  support  and
automated  payment  systems with connections to their legacy accounting systems.
Customers  can  select  the  credit card processing services we offer or another
service  of  their  own choosing.  Any financial arrangements for these services
are  between the customer and the credit card processing company. NetNation does
not  purchase  credit  card  processing  services from these entities for resale
purposes.

For  an initial setup fee and a subsequent monthly fee, NetNation offers several
packages  that  support online commerce. The packages are available to both UNIX
and  Windows  NT  users.  Both  UNIX  and  NT  packages are based on a "shopping


                                        9
<PAGE>
cart"  licensed  from  Miva. A "shopping cart" refers to a program that allows a
business  to  implement an online storefront by enabling tracking and sending of
orders  made  through the web site and giving a customer a receipt for purchases
made  through  the  web  site.

Managed  services

These  services  are an expansion and extension of our dedicated server web site
hosting  and  is targeted at the high-end corporate customer. These services can
be  customized  for  the particular customer and can be configured to completely
outsource  the  customer's  entire web site infrastructure and technical support
and  maintenance.  Services  provided can include increased security, firewalls,
data  backup,  special  reporting,  load  balancing, monitoring, virus scanning,
e-mail  server  and  domain  name  server  and  FTP  server  configuration  and
maintenance, and business protection services. Typically a customer would have a
longer  term  contract and there would be service level agreements which specify
the  exact  level  of  service  or  "up-time"  agreed  upon.

Domain  Name  Registration

Every  individual  or  business  entity  desiring  a web site address must first
reserve  a  domain  name that will serve as the basis for their personalized web
site  address through which users of the Internet can connect to their web site.
In  May 1999, NetNation was selected as an official registrar of domain names by
ICANN.  Prior  to  then,  Network Solutions Inc. held sole authority to register
top-level  domain  names  ("TLD's") ending in .com, .net and .org, which account
for  between  50%  -  75%  of  the world's Internet addresses.  NetNation became
operational  as a domain name registrar in December of 1999.  As at December 31,
2001,  the  Company  had registered approximately 300,000 Internet domain names.
The  domain  name  registration  service  also  provides NetNation with leads to
market  its  web  hosting  services.


Reseller  Services

These services consist of web hosting and domain name registration services that
can  be  resold  by  third parties.  NetNation works with a variety of resellers
which  are  typically web developers and system integrators.  These resellers do
not offer web hosting services themselves and see web hosting as a complementary
service  they  can  offer  as  a  reseller  of  NetNation's  services.

Another  type  of reseller relationship is offered for domain name registration.
NetNation,  through  its  wholly  owned  subsidiary  DomainPeople,  is currently
providing  a  private  label  domain  search  and  registration  service,  using
NetNation's  proprietary  "Smart  Whois" service (http://www.swhois.com. In this
particular  case,  NetNation  is  a  third-party  provider of the service (Smart
Whois)  that the reseller wishes to obtain and utilize on a private label basis.
Customers  visiting  the  reseller's  web  site  would not know that back-end is
linked  to NetNation's servers in completing the service. The revenue, generated
from  the registration of domain names using the Smart Whois service, is shared.
The  advantage to the reseller is the ability to offer domain name registrations
without  having  to  develop  and  maintain  the  technical  and  administrative
infrastructure.

                         MARKETING AND PUBLIC RELATIONS

NetNation's  marketing and public relations teams are responsible for integrated
marketing  communications,  competitive  market  research,  product  and service
planning,  advertising  and  public  relations.

In  2001,  NetNation  primarily  utilized  a  combination  of  print  and online
advertising to promote its products and services.  The Company placed aggressive
print advertising in major business and technical publications to accelerate its
customer  growth.  Some of the publications in which NetNation advertises are PC
magazine,  Small  Business  Computing, Windows 2000, Linux Journal, the Computer
Paper,  and  Silicon Valley North.  Each one of these publications is considered
by  NetNation  to  be  a major publication for the market segment that NetNation
targets.  In  2001,  NetNation  allocated  approximately  89%  of  its  total
advertising  budget  to  print  advertising.


                                       10
<PAGE>
The  Company's  online  marketing  program  consists  of  a  rotation of keyword
specific, web banner advertisements, as well as web site sponsorships and select
search  engine  optimization.  Each  web  property  chosen  for  advertising was
carefully  selected.  User demographics for each site were examined and compared
to NetNation's target; if there was a significant match, a site was selected and
NetNation's advertising appeared.  The Company allocated approximately 8% of its
total  budget  to  online  advertising  in  2001.  NetNation also utilized other
marketing  vehicles  to  promote  its  products  and  services, including direct
marketing,  collateral  sales  materials  and  the  Company's  web  site.

NetNation is continuously analyzing the effectiveness of each of these marketing
initiatives  for  the  purpose  of  developing future marketing strategies.  The
Company  is  increasing  its  public  relations  program  and
cultivating  media  relationships  with the goal of securing more media coverage
and  better  public  recognition  of  NetNation.

                             DISTRIBUTION AND SALES

NetNation  sells  its  products  and services worldwide directly to existing and
potential customers and indirectly through resellers. Direct sales are generated
through  the  use  of traditional media and online marketing campaigns. Indirect
sales  are  generated  from  NetNation's  resellers  in  various  countries. The
resellers  attract  customers  to  NetNation  because the potential customer has
already  developed  an  Internet-based  business relationship with the reseller.

NetNation  hosts  approximately  22,000  websites  for  customers  in  over  130
countries as of December 31, 2001.  For the year ended December 31, 2001, United
States  customers comprised 46% of the total web hosting customer base, followed
by  Canada  at  41%,  and  all  other  countries  combined  at  13%.

Direct  Sales

At present, NetNation generates most of its new web hosting accounts from online
orders  on  its  web site, and inbound sales calls in its tele-sales center, all
generated  by its traditional media and online advertising campaigns, as well as
outbound  sales  calls.  NetNation's web site enables customer orders around the
clock  and  its automated voice mail system allows sales calls to be captured 24
hours  a day.  NetNation has expanded its sales force to include outbound sales,
and  has  specialized  sales  personnel for dedicated and co-located hosting and
domain  name  registration  services.

Resellers

NetNation  has  a  network  of  resellers  in  various  countries  that  resell
NetNation's  services.  Most of these resellers base their businesses on selling
web  page  design, integration and consulting services. Approximately 70% of the
resellers  are in the business of web page design and 30% are in the business of
integration  and  consulting.  NetNation's  International  Reseller  Program was
designed  for  these  webmasters,  consultants  and other resellers that wish to
offer  web hosting services as a value added service in their particular market.
The  resellers are responsible for maintaining customer relationships, technical
support, customer billing, and the provision of value-added services such as web
page  design  and system integration. When a customer of the reseller requests a
particular  set  of  services  configured  with a specific web site package, the
reseller  arranges  with NetNation to provide the bundled web hosting package to
the  customer. The reseller then buys the web hosting services from NetNation at
a discount from retail and resells the services to their customers as a complete
package.  Resellers  set their own price, marketing and technical support policy
that is best suited to the market that they are serving. In order to terminate a
reseller  relationship,  the  reseller  must  typically  give  30  days  notice.


                                       11
<PAGE>
OEMs

OEM  stands for "original equipment manufacturer", which in this document refers
to  other service providers that may buy NetNation's services in bulk and resell
them  under  their own brand name.  To further expand its distribution channels,
NetNation  is  establishing  OEM  relationships  with  companies  that  have  an
attractive  target  customer  base for NetNation's services.  Candidates for OEM
partnering include telecommunication and cable companies, online communities and
Internet  portal  companies,  ISPs,  marketing  organizations,  and large system
integrators.  NetNation  believes  that OEMs will typically consist of potential
competitors  that for cost reasons have opted to outsource their web hosting and
domain  name  registration  services and resell them under their own brand name.
NetNation  believes  that various OEMs already have access to NetNation's target
markets  but  that  not  all  of  the customer demands are being met.  NetNation
believes  that  by entering into OEM relationships with such entities there will
be  an  overlap  of  customer demands.  For example, an OEM relationship with an
online  search  company  will allow NetNation to offer web hosting solutions and
domain  name  registration  services to customers of the search company, whereas
the  online  search  company  could  provide  the  search  capabilities.  Such
relationships  create  situations  where customers can be referred among the OEM
parties.


                                CUSTOMER SERVICE

NetNation  uses  online  and automated customer support through its web site and
online  "frequently  asked questions" (FAQs ) feature. These online services are
in  addition  to  NetNation's  technical  support  staff  who are accessible via
telephone  or email 24 hours per day, 7 days a week. Technical support staff are
responsible for helping customers with their web site hosting accounts, web page
setup and transfer, and use of the various online web site management tools that
NetNation  provides.

NetNation's  Customer  Service  and Accounts Receivable Group handles accounting
and  billing  information.  NetNation  has  implemented  a  feature to its "User
Services"  to  allow  customers  to  check  their  billing  statements  online.
Additionally,  customers  can  call  NetNation  during  normal business hours to
discuss  their  account.

                                   TECHNOLOGY

NetNation  has created a secure, scalable and reliable web site hosting service.
NetNation  believes  that  this  technology  provides  a significant competitive
advantage  and  is focused on combining its internally developed technology with
third  party  software  and  hardware.

Web  Site  Hosting  Platform

NetNation  attempts  to  balance  and limit the number of web site customers per
server to ensure high quality service levels.  Even though industry standard web
servers  can  support  multiple  web  sites  on a single machine, the ability to
manage  large  numbers  of  sites  is  difficult  and  requires  significant
technological  innovation.  NetNation  has  expended  significant  resources
developing  technology and tools to efficiently manage a high ratio of customers
to  servers  and  to simultaneously monitor service quality.  Although NetNation
has  developed  the  technology  to allow over 3,000 simultaneous web sites on a
single  server,  it  generally  limits  the number of web sites to approximately
2,000  or  less  per  server.

NetNation  has  the  capability  to  accommodate  most  hardware/software
configurations  that  prospective  customers  may have.  NetNation uses standard
technologies  such  as  the  Linux operating system, Apache web server software,
Exim  mail  server,  and  Bind for DNS.  Some of the technological barriers that
NetNation  has  been  able to overcome include the ability to communicate with a
Microsoft  Windows  NT  based SQL server from a UNIX machine, the elimination of
the  "file  handle"  limits  on  the  servers  and  the ability to run Microsoft
FrontPage  extensions  on  Linux  machines.

To  facilitate customer maintenance and support, NetNation has developed various
tools  that  enable  customers  to  change  their own passwords, setup POP3 mail
accounts, modify e-mail routing for automatic message forwarding, and to monitor


                                       12
<PAGE>
their web site statistics. Customers access these services through a proprietary
User  Services  front-end  interface.  The  User  Services  front-end  tools are
continually  being  upgraded to enhance customer service and ensure a high level
of  scalability  as  additional  servers  and  customers  come  online.


Network  Operations

The  provision  of  qualified service is of the utmost importance to NetNation's
business.  Accordingly,  NetNation invests significant resources into building a
scalable network infrastructure.  Wherever feasible, NetNation makes its network
fault tolerant with redundant equipment.  Such actions include standby equipment
to handle additional capacity if a server has to be replaced for such reasons as
malfunction  of  a hard drive or software.  The redundancy allows for operations
to  continue  efficiently  as possible although  a particular piece of equipment
has  failed.  Another  instance  of  failure can occur when power to a server is
interrupted.  In  this  situation,  NetNation's  emergency  backup  power  would
automatically  operate  to  allow  the  service  to  continue with minimal or no
interruption.  The  availability  of  redundancy of equipment or excess capacity
allows  for  the alternative processing of data until the defective equipment or
software  can  be  replaced  or  repaired.  These measures, along with continual
monitoring,  are  designed  to  help  minimize  down  time  and  provide  early
identification  of  potential  sources  of  failure.  At  December 31, 2001, the
Company  had  one  data  center,  located  in  Vancouver,  Canada.

                                   COMPETITION

The  markets  for  web  hosting  and  domain name registration services are very
competitive.  It  is  estimated  that  there  are over 5,000 web hosting service
providers  in  North America alone.  The majority of them are very small and run
by  programmers  or  other technical people.  Others are ISPs that offer limited
web  site  hosting  as  an  add-on service to their dial-up web access services.
There  are  approximately  150  accredited  registrars of top-level domain names
worldwide.

NetNation's  current  and  potential  competitors  include:

a)    other  web  hosting  and  Internet  services  companies;
b)    "pure"  domain  name  registrars  that  are  accredited  and  operational;
c)    domain  name  registrars  that  are  accredited  but  not yet operational;
d)    regional  and  national  ISPs;
e)    regional  and  national  telecommunications  companies;
f)    large  information  technology  outsourcing  firms;  and
g)    cable  and  satellite  service  providers.

The  principal  competitive  factors  in  this  market  include:

a)    efficient,  available  customer  service  and  technical  support;
b)    quality  and  reliability  of  service;
c)    network  capability  and scalability (scalability refers to the ability of
      the  hardware  and software to support increasingly larger or more complex
      web  site  requirements  of  customers);
d)    pricing  of  services;
e)    brand  name  recognition;
f)    breadth  of  products  and  services  offered  and the timely introduction
      thereof;
g)    technical  and  engineering  expertise;
h)    network  security;
i)    maintenance  and  expansion  of  marketing  distribution  channels;
j)    financial  resources;
k)    attraction  and  retention  of  key  technical  and  managerial personnel;
l)    development  of  a  broad  international  presence;  and
m)    compliance  with  and  the  leveraging  of  industry  standards.


                                       13
<PAGE>
NetNation  considers  that  most  web  hosting  competitors  fit  into two major
groupings, each having its own set of competitive strengths and weaknesses.  The
first  grouping,  and  most  obvious  of NetNation's direct competitors, are the
large  telephone  and cable companies.  NetNation believes that because of their
large  corporate  size,  it  takes  these competitors much longer to develop and
incorporate new features into their hosting services and to offer those services
at  a competitive price without subsidizing the pricing.  As a result, NetNation
believes  that  by careful attention to its cost structure and rapid response to
market  demand for new features, it can effectively compete with larger and more
financially  secure  companies,  both  in  services  provided  and  on  price.

The  second  major  type  of  competitors  are  the  pure-play  web site hosting
companies.  NetNation  believes  that  many of these companies have insufficient
resources, inadequate infrastructure, insufficient Internet connectivity, and/or
inadequate  technical  support.  These  companies  may  have  congested  network
servers  and  slow  Internet  connectivity causing delays in web site access and
upload.  The  smaller  of these companies may not have scalable systems that can
respond  quickly  to their customers' growth requirements and may not be capable
of  supporting  large  numbers of new customers. NetNation is aware that some of
its  customers came to NetNation as a result of experiencing an inadequate level
of  service  from  a competitor.  While some of these pure-play web site hosting
companies  may  face  these  competitive deficiencies, there are a number of web
site  hosting  companies  that  have  shown  the ability to compete effectively,
including  Interland,  Interliant,  Verio,  and  Webhosting.com.  The ability of
NetNation  to  compete  with  these  companies  over  time  is  unproven.

Competitive  Advantages

The  following key advantages are provided to the customers of NetNation through
its  various  service  solutions.

     High-performance  with  quality  service  and reliability.  NetNation's web
site hosting solutions are designed to deliver hardware and software performance
to  ensure  customers'  web sites load rapidly when visited.  NetNation believes
that  features  such  as redundant and fault tolerant equipment housed in secure
and  environmentally  protected  facilities permit NetNation to offer a reliable
service  with  minimal  downtime  to  customer  web  sites.

     Large  number  of  service  options. NetNation's services range from domain
name  registration  to sophisticated managed web hosting offerings. In 2001, 68%
of  NetNation's  revenues  were  generated  by  web  site hosting services. This
includes  a  number  of  fee based Internet enhancement services. These enhanced
services  include  electronic  commerce  solutions  for  the  Web, expanded data
storage  and data bandwidth options, web site to database interfaces, multimedia
support  tools  for  applications  such  as  RealAudio  and RealVideo, security,
backup,  load  balancing,  and monitoring. NetNation also offers the ability for
customers to co-locate their web servers on NetNation's secure premises and gain
access  to  technical  support  services,  expertise, and Internet connectivity.

     Cost-effective  solutions.  There  are  potentially significant cost saving
benefits  to NetNation's customers through the elimination of high capital costs
for web site equipment, labor, and software. Customers can tap directly into the
knowledge  and  operating  experience  of  NetNation's staff.  Ongoing operating
costs  to  customers  are usually a small fraction of costs of staffing, support
and  bandwidth  of  an  internally  hosted  web  site.  The  shared  nature  of
NetNation's  services  provides customers with access to the huge bandwidth at a
cost  of  less  than $100 versus over a $1,000 per month for their own T-1 (1.54
megabits)  or  greater  bandwidth  connection.

     Flexibility  and Scalability.  NetNation's web site hosting solutions offer
a  highly scalable structure designed to support tens of thousands of web sites.
This  enables NetNation to provide a continual level of reliable service to both
existing and new customers. NetNation's structure permits the quick expansion of
available data storage space and network bandwidth required to accommodate rapid
growth  in  the  activity  or  number  of  visitors  to  customers'  web  sites.


                                       14
<PAGE>
     Customer  Support.  Through  its  standardized  systems,  NetNation has the
ability to rapidly deploy customer web sites.  Most of this process is automated
and  does  not  require  the  extensive  involvement of any NetNation personnel.
NetNation  believes  it has developed an efficient system of support and related
customer  services via e-mail or telephone through NetNation's technical service
group.  Customer  support  services  are  available 24 hours per day, 7 days per
week.

     Ease  of  Use.  Through  interactions  with  its  thousands  of  customers,
NetNation has developed and implemented proprietary software tools to assist its
customers.  These  tools  allow  customers  to  easily order, change, and manage
their  web sites, remotely.  Detailed statistics and activity logs are available
for  customers  to  review  their  account  and  performance  information.  For
customers  that  are  buying the "DomainPlus" package, NetNation has developed a
tool that allows customers to create a one page web site with a simple template.
By  using  this  tool,  customers  can  create a simple web site within minutes.

                                    EMPLOYEES

As  at  December  31, 2001, NetNation had 80 employees.  All employees, with the
exception  of  the  founders, are required to enter into an employment agreement
that  contains  industry  standard  terms  including  protection  of proprietary
interests,  confidentiality,  and  non-competition  terms.

NetNation  believes  that  its  ability  to  attract, hire, and retain qualified
personnel now and in the future is important to its success.  While sourcing and
recruiting  appropriate  technical personnel is often difficult and competitive,
NetNation  expects  that  its need to recruit additional personnel in the future
will  not  negatively  affect  its  operations.  Management  believes  that  its
employee relations are good.  None of NetNation's employees are represented by a
collective  bargaining  unit.

                          INTELLECTUAL PROPERTY RIGHTS

NetNation  relies  on copyrights, trademarks, trade secret laws, and contractual
restrictions to establish and protect its proprietary rights in its services and
products.  NetNation  does  not  have  any patented technology at this time that
would  limit  competitors  from  entering  NetNation's  market.  Management  of
NetNation believes that the steps taken by NetNation to protect its intellectual
property  are  consistent with industry standards for web site hosting companies
today.

All  employees  and  contractors  are  required  to  and  have  entered  into
confidentiality  and  invention assignment agreements.  Suppliers, distributors,
and  certain  customers  are  also  required  to  enter  into  confidentiality
agreements.

To  date,  NetNation  has received no notification that its services or products
infringe  the  proprietary rights of third parties.  Third parties could however
make such claims of infringement in the future.  Any future claims that do occur
may  have  a  material  adverse  affect  on  NetNation  and  its  business.

                 RISK FACTORS AFFECTING FUTURE OPERATING RESULTS

Limited  Operating  History

NetNation  has  only  been  operating  since  February  1997.  As  a result, the
NetNation  business  model is still in an evolving stage.  The limited operating
history  means  NetNation  does  not  have  the  benefit  of  the  many years of
experience  that  some other companies have and can use to modify their business
plans  and  optimize  their  business  strategies.  The  ability of NetNation to
sustain  revenue  and income, in the future, is unproven.  Therefore NetNation's
limited  operating  history  makes  an evaluation of NetNation and its prospects
difficult.  See  "Management's  Discussion  and  Analysis"  in  this  Form 10-K.

Future  Losses

The  Company  may incur losses and generate negative operating cash flows in the
future.  The extent to which negative cash flow will occur depends upon a number
of  factors,  including  the  following:


                                       15
<PAGE>

     -    the  number,  size, and timing of any investments and/or acquisitions;

     -    the  expense  and  time  required  to  integrate  any  future acquired
          operations;

     -    the  time  and  effort  required  to  capture  operating efficiencies;

     -    the  ability  to  generate  increased  revenues  and  cash  flow;  and

     -    potential  regulatory  developments  that  may  apply  to  NetNation's
          operations.


Industry  Risks

NetNation  and  its prospects must be considered in light of the risks, expenses
and difficulties encountered by companies in the rapidly evolving market for web
hosting,  domain  name registration, and related enhanced Internet services.  To
address  these  risks,  NetNation  must  market its services and build its brand
names  effectively,  provide  scalable,  reliable  and  cost-effective services,
continue  to  grow  its  infrastructure  to accommodate additional customers and
increased  use  of  its  network bandwidth, expand its channels of distribution,
continue  to  respond  to  competitive  developments,  and  retain  and motivate
qualified personnel.  NetNation may not sustain revenue growth and profitability
in  future  quarterly  or  annual  periods.

Fluctuations  in  Results  of  Operations

NetNation  has experienced significant fluctuations in its results of operations
on a quarterly and an annual basis.  NetNation expects to continue to experience
significant  fluctuations  in its quarterly and annual results of operations due
to a variety of factors, many of which are outside the Company's control.  These
controllable  and  non-controllable  factors  include:

     Controllable  Factors

     a)   introductions  of  products  or  services  by  NetNation;
     b)   the  mix  of  services  sold  by  NetNation;
     c)   the  timing  and  magnitude  of  capital  expenditures,  including
          construction  costs  relating  to  the  expansion  of  operations;
     d)   the timing and magnitude of expenditures on advertising and promotion;
     e)   changes  in  the  pricing  policies  of  NetNation;  and
     f)   the timing and magnitude of expenditures on advertising and promotion.

     Non-controllable  Factors

     a)   demand  for  and  market  acceptance  of  NetNation's  services;
     b)   introductions  of  products  or  services  by NetNation's competitors;
     c)   reliable  continuity  of  service  and  network  availability;
     d)   the  ability  to  increase  bandwidth  as  necessary;
     e)   provisions  for  customer  discounts  and  credits;
     f)   customer  retention;
     g)   timing  and  success of marketing efforts and service introductions by
          the  Company,  its  resellers  and  OEMs;
     h)   the  introduction  by  third  parties  of  new Internet and networking
          technologies;
     i)   increased  competition  in  NetNation's  markets;
     j)   changes  in  the  pricing  policies  of  NetNation's  competitors; and
     k)   fluctuations  in  bandwidth  used  by  customers.

NetNation's  committed  costs  pertaining  to  premises, communication and wages
account  for approximately 55% of total expenses for the foreseeable short term.
Absorbing


                                       16
<PAGE>
these  costs  within  the short term as well as variable marketing expenses, and
maintaining  efficient  operations  means  that  NetNation's  earnings  would be
particularly  sensitive  to fluctuations in revenues. If NetNation was unable to
continue  using  third-party  products  in  NetNation's  services  offerings,
NetNation's  service  development  costs could increase significantly. For these
and  other  reasons,  in some future quarters, NetNation's results of operations
may  not  meet  or  exceed the expectations of the investors, which could have a
material  adverse  effect on NetNation's worth. See "Management's Discussion and
Analysis"  in  this  Form  10-K.

Dependence  Upon  New  Markets;  Uncertainty  of  Acceptance  of  Services

The markets for web site hosting, domain name registration, and related enhanced
Internet  services  have  only  begun  to  develop in the past few years and are
evolving  rapidly.  There  is  significant  uncertainty  regarding whether these
markets  ultimately will prove to be viable over the long term or, if they prove
viable,  whether they will continue to grow.  NetNation's future growth, if any,
will  depend  upon  the  willingness of businesses to outsource web site hosting
services  and  NetNation's  ability  to  market its services in a cost-effective
manner  to a sufficiently large number of customers.  The market for NetNation's
services  may  not  develop further, NetNation's services may not be more widely
adopted,  and significant numbers of businesses or organizations may not use the
Internet  for  commerce  and  communication.  If  these  markets fail to develop
further  or  develop  slower  than  expected,  or if NetNation's services do not
achieve  broader  market acceptance, NetNation's business, results of operations
and  financial  conditions  would  be  materially  and  adversely  affected.  In
addition,  to  be  successful in this emerging market, NetNation must be able to
differentiate  itself  from  its  competition  through its service offerings and
brand recognition.  NetNation may not be successful in differentiating itself or
achieving market acceptance of its services and may experience difficulties that
could  delay or prevent the successful development, introduction or marketing of
these  services.  If  NetNation  incurs  increased  costs,  or  is  unable,  for
technical or other reasons, to develop and introduce new services or products or
enhancements  to existing services in a timely manner, or if new services do not
achieve  market  acceptance  in a timely manner or at all, NetNation's business,
results  of  operations  and  financial  condition could be materially adversely
affected.

Dependence  Upon  Expansion  of  Service  Offerings

NetNation's  success depends on the growth of its current web hosting and domain
name registration businesses.  The Company expects to drive this internal growth
by  expanding  and  enhancing  its  product  and  service  base  with additional
value-added  products  and  product  lines.  The  Company may be able to develop
these additional product capabilities internally, but expects that primarily the
development  of  strategic  relationships  with various vendors and distribution
partners  will  be critically important.  Accordingly, it will be important that
the Company either develops these capabilities internally or identifies suitable
potential product and service vendors and distributors with whom the Company can
complete  agreements on acceptable terms. NetNation expects that competition for
strategic  relationships  with  key  vendors and potential distributors could be
significant,  and that the Company may have to compete with other companies with
greater  financial  and other resources to obtain these important relationships.
There  can  be  no  assurance  that  NetNation will be able to identify suitable
partnering candidates or be able to complete agreements on acceptable terms with
these  parties.

Dependence  Upon  Channel  Partners

An  important  element  of  NetNation's  strategy  for  growth is to continue to
develop  its  reseller channel through the marketing of Reseller Packages, which
is  being  used  by NetNation's network of domestic and international resellers,
and  through  the  development  of  NetNation's  OEM relationships.  NetNation's
resellers  typically  are  web development or web consulting companies that also
sell  NetNation's  web  site  hosting  services  but  that do not generally have
established  customer  bases  to  which  they  can  market NetNation's services.
Therefore,  in  those markets, primarily international, where NetNation does not
directly focus its marketing efforts, NetNation is dependent on third parties to
stimulate  demand  for NetNation's services.  Currently, NetNation does not have
marketing  efforts  in  South  America,  Africa,  and Australia.  The failure of
NetNation's  services to be commercially accepted in certain markets, whether as
a result of a reseller performance or otherwise, could cause NetNation's current
channel  partners  to  discontinue  their  relationships  with  NetNation,  and
NetNation  may  not  be  successful  in  establishing additional channel partner
relationships  as  required.  OEMs and resellers have no obligation to market or
resell  NetNation's  web site hosting and domain name registration services, and


                                       17
<PAGE>
OEMs can terminate their relationships with NetNation with limited or no penalty
with as little as 30 days' notice. The loss of resellers or OEMs, the failure of
such  parties  to perform under agreements with or the inability of NetNation to
attract  and  retain new resellers or OEMs with the industry experience required
to  market  NetNation's  web  site hosting and domain name registration services
successfully  in  the future could have a material adverse effect on NetNation's
business,  results  of  operations  and  financial condition. NetNation's direct
sales  efforts  may  conflict with the efforts of its indirect channel partners,
which  may  adversely  affect  NetNation's  relationships with such partners. In
addition,  to the extent that NetNation succeeds in increasing its sales through
indirect  channels  such as resellers or OEMs, those sales will be at discounted
rates, and revenue and gross margin to NetNation for each such sale will be less
than  if NetNation had sold the same services to the customer directly. Refer to
"Distribution  and  Sales"  in  this  Form  10-K.

Highly  Competitive  Markets  With  Few  Barriers  to  Entry

The markets served by NetNation are highly competitive and are becoming more so.
There  are few substantial barriers to entry, and NetNation expects that it will
face additional competition from existing competitors and new market entrants in
the  future.

NetNation  may not have the resources, expertise or other competitive factors to
compete  successfully  in  the  future.  Many  of  NetNation's  competitors have
substantially  greater  financial,  technical  and  marketing  resources, larger
customer  bases,  longer  operating histories, greater name recognition and more
established  relationships in the industry than NetNation.  As a result, certain
of  these  competitors  may  be  able  to  develop  and  expand  their  network
infrastructures  and  service  offerings  more rapidly, adapt to new or emerging
technologies  and  changes in customer requirements more quickly, take advantage
of acquisition and other opportunities more readily, devote greater resources to
the  marketing  and  sale  of  their  services and adopt more aggressive pricing
policies  than  can  NetNation.  In addition, these competitors have entered and
will  likely  continue  to  enter  into joint ventures or consortiums to provide
additional  services  competitive  with  those  provided  by  NetNation.

Continued  Growth  May  Strain  Resources

NetNation  has  been growing, and expects to continue to experience growth. This
growth  has  placed, and is likely to continue to place, a significant strain on
the  Company's  managerial,  operating,  financial  and  other  resources.  The
expansion  efforts  also require significant time commitments from the Company's
senior  management  and  places a strain on their ability to manage the existing
business. The Company also may be required to manage multiple relationships with
third  parties  as  the  Company's  value-added service offerings, including web
hosting, are expanded. Future performance will depend, in part, upon NetNation's
ability to manage this growth effectively. To that end, the Company will have to
undertake  the  following  improvements,  among  others:

     -    implement  additional  management  information  systems  capabilities;

     -    further develop operating, administrative and financial and accounting
          systems  and  controls;

     -    improve  coordination  between  engineering,  accounting,  finance,
          marketing  and  operations;  and

     -    hire  and  train  additional  personnel.

In  addition,  if  the  Company  cannot  obtain  external capital resources, its
ability  to  grow  rapidly  may  be  significantly  undermined.

Risks  Associated  with  International  Expansion  and  Operations

NetNation's  success  is  dependent  in  part  on  expanding  its  international
presence,  primarily through NetNation's resellers.  As a result, NetNation will
depend  upon its reseller network to market and sell its services and manage the
accounts of customers internationally.  NetNation's resellers may not be able to
continue  to market and sell NetNation's web site hosting services successfully.
NetNation  denominates  its  sales  to  resellers  in  U.S.  dollars.  Thus,
fluctuations in the value of the U.S. dollar relative to the Canadian dollar and
to  the currency of a given country may make NetNation's services less (or more)
profitable  and therefore less (or more) attractive to resellers selling in that
country.  In  addition,  there are certain risks inherent in conducting business


                                       18
<PAGE>
internationally,  such  as  changes  in  regulatory  requirements,  export
restrictions,  tariffs and other trade barriers, differing technology standards,
longer  payment  cycles,  political  and  economic  instability, fluctuations in
currency  exchange  rates,  imposition  of  currency exchange controls, seasonal
reductions in business activity, increased difficulty in enforcing contracts and
potentially  adverse  tax  consequences,  any  of  which  could adversely affect
NetNation's  international  operations.  Furthermore,  foreign governments where
NetNation  currently  operates  or  plans  to  operate,  have  enforced laws and
regulations  related  to  the  operations of Internet service providers that are
stricter  than  those  currently  in  place  in  the  United  States and Canada.

One or more of these factors could have a material adverse effect on NetNation's
current  or  future  international  operations and, consequently, on NetNation's
business,  results  of  operations  and financial condition.  To the extent that
NetNation  does  business  in  foreign  markets directly, NetNation will also be
subject to risks such as challenges in staffing and managing foreign operations,
employment  laws,  and practices in foreign countries and problems in collecting
accounts  receivable.  In addition, NetNation or its channel partners may not be
able  to  compete  effectively  in  international  markets.

General  Acquisition  Risks

The Company may acquire strategically important companies and operations.  These
acquisitions  could  materially adversely affect the Company's operating results
as  a  result  of  dilutive  issuances of equity securities or the incurrence of
debt.  In  addition,  the  purchase  price for many of these acquired businesses
likely  will  significantly  exceed the current fair values of the net assets of
the  acquired  businesses.  As  a result, material goodwill and other intangible
assets  would  be  required  to  be  recorded, which could result in significant
amortization  charges  in  future  periods.  These  charges,  in addition to the
financial  impact  of such acquisitions, could have a material adverse effect on
NetNation's  business,  financial  condition  and  results  of  operations.

Increased  Bandwidth  Requirements

As  customers'  usage  of  bandwidth  increases,  NetNation  will  need  to make
additional  investments  in  its  infrastructure to maintain adequate downstream
data  transmission  speeds, the availability of which may be limited or the cost
of  which  may be significant.  Additional network capacity may not be available
from  third party suppliers as NetNation needs it, and, as a result, NetNation's
network  may  not be able to achieve or maintain a sufficiently high capacity of
data  transmission,  especially if the usage by NetNation's customers increases.
NetNation's failure to achieve or maintain high-capacity data transmission could
significantly  reduce  consumer  demand  for  its  services  and have a material
adverse  effect  on its business, results of operations and financial condition.

To  accommodate  a  higher degree of scalability from the present structure will
require  further  additions  to  capital  assets,  possible  upgrade and partial
replacement  of  existing  capital  assets,  and additional costs to accommodate
increased  bandwidth  usage.  The  Company  has  implemented  an  infrastructure
maintenance program to ensure that these issues are proactively addressed.  This
program,  however,  may  result  in  increased  capital  expenditure  costs.

Network  Solutions/Verisign's  and  Other  Registries  Competitive  Advantage

The  Internet  domain  name  registration  system  is  composed of two principal
functions: registry and registrar. Registries maintain the database that contain
names  registered  within the top-level domains and their corresponding Internet
protocol  addresses.  Registrars  act as intermediaries between the registry and
individuals  and  businesses,  referred  to  as registrants, seeking to register
domain  names.  The  agreements  among  Network  Solutions,  ICANN  and the U.S.
Department  of  Commerce  have  given  Verisign  the  parent  company of Network
Solutions,  the  exclusive  right  to  operate and maintain the registry for the
..com,  .net  and .org domains at least until November 30, 2003. Registrars other
than  Verisign  are  known  in the industry as "competitive registrars."  As the
exclusive  registry  for  these  domains,  Verisign receives from NetNation, and
every  other  competitive  registrar,  $6  per  domain  name  per year. Although
registry  fees  may  not be used directly to fund Verisign's registrar business,
the  substantial  net  revenues  from these fees, and the certainty of receiving
them,  provide  Verisign  significant advantages over any competitive registrar.


                                       19
<PAGE>
Afilias,  LLC and Neulevel, Inc. have recently been appointed the registries for
the  .info  and  .biz  top-level domain names respectively.  They hold a similar
competitive  position  with  respect  to their top-level domain names as Network
Solutions/Verisign  has  to  the  .com,  .net,  and .org top-level domain names.

Increased  Domain  Name  Registration  Competition

Competition  in the domain name registration services industry will intensify as
the  number  of  entrants  into  the market increases.  As at December 31, 2001,
ICANN  had accredited almost 150 competitive registrars, including NetNation, to
register  domain  names  in  the  .com, .net, and .org domains.  NetNation faces
substantial  competition  from  competitive  registrars  and  others  in  that:

     -    many  accredited  registrars that are not currently registering domain
          names  may  begin  to  do  so  in  the  near  future;
     -    companies  that  are  not  accredited registrars may offer domain name
          registrations  through  a competing accredited registrar's system; and
     -    ICANN  may  accredit  new  registrars  to register domain names in the
          .com,  .net,  .org,  .info,  and  .biz  domains.

The  Company  faces  competition from other competitive registrars and others in
the  domain  name registration industry who may have longer operating histories,
greater  name  recognition or greater resources.  Competitors in the domain name
registration  industry  include  companies  with  strong  brand  recognition and
Internet  industry  experience,  such  as  major telecommunications firms, cable
companies,  ISPs,  web hosting providers, Internet portals, systems integrators,
consulting  firms  and  other  registrars.  Many of these companies also possess
core  capabilities  to  deliver  ancillary  services,  such as customer service,
billing  services  and network management.  NetNation's market position could be
harmed  by  any  of these existing or future competitors, some of which may have
longer  operating  histories,  greater  name  recognition and greater financial,
technical,  marketing,  distribution  and  other  resources than NetNation does.

Since  competition  in  the  domain  name  registration industry is in its early
stages,  NetNation  cannot  provide  assurance  that  the  Company  will  not be
required,  by market factors or otherwise, to reduce, perhaps significantly, the
prices  charged  for domain name registration and related products and services.
Further,  some of NetNation's competitors are offering domain name registrations
for  free  and  derive  their  revenues from other sources.  Reducing the prices
NetNation  charges  for  domain  name  registration  services in order to remain
competitive  could  materially  adversely  affect  the  Company's  results  of
operations.

Accreditation  to  New  Top-Level  Domains

ICANN  or  another approving entity may introduce new generic top-level domains.
The  Company  cannot  provide  assurance  that, if introduced, NetNation will be
accredited  to  offer registrations in these domains or that customers will rely
on  NetNation  to provide registration services within any new generic top-level
domains.  The Company's business, financial condition, and results of operations
would  be materially adversely affected if substantial numbers of customers turn
to  other  registrars  for  these  registration  needs.


Maintenance  of  ICANN  Accreditation

NetNation  needs to be an ICANN-accredited registrar in order to register domain
names  in  the .com, .net, .org, .info, and .biz domains.  The Company's current
ICANN  accreditation  agreement,  through  DomainPeople  Inc.,  a  wholly-owned
subsidiary  of  NetNation,  expires  on  August  16,  2005.  While  NetNation
anticipates  that  ICANN  will renew this agreement when it expires, there is no
assurance  that  it  will  do  so.  If  ICANN  does  not  renew  the  Company's
accreditation  when  it  expires,  NetNation's business, financial condition and
results  of  operations  would  be  materially adversely affected in the future.


                                       20
<PAGE>
Risk  of  System  Failure

NetNation's  operations  depend  upon  its  ability  to  protect  its  network
infrastructure,  equipment  and  customer files against damage from human error,
fire,  earthquakes, hurricanes, floods, power loss, telecommunications failures,
sabotage,  intentional  acts  of vandalism or terrorism and similar events.  The
occurrence  of a natural disaster or other unanticipated problems at NetNation's
Network  Operations  Centers  could  result  in  interruptions  in  the services
provided  by  NetNation.  The  Company  has  no  formal  disaster recovery plan.
Although  NetNation  is  currently  building  redundancy  into  its  network,
NetNation's  network  is  currently subject to various single points of failure,
and  a  problem  with  one  of  NetNation's  routers  or switches could cause an
interruption  in  the  services  provided  by  NetNation  to  a  portion  of its
customers.  NetNation  has,  in  the past, experienced periodic interruptions in
service  ranging  from  2 minutes to 3 hours, totaling between 20 and 24 hours a
year.  Although  these  interruptions were of short duration, they did occur and
the  extent of future interruptions is indeterminable.  The interruptions had no
significant  impact  on  the  business  of  NetNation.

In  addition,  failure  of  any  of  NetNation's telecommunications providers to
provide  the  data communications capacity required by NetNation, as a result of
human  error,  a natural disaster, or other operational disruption, could result
in  interruptions  in  NetNation's  services.  Any damage to, or failure of, the
systems  of NetNation or its service providers could result in reductions in, or
terminations  of, services supplied to NetNation's customers, which could have a
material  adverse  effect  on  NetNation's  business, results of operations, and
financial  condition.  In  addition,  NetNation's reputation could be materially
adversely  affected.

Dependence  Upon  Network  Infrastructure

NetNation's  success will depend upon the capacity, scalability, reliability and
security  of its network infrastructure, including the capacity leased from AT&T
Canada  Inc., Group Telecom, Peer1 Network, and WorldCom, its telecommunications
network  suppliers.  NetNation  is  dependent  on such companies to maintain the
operational  integrity  of  their  telecommunications  networks.  Therefore,
NetNation's operating results depend, in part, upon the pricing and availability
of  telecommunications  network capacity from a limited number of providers in a
consolidated market.  In the event of a material increase in pricing or decrease
in  telecommunications capacity available to NetNation, if NetNation were unable
either  to  access  alternative networks on a cost-effective basis to distribute
its  customers'  content  or  to  pass through any additional costs of utilizing
existing or alternative networks to its customers, NetNation's business, results
of  operations  and  financial condition could be materially adversely affected.

Dependence  Upon  the  Internet  and  Internet  Infrastructure  Development

NetNation's  success will depend largely upon continued growth in the use of the
Internet.  Critical  issues  concerning  the  commercial  use  of  the Internet,
including  security,  reliability,  cost, ease of access, quality of service and
necessary  increases in bandwidth availability, remain unresolved and are likely
to  affect  the development of the market for NetNation's services. The adoption
of  the  Internet  for  information  retrieval  and  exchange,  commerce  and
communications,  particularly by those enterprises that have historically relied
upon  alternative  means  of information gathering, commerce and communications,
generally will require the acceptance of a new medium of conducting business and
exchanging  information.  Demand  and  market  acceptance  of  the  Internet are
subject  to  a  high  level  of uncertainty and depend upon a number of factors,
including  the  growth  in  consumer access to and acceptance of new interactive
technologies,  the  development  of  technologies  that  facilitate  interactive
communication between organizations and targeted audiences, and increases in the
speed  of  user  access.  If  the  Internet, as a commercial or business medium,
fails  to  develop  further,  or develops more slowly than expected, NetNation's
business,  results  of  operations,  and financial condition could be materially
adversely  affected.

Rapid  Technological  Change;  Evolving  Industry  Standards

NetNation's  future  success  will  depend,  in  part, upon its ability to offer
services  that  incorporate  leading  technologies,  address  the  increasingly
sophisticated  and  varied  needs  of its current and prospective customers, and
respond  to technological advances and emerging industry standards and practices


                                       21
<PAGE>
on  a  timely  and cost- effective basis. The market for NetNation's services is
characterized  by  rapidly changing and unproven technologies, evolving industry
standards,  changes  in  customer  needs,  emerging competition and frequent new
service introductions. Technological advances may have the effect of encouraging
certain of NetNation's current or future customers to rely on in-house personnel
and  equipment  to  furnish  the  services  currently  provided by NetNation. In
addition,  keeping  pace with technological advances in NetNation's industry may
require  substantial  expenditures  and  lead  time,  which  may have a material
adverse  effect  on  NetNation's  business,  results of operations and financial
condition.

NetNation  believes  that  its ability to compete successfully also depends upon
the  continued  compatibility and interoperability of its services with products
offered by various vendors. Enhanced or newly developed third party products may
not  be  compatible  with  NetNation's infrastructure, and such products may not
adequately  address  the  needs  of  NetNation's  customers.  Although NetNation
currently  intends  to support emerging standards, industry standards may not be
established,  and  even  if  they  are established, NetNation may not be able to
conform  to  these  new standards in a timely fashion and maintain a competitive
position  in  the  market. The failure of NetNation to conform to the prevailing
standard,  or  the failure of a common standard to emerge, could have a material
adverse  effect  on  NetNation's  business,  results of operations and financial
condition.  In  addition, products, services or technologies developed by others
could  render  NetNation's  services  noncompetitive  or  obsolete.

System  Security  Risks

A  significant barrier to electronic commerce and communications is the need for
secure transmission of confidential information over public networks. Certain of
NetNation's  services rely on security technology licensed from third parties to
provide  the  encryption  and  authentication  necessary  to  effect  secure
transmission of confidential information. Unauthorized access, computer viruses,
accidental  or  intentional actions and other disruptions could occur. NetNation
has in the past experienced minor delays or interruptions in service as a result
of  the  accidental  and intentional actions of Internet users or "hackers", and
may  in  the  future  experience such interruptions because of the same actions.
Furthermore,  such  inappropriate use of the network by third parties could also
potentially  jeopardize the security of confidential information, such as credit
card  and  bank  account  numbers,  stored in the computer systems of NetNation,
which  could result in liability to NetNation and the loss of existing customers
or  the  deterrence  of  potential customers. NetNation's security measures have
been  circumvented  in  the  past, and any new measures implemented by NetNation
could  be  circumvented  in the future. The costs required to eliminate computer
viruses  and  alleviate other security problems could be prohibitively expensive
and  the  efforts to address such problems could result in interruptions, delays
or  cessation  of  service to NetNation's customers, which could have a material
adverse  effect  on  NetNation's  business,  results of operations and financial
condition.  Concerns  over the security of Internet transactions and the privacy
of  users  may also inhibit the growth of the Internet, especially as a means of
conducting  commercial  transactions.

Government  Regulation  and  Legal  Uncertainties

Only  a  small  body  of  laws  and  regulations currently apply specifically to
content  of,  access  to, or commerce on, the Internet. It is possible that laws
and  regulations  with  respect to the Internet may be adopted by governments in
any  of  the  jurisdictions  in  which NetNation can sell its products, covering
issues such as user privacy, freedom of expression, pricing, characteristics and
quality  of  products and services, taxation, advertising, intellectual property
rights,  information  security  and  the  convergence  of  traditional
telecommunications  services  with Internet communications. The nature of future
legislation and the manner in which it may be interpreted and enforced cannot be
fully  determined  and,  therefore,  future  legislation could subject NetNation
and/or  its  customers  to  potential  liability,  which  in  turn  could have a
materially  adverse  effect  on  NetNation's business, results of operations and
financial condition. The adoption of any such laws or regulations might slow the
growth of the Internet, which in turn could decrease the demand for the services
of NetNation or increase the cost of doing business or in some other manner have
a  material  adverse  effect  on NetNation's business, results of operations and
financial condition. In addition, applicability to the Internet of existing laws
governing  issues  such  as property ownership, copyright and other intellectual
property  issues,  taxation, libel, obscenity and personal privacy is uncertain.
The  vast majority of such laws were adopted prior to the advent of the Internet
and  related  technologies  and,  as a result, do not contemplate or address the


                                       22
<PAGE>
unique  issues  of  the  Internet and related technologies. Changes to such laws
intended  to  address  these  issues could create uncertainty in the marketplace
that  could  reduce demand for the services of NetNation or increase the cost of
doing  business as a result of costs of litigation or increased service delivery
costs,  or  could  in  some  other  manner  have  a materially adverse effect on
NetNation's  business,  results  of  operations  and  financial  condition.  In
addition, because NetNation's services are available over the Internet virtually
worldwide, and because NetNation facilitates sales by its customers to end users
located  in multiple provinces, states and foreign countries, such jurisdictions
may  claim  that  NetNation  is  required to qualify to do business as a foreign
corporation  in  each  such  state/province  or  that  NetNation has a permanent
establishment in each such foreign country. Failure by NetNation to qualify as a
foreign  corporation  in  a  jurisdiction  where  it  is required to do so could
subject NetNation to taxes and penalties for failure to qualify and could result
in  the  inability  of NetNation to enforce contracts in such jurisdictions. Any
new  legislation  or  regulation, or the application of laws or regulations from
jurisdictions  whose  laws do not currently apply to NetNation's business, could
have  a materially adverse effect on NetNation's business, results of operations
and  financial  condition.

NetNation  is  not  currently  subject  to  direct  regulation  by  the  Federal
Communications  Commission  or  any  other  governmental  agency,  other  than
regulations  applicable to businesses in general. However, in the future, it may
become  subject  to  regulation  by  the  FCC  or  another  regulatory  agency.
NetNation's  business  could  suffer  depending  on  the  extent  to  which  its
activities  are  regulated  or  proposed  to  be  regulated

NetNation  does  not  currently collect sales or other taxes with respect to the
sale of services or products in states and countries where NetNation believes it
is  not  required to do so.  NetNation does collect sales and other taxes in the
states and countries in which NetNation has offices and is required by law to do
so.  Currently,  NetNation  collects  federal  taxes  in  Canada  from  Canadian
residents  and provincial taxes where applicable. One or more jurisdictions have
sought  to  impose  sales  or  other tax obligations on companies that engage in
online  commerce  within  their  jurisdictions. A successful assertion by one or
more  jurisdictions  that  NetNation  should collect sales or other taxes on its
products  and  services,  or  remit  payment  of  sales or other taxes for prior
periods,  could  have  a  minor  adverse  effect  on  the  Company's  business.

It  is  possible  that  the  U.S.  or any other jurisdiction may impose taxes on
Internet  based  commerce.  The  materiality  of  such  taxes  on the results of
operations  cannot be determined by the Company at this time.  The growth of the
Internet,  coupled  with  publicity  regarding  Internet  fraud, may lead to the
enactment  of  more  stringent  consumer  protection  laws. If NetNation becomes
subject  to  claims  that  NetNation  has  violated  any laws, even if NetNation
successfully  defends against these claims, the business could suffer. Moreover,
new  laws  that  impose  restrictions  on  NetNation's ability to follow current
business  practices  or  increase  its  costs  of  doing business could hurt the
business.

Risks  Associated  With  Information  Disseminated  Through  NetNation's Network

The  law  relating  to  the  liability of online services companies and Internet
access  providers  for  information  carried  on  or  disseminated through their
networks  is  currently  unsettled.  Despite  the  passage of the Communications
Decency  Act  which  provided some relief to online service providers from civil
liability  for  content they did not create, it is possible that claims could be
made  against  online  services  companies  and  Internet access providers under
United States, Canadian and foreign laws for defamation, negligence or copyright
or  trademark infringement, or other theories based on the nature and content of
the  materials  disseminated  through  their  networks. Several private lawsuits
seeking  to  impose  such  liability upon online services companies and Internet
access  providers  are  currently  pending.  In  addition,  legislation has been
proposed  that  imposes  liability  for  or  prohibits the transmission over the
Internet  of  certain  types  of  information. The imposition upon NetNation and
other  web site hosting providers of potential liability for information carried
on  or  disseminated  through their systems could require NetNation to implement
measures  to  reduce  its  exposure  to  such  liability,  which may require the
expenditure  of  substantial  resources,  or  to  discontinue  certain  service
offerings.  The increased attention focused upon liability issues as a result of
these  lawsuits  and  legislative  proposals  also  could  affect  the growth of
Internet  use. In addition, NetNation is subject to a number of risks associated
with  the  potential  actions  of  customers  utilizing NetNation's network. For
example, if a customer were to engage in "spamming" (a practice of sending large
quantities  of  unsolicited e-mail), NetNation would have an obligation to block
that customer's access to the Internet through NetNation's network. A failure by
NetNation  to  satisfy  this  obligation  could result in NetNation being denied


                                       23
<PAGE>
access  to  the  telecommunications  networks  through which NetNation's network
links  to  the  Internet.  Spamming could also cause a significant disruption in
NetNation's  ability  to  route  e-mail  to  and  from  its  customers.

Dependence  on  Key  Personnel

NetNation's success depends in a significant part upon the continued services of
its  key  personnel.  The  Company's technical, sales and administrative matters
come  under  the  direct  responsibility of, or are shared by, the following key
personnel:  David  Talmor,  Chairman  and  President;  and  Joseph  Kibur, Chief
Executive Officer.  The loss of the services of one or both of these key persons
could  have  a  material  adverse  effect  on  NetNation's  business, results of
operations  and  financial  condition.

Ability  to  Attract,  Train  and  Retain  Personnel

If  NetNation  is  unable  to attract additional qualified personnel, this could
have  a  material  adverse effect on NetNation's business, results of operations
and financial condition.  Any officer or employee of NetNation can terminate his
or her relationship with NetNation at any time.  NetNation's future success will
also  depend  on  its  ability  to  attract,  train,  retain and motivate highly
qualified  technical, marketing, sales and management personnel. Competition for
such  personnel  is intense, and NetNation may not be able to attract and retain
key  personnel.

Protection  and  Enforcement  of  Intellectual  Property  Rights

NetNation  relies  on  a  combination  of copyright, trademark, service mark and
trade  secret laws and contractual restrictions to establish and protect certain
proprietary  rights  in its services.  NetNation has no patented technology that
would  preclude  or  inhibit  competitors  from  entering  NetNation's  market.
NetNation  has  entered into confidentiality and invention assignment agreements
with  its  employees  and  contractors,  and  nondisclosure  agreements with its
suppliers,  distributors  and  certain customers in order to limit access to and
disclosure of its proprietary information. These contractual arrangements or the
other  steps  taken  by  NetNation  to protect its intellectual property may not
prove  sufficient  to  prevent  misappropriation of NetNation's technology or to
deter  independent  third party development of similar technologies. The laws of
certain  foreign  countries may not protect NetNation's services or intellectual
property  rights  to  the  same  extent  as do the laws of the United States and
Canada.  NetNation  also  relies  on  certain technologies that it licenses from
third  parties.  These  third  party  technology licenses may not continue to be
available to NetNation on commercially reasonable terms. The loss of the ability
to  use  such  technology  could  require  NetNation to obtain the rights to use
substitute  technology,  which could be more expensive or offer lower quality or
performance,  and  therefore  have  a  material  adverse  effect  on NetNation's
business,  results of operations and financial condition.  To date, NetNation is
not  a  subject  of  a lawsuit in respect to NetNation's services infringing the
proprietary  rights of third parties, but third parties could claim infringement
by NetNation with respect to current or future services.  NetNation expects that
participants  in its markets will be increasingly subject to infringement claims
as the number of services and competitors in NetNation's industry segment grows.
Any  such  claim, whether meritorious or not, could be time-consuming, result in
costly  litigation,  cause  service  installation delays or require NetNation to
enter into royalty or licensing agreements. Such royalty or licensing agreements
might not be available on terms acceptable to NetNation, or at all. As a result,
any  such  claim could have a material adverse effect upon NetNation's business,
results  of  operations  and  financial  condition.


                                       24
<PAGE>
Control  by  Principal  Stockholders,  Executive  Officers  and  Directors

NetNation's  Chairman  and President, David Talmor, and Chief Executive Officer,
Joseph  Kibur,  in  the  aggregate,  beneficially  own  approximately  53%  of
NetNation's  outstanding common stock as at December 31, 2001. As a result, such
persons,  acting  together,  will  have  the  ability  to  control  most matters
submitted  to stockholders of NetNation for approval (including the election and
removal  of  directors)  and to control the management and affairs of NetNation.
However, there are no voting trusts or other agreements between David Talmor and
Joseph  Kibur  to  vote in concert. Accordingly, such concentration of ownership
may  have the effect of delaying, deferring or preventing a change in control of
NetNation,  impeding  a  merger,  consolidation,  takeover  or  other  business
combination involving NetNation or discouraging a potential acquirer from making
a  tender offer or otherwise attempting to obtain control of NetNation, which in
turn  could  have  a  material  adverse  effect  on  NetNation's  worth.

Dilutive  Effect  of  Future  Sales  of  Securities

Future  sales  of  substantial amounts of NetNation's Common Stock in the public
market  could  adversely  affect  the  market  price  of  the  common  stock and
shareholders  could  experience dilution in their stock ownership of the Company
and  in  the value of their shares.  Dilution is a reduction in the value of the
holder's investment measured by the difference between the purchase price of the
shares  of  the common stock and the net tangible book value of the shares after
the  purchase takes place.  As at December 31, 2001, there were 9,887,621 shares
of  common stock which are restricted or affiliate shares ("Restricted Shares").
Those  Restricted Shares will gradually be converted to free-trading shares, the
sale of which could have a material adverse effect on the future market price of
NetNation's  common  stock.

Stock  Price  Volatility

The market price of NetNation's common stock has fluctuated significantly in the
past,  and  is  likely  to continue to be highly volatile.  To date, the trading
volume  in  the  Company's  stock  has been relatively low and significant price
fluctuations  can  occur  as a result. If the low trading volumes experienced to
date  continue, such fluctuations could occur in the future.  The Company cannot
provide  assurance that the sale price of its common stock will not fluctuate or
decline  significantly  in the future. In addition, the U.S. equity markets have
from  time  to  time  experienced significant price and volume fluctuations that
have  particularly  affected  the  market  prices  for  the stocks of technology
companies.  These  broad market fluctuations may materially adversely affect the
market  price  of  NetNation's  common  stock  in  future. Such fluctuations and
variations  may  be the result of changes in NetNation's business, operations or
prospects,  announcements  of  technological  innovations  and  new  products by
competitors,  NetNation  or  its  competitors  entering  into  new  contractual
relationships with strategic partners, proposed acquisitions by NetNation or its
competitors,  financial  results  that  fail  to  meet  public  market  analyst
expectations  of  performance,  regulatory considerations and general market and
economic  conditions  in  the  U.S.  and  throughout  the  world.

Nasdaq  SmallCap  Market  Listing

The  Company  is  subject  to  continued  inclusion rules to maintain its Nasdaq
SmallCap Market listing. In August 2001, the Company was notified by Nasdaq that
it  did  not  meet  listing  requirements for the Nasdaq SmallCap Market at that
time.  The  Company appealed its case before the Nasdaq Qualifications Panel for
continued  listing on Nasdaq SmallCap Market. In a determination provided to the
Company by the Nasdaq Qualifications Panel on October 26, 2001, the Panel stated
that  the Company had demonstrated market capitalization of at least $35,000,000
for  18  consecutive trading days. Furthermore, the Panel noted that the Company
appeared  to  satisfy all other requirements for continued listing. Accordingly,
the  Panel determined to continue listing the Company's securities on the Nasdaq
SmallCap Market, and closed the hearing file.

If  NetNation is unable to maintain its listing on the Nasdaq SmallCap Market in
the  future,  the  liquidity  of its common stock on the public markets could be
affected. The ability of NetNation to meet the continued listing requirements is
affected  by  factors  affecting  the Company itself, and by market factors that
affect  all  Nasdaq  and/or  all  publicly  traded  stocks.


                                       25
<PAGE>
ITEM  2:  PROPERTIES
--------------------

NetNation's  executive  offices  and  Network  Operation  Center, are located in
Vancouver  B.C., Canada. They consist of approximately 11,000 square feet, which
is  leased  at  a  rate of approximately $9,000 per month pursuant to agreements
that expire on April 30, 2002 with an option to renew for 2 years.  All property
is  insured  to  industry  standards. The Company believes that these facilities
will  be  suitable for the operation of its business for the foreseeable future.


ITEM  3:  LEGAL  PROCEEDINGS
----------------------------

As  at  December 1, 2000, the Company had discontinued lease payments on its San
Diego  premises due to a number of circumstances.  To date, the landlord has not
commenced  legal action against the Company.  Should the landlord commence legal
action  against  the  Company,  the  outcome of the proceedings is unknown.  The
remaining  lease  payments of $381,254 as at December 31, 2001 have been accrued
in  the  consolidated  financial  statements as at December 31, 2000, and a gain
will  be  recognized  in  the  event  of  a  favorable  outcome.

The  distribution  process  for  .biz  domain  names  has  been  the  subject of
litigation  in  the  Los  Angeles  Superior Court in the State of California. On
August  1,  2001  a  lawsuit was brought by David Scott Smiley against NeuLevel,
Inc., the .biz registry, the Internet Corporation for Assigned Names and Numbers
("ICANN"),  and  most  of the .biz-accredited registrars, including DomainPeople
Inc.,  a  wholly-owned subsidiary of NetNation. This lawsuit alleges among other
things,  that  the  method for assigning domain names during the start-up period
for  registration  of  .biz  domain  names  constituted an illegal lottery under
California  law.  The lawsuit seeks a refund of the fees paid to the defendants,
additional  damages,  costs,  attorney  fees,  and  an  injunction  to  stop the
pre-registrations. NeuLevel has subsequently changed its distribution process in
response  to  this  litigation.  At  this  time,  DomainPeople Inc. has not been
formally  served  with  notice  of  the legal proceedings and the outcome of the
proceedings and the amount of potential damages to DomainPeople Inc. is unknown.
However,  should the plaintiff prevail in its claim, the Company may be required
to  pay  damages  which  could have a material effect on the Company's operating
results.

To  the knowledge of the officers and directors of NetNation, there are no other
pending  legal  proceedings  or  litigation of a material nature and none of its
property  is  the  subject  of a pending legal proceeding.  Further, NetNation's
officers  and  directors  know  of no legal proceedings against NetNation or its
property  contemplated  by  any  governmental  authority.

ITEM  4:  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS
---------------------------------------------------------------------

No  items were submitted to a vote of security holders during the fourth quarter
of  2001.



                                       26
<PAGE>
                                     PART II

ITEM  5:  MARKET  FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

                MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
                  COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market  Information

NetNation's  common  shares  are  principally  traded  on  the  Nasdaq  Small
Capitalization  Market  under  the  ticker symbol NNCI. From February 3, 1999 to
April  27,  1999,  the common shares of NetNation traded under the ticker symbol
CBET,  reflecting  the  previous name of NetNation as Collectibles Entertainment
Inc.  On  April  27, 1999, NetNation began trading under the ticker symbol NNCI.

<TABLE>
<CAPTION>
                                         Price Range of Common Stock
                                         ---------------------------
                                             High           Low
                                         ------------  -------------
<S>                                      <C>           <C>
Fiscal Year Ended December 31, 2001
  First Quarter . . . . . . . . . . . .  $      4.000  $      2.063
  Second Quarter. . . . . . . . . . . .  $      3.750  $      2.250
  Third Quarter.. . . . . . . . . . . .  $      3.010  $      0.900
  Fourth Quarter. . . . . . . . . . . .  $      3.510  $      2.200

Fiscal Year Ended December 31, 2000
  First Quarter . . . . . . . . . . . .  $     17.875  $      4.563
  Second Quarter. . . . . . . . . . . .  $     15.500  $      3.500
  Third Quarter . . . . . . . . . . . .  $      6.375  $      3.375
  Fourth Quarter. . . . . . . . . . . .  $      4.000  $      1.313
</TABLE>

The above quotations were taken from Commodity Systems, Inc.

Holders

On  March  12,  2002,  NetNation's  issued and outstanding common stock totalled
15,218,002 shares and was held by approximately 75 shareholders of record and by
undetermined  number  of  additional shareholders through nominee or street name
accounts  with  brokers.

Dividends

NetNation  has  not declared any cash dividends on its common stock and does not
intend  to pay cash dividends in the foreseeable future.  NetNation's  policy is
to  reinvest  all  earnings  into  the  business.

                     RECENT SALES OF UNREGISTERED SECURITIES

During  the  year  ended  December  31,  2001,  NetNations  sold no unregistered
securities.


                                       27
<PAGE>


ITEM  6:  SELECTED  FINANCIAL  DATA
-----------------------------------

                                    OVERVIEW


NetNation  was  incorporated  under  the laws of the State of Delaware on May 7,
1998,  under  the name Collectibles Entertainment Inc. ("Collectibles"), for the
purpose  of  operating  an  online  sports  card and other tradeable memorabilia
distribution  business.  Collectibles  changed  its  name  to  NetNation
Communications, Inc. on April 14, 1999, in conjunction with the acquisition of a
web  site  hosting  business  based  in Vancouver, Canada.  The common shares of
NetNation  currently  trade on the Nasdaq Small Capitalization  Market under the
ticker  symbol  "NNCI".

NetNation  entered  into the web hosting business through its acquisition of the
Canadian  Subsidiary.  The Canadian Subsidiary is a private company incorporated
under the laws of the Province of British Columbia, Canada on February 19, 1997.
The  Canadian  Subsidiary  became  a  wholly-owned  subsidiary on April 7, 1999,
pursuant to an agreement between the shareholders of the Canadian Subsidiary and
Collectibles  (the  "Share Purchase Agreement").  Pursuant to the Share Purchase
Agreement,  Collectibles  acquired 9,000,000 Class A common shares and 1,000,000
Class B preferred shares of the Canadian Subsidiary, being all of the issued and
outstanding  shares  of  the  Canadian  Subsidiary.  The  purchase price for the
shares of the Canadian Subsidiary was $1,000,000 in Canadian currency, which was
paid  by  the  issuance  of  10,000,000  common  shares  of  Collectibles.  Upon
conclusion  of  the  acquisition,  Collectibles  changed  its name to NetNation.
Prior  to  the  acquisition,  there were no significant business operations.  In
accordance  with  generally accepted accounting principles, this transaction was
accounted  for as a recapitalization of the Canadian Subsidiary, as if it issued
stock  for  consideration  equal  to  the  net  monetary  assets  of  NetNation.
Accordingly, the results from the Canadian Subsidiary are presented as the prior
period  comparative  information  of  the  consolidated  companies.


                                       28
<PAGE>
Prior to April 1999, NetNation did not raise significant external equity or debt
to  assist  in  growth.  Historically,  NetNation has reinvested all excess cash
flow  in  order  to  maximize  growth.  The  majority  of any surplus funds were
invested  in  expanded  marketing  activities,  particularly  advertising  since
advertising  has  been  NetNation's  prime  driver  of  new  business  and  has
consistently  proven  its  ability to generate revenue growth and new customers.

On  April  7, 1999, NetNation raised $0.9 million through the issuance of common
shares.  On  April  12,  1999,  NetNation  raised  a  further  $1.1  million  of
convertible  debt financing which was subsequently converted to common shares on
February  18, 2000.  On March 3, 2000, NetNation raised $2.5 million through the
issuance  of  common  shares.


                                       29
<PAGE>
<TABLE>
<CAPTION>
                            SELECTED FINANCIAL DATA

======================================================================================
                                Years ended December 31,
                                   2001           2000          1999         1998
--------------------------------------------------------------------------------------
<S>                            <C>            <C>           <C>           <C>
Sales                          $  6,646,433   $ 5,011,859   $ 2,511,021   $ 1,108,430
Gross profit                      4,566,731     3,199,603     1,799,065       687,191

Expenses
 Sales & marketing                1,388,643     2,977,927     1,575,699       461,913
 General & admin.                 2,037,689     3,352,296     1,472,687       303,400
 Write-off of advance                    --       500,000            --            --
 Depreciation                       632,482       340,977        95,445        31,428

Deferred income tax recovery        250,000            --            --            --

Net earnings (loss)                 757,917    (3,971,597)   (1,344,766)     (109,500)

Earnings (loss) per share      $       0.05   $     (0.26)  $     (0.10)  $     (0.01)

Weighted average number          15,246,145    15,316,804    13,164,836     9,692,030
of common shares

Total assets                   $  4,126,428   $ 3,130,828   $ 1,518,165   $   177,359

Debentures payable             $         --            --   $ 1,100,000            --

Cash generated by (used for)
 Operating activities          $  1,155,973   $  (623,555)  $  (604,773)  $    94,177
 Investing activities              (235,258)   (2,014,787)     (435,922)      (86,590)
 Financing activities                 9,490     2,399,010     1,982,909        (4,734)
======================================================================================
</TABLE>

                                       30
<PAGE>
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF  OPERATION
-------------

OVERVIEW

NetNation  was  incorporated  under  the laws of the State of Delaware on May 7,
1998,  under  the  name Collectibles Entertainment Inc. ("Collectibles") for the
purpose  of  operating  an  online  sports  card and other tradeable memorabilia
distribution  business.  Collectibles  changed  its  name  to  NetNation
Communications,  Inc. on April 14, 1999 in conjunction with the acquisition of a
web-site  hosting  business  based  in  Vancouver, Canada.  The common shares of
NetNation  currently  trade on the Nasdaq Small Capitalization  Market under the
ticker  symbol  "NNCI".

NetNation  entered  into the web hosting business through its acquisition of the
Canadian  Subsidiary.  The Canadian Subsidiary is a private company incorporated
under the laws of the Province of British Columbia, Canada on February 19, 1997.
The  Canadian  Subsidiary  became  a  wholly  owned  subsidiary on April 7, 1999
pursuant to an agreement between the shareholders of the Canadian Subsidiary and
Collectibles  (the  "Share Purchase Agreement").  Pursuant to the Share Purchase
Agreement,  Collectibles  acquired 9,000,000 Class A common shares and 1,000,000
Class B preferred shares of the Canadian Subsidiary, being all of the issued and
outstanding  shares  of  the  Canadian  Subsidiary.  The  purchase price for the
shares of the Canadian Subsidiary was $1,000,000 in Canadian currency, which was
paid  by  the  issuance  of  10,000,000  common  shares  of  Collectibles.  Upon
conclusion  of  the  acquisition,  Collectibles  changed  its name to NetNation.

NetNation  is  an  internet infrastructure solutions provider focused on meeting
the needs of small and medium-sized enterprises ("SMEs") and individuals who are
establishing  a commercial or informational presence on the Internet.  NetNation
competes in the web hosting and domain name registration markets.  It's products
and  services  are sold worldwide, directly to customers and through value added
resellers  ("VARs").

In  May 1999, NetNation was selected as an official registrar of domain names by
ICANN.  The  accreditation  allows  NetNation to register top-level domain names
("TLD's")  ending  in .com, .net and .org, which account for approximately 50% -
75%  of  the  world's  Internet  addresses.  NetNation, through its wholly-owned
subsidiary,  DomainPeople,  became  operational  as  a  domain name registrar in
December  of  1999.

NetNation's  2001  revenue  was  generated  mainly  from  providing  web hosting
services  to  SMEs  and domain name registration.  Also included in revenue were
co-located server services; during the year 2001, however, these were relatively
minor  contributors.  NetNation's web hosting customers normally pay a setup fee
and  regular  charges,  either  monthly, quarterly or annually, thereafter.  The
Company  offers  a  variety  of  hosting  packages  in  addition  to a number of
value-added  services and products.  This enables customers to easily select and
modify  a  solution  that  precisely  meets  their  individual  requirements.

NetNation's  accreditation  as an official registrar of domain names has enabled
it  to  register  domain names without the involvement of an intermediary. As an
accredited  registrar,  NetNation,  through  DomainPeople,  has  assumed
responsibility  for ensuring that current information obtained from customers is
supplied  to  the  central  registry.

                                OPERATING RESULTS

YEAR  ENDED  DECEMBER  31,  2001  COMPARED  WITH  YEAR  ENDED  DECEMBER 31, 2000

For  the  year  ended  December  31,  2001,  NetNation  achieved net earnings of
$757,917  or  net  earnings  per  share  of  $0.05  as compared to a net loss of
$3,971,597  or  a  net  loss  per  share  of  $0.26 for the same period in 2000.


Revenue


NetNation's  2001  revenues  were derived from Web Hosting (68%) of which 5% was
from  Server  Co-Location,  and  Domain  Name Registration services (32%). As at
December  31,  2001,  NetNation  had  registered  approximately 300,000 Internet
domain  names  and  was hosting more than 22,000 web sites. NetNation's products
and  services  are  sold worldwide, directly to customers and through resellers.

NetNation's  2001  revenue  of $6,646,433 was an increase of $1,634,574, or 33%,
over  2000  revenue.  During  2001,  the  number  of  sites  hosted  increased
approximately  37%,  from  16,000 to 22,000.  The increase in revenue was due to
the  increase in the number of web sites hosted and a full year of growth in the
domain  name  registration  segment  of  NetNation's  business.

Domain  name  registration  services  are  billed  and  collected  in advance of
provision  of  the  service  and  are  deferred  and  recorded  as  revenue on a
straight-line  basis  over the term of registration. The unrecognized portion of
the  fees  has been recorded as deferred revenue. The deferred revenue amount on
the  balance sheet as at December 31, 2001 includes $1,708,233 related to domain
name  registration.

Cost  of  Sales

Cost  of sales of $2,079,702 was an increase of $267,446 or 15% from 2000 and as
a  percentage  of  revenues, decreased from 36% to 31%.  The majority of cost of
sales  consists  of  personnel  costs  for  the  network  operations  center and
technical  support,  bandwidth costs, and the costs to register domain names for
the  Company's  customers.  Domain  name  registration  fees paid to the central
registry  are  recognized  as  an  expense  over  the term of registration.  The
improvement  in  cost  of  sales  as a percentage of sales was due mainly to the
economies  of  scale  experienced  for  personnel  costs.

Sales  and  Marketing  Expenses

Sales  and  marketing expenses decreased $1,589,284, or 53%, from 2000, and as a
percentage of revenue, decreased from 59% to 21%. The decrease was mainly due to
a reduction in advertising expenses of $1,240,730 due to a more focused approach
to  the media and venues chosen to place advertisements. NetNation's advertising
is  focused in media types that are believed to best engage the attention of its
target  market,  SMEs.  Sales and marketing expense consists mainly of salaries,
bonuses,  commissions  and  advertising  costs.


                                       31
<PAGE>
General  and  Administrative  Expenses

General  and  administration  expenses  decreased  $1,314,607 or 39% compared to
2000.  As  a  percentage of sales, general and administration expenses decreased
from  67% in 2000 to 31% in 2001.  The improvement in general and administration
expenses  as  a percentage of sales was due to cost control and the economies of
scale for the various costs included in general and administration expenses such
as  administrative  personnel,  rent,  general office expenses, legal costs, and
investor  relations  expenses.

Depreciation  and  amortization

Depreciation  and amortization increased $291,505 or 85% compared to 2000.  This
increase  was  related  to  the  significant investment in the network operation
center  and  computer  equipment  during  2000.

Deferred  Income  Tax  Recovery

In 2001, the Company recognized a deferred income tax recovery of $250,000 and a
corresponding  deferred  tax  asset  of  the  same  amount.  In  assessing  the
realizability  of  deferred  tax assets, management considers whether it is more
likely  than not that some portion or all of the deferred tax assets will not be
realized.  The ultimate realization of deferred tax assets is dependent upon the
generation  of future taxable income during the periods in which those temporary
differences  become  deductible.  Management considers the scheduled reversal of
deferred  tax  liabilities,  projected  future  taxable income, and tax planning
strategies  in  making  this  assessment.  The  amount of the deferred tax asset
considered  realizable  could change materially in the near term based on future
taxable  income  during  the  carry  forward  period.


YEAR  ENDED  DECEMBER  31,  2000  COMPARED  WITH  YEAR  ENDED  DECEMBER 31, 1999

Revenue

NetNation's  2000  revenue  was generated from providing web hosting services to
SMEs  and  domain  name  registration.  Also included in revenue were co-located
server  services;  during  the  year  2000, however, these were relatively minor
contributors.  NetNation's  web  hosting  customers normally pay a setup fee and
regular charges, either monthly, quarterly or annually, thereafter.  There are a
variety  of  hosting  packages  offered  by NetNation in addition to a number of
value-added  services  and  products,  to  enable customers to easily select and
modify  a  solution  that  precisely  meets  their  individual  requirements.

NetNation's  2000  revenues  were  derived  from  Web Hosting (72%), Domain Name
Registration  services  (26%),  and Server Co-Location (2%).  As at December 31,
2000,  NetNation  had registered approximately 150,000 Internet domain names and
was  hosting  more than 16,000 web sites.  NetNation's products and services are
sold  worldwide,  directly  to  customers  and  through  resellers.

In  December  1999,  the  SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition  in Financial Statements" ("SAB 101").  SAB 101 and related material
indicates  that  the fair value of initial set-up fees should be recognized over
the estimated period of service.  The Company's contracts generally include such
fees.  The  Company  has  determined  the  impact  of  SAB 101 and the resulting
cumulative  adjustment  of $597,950 has been recorded in the Company's financial
statements  in  2000.

NetNation's  2000  revenue of $5,011,859 was an increase of $2,500,838, or 100%,
over  1999  revenue.  During  2000,  the  number  of  sites  hosted  increased
approximately  60%,  from  10,000  to 16,000.


                                       32
<PAGE>
The  growth in hosted sites and revenue was entirely "organic" and resulted from
a  significant  number  of  valuable  partnerships  and  reselling relationships
established  during  the  year.

Cost  of  Sales

Cost  of  sales  increased  $1,100,300  or 155% from 1999 and as a percentage of
revenues,  increased  from  28%  to  36%.  Part of the change as a percentage of
revenue was due to the effect of the SAB 101 adjustment in 2000 mentioned above.
The  majority  of  cost  of  sales  consists  of personnel costs for the network
operations  center  and technical support and the costs to register domain names
for  the  Company's  customers.

Sales  and  Marketing  Expenses

Sales  and  marketing  expenses  rose  $1,402,228,  or  89%, from 1999, and as a
percentage  of  revenue,  decreased  from  63%  to 59%.  The increase was due to
higher  expenditures on advertising and the increase in the number of personnel.
The  largest  single  expenditure  category  in  sales  and  marketing  expenses
continues to be the advertising expenditures.  Advertising, online and print, is
considered  to  be  a  significant  driver  of NetNation's web hosting business.

In March 2000, an equity financing was secured that allowed NetNation to further
increase  advertising  activities  in  support  of  its  internal  growth  plan.
NetNation's  advertising  is  focused  in media where NetNation's advertising is
believed  to  best  engage the attention of the target hosting market, small and
medium-sized  businesses.

General  and  Administrative  Expenses

General  and  administrative  expenses  include  expenditures  on administrative
personnel,  rent,  general  office  costs,  professional  advisors  and  public
relations.  In  2000,  general and administrative expenses increased $1,879,609,
or  128%,  over 1999, and as a percentage of revenue, increased from 59% to 67%.
The overall increase was due mainly to additional personnel, the amortization of
the  deferred  compensation  expense,  additional rent on the Company's expanded
office  space,  and  increased  legal  costs.

The  Company has set up a provision of $381,254 for the remaining lease payments
on the lease on the San Diego premises.  As at December 1, 2000, the Company has
discontinued  lease  payments  due  to  a number of circumstances.  To date, the
landlord  has  not  commenced  legal  action  against  the  Company.  Should the
landlord  commence  legal  action  against  the  Company,  the  outcome  of  the
proceedings  is  unknown.  In  the event of a favourable outcome, a gain will be
recognized.

Write-Off  of  Advance

In  2000,  the  Company made an unsuccessful attempt to acquire American Digital
Network  ("ADN"),  a  company  involved  in  the  web hosting, ISP, and Internet
services  industry.  As  part of the planned acquisition, NetNation advanced ADN
$500,000  and  received  as  security  the  intellectual  property rights to the
eStoreManager  software.  The  acquisition  was terminated and NetNation has not
been  able  to  recover  its  advanced  funds  and  has  taken possession of the
eStoreManager  software.  If ADN is unable to repay the advances, NetNation will
retain  the  full  rights  to  the eStoreManager software.  To date, ADN has not
exercised its option to repurchase the software.  As the Company does not expect
to  recover  the  amounts advanced to ADN, nor does it expect to make commercial
use  of  the  intellectual  property rights acquired, the Company has decided to
write-off  the  amount  advanced  to  ADN.


                                       33
<PAGE>
                        LIQUIDITY AND CAPITAL RESOURCES


During  2001,  operating activities generated net cash of $1,155,973 compared to
net  cash  used  in  operations  of  $623,555  and  $604,773  for 2000 and 1999,
respectively.  The  main reason for the increase in cash from operations was the
earnings  from  operations  generated  in  2001  compared  to  the  losses  from
operations  incurred  in  2000  and  1999.

Investing  activities  for 2001 used net cash of $235,258 compared to $2,014,787
and  $435,922  in  2000  and  1999,  respectively.  In  2000 and 1999 there were
significant investments in the network operations center.   Similar costs may be
incurred  in  the  future  for  expanding  the  network  operations  center when
appropriate.

Financing activities generated net cash of $9,490 in 2001 compared to $2,399,010
and  $1,982,909  in 2000 and 1999, respectively.  In 2000, $2,348,942 was raised
from  the  net  proceeds  of  a  private  placement  of  common stock.  In 1999,
$1,100,000  was  raised  from the net proceeds of a debenture issue and $900,000
was  raised  from  the  net  proceeds  of  a  private placement of common stock.

As at December 31, 2001, the Company has cash and cash equivalents of $1,678,950
compared  to  $748,745  as  at December 31, 2000 and $988,077 as at December 31,
1999.  The  increase  reflects positive cash flows from operations for 2001 less
the  investment  in fixed assets. Based on management's current projections, the
Company  believes  that  it  has  adequate resources for continued very moderate
growth  in  revenues  for  the  foreseeable future. The Company's management may
evaluate  from  time to time the availability of external financing. The Company
may  seek additional capital to accelerate growth but there is no guarantee that
capital  will  be  available  at  acceptable terms or at all. While there are no
commitments,  management  may make capital expenditures from time to time as the
operations  demand.


                                       34
<PAGE>

                        OUTLOOK: ISSUES AND UNCERTAINTIES

Refer  to  "Risk  Factors Affecting Future Operating Results" in this Form 10-K.


ITEM  7A:  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURE  ABOUT  MARKET  RISK
--------------------------------------------------------------------------

NetNation  believes its exposure to overall foreign currency risk is immaterial.
Most  of  its  revenues are collected in US dollars and most of its expenses are
paid  in  Canadian  dollars.  Except  for  a small portion of funds deposited in
Canadian  dollar  accounts,  all  other  funds  are  held  in  US  dollars.
NetNation  does  not  manage  or  maintain market risk sensitive instruments for
trading  or  other  purposes  and is, therefore, not subject to multiple foreign
exchange  rate  exposures.  As  disclosed  in  Item 7, on February 24, 2000, the
holders  of  the convertible debentures exercised their option and converted all
of  the  debentures  into common shares. After giving effect to this conversion,
the  Company  has no outstanding long-term indebtedness for which the Company is
subject  to  the  risk  of  interest  rate  fluctuations.

NetNation  reports  its  operations  in  US  dollars  and its currency exposure,
although  considered by NetNation as immaterial, is primarily between the US and
Canadian  dollars.  Exposure  to  the  currencies  of  other  countries  is also
immaterial  as  most  international transactions are settled in US dollars.  Any
future  financing  undertaken by NetNation will most likely be denominated in US
dollars.  As NetNation increases its marketing efforts, the related expenses are
normally  in  US  dollars  except for the marketing efforts in Canada.  If these
advertisements  are coordinated through a US agency, then the expenses are in US
dollars.


                                       35
<PAGE>

ITEM  8:  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA
---------------------------------------------------------

The  Consolidated  Financial  Statements  of  NetNation  Communications  Inc.,
including  the  Report  of Independent Auditors, are set forth beginning on page
F-1.

UNAUDITED  QUARTERLY  FINANCIAL  INFORMATION

The  following table sets forth selected unaudited quarterly information for the
Company's  last  eight  fiscal  quarters:

<TABLE>
<CAPTION>
================================================================================
                                        Fiscal 2001 Quarter End
                             ---------------------------------------------------
                             March 31    June 30   September 30  December 31
                             ---------------------------------------------------
<S>                          <C>        <C>        <C>           <C>
Sales                        1,574,786  1,615,550     1,691,773    1,764,324
Gross profit                 1,070,468  1,096,054     1,142,839    1,257,370
Net earnings for the period     18,060     14,596       209,997      515,264
Net earnings per share            0.00       0.00          0.01         0.03

================================================================================
                                        Fiscal 2000 Quarter End
                             ---------------------------------------------------
                             March 31    June 30    September 30  December 31
                             ---------------------------------------------------
Sales                         991,515   1,249,710     1,369,050    1,401,584
Gross profit                  590,823     750,596       880,241      977,943
Net loss for the period      (582,302)   (635,191)   (1,067,571)  (1,686,533)
Net loss per share              (0.04)      (0.04)        (0.07)       (0.11)
</TABLE>

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

No changes in and disagreements with accountants are reportable pursuant to this
item.


                                       36
<PAGE>

                                    PART III

ITEM  10:  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT
-------------------------------------------------------------------

IDENTIFICATION  OF  DIRECTORS  AND  EXECUTIVE  OFFICERS

The  following  table contains information regarding the members of the Board of
Directors  and  the  Executive  Officers  of  the Company:

<TABLE>
<CAPTION>
Name             Age             Position(s)
---------------  ---  ---------------------------------
<S>              <C>  <C>
David Talmor      44  Chairman, President and Director
---------------  ---  ---------------------------------
Joseph Kibur      29  CEO and Director
---------------  ---  ---------------------------------
Ernest Cheung     51  Director
---------------  ---  ---------------------------------
Anil Wirasekara   45  Director
---------------  ---  ---------------------------------
Calvin Mah        39  CFO
---------------  ---  ---------------------------------
Jag Gillan        31  COO, Secretary and Director
---------------  ---  ---------------------------------
</TABLE>

All  of  the  officers identified above serve at the discretion of the Board and
have consented to act as officers of the Company.  The biographies for the above
individuals  are  presented  below:

DAVID TALMOR is Chairman of the Board and President of NetNation Communications,
Inc.,  Delaware,  U.S.A.  Mr.  Talmor was Chief Executive Officer of the Company
until  January  2000.  Previously,  he  was  appointed  Chairman  of  the Board,
President,  Chief  Executive  Officer and Secretary of NetNation Communications,
Inc.,  Delaware,  U.S.A.,  in  April  1999.  From  March 1997 to April 1999, Mr.
Talmor served as Director, Chief Executive Officer and President of the Canadian
subsidiary  of  NetNation  Communications, Inc.  Mr. Talmor has over 15 years of
business  experience,  both  in Financial/Business roles (more recently), and in
Electronics  Engineering roles (Israeli Air Force, Eldat and Moldat).  From 1996
to  1997,  he  was  President  of Minerva Ventures Management, Richmond, British
Columbia,  Canada,  investigating suitable technological companies as investment
and  acquisition  candidates.  From  1994  to  1995, he was Business Development
Manager  of  MacDonald  Dettwiler & Associates Ltd., Richmond, British Columbia,
Canada,  (www.mda.ca),  a  Canadian  company  in the field of satellites' ground
stations.  Mr. Talmor qualified as a Certified Public Accountant (CPA) in Israel
with  Kesselman  &  Kesselman,  Chartered  Accountants,  the  country's  largest
accounting  firm and associated with Coopers & Lybrand. Mr. Talmor received a BA
in Economics and Accounting, a B.Sc. in Statistics and an MBA, all from Tel-Aviv
University  in  1985,  1985  and  1988  respectively.  In  addition,  Mr. Talmor
received  an  Electronics  Diploma  from  both  "The  Technological Institute of
Tel-Aviv"  in  1976  and  from  "The  Israeli  Air-Force",  IDF  in  1978.

JOSEPH  KIBUR was appointed Chief Executive Officer of NetNation Communications,
Inc., Delaware, U.S.A. in September 2000.  He was appointed a Director and Chief
Operating  Officer of NetNation Communications, Inc., Delaware, U.S.A., in April
1999.  From  March  1997  to  April 1999, he served as Director, Chief Operating
Officer  and  Secretary  of the Canadian Subsidiary of NetNation Communications,
Inc.  From  1995 to 1997 Mr. Kibur operated his own Internet consulting business
(Superhighway  Consulting,  Vancouver,  British  Columbia,  Canada)  until  he
co-founded  the  Canadian  Subsidiary of NetNation Communications, Inc. with Mr.
David  Talmor.  Prior,  Mr.  Kibur  attended  Simon  Fraser University, Burnaby,
British  Columbia,  Canada, and in 1996 obtained his Bachelor of Science (B.Sc.)
degree  in  Management  and  Systems  Science  (Computer  Science,  Business and
Mathematics).

ERNEST  CHEUNG  has  served  as  Director  of  NetNation  Communications,  Inc.,
Delaware,  since  February  1999.  Mr.  Cheung  received  an  MBA in Finance and
Marketing  from Queen's University, in Kingston,  Ontario in 1975,  and obtained
a  Bachelors  Degree  in  Math in 1973  from  University  of  Waterloo, Ontario.
From  1984 to 1991 he was Vice President and Director, Capital Group Securities,
Ltd.  in  Toronto,  Canada.


                                       37
<PAGE>
From  1991  to  1993  he  was  Vice President of Midland Walwyn Capital, Inc. of
Toronto,  Canada.  From  1993  to  1994  he  was  Vice  Chairman,  Tele  Pacific
International Communications Corp. of Vancouver, B.C. He has served or served as
a  director  of  the  following  companies:

<TABLE>
<CAPTION>
Name of Issuer                    Symbol       Market         Position    From     To
--------------------------------  ------  -----------------  ----------  ------  -------
<S>                               <C>     <C>                <C>         <C>     <C>
Agro International Holdings Inc.  AOH     CDNX               President   Jan-97  Current
China NetTV Holdings Inc.*        CNHD    OTCBB              President   May-00  Current
Drucker, Inc.*.                   DKIN    OTCBB              Secretary   Apr-97  Current
ITI World Investment Group Inc.   IWI.A   CDNX                           Jun-98  Current
NetNation Communications Inc.     NNCI    Nasdaq Small Cap.              Apr-99  Current
Pacific E-Link Corp.              PLC     CDNX                           Sep-92  Jun-95
Richco Investors Inc.             YRU.A   CDNX               President   May-95  Current
Spur Ventures Inc.                SVU     CDNX                           Mar-97  Current
Xin Net Corp.*                    XNET    OTCBB              Secretary   Mar-97  Current
<FN>
----------------
*  Reporting  Companies  in  US
</TABLE>

ANIL  WIRASEKARA  has  served  as  Director  of  NetNation Communications, Inc.,
Delaware,  since  October  1999.  In  1992,  Mr.  Wirasekara  joined  MacDonald
Dettwiler  and  Associates  Ltd.,  one  of Canada's largest space technology and
information  systems  companies  and  a  world  leader  in satellite mapping and
spatial  information  services,  as  the  Manager  of  Operations Accounting and
Information,  and  in  1995 was appointed Chief Financial Officer.  From 1988 to
1991,  he  was  Controller  and Secretary of Rainex Limited, a Vancouver company
involved  in project developments, technology transfers and international trade.
Mr.  Wirasekara  holds  the designations of a Chartered Accountant and Certified
Management  Accountant.  Mr.  Wirasekara  is  also  a  member  of  the Chartered
Institute  of  Management  Accountants  of  the U.K., the Chartered Institute of
Marketing  and Management of the U.K. and the Institute of Chartered Accountants
of  Sri  Lanka.

CALVIN  MAH  was  appointed Chief Financial Officer of NetNation Communications,
Inc.  in  February  2001. Prior to joining NetNation, from 1996 to 2000, Mr. Mah
was  CFO  of  Simba Technologies Inc., a privately-held, venture-backed software
development  company.  In  1995-96,  Mr.  Mah  was  Senior Financial Analyst for
Pacific  Forest  Products  Ltd.,  a  $400  million  publicly-traded  logging and
sawmilling  company with 1,100 employees.  In 1993-95, Mr. Mah was Controller of
Brookdale  International  Systems  Inc.,  a  privately-held  developer  and
manufacturer  of  emergency respiratory devices for industrial and consumer use.
From  1989 to 1993, Mr. Mah was Manager of Corporate Finance for Granges Inc., a
$60  million  publicly-traded  gold, silver, copper and zinc mining company with
operations  in  the  U.S.  and Canada.  Mr. Mah is professionally qualified as a
Chartered  Accountant.  He  graduated  with a Bachelor of Commerce in Accounting
and  Management  Information  Systems  (Honours)  from the University of British
Columbia  in  1985.

JAG  GILLAN  has served as Director of NetNation Communications, Inc., Delaware,
since  September  2000.  Mr.  Gillan  was  appointed  Chief Operating Officer of
NetNation  Communications  Inc.  in September 2001.  Prior to his appointment as
COO,  Mr  Gillan served, and continues to serve, as General Counsel of NetNation
Communications,  Inc.  from  June  1999. During May 1997 to May 1999, Mr. Gillan
practiced  law  with  Baker  Newby,  Vancouver,  Canada.  Mr.  Gillan was COO of
Millstream Flour Mills Corp., a privately-held wholesale food products producer,
from  1992  to  1994.  Mr.  Gillan  attended  the  Edinburgh  Business  School,
Heriot-Watt  University  Edinburgh,  United  Kingdom  and  will  graduate with a
Masters  of  Business  Administration in 2002.  Mr. Gillan attended Osgoode Hall
Law  School,  York  University, Toronto, Canada and graduated with a Bachelor of
Laws  in 1997.  He received his Bachelor of Arts in Economics, with Distinction,
in  1993  from  the  University  of  Victoria  in  Canada.

Relationships  Among  Directors  or  Executive  Officers

There  are  no  family  relationships  among  any  of the directors or executive
officers  of  the  Company.


                                       38
<PAGE>
            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section  16(a)  of the Securities Exchange Act of 1934, as amended, requires the
Company's  Directors,  executive officers and persons who own more than 10% of a
registered  class  of  the  Company's  securities  to  file with the SEC initial
reports  of  ownership  and  reports of changes in ownership of common stock and
other  equity  securities  of  the  Company.  Directors,  executive officers and
greater-than-10%  stockholders  are  required  by  SEC regulation to furnish the
Company  with  copies  of  all  Section  16(a)  reports  they  file.

To  the  Company's  knowledge,  based  solely  on a review of the copies of such
reports  furnished  to  the  Company  and  written representations that no other
reports  were required, the Company believes that during the year ended December
31,  2001,  its  Directors, Executive Officers and greater-than-10% stockholders
complied  with  all  Section  16(a)  filing  requirements.


ITEM  11:  EXECUTIVE  COMPENSATION
----------------------------------

                           SUMMARY COMPENSATION TABLE

The  following  table  discloses  all plan and non-plan compensation awarded to,
earned  by,  or paid to the Chief Executive Officer ("CEO") or individual acting
in  a  similar capacity, and the four most highly compensated executive officers
for the year ended December 31, 2001.  The table includes executive compensation
paid  to the principals of the Canadian Subsidiary prior to it being acquired by
the  Company.

<TABLE>
<CAPTION>
                        Annual Compensation                   Long Term  Compensation
             ------------------------------------------  -------------------------------------
                                                                  Awards             Payouts
                                                                -----------        -----------
                                                         Restricted
                                                           Shares
                                                             Or       Securities
                                                         Restricted      Under
Name                                          Other         Share      Options/
and                                          Annual         Units        SARs         LTIP
Principal             Salary              Compensation       ($)        Granted      Payouts
Position      Year    (USD$)   Bonus ($)       ($)           (f)          (#)          ($)
(a)           (b)      (c)        (d)          (e)                        (g)          (h)
-----------  ------  --------  ---------  -------------  -----------  -----------  -----------
<S>          <C>     <C>       <C>        <C>            <C>          <C>          <C>
David
Talmor,       2001    96,688
Chairman,    ------  --------  ---------  -------------  -----------  -----------  -----------
President,    2000   105,348          -              -            -            -            -
and          ------  --------  ---------  -------------  -----------  -----------  -----------
Director      1999*  109,029          -              -            -            -            -
-----------  ------  --------  ---------  -------------  -----------  -----------  -----------
<FN>
----------------
*    As  the  acquisition  of the Canadian Subsidiary by the Company occurred on
     April 7, 1999, the Principal Position and compensation prior to this relate
     to  payments  made by the Canadian Subsidiary and not the Company. Payments
     of  $36,000  were  made by the Canadian Subsidiary to David Talmor with the
     remainder  of  the  compensation  for  1999  being  paid  by  the  Company.
</TABLE>

           OPTION/SAR GRANTS OR EXERCISES AND LONG TERM INCENTIVE PLAN

There  were  no  stock  option grants, stock appreciation rights (SAR's) grants,
option/SAR  exercises or long term incentive plans (LTIP's) awarded to the named
executive  officers  in  the  last  three  financial  years.


                                       39
<PAGE>
                        DEFINED BENEFIT OR ACTUARIAL PLAN

The  Company  does  not  have  a  defined  benefit  or  actuarial plan in place.

                            COMPENSATION OF DIRECTORS

Directors  are  not  compensated  for their service as directors other than with
stock  options.  All  directors  are  reimbursed  for  any  reasonable  expenses
incurred  in the course of fulfilling their duties as a director of the Company.

             EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT  AND
                         CHANGE-IN-CONTROL ARRANGEMENTS

There are currently no employment contracts in place with the executive officers
of  the  Company  other  than  the  standard  employment agreements used for all
employees.  The  Company  intends  to  review  its  contracts  with  certain key
individuals,  including  the  rights  and  obligations  of  the Company upon the
resignation  of  an  officer,  or  upon  a  change  in  control  of the Company.

Compensation  Committee  Interlocks  and  Insider  Participation

The  members  of  the  Compensation Committee are Mr. Cheung and Mr. Wirasekara.
All  of  the  members  of  the  committees  are  directors  of  the  Company.

Board  Compensation  Committee  Report  on  Executive  Compensation

The  Board  Compensation  Committee  was  formed  March 2000.  The board has not
prepared  a report on executive compensation at this time. As at March 12, 2002,
no  policies  have  been  defined  with  respect  to  compensation for executive
officers  by  the  committee.

                             2000 STOCK OPTION PLAN

For a summary of the terms of NetNation's 2000 Stock Option Plan, see Note 7 to
the Company's audited consolidated financial statements contained in this Annual
Report on Form 10-K and incorporated herein by this reference.


                                       40
<PAGE>

                                PERFORMANCE GRAPH

The  following  graph  compares  the  cumulative total stockholder return on the
Company's  common stock with the cumulative total return on The Nasdaq Composite
Index  and  The  Nasdaq  Telecommunications  Index.  These two indices have been
chosen  for  their relevance in assessing the performance of the Company against
that  of  companies  in  the  same  or  similar  lines  of business.  The period
displayed  commences on September 30, 1999, being the end of the month date that
the  Company's common stock became registered under Section 12 of the Securities
Exchange  Act  of  1934, as amended.  The graph assumes an investment of $100 on
September  30,  1999,  and  the  reinvestment  of  any  dividends.


                                [GRAPHIC OMITTED]


                                       41
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------
                       NetNation       Nasdaq     Nasdaq
                    Communications   Composite   Telecom
                         Inc.          Index      Index
---------------------------------------------------------

<S>                 <C>              <C>         <C>
September 30, 1999  $        100.00  $   100.00  $ 100.00
October 31, 1999    $        103.13  $   108.02  $ 118.69
November 30, 1999   $        109.38  $   121.48  $ 131.39
December 31, 1999   $        115.63  $   148.18  $ 162.52
January 31, 2000    $        231.25  $   143.49  $ 158.04
February 28, 2000   $        294.53  $   171.03  $ 182.64
March 31, 2000      $        299.61  $   166.52  $ 176.38
April 30, 2000      $        181.25  $   140.58  $ 142.53
May 31, 2000        $        121.88  $   123.84  $ 120.81
June 30, 2000       $        110.94  $   144.42  $ 139.36
July 31, 2000       $        128.13  $   137.17  $ 128.26
August 31, 2000     $        100.00  $   153.17  $ 133.09
September 30, 2000  $         96.88  $   133.74  $ 116.83
October 31, 2000    $         75.78  $   122.70  $  99.89
November 30, 2000   $         71.88  $    94.60  $  74.16
December 31, 2000   $         75.00  $    89.96  $  74.18
January 31, 2001    $         87.50  $   100.97  $  88.96
February 28, 2001   $         85.94  $    78.36  $  63.14
March 31, 2001      $         86.72  $    67.01  $  52.51
April 30, 2001      $         65.00  $    77.06  $  56.71
May 31, 2001        $         68.75  $    76.85  $  54.06
June 30, 2001       $         63.75  $    78.67  $  49.81
July 31, 2001       $         53.50  $    73.82  $  44.87
August 31, 2001     $         42.25  $    65.74  $  38.53
September 30, 2001  $         56.75  $    54.58  $  32.51
October 31, 2001    $         65.00  $    61.55  $  33.84
November 30, 2001   $         67.50  $    70.30  $  38.59
December 31, 2001   $         75.00  $    71.02  $  37.87
</TABLE>


                                       42
<PAGE>

ITEM  12:  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT
--------------------------------------------------------------------------------

The  following  table  sets  forth  certain information regarding the beneficial
ownership  of  the  common  stock  as  of  March 12, 2002  by:

     (i)   each  person  or entity known by the Company to beneficially own more
           than  5%  of  the  common  stock;
     (ii)  each  Director  of  the  Company;
     (iii) each  of  the  named  Executive  Officers  of  the  Company;  and
     (iv)  all  Directors  and  executive  officers  as  a  group.

Except  as  noted  below, the Company believes that the beneficial owners of the
common  stock  listed below, based on information furnished by such owners, have
sole  voting  and  investment  power  with  respect  to  such  shares.

<TABLE>
<CAPTION>

                            Name and Address              Amount of Beneficial  Percent of
Title of Class            Of Beneficial Owner                  Ownership         Class(2)
--------------  ----------------------------------------  --------------------  ----------
<S>             <C>                                       <C>                   <C>
Common          David Talmor(3)                                   3,969,224(1)       26.1%
                Chairman, President, and Director
--------------  ----------------------------------------  --------------------  ----------
Common          Joseph Kibur(3)                                   4,092,000          26.9%
                CEO and Director
--------------  ----------------------------------------  --------------------  ----------
Common          Ernest Cheung                                        12,000(4)        0.1%
                Director
                830-789 West Pender Street,
                Vancouver, British Columbia, V6C 1H2
--------------  ----------------------------------------  --------------------  ----------
Common          Jag Gillan(3)                                        43,000(4)        0.3%
                COO, Secretary and Director
--------------  ----------------------------------------  --------------------  ----------
Common          Calvin Mah(3)                                        12,000(4)        0.1%
                CFO
--------------  ----------------------------------------  --------------------  ----------
Common          Anil Wirasekara                                      12,000(4)        0.1%
                Director
                13800 Commerce Parkway, Richmond,
                British Columbia, V6V 2J3
--------------  ----------------------------------------  --------------------  ----------
Common          All Executive Officers and Directors as              8,140,224       53.3%
                a Group (6 persons)
--------------  ----------------------------------------  --------------------  ----------
<FN>
----------------
1  2,160,000 common shares beneficially held by David Talmor are registered in the name of Shelley
     Talmor,  wife.

2  Based  on  a  total  issued and outstanding share capital as at March 12, 2002 of 15,218,002
     common  shares.

3  The  business address for the individuals indicated above is : 1410 - 555 West Hastings Street,
     Vancouver,  British  Columbia,  Canada,  V6B  4N6.

4  Includes 12,000 exercisable options.
</TABLE>

CHANGES IN CONTROL

There are no arrangements known to the Company, the operation of which may
result in a change of control of the Company.


ITEM  13:  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS
-------------------------------------------------------------

No  transactions  with management or other parties occurred during the year that
would  otherwise  be  reported  under  this  section.


                                       43
<PAGE>
                                     PART IV

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

1)  FINANCIAL  STATEMENTS

The  following  consolidated  financial  statements of the Company and the notes
thereto,  the  related  reports  thereon  of  the  independent  certified public
accountants,  and financial statement schedules, are filed pursuant to Item 8 of
this  Report:

<TABLE>
<CAPTION>
Description                                                                                   Page
-----------                                                                                   ----
<S>                                                                                           <C>
Independent Auditors' Report dated March 4, 2002                                              F-1

Consolidated Balance Sheets as of December 31, 2001 and 2000                                  F-2

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999    F-3

Consolidated Statement of Stockholders' Equity (Deficiency) for the years ended December 31,  F-4
 2001, 2000, and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999   F-5

Notes to Consolidated Financial Statements                                                    F-6
</TABLE>

2)  REPORTS  ON  FORM  8-K

On  October  11,  2001,  NetNation  filed a Form 8K and reported an Item 5 Other
Event.  On  October  29,  2001, NetNation filed a Form 8K and reported an Item 5
Other  Event.  On  December  11, 2001, NetNation filed a Form 8K and reported an
Item  5  Other  Event.

3)  LIST  OF  EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
-------  -----------
<S>      <C>
2.1 **   Agreement dated March 31, 1999 between the shareholders of NetNation (The Canadian
         Subsidiary), NetNation (The Canadian Subsidiary), and NetNation (formerly Collectibles
         Entertainment Inc.)

3.1 **   Articles  of  Incorporation

3.2 **   By-laws

4.1 **   Convertible Debenture for $550,000 Maturing on September 30, 2000 issued to Polaris
         Investitionen Ltd.

4.2 **   Convertible Debenture for $550,000 Maturing on September 30, 2000 issued to Beste
         Investitionen Ltd.

4.3      Specimen share certificate

10.1     Registrar Accreditation Agreement between the Internet Corporation for Assigned Names
         and Numbers and DomainPeople, Inc.

10.2     Harbour Centre Office Lease

10.3     NetNation Communications, Inc.'s 2000 Stock Option Plan*

21.1     List of Subsidiaries

<FN>
*        Incorporated by reference from the Definitive Proxy Statement filed with the
         Securities and Exchange Commission on May 8, 2000.

**       Incorporated  by  reference from the Registration Statement on Form 10
         of the Registrant filed with the Securities and Exchange Commission on
         July  29,  1999,  as  amended.
</TABLE>


                                       44
<PAGE>
                                   SIGNATURES

Pursuant  to  the  requirements  of  Section  13  or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its  behalf  by  the  undersigned,  thereunto  duly  authorized.

NETNATION  COMMUNICATIONS  INC.

By: /s/ Joseph  Kibur
   ------------------
Name:   Joseph  Kibur
Title:  Chief  Executive  Officer

Dated:  March  19,  2002.


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

<TABLE>
<CAPTION>
SIGNATURE                                 TITLE                          DATE
<S>                     <C>                                         <C>
By: /s/ David Talmor    President and Chairman of the Board and     March 19, 2002
   -------------------
Name:  David Talmor     Director


By: /s/ Joseph Kibur    Chief Executive Officer and Director        March 19, 2002
   -------------------
Name:  Joseph Kibur     (Principal Executive Officer)


By: /s/ Jag Gillan      Chief Operating Officer and Secretary and   March 19, 2002
   -------------------
Name:  Jag Gillan       Director


By: /s/Anil Wirasekara  Director                                    March 19, 2002
   -------------------
Name:  Anil Wirasekara


By: /s/ Ernest Cheung   Director                                    March 19, 2002
   -------------------
Name:  Ernest Cheung


By: /s/ Calvin Mah      Chief Financial Officer                     March 19, 2002
   -------------------
Name:  Calvin Mah       (Principal Accounting Officer)
</TABLE>


                                       45
<PAGE>
<TABLE>
<CAPTION>
INDEX  TO  CONSOLIDATED  FINANCIAL  STATEMENTS

Description                                                                                   Page
-----------                                                                                   ----
<S>                                                                                           <C>
Independent Auditors' Report dated March 4, 2002                                              F-1

Consolidated Balance Sheets as of December 31, 2001 and 2000                                  F-2

Consolidated Statements of Operations for the years ended December 31, 2001, 2000, and 1999   F-3

Consolidated Statement of Stockholders' Equity (Deficiency) for the years ended December 31,  F-4
 2001, 2000, and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999   F-5

Notes to Consolidated Financial Statements                                                    F-6
</TABLE>


                                       46
<PAGE>


AUDITORS'  REPORT  TO  THE  STOCKHOLDERS

We have audited the consolidated balance sheets of NetNation Communications Inc.
as at December 31, 2001 and 2000, and the consolidated statements of operations,
stockholders'  equity  (deficiency)  and cash flows for each of the years in the
three  year  period  ended  December  31,  2001.  These  consolidated  financial
statements  are  the  responsibility  of  the  Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based  on  our  audits.

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

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all  material respects, the financial position of the Company as at
December 31, 2001 and 2000, and the results of its operations and its cash flows
for  each  of  the  years  in  the  three year period ended December 31, 2001 in
accordance with accounting principles generally accepted in the United States of
America.



KPMG LLP
Chartered  Accountants



Vancouver,  Canada
March  4,  2002


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
NETNATION  COMMUNICATIONS  INC.
Consolidated  Balance  Sheets
(Expressed  in  United  States  dollars)

December  31,  2001  and  2000

==========================================================================================
                                                                     2001          2000
------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>
Assets

Current assets:
  Cash and cash equivalents                                     $ 1,678,950   $   748,745
  Accounts receivable                                               107,208        33,208
  Prepaid expenses and deposits                                     245,733       131,879
  Deferred expenses                                                 557,941       541,000
  Deferred tax asset (note 9)                                       250,000             -
  ----------------------------------------------------------------------------------------
                                                                  2,839,832     1,454,832

Deferred expenses                                                   135,734       125,044
Fixed assets (note 4)                                             1,050,862     1,450,952
Investments (note 5)                                                100,000       100,000
------------------------------------------------------------------------------------------
                                                                $ 4,126,428   $ 3,130,828
==========================================================================================

Liabilities and Stockholders' Equity (Deficiency)

Current liabilities:
  Accounts payable and accrued liabilities                      $   235,880   $   593,518
  Contingent lease payments (note 12(a))                            381,254       381,254
  Customer deposits                                                  83,335        64,517
  Deferred revenue                                                1,934,936     1,901,042
  Capital lease liability (note 8)                                   19,183        13,867
  ----------------------------------------------------------------------------------------
                                                                  2,654,588     2,954,198

Deferred revenue                                                    455,228       301,287
Capital lease liability (note 8)                                     24,652        37,698

Stockholders' equity (deficiency):
  Share capital (note 7):
    Authorized:  50,000,000 common shares with a par value of
      $0.0001 each
    Issued:  15,245,321 common shares (2000 - 15,315,321)             1,525         1,532
  Additional paid-in capital (note 7(b))                          5,988,123     5,970,896
  Deferred stock-based compensation (note 7(b))                    (287,554)     (666,732)
  Accumulated other comprehensive income                             14,601        14,601
  Deficit                                                        (4,724,735)   (5,482,652)
  ----------------------------------------------------------------------------------------
                                                                    991,960      (162,355)
------------------------------------------------------------------------------------------
                                                                $ 4,126,428   $ 3,130,828
==========================================================================================
</TABLE>

Commitment  (note  8)
Contingencies  (note  12)

See  accompanying  notes  to  consolidated  financial  statements.

Approved  on  behalf  of  the  Board:


   /s/  Joseph  Kibur    Director         /s/  David  Talmor    Director
-----------------------                 ----------------------


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
NETNATION  COMMUNICATIONS  INC.
Consolidated  Statements  of  Operations
(Expressed  in  United  States  dollars)
========================================================================================
                                                       Years ended December 31,
                                               -----------------------------------------
                                                  2001          2000           1999
----------------------------------------------------------------------------------------
<S>                                            <C>          <C>           <C>
Sales                                          $ 6,646,433  $ 5,011,859   $   2,511,021

Cost of sales                                    2,079,702    1,812,256         711,956
----------------------------------------------------------------------------------------

Gross profit                                     4,566,731    3,199,603       1,799,065

Expenses:
  Sales and marketing                            1,388,643    2,977,927       1,575,699
  General and administration                     2,037,689    3,352,296       1,472,687
  Write-off of advance (note 3)                          -      500,000               -
  Depreciation and amortization                    632,482      340,977          95,445
----------------------------------------------------------------------------------------
                                                 4,058,814    7,171,200       3,143,831
----------------------------------------------------------------------------------------

Net earnings (loss) before income taxes            507,917   (3,971,597)     (1,344,766)

Deferred income tax recovery                       250,000            -               -
----------------------------------------------------------------------------------------

Net earnings (loss) for the year               $   757,917  $(3,971,597)  $  (1,344,766)
========================================================================================

Earnings (loss) per share, basic and diluted   $      0.05  $     (0.26)  $       (0.10)

========================================================================================

Weighted average shares used in comparing
  loss per share, basic                         15,246,145   15,316,804      13,164,836
Weighted average shares used in comparing
  loss per share, diluted                       15,306,107   15,316,804      13,164,836

========================================================================================
</TABLE>

See  accompanying  notes  to  consolidated  financial  statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
NETNATION COMMUNICATIONS INC.
Consolidated Statement of Stockholders' Equity (Deficiency)
(Expressed in United States dollars)
=================================================================================================================================
                                                                            Deferred     Accumulated
                                                           Additional         stock-           other
                                                              paid-in          based   comprehensive
                                     Shares      Amount       capital   compensation          income     Deficit        Total
                                                   $           $              $              $              $             $
---------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>       <C>           <C>            <C>             <C>           <C>

Balance, December 31, 1998          1,097,000       110        29,590              -           14,601     (166,289)     (121,988)

Issuance of common stock for
  cash                              4,000,000       400        39,600              -                -            -        40,000

Common stock cancelled in
  conjunctionwith the
  recapitalization                 (1,000,000)        -             -              -                -            -             -

Adjustment in accordance with
  recapitalization accounting
  principles                                -      (100)      (62,864)             -                -            -       (62,964)

Common stock issued to effect
  the recapitalization             10,000,000     1,000        25,672              -                -            -        26,672

Issuance of common stock for
  cash                                450,000        45       899,955              -                -            -       900,000

Issuance of common stock for
  Services provided to the
  Company                              60,000         6       266,394              -                -            -       266,400

Deferred stock-based compensation           -         -     1,141,124     (1,141,124)               -            -             -

Amortization of deferred stock-
  based compensation                        -         -             -        125,658                -            -       125,658

Loss for the year                           -         -             -              -                -   (1,344,766)   (1,344,766)
---------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999         14,607,000     1,461     2,339,471     (1,015,466)          14,601   (1,511,055)     (170,988)

Conversion of debentures to
  Common stock                        550,000        55     1,099,945              -                -            -     1,100,000

Cash proceeds from private
  placement of common stock,
  net of offering costs               250,000        25     2,348,437              -                -            -     2,348,462

Deferred stock-based compensation           -         -       (12,829)        12,829                -            -             -

Amortization of deferred stock-
  based compensation                        -         -             -        432,785                -            -       432,785

Issuance of common stock
  to settle share issue costs           5,000         1        49,999              -                -            -        50,000

Issuance of common stock
  for cash                             48,000         4        97,356        (96,880)               -            -           480

Common shares to be issued              5,000         1        49,999              -                -            -        50,000

Cancellation of common stock         (149,679)      (15)       (1,482)             -                -            -        (1,497)

Loss for the year                           -         -             -              -                -   (3,971,597)   (3,971,597)
---------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2000         15,315,321     1,532     5,970,896       (666,732)          14,601   (5,482,652)     (162,355)

Amortization of deferred stock-
  based compensation                        -         -             -        379,178                -            -       379,178

Issuance of common stock
  for cash                              8,000         1        17,999              -                -            -        18,000

Cancellation of common stock          (78,000)       (8)         (772)             -                -            -          (780)

Net earnings for the year                   -         -             -              -                -      757,917       757,917
---------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2001         15,245,321     1,525     5,988,123       (287,554)          14,601   (4,724,735)      991,960
=================================================================================================================================
</TABLE>

See  accompanying  notes  to  consolidated  financial  statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
NETNATION  COMMUNICATIONS  INC.
Consolidated  Statements  of  Cash  Flows
(Expressed  in  United  States  dollars)

==================================================================================================
                                                                 Years ended December 31,
                                                         -----------------------------------------
                                                            2001          2000           1999
--------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>           <C>
Cash provided by (used in):
  Net earnings (loss) for the year                       $  757,917   $(3,971,597)  $  (1,344,766)
  Items not involving cash:
    Depreciation and amortization                           632,482       340,977          95,445
    Deferred income tax recovery                           (250,000)            -               -
    Value assigned to shares issued for services                  -             -         266,400
    Value assigned to shares issued in settlement
      of share issue costs                                        -        50,000               -
    Value assigned to shares to be issued for
      settlement of share issue costs                             -        50,000               -
    Employee stock-based compensation                       379,178       432,785         125,658
    Loss on disposal of fixed assets                          2,867        78,777               -
    Write-off of advance (note 3)                                 -       500,000               -
  Changes in non-cash operating working capital:
    Accounts receivable                                     (74,000)      (22,247)          1,674
    Prepaid expenses and deposits                          (113,854)      (68,671)        (59,789)
    Deferred expenses                                       (27,631)     (666,044)              -
    Accounts payable and accrued liabilities               (357,639)      404,372          91,346
    Contingent lease payments                                     -       381,254               -
    Customer deposits                                        18,818        64,517               -
    Deferred revenue                                        187,835     1,802,322         219,259
  ------------------------------------------------------------------------------------------------
  Net cash provided by (used in) operating activities     1,155,973      (623,555)       (604,773)

Investments:
  Advance to ADN (note 3)                                         -      (500,000)              -
  Purchase of fixed assets                                 (238,978)   (1,414,787)       (435,922)
  Purchase of investments                                         -      (100,000)              -
  Proceeds on disposal of fixed assets                        3,720             -               -
  ------------------------------------------------------------------------------------------------
  Net cash used in investing activities                    (235,258)   (2,014,787)       (435,922)

Financing:
  Redemption of capital                                           -             -         (49,302)
  Issue of debentures                                             -             -       1,100,000
  Lease financing                                            (7,730)       51,565               -
  Issue of share capital, net of share issue costs           18,000     2,348,942         932,211
  Repurchase and cancellation of shares                        (780)       (1,497)              -
  ------------------------------------------------------------------------------------------------
  Net cash provided by financing activities                   9,490     2,399,010       1,982,909
--------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents            930,205      (239,332)        942,214
Cash and cash equivalents, beginning of year                748,745       988,077          45,863
--------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                   $1,678,950   $   748,745   $     988,077
==================================================================================================
Supplementary information:
  Cash paid for:
    Interest                                             $    6,830   $     2,350   $           -
    Income taxes                                                  -             -             959
  Non-cash transactions:
    Shares issued to third parties for services                   -       100,000         266,400
    Conversion of debentures to common stock                      -     1,100,000               -
    Shares issued to employees for services                       -             -       1,141,124
==================================================================================================
</TABLE>
See  accompanying  notes  to  consolidated  financial  statements.


                                      F-5
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

1.   DESCRIPTION  OF  BUSINESS:

     NetNation  Communications  Inc.  (the "Company") was incorporated on May 7,
     1998  under the laws of the State of Delaware as Collectibles Entertainment
     Inc.  ("Collectibles").

     On  April  7,  1999,  Collectibles  acquired  all of the outstanding common
     shares  of  NetNation  Communications  Inc. ("NetNation Canada"). After the
     transaction,  the  former  shareholders  of  NetNation  Canada  controlled
     Collectibles.  As Collectibles was inactive at the time of the transaction,
     this  issuance  was  accounted  for  as  a capital transaction of NetNation
     Canada,  effectively as if NetNation Canada issued common shares to acquire
     the  net  monetary  assets  of Collectibles followed by a recapitalization.
     Results  for  the  year  ended  December 31, 1999 reflect the operations of
     NetNation  Canada  for  the  entire  year  consolidated  with  those  of
     Collectibles  from  April  7,  1999.  Subsequent  to  the  transaction,
     Collectibles  changed  its  name  to  NetNation  Communications  Inc.

     On  November  24,  1999, DomainPeople Inc. ("DomainPeople"), a wholly-owned
     subsidiary  of  NetNation,  was incorporated under the laws of the State of
     Delaware  and  was  formed  to  offer  domain name registration and related
     services.  DomainPeople  is  accredited  by  the  Internet  Corporation for
     Assigned  Names and Numbers, the regulatory body charged with administering
     accreditation,  as  a  registrar  for  top-level  domain  names.

     The  Company's  principal business activities are the provision of web site
     hosting, domain name registration, and related services to small and medium
     sized  businesses.

2.   SIGNIFICANT  ACCOUNTING  POLICIES:

     (a)  Basis  of  presentation:

          These  consolidated  financial  statements include the accounts of the
          Company's  wholly  owned  subsidiaries, NetNation Communications Inc.,
          NetNation  Communications  (UK)  Inc.,  NetNation Communications (USA)
          Inc.,  and  DomainPeople  Inc.  All material intercompany balances and
          transactions  have  been  eliminated.

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

     (b)  Cash  and  cash  equivalents:

          Cash  and  cash equivalents include highly liquid investments, such as
          term  deposits,  having terms to maturity of three months or less when
          acquired  that  are readily convertible to contracted amounts of cash.


                                      F-6
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

2.   SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED):

     (c)  Fixed  assets:

          Fixed  assets  are  stated  at  cost  less  accumulated  depreciation.
          Depreciation  is  computed  annually  as  follows:

          ==================================================
          Assets                      Basis         Rate
          --------------------------------------------------

          Computer hardware       straight-line     3 years
          Computer software       straight-line     3 years
          Furniture               straight-line     5 years
          Office equipment        straight-line     4 years
          Leasehold improvements  straight-line  lease term
          ==================================================

          The  Company  changed its amortization policy with respect to computer
          hardware,  computer  software,  furniture, and office equipment to the
          straight-line  method  for  fiscal  year  ended  December  31,  2001.
          Previously, these fixed assets were depreciated on a declining-balance
          basis  at 30%, 30%, 20%, and 30%, respectively per annum. The adoption
          of  this  policy  effective  January  1,  2001 did not have a material
          effect  on  the Company's financial position or results of operations.

          The  Company  performs  reviews  for  the  impairment  of fixed assets
          whenever events or changes in circumstances indicate that the carrying
          amount  of  an  asset  may  not  be recoverable. An impairment loss is
          recognized  when  estimates of undiscounted future cash flows expected
          to  result  from  the use of an asset and its eventual disposition are
          less  than  its  carrying  amount.  When such a difference arises, the
          impairment loss is calculated as the excess of the carrying value over
          the asset's fair value. No such impairment losses have been identified
          by  the  Company for the years ended December 31, 2001, 2000 and 1999.

     (d)  Investments:

          The  Company  has  an  investment  in a non-publicly traded company in
          which  it has a 2% interest (note 5) and in which it does not exercise
          significant influence. This investment is carried at cost. The Company
          monitors  this investment for impairment, and recognizes an impairment
          loss if the decline in value below its carrying value is determined to
          be  other  than  temporary.

     (e)  Advertising  costs:

          Advertising  costs  are  expensed  as  incurred  and totaled $509,685,
          $1,750,415  and  $1,271,350  during the years ended December 31, 2001,
          2000  and  1999,  respectively.


                                      F-7
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

2.   SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED):

     (f)  Revenue  recognition:

          Revenue  is  recognized  as  web site hosting, domain name and related
          services  are  provided.  Revenue from web site hosting set-up fees is
          recognized over the estimated period the hosting services are provided
          to  customers,  which  typically ranges from 1 to 2 years. Domain name
          registration  and  maintenance  revenue is recognized ratably over the
          contract  term  which  is  between one and ten years. Cash received in
          advance  of  meeting these revenue recognition criteria is recorded as
          deferred  revenue.

          In  December  1999,  the  SEC issued Staff Accounting Bulletin No. 101
          "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 and
          related  material indicates that the fair value of initial set-up fees
          should  be  recognized  over  the  estimated  period  of  service. The
          Company's  contracts  generally  include  such  fees.  The Company has
          determined  the  impact  of  SAB  101  and  the  resulting  cumulative
          adjustment  of  $597,950  has been recorded in the Company's financial
          statements  in  2000.  Substantially  all  of this adjustment has been
          recognized  as  revenue  by  the  Company  in  2001.

     (g)  Deferred  expenses:

          The  cost  of  acquiring  domain  names  is  deferred and amortized in
          conjunction  with  the  recognition  of  domain  name registration and
          maintenance  revenue.

     (h)  Stock-based  compensation:

          The  Company  applies  the  intrinsic value-based method of accounting
          prescribed  by  Accounting  Principles  Board  ("APB") Opinion No. 25,
          "Accounting  for  Stock  Issued  to  Employees,"  and  related
          interpretations,  in  accounting for awards of common stock granted to
          employees and directors. Deferred stock-based compensation is recorded
          at  the  measurement  date, which is generally the date of grant, when
          the  market  value of the underlying common stock exceeds the exercise
          price for stock options or the purchase price for the shares of common
          stock.  SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation,"
          established  accounting  and  disclosure  requirements  using  a  fair
          value-based method of accounting for stock-based employee compensation
          plans. As allowed by SFAS No. 123, the Company has elected to continue
          to  apply  the  intrinsic  value-based  method of accounting described
          above,  and  has  adopted the disclosure requirements of SFAS No. 123.

          Non-employee  options  are accounted for under SFAS 123 and recognized
          at  the  fair  value of the options as determined by an option pricing
          model  as  the  related  services are provided and the options earned.

     (i)  Fair  value  of  financial  instruments:

          Carrying values of the Company's financial instruments, including cash
          and  cash  equivalents, accounts receivable, accounts payable, capital
          lease  liability and accrued liabilities approximate fair value due to
          their  short  terms  to  maturity.


                                      F-8
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

2.   SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED):

     (j)  Use  of  estimates  and  assumptions:

          The  preparation  of financial statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of  assets and
          liabilities,  and  disclosure of contingent assets and liabilities, at
          the  date  of  the  financial  statements  and the reported amounts of
          revenue  and expenses during the period then ended. Actual results may
          differ  from  these  estimates.

     (k)  Translation  of  foreign  currencies:

          The  Company's  functional and reporting currency is the United States
          dollar.  Transactions  undertaken  in a currency other than the United
          States dollar are remeasured into United States dollars using exchange
          rates  at the date of the transaction. Monetary assets and liabilities
          denominated in foreign currencies are remeasured at each balance sheet
          date  at the exchange rate prevailing at the balance sheet date. Gains
          and  losses arising on remeasurement or settlement of foreign currency
          denominated transactions or balances are included in the determination
          of  income.

          Monetary  assets  and  liabilities  of  integrated  subsidiaries  are
          translated  into  United States at the exchange rates in effect at the
          balance  sheet  date  and  non-monetary  items  are  translated at the
          exchange  rates  in  effect  on transaction dates. Revenue and expense
          items,  except  amortization, are translated at average exchange rates
          for  the  period,  and amortization is translated at the same exchange
          rate  as  the  asset  to  which  it relates. Exchange gains and losses
          resulting  from  the  translation  of  foreign  currency  financial
          statements  of  integrated  subsidiaries  are  recognized in earnings.

     (l)  Income  taxes:

          The  Company  provides  for income taxes under the asset and liability
          method.  Deferred  tax  liabilities  and assets are recognized for the
          estimated future tax consequences of differences between the financial
          statement  carrying  amounts  of  existing  assets and liabilities and
          their  respective  tax  bases. Deferred tax assets and liabilities are
          measured  using  enacted  tax  rates  in  effect for the year in which
          temporary  differences  are  expected  to be recovered or settled. The
          effect on deferred tax assets and liabilities of a change in tax rates
          is  recognized  in  income  in  the period that includes the enactment
          date.  To  the  extent  that realization of deferred tax assets is not
          considered  to  be  more  likely  than  not,  a valuation allowance is
          recognized.

     (m)  Comprehensive  earnings  (loss):

          The  Company reports comprehensive earnings (loss), which includes net
          earnings  as  well  as changes in equity from other non-owner sources,
          specifically  the  foreign  currency  translation  adjustment. For all
          years  presented,  comprehensive  earnings  (loss)  is the same as net
          earnings  (loss).


                                      F-9
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

2.   SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED):

     (n)  Net  earnings  and  loss  per  share:

          Net  earnings and loss per share is calculated in accordance with SFAS
          No.  128, "Earnings per Share". Under SFAS No. 128, basic net earnings
          or  loss  per share is computed by dividing net earnings (loss) by the
          weighted-average  number  of  outstanding  shares  of  common  stock,
          excluding  common stock subject to repurchase. Diluted net earnings or
          loss  per  share  is  computed  using  the  weighted-average number of
          outstanding  shares  of  common  stock  and,  when dilutive, potential
          common  shares  from options and warrants to purchase common stock and
          common  stock  subject  to repurchase using the treasury stock method,
          and  from  convertible  securities  using  the  as-if converted basis.

     (o)  Recent  accounting  pronouncements:

          The  FASB  issued SFAS No. 133, "Accounting for Derivative Instruments
          and  Hedging  Activities"  which established standards relating to the
          recognition  and  disclosure  of all aspects of derivative instruments
          and  hedging  activities.  To  date,  the  Company  has not engaged in
          hedging activities and the adoption of SFAS 133 did not have an impact
          on  its  financial  position,  results  of  operations  or cash flows.

     (p)  Comparative  figures:

          Certain comparative figures have been reclassified to conform with the
          presentation  adopted  in  the  current  year.

3.   WRITE-OFF  OF  ADVANCE:

     In  2000,  the  Company  made  an  unsuccessful attempt to acquire American
     Digital  Network  ("ADN"),  a company involved in the web-hosting, ISP, and
     internet  services  industry. As part of the planned acquisition, NetNation
     advanced  to  ADN  a  total  of  $500,000,  and  received  as  security the
     intellectual property rights to the eStoreManager software. The acquisition
     was  terminated  and  NetNation  has  not been able to recover its advanced
     funds,  and  has  taken possession of the eStoreManager software. If ADN is
     unable  to repay the advances, NetNation will retain the full rights to the
     eStoreManager  software.  To  date,  ADN  has  not exercised its option to
     repurchase  the  software.

     As  the  Company does not expect to recover the amount advanced to ADN, nor
     does  it  expect to make commercial use of the intellectual property rights
     acquired,  the  Company  has  written  off  the  amount  advanced  to  ADN.


                                      F-10
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

====================================================================

4.   FIXED  ASSETS:

     =============================================================
                                          Accumulated    Net book
     2001                       Cost     depreciation     value
     -------------------------------------------------------------

     Computer hardware       $1,778,528  $     928,877  $  849,651
     Computer software          113,918         49,787      64,131
     Furniture                   69,854         39,960      29,894
     Office equipment           167,664         69,651      98,013
     Leasehold improvements      13,897          4,724       9,173
     -------------------------------------------------------------

                             $2,143,861  $   1,092,999  $1,050,862
     =============================================================

     =============================================================
                                         Accumulated    Net book
     2000                    Cost        depreciation   value
     -------------------------------------------------------------

     Computer hardware       $1,579,217  $     397,240  $1,181,977
     Computer software           93,694         12,903      80,791
     Furniture                   70,439         26,096      44,343
     Office equipment           168,257         34,152     134,105
     Leasehold improvements      10,736          1,000       9,736
     -------------------------------------------------------------

                             $1,922,343  $     471,391  $1,450,952
     =============================================================

5.   INVESTMENTS:

     In  2000,  the  Company, through its wholly-owned subsidiary, DomainPeople,
     Inc.,  made  a 5% minority interest investment in Afilias, LLC ("Afilias"),
     through  the  purchase  of  100  Class  A  Units  representing  a 5% voting
     interest.  Afilias  is  a  company  formed  for the purpose of bidding for,
     developing,  financing,  marketing,  owning  and  operating  a  registry to
     register  and maintain Internet top-level domain names and has obtained the
     exclusive rights to register and maintain the new dot-info top-level domain
     names.  NetNation  does  not  have  significant influence over Afilias, and
     therefore has accounted for the investment using the cost method. Since the
     original  investment  in  Afilias  was  made,  DomainPeople's  ownership
     percentage  has  been  diluted  to 2% as at December 31, 2001 as it has not
     made  further investments. The carrying value of the investment at December
     31,  2001  is  $100,000.

6.   DEBENTURES  PAYABLE:

     As  a  condition  of  a  capital transaction, the Company raised $1,100,000
     through  the  sale  of  two  $550,000 Series A Convertible Debentures. Each
     debenture  was  convertible  into  275,000  shares  of  common stock of the
     Company  at  a  rate  of $2.00 per share which was not less than the market
     price of the Company's common stock on the arrangement date. The debentures
     were  non-interest  bearing.  On  February  18,  2000,  the  holders of the
     convertible  debentures  exercised  their  option to convert the debentures
     into  common  shares  of  the  Company.


                                      F-11
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

7.   SHARE  CAPITAL:

     (a)  Private  placement:

          On  March 3, 2000, the Company finalized an agreement to issue 250,000
          common  shares at $10 per share for gross cash proceeds of $2,500,000.
          The  Company  also issued warrants entitling the investors to purchase
          one  additional  share  for  every  two shares owned. The warrants are
          exercisable  during  a  two-year  period  at  $12 per additional share
          purchased.

     (b)  Stock  option  compensation  plan:

          On  January  3,  2000,  the  Company's Board of Directors approved the
          adoption  of  a  stock option compensation plan. The plan provides for
          the issuance of both incentive and non-qualified stock options, at the
          Board  of  Directors'  discretion,  to  key  employees,  directors and
          consultants.  The Company's policy is to grant options with a purchase
          price  equivalent  to market value at the time of the grant. 2,000,000
          shares  have  been  reserved for issuance under the plan. Except where
          noted  below,  the options vest over a three year period and expire 30
          days  after  each  vesting,  subject  to  change  under  management's
          discretion.

          Effective  January  3,  2000,  the  Company granted 564,000 options at
          $4.63  per  share  under the stock option compensation plan. Effective
          January  20,  2000,  the  Company  granted 24,000 options at $7.69 per
          share  under  the  stock  option  compensation plan. Effective May 24,
          2000, the Company granted 144,000 options at $4.13 per share under the
          stock  option  compensation plan. Effective June 26, 2000, the Company
          granted  24,000  options  at  $3.63  per  share under the stock option
          compensation  plan.  Effective  November 16, 2000, the Company granted
          270,000 options at $2.31 per share under the stock option compensation
          plan.

          Effective  January  8,  2001,  the  Company granted 234,000 options at
          $2.25  per  share  under  the  stock  option  compensation plan. These
          options  expire  18 months after each vesting, subject to change under
          management's  discretion. Of these options, 114,000 vested immediately
          on  the  date  of  grant.

          Effective  February  13,  2001,  the Company granted 36,000 options at
          $2.13  per  share  under  the  stock  option  compensation plan. These
          options  expire  18 months after each vesting, subject to change under
          management's  discretion.

          Effective  July  9,  2001, the Company granted 94,000 options at $2.25
          per  share  under  the  stock  option compensation plan. These options
          expire  18  months  after  each  vesting,  subject  to  change  under
          management's  discretion.


                                      F-12
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

7.   SHARE  CAPITAL  (CONTINUED):

     (b)  Stock  option  compensation  plan  (continued):

          Effective August 23, 2001, the Company extended the exercise period on
          the  options  granted  November  16, 2000. These options now expire 18
          months  after  each  vesting,  subject  to  change  under management's
          discretion. The modification of the grant did not result in additional
          compensation  expense.

          As  at  December  31,  2001,  168,000  options granted under the stock
          option  compensation  plan  were  exercisable.

          (i)  A  summary  of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
================================================================================
                                           Number of     Weighted average
                                         common shares    exercise price
--------------------------------------------------------------------------------
<S>                                      <C>             <C>
Outstanding, December 31, 1999 and 1998              -   $               -
Granted                                      1,026,000                4.00
Cancelled                                     (306,000)               4.55
--------------------------------------------------------------------------------

Outstanding, December 31, 2000                 720,000   $            3.76
Granted                                        328,000                2.25
Granted                                         36,000                2.13
Expired                                       (122,000)               4.63
Expired                                         (4,000)               7.69
Expired                                        (24,000)               4.13
Cancelled                                      (46,000)               2.25
Cancelled                                      (84,000)               2.31
Cancelled                                      (64,000)               4.63
Cancelled                                       (8,000)               7.69
Exercised                                       (8,000)               2.25
--------------------------------------------------------------------------------

Outstanding, December 31, 2001                 724,000   $            2.98
================================================================================
</TABLE>

          The  options  outstanding at December 31, 2001 expire between February
          3,  2002  and  January  9,  2006.


                                      F-13
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

7.   SHARE  CAPITAL  (CONTINUED):

     (b)  Stock  option  compensation  plan  (continued):

          (ii) Additional  information  regarding  options  outstanding  as  at
               December  31,  2001  is  as  follows:

<TABLE>
<CAPTION>
======================================================================
                    Options outstanding          Options exercisable
           ---------------------------------     --------------------
                          Weighted
                           average   Weighted                Weighted
                         remaining    average                 average
Exercise      Number   contractual   exercise     Number     exercise
prices     of shares  life (years)      price  of shares        price
---------------------------------------------------------------------
<S>        <C>        <C>           <C>        <C>        <C>
2.13         36,000          2.62  $    2.13          -  $          -
2.25        106,000          0.52       2.25    106,000          2.25
2.25         84,000          2.52       2.25          -             -
2.25         84,000          3.02       2.25          -             -
2.31        186,000          2.38       2.31     62,000          2.31
4.13         48,000          0.98       4.13          -             -
4.63        180,000          0.59       4.63          -             -
----------------------------------------------------------------------
            724,000          1.67  $    2.98    168,000  $       2.27
======================================================================
</TABLE>


          (iii)  Stock-based  compensation:

               With respect to the stock options granted and stock issued to the
               employees,  the  Company  recorded total stock-based compensation
               expense of $379,178 during the year ended December 31, 2001 (2000
               -  $432,785;  1999  -  $125,658).

               Pursuant to SFAS No. 123, the Company is required to disclose the
               proforma  effects  on net earnings (loss) and net earnings (loss)
               per  share  as  if  the Company had elected to use the fair value
               approach  to  account  for  its employee stock-based compensation
               plans.  If  this  approach  had  been  applied, the Company's net
               earnings  (loss)  per  share  would have been as indicated below:

<TABLE>
<CAPTION>
==================================================================================
                                                2001        2000          1999
----------------------------------------------------------------------------------
<S>                                           <C>       <C>           <C>
Net earnings (loss) for the year:
As reported                                   $757,917  $(3,971,597)  $(1,344,766)
Proforma                                       242,573   (5,272,830)   (1,344,766)

Basic and diluted earnings (loss) per share:
As reported                                   $   0.05  $     (0.26)  $     (0.10)
Proforma                                          0.02        (0.34)        (0.10)
==================================================================================

</TABLE>


                                      F-14
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

7.   SHARE  CAPITAL  (CONTINUED):

     (b)  Stock  option  compensation  plan  (continued):

          (iii)  Stock-based  compensation  (continued):

               The  fair  value  for  the  options  was  estimated  using  the
               Black-Scholes option pricing model assuming no expected dividends
               and  the  following  weighted  average  assumptions:

<TABLE>
<CAPTION>
===========================================================================
                                            Options
                         --------------------------------------------------
                         Weighted
                         Average Grant     Interest
                         Date Fair Value   Rate       Term     Volatility
---------------------------------------------------------------------------
<S>                      <C>               <C>        <C>      <C>
Year ended December 31:
  2001                             $ 1.83      4.95%  3 years         151%
  2000                             $ 2.97      5.66%  3 years         137%
===========================================================================
</TABLE>

8.   COMMITMENTS  AND  CAPITAL  LEASE  LIABILITY:

     The  Company leases its Vancouver, Canada premises under an operating lease
     agreement  which  expires  April  30,  2002  and  may  be  renewed  for two
     additional years at the Company's option. The rent expense under this lease
     for  the  years  ended December 31, 1999, 2000, and 2001, totaled $108,242,
     $297,148,  and $312,251, respectively. In 2000, $73,797 was incurred on the
     San  Diego  lease,  which  was held for six months of the year. The Company
     also  leases  certain  fixed  assets  under capital leases, which expire at
     various  dates  through  2004.

     The  Company  is  committed to operating lease payments for rent in 2002 of
     approximately  $35,748.

     Future  minimum commitments under non-cancelable capital leases at December
     31,  2001  are  as  follows:

<TABLE>
<CAPTION>
<S>                                         <C>
===================================================
2002                                        $24,247
2003                                         21,875
2004                                          4,731
---------------------------------------------------
Total lease payments                         50,853
Amount representing interest                  7,018
---------------------------------------------------
Present value of capital lease obligations   43,835
Current portion                              19,183
---------------------------------------------------
                                            $24,652
===================================================
</TABLE>

Computer  hardware  capitalized  under non-cancelable capital leases amounted to
$75,522 and $61,529 as at December 31, 2001 and 2000, respectively.  Accumulated
depreciation  related to these capitalized assets amounted to $25,957 and $3,115
as  at  December  31,  2001  and  2000,  respectively.


                                      F-15
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

9.   INCOME  TAXES:

     Significant components of the Company's deferred tax assets at December 31,
     2001  and  2000  are  as  follows:

<TABLE>
<CAPTION>
============================================================
                                      2001          2000
------------------------------------------------------------
<S>                               <C>           <C>
Deferred tax assets:
  Net operating loss carryforwards $   625,000   $ 1,160,000
  Fixed assets                         481,000       470,000
  Deferred revenue                      87,000       332,000
  Contingent lease payments             94,000       174,000
  Share issuance costs                  24,000        55,000
  -----------------------------------------------------------
Gross deferred tax assets            1,311,000     2,191,000
Valuation allowance                 (1,057,000)   (2,148,000)
-------------------------------------------------------------
Total deferred tax assets              254,000        43,000

Deferred tax liability:
  Deferred expenses                     (4,000)      (43,000)
-------------------------------------------------------------
Deferred tax asset                 $   250,000   $         -
=============================================================
</TABLE>

     In assessing the realizability of deferred tax assets, management considers
     whether it is more likely than not that some portion or all of the deferred
     tax  assets  will not be realized. The ultimate realization of deferred tax
     assets is dependent upon the generation of future taxable income during the
     periods  in which those temporary differences become deductible. Management
     considers  the  scheduled  reversal  of deferred tax liabilities, projected
     future  taxable  income,  and  tax  planning  strategies  in  making  this
     assessment.  The  amount  of  the  deferred tax asset considered realizable
     could  change  materially  in  the near term based on future taxable income
     during  the  carry  forward  period.

     The  valuation  allowance for deferred tax assets as of January 1, 2001 was
     $2,148,000.  The  net  change in the total valuation allowance for the year
     ended  December  31,  2001  was  a  decrease  of  $1,091,000.

     As of December 31, 2001, the Company has Canadian tax loss carryforwards of
     approximately  $1,200,000  available to reduce the future years' income for
     tax  purposes.  These  carryforward  losses  expire  in  2006  to  2007.

     As  of  December  31,  2001, the Company has U.S. tax loss carryforwards of
     approximately $272,000 available to reduce the future years' income for tax
     purposes.  These  carryforward  losses  expire  in  2020.


                                      F-16
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

10.  SEGMENTED  INFORMATION:

     For  the  period  from  January  1,  2000  to December 31, 2001 the Company
     operated primarily two business segments consisting of web site hosting and
     domain  name  registration.  These  business  segments have been segregated
     based  on  how  management  organizes  the segments within the business for
     making  operating  decisions  and  assessing  performance.  The  accounting
     policies  of  the  business segments are the same as those described in the
     summary  of  significant  accounting  policies.  Prior to 2000, the Company
     operated  in  one  business  segment,  web  site  hosting.

     The  Company's revenues are generated from the following business segments:

<TABLE>
<CAPTION>
============================================================
                             2001        2000        1999
------------------------------------------------------------
<S>                       <C>         <C>         <C>
Web hosting               $4,530,923  $3,721,519  $2,511,021
Domain name registration   2,115,510   1,290,340           -
------------------------------------------------------------
                          $6,646,433  $5,011,859  $2,511,021
------------------------------------------------------------
</TABLE>

     The  Company's  gross  profits  are  generated  from the following business
     segments:

<TABLE>
<CAPTION>
============================================================
                             2001        2000        1999
------------------------------------------------------------
<S>                       <C>         <C>         <C>
Web hosting               $3,283,357  $2,478,708  $1,799,065
Domain name registration   1,283,374     720,895           -
------------------------------------------------------------
                          $4,566,731  $3,199,603  $1,799,065
============================================================
</TABLE>

     The  Company's  revenues  are  generated  from  the  following  geographic
     segments:

<TABLE>
<CAPTION>
==================================================
                  2001        2000        1999
--------------------------------------------------
<S>            <C>         <C>         <C>
United States  $2,849,867  $2,538,673  $1,406,172
Canada          2,387,953   1,427,849     602,645
Other           1,408,613   1,045,337     502,204
--------------------------------------------------
               $6,646,433  $5,011,859  $2,511,021
==================================================
</TABLE>

     Revenues  from  external  customers  are attributed based on the customer's
     country  of  domicile.

     All of the Company's assets were located in Canada as at December 31, 2001.
     The  Company  does  not  allocate  assets  to  business  segments.


                                      F-17
<PAGE>
NETNATION  COMMUNICATIONS  INC.
Notes  to  Consolidated  Financial  Statements
(Expressed  in  United  States  dollars)

Years  ended  December  31,  2001,  2000  and  1999

================================================================================

11.  FINANCIAL  INSTRUMENTS:

     (a)  Credit  risk:

          The  majority  of the Company's sales is prepaid and to a large number
          of  customers.  Consequently, the exposure to concentrations of credit
          risks  relating  to  individual  customers  is  limited.

     (b)  Currency  risk:

          Significant  amounts  of the Company's expenditures are denominated in
          the  Canadian  dollar.  Fluctuations  in  the  exchange  rates between
          Canadian and United States dollars could have a material effect on the
          Company's  business,  financial  condition, and results of operations.
          The  Company  has not entered into foreign currency contracts or other
          instruments  to  mitigate  this  risk.

     (c)  Fair  value:

          The  Company's  financial  instruments  consist  of  cash  and  cash
          equivalents,  accounts  receivable,  deposits,  accounts  payable  and
          accrued  liabilities,  and  the  capital  lease  liability.  It  is
          management's  opinion  that  the Company is not exposed to significant
          interest  or  currency risks arising from these financial instruments.
          The  fair  values  of  these  financial  instruments approximate their
          carrying  values,  unless  otherwise  noted.

12.  CONTINGENCIES:

     (a)  As at December 1, 2000, the Company discontinued lease payments on the
          San  Diego  premises  due  to  a number of circumstances. To date, the
          landlord  has  not  commenced legal action against the Company. Should
          the landlord commence legal action against the Company, the outcome of
          the  proceedings  is unknown. The remaining lease payments of $381,254
          were  accrued  in the consolidated financial statements as at December
          31,  2001  and  2000,  and a gain will be recognized in the event of a
          favorable  outcome.

     (b)  The distribution process for .biz domain names has been the subject of
          litigation  in  the  Los  Angeles  Superior  Court  in  the  State  of
          California.  A  lawsuit  has  been brought against NeuLevel, Inc., the
          .biz  registry,  the  Internet  Corporation  for  Assigned  Names  and
          Numbers,  and  most  of  the  .biz-accredited  registrars,  including
          DomainPeople  Inc.,  a  wholly-owned  subsidiary  of the Company. This
          lawsuit  alleges  among  other  things,  that the method for assigning
          domain  names  during  the  start-up  period  for registration of .biz
          domain  names constituted an illegal lottery under California law. The
          lawsuit  seeks a refund of the fees paid to the defendants, additional
          damages,  costs,  attorney  fees,  and  an  injunction  to  stop  the
          pre-registrations.  NeuLevel,  Inc.  has  subsequently  changed  its
          distribution  process  in  response  to this litigation. At this time,
          DomainPeople  Inc.  has  not  been  formally served with notice of the
          legal proceedings and the outcome of the proceedings and the amount of
          potential damages to DomainPeople Inc. is unknown. However, should the
          plaintiff  prevail  in  its  claim, the Company may be required to pay
          damages  which could have a material effect on the Company's operating
          results.


                                      F-18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX

EXHIBIT
NUMBER   DESCRIPTION
-------  -----------
<S>      <C>
2.1 **   Agreement dated March 31, 1999 between the shareholders of NetNation (The Canadian
         Subsidiary), NetNation (The Canadian Subsidiary), and NetNation (formerly Collectibles
         Entertainment Inc.)

3.1 **   Articles  of  Incorporation

3.2 **   By-laws

4.1 **   Convertible Debenture for $550,000 Maturing on September 30, 2000 issued to Polaris
         Investitionen Ltd.

4.2 **   Convertible Debenture for $550,000 Maturing on September 30, 2000 issued to Beste
         Investitionen Ltd.

4.3      Specimen share certificate

10.1     Registrar Accreditation Agreement between the Internet Corporation for Assigned Names and
         Numbers and DomainPeople, Inc.

10.2     Harbour Centre Office Lease

10.3     NetNation Communications, Inc.'s 2000 Stock Option Plan*

21.1     List of Subsidiaries

<FN>
*        Incorporated by reference from the Definitive Proxy Statement filed with the
         Securities and Exchange Commission on May 8, 2000.

**        Incorporated  by  reference from the Registration Statement on Form 10
          of the Registrant filed with the Securities and Exchange Commission on
          July  29,  1999,  as  amended.
</TABLE>


<PAGE>