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, 2002
                                              ------------------

                                       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                        (I.R.S.
   of incorporation or organization)           Employer 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]

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

As  of  January 30, 2003, the aggregate market value of the voting common equity
held  by  non-affiliates  of the registrant was $3,591,665, 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.


<PAGE>
As  of  January 30, 2003, the registrant's outstanding common stock consisted of
15,206,002  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>                                                                    <C>
I          1   Business                                                                4
           2   Properties                                                             25
           3   Legal Proceedings                                                      25
           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                                                30
           7A  Quantitative and Qualitative Disclosure about Market Risk              34
           8   Financial Statements and Supplementary Data                            35
           9   Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure                                                 35

III        10  Directors and Officers of the Registrant                               36
           11  Executive Compensation                                                 39
           12  Security Ownership of Certain Beneficial Owners and Management         43
           13  Certain Relationships and Related Transactions                         44
           14  Controls and Procedures                                                44

IV         15  Exhibits, Financial Statement Schedules and Reports on Form 8-K        46

               Signatures                                                             48
               Certifications                                                         49
               Index to Consolidated Financial Statements                             51
</TABLE>


                                        3
<PAGE>
                                     PART I


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.

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

                             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 web hosting and domain name
registration  segments  for purposes of 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
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.


                                        4
<PAGE>
NetNation  hosts  customer  web  sites  and  indirectly  provides  access to the
Internet  through  its  ISPs. NetNation offers a range of basic and enhanced web
hosting  services to businesses wishing to place 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  has  strategically  determined  not  to  offer  web  site  design,
development, or content services because it is labor intensive and would involve
significant  human  resources  and time to service a broad customer base.  These
"webmaster" functions are typically performed by specialized companies servicing
a  number  of  customers.  NetNation  has  developed  programs for resellers and
affiliates  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
register  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,  in  order  to  obtain the recurring web hosting 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 through the
various  registries.


                                  ORGANIZATION

NetNation Communications Inc., the parent public company, 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


                                        5
<PAGE>
site hosting business based in Vancouver, Canada. As of the date of this report,
the  common  shares of NetNation trade on the Nasdaq Small Capitalization Market
under  the  ticker  symbol  "NNCI".

NetNation  has  three  wholly-owned subsidiaries: NetNation Communications Inc.,
DomainPeople,  Inc.;  and  NetNation  Communications  (USA)  Inc.

NetNation entered into the web hosting business through its 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.  As
of the date of this report, NetNation conducts all of its web hosting operations
through  its  Canadian  subsidiary.

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  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 Communications (USA) Inc. is currently
inactive.

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.

                                   BACKGROUND

Web Hosting

During 2002, NetNation derived 67% 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.

According  to research firm IDC, the web hosting market in 2001 was $4.8 billion
and  is projected to grow to $16.2 billion in 2005.  The small-to-medium hosting
segment,  where  NetNation  mainly  competes, represents an estimated 50% of the
total  market.  The  hosting  market  is  serviced  by  roughly  25,000  hosting
companies  as  at  January  2003,  according  to  HostCount.

To  begin  using  a web hosting service, a customer would register and pay for a
domain name and would set up an 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.  Customers can also transfer or migrate an existing web
site  to  NetNation's web hosting service.  If the customer has a commercial web
site,  NetNation  can  assist  the  customer  in  meeting  its  commercial


                                        6
<PAGE>
objectives by making available services that enable commercial transactions over
the  Internet  such  as shopping cart software and credit card merchant accounts
available  through  our  partners.

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 resellers 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 $13-$175.  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
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
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.

Domain Name Registration

During  2002,  NetNation  derived  33% of its revenue from providing domain name
registration.  A  business  or  individual that wants a personalized web address
must  first  register  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.  When  the
registration  term  is completed, NetNation can renew the customer's domain name
for  them.  Customers  can also transfer their existing domain name registration
to  NetNation  and  renew  subsequent  terms  with  NetNation.

According  to  the  "State  of  the  Domain"  report  for  Q3  2002  provided by
SnapNames.com,  the  number  of total registrations for generic top level domain
names  (.com,  .net,  .org, .info, .biz, and .name) as at September 30, 2002 was
approximately  29  million.  NetNation's  share  of  this  market  is  0.50%.

                                BUSINESS STRATEGY

NetNation  has  targeted  the  North  American  small  and medium-sized business
markets  as  management  believes  that  this  market  will  continue  to  grow.
According to research firm IDC, the web hosting market is projected to grow from
$4.8 billion in 2001 to $16.2 billion in 2005.  And the small and medium hosting
segment  is estimated to represent about 50% of the total hosting market and has
continued  to  experience  growth.  This  growth in the small and medium hosting
market  is  due  to small office/home office, or SOHO-based companies seeing the
need  to  launch  their  own  business  presence  on  the  Internet.


                                        7
<PAGE>
The geographic location of the market for web hosting services is worldwide.  In
2003, efforts  to penetrate international and domestic markets will be augmented
by developing strategic partnerships, and reseller networks that have experience
in  local  markets,  and  will  serve  to offset the expense of marketing to end
users.  In  addition,  focusing on a wider range of services is vital to provide
more  of  a  complete  solution  to  both  resellers  and  end-users.

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.  As
the  company  continues to assess the efficacy of its marketing expenditures, it
will  allocate  more  resources  to  advertising with measurable results such as
search  engine  optimization  and  keyword  buying,  rather than solely on print
media.

NetNation's market for domain name registration consists of retail customers and
resellers.  Roughly  three quarters of NetNation's domain name sales are through
resellers.  Resellers  can  set  up a branded reseller account where they resell
NetNation's  domain name registration services under their own name.  Under this
arrangement,  the  reseller  purchases domain names from NetNation at a discount
and  resells  the domain name at a price that they set.  Under this arrangement,
NetNation  collects  the domain name registration fees from the end customer and
remits  the difference between those fees and the reseller's discounted price to
the  reseller.  Resellers  can  also  sell  domain  names  under  NetNation's
wholly-owned  subsidiary,  DomainPeople's  name.  Under  this  arrangement,  the
reseller  purchases  domain  names  from NetNation at a discount and resells the
domain  name  at a price that they set and collects the domain name registration
fee  directly  from  the  end  customer.  The  reseller  remits  the domain name
registration  cost to NetNation.  Again, the geographic location of this market,
domain  name  registration, is worldwide but the main market we service is North
America.  The  marketing vehicles for domain name registration consist of online
advertising,  print  advertising,  and  search  engine  optimization.

During  2002,  NetNation's  wholly owned subsidiary DomainPeople, Inc. completed
development  of  a  unique  and  sophisticated  brand-able  domain  reseller
application.  This  application  is  designed  for  multi-tiered  resellers  and
therefore  is  ideally suited for international distributors, and large domestic
ones.  Accordingly,  DomainPeople will focus much of its efforts on the reseller
channels.  Part  of  this strategy will include targeted print media to industry
and  country specific publications and periodicals, personal selling, and online
advertising.  Also,  two  new  extensions: .CN (China) and .PRO will be released
during  2003,  and  it is anticipated that DomainPeople's revenues will increase
with  these  introductions.

                        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.


                                        8
<PAGE>
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.

4.   Enhanced  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,  .biz,  and  .name)  for  individuals  and  companies.

In  addition  to  providing  web  hosting  and domain name registration services
directly  to  its  customers, NetNation also offers these services for resale 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.


                                        9
<PAGE>
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

NetNation  has  developed  a  set  of utilities for its customers called Account
Manager.  Account  Manager is a proprietary account interface tool that enhances
a  customer's  web  site  control  and  management  capabilities.  For  example,
customers  can  use  Account  Manager 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  data  center  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  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 and
creation  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  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.


                                       10
<PAGE>
Using  NetNation's  enhanced  services,  its web hosting customers can construct
customized  online  storefronts with integrated end-to-end sales process support
and  automated  payment  systems.  For  an  initial  setup  fee and a subsequent
monthly  fee,  NetNation  offers  several  packages that support online commerce
which  includes  "shopping  cart"  software.  The packages are available to both
UNIX  and Windows 2000 users.  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 are 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
register  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 ("TLDs") ending in .com, .net and .org.  NetNation became
operational  as a domain name registrar in December of 1999.  As at December 31,
2002,  the  Company  had registered approximately 397,000 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 who
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.  NetNation also
offers  a  referral  agent  program  whereby referral agents are compensated for
referring customers to NetNation's web hosting services.  Referral agents do not
provide  technical  support  for  web  hosting.

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).
Customers  visiting  the reseller's web site would not be aware that back-end is
linked  to NetNation's servers in completing the service.  The revenue generated
from  the  registration  of  domain  names  using  this 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 2002, NetNation primarily utilized a combination of print and online media to
promote  its  products  and  services.  The  Company placed print advertising in
major  business and technical publications to reach its target markets.  Some of
the  publications in which NetNation advertises are PC magazine, PC World, Small
Business  Computing,  Windows  2000,  Linux Journal, the Computer Paper, Hosting
Tech,  and Silicon


                                       11
<PAGE>
Valley  North.  In  2002,  NetNation  allocated  approximately  37% of its total
advertising  budget  to  print  advertising.

The  Company's  online  marketing  program  consists of the purchase of targeted
keywords  on  search engines and directories, web banner advertisements, as well
as web site sponsorships and search engine optimization strategies.  The Company
allocated  approximately  40%  of  its  total  advertising  budget  to  online
advertising  in  2002.  NetNation  also  utilized  other  marketing  vehicles to
promote  its  products  and  services,  including direct marketing, trade shows,
event  sponsorship,  collateral  sales  materials  and  the  Company's web site.

                             DISTRIBUTION AND SALES

NetNation  sells  its  products  and services 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  23,000  websites  for  customers  in  over  120
countries  as  of  December  31,  2002.  For  the  year ended December 31, 2002,
Canadian  customers  comprised  45%  of  the  total  web  hosting customer base,
followed  by  the United States at 41%, and all other countries, the majority in
Europe,  combined  at  14%.

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's  sales force includes outbound sales and 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.    NetNation's 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.

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).
Customers  visiting  the reseller's web site would not be aware that back-end is
linked  to NetNation's servers in completing the service.  The revenue generated
from  the  registration  of  domain  names  using  this 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.


                                       12
<PAGE>
Affiliate  Program

NetNation  has  initiated  a  Referral  Affiliate  Program  whereby  independent
Referral  Agents  can refer customers to NetNation's shared web hosting services
and  earn  commissions.  Referral  Agents can be web developers, IT consultants,
computer  retailers,  or  just someone who has access to a network of people who
have  customers who have or want web sites.  Once a Referral Agent is qualified,
they  have  access  to a product page listing all of our shared hosting packages
which  seamlessly  integrates  with the Referral Agent's web site.  This product
page  is linked directly to NetNation's order form.  The Referral Agent promotes
the  service  to  its  customers and NetNation provides the billing and customer
support.

                                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 per 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.  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
can  service  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 open source
software  and  has  developed  enhancements  to  provide  maximum functionality,
scalability  and  performance.  NetNation uses standard technologies such as the
Linux  operating  system,  Apache  web  server  software,  Exim mail server, and
PowerDNS  domain name server.  Some of the technological barriers that NetNation
has overcome include the development of new routers to replace some of our Cisco
enterprise  equipment.

NetNation  has  developed  Account  Manager  which  provides  account management
features  including  email  management, web statistics, in house bandwidth usage
tracking,  integrated ticketing system, multi level access control, and password
management,  and  is  fully  brand-able  for reseller usage.  Account Manager is
constantly  being improved to enhance customer service and to ensure high levels
of  scalability as additional servers and customers are added.  This same system
is  provided  to  all of our hosting customers to manage their hosting accounts.

Network  Operations

The  provision  of  quality  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


                                       13
<PAGE>
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 as 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. However, 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.

At  December  31,  2002,  the Company had one data center, located in Vancouver,
Canada.  The  Company does not have redundancy with respect to its data center's
connectivity  to  the  Internet  in  the  event of a general failure of Internet
infrastructure  in  the  Vancouver  area,  due,  for  example,  to earthquake or
terrorist attack and the Company has no formal disaster recovery plan.

                                   COMPETITION

The  markets  for  web  hosting  and  domain name registration services are very
competitive.  It  is  estimated  that  there are over 25,000 web hosting service
providers  in  the  world.  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 160 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)   cost  of  labor,  bandwidth,  computer  infrastructure, and other expenses;
l)   attraction  and  retention  of  key  technical  and  managerial  personnel;
m)   location  of  data  centers;
n)   development  of  a  broad  international  presence;  and
o)   compliance  with  and  the  leveraging  of  industry  standards.


                                       14
<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.  These
competitors  also  have  strengths  which includes being better financed, having
access  to  existing  customers  that  they  can  cross-sell  to,  having larger
marketing budgets, and having better brand recognition among the general public.

The  second  major  type of competitors are the pure web site hosting companies.
NetNation believes that some of these companies may 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 web site hosting companies may face these
competitive  deficiencies,  there  are  a  number  of  larger  web  site hosting
companies  that  have  shown the ability to compete effectively., The ability of
NetNation  to  compete  with  these  companies  over  time  is  unproven.

NetNation  believes  the  following  aspects  of  its  various service solutions
provide a competitive advantage in obtaining and retaining customers.

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 2002, 67% 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.

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.

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.  Live  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


                                       15
<PAGE>
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.

NetNation  believes  the  following  are  some  of the disadvantages it faces in
competing  in  this  market.

Location.  Some web site hosting customers have the need or desire to have their
site  hosted in a location close to their own location.  This is especially true
for  co-location  and  higher  end  service  customers.

Brand recognition in local market.  NetNation advertises mainly in North America
in  national  publications  and online and in Vancouver while local providers in
other  cities  may  have  better brand recognition in their local market because
they  advertise  locally  and  are  part  of  the  local  community.

Suite  of services provided may be lacking in areas.  Some customers may require
certain  services  that we do not currently offer and may go to another provider
who  provide  those  specific  services.

Pricing.  NetNation  does not compete on price as our business model has been to
provide  good  quality service at a competitive price but not necessarily at the
lowest  price  in the market.  Many competitors offer their web hosting services
at  prices  lower  than  ours.

Competition  in the domain name registration services industry will intensify as
the  number  of  entrants  into  the market increases.  As at December 31, 2002,
ICANN  had accredited almost 160 competitive registrars, including NetNation, to
register  domain names in the .com, .net,  .org, .info, .biz, and .name domains.
NetNation  faces  substantial competition from competitive registrars and others
in  that:

     -    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.

Competition  in  the domain name registration industry has resulted in NetNation
lowering prices to its customers.  Further price reductions may be required.  In
addition, some of NetNation's competitors are offering domain name registrations
for  free  and  derive  their  revenues  from  other  sources.

                           TREND TOWARD CONSOLIDATION

Most  of  the  pure web hosting service providers are small businesses.  Many of
the  larger  pure web hosting service providers have annual revenues only in the
$5 million to $25 million range.  As the industry matures, certain providers may
also  seek to use acquisitions and the corresponding economies of scale they can
achieve as a competitive tool.  Although recent financial market conditions have
not  favored  a  trend toward consolidation in the industry, management believes
that a change in economic conditions could lead to consolidation activity in the
industry.  From  time  to  time  management  has  evaluated  whether  business
combinations  would be in the best interest of the shareholders.  Management has
never  received  competing competitive bona fide proposals and has never reached
any  definitive  agreement  for  a  business  combination.


                                       16
<PAGE>
                             GOVERNMENT REGULATIONS

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.  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.
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 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.
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.

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  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 and provincial taxes in Canada
where  applicable.

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  may  impose  restrictions  on  NetNation's  ability to follow current
business  practices  or  increase  its  costs  of  doing  business.

                            RESEARCH AND DEVELOPMENT

NetNation  has  spent  approximately  $231,000,  $200,000,  and  $269,000  on
company-sponsored  in-house  research  and  development  in 2002, 2001, and 2000
respectively.

                            ENVIRONMENTAL COMPLIANCE

Compliance  with  Federal, State and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating  to  the  protection of the environment does not have a material effect
upon  the  capital  expenditures, earnings and competitive position of NetNation
and  its  subsidiaries.


                                       17
<PAGE>
                                    EMPLOYEES

As at December 31, 2002, NetNation had 72 employees.  All employees are required
to  enter into an employment agreement that contains industry standard terms for
the  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.

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

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.  This
difficulty  in  evaluating  NetNation's  prospects  may  result  in  stock price
volatility,  including  dramatic  price  drops that could cause investor losses.

Future Losses

The  web hosting industry is a new industry and NetNation cannot predict whether
its  current  business  model  will  continue  to enjoy acceptance from either a
pricing  or service-level standpoint.  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:

     -    the  ability to maintain or generate increased revenues and cash flow;
     -    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; and
     -    potential  regulatory  developments  that  may  apply  to  NetNation's
          operations.


                                       18
<PAGE>
If NetNation suffers negative cash flow in the future, some investors might sell
their  shares resulting in a decrease in the price of its stock that would cause
losses  for  investors who did not sell.  NetNation also might find it difficult
to  raise  capital  to  continue  its  business  on acceptable terms, if at all.

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  as  needed,  expand its channels of
distribution,  continue  to  respond to competitive developments, and retain and
motivate  qualified personnel.  If NetNation does not manage these risks, it may
not  sustain  revenue  growth  and  profitability  in future quarterly or annual
periods,  which  could result in a decrease in the price of its stock that could
cause  losses  for  investors.

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  changes  in  the  employee  group;
     d)   changes  in  the  pricing  policies  of  NetNation;  and
     e)   the  timing  and  magnitude of expenditures on advertising, marketing,
          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)   the  introduction  by  third  parties  of  new Internet and networking
          technologies;
     f)   increased  competition  in  NetNation's  markets;
     j)   changes  in  the  pricing  policies  of  NetNation's  competitors; and
     k)   fluctuations  in  bandwidth  and  other  resources  used by customers.

NetNation's  committed  costs  pertaining  to  premises, communication and wages
account  for approximately 50% of total expenses for the foreseeable short term.
Absorbing  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 may result in
stock price volatility, including dramatic price drops that could cause investor
losses.

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


                                       19
<PAGE>
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. In
addition,  to  be  successful  in  this  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  does  not succeed for any of these reasons, its
stock  price  could decline and cause losses for investors or it could be forced
to  liquidate  resulting  in  a  total  loss  for  investors

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.  Some of NetNation's most likely long-term
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, 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.  If NetNation
is  unable  to compete effectively in its markets, its stock price could decline
and cause losses for investors or it could be forced to liquidate resulting in a
total  loss  for  investors.

Continued Growth May Strain Resources

NetNation  has  experienced growth but the pace of growth has slowed in the past
two  years.  Growth  has  placed,  and  future  growth  may continue to place, a
significant  strain  on the Company's managerial, operating, financial and other
resources.  The  Company's  recent  modest revenue growth comes at the same time
that  the  Company  has  reduced  its  headcount, mainly through attrition.  The
combination  of  modest  growth  with work force reductions requires 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 as needed.

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

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


                                       20
<PAGE>
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.

Increased Domain Name Registration Competition

Competition  in  the  domain  name  registration  industry  has  resulted in the
lowering  of  prices  to NetNation's customers.  Further price reductions may be
required.  In addition, 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.

Maintenance of ICANN Accreditation

NetNation  needs to be an ICANN-accredited registrar in order to register domain
names  in  the  .com,  .net, .org, .info, .biz, and .name 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. In 2002, NetNation derived 33% of its
revenue  from  domain  name  registration  services. 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.

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 Group
Telecom,  Peer1  Network, Big Pipe, 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,
which  could  result  in  a  decrease in the price of its stock that could cause
losses  for  investors.

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,  which could result in a decrease in the price of its stock
that  could  cause  losses  for  investors.


                                       21
<PAGE>
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
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, which could result
in  a  decrease in the price of its stock that could cause losses for investors.

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, which could result in a decrease in the price of its stock that could
cause losses for investors.  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.

Dependence Upon On-line Credit Card Processing

NetNation's  business relies upon the ability to accept credit cards for payment
on-line.  Incidences  of credit card fraud on the Internet in general and credit
card  fraud effecting NetNation specifically may affect the ability of NetNation
to  maintain  its  credit card merchant accounts to process credit card payments
on-line.  If  NetNation  is unable to process credit card payments on-line, this
could  have  a  material  adverse  effect  on  NetNation's  business, results of
operations  and  financial  condition,  which  could result in a decrease in the
price  of  its  stock  that  could  cause  losses  for  investors.


                                       22
<PAGE>
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 reasons based on the nature and content of
the materials disseminated through their networks. 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
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; Joseph Kibur, Chief Executive
Officer;  Calvin  Mah,  Chief Financial Officer; and Jag Gillan, Chief Operating
Officer  and  General Counsel.  The loss of the services of one or more of these
key  persons  could  have  a  material  adverse  effect on NetNation's business,
results  of  operations  and  financial  condition.

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, which could result in a decrease
in  the  price  of  its  stock  that  could  cause  losses  for  investors.


                                       23
<PAGE>
Effective 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  46%  of
NetNation's  outstanding common stock as at January 30, 2003.  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.
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 the effect of preventing investors from receiving offers to
purchase  their  stock  at  a  premium.

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, 2002, there were 8,163,520 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 the 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.

On  January  7,  2003,  the  Company was notified by Nasdaq that it did not meet
listing  requirements  for the Nasdaq SmallCap Market at that time as it was not
in  compliance with the US$1.00 minimum bid price.  The Company has requested to
appeal  its case before the Nasdaq Qualifications Panel for continued listing on
Nasdaq  SmallCap  Market  and  the  hearing  is scheduled for February 13, 2003.


                                       24
<PAGE>
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.

           Compliance with Sarbanes-Oxley Act and Related Regulations

The  United  States  Congress  enacted sweeping legislative reforms in July 2002
known  as  the  Sarbanes-Oxley Act, which tightened regulation of the securities
industry.  Many  of  these reforms and their implementing regulations affect the
manner in which publicly-traded companies govern their affairs.  Some of the key
regulations  required  by  the  Sarbanes-Oxley  Act  have  not yet been adopted.
Specifically,  the Securities and Exchange Commission is currently reviewing the
listing  standards  for companies that are traded on the Nasdaq SmallCap Market.
These  standards  may  require  NetNation  to  increase the size of its Board of
Directors  significantly to add a number of independent directors.  If NetNation
is  unable to identify and obtain the services of qualified candidates to comply
with the new listing standards, it might lose its listing on the Nasdaq SmallCap
Market,  which  could  reduce  the liquidity of its common stock and potentially
cause  investor  losses  due  to depressed prices.  Even if NetNation is able to
obtain  the  services  of  qualified  candidates,  the search for candidates may
divert  scarce  human and financial resources from focusing on the core business
of  the  Company.  In  addition,  the  increased  size of the Board would impose
additional  financial  burdens on NetNation on an ongoing basis.  This diversion
of  resources  could  adversely  affect  the financial condition, operations and
prospects  of  NetNation,  which  could result in a decrease in the price of its
stock  that  would  cause  losses  for  investors.

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, excluding operating
costs,  pursuant  to  agreements that expire on April 30, 2003 with an option to
renew for an additional 1 year term and an additional 3 year term.  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, 2000 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
and  the  Company  has  not accrued any amount in respect of this lawsuit in the
financial  statements.  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.  In  December,  2002 a settlement of the suit was
proposed whereby NeuLevel, Inc. would refund any remaining pre-registration fees
not previously refunded and pay plaintiff's attorney's fees of up to $1,175,000.
A hearing to consider the proposed settlement is scheduled for March 17, 2003 in
the Superior Court


                                       25
<PAGE>
of California for the County of Los Angeles. It is not known what the effect, if
any, of the settlement, if approved, will be to DomainPeople, Inc.

The  Company has been in a dispute with a web hosting company in the Netherlands
called  Netnation  Europe.  On  March  14,  2002,  the  Company  won  a  World
Intellectual Property Organization (WIPO) dispute involving Netnation Europe for
the  domain name "netnation.info".  On November 1, 2002, the Company lost a WIPO
decision  to  Netnation  Europe  for the domain name "netnation.biz".  Netnation
Europe  had  initially registered the domain name during the start-up period for
registration  of  .biz domain names and the Company contested Netnation Europe's
rights  to  the  domain name.  At this time, the Company has not formally served
Netnation  Europe with notice of legal action.  Currently, the Netherland market
does  not  represent  a  significant  part  of  the  Company's  business.

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  2002.


                                       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, 2002
  First Quarter                      $         3.200  $       1.780
  Second Quarter                     $         2.300  $       0.700
  Third Quarter                      $         0.770  $       0.330
  Fourth Quarter                     $         0.690  $       0.400

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
</TABLE>

The above quotations were taken from Commodity Systems, Inc.

Holders

On  January  30,  2003,  NetNation's issued and outstanding common stock totaled
15,206,002 shares and was held by approximately 56 shareholders of record and by
an undetermined number of additional shareholders through nominee or street name
accounts  with  brokers.

Dividends

NetNation's  board  of  directors has not declared or paid cash dividends on the
Company's  common stock and does not have any plans to pay any cash dividends in
the near future. NetNation's current policy is to retain all earnings to finance
future  growth.

                     RECENT SALES OF UNREGISTERED SECURITIES

During  the  year  ended  December  31,  2002,  NetNation  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.

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.  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.

The  selected  data  relating to fiscal years ending December 31, 2002, 2001 and
2000  and  selected  financial data as at December 31, 2002 and 2001 are derived
from  the Company's audited financial statements included elsewhere herein.  The
selected  data  relating  to  fiscal years ending December 31, 1999 and 1998 and
selected  data  as  at  December  31,  2000,  1999 and 1998 are derived from the
Company's audited financial statements not included or incorporated by reference
herein.  This  selected  financial  data  should be read in conjunction with the
audited  consolidated  financial  statements and accompanying notes contained in
this  annual  report.


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                      SELECTED FINANCIAL DATA

==================================================================================================
                                                           Years ended
                                                          December 31,
                                      2002          2001          2000          1999         1998
--------------------------------------------------------------------------------------------------
<S>                            <C>           <C>           <C>           <C>           <C>
Sales                          $ 6,818,316   $ 6,646,433   $ 5,011,859   $ 2,511,021   $1,108,430
Gross profit                     4,532,005     4,566,731     3,199,603     1,799,065      687,191
Expenses
  Sales & marketing              1,104,018     1,388,643     2,977,927     1,575,699      461,913
  General & admin.               1,956,629     2,037,689     3,352,296     1,472,687      303,400
  Write-off of advance                  --            --       500,000            --           --
  Depreciation                     682,785       632,482       340,977        95,445       31,428

Deferred income tax recovery       150,000       250,000            --            --           --

Net earnings (loss)                938,573       757,917    (3,971,597)   (1,344,766)    (109,500)

Earnings (loss) per share      $      0.06   $      0.05   $     (0.26)  $     (0.10)  $    (0.01)

Weighted average number         15,218,131    15,246,145    15,316,804    13,164,836    9,692,030
of common shares

Total assets                   $ 5,459,424   $ 4,126,428   $ 3,130,828   $ 1,518,165   $  177,359

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

Cash generated by (used for)
  Operating activities         $ 1,773,811   $ 1,155,973   $  (623,555)  $  (604,773)  $   94,177
  Investing activities            (116,463)     (235,258)   (2,014,787)     (435,922)     (86,590)
  Financing activities              (1,737)        9,490     2,399,010     1,982,909       (4,734)
==================================================================================================
</TABLE>


                                       29
<PAGE>
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
                                  OF OPERATION
                                  ------------

The  following discussion should be read in conjunction with NetNation's audited
consolidated  financial  statements  beginning  at  page  F-1 at the end of this
report  of  Form  10-K.  Certain  statements  contained  in  this discussion may
constitute  forward-looking  statements,  as  discussed  above  in  the  section
entitled  "Forward-Looking  Statements". NetNation's actual results could differ
materially  from  the results anticipated in the forward-looking statements as a
result  of  a  variety  of  factors,  including  those discussed in the sections
entitled  "Risk  Factors"  and  "Business".

                                    OVERVIEW

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.  Its products
and  services  are sold worldwide, directly to customers and through value added
resellers  ("VARs").

NetNation  began  providing  web hosting services in February 1997. 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 ("TLDs")
ending  in  .com,  .net,  .org,  .info,  .biz, and .name. NetNation, through its
wholly-owned  subsidiary,  DomainPeople,  became  operational  as  a domain name
registrar  in  December  of  1999.

NetNation  generates  its  revenue by providing web hosting services to SMEs and
domain  name  registration.  NetNation's  web  hosting  customers normally pay a
setup  fee  and  regular  charges,  either  monthly, quarterly, twice-yearly, 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  generally  collects  its  web  hosting  service  fees in advance, and
recognizes  revenue  over  the period during which services are provided.  Setup
fees  are  amortized  over  the  estimated  period during which services will be
provided,  typically one to two years.  Recurring service fees are amortized and
recognized  on  a  straight-line basis over the period during which services are
provided.  As  a  result,  NetNation will generally have a significant amount of
deferred  revenue  attributable  to  web  hosting  services.  An increase in the
number  of  web  hosting  customers  will  not necessarily produce corresponding
increased revenues, because adding a number of customers with low service levels
may  not  replace the revenue lost if one intensive user of NetNation's services
decides  to  use another web hosting service provider.  Web hosting expenses are
largely  paid  currently.

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.  NetNation  generally  collects  its domain name registration
fees in advance, and recognizes revenue on a straight-line basis over the period
for  which the name is registered.  As a result, NetNation will generally have a
significant  amount of deferred revenue attributable to domain name registration
services.  An  increase  in  the number of domain names that NetNation registers
will  generally produce a corresponding increase in revenues, subject to changes
in  the  price  charged for the service.  The domain name registration fee which
NetNation  pays to the registries for the domain names is paid in advance and is
recognized as an expense over the period for which the name is registered.  As a
result,  NetNation will generally have a significant amount of deferred expenses
attributable  to  domain  registration  services.

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


                                       30
<PAGE>
name  registration  fees are included in cost of sales as they are recognized as
an  expense  over  the  term  of  registration.

CRITICAL ACCOUNTING POLICIES

Our  discussion  and  analysis  of  our  financial  condition  and  results  of
operations,  including  the  discussion  on liquidity and capital resources, are
based  upon  our  consolidated  financial statements which have been prepared in
accordance  with  accounting principles generally accepted in the United States.
The  preparation of these financial statements requires us to make estimates and
judgments  that affect the reported amounts of assets, liabilities, revenues and
expenses,  and  the related disclosure of contingent assets and liabilities.  On
an  ongoing  basis,  our  management  re-evaluates  its estimates and judgments.

We  believe  the  following  critical  accounting  policies  requires  our  most
significant  judgment  and estimates used in the preparation of the consolidated
financial statements. 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  and  for  loss carry forwards. 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 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 deferred tax asset realized during
2002  is  based  on  the  assumption  that  our  2003  income  will be generally
comparable  to our 2002 income. If our future income is substantially greater or
substantially  less  than  the  income we assume, there would be a corresponding
change  in  the  actual  amount of the deferred tax asset considered realizable.

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.  In estimating the period that hosting services are to be
provided  to  customers,  our  management  considers  our  past history with our
customers,  the type of services we provide, and other factors that could affect
the  period  of  time  a  customer would be provided services.  Accordingly, the
estimate  of  the  period  of  time  that hosting services are to be provided to
customers  is  a  matter  of judgment and could change in the near term based on
historical  experience  and  other  factors,  resulting  in a material change to
recorded revenue and deferred revenue for web hosting services.  For example, if
our experience begins to show that customers fitting a certain profile generally
use  our  services  for  4  years, and we have been estimating they will use our
services  for  2  years,  we  would increase the amortization period to 4 years,
effectively  reducing  the  set-up  fee revenue recognized for such customers in
each  of  the  first  2  years  by  50%.

                                OPERATING RESULTS

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Revenue

NetNation's  2002  revenues  were derived from Web Hosting (67%) and Domain Name
Registration  services  (33%).  As  at  December 31, 2002, NetNation was hosting
approximately 23,000 web sites and had registered approximately 397,000 Internet
domain  names.

NetNation's  2002 revenue of $6,818,316 was an increase of $171,883, or 3%, over
2001  revenue.  The  increase  in  revenue was due mainly to the increase in the
domain  name  registration  segment  of  NetNation's business.  During 2002, the
number  of  sites  hosted increased approximately 5%, from 22,000 to 23,000, but
did  not  result  in  a  corresponding  increase  in web hosting revenues as the
average  revenue  per customer has dropped due to competitive pricing pressures.


                                       31
<PAGE>
The  deferred  revenue  amount  on  the  balance  sheet  as at December 31, 2002
includes  $1,864,143 related to domain name registration and $720,975 related to
web  hosting  services.

Cost  of  Sales

Cost  of sales of $2,286,311 was an increase of $206,609 or 10% from 2001 and as
a  percentage of revenues, increased from 31% to 34%.    The increase in cost of
sales was due to higher domain name registration costs and personnel costs.  The
increase in cost of sales as a percentage of sales was due mainly to the reduced
margins  on  domain  name  registration from increased price competition and the
higher  personnel  costs.  The price competition in domain name registrations is
expected  to  continue  and  may  reduce  margins  further  in  the  future.

Sales  and  Marketing  Expenses

Sales  and  marketing  expenses  decreased $284,625, or 20%, from 2001, and as a
percentage  of  revenue, decreased from 21% to 16%.  The decrease was mainly due
to  a  reduction  in  advertising  expenses  of  $99,344  and personnel costs of
$182,381.  Sales  and  marketing  expense  consists mainly of salaries, bonuses,
commissions  and  advertising  costs.

General  and  Administrative  Expenses

General  and  administration  expenses decreased $81,060 or 4% compared to 2001.
As a percentage of sales, general and administration expenses decreased from 31%
in  2001 to 29% in 2002.  The improvement in general and administration expenses
was  due  mainly  to the reduction in rent expense as a result of the closure of
the  UK  office  and  consolidation  of the Vancouver office space.  General and
administrative  expenses  include  administrative  personnel  costs,  bad  debt
expense,  rent,  general  office  expenses,  audit and legal costs, and investor
relations  expenses.

Depreciation  and  Amortization

Depreciation  and  amortization  increased  $50,303 or 8% compared to 2001.  The
increase  in  depreciation  and  amortization  expense  was  due  to the ongoing
re-evaluation  of  the  estimated  useful  life  of  our  fixed  assets

Deferred  Income  Tax  Recovery

In 2002, the Company recognized a deferred income tax recovery of $150,000 which
increased the deferred tax asset to $400,000 at December 31, 2002.  In 2001, the
Company  recognized  a  deferred  income  tax  recovery  of  $250,000  and  a
corresponding  deferred  tax  asset  of  the same amount.  The amount of the tax
recovery is based on the assumption that the Company's net earnings in 2003 will
be  generally comparable to the net earnings in 2002.  If the Company's 2003 net
earnings are substantially greater or substantially less than 2002 net earnings,
a  corresponding adjustment to the deferred tax asset considered realizable will
be  required.

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

Revenue

NetNation's  2001  revenues  were derived from Web Hosting (68%) and Domain Name
Registration  services  (32%). This compares to 74% of revenues from Web Hosting
and  26%  from  Domain  Name  Registration services in 2000.  As at December 31,
2001,  NetNation  was  hosting  more  than  22,000  web sites and had registered
approximately  300,000  Internet  domain  names.

NetNation's  2001  revenue  of $6,646,433 was an increase of $1,634,574, or 33%,
over  2000  revenue.  The  increase  in  revenue  was due to the increase in the
number  of  web  sites  hosted  and  a  full  year  of growth in


                                       32
<PAGE>
the  domain  name registration segment of NetNation's business. During 2001, the
number  of  sites  hosted  increased  approximately  37%, from 16,000 to 22,000.

The  deferred  revenue  amount  on  the  balance  sheet  as at December 31, 2001
includes  $1,641,227 related to domain name registration and $748,937 related to
web  hosting  services.

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 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.

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.


                         LIQUIDITY AND CAPITAL RESOURCES

During  2002,  operating activities generated net cash of $1,773,811 compared to
net  cash  generated from operations of $1,155,973 in 2001.  The main reason for
the  increase  in  cash  from operations was the increase in earnings before tax
generated  in  2002  compared  to  earnings  before tax generated in 2001.  Cash
generated from changes in working capital items also contributed to the increase
in  cash  from  operation  in  2002.

During  2002,  the Company purchased fixed assets totaling $121,243.  Management
considers  this  level  of expenditure, on an annual basis, adequate to maintain
the  current  level of service and to allow for moderate growth in the number of
customers  we  service.  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 an increased level of capital
expenditure  costs  in  the  future.

As at December 31, 2002, the Company has cash and cash equivalents of $3,334,561
compared  to $1,678,950 as at December 31, 2001.  The increase reflects positive
cash flows from operations for 2002.  Based on management's current projections,
the  Company  believes  that  it  has adequate resources to maintain its current
level  of  operations  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


                                       33
<PAGE>
to accelerate growth but there is no guarantee that capital will be available at
acceptable  terms  or  at  all.  While  there are no commitments to make capital
expenditures,  management may make capital expenditures from time to time as the
operations  demand.  Notes  8  and  12  to the consolidated financial statements
summarize  the  material  commitments  and  contingencies  known  to management.

From  time  to time management has evaluated whether business combinations would
be  in  the  best  interest  of the shareholders.  Management has never received
competing bona fide proposals and has never reached any definitive agreement for
a  business  combination.

                        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 herein, 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.


                                       34
<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 2002 Quarter End
                             -----------------------------------------------
                             March 31    June 30   September 30  December 31
---------------------------  ---------  ---------  ------------  -----------
<S>                          <C>        <C>        <C>           <C>
Sales                        1,686,431  1,740,954     1,736,434    1,654,497
Gross profit                 1,143,359  1,166,211     1,155,631    1,066,804
Net earnings for the period    214,321    151,707       206,439      366,106
Net earnings per share            0.01       0.01          0.01         0.02
</TABLE>

<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
</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.


                                       35
<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      45  Chairman, President and Director
---------------  ---  ---------------------------------
Joseph Kibur      30  CEO and Director
---------------  ---  ---------------------------------
Ernest Cheung     52  Director
---------------  ---  ---------------------------------
Anil Wirasekara   46  Director
---------------  ---  ---------------------------------
Calvin Mah        40  CFO
---------------  ---  ---------------------------------
Jag Gillan        32  COO, Secretary and Director
---------------  ---  ---------------------------------
</TABLE>

The  directors  of NetNation serve one year terms and hold office until the next
annual  meeting of the shareholders and until their successors have been elected
and  qualified.

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, President and Co-Founder of NetNation
Communications,  Inc.,  Delaware,  U.S.A.  In addition, Mr. Talmor is President,
Co-Founder and a Director of DomainPeople, Inc., NetNation's wholly-owned domain
registration  subsidiary,  where he also served as secretary of the Company from
November  1999  until  February  2000.  Mr. Talmor was appointed Chairman of the
Board,  President,  Chief  Executive  Officer  and  Secretary  of  NetNation
Communications,  Inc.  in  April 1999.  He served as Chief Executive Officer and
Secretary  of  NetNation until January 2000 and February 2000 respectively. 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 18 years of business experience, both in financial and business
administration  roles, as well as experience in electronics engineering with the
Israeli  Air  Force  and  Eldat/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 at MacDonald Dettwiler &
Associates  Ltd.,  Richmond, British Columbia, Canada, a Canadian company in the
field of satellites' ground stations. Mr. Talmor qualified as a Certified Public
Accountant  in  Israel  with  Kesselman  & Kesselman, Chartered Accountants, the
country's  largest  accounting  firm,  which  is  associated  with
PricewaterhouseCoopers.  Mr. Talmor received a Bachelor of Arts in Economics and
Accounting,  a  Bachelor  of  Science  in  Statistics  and a Masters of Business
Administration,  all  from  Tel-Aviv  University  in  1985,  1985  and  1988
respectively.  In  addition, Mr. Talmor received an Electronics Diploma from the
Technological  Institute  of  Tel-Aviv  in  1976.

JOSEPH  KIBUR is Chief Executive Officer, Co-Founder and a Director of NetNation
Communications,  Inc.,  Delaware,  U.S.A.  In  addition,  Mr.  Kibur  is  Vice
President,  Co-Founder and a Director of DomainPeople, Inc., NetNation's wholly-
owned  domain  registration subsidiary.  Mr. Kibur was appointed Chief Executive
Officer of NetNation Communications, Inc. in September 2000.  Previously, he was
appointed  a  Director  and Chief Operating Officer of NetNation Communications,
Inc.  in  April  1999.  He  held  the  position of Chief Operating Officer until
September  2000.  From  March  1997 to April 1999, Mr. Kibur 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.  Mr.  Kibur  received  a  Bachelor of


                                       36
<PAGE>
Science  in  Management  and  Systems  Science  (Computer  Science, Business and
Mathematics)  in  1996  from  Simon  Fraser  University,  British  Columbia.

ERNEST  CHEUNG is a Director of NetNation Communications, Inc., Delaware, U.S.A.
Mr.  Cheung  was  appointed  to NetNation's Board of Directors in February 1999.
From  1993  to  1994,  Mr.  Cheung was Vice Chairman, Tele Pacific International
Communications  Corp. of Vancouver, British Columbia, Canada. From 1991 to 1993,
he  was  Vice  President  of  Midland  Walwyn Capital, Inc. of Toronto, Ontario,
Canada.  From  1984  to  1991, he was Vice President and Director, Capital Group
Securities,  Ltd. in Toronto, Ontario, Canada.  Mr. Cheung received a Masters of
Business  Administration  in  Finance  and  Marketing  in  1975  from  Queen's
University,  Kingston,  Ontario, and he obtained a Bachelor of Math in 1973 from
University  of  Waterloo,  Ontario.

He has served or serves 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    NasdaqSC             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  is  a  Director  of  NetNation Communications, Inc., Delaware,
U.S.A. Mr. Wirasekara was appointed to NetNation's Board of Directors in October
1999.  In  1995,  Mr.  Wirasekara  was  appointed  Chief  Financial  Officer  of
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, having joined the Company in 1992 as
the  Manager of Operations Accounting and Information. From 1988 to 1991, he was
Controller  and  Secretary  of  Rainex  Limited,  a  Vancouver, British Columbia
company  involved in project development, 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  United  Kingdom, the
Chartered  Institute  of Marketing and Management of the United Kingdom, and the
Institute  of  Chartered  Accountants  of  Sri  Lanka.

CALVIN  MAH  is  Chief  Financial  Officer  of  NetNation  Communications, Inc.,
Delaware,  U.S.A.  Mr. Mah was appointed Chief Financial Officer of NetNation in
February  2001  after  serving as its Financial Officer since November 2000. Mr.
Mah  is  also Chief Financial Officer of DomainPeople, Inc., NetNation's wholly-
owned  domain  registration  subsidiary.  He  was  appointed to this position in
February  2001.  From 1996 to 2000, Mr. Mah was Chief Financial Officer of Simba
Technologies  Inc.,  a  privately  held,  venture-backed  software  development
company.  From  1995 to 1996, he was Senior Financial Analyst for Pacific Forest
Products  Ltd.,  a  $400  million publicly traded logging and sawmilling company
with  1,100  employees.  From  1993 to 1995, 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,  he  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,  with  honours, from the University of British
Columbia  in  1985.

JAG GILLAN is Chief Operating Officer, General Counsel, Secretary and a Director
of  NetNation  Communications,  Inc.,  Delaware,  U.S.A. Mr. Gillan has held the
position  of  General  Counsel  of  NetNation since June 1999, and was appointed
Chief  Operating  Officer  of  NetNation  in  September  2001.  He has


                                       37
<PAGE>
served  as  Secretary  and  a  Director  of  NetNation  since  February 2000 and
September 2000 respectively. In addition, Mr. Gillan is Chief Operating Officer,
Secretary  and a Director of DomainPeople, Inc., NetNation's wholly-owned domain
registration subsidiary, having been appointed to the position in February 2000.
He  served  as General Counsel of DomainPeople from October 1999 until September
2001.  From  May  1997 to May 1999, Mr. Gillan was an Attorney with Baker Newby,
Vancouver,  British  Columbia,  Canada.  From  1992  to 1994, he served as Chief
Operating  Officer  of  Millstream Flour Mills Corp., a privately-held miller of
food products. Mr. Gillan attended Osgoode Hall Law School at York University in
Toronto,  Ontario 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,  British  Columbia.  Mr. Gillan is currently completing his Masters of
Business  Administration  with  the  Edinburgh  Business  School,  Heriot-Watt
University Edinburgh, United Kingdom. Mr. Gillan was appointed, in January 2003,
as  a  director  of  Afilias,  LLC, which DomainPeople, Inc. holds a 2% minority
interest.

Relationships Among Directors or Executive Officers

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

             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,  2002,  its  Directors, Executive Officers and greater-than-10% stockholders
complied  with  all  Section  16(a)  filing  requirements.


                                       38
<PAGE>
<TABLE>
<CAPTION>
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") and President or individuals acting in a similar capacity for the
years  ended  December  31,  2002,  2001  and  2000.


-----------------------------------------------------------------------------------------------------
                         Annual Compensation                 Long Term Compensation
               --------------------------------------  ----------------------------------
                                                                 Awards          Payouts
                                                       ------------------------  --------
                                                                    Securities
                                            Other      Restricted   Underlying             All Other
Name and                                   Annual         Stock      Options/      LTIP     Compen-
Principal              Salary   Bonus   Compensation     Awards        SARs      Payouts     sation
Position       Year    (USD$)    ($)         ($)           ($)          (#)        ($)        ($)
(a)             (b)     (c)      (d)         (e)           (f)          (g)        (h)        (i)
-----------------------------------------------------------------------------------------------------
<S>            <C>    <C>       <C>     <C>            <C>          <C>          <C>       <C>
David           2002   118,441       -              -            -            -         -           -
Talmor,         -------------------------------------------------------------------------------------
Chairman,       2001    96,874       -              -            -            -         -           -
President,      -------------------------------------------------------------------------------------
and Director    2000   105,785       -              -            -            -         -           -
-----------------------------------------------------------------------------------------------------
Joseph          2002   118,441       -              -            -            -         -           -
Kibur,
CEO and         2001    96,874       -              -            -            -         -           -
Director
                2000    55,885       -              -            -            -         -           -
-----------------------------------------------------------------------------------------------------
</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.

                        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

The Company has entered into employment contracts with Mr. Talmor, the Company's
Chairman  and  President,  and Mr. Kibur, the Company's Chief Executive Officer.
These  employment  contracts  allow  the  Company  to  terminate  the individual
executive  officer's  active  employment  with  the  Company  for  any  reason,


                                       39
<PAGE>
voluntary  or  involuntary,  with  or  without  cause, by 90-days notice to that
effect  in  writing. Upon termination, the individual executive officer would be
entitled  to  6  months  of  severance  pay.

The  Company  maintains  no  formal change of control agreements or arrangements
with  individual  Company  executive  officers.

Compensation Committee Interlocks and Insider Participation

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

Board Compensation Committee Report on Executive Compensation

The  Board  Compensation  Committee  was  formed  March 2000 and consists of Mr.
Ernest  Cheung  and  Mr.  Anil  Wirasekara.  The  criteria used to determine the
compensation  of  the  named  executive  officers  includes an evaluation of the
Company's  performance in terms of revenue growth and profitability, competitive
salaries  for  individuals  holding  similar  positions  in companies in similar
industries  and  of similar size, and the requirement to retain key employees of
the  Company.

                             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.


              COMPARISON OF CUMULATIVE TOTAL RETURN TO STOCKHOLDERS
                    SEPTEMBER 30, 1999 TO DECEMBER 31, 2002


                                [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
January 31, 2002    $         55.00  $    70.43  $  33.00
February 28, 2002   $         55.00  $    63.05  $  26.76
March 31, 2002      $         56.25  $    67.20  $  27.81
April 30, 2002      $         37.50  $    61.48  $  22.39
May 31, 2002        $         23.00  $    58.84  $  21.25
June 30, 2002       $         19.00  $    53.28  $  16.57
July 31, 2002       $         13.75  $    48.37  $  15.45
August 31, 2002     $         11.25  $    47.88  $  15.76
September 30, 2002  $         11.50  $    42.68  $  14.15
October 31, 2002    $         15.00  $    48.42  $  16.91
November 30, 2002   $         11.75  $    53.85  $  19.28
December 31, 2002   $         12.50  $    48.63  $  17.41
</TABLE>


                                       42
<PAGE>
ITEM  12:  SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
--------------------------------------------------------------------------------
RELATED  SHAREHOLDER  MATTERS
-----------------------------

The  following  table  sets  forth  certain information regarding the beneficial
ownership  of  the  common  stock  as  of  January  30,  2003  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
Title of Class            Of Beneficial Owner                   Ownership        Percent of Class(2)
----------------------------------------------------------------------------------------------------
<S>             <C>                                       <C>                    <C>
Common          David Talmor(3)                                    3,436,524(1)                22.6%
                Chairman, President, and Director
----------------------------------------------------------------------------------------------------
Common          Joseph Kibur(3)                                      3,575,000                 23.5%
                CEO and Director
----------------------------------------------------------------------------------------------------
Common          Ernest Cheung                                         12,000(4)                   *
                Director
                830-789 West Pender Street,
                Vancouver, British Columbia, V6C 1H2
----------------------------------------------------------------------------------------------------
Common          Jag Gillan(3)                                         25,000(5)                   *
                COO, Secretary and Director
----------------------------------------------------------------------------------------------------
Common          Calvin Mah(3)                                         12,000(4)                   *
                CFO
----------------------------------------------------------------------------------------------------
Common          Anil Wirasekara                                       12,000(4)                   *
                Director
                13800 Commerce Parkway, Richmond,
                British Columbia, V6V 2J3
----------------------------------------------------------------------------------------------------
Common          All Executive Officers and Directors as              7,072,524                 46.5%
                a Group (6 persons)
----------------------------------------------------------------------------------------------------
<FN>
* Less than one percent.

(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 January 30,
     2003  of  15,206,002  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.
(5)  Includes  9,000  exercisable  options.
</TABLE>


                                       43
<PAGE>
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------

The  following table sets forth information as of December 31, 2002 with respect
to compensation plans under which NetNation is authorized to issue shares of its
common  stock,  aggregated  as  follows:

     -    all compensation plans previously approved by security holders; and
     -    all compensation plans not previously approved by security holders.

<TABLE>
<CAPTION>
                                 (a)                      (b)                      (c)
-------------------------------------------------------------------------------------------------
Plan Category          Number of securities to      Weighted-average       Number of securities
                       be issued upon exercise     exercise price of     remaining available for
                       of outstanding options,    outstanding options,    future issuance under
                         warrants and rights      warrants and rights      equity compensation
                                                                             plans (excluding
                                                                         securities reflected in
                                                                               column (a))
----------------------------------------------------------------------------------------------------
<S>                    <C>                       <C>                     <C>
Equity compensation
plans approved by                       437,000  $                 2.82                 1,547,000
security holders
----------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by                         0                       0                         0
security holders
----------------------------------------------------------------------------------------------------
Total                                   437,000  $                 2.82                 1,547,000
----------------------------------------------------------------------------------------------------
</TABLE>


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.

CHANGES  IN  CONTROL

From  time  to  time  the  Company considers proposals from various parties that
could  involve  a  change  in  control  of  the  Company  if  consummated.

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.

ITEM  14:  CONTROLS  AND  PROCEDURES
------------------------------------

The  Company's  Chief  Executive  Officer, Joseph Kibur, and its Chief Financial
Officer,  Calvin  Mah,  (its principal executive officer and principal financial
officer,  respectively)  have  concluded, based on their evaluation as of a date
within  90  days  prior  to  the  filing date of this report, that the Company's
disclosure  controls  and  procedures  are  effective to ensure that information
required  to be disclosed by the Company in the reports filed or submitted by it
under  the  Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized  and reported within the time periods specified in the Securities and
Exchange  Commission's  rules  and  forms,  and  include controls and procedures
designed  to  ensure that information required to be disclosed by the Company in
such  reports  is  accumulated  and  communicated  to  the Company's management,
including  the  Chief  Executive  Officer  and  Chief  Financial  Officer,  as
appropriate  to  allow  timely  decisions  regarding  required  disclosure.


                                       44
<PAGE>
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
such  evaluation  including  any  corrective  actions with regard to significant
deficiencies  and  material  weaknesses.


                                       45
<PAGE>
                                     PART IV

ITEM  15:  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 January 31, 2003                                                   F-1

Consolidated Balance Sheets as of December 31, 2002 and 2001                                          F-2

Consolidated Statements of Operations for the years ended December 31, 2002, 2001, and 2000           F-3

Consolidated Statement of Stockholders' Equity for the years ended December 31, 2002, 2001, and 2000  F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000           F-5

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

2)  REPORTS  ON  FORM  8-K

On  November  13,  2002,  NetNation  filed  a  Form  8-K  and reported an Item 7
Financial Statements, Pro Forma Financial Information and Exhibits and an Item 9
Other  Events  and  Regulation  FD  Disclosure

3)  LIST  OF  EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
-------  -----------
<C>      <S>
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 Assignment of
         Names and Numbers and DomainPeople, Inc.

  10.2*  Harbour Centre Office Lease

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


                                       46
<PAGE>
  21.1*  List of Subsidiaries

   99.1  Certification of Joseph Kibur, Chief Executive Officer, dated February 7, 2003 pursuant to
         18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002.

   99.2  Certification of Calvin Mah, Chief Financial Officer, dated February 7, 2003 pursuant to 18
         U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      *  Incorporated by reference from the Annual Report on Form 10-K of the Registrant filed with
         the Securities and Exchange Commission on March 22, 2002

     **  Incorporated by reference from the Definitive Proxy Statement of the Registrant 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>


                                       47
<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:  February 7, 2003.


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     February 7, 2003
----------------------  Director
Name:  David Talmor


By:/s/ Joseph Kibur     Chief Executive Officer and Director        February 7, 2003
----------------------  (Principal Executive Officer)
Name:  Joseph Kibur


By:/s/ Jag Gillan       Chief Operating Officer and Secretary and   February 7, 2003
----------------------  Director
Name:  Jag Gillan


By:/s/ Anil Wirasekara  Director                                    February 7, 2003
----------------------
Name:  Anil Wirasekara


By:/s/ Ernest Cheung    Director                                    February 7, 2003
----------------------
Name:  Ernest Cheung


By:/s/ Calvin Mah       Chief Financial Officer                     February 7, 2003
----------------------  (Principal Accounting Officer)
Name:  Calvin Mah
</TABLE>


                                       48
<PAGE>
                                 CERTIFICATIONS

I,  Joseph  Kibur,  certify  that:

1.  I have reviewed this annual report on Form 10-K of NetNation Communications,
Inc.;

2.  Based  on  my  knowledge,  this  annual  report  does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  have:

     a) designed such disclosure controls and procedures to ensure that material
     information  relating  to  the  registrant,  including  its  consolidated
     subsidiaries,  is  made  known  to  us  by  others  within  those entities,
     particularly  during  the  period  in  which  this  annual  report is being
     prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
     procedures  as  of  a  date within 90 days prior to the filing date of this
     annual  report  (the  "Evaluation  Date");  and

     c)  presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation  Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most  recent evaluation, to the registrant's auditors and the audit committee of
registrant's  board  of  directors  (or  persons  performing  the  equivalent
functions):

     a)  all  significant  deficiencies  in  the design or operation of internal
     controls  which  could adversely affect the registrant's ability to record,
     process,  summarize  and  report financial data and have identified for the
     registrant's  auditors  any  material  weaknesses in internal controls; and

     b)  any  fraud,  whether or not material, that involves management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls;  and

6.  The  registrant's  other  certifying  officers  and I have indicated in this
annual  report whether there were significant changes in internal controls or in
other  factors  that  could significantly affect internal controls subsequent to
the  date  of  our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.



Date:  February 7, 2003                   /s/  Joseph  Kibur
      -------------------              -------------------------
                                       Joseph  Kibur
                                       Chief  Executive  Officer


                                       49
<PAGE>
                                 CERTIFICATIONS

I,  Calvin  Mah,  certify  that:

1.  I have reviewed this annual report on Form 10-K of NetNation Communications,
Inc.;

2.  Based  on  my  knowledge,  this  annual  report  does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  have:

     a) designed such disclosure controls and procedures to ensure that material
     information  relating  to  the  registrant,  including  its  consolidated
     subsidiaries,  is  made  known  to  us  by  others  within  those entities,
     particularly  during  the  period  in  which  this  annual  report is being
     prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
     procedures  as  of  a  date within 90 days prior to the filing date of this
     annual  report  (the  "Evaluation  Date");  and

     c)  presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation  Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most  recent evaluation, to the registrant's auditors and the audit committee of
registrant's  board  of  directors  (or  persons  performing  the  equivalent
functions):

     a)  all  significant  deficiencies  in  the design or operation of internal
     controls  which  could adversely affect the registrant's ability to record,
     process,  summarize  and  report financial data and have identified for the
     registrant's  auditors  any  material  weaknesses in internal controls; and

     b)  any  fraud,  whether or not material, that involves management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls;  and

6.  The  registrant's  other  certifying  officers  and I have indicated in this
annual  report whether there were significant changes in internal controls or in
other  factors  that  could significantly affect internal controls subsequent to
the  date  of  our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.



Date:   February 7, 2003               /s/  Calvin  Mah
      -------------------              -------------------------
                                       Calvin  Mah
                                       Chief  Financial  Officer


                                       50
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Description                                                                                          Page
-----------                                                                                          ----

<S>                                                                                                  <C>
Independent Auditors' Report dated January 31, 2003                                                   F-1

Consolidated Balance Sheets as of December 31, 2002 and 2001                                          F-2

Consolidated Statements of Operations for the years ended December 31, 2002, 2001, and 2000           F-3

Consolidated Statement of Stockholders' Equity for the years ended December 31, 2002, 2001, and 2000  F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000           F-5

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


                                       51
<PAGE>
AUDITORS' REPORT TO THE STOCKHOLDERS

We have audited the consolidated balance sheets of NetNation Communications Inc.
as at December 31, 2002 and 2001, and the consolidated statements of operations,
stockholders'  equity  and  cash  flows  for each of the years in the three year
period  ended December 31, 2002. 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, 2002 and 2001, and the results of its operations and its cash flows
for  each  of  the  years  in  the  three year period ended December 31, 2002 in
accordance with accounting principles generally accepted in the United States of
America.



KPMG  LLP
Chartered  Accountants

Vancouver,  Canada
January  31,  2003


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

December 31, 2002 and 2001
==========================================================================================
                                                                      2002         2001
------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>
Assets

Current assets:
  Cash and cash equivalents                                     $ 3,334,561   $ 1,678,950
  Accounts receivable, net of allowance for doubtful accounts
    of $27,302 (December 31, 2001 - nil)                             97,389       107,208
  Prepaid expenses and deposits                                     216,120       245,733
  Deferred expenses                                                 623,363       557,941
  Deferred tax asset (note 9)                                       400,000       250,000
  ----------------------------------------------------------------------------------------
                                                                  4,671,433     2,839,832

Deferred expenses                                                   205,676       135,734
Fixed assets, net of accumulated depreciation of $1,772,309
   (December 31, 2001 - $1,092,999) (note 4)                        482,315     1,050,862
Investments (note 5)                                                100,000       100,000
------------------------------------------------------------------------------------------

                                                                $ 5,459,424   $ 4,126,428
==========================================================================================

Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable and accrued liabilities                      $   269,463   $   235,880
  Contingent lease payments (note 12(a))                            381,254       381,254
  Customer deposits                                                  58,225        83,335
  Deferred revenue                                                2,103,537     1,934,936
  Capital lease liability (note 8)                                   20,338        19,183
  ----------------------------------------------------------------------------------------
                                                                  2,832,817     2,654,588

Deferred revenue                                                    481,581       455,228
Capital lease liability (note 8)                                      3,983        24,652

Stockholders' equity:
  Share capital (note 7):
    Authorized:  50,000,000 common shares with a par value of
      $0.0001 each
    Issued:  15,206,002 common shares (2001 - 15,245,321)             1,521         1,525
  Additional paid-in capital (note 7(b))                          5,911,083     5,988,123
  Deferred stock-based compensation (note 7(b))                           -      (287,554)
  Accumulated other comprehensive income                             14,601        14,601
  Deficit                                                        (3,786,162)   (4,724,735)
  ----------------------------------------------------------------------------------------
                                                                  2,141,043       991,960
------------------------------------------------------------------------------------------

                                                                $ 5,459,424   $ 4,126,428
==========================================================================================
<FN>
Commitments (note 8)
Contingencies (note 12)

See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
NETNATION COMMUNICATIONS INC.
Consolidated Statements of Operations
(Expressed in United States dollars)

=====================================================================================================
                                                                     Years ended December 31,
                                                               --------------------------------------
                                                                  2002         2001          2000
-----------------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>          <C>
Sales                                                          $ 6,818,316  $ 6,646,433  $ 5,011,859

Cost of sales                                                    2,286,311    2,079,702    1,812,256
-----------------------------------------------------------------------------------------------------

Gross profit                                                     4,532,005    4,566,731    3,199,603

Expenses:
  Sales and marketing                                            1,104,018    1,388,643    2,977,927
  General and administration                                     1,956,629    2,037,689    3,352,296
  Write-off of advance (note 3)                                          -            -      500,000
  Depreciation and amortization                                    682,785      632,482      340,977
  ---------------------------------------------------------------------------------------------------

                                                                 3,743,432    4,058,814    7,171,200
-----------------------------------------------------------------------------------------------------

Net earnings (loss) before income taxes                            788,573      507,917   (3,971,597)

Deferred income tax recovery                                       150,000      250,000            -
-----------------------------------------------------------------------------------------------------

Net earnings (loss) for the year                               $   938,573  $   757,917  $(3,971,597)
=====================================================================================================

Earnings (loss) per share, basic and diluted                   $      0.06  $      0.05  $     (0.26)
=====================================================================================================


Weighted average shares used in computing earnings
  (loss) per share, basic                                       15,218,131   15,246,145   15,316,804
Weighted average shares used in computing earnings
  (loss) per share, diluted                                     15,218,131   15,306,107   15,316,804
=====================================================================================================


See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
NETNATION COMMUNICATIONS INC.
Consolidated Statement of Stockholders' Equity
(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, 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 on exercise of
  stock options                        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

Amortization of deferred
  stock-based compensation                 -              -                -         192,733         -            -      192,733

Issuance of common stock
  for cash on exercise of stock
  options                              8,000              1           18,249               -         -            -       18,250

Issuance of common stock
  for cash                            10,500              1              104               -         -            -          105

Cancellation of common stock         (57,819)            (6)         (95,393)         94,821         -            -         (578)

Net earnings for the year                  -              -                -               -         -      938,573      938,573
---------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2002        15,206,002          1,521        5,911,083               -    14,601   (3,786,162)   2,141,043
=================================================================================================================================
<FN>


See accompanying notes to consolidated financial statements.
</TABLE>


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

==============================================================================================
                                                               Years ended December 31,
                                                        --------------------------------------
                                                           2002         2001          2000
----------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>          <C>
Cash provided by (used in):
  Net earnings (loss) for the year                      $  938,573   $  757,917   $(3,971,597)
  Items not involving cash:
    Depreciation and amortization                          682,785      632,482       340,977
    Deferred income tax recovery                          (150,000)    (250,000)            -
    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                      192,733      379,178       432,785
    Loss on disposal of fixed assets                         2,225        2,867        78,777
    Write-off of advance (note 3)                                -            -       500,000
Changes in non-cash operating working capital:
    Accounts receivable                                      9,819      (74,000)      (22,247)
    Prepaid expenses and deposits                           29,613     (113,854)      (68,671)
    Deferred expenses                                     (135,364)     (27,631)     (666,044)
    Accounts payable and accrued liabilities                33,583     (357,639)      404,372
    Contingent lease payments                                    -            -       381,254
    Customer deposits                                      (25,110)      18,818        64,517
    Deferred revenue                                       194,954      187,835     1,802,322
  --------------------------------------------------------------------------------------------
  Net cash provided by (used in) operating activities    1,773,811    1,155,973      (623,555)
Investments:
  Advance to ADN (note 3)                                        -            -      (500,000)
  Purchase of fixed assets                                (121,243)    (238,978)   (1,414,787)
  Purchase of investments                                        -            -      (100,000)
  Proceeds on disposal of fixed assets                       4,780        3,720             -
  --------------------------------------------------------------------------------------------
  Net cash used in investing activities                   (116,463)    (235,258)   (2,014,787)
Financing:
  Lease financing                                          (19,514)      (7,730)       51,565
  Issue of share capital, net of share issue costs          18,355       18,000     2,348,942
  Repurchase and cancellation of shares                       (578)        (780)       (1,497)
  --------------------------------------------------------------------------------------------
  Net cash provided by (used in) financing activities       (1,737)       9,490     2,399,010
----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents         1,655,611      930,205      (239,332)

Cash and cash equivalents, beginning of year             1,678,950      748,745       988,077
----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                  $3,334,561   $1,678,950   $   748,745
==============================================================================================
Supplementary information:
  Cash paid for:
    Interest                                            $    6,263   $    6,830   $     2,350
    Income taxes                                                 -            -             -
  Non-cash transactions:
    Shares issued to third parties for services                  -            -       100,000
    Conversion of debentures to common stock                     -            -     1,100,000
==============================================================================================
<FN>


See accompanying notes to consolidated financial statements.
</TABLE>


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

Years ended December 31, 2002, 2001, and 2000

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

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.
     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.  (up  to  November 2001 when the
          company  was  discontinued),  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  and  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, 2002, 2001, and 2000

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

2.   SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED):

     (c)  Fixed  assets:

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

<TABLE>
<CAPTION>
     =================================================
     Assets                      Basis         Rate
     -------------------------------------------------
<S>                          <C>            <C>
     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
     =================================================
</TABLE>

          The  Company  performs  reviews  for  the  impairment  of fixed assets
          whenever  events or 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,  2002,  2001,  and  2000.

     (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 $411,106,
          $509,685,  and  $1,750,415  during  the years ended December 31, 2002,
          2001,  and  2000,  respectively.


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

Years ended December 31, 2002, 2001, and 2000

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

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 are 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, 2002, 2001, and 2000

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

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,  including  the  estimate  of  the  realizability  of the
          deferred  income  tax  asset,  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 dollars 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  the  accounts  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, 2002, 2001, and 2000

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

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:

          (i)  In  June  2001,  the  FASB  issued SFAS 143 "Accounting for Asset
               Retirement  Obligations."  This  standard  established accounting
               standards  for  the  recognition  and  measurement  of  an  asset
               retirement  obligation  and its associated asset retirement cost.
               The  adoption of this standard on January 1, 2003 is not expected
               to  have  a  material impact on the Company's financial position,
               cash  flows  or  results  of  operations.

          (ii) In April 2002, the FASB issued SFAS 145 "Rescission of SFAS 4, 44
               and  64,  Amendment  of  SFAS 13 and Technical Corrections." This
               standard  rescinds  SFAS  4,  which required all gains and losses
               from  extinguishment  of  debt to be aggregated and, if material,
               classified  as  an  extraordinary item, net of related income tax
               effect.  The standard also amends SFAS 13 to require that certain
               lease  modifications  that  have  economic  effects  similar  to
               sale-leaseback  transactions  be accounted for in the same manner
               as  sale-leaseback  transactions.  The  adoption of this standard
               will  have  no  impact  on the Company's financial position, cash
               flows  or  results  of  operations.

         (iii) In  July  2002,  the  FASB  issued SFAS 146 "Accounting for Costs
               Associated  with  Exit  or  Disposal  Activities".  This standard
               addresses financial accounting and reporting for costs associated
               with  exit  or  disposal activities and nullifies Emerging Issues
               Task  Force  ("EITF")  Issue  94-3,  "Liability  Recognition  for
               Certain  Employee Termination Benefits and Other Costs to Exit an
               Activity  (including Certain Costs Incurred in a Restructuring)".
               The  principal  difference  is  that  SFAS  146  requires  that a
               liability for a cost associated with an exit or disposal activity
               be  recognized  when the liability is incurred versus on the date
               of  an  entity's  commitment  to  an  exit  plan.  SFAS  146 also
               establishes  that  fair  value  is  the  objective  for  initial
               measurement  of  the  liability. The adoption of this standard on
               January 1, 2003, is not expected to have a material impact on the
               Company's  financial  position,  cash  flows  or  results  of
               operations.


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

Years ended December 31, 2002, 2001, and 2000

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

2.   SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED):

     (o)  Recent  accounting  pronouncements:

          (iv) In  November  2002,  the  EITF  reached  a  consensus  on  Issue
               00-21,"Multiple  Element  Arrangements". This issue addresses how
               to  account  for  arrangements  that  may involve the delivery or
               performance  of  multiple products, services and/or rights to use
               assets. The guidance can affect the timing of revenue recognition
               for  such arrangements. The final consensus will be applicable to
               agreements entered into after June 15, 2003. The Company does not
               expect  this  issue  to  have  a material impact on its financial
               position,  cash  flows  or  results  of operations.

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

Years ended December 31, 2002, 2001, and 2000

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

4.   FIXED  ASSETS:
     =================================================================
                                               Accumulated    Net book
     2002                              Cost   depreciation       value
     -----------------------------------------------------------------
<S>                          <C>             <C>            <C>
     Computer hardware       $    1,880,047  $   1,500,811  $  379,236
     Computer software              115,184         97,858      17,326
     Furniture                       71,595         49,551      22,044
     Office equipment               168,795        112,970      55,825
     Leasehold improvements          19,003         11,119       7,884
     -----------------------------------------------------------------

                             $    2,254,624  $   1,772,309  $  482,315
     =================================================================

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

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 .info and .org 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, 2002 as it has not
     made  further investments. The carrying value of the investment at December
     31,  2002  is  $100,000.

6.   DEBENTURES  PAYABLE:

     As a condition of a capital transaction in a prior year, 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-12
<PAGE>
NETNATION COMMUNICATIONS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001, and 2000

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

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  and  expired  unexercised  in  2002.

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

Years ended December 31, 2002, 2001, and 2000

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

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,  2002,  159,000  options granted under the stock
          option  compensation  plan  were  exercisable.

<TABLE>
<CAPTION>
          (i)  A  summary  of the Company's stock option activity is as follows:

          ===========================================================================
                                                     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
          Cancelled                                      (35,000)               2.25
          Cancelled                                      (24,000)               2.31
          Cancelled                                       (8,000)               4.63
          Expired                                       (100,000)               2.25
          Expired                                        (24,000)               4.13
          Expired                                        (88,000)               4.63
          Exercised                                       (4,000)               2.25
          Exercised                                       (4,000)               2.31
          --------------------------------------------------------------------------

          Outstanding, December 31, 2002                 437,000   $            2.82
          ==========================================================================
</TABLE>

          The  options  outstanding at December 31, 2002 expire between February
          1,  2003  and  January  9,  2006.


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

Years ended December 31, 2002, 2001, and 2000

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

7.   SHARE CAPITAL (CONTINUED):

     (b)  Stock option compensation plan (continued):

          (ii) Additional information regarding options outstanding as at
               December 31, 2002 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          1.62  $     2.13      12,000   $   2.13
2.25         57,000          1.52        2.25      17,000       2.25
2.25         78,000          2.02        2.25      26,000       2.25
2.31        158,000          1.38        2.31     104,000       2.31
4.13         24,000          0.48        4.13           -          -
4.63         84,000          0.09        4.63           -          -
--------------------------------------------------------------------

            437,000          1.23  $     2.82     159,000   $   2.28
====================================================================
</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 $192,733 during the year ended December 31, 2002 (2001
               -  $379,178;  2000  -  $432,785).

               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>
==============================================================================
                                                2002      2001        2000
------------------------------------------------------------------------------
<S>                                           <C>       <C>       <C>
Net earnings (loss) for the year:
  As reported                                 $938,573  $757,917  $(3,971,597)
  Proforma                                     737,618   242,573   (5,272,830)

Basic and diluted earnings (loss) per share:
  As reported                                 $   0.06  $   0.05  $     (0.26)
  Proforma                                        0.05      0.02        (0.34)
==============================================================================
</TABLE>


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

Years ended December 31, 2002, 2001, and 2000

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

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>

          No options were granted during the year ended December 31, 2002.

8.   COMMITMENTS  AND  CAPITAL  LEASE  LIABILITY:

     The  Company leases its Vancouver, Canada premises under an operating lease
     agreement which expires April 30, 2003 and may be renewed for a term of one
     additional  year  and  a  term  of three additional years, at the Company's
     option.  The  rent  expense, including operating expenses, under this lease
     for  the  years  ended December 31, 2000, 2001, and 2002, totaled $297,148,
     $312,251  and  $245,174, 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 2003 of
     approximately  $36,000.

     Future  minimum commitments under non-cancelable capital leases at December
     31,  2002  are  as  follows:

<TABLE>
<CAPTION>
===================================================
2003                                        $22,456
2004                                          4,528
---------------------------------------------------
<S>                                         <C>
Total lease payments                         26,984
Amount representing interest                  2,663
---------------------------------------------------
Present value of capital lease obligations   24,321
Current portion                              20,338
---------------------------------------------------

                                            $ 3,983
===================================================
</TABLE>

     Computer  hardware capitalized under non-cancelable capital leases amounted
     to  $75,522  as  at  December  31, 2002 and 2001, respectively. Accumulated
     depreciation  related  to  these capitalized assets amounted to $51,131 and
     $25,957  as  at  December  31,  2002  and  2001,  respectively.


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

Years ended December 31, 2002, 2001, and 2000

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

9.   INCOME  TAXES:

     Income  taxes  attributable  to  net  earnings  (loss)  in  these financial
     statements  differ  from amounts computed by applying the U.S. federal rate
     of 34% (2001 - 34%, 2000 - 34%) as follows:

<TABLE>
<CAPTION>
======================================================================================
                                                     2002          2001          2000
--------------------------------------------------------------------------------------
<S>                                             <C>         <C>           <C>
Net earnings (loss) before income taxes         $ 788,573   $   507,917   $(3,971,597)
--------------------------------------------------------------------------------------
Expected tax expense (recovery)                 $ 268,115   $   172,692   $(1,350,343)
Tax effect of:
  Earnings (loss) of foreign subsidiary taxed
    at higher rate                                 36,232        29,338      (138,459)
  Permanent and other differences                 140,653       638,970       (45,198)
  Change in valuation allowance                  (595,000)   (1,091,000)    1,534,000
--------------------------------------------------------------------------------------
                                                $(150,000)  $  (250,000)  $         -
======================================================================================
</TABLE>

     Significant components of the Company's deferred tax assets at December 31,
     2002  and  2001  are  as  follows:

<TABLE>
<CAPTION>
============================================================
                                       2002         2001
------------------------------------------------------------
<S>                                 <C>         <C>
Deferred tax assets:
  Net operating loss carryforwards  $ 433,000   $   625,000
  Fixed assets                        247,000       481,000
  Deferred revenue                    158,000        87,000
  Contingent lease payments            94,000        94,000
  Share issuance costs                      -        24,000
  ----------------------------------------------------------

Gross deferred tax assets             932,000     1,311,000
Valuation allowance                  (462,000)   (1,057,000)
------------------------------------------------------------

Total deferred tax assets             470,000       254,000

Deferred tax liability:
  Deferred expenses                   (70,000)       (4,000)
------------------------------------------------------------

Deferred tax asset                  $ 400,000   $   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, 2002 was
     $1,057,000.  The  net  change in the total valuation allowance for the year
     ended  December  31,  2002  was  a  decrease  of  $595,000.

     As of December 31, 2002, the Company has Canadian tax loss carryforwards of
     approximately $791,000 available to reduce the future years' income for tax
     purposes.  These  carryforward  losses  expire  in  2006  to  2007.

     As  of  December  31,  2002, the Company has U.S. tax loss carryforwards of
     approximately $352,000 available to reduce the future years' income for tax
     purposes.  These  carryforward  losses  expire  in  2020.


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

Years ended December 31, 2002, 2001, and 2000

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

10.  SEGMENTED  INFORMATION:

     The Company operates 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.

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

<TABLE>
<CAPTION>
================================================================================
                                              2002        2001        2000
--------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Web hosting                                $4,557,347  $4,530,923  $3,721,519
Domain name registration                    2,260,969   2,115,510   1,290,340
--------------------------------------------------------------------------------

                                           $6,818,316  $6,646,433  $5,011,859
================================================================================

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

================================================================================
                                              2002        2001        2000
--------------------------------------------------------------------------------

Web hosting                                $3,368,763  $3,283,357  $2,478,708
Domain name registration                    1,163,242   1,283,374     720,895
--------------------------------------------------------------------------------

                                           $4,532,005  $4,566,731  $3,199,603
================================================================================

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

================================================================================
                                              2002        2001        2000
--------------------------------------------------------------------------------

United States                              $2,744,106  $2,849,867  $2,538,673
Canada                                      2,940,240   2,387,953   1,427,849
Other                                       1,133,970   1,408,613   1,045,337
--------------------------------------------------------------------------------

                                           $6,818,316  $6,646,433  $5,011,859
================================================================================
</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, 2002.
     The  Company  does  not  allocate  assets  to  business  segments.


                                     F-18
<PAGE>
NETNATION COMMUNICATIONS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001, and 2000

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

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
          are  accrued  in  the consolidated financial statements as at December
          31,  2002  and  2001,  and a gain will be recognized in the event of a
          favorable  outcome.


                                     F-19
<PAGE>
NETNATION COMMUNICATIONS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001, and 2000

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

12.  CONTINGENCIES (CONTINUED):

     (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 and the Company has
          not  accrued  any  amount  in respect of this lawsuit in the financial
          statements.  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.

          In  December,  2002  a  settlement  of  the  suit was proposed whereby
          NeuLevel,  Inc.  would  refund any remaining pre-registration fees not
          previously  refunded  and  pay  plaintiff's  attorney's  fees of up to
          $1,175,000. A hearing to consider the proposed settlement is scheduled
          for  March 17, 2003 in the Superior Court of California for the County
          of  Los  Angeles.  It  is  not  known  what the effect, if any, of the
          settlement,  if  approved,  will  be  to  DomainPeople,  Inc.


                                     F-20
<PAGE>
                                  EXHIBIT INDEX

  EXHIBIT
   NUMBER      DESCRIPTION
-------------  -----------
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 Assignment of 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


99.1           Certification  of  Joseph  Kibur,  Chief Executive Officer, dated
               February  7,  2003 pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act of 2002.

99.2           Certification  of  Calvin  Mah,  Chief  Financial  Officer, dated
               February  7,  2003 pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act of 2002.

*              Incorporated  by reference from the Annual Report on Form 10-K of
               the  Registrant filed with the Securities and Exchange Commission
               on  March  22,  2002

**             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.


                                     F-21
<PAGE>