<PAGE>

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

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

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

                                   FORM 10-KSB

(MARK ONE)

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

          FOR THE FISCAL YEAR ENDED JULY 31, 2002

                                       OR

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

          FOR THE TRANSITION PERIOD FROM ________________ TO ___________________

                         COMMISSION FILE NUMBER 0-29248

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


                              SMARTIRE SYSTEMS INC.
                 (Name of small business issuer in its charter)

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


             BRITISH COLUMBIA                                     N/A
     (State or other jurisdiction of                        (I.R.S. Employer
      incorporation or organization)                       Identification No.)

                            #150 - 13151 VANIER PLACE
                   RICHMOND, BRITISH COLUMBIA, CANADA V6V 2J1
               (Address of principal executive offices) (Zip Code)

                                  604-276-9884
                           (Issuer's telephone number)

       SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE

         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

                                  COMMON STOCK

                              (TITLE OF EACH CLASS)

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

     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     State issuer's revenues for its most recent fiscal year: $1,012,344

     At September 30, 2002, the aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the
average bid and asked price of such common equity, was $20,294,821.

     The number of shares outstanding of the Company's common stock at September
30, 2002 was 18,711,369.

     Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No

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

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INDEX

<TABLE>
<CAPTION>
                                                                            Page
                                                                          Number
                                                                          ------
<S>         <C>                                                              <C>
PART I

Item 1.     Description of Business                                            2

Item 2.     Description of Property                                           18

Item 3.     Legal Proceedings                                                 18

Item 4.     Submission of Matters to a Vote of Security Holders               18


PART II

Item 5.     Market for Common Equity and Related Stockholder Matters          18

Item 6.     Management's Discussion and Analysis or Plan of Operation         19

Item 7.     Financial Statements                                              23

Item 8.     Changes In and Disagreements With Accountants on Accounting
            and Financial Disclosure                                          24


PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act                 24

Item 10.    Executive Compensation                                            28

Item 11.    Security Ownership of Certain Beneficial Owners
            and Management                                                    32

Item 12.    Certain Relationships and Related Transactions                    34

Item 13.    Exhibits and Reports on Form 8-K                                  34

Item 14.    Controls and Procedures                                           35
</TABLE>


THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING EXHIBITS THERETO, CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE
WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FORECASTS", "PLANS",
"FUTURE", "STRATEGY", OR WORDS OF SIMILAR MEANING. VARIOUS FACTORS COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS, INCLUDING THOSE DESCRIBED IN "RISK FACTORS" IN THIS FORM 10-KSB. THE
COMPANY ASSUMES NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS,
EXCEPT AS REQUIRED BY LAW.

<PAGE>

PART I

ITEM 1.   DESCRIPTION OF BUSINESS

SmarTire Systems Inc. (together with its subsidiaries, the "Company" or
"SmarTire") is engaged in developing and marketing technically advanced tire
monitoring systems designed for improved vehicle safety, performance,
reliability and fuel efficiency. During the fiscal year ended July 31, 2002, the
Company earned revenues primarily from the sale of tire monitoring systems for
passenger cars. The Company's corporate offices are located at #150 - 13151
Vanier Place, Richmond, British Columbia, Canada, V6V 2J1. The Company's
telephone number is (604) 276-9884.

The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, SmarTire USA Inc., SmarTire (Europe)
Limited and SmarTire Technologies Inc.

The Company's consolidated financial statements are stated in United States
Dollars and are prepared in accordance with United States Generally Accepted
Accounting Principles (GAAP).

BUSINESS OF THE COMPANY

OVERVIEW

The Company was formed to develop and market remote data sensing, transmission
and processing products incorporating patented technologies to satisfy emerging
market requirements in the transportation industry. Currently the Company is
focused on developing and marketing technically advanced tire monitoring systems
for the transportation and automotive industries.

SmarTire has three wholly-owned subsidiaries: SmarTire Technologies Inc.,
SmarTire USA Inc. and SmarTire (Europe) Limited. SmarTire Technologies Inc.,
formerly Delta Transportation Products Ltd., was the original developer of the
Company's patented technology. SmarTire USA Inc. was incorporated under the laws
of Delaware in May of 1997 as the exclusive marketing agency for SmarTire in
North America. SmarTire (Europe) Limited was incorporated in the United Kingdom
on February 25, 1998 as the Company's exclusive sales and distribution operation
for Europe. SmarTire (Europe)'s head office is located at Park 34, Southmead
Industrial Park, Didcot, Oxfordshire, England, OX11 7WB.

On April 20, 1998, the Company established a strategic alliance with TRW Inc.
("TRW"), a large U.S.-based automotive parts supplier. The strategic alliance
was founded on four agreements between the parties: an Equity Agreement, a
Cooperation Engineering Agreement, an Original Equipment Manufacturer ("OEM")
License Agreement and a Manufacturing Agreement. The agreements provided for
joint engineering and

<PAGE>

development activities between the parties, and TRW was granted exclusive
marketing and distribution rights for some of the Company's products. In
addition, TRW had exclusive rights in the original equipment market for any tire
monitoring products that it developed jointly with the Company, and the Company
had exclusive rights in the aftermarket.

In late 1998, the Company and TRW teamed with SensoNor ASA ("SensoNor") in the
successful development of an Application Specific Integrated Sensor (ASIS) for
passenger car and light truck tire monitoring. SensoNor, based in Horten,
Norway, is a producer of sensors for automotive applications.

On December 2, 1999, the Company announced it had finalized a licensing
agreement with Transense Technologies plc of Oxfordshire, England, pursuant to
which the Company was granted a non-exclusive, worldwide right to develop and
market Transense's Surface Acoustic Wave (SAW) technology for use in tire
monitoring. Transense researches, develops and markets the use of its patented
SAW technology in the automotive industry.

On December 10, 1999, the Company announced that it had entered into an
agreement to develop valve stem designs and tire monitoring electronic packaging
for new market applications and new tire monitoring technologies with Alligator
Ventilfabrik GmbH. Based in Giengen, Germany, Alligator Ventilfabrik GmbH is a
producer of valve stems that allow the attachment of tire monitoring sensors
inside the tire.

On December 15, 1999, the Company announced that it had entered into a
development/supply agreement with SensoNor. SensoNor and the Company also agreed
to develop an ASIS for commercial vehicle tire monitoring applications.

The Company completed the development and launch of its second-generation tire
monitoring system for the passenger car and light truck market during the fiscal
year ended July 31, 2001, and has recently launched a tire monitoring system for
motorcycles. The Company is also continuing the development of systems for the
commercial, industrial and recreational vehicle markets. The Company anticipates
that systems for these markets will be ready for sale in fiscal 2003.

Effective August 31, 2001, the Company restructured its strategic alliance with
TRW. The two companies agreed to cancel most of the agreements that were entered
into in 1998; however, TRW retained its equity position in the Company. By
ending collaboration between the two companies in product development, and by
providing that neither company will have exclusive rights to any products, the
restructuring effectively provided the Company with immediate access to all
levels of the global automotive and transportation industries.

During May 2002 the Company entered into a non-binding Memorandum of
Understanding with Visteon Corporation to develop and market tire monitoring
solutions for vehicle manufacturers. If the Memorandum of Understanding matures
into a binding agreement, the two companies plan to offer tire monitoring
solutions to global automotive manufacturers for original equipment passenger
car applications. The Company and

<PAGE>

Visteon are currently negotiating a binding agreement based on the Memorandum of
Understanding.

The Company is shifting its business and operating focus from small specialty
niche markets toward mass-market opportunities in both the passenger car and
commercial vehicle markets.

GOVERNMENT REGULATIONS

The Company's products are subject to regulation by the government agencies
responsible for radio frequencies in each country that the Company's tire
monitoring systems will be sold. For example, in the United States approval must
be received from the Federal Communications Commission for each product. Some
countries require additional governmental approvals in certain circumstances.
For example, in the United Kingdom, all electronic equipment to be installed in
emergency and police vehicles must be approved by the Vehicle Installation
Development Group, a governmental body. And, as a practical matter, certain
non-governmental approvals may be necessary for market acceptance of the
Company's products in certain countries. For example, the approval of TUV (a
highly regarded independent testing company) is considered necessary to market
the Company's tire monitoring system in Germany.

The Company believes it has all of the necessary governmental approvals for its
current tire monitoring systems in its intended market countries. As each new
tire monitoring product is introduced to the market, the Company will apply for
necessary approvals for the new products.

In the fiscal year ended July 31, 2001, the United States Government enacted the
Transportation Recall Enhancement Accountability and Documentation ("TREAD") Act
of 2000. The TREAD Act was implemented to address perceived safety concerns
resulting from poor tire maintenance, tread separation and tire blowouts. The
Tread Act, among other things, requires that the National Highway Traffic Safety
Administration ("NHTSA") develop rules and regulations which require all new
passenger cars, light trucks and multipurpose passenger vans sold after November
2003 to have tire monitoring systems installed as standard equipment. The tire
monitoring systems must be capable of warning drivers if a tire is significantly
under-inflated. The regulation was to be finalized in November 2001 for
implementation in 2003.

In July 2001, the NHTSA published and circulated a Notice of Proposed Rule
Making which included provisions related to the tire monitoring requirements of
the TREAD Act. The Notice of Proposed Rule Making outlined the parameters of
systems that the NHTSA would consider compliant with the legislation and the
proposed periods for complying with the regulations. Two forms of tire
monitoring technologies were to be considered:

1)       Direct tire monitoring technologies are based on dedicated
         sensor/transmitters located within the cavity of the tire that are
         usually mounted on the wheel. The transmitter monitors and measures
         contained air pressure and temperature within each tire and transmits
         this information to a receiver located in or around the

<PAGE>

         instrument panel of the vehicle. The Company's products are an example
         of a direct system.

2)       Indirect tire monitoring technologies typically work with the vehicle's
         anti-lock brake system (ABS). Most indirect tire pressure monitoring
         systems compare each wheel's rotational speed with the rotational speed
         of other wheels. If one tire becomes significantly under-inflated while
         the others remain at proper pressure, the indirect system eventually
         detects the problem because that wheel's rotational speed is on average
         slightly higher than that of other wheels.

In the Notice of Proposed Rule Making, the NHTSA concluded that direct
measurement systems have major advantages over indirect systems as they:

    o    actually measure the pressure in each tire and can detect when any tire
         or combination of tires is under-inflated, including when all tires are
         under-inflated,

    o    operate while the vehicle is stationary,

    o    are highly accurate and can detect small pressure losses, some even as
         low as 1 pound per square inch,

    o    provide full time monitoring even when the vehicle is driven on bumpy
         roads, has mismatched tires or has a tire out of balance or alignment,

    o    do not need substantial time to calibrate the system and reduce the
         very real possibility for human error, and

    o    can tell the operator which tire is under-inflated.

On May 31, 2002, the NHTSA issued part one of a two-part final ruling. Part one
establishes a new Federal Motor Vehicle Safety Standard that requires tire
pressure monitoring systems be installed in passenger vehicles and light trucks
to warn the driver when a tire is below specified pressure levels. During the
first year of the implementation schedule, ending October 31, 2004, at least 10%
of each auto manufacturer's total production must be equipped with tire pressure
monitoring systems. This requirement increases to 35% during the second year,
65% by the third and 100% after October 31, 2006.

There are two compliance options that will apply during the period from November
1, 2003 to October 31, 2006. Under the first compliance option, a vehicle's tire
pressure monitoring system must alert the driver if one or more tires, up to
four tires, is 25% or more under-inflated. Under the second compliance option, a
vehicle's tire pressure monitoring system must alert the driver if any of the
vehicle's tires is 30% or more under-inflated. The second compliance option was
adopted by the NHTSA because indirect tire pressure monitoring systems are
currently not capable of meeting the stricter four-tire, 25% requirement under
the first compliance option, and it was deemed appropriate to permit
manufacturers to continue to use current indirect tire pressure monitoring
systems while they work to improve those systems.

The Company's direct measurement tire pressure monitoring system products meet
the higher standards of the first compliance option. The NHTSA has announced
that it will be closely monitoring the performance of indirect measurement tire
pressure monitoring

<PAGE>

systems under the second compliance option, and the NHTSA will issue the second
part of its final ruling on or before March 1, 2005. It is anticipated that this
will establish whether indirect measurement will remain as an option for the
long-term.

With tire pressure monitoring system compliance standards and specifications now
defined, the Company believes that auto manufacturers must proceed with the
granting of supply contracts in order to achieve the NHTSA implementation
schedule. The Company and its strategic partners have developed a joint
marketing program designed to exploit the significant product demand that is
anticipated to be created by this ruling.

Although the superior performance of direct measurement tire pressure monitoring
systems may give the Company's products certain marketing advantages, indirect
measurement tire pressure monitoring systems will likely benefit from the fact
that they are the least expensive way of complying with the tire pressure
monitoring system standard for vehicles already equipped with anti-lock braking
(ABS) systems. Moreover, it is likely that the performance of indirect
measurement tire pressure monitoring systems will continue to improve, although
it remains unclear whether they will improve to the point where they would be
capable of meeting the standards of the first compliance option specified in
part one of the NHTSA's two-part final ruling.

STRATEGIC RELATIONSHIPS

The Company's strategy includes the establishment of alliances to assist in the
development and marketing of its products and technologies. Key strategic
alliances include:

(a)      Visteon Corporation

              Memorandum of Understanding to develop and market tire monitoring
              solutions for vehicle manufacturers.

(b)      SensoNor ASA

              Supply agreements for Application Specific Integrated Sensor
              ("ASIS") used in tire monitoring applications.

(c)      Alligator Ventilfabrik GmbH

              A development agreement for valve stem designs and tire monitoring
              electronic packaging.

(d)      Transense Technologies plc

              A license agreement to develop and market Surface Acoustic Wave
              ("SAW") technology for use in future tire monitoring systems.

The Company expects to develop new strategic corporate partnerships or alliances
with original equipment manufacturers, major tier one auto parts suppliers, tire
manufacturers and aftermarket retailers.

<PAGE>

PRODUCT DEVELOPMENT

The Company's technology provides drivers with real time information regarding
tire pressure and temperature changes. This information provides the consumer
and commercial markets with improved vehicle safety, performance and fuel
economy. The Company's products have been engineered and designed for universal
application. The sensor/transmitter can be installed on virtually any tire and
wheel combination. Each sensor/transmitter contains a custom computer chip and
the Company's core radio frequency ("RF") technology.

The Company's technology features a custom developed ASIS that forms a single
micro-electronic package containing pressure and temperature sensing elements
and a digital logic state machine that functions as the brains of the sensor/
transmitter. This chip is robust in design, optimizes battery life and provides
various modes of sensing and communicating, which ensure faster transmission of
data when problems occur. Packaged on a miniaturized circuit board with the ASIS
are various components and SmarTire's RF technology. The RF technology transmits
the data through the exterior of the tire and wheel.

The Company's products feature transmitter options providing different
installation choices for various automotive applications. A strap-mounted
transmitter attached to the wheel offers the most universal installation for a
wide range of tire and wheel assemblies. A valve mounted transmitter attached to
the base of the valve offers an adjustable, secure in-tire installation for
specific wheel/rim profiles. Once installed, the sensor/transmitters do not
require ongoing maintenance. The sensor/transmitters are coupled with modular
options for in-vehicle display. The Company has developed three display options
for the aftermarket (basic, integrated full function and remote full function)
as well as telltale lights, switch blanks and digital displays for original
equipment and port of entry applications.

The Company has recently developed OEM passenger car solutions to support the
high level of demand that the Company's management anticipates from potential
customers in this market sector. The OEM transmitter features a 50% size and
weight reduction over SmarTire's current second-generation transmitter, as well
as innovative new mounting options including bonding directly to the rim as well
as a more innovative valve mount approach. Product costs have been reduced to
meet or exceed OEM price targets in high volume. The Company is targeting
introduction of these products into the OEM market during the 2004 fiscal year.

The Company has also developed and is currently marketing a motorcycle system
solution. This solution features a weather resistant receiver, strap mounted
transmitters and a dual light warning display. All testing has successfully been
completed.

The Company is currently field testing a second-generation commercial vehicle
tire monitoring system using a new high-pressure transmitter. The new commercial
vehicle product will handle tire pressure up to 150 pounds per square inch and
is being designed for use on all trucks including Class 8 tractor-trailers. This
high-pressure transmitter can also be used in recreational vehicle and motor
home applications as well as in off-the-

<PAGE>

road heavy industrial applications. The Company is targeting completion and
introduction into the market of the commercial vehicle system during the 2003
fiscal year.

In 2003 the Company is accelerating development efforts targeted specifically at
commercializing sensors that do not require batteries.

MARKETING

SmarTire USA and SmarTire (Europe) have been established to carry out the
marketing of the Company's products. The initial objective of SmarTire USA and
SmarTire (Europe) was to establish a distribution network for the automotive
aftermarket. A co-objective of establishing this network has been to train and
certify dealers and retailers to install the SmarTire system. The Company had
anticipated that the launch of the next generation of passenger car tire
monitoring systems would build upon this distribution network.

The Company has substantially changed its marketing strategy based upon the
enactment of the TREAD Act and the Company's restructuring of its strategic
alliance with TRW. The Company expects that, as tire monitoring becomes standard
equipment for new passenger vehicles in the United States over the next few
years, demand for tire monitoring systems as dealer installed options and
aftermarket products will eventually decline. The Company's current strategy
involves generating short-term revenue from products available to meet today's
after market demand combined with the pursuit of OEM business.

With the implementation of the TREAD Act, the Company expects that demand for
tire monitoring technology will be initiated by the big three U.S. automakers:
General Motors, DaimlerChrysler and Ford. Some European automotive groups have
already used tire monitoring as a means to add value and differentiate models.
Due to the large volume of import vehicles to the U.S., it is expected that the
thirty different automakers in Europe plus the twelve from Asia will meet the
TREAD Act requirements for North America. Adding tire monitoring to domestic
European and Asian vehicles would trigger a much larger demand for tire
monitoring than was anticipated prior to introduction of the TREAD Act.

The Company's marketing strategy will be to focus on sales for original
equipment applications. In approaching the OEM market, the Company expects to be
a key subcomponent supplier. The Company expects to pursue two levels of entry.
The first will be the OEMs themselves, while the second will be systems
integrators or Tier One suppliers. These Tier One suppliers produce systems and
subsystems for the OEMs. Given that there are already RF based systems either on
or available to most new car platforms, the Company does not expect to be
competitive in placing receivers within new vehicles. However, the Company
expects to capitalize on its sensor and RF expertise to supply transmitters to
the OEM, the Tier One supplier, or a Tier One supplier as directed by the OEM.
On certain platforms, the Company may be successful in providing
fully-integrated tire monitoring solutions.

While the Company expects that the greatest demand for tire monitoring in the
U.S. will be at the OEM level for passenger vehicles and commercial vehicles,
the Company will

<PAGE>

continue to market its products through installation at either the new car
dealer or port of entry level. The Company refers to this opportunity as car
accessory programs or motorcycle accessory programs ("CAPs" or "MAPs"). CAPs and
MAPs may be used to provide an OEM quality product that is not installed at the
factory. CAPs and MAPs opportunities also exist in Europe due to the number and
diversity of automakers. It is expected that CAPs and MAPs will provide a
longer-term opportunity in Europe.

During the fiscal year ended July 31, 2001 the Company completed development of
its second-generation products and released its line of products for sale into
the aftermarket. In September 2002, the Company introduced its motorcycle tire
monitoring system for sale into the aftermarket. The aftermarket consists of
retailers, including tire retailers, automotive electronic stores and accessory
shops, which sell products directly to consumers. The aftermarket opportunity
currently consists of a niche market in the enthusiast and performance vehicle
segment. To access this niche, the Company has worked to establish a wholesale
distribution network in Europe, while in North America the Company has sought to
work directly with major retail distributors.

COMPETITION

As a whole, the tire monitoring industry is still in its early stages. There
have been very few products available in the market. Tire monitoring products
can generally be divided among two basic types, direct technology and indirect
monitoring technologies. As described in the NHTSA's report discussed in the
"Government Regulations" section, direct tire monitoring, such as the Company's
products, currently provide substantial advantages over indirect monitoring
technology. However, several of the Company's competitors and potential
competitors have long and established relationships with automobile
manufacturers and OEM suppliers, which may make it difficult for the Company to
compete in the OEM market. Additionally, automobile manufacturers may elect to
develop their own systems to comply with the TREAD Act.

The Company's main competitors with respect to direct tire monitoring systems
include the following:

Schrader Bridgeport, claims to be the world's largest producer of tire valves
and tire-pressure measurement equipment with over $140 million in annual sales.
The tire monitoring system developed by Schrader has been used on Corvettes
since 1996. The Schrader tire monitoring system is also used on the Plymouth
Prowler. The product is being aggressively marketed at the OEM level. As a
transmitter supplier, Schrader has teamed with receiver suppliers to recently
win new tire monitoring OEM contracts. In the aftermarket, Schrader has joined
with Johnson Controls in the launch of their PSI product.

German based BERU acquired Doduco and its tire monitoring technology. The
company is presently working with and approved by the consortium of five German
vehicle manufacturers. To the Company's knowledge, the system requires the use
of transmitters attached to the valve stem (inside the tire/wheel assembly),
receiving antennas at each of the wheel wells, wiring harness for conveying data
to the receiver

<PAGE>

and some form of in-dash display. This system has been developed for the OEM
market only.

Pacific Industrial Co. Ltd., a Japanese company, has developed a product that
measures the air pressure in each tire and sends the data to a receiver mounted
inside a vehicle. The products are available on a few Asian vehicles and, to
date, are not commercially available in North America. The Company believes that
the Pacific products resemble the BERU approach to tire monitoring with
additional antennas and wiring harnesses.

TRW is a producer of safety and security systems for the global automotive
market. It supplies advanced technology products and services to the aerospace,
information systems and automotive markets. From December 1998 to August 2001,
the Company and TRW jointly developed advanced tire monitoring technology and
each has access to this technology, which encompasses the Company's current
products. During this period, the two companies developed a common ASIS chip for
existing products. The Company believes that TRW's tire monitoring product has
not been released into production.

Siemens Automotive merged with Atecs Mannesmann AG to create Siemens Automotive
AG, a large supplier of high-tech automotive electronic systems. The combined
company's product portfolio focuses on electronic modules and systems including
ABS and airbag electronics. With the advent of the TREAD Act, the Company
expects Siemens to enter the tire monitoring market and become a major supplier
over time.

In addition to the systems mentioned above, the NHTSA also tested two other
wireless tire monitoring systems. Cycloid Co. developed one system and Fleet
Specialties Co. developed the other. The information obtained from the NHTSA
indicates that both of these systems are still in the prototype stage.

There are several indirect or ABS systems, either available on the market or in
prototype stages. To the knowledge of the Company's management, none of these
systems currently meet the proposed guidelines set out in the NHTSA's Notice of
Proposed Rule Making. Given the substantial advantages of direct monitoring
technology, the Company does not believe that indirect monitoring technology
will be a significant competitor in the short term. However, it is likely that
the performance of indirect measurement tire pressure monitoring systems will
continue to improve, and they will likely benefit from the fact that they are
the least expensive way of complying with the tire pressure monitoring system
standard for vehicles already equipped with anti-lock braking (ABS) systems.

With respect to commercial vehicle tire monitoring systems, the major tire
companies have been developing medium truck tires incorporating electronic chips
in the sidewall to provide tire tracking information possibly including
pressure, temperature and identification. Their disadvantage is their inability
to provide real-time, dynamic values to the driver, which eliminates any early
warning capability while operating the vehicle. Further, it seems that currently
there are no additional functions that can be programmed into these static
systems, limiting their integration into other fleet management programs.

<PAGE>

There are a number of companies that are marketing tire inflation systems into
the commercial trailer market. While these systems do not provide tire
monitoring information to the driver, they utilize the air lines in the trailer
to supply air pressure to a tire that is experiencing an air loss. This allows
the driver to continue to operate the vehicle. This system is not available on
the tractor or truck unit itself.

One potential future development that could affect the market for both passenger
car and commercial vehicle tire monitoring is the development of a "smart chip".
This is a computer chip that could transmit data and would be manufactured into
tires. The Company believes that Goodyear and Bridgestone/Firestone have both
completed some development of such a computer chip.

RAW MATERIALS AND PRINCIPAL SUPPLIERS

The Company contracts the manufacture of its products to third parties. These
manufacturers normally provide turnkey operations whereby the manufacturer is
responsible for purchasing the component parts for the Company's tire monitoring
system. The Company also purchases component parts on its own account for
engineering and prototype development purposes. Certain of the components and
raw materials used in the Company's products are difficult to obtain and/or
require purchase commitments far in advance of the manufacturing date. At
present, the Company's relationships with its current suppliers are generally
good and the Company expects that the suppliers will be able to meet the
anticipated demands for the Company's products through fiscal year 2004.

DEPENDENCE ON CERTAIN CUSTOMERS

Due to the early stage development of the market for tire monitoring systems in
general and for the Company's tire monitoring products, the Company is still
dependent on major customers. During the year ended July 31, 2002 the Company
earned 33% of its revenue from two major customers. It is expected that this
dependence will be reduced as the Company's sales increase.

PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS,
LABOR CONTRACTS, INCLUDING DURATION.

Proprietary Protection

The Company's intellectual property is important to protecting its competitive
advantage and expanding its market share. The Company relies on a combination of
patents, trade secret laws, confidentiality procedures and contractual
provisions to protect its intellectual property.

The Company holds several patents for its current technologies, which are listed
below:

United States Patent 5,231,872 addresses the technology in the tire monitoring
product. It was issued on August 3, 1993 and expires August 3, 2010.

<PAGE>

United States Patent 5,285,189 addresses the technology in the abnormal tire
condition warning system. It was issued on February 8, 1994 and expires February
8, 2011. The Company purchased this patent from Epic Technologies, Inc. in
December 1996.

United States Patent 5,335,540 addresses the technology in the tire monitoring
product. It was issued on August 9, 1994 and expires August 9, 2011.

United States Patent 5,559,484 addresses certain technology in a data logging
tire monitor with condition predictive capabilities and integrity checking. It
was issued on September 24, 1996 and expires September 24, 2013. The Company
purchased this patent from Epic Technologies, Inc. in December 1996.

United States Patent 5,945,908 addresses certain other technology in a data
logging tire monitor with condition predictive capabilities and integrity
checking. It was issued on August 31, 1999 and expires on August 31, 2016. The
Company purchased this patent from Epic Technologies, Inc. in December 1996.

United States Patent 4,653,445 addresses the technology in an Engine Protection
System ("EPS") product. It was issued on March 31, 1987 and expires March 31,
2004.

United States Patent 6,357,883 addresses the technology for a wheel component
with a cavity for mounting a housing for measurement apparatus. It was issued on
March 19, 2002 and expires March 19, 2019.

As the Company develops additional products and technology, it intends to seek
patent protection where applicable.

In addition to the Company's patents, it also has access to a number of other
patents under its license agreements with Transense and TRW.

The Company entered into a license agreement on September 30, 1999 with
Transense based in Oxfordshire, United Kingdom. Transense researches, develops
and exploits the use of its patented SAW technology in the automotive industry.
The license agreement grants SmarTire a non-exclusive, worldwide right to
develop and market Transense's SAW technology for use in tire monitoring
systems.

Effective August 31, 2001 the Company restructured its strategic alliance with
TRW. As part of the restructuring, the Company received a royalty-free license
from TRW to utilize technology developed during the term of the Cooperative
Engineering Agreement that is patented, now or in the future, by TRW. The
Company has granted a parallel royalty-free license to TRW.

<PAGE>

RESEARCH AND DEVELOPMENT

The following is the amount spent during each of the last three fiscal years on
research and development activities:

2002 - $1,727,606
2001 - $1,485,874
2000 - $1,416,992

These amounts have funded the development of the Company's second generation
products. The Company expects that the historical research and development
expenses are indicative of the anticipated future annual expenditures and are
expected to continue to increase in order to integrate current products into
systems satisfying the TREAD Act requirements and complete development of the
Company's other products currently in development.

NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES

At July 31, 2002, the Company had 46 full-time employees, 10 of whom are in
marketing, 21 of whom are in engineering, research and development and 15 of
whom are administrative and executive personnel. There is no collective
bargaining agreement in place.

RISK FACTORS

The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements in this Form
10-KSB.

THE COMPANY REQUIRES IMMEDIATE FINANCING IN ORDER TO CONTINUE IN BUSINESS AS A
GOING CONCERN, THE AVAILABILITY OF WHICH IS UNCERTAIN.

The Company requires immediate additional financing to fund its operations and
meet its overdue and maturing debt obligation.

In connection with the restructuring of the Company's agreements with TRW
effective August 31, 2001, the Company agreed to pay consideration of $3.3
million in cash and debt to TRW. Of this amount, $500,000 was paid at closing.
The balance of $2.8 million is evidenced by a promissory note dated August 31,
2001, is secured by substantially all of the Company's personal property, and
bears interest at the rate of 6% per annum. The Company made three principal
payments, totaling $1,450,000 in the aggregate, together with accrued interest,
under the promissory note during the nine months ended April 30, 2002. On
October 7, 2002 the Company paid TRW $250,000. TRW granted the Company an
extension to make the balance of the principal payment as follows: $650,000 by
October 31, 2002 and $450,000 by December 13, 2002.

The Company is pursuing various financing alternatives to meet its immediate and
long-term financial requirements. As of October 25, 2002, the Company does not
have the ability to make the October 31 payment to TRW. There can be no
assurance that

<PAGE>

additional financing will be available to the Company when needed or, if
available, that it can be obtained on commercially reasonable terms. In
addition, any additional equity financing may involve substantial dilution to
the Company's stockholders. If the Company fails to raise sufficient financing
to meet its immediate cash needs, and it defaults on its debt obligations to
TRW, TRW would be in a position to realize upon its security interest in the
Company's personal property. In such event, the Company will be forced to scale
down or perhaps even cease the operation of its business.

THE COMPANY IS CURRENTLY IN VIOLATION OF THE NASDAQ LISTING REQUIREMENTS BECAUSE
THE MAJORITY OF THE MEMBERS OF ITS AUDIT COMMITTEE ARE NOT INDEPENDENT AND SUCH
VIOLATION COULD RESULT IN THE COMPANY'S SHARES BEING DELISTED FROM NASDAQ.

At the present time, the Company's Audit Committee is comprised of Mr. Robert
Rudman, Mr. Bill Cronin, and Mr. John Bolegoh. Only Bill Cronin meets the
independence requirements for members of the audit committee as required by
Nasdaq. The Company is in the process of identifying appropriate independent
candidates for the board of directors. The Company expects that such candidates
will be identified and nominated for election at the Company's annual meeting of
shareholders in December 2002. If such candidates are elected, the Audit
Committee will be comprised solely of independent directors.

Until such time, the Company will be in violation of the Nasdaq listing
requirements. Such violations subject the Company to delisting from the Nasdaq
SmallCap Market.

Additionally, the independence requirements are intended to provide independent
oversight of the Company's financial statements and financial reporting process.
The Company believes that its financial reporting process is appropriate and
that the financial statements included with this report fairly and accurately
reflect the financial position of the Company. However, due to the composition
of the Company's Audit Committee, an independent committee, as required by the
Nasdaq listing requirements, has not made this determination.

THE COMPANY HAS A HISTORY OF OPERATING LOSSES AND FLUCTUATING OPERATING RESULTS,
WHICH RAISE SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING
CONCERN.

Since inception through July 31, 2002, the Company has incurred aggregate losses
of $38,116,601. The Company's loss from operations for the fiscal year ended
July 31, 2002 was $6,829,176. There is no assurance that the Company will
operate profitably or will generate positive cash flow in the future. In
addition, the Company's operating results may be subject to significant
fluctuations due to many factors not within its control, such as the
unpredictability of when a customer will order products, the size of a
customer's order, the demand for the Company's products, and the level of
competition and general economic conditions.

Although the Company anticipates that revenues will increase, the Company
expects an increase in development costs and operating costs. Consequently, the
Company

<PAGE>
expects to incur operating losses and negative cash flow until the Company's
products gain market acceptance sufficient to generate a commercially viable and
sustainable level of sales, and/or additional products are developed and
commercially released and sales of such products made so that the Company is
operating in a profitable manner. These circumstances raise substantial doubt
about the Company's ability to continue as a going concern, as described in an
explanatory paragraph to the Company's independent auditor's opinion on the July
31, 2002 consolidated financial statements, which form part of this annual
report. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

THE INDUSTRY IN WHICH THE COMPANY OPERATES IS HIGHLY COMPETITIVE AND SOME OF ITS
COMPETITORS MAY BE MORE SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS. THE
COMPANY MAY NOT BE ABLE TO COMPETE EFFECTIVELY BECAUSE MANY OF ITS COMPETITORS
ARE MORE ESTABLISHED AND HAVE GREATER RESOURCES THAN THE COMPANY DOES.

The markets in which the Company operates are rapidly changing due to
technological developments and increasing focus on automotive safety. Many of
the Company's present competitors in this market - such as Schrader Bridgeport,
Siemens Automotive and TRW, among others - have substantially greater financial,
marketing, technical and development resources, name recognition and experience
than SmarTire does. The same holds true for future competitors, which may well
include major automobile manufacturers who choose to develop their own tire
pressure monitoring systems (although not necessarily for resale as aftermarket
products).

The Company's competitors may be able to respond more quickly to new or emerging
advancements in this market and to devote greater resources to the development,
promotion and sale of their products. In addition, companies that develop tire
monitoring systems could introduce new or upgrade existing systems that include
products similar to those that the Company offers, which could render the
Company's products obsolete and unmarketable. The Company may not be able to
successfully compete against current or future competitors, which could
significantly harm the Company's business.

While the Company believes that its products are competitive in the market, no
assurances can be given that competitors, in the future, will not succeed in
developing better devices. In addition, current and potential competitors may
make strategic acquisitions or establish co-operative relationships among
themselves or with third parties that could increase their ability to capture a
larger portion of the market share for such products. This type of existing and
future competition could affect the Company's ability to form and maintain
agreements with distribution and marketing partners. No assurances can be given
that the Company will be able to compete successfully against current and future
competitors, and any failure to do so would have a material adverse effect on
the Company's business.

Although the superior performance of direct measurement tire pressure monitoring
systems may give the Company's products certain marketing advantages, indirect
measurement tire pressure monitoring systems will likely benefit from the fact
that they are the least expensive way of complying with the tire pressure
monitoring system standard for vehicles already equipped with anti-lock braking
(ABS) systems. Moreover,

<PAGE>

it is likely that the performance of indirect measurement tire pressure
monitoring systems will continue to improve.

CONSUMER AWARENESS OF TIRE MONITORING SYSTEMS IS IN ITS EARLY STAGES, AND
CONSUMER DEMAND FOR THE COMPANY'S PRODUCTS THEREFORE REMAINS UNCERTAIN.

Tire monitoring systems are a new product and consumer awareness is in its early
stages. There can be no assurance that consumer awareness and demand for tire
monitoring systems will increase, or develop sufficiently so that the Company
will achieve or sustain significant sales growth in either its historical
markets or for its new products. To the extent demand for the Company's products
does not develop, the Company's operations will be materially adversely
affected.

THE COMPANY MAY NOT BE ABLE TO CAPITALIZE ON THE EXPANSION OF THE TIRE
MONITORING MARKET THAT IS ANTICIPATED TO OCCUR AS A RESULT OF THE TREAD ACT.

The Company expects that the recent enactment of the TREAD Act will have a major
impact on the tire monitoring industry. However, the Company may not be able to
capitalize on the expansion of the tire monitoring market from the
implementation of the TREAD Act.

Even if the general market for tire monitoring technology experiences rapid
growth, the Company may not be able to gain a significant share of that market.
Although the Company believes the TREAD Act will significantly expand the tire
monitoring market, the expansion will occur disproportionately at the OEM level.
Many other companies, including several of the Company's competitors and
potential competitors, have long and established relationships with the vehicle
manufacturers and the OEM suppliers, which may make it difficult for the Company
to compete. Additionally, the vehicle manufacturers may elect to develop their
own systems to comply with the TREAD Act. Any of these factors could
substantially decrease the Company's revenues, gross margins, or the ability to
achieve profitability.

THE LOSS OF ANY ONE OF THE COMPANY'S TWO MAJOR CUSTOMERS WOULD MATERIALLY AND
ADVERSELY AFFECT THE COMPANY.

During the year ended July 31, 2002, the Company earned 33% of its revenue from
two major customers. Accordingly, the loss of one of these major customers would
materially and adversely affect the Company. The loss of any major customer, or
significant reductions by either of them in buying the Company's products, or
any inability on the Company's part to collect accounts receivable from them,
would materially and adversely affect the Company's business and results of
operations.

THE COMPANY MAY EXPERIENCE DIFFICULTY IN OBTAINING COMPONENTS AND RAW MATERIALS,
AND IT COULD BE MATERIALLY AND ADVERSELY AFFECTED AS A RESULT.

<PAGE>

The Company's current products, and the products that it may provide in the
future, embody new technologies. Certain of the components and raw materials
used in the Company's products are difficult to obtain and/or require purchase
commitments to be made by us far in advance of the manufacturing date. The
inability to obtain sufficient quantities of components or raw materials, or the
inability to forecast purchase requirements accurately, could adversely affect
the Company's business and results of operations. Similarly, commitments to
purchase components and raw materials in excess of customer demand for the
Company's products could materially and adversely affect the Company's results
of operations.

THE LOSS OF ANY OF the Company's CONTRACT MANUFACTURERS WOULD MATERIALLY AND
ADVERSELY AFFECT THE COMPANY.

The Company contracts the manufacture of its products to third parties. In
certain cases, the Company does not have an alternative source of manufacturing,
and a suitable replacement would be time-consuming and expensive to obtain. If,
for any reason, one of the Company's third party manufacturers is unable or
refuses to produce the Company's products, the Company's business, financial
condition and results of operations will be materially and adversely affected.

THE COMPANY DEPENDS TO A SIGNIFICANT EXTENT ON CERTAIN KEY PERSONNEL, THE LOSS
OF ANY OF WHOM MAY MATERIALLY AND ADVERSELY AFFECT THE COMPANY.

The Company's success depends to a significant extent on the continued service
of certain key management personnel, including Robert Rudman, the Company's
President and Chief Executive Officer, Allan Kozak, the Company's Chief
Operating Officer, Jeff Finkelstein, the Company's Chief Financial Officer,
Erwin Bartz, the Company's Director of Technical Operations, and Shawn Lammers,
the Company's Vice-President, Engineering. The loss or interruption of services
from one or more of these personnel, for whatever reason, could have a material
adverse effect on the Company. In the event of the loss of services of such
personnel, no assurances can be given that the Company will be able to obtain
the services of adequate replacement personnel. The Company does not maintain
key person insurance on the lives of any of the Company's officers or employees.

THE COMPANY MAY EXPERIENCE SIGNIFICANT AND RAPID GROWTH IF IT IS ABLE TO
CAPITALIZE ON THE ANTICIPATED EXPANSION OF THE TIRE MONITORING MARKET. IF THE
COMPANY IS UNABLE TO HIRE AND TRAIN STAFF TO HANDLE SALES AND MARKETING OF ITS
PRODUCTS AND MANAGE ITS OPERATIONS, SUCH GROWTH COULD MATERIALLY AND ADVERSELY
AFFECT THE COMPANY.

Assuming that the Company can raise further significant financing, the Company
intends to proceed with initiatives intended to capitalize on the expansion of
the tire monitoring market the that is anticipated to occur as a result of the
TREAD Act. This could potentially lead to significant and rapid growth in the
scope and complexity of the Company's business. Any inability on the Company's
part to manage such growth

<PAGE>

effectively will have a material adverse effect on its product development,
business, financial condition and results of operations. The Company's ability
to manage and sustain growth effectively will depend, in part, on the ability of
its management to implement appropriate management, operational and financial
systems and controls, and the ability of the Company's management to
successfully hire, train, motivate and manage employees.

THE COMPANY'S FUTURE GROWTH AND EXPANSION MAY BE INHIBITED UNLESS IT IS
SUCCESSFUL IN ATTRACTING, HIRING AND RETAINING QUALIFIED DEVELOPMENT, TECHNICAL,
PROFESSIONAL, MANAGERIAL AND MARKETING PERSONNEL.

The Company relies on its existing staff for marketing and selling its products,
and on a small development staff to develop new products and applications for
existing products. The Company's growth and expansion may be inhibited unless it
establishes a larger development staff to develop new products and applications
for existing products. Assuming that the Company can raise further significant
financing, the Company plans to increase its development staff, although no
assurances can be given that qualified personnel can be hired. Any inability on
the Company's part to hire and keep qualified personnel could materially
adversely affect its future plans. The Company's success also depends in part on
its ability to attract and retain qualified professional, technical, managerial
and marketing personnel. Competition for such personnel in the markets in which
the Company operate is intense, and there can be no assurance the Company will
be successful in attracting and retaining the personnel it requires to conduct
its operations successfully.

RAPID TECHNOLOGICAL CHANGES IN THE COMPANY'S INDUSTRY COULD RENDER ITS PRODUCTS
NON-COMPETITIVE OR OBSOLETE AND CONSEQUENTLY AFFECT ITS ABILITY TO GENERATE
REVENUES.

The markets in which the Company operates are characterized by rapid
technological change, frequent new product and service introductions, evolving
industry standards and changes in customer demands. The introduction of products
embodying new technologies and the emergence of new industry standards can, in a
relatively short period of time, render existing products obsolete and
unmarketable, including the Company's. The Company believes that its success
will depend upon its ability to continuously develop new products and to enhance
its current products and introduce them promptly into the market. If the Company
is not able to develop and introduce new products, the Company's business,
financial condition and results of operations could be adversely affected.

IF THE MEASURES THE COMPANY HAS TAKEN TO PROTECT ITS PROPRIETARY RIGHTS PROVE TO
BE INADEQUATE OR IF COMPETING TECHNOLOGIES ARE DEVELOPED, THE COMPANY'S
COMPETITORS WILL BE ABLE TO MARKET PRODUCTS WITH SIMILAR FEATURES THAT MAY
REDUCE DEMAND FOR THE COMPANY'S PRODUCTS. IN ADDITION, ANY INFRINGEMENT CLAIMS
BROUGHT BY THIRD PARTIES, WHETHER PROVEN OR NOT, MAY ADVERSELY AFFECT THE
COMPANY.

There can be no assurance that the measures that the Company has taken to
protect its current proprietary rights will be adequate to prevent
misappropriation of such rights or

<PAGE>

that the Company's competitors will not independently develop or patent
technologies that are substantially equivalent or superior to the Company's
technologies. In either event, the Company's competitors may be able to
introduce competing products, which could adversely affect the Company's sales
and market share. Additionally, although the Company believes that its products
and technologies do not infringe upon the proprietary rights of any third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company. Similarly, infringement claims could be
asserted against products and technologies that the Company licenses from third
parties, or otherwise has the rights to use. Any such claims, if proved, could
materially and adversely affect the Company's business and results of
operations. In addition, although any such claims may ultimately prove to be
without merit, the necessary management attention and cost required to defend
such claims could adversely affect the Company's business and results of
operations.

THE COMPANY DOES NOT CARRY COMPREHENSIVE PRODUCT LIABILITY INSURANCE PROVIDING
COVERAGE IN ALL INSTANCES, AND THERE CAN BE NO ASSURANCE THAT ITS EXISTING
INSURANCE COVERAGE WOULD BE ADEQUATE IN TERM AND SCOPE TO PROTECT IT AGAINST
MATERIAL FINANCIAL EFFECTS IN THE EVENT OF A SUCCESSFUL CLAIM.

The Company could be subject to claims in connection with the products that it
sells. There can be no assurance that the Company would have sufficient
resources to satisfy any liability resulting from any such claim, or that the
Company would be able to have its customers indemnify or insure the Company
against any such liability. There can be no assurance that the Company's
insurance coverage would be adequate in term and scope to protect it against
material financial effects in the event of a successful claim. The Company
currently does not carry commercial general liability insurance providing
comprehensive product liability coverage in all instances. The Company may in
the future obtain such insurance provided it can be obtained at reasonable
prices; however, there can be no assurance that such coverage, if obtained,
would be adequate in term and scope to protect the Company.

SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS AND A MAJORITY OF ITS DIRECTORS AND
OFFICERS ARE OUTSIDE THE UNITED STATES, WITH THE RESULT THAT IT MAY BE DIFFICULT
FOR INVESTORS TO ENFORCE WITHIN THE UNITED STATES ANY JUDGMENTS OBTAINED AGAINST
THE COMPANY OR ANY OF ITS DIRECTORS OR OFFICERS.

Substantially all of the Company's assets are located outside the United States
and the Company does not currently maintain a permanent place of business within
the United States. In addition, a majority of its directors and officers are
nationals and/or residents of countries other than the United States, and all or
a substantial portion of such persons' assets are located outside the United
States. As a result, it may be difficult for investors to enforce within the
United States any judgments obtained against the Company or its officers or
directors, including judgments predicated upon the civil liability provisions of
the securities laws of the United States or any state thereof.

<PAGE>

ITEM 2.   DESCRIPTION OF PROPERTY

The Company leases a 15,364 square foot facility at #150-13151 Vanier Place,
Richmond, British Columbia, V6V 2J1 for a five year term ending August 31, 2005.
This facility consists of an office and administration area, an engineering
department, a prototype production facility and a warehouse.

SmarTire (Europe) Limited leases a 9,069 square foot facility at Park 34,
Didcot, Oxfordshire, United Kingdom OX11 7WB for a fifteen year term ending
February 20, 2016. This facility consists of an office and administration area
and a warehousing area.

The Company expects that its current facilities will be sufficient for the
foreseeable future. To the extent that the Company requires additional space in
the near future, it believes that it will be able to secure additional leased
facilities at commercially reasonable rates.

ITEM 3.   LEGAL PROCEEDINGS

The Company has received a demand letter from one of its former sales
representatives. The representative has asserted a variety of claims against the
Company, including that he was the procuring cause of one or more customer
relationships for which he was not paid a commission. The Company believes that
it has meritorious defenses to each of the claims. Although no complaint has
been filed in any jurisdiction, the Company had been negotiating a settlement
with this former sales representative. At this time, it appears the parties are
at an impasse in this settlement negotiation, the outcome is uncertain and the
potential liability, if any, cannot be quantified.

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

There was no matter submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.


PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

The Company's common stock is listed on the Nasdaq SmallCap Market under the
symbol "SMTR".

The table lists the high and low bid prices on the Nasdaq SmallCap Market for
the Company's common stock as compiled from NASDAQ-AMEX on-line.

<PAGE>

<TABLE>
<CAPTION>
Period                       High     Low
------                       ----    ----
<S>                          <C>     <C>
08/1/00 - 10/31/00           5.56    1.25
11/1/00 - 01/31/01           4.75    1.75
02/1/01 - 04/30/01           2.88    1.91
05/1/01 - 07/31/01           2.73    1.70
08/1/01 - 10/31/01           2.93    1.90
11/1/01 - 01/31/02           2.33    1.81
02/1/02 - 04/30/02           2.05    1.75
05/1/02 - 07/31/02           2.16    0.88
</TABLE>


REGISTRAR AND TRANSFER AGENT

The Company's common stock is issued in registered form. Pacific Corporate Trust
Company (located in Vancouver, British Columbia, Canada) is the registrar and
transfer agent for the Common Shares.

SHAREHOLDERS OF RECORD

As of September 30, 2002 there were approximately 400 holders of record of the
Company's common stock.

DIVIDEND POLICY

The Company has never declared or paid dividends on its common stock and does
not anticipate that it will do so in the foreseeable future. The Company intends
to retain future earnings, if any, for use in its operations and the expansion
of its business.

RECENT UNREGISTERED SALES OF SECURITIES

On June 27, 2002, the Company issued 30,000 common share purchase warrants to a
non-U.S. person in an offshore transaction pursuant to Regulation S under the
Securities Act of 1933, as amended. Each warrant entitles the holder to purchase
one common share in the capital of the issuer at an exercise price of $2.80 per
share until June 27, 2005, on which date the warrant will expire.

On July 17, 2002, the Company issued 750,000 shares of common stock to a
non-U.S. person in an offshore transaction pursuant to Regulation S at a
subscription price of $1.00 per share. In connection with such private
placement, on July 31, 2002, the Company issued 22,000 shares of common stock to
a different non-U.S. person in an offshore transaction pursuant to Regulation S
at a price of $1.29 per share, as a finder's fee.

Subsequent to the fiscal year ended July 31, 2002, the Company realized
aggregate gross cash proceeds of $750,000 from the issuance of 10% redeemable
convertible notes of the Company plus 150,000 share purchase warrants. This
offshore private placement was effected in two tranches to non-U.S. persons on
September 26, 2002, and October 4, 2002, pursuant to Regulation S under the
Securities Act of 1933. The notes mature on December 20, 2002. Principal and
accrued interest outstanding under

<PAGE>

the notes at maturity are subject to automatic conversion into shares of common
stock at a conversion price equal to the lesser of:

     (a)      an amount which is equal to seventy-five percent of the average of
              the three lowest Closing Bid Prices for the ten day period ending
              on the day before the maturity date; or

     (b)      $1.00.

The Company may redeem the notes prior to maturity, subject to the payment of
certain prepayment premiums. In addition, the holders of the notes have the
right, in certain circumstances, to exchange the notes for any other debt,
equity or convertible securities that may be issued by the Company during the
term of the notes. Interest on each note is payable when the note is fully
converted, redeemed or exchanged. The Company may elect to make interest
payments in cash or to convert the interest payable into shares of common stock
at the conversion price.

Each warrant entitles the holder to purchase one share of the Company's common
stock and is exercisable at a price of $1.25 on or before September 20, 2005, on
which date the warrant will expire.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion of the financial condition, changes in financial
condition and results of operations of the Company for the years ended July 31,
2002, 2001 and 2000 should be read in conjunction with the consolidated
financial statements of the Company and related notes included therein.

The Company's consolidated financial statements are in United States dollars and
are prepared in accordance with United States Generally Accepted Accounting
Principles (GAAP).

RESULTS OF OPERATIONS

FISCAL YEAR ENDED JULY 31, 2002 VS. FISCAL YEAR ENDED JULY 31, 2001

Gross revenue for the fiscal year ended July 31, 2002 ("fiscal 2002") increased
to $1,012,344 from $779,611 for the fiscal year ended July 31, 2001 ("fiscal
2001"). This increase in revenue was a result of the following:

    o    Sales of aftermarket passenger car systems increased to $791,217 for
         fiscal 2002 from $389,020 for fiscal 2001 due to sales of $633,846 of
         the Company's second generation product that was launched at the end of
         fiscal 2001.

    o    Sales of OEM passenger car systems increased to $164,588 for fiscal
         2002 from $143,788 for fiscal 2001 due to sales of $95,547 of the
         Company's second

<PAGE>

         generation product offset by reduced sales of the Company's first
         generation product under the Lincoln Continental program. The Lincoln
         Continental program was discontinued by Ford at the end of December 31,
         2001.

    o    Sales of the motorsport tire monitoring systems decreased to $56,539
         for fiscal 2002 from $246,803 for fiscal 2001. Motorsport tire
         monitoring systems are sold through a distributor and are difficult to
         predict.

Despite the increase in sales for fiscal 2002, sales of the Company's second
generation products for fiscal 2002 were below management's expectations.
Management believes that the primary cause for sales not meeting expectations
relates to the delays by the U.S. Government in finalizing the regulations under
the TREAD Act, which were originally due in November 2001. In particular,
management believes that the delays in finalizing the regulations have had a
significant negative impact on the Company's aftermarket sales.

Now that the NHTSA has issued part one of its final ruling under the TREAD Act,
the Company anticipates that its aftermarket segment sales will increase over
the course of the next 12 months and beyond. In addition, although the TREAD Act
only applies to passenger automobiles, the Company believes that other motor
vehicles, including medium and heavy trucks, buses and motorcycles will be
impacted by this legislation in subsequent years. The Company also believes that
compliance with the TREAD Act by European, Japanese and other automakers will
accelerate the adoption of tire monitoring systems globally.

It is difficult to predict the magnitude of the expected sales increase or the
exact timing of the increase since the Company's products will continue to face
competition from other tire pressure monitoring systems manufactured by its
competitors, and the timing of additional legislative initiatives on tire
safety, if any, in the United States and abroad remains uncertain. The Company's
management expects that, as tire monitoring becomes standard equipment for new
passenger vehicles, demand for tire monitoring systems as dealer installed
options and aftermarket products will decline.

The Company's current strategy involves generating short-term revenue from
products available to meet today's demand for dealer installed options and
aftermarket products combined with the pursuit of OEM business. However, the
pursuit of OEM business will involve new challenges for management, including
overcoming existing relationships that certain competitors of the Company
currently enjoy with automakers.

Gross margin on product sales decreased to 31% for fiscal 2002 from 50% for
fiscal 2001. The decrease occurred as the product mix of systems sold in fiscal
2002 had lower gross margins than the product mix of systems sold in fiscal
2001. The gross margins continue to be affected by the reduction in carrying
value of first generation product inventory in the 1999 fiscal year. If the
write down of inventory had not occurred, gross margins on sales would have been
21% for fiscal 2002 compared to 19% for fiscal 2001.

<PAGE>

Expenses increased to $7,038,843 for fiscal 2002 from $6,377,595 for fiscal 2001
as increases in engineering, research and development expenses and an increase
in depreciation and amortization expense were only partially offset by lower
marketing, general and administrative expenses.

Engineering, research and development expenses increased to $1,727,606 for
fiscal 2002 from $1,485,874 for fiscal 2001. The increase was attributed
primarily to a $500,000 expenditure for non-recoverable development costs
incurred with a key component supplier for future product development
activities. This expenditure was a one time expense with this key component
supplier. The nature of the Company's activities could result in future
non-recurring expenditures. The engineering, research and development expenses
for fiscal 2002 included higher wage expenditures but lower expenditures on
consulting fees and on product testing and prototype development due to
completion of the Company's second generation passenger car products in fiscal
2001. The Company expects to increase its engineering, research and development
expenses for fiscal 2003 from the amount expended during fiscal 2002 due to an
increase in the planned number of development projects.

Marketing expenses decreased to $1,527,644 for fiscal 2002 from $1,744,004 for
fiscal 2001. The decrease was a result of lower advertising and promotion
expenditures as well as lower travel, consulting, and trade show expenditures.
Trade show expenses decreased as the Company did not attend the SEMA trade show
in fiscal 2002 as it did in fiscal 2001 and the expenses for fiscal 2001
included costs associated with attending the Automechanika trade show, which is
held in Europe every two years. This decrease was partially offset by the cost
of market research associated with entry into the OEM automotive market.
Marketing expenses are expected to increase in fiscal 2003 as the Company
attended the Automechanika trade show in September 2002 and additional marketing
expenses are likely required to support anticipated higher sales in fiscal 2003.

General and administrative expenses decreased to $2,631,215 for fiscal 2002 from
$2,701,621 for fiscal 2001. The decrease was attributed to a recovery of a bad
debt and lower travel, investor relations, computer and office costs. This
decrease was partially offset by higher insurance premiums and wage
expenditures. General and administrative expenses for fiscal 2003 are expected
to remain at approximately the same level as expenses incurred in fiscal 2002.

Depreciation and amortization expense increased to $1,152,378 for fiscal 2002
from $446,096 for the fiscal 2001 due to the amortization of other assets
acquired in December 2000 and August 2001.

Interest expense of $145,472 was incurred during fiscal 2002 mainly due to
interest on a promissory note created as part of the consideration for
restructuring the strategic relationship with TRW as described under Liquidity
and Capital Resources.

The Company earned interest income of $18,735 for fiscal 2002 as compared to
$359,799 for fiscal 2001. This decrease was due to lower average cash balances
maintained and lower interest rates during fiscal 2002.

<PAGE>

FISCAL YEAR ENDED JULY 31, 2001 VS. FISCAL YEAR ENDED JULY 31, 2000

Gross revenue for fiscal 2001 was $779,611 compared to $747,738 for the fiscal
year ended July 31, 2000 ("fiscal 2000"). Sales of aftermarket passenger car
systems were $389,020 compared to $438,956 in the previous fiscal year. Sales of
the OEM passenger car system increased to $143,788 for fiscal 2001 from $106,098
in the previous fiscal year. Sales of motorsport tire monitoring systems
increased to $246,803 for fiscal 2001 from $202,684 in the previous fiscal year.

Sales of aftermarket systems in fiscal 2001 were mostly due to the liquidation
of the Company's first generation products. Release of the Company's second
generation products was delayed until late fiscal 2001, which resulted in lower
revenues than anticipated. Sales of OEM passenger car systems were comprised of
$35,320 on sales of the Company's second generation products and $108,468 on the
Lincoln Continental program of first generation product. Sales of OEM passenger
car systems on the Lincoln Continental were expected to be discontinued at the
end of the 2000 model year, but Ford did not formally discontinue this program
until December 31, 2001.

Gross margin decreased from 55% for fiscal 2000 to 50% for fiscal 2001. The
gross margins were significantly affected by the reduction in carrying value of
first generation product inventory in the 1999 fiscal year. Gross margins on
sales of aftermarket products would have been 17% for fiscal 2000 and 19% for
fiscal 2001 if the write down of inventory had not occurred.

Expenses decreased to $6,377,595 for fiscal 2001 from $7,074,463 for fiscal 2000
as lower marketing, general and administrative expenses and a larger foreign
exchange gain were partially offset by higher engineering, research and
development costs and depreciation and amortization.

Included in expenses for fiscal 2000 is $294,000 of costs associated with the
closure of the Company's office in Bourne, Massachusetts, which was effective
March 31, 2000. Of this amount, approximately $245,000 related to payments on
termination of a management agreement. These costs have been allocated on a
departmental basis within the financial statements.

Marketing expenses decreased to $1,744,004 for fiscal 2001 from $2,057,937 for
fiscal 2000. Lower expenditures on wages and advertising and promotion were
partially offset by increased consulting costs.

General and administrative expenses decreased from $3,421,844 for fiscal 2000 to
$2,701,621 for fiscal 2001. Lower professional fees and investor relations costs
were partially offset by increased travel and computer expenditures.

Engineering, research and development expenses were $1,485,874 for fiscal 2001
compared to $1,416,992 for fiscal 2000. Increased costs for product testing and
approvals were partially offset by a decrease in prototype development and
consulting costs.

<PAGE>

Depreciation and amortization expense increased to $446,096 for fiscal 2001 from
$177,690 for fiscal 2000. The increase was due to amortization of the license
acquired from TRW on December 13, 2000.

The Company earned interest income of $359,799 for fiscal 2001 as compared to
$212,203 for fiscal 2000. This increase was due to higher average cash balances
during fiscal 2001. Foreign exchange gain also increased to $117,063 for fiscal
year ended July 31, 2001 from $15,935 for fiscal year ended July 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

CURRENT POSITION

The Company has financed its activities primarily through the issuance and sale
of securities. The Company has incurred net operating losses in each year since
inception. Its net loss for fiscal 2002 was $6,829,176, compared to $5,507,019
for fiscal 2001. As of July 31, 2002, the Company had an accumulated deficit of
$38,116,601, stockholders' equity was $4,289,046 and the Company had a working
capital deficiency of $93,609.

The Company's cash position at July 31, 2002 was $525,968 as compared to
$2,930,257 at July 31, 2001. This decrease was due to the net of the Company's
operating, financing and investing activities described below.

The Company's net loss of $6,829,176 for fiscal 2002 includes non-cash charges
of $1,152,378 for depreciation and amortization, $19,427 for compensation
expense and $197,866 due to changes in non-cash working capital.

During fiscal 2002, the Company realized net proceeds of $4,856,629 from the
completion of three separate private placements. Each private placement was
effected to non-U.S. persons in offshore transactions pursuant to Regulation S
under the Securities Act of 1933:

    o    In the first private placement, the Company issued and sold 1,830,000
         units. Each unit was issued at a price of $1.70 and consisted of one
         common share and one common share purchase warrant. Each warrant
         entitles the holder to purchase one of the Company's common shares and
         is exercisable at a price of: (a) $2.80 if exercised after June 30,
         2002 and on or before February 28, 2003; and (b) $3.30 if exercised
         after February 28, 2003 but on or before October 31, 2003, on which
         date the warrant will expire.

    o    In the second private placement, the Company issued and sold 750,000
         common shares at a price of $1.75 per share.

    o    In the third private placement, the Company issued and sold 750,000
         common shares at a price of $1.00 per share.

The Company also realized net proceeds of $298,110 from the exercise of 200,000
warrants, as follows: on May 19, 2002, 140,000 warrants were exercised at $1.50;
and,

<PAGE>

on June 26, 2002, 60,000 warrants issued in the Company's first private
placement in fiscal 2002 were exercised after being repriced from $2.30 to
$1.65. At the time, the holder of the 60,000 repriced warrants received an
additional 30,000 share purchase warrants, each exercisable at a price of $2.80
per share until June 27, 2005.

Subsequent to the end of fiscal 2002, the Company realized aggregate gross cash
proceeds of $750,000 from an offshore private placement of 10% redeemable
convertible notes of the Company and 150,000 share purchase warrants effected
pursuant to Regulation S under the Securities Act of 1933. The private placement
closed in two tranches on September 26, 2002 and October 4, 2002. The notes
mature on December 20, 2002. Additional details on the convertible notes are
disclosed in note 14 to the financial statements and elsewhere in this annual
report under the heading "Recent Unregistered Sales of Securities." Except as
disclosed in note 14, this private placement is not reflected on the financial
statements included in this report.

The net proceeds realized by the Company from the private placements and the
exercise of the warrants were used for debt repayment and working capital.

During fiscal 2002, the Company also purchased certain capital assets at an
aggregate cost of $164,886.

FUTURE OPERATIONS

Presently, the Company's revenues are not sufficient to meet operating and
capital expenses. The Company has incurred operating losses since inception, and
this is likely to continue for the foreseeable future. Management projects that
the Company will require additional cash and working capital to fund planned
operations for the next twelve months in the amount of $10.5 million to achieve
its goals and objectives.

Due to the uncertainty concerning the Company's ability to meet its current
operating and capital expenses, the Company's consolidated financial statements
contain additional note disclosures describing these circumstances and the
Company's ability to continue as a going concern. In their report on the annual
consolidated financial statements for the year ended July 31, 2002, the
Company's independent auditors included an explanatory paragraph regarding these
concerns.

In addition to the Company's operating expenses, which are expected to remain on
a comparable level to those experienced during fiscal 2002, during fiscal 2003,
the Company expects to retire the promissory note payable to TRW Inc. and
require additional working capital to support expected sales growth.

In connection with the restructuring of the TRW relationship, effective August
31, 2001, the Company executed a promissory note payable to TRW in the principal
amount of $2.8 million which is secured by substantially all of the Company's
personal property and bears interest at the rate of 6% per annum. The Company
made three principal payments, totaling $1,450,000 in the aggregate, together
with accrued interest, under

<PAGE>

the promissory note during the nine months ended April 30, 2002. On October 7,
2002 the Company paid TRW $250,000. TRW granted the Company an extension to make
the balance of the principal payments as follows: $650,000 by October 31, 2002
and $450,000 by December 13, 2002.

The Company does not expect that it will redeem for cash the 10% redeemable
convertible notes in the aggregate principal amount of $750,000 prior to their
maturity on December 20, 2002. In that event, the outstanding principal and
accrued interest under notes will be automatically converted into shares of
common stock in the capital of the Company in accordance with their terms.

The continuation of the Company's business is dependent upon obtaining further
financing, successful and sufficient market acceptance of its current products
and any new products that the Company may introduce, the continuing successful
development of its products and related technologies, and, finally, achieving a
profitable level of operations. The issuance of additional equity securities by
the Company could result in a significant dilution in the equity interests of
its current stockholders. Obtaining commercial loans, assuming those loans would
be available, will increase the Company's liabilities and future cash
commitments.

There are no assurances that the Company will be able to obtain further funds
required for its continued operations. The Company is pursuing various financing
alternatives to meet its immediate and long-term financial requirements. There
can be no assurance that additional financing will be available to the Company
when needed or, if available, that it can be obtained on commercially reasonable
terms. If the Company is not able to obtain the additional financing on a timely
basis, the Company will be forced to default on its promissory note due to TRW,
and it will not be able to meet its other obligations as they become due. In
such event, TRW would be in a position to realize upon its security interest in
the Company's personal property, and the Company will be forced to scale down or
perhaps even cease the operation of its business.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company's financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. The Company believes that understanding the
basis and nature of the estimates and assumptions involved with the following
aspects of the Company's consolidated financial statements is critical to an
understanding of the Company's financials.

GOING CONCERN

These consolidated financial statements have been prepared on the going concern
basis which assumes that adequate sources of financing will be obtained as
required and that

<PAGE>
the Company's assets will be realized and liabilities settled in the ordinary
course of business. Accordingly, these consolidated financial statements do not
include any adjustments related to the recoverability of assets and
classification of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's independent
auditors also have included a reference concerning the Company's ability to
continue as a going concern.

In order to continue as a going concern, the Company requires additional
financing. There can be no assurance that additional financing will be available
to the Company when needed or, if available, that it can be obtained on
commercially reasonable terms. If the Company is not able to continue as a going
concern, it would likely be unable to realize the carrying value of its assets
reflected in the balances set out in the preparation of the consolidated
financial statements.

INVENTORY

Inventory is carried at the lower of cost, determined on a weighted average cost
method, and net realizable value. The determination of net realizable value is
based on several assumptions and estimates. The Company provides an allowance
that it considers to be reasonable for non-moving or slow moving inventory items
and for items with expected future realizable value lower than cost. These
assumptions and estimates may be inaccurate and may be revised.

The markets in which the Company competes are rapidly changing due to
technological developments and increasing focus on automotive safety. Other
companies offer products similar to those offered by the Company, and target the
same customers as the Company. Many of these companies have substantially
greater financial, marketing and technical resources. The Company also
anticipates that the competition within these markets will increase as demand
for the products escalates. It is possible that new competitors or alliances
among existing competitors may emerge and such competitors may rapidly acquire
significant market share and make it difficult for the Company to sell its
current inventory. All of these elements could reduce the net realizable value
of the Company's inventory.

WARRANTY OBLIGATIONS

On an ongoing basis, the Company records its best estimate of its warranty
obligations and product returns related to products sold. These estimates are
made after the consideration of contractual warranty obligations and historical
experience. Unforeseen events, including increased technological difficulties
with products, could occur that have not been anticipated in estimating the
warranty provision. Additional costs or estimates will be recognized as
determinable.

REVENUE RECOGNITION

The Company recognizes revenue when goods are shipped, title passes, there is
persuasive evidence of a sales arrangement, collection is probable, and the fee
is fixed or determinable. Customer acceptance is used as the criterion for
revenue recognition

<PAGE>

when the product sold does not have an established sales history to allow
management to reasonably estimate returns and future provisions.

OTHER ASSETS

Other assets are recorded at cost and are being amortized over five years. Other
assets are comprised of licenses to manufacture and sell tire monitoring systems
to the original equipment vehicle manufacturers ("OEM"). On an ongoing basis,
management assesses whether the expected net recoverable value of the licenses
exceeds the book value of the licenses. The net recoverable amount is determined
on a discounted cash flow basis. Although the Company expects to earn income
from the OEM market place, it is possible that the Company will not earn income
from the OEM marketplace in excess of net book value or that the Company will
earn income from the OEM market in future years after the other assets have been
fully amortized.

ITEM 7.   FINANCIAL STATEMENTS

The consolidated financial statements of the Company are included beginning
immediately following the signature page to this report. See Item 13 for a list
of the financial statements and financial statement schedules included.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.

PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

<PAGE>

The following table sets forth the names, ages and positions held with respect
to each Director and Executive Officer of the Company during fiscal 2002.

<TABLE>
<CAPTION>
================================================================================
NAME                     AGE                 POSITION
--------------------------------------------------------------------------------
<S>                      <C>                 <C>
Directors (1)
--------------------------------------------------------------------------------
Lawrence Becerra         50                  Director
--------------------------------------------------------------------------------
John Bolegoh             58                  Technical Support Manager and
                                             Director
--------------------------------------------------------------------------------
William Cronin           55                  Director
--------------------------------------------------------------------------------
Robert Rudman            55                  President, Chairman and Chief
                                             Executive Officer and Director
--------------------------------------------------------------------------------

Executive Officers and Significant Employees Who Are Not Directors
--------------------------------------------------------------------------------
Allan Kozak              53                  Chief Operating Officer
--------------------------------------------------------------------------------
Jeff Finkelstein         41                  Chief Financial Officer(2)
--------------------------------------------------------------------------------
Erwin Bartz              41                  Director, Technical Operations
--------------------------------------------------------------------------------
Ian Bateman              57                  Managing Director,
                                             SmarTire (Europe) Limited
--------------------------------------------------------------------------------
Shawn Lammers            35                  Vice President, Engineering
================================================================================
</TABLE>

(1)      Kevin Carlson served as a director and the Chief Financial Officer of
         the Company during the fiscal year ended July 31, 2002 until his
         resignation on May 17, 2002. Bernard Pinsky, a partner with the
         Vancouver law firm of Clark, Wilson, also served as a director of the
         Company during the fiscal year ended July 31, 2002 until his
         resignation on July 11, 2002.

(2)      Jeff Finkelstein, who has been acting Chief Financial Officer of the
         Company since Mr. Carlson's resignation on May 17, 2002, was formally
         appointed as Chief Financial Officer on October 23, 2002. He has served
         the Company as its controller since February 22, 1999.

BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OF DIRECTORS, EXECUTIVE OFFICERS
AND SIGNIFICANT EMPLOYEES

LAWRENCE BECERRA:

         Mr. Becerra has been a Director since March 1998. He has an extensive
         background in international finance. Since 1996, he has been the
         principal and founder of West Sussex Trading, Inc., which is involved
         in corporate finance activities. Between 1992 and 1995, Mr. Becerra was
         the Senior Proprietary Trader promoted from the position of Manager of
         European Money Market Trading for Goldman Sachs International in
         London, England. Between 1987 and 1992, Mr. Becerra was the Managing
         Director for Czarnikow Financial Futures. Between 1984 and 1987, he
         held the position of Senior Trader with TransMarket Group, Inc. Between
         1976 and 1984, Mr. Becerra worked for Continental Bank in London and
         ended his tenure as the Executive Director representing all trading
         activities for the company.

JOHN BOLEGOH:

         Mr. Bolegoh has held a number of positions with the Company, and
         currently serves as the Company's Technical Support Manager. Mr.
         Bolegoh has served as a Director since 1993. Mr. Bolegoh has an
         extensive background in tire product engineering, including twenty
         years with Michelin Technical Services Canada Limited in positions of
         increasing responsibility. Mr. Bolegoh joined the Company in 1991. His
         responsibilities include defining necessary product capabilities and

<PAGE>

         designs for entering various markets; establishing contacts to promote
         awareness of the Company's technologies; locating and exploring
         business possibilities with potential distributors; and providing
         customer relations, problem solving, training and sales assistance.

WILLIAM CRONIN:

         Mr. Cronin has been a Director since June 2001 and previously served as
         a Director from November 17, 1995 to April 25, 1998. Since 1986, Mr.
         Cronin has been the owner of Madison Financial Services, a registered
         investment adviser firm located in Madison, CT, specializing in tax,
         pension investing planning strategies and portfolio management.

ROBERT RUDMAN:

         Mr. Rudman has been a Director since September 1993. Mr. Rudman joined
         the Company in March 1993 as the Chief Financial Officer after serving
         as an independent financial consultant for several months. He was
         appointed Chief Executive Officer of the Company on January 19, 1996,
         and served as President from January 19, 1996 to June 4, 1999, when he
         was appointed Chairman of the Board. Mr. Rudman was reappointed
         President of the Company effective April 1, 2000. He is a Chartered
         Accountant with 15 years of experience assisting public companies,
         especially on the Vancouver Stock Exchange. Prior to joining the
         Company, Mr. Rudman was manager of a California-based sales contract
         financing firm. Previously, he was a partner in a consulting firm
         providing professional assistance to publicly traded companies. Mr.
         Rudman became a Chartered Accountant in 1974 and worked with Laventhol
         & Horwath and Price Waterhouse & Co. in Winnipeg, Manitoba.

JEFF FINKELSTEIN

         Mr. Finkelstein is a chartered accountant, who has been acting Chief
         Financial Officer of the Company since May 17, 2002, was formally
         appointed as Chief Financial Officer on October 23, 2002. He has served
         the Company as its controller since February 22, 1999. From 1996 to
         1999, he served as Controller of Golden Knight Resources Inc., a
         Toronto Stock Exchange listed public company, and Silver Standard
         Resources, a Nasdaq listed public company. From 1993 to 1995, he served
         as Controller of a private distribution company after eight years as a
         public accountant.

ERWIN BARTZ

         Mr. Bartz joined the Company as Director, Technical Operations in
         January 2001 and is responsible for the Company's overall technical
         operations including engineering and manufacturing. Mr. Bartz is a
         Professional Engineer with 17 years of engineering experience. Prior to
         joining the Company, Mr. Bartz spent ten years as Manager of
         Engineering and Manufacturing at Finning (Canada), the Caterpillar
         dealer for British Columbia, Alberta, United Kingdom and Chile, with

<PAGE>

         corporate responsibility for engineering, product review, heavy
         manufacturing and new equipment preparation. Previously, he held the
         Engineering Manager role at Weldco Beales, a custom attachment
         manufacturer for the mobile equipment market, and also worked as a
         design engineer for the Chapman Industries, a Hitachi distributor and
         general manufacturer of purpose built machinery and equipment.

IAN BATEMAN:

         Mr. Bateman has served as the Managing Director for SmarTire (Europe)
         Limited since February 1998. He has extensive sales, marketing and
         senior managerial experience in a variety of facets of European
         automotive industries. From 1966 to 1973 he was a manager with Mid
         Bucks Automotive Limited. During 1973 to 1979 Mr. Bateman was a manager
         with Renault U.K. Limited, and was instrumental in the formation of a
         direct sales company in the U.K. with a sales budget of pound sterling
         100 million per year. Between 1979 and 1991 he operated his own
         marketing company, which expanded to supply every European car
         manufacturer/importer, with the exception of just three, with an
         overall turnover of pound sterling 10 million per year. From 1991 and
         prior to joining SmarTire (Europe) Limited, Mr. Bateman carried out
         independent consulting services, most importantly with Otter Controls
         Limited, which was implementing a marketing program for a
         tire-monitoring system.

ALLAN KOZAK:

         Mr. Kozak joined SmarTire Systems Inc. as Chief Operating Officer on
         May 1, 2002. Mr. Kozak is a seasoned executive with strong operational
         management and business development experience in fast-paced, high
         growth, technology companies. From May 2000 to April 2001, Mr. Kozak
         was the President and founder of Siwash ventures where he assembled an
         advisory board of senior executives from the Vancouver area to analyze
         and recommend investment and business development strategies to
         technology companies. From 1992 to 1998 he held the position of
         President and Chief Operating Officer with Digital Courier
         International, Inc., an industry extranet that networked over 7,000
         radio stations, 1500 advertising and 400 production facilities. In 1998
         when the company sold it's assets and technology to Digital Generations
         Systems Inc., he held the position of VP, Marketing and Business
         Development for two years.

SHAWN LAMMERS:

         Mr. Lammers has been with the Company since its inception. He currently
         serves as the Vice President Engineering and is responsible for the
         development of the patented remote sensing technology utilized in
         SmarTire's products. He has been the chief engineer in respect to the
         design, development and production of the Company's passenger car tire
         monitoring system, the commercial vehicle tire monitoring system and
         the industrial equipment tire monitoring systems. He has developed
         software for MS-DOS, Windows, UNIX Workstations and Amiga platforms.

<PAGE>

FAMILY RELATIONSHIPS

There are no family relationships between any of the Company's directors or
executive officers.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

None of the Company's directors, executive officers, promoters or control
persons have been involved in any of the following events during the past five
years:

    1.   any bankruptcy petition filed by or against any business of which such
         person was a general partner or executive officer either at the time of
         the bankruptcy or within two years prior to that time;

    2.   any conviction in a criminal proceeding or being subject to a pending
         criminal proceeding (excluding traffic violations and other minor
         offences);

    3.   being subject to any order, judgment, or decree, not subsequently
         reversed, suspended or vacated, of any court of competent jurisdiction,
         permanently or temporarily enjoining, barring, suspending or otherwise
         limiting his involvement in any type of business, securities or banking
         activities; or

    4.   being found by a court of competent jurisdiction (in a civil action),
         the Commission or the Commodity Futures Trading Commission to have
         violated a federal or state securities or commodities law, and the
         judgment has not been reversed, suspended, or vacated.

SECTION 16(a) REPORTING

Since the Company is a "foreign private issuer", its insiders are exempt from
the reporting requirements of Section 16(a) of the United States Securities
Exchange Act of 1934, as amended (the "1934 Act"). Among other things, Section
16(a) of the 1934 Act requires certain "reporting persons" of any issuer with
any class of equity securities registered under Section 12 of the 1934 Act to
file with the United States Securities and Exchange Commission reports of
ownership and changes in ownership of securities of the registered class.
Reporting persons consist of directors, executive officers and beneficial owners
of more than 10% of the securities of the registered class. The Company is aware
that certain persons who would be subject to such reporting requirements, but
for the fact that the Company is a "foreign private issuer", have voluntarily
filed reports under Section 16(a) of the 1934 Act during the year ended July 31,
2002. However, the Company is not in a position to comment on the completeness
of such filings.

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY OF EXECUTIVE COMPENSATION

Particulars of compensation awarded to, earned by or paid to:

    (a)  the Company's chief executive officer (the "CEO");

    (b)  each of the Company's four most highly compensated executive officers
         who were serving as executive officers at the end of the most recently
         completed fiscal year and whose total salary and bonus exceeds $100,000
         per year; or

    (c)  any additional individuals for whom disclosure would have been provided
         under (b) but for the fact that the individual was not serving as an
         executive officer of the Company at the end of the most recently
         completed fiscal year;

(the "Named Executive Officers") are set out in the summary compensation table
below.

During fiscal 2002, seven (7) individuals served as executive officers of the
Company at various times: Robert Rudman, Allan Kozak, Jeff Finkelstein, Erwin
Bartz, Shawn Lammers, Ian Bateman and Kevin Carlson. Mr. Kozak, Mr. Finkelstein,
Mr. Bartz and Mr. Lammers each earned less than $100,000 in total salary and
bonuses during fiscal 2002, and, therefore, none of these individuals is
considered a "Named Executive Officer."

<TABLE>
<CAPTION>
===================================================================================================================================
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------------------------------
                                         ANNUAL COMPENSATION                      LONG TERM COMPENSATION (1)
                                 --------------------------------------     ------------------------------------
                                                                                      AWARDS            PAYOUTS
                                                                            -------------------------   --------
NAME AND PRINCIPAL      YEAR     SALARY         BONUS      OTHER ANNUAL     SECURITIES    RESTRICTED    LTIP         ALL OTHER
POSITION                                                   COMPENSATION     UNDERLYING    SHARES OR     PAYOUTS      COMPENSATION
                                                                (1)         OPTIONS/      RESTRICTED
                                                                            SARS GRANTED  SHARE UNITS
-----------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>      <C>            <C>            <C>            <C>           <C>          <C>         <C>
Robert Rudman           2002     $185,377       Nil            Nil             90,000       Nil          Nil         Nil
President, Chairman     2001     $191,058       Nil            Nil            150,000       Nil          Nil         Nil
and Chief Executive     2000     $185,826       Nil            Nil             17,500       Nil          Nil         44,730 (2)
Officer
-----------------------------------------------------------------------------------------------------------------------------------
Ian Bateman             2002     $103,222       Nil            Nil             40,000       Nil          Nil         Nil
Managing Director       2001     $102,810       Nil            Nil             35,000       Nil          Nil         Nil
SmarTire (Europe)       2000     $107,517       Nil            Nil             57,500       Nil          Nil         Nil
Limited
-----------------------------------------------------------------------------------------------------------------------------------
Kevin Carlson (3)       2002     $101,924       Nil            Nil             45,000       Nil          Nil         Nil
Chief Financial         2001     $131,764       Nil            Nil             50,000       Nil          Nil         Nil
Officer, Managing       2000     $102,201       Nil            Nil             60,000       Nil          Nil         $15,406
Director, Corporate
Secretary and Director
===================================================================================================================================
</TABLE>

(1)  The value of perquisites and other personal benefits, securities and
     property for the Named Executive Officers that do not exceed the lesser of
     $50,000 or 10% of the total of the annual salary and bonus is not reported
     herein.

(2)  Amount relates to accumulated vacation pay paid to Mr. Rudman.

(3)  Mr. Carlson resigned from the Company effective May 17, 2002.

<PAGE>


The following table sets forth for each of the Named Executive Officers certain
information concerning stock options granted to them during fiscal 2002. The
Company has never issued stock appreciation rights. The Company grants options
that vest immediately at an exercise price equal to the fair market value of a
share of common stock as determined by its closing price on the Nasdaq Small Cap
Market on the date of grant. The exercise price of options granted by the
Company that vest in subsequent periods are increased by 20% over the initial
exercise price of the options. The term of each option granted is generally five
years from the date of grant. Options may terminate before their expiration
dates if the optionee's status as an employee is terminated or upon the
optionee's death or disability.

OPTION/SAR GRANTS IN THE LAST FISCAL YEAR

<TABLE>
<CAPTION>
=========================================================================================
                        NUMBER OF       % OF TOTAL
                        SECURITIES      OPTIONS/
                        UNDERLYING      SARS
                        OPTIONS/        GRANTED TO       EXERCISE
                        SARS            EMPLOYEES IN     PRICE
NAME                    GRANTED (#)     FISCAL YEAR      ($/SHARE)      EXPIRATION DATE
=========================================================================================
<S>                      <C>            <C>              <C>            <C>
Robert Rudman           30,000          6.2%             $2.66          September 7, 2006
                        30,000          6.2%             $3.19          September 7, 2006
                        30,000          6.2%             $3.83          September 7, 2006
-----------------------------------------------------------------------------------------
Ian Bateman             13,334          2.8%             $2.66          September 7, 2006
                        13,333          2.8%             $3.19          September 7, 2006
                        13,333          2.8%             $3.83          September 7, 2006
-----------------------------------------------------------------------------------------
Kevin Carlson (1)       15,000          3.1%             $2.66          June 17, 2002
                        15,000          3.1%             $3.19          June 17, 2002
                        15,000          3.1%             $3.83          June 17, 2002
=========================================================================================
</TABLE>

(1)  Mr. Carlson resigned from the Company effective May 17, 2002. Due to his
     resignation, the options expired on June 17, 2002. If he had not resigned,
     the expiration date for his options would have been September 7, 2006.

<PAGE>

The following table sets forth for each Named Executive Officer certain
information concerning the number of shares subject to both exercisable and
unexercisable stock options as of July 31, 2002. The values for "in-the-money"
options are calculated by determining the difference between the fair market
value of the securities underlying the options as of July 31, 2002 ($1.29 per
share) and the exercise price of the individual's options. No named Executive
Officer exercised options during fiscal 2002.

     AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
     VALUES

<TABLE>
<CAPTION>
========================================================================================================================
                                                      NUMBER OF SECURITIES UNDERLYING    VALUE OF UNEXERCISED
                                                      UNEXERCISED OPTIONS/SARS AT        IN-THE-MONEY OPTIONS/SARS AT
                                                      FY-END (#)                         FY-END ($)
                        SHARES          AGGREGATE
                        ACQUIRED ON     VALUE         EXERCISABLE/
NAME                    EXERCISE (#)    REALIZED      UNEXERCISEABLE                     EXERCISEABLE/UNEXERCISEABLE
-------------------------------------------------------------------------------------------------------------------------
                                                      EXERCISEABLE    UNEXERCISEABLE     EXERCISEABLE      UNEXERCISEABLE
                                                      ------------    --------------     ------------      --------------

<S>                      <C>             <C>           <C>             <C>                <C>               <C>
Robert Rudman            Nil             Nil           353,000         62,000             Nil               Nil

Ian Bateman              Nil             Nil           114,500         48,000             Nil               Nil
========================================================================================================================
</TABLE>


EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

Effective August 1, 1999, the Board of Directors of the Company approved a new
management agreement with Robert Rudman, regarding his position with the
Company. The management agreement calls for payment of a base salary of
CDN$273,000 per annum subject to increase as from time to time plus incentive
compensation as determined by the Company's incentive compensation plan.
Effective August 1, 2000 Mr. Rudman's salary was increased to CDN $290,000 per
annum.

The agreement with Mr. Rudman requires the Company to pay a termination
allowance in the event of the termination of Mr. Rudman's employment by the
Company other than for just cause. The termination allowance is equal to the
annual salary.

Effective August 1, 1999, the Board of Directors of the Company approved a new
management agreement with Ian Bateman, regarding his position with the Company.
The management agreement calls for payment of a base salary of pounds sterling
(pound)67,000 per annum subject to increase as from time to time plus incentive
compensation as determined by the Company's incentive compensation plan.
Effective August 1, 2000, Mr. Bateman's salary was increased to (pound)71,000
per annum.

The agreement with Mr. Bateman requires the Company to pay a termination
allowance in the event of the termination of Mr. Bateman's employment by the
Company other than for just cause. The termination allowance is equal to the
annual salary.

<PAGE>

Effective January 3, 2001, the Board of Directors of the Company approved a new
management contract with Erwin Bartz regarding his position with the Company.
The management agreement calls for payment of a base salary of CDN$150,000 per
annum subject to increase from time to time plus incentive compensation as
determined by the Company's incentive compensation plan.

The agreement with Mr. Bartz requires the Company to pay a termination allowance
in the event of the termination of Mr. Bartz' employment by the Company other
than for just cause. The termination allowance is equal to the annual salary.

Effective May 1, 2002, the Board of Directors of the Company approved a new
management agreement with Allan Kozak, regarding his position with the Company.
The management agreement calls for payment of a base salary of CDN$220,000 per
annum subject to increase as from time to time plus incentive compensation as
determined by the Company's incentive compensation plan.

The agreement with Mr. Kozak requires the Company to pay a termination allowance
in the event of the termination of Mr. Kozak's employment by the Company except
for just cause. The termination allowance is equal to the annual salary.

Other than as discussed above, the Company has no plans or arrangements in
respect of remuneration received or that may be received by Named Executive
Officers of the Company in fiscal 2002 to compensate such officers in the event
of termination of employment (as a result of resignation, retirement, change of
control) or a change of responsibilities following a change of control, where
the value of such compensation exceeds $100,000 per Named Executive Officer.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Directors and executive officers have received from time to time incentive stock
options to purchase Common Shares as awarded by the Board of Directors in
consultation with the Compensation Committee.

Directors are entitled to reimbursement for reasonable travel and other
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board of Directors. The Board of Directors may award special remuneration to any
director undertaking any special services on behalf of the Company other than
services ordinarily required of a director. Other than indicated below, no
director received and/or accrued any compensation for his services as a
director, including committee participation and/or special assignments.

There are no arrangements or plans in which the Company provides pension,
retirement or similar benefits for directors or executive officers.

The Company has adopted four formal stock incentive plans (collectively, the
"Stock Incentive Plans"), two of which were approved by the Shareholders at the
1998 Annual General Meeting of the Company and two of which were approved at the
2000 Annual General Meeting of the Company. Two of the Stock Incentive Plans
(the "1998 US Stock

<PAGE>

Incentive Plan" and the "2000 US Stock Incentive Plan") provide for Awards to
Eligible Employees of the Company or of any Related Entity who are resident in
the United States and/or subject to taxation in the United States; the other two
(the "1998 Stock Incentive Plan" and the "2000 Stock Incentive Plan") provide
for Awards to all other Eligible Employees of the Company of any Related Entity.

The Company has also adopted a formal incentive compensation plan (the "1999
Incentive Compensation Plan"), which was approved by the Shareholders at the
2000 Annual and Extraordinary General Meeting of the Company. The 1999 Incentive
Compensation Plan is intended to complement the Company's existing Stock
Incentive Plans and any subsequent stock incentive plans that may be approved by
the Shareholders of the Company. Accordingly, the 1999 Incentive Compensation
Plan does not specify a maximum number of Common Shares of the Company that will
be issuable pursuant to all awards granted under the 1999 Incentive Compensation
Plan, and all options granted under the 1999 Incentive Compensation Plan shall
be subject to the provisions of the Company's existing Stock Incentive Plans and
any subsequent stock incentive plans that may be approved by the Shareholders of
the Company. In granting awards under the 1999 Incentive Compensation Plan, the
Board of Directors follow certain guidelines which take into account after-tax
operating profits after accounting for the cost of capital employed to create
such profits, as suggested by an Economic Value Added ("EVA(TM)") model
developed by Stern, Stewart & Co., a global consulting firm. There are no
incentive awards under the 1999 Incentive Compensation Plan for fiscal 2002
based on the audited consolidated financial statements of the Company for the
fiscal year ended July 31, 2002.

To date, the Company has granted to directors, officers, employees and
consultants incentive stock options to purchase Common Shares subject to and in
accordance with the prevailing policies of the stock exchange on which the
Company's shares were then listed. Options are granted based on the assessment
by the Company's Board of Directors and/or Compensation Committee of the
optionee's past and present contribution to the success of the Company. The
Company's Common Shares are presently listed for trading on the Nasdaq Small Cap
Market. These options are not transferable and are exercisable from the date
granted until the earliest of (i) such number of years (up to ten years) from
the date of the grant, (ii) such number of days following the death of the
optionee as is specified in each optionee's option agreement.

One of the Company's former Directors, Mr. Bernard Pinsky, who resigned
effective July 11, 2002, was paid his hourly rate as an attorney at law for his
time expended on his duties as a Director.

Other than the 1999 Incentive Compensation Plan, the management agreements, the
advisory agreements and the 1998 and 2000 Stock Incentive Plans discussed
herein, the Company presently has no material bonus or profit sharing plans
pursuant to which cash or non-cash compensation is or may be paid to the
Company's directors or executive officers.

<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The authorized capital of the Company consists of: 200,000,000 shares of common
stock without par value; and 20,000 shares of preferred stock with a par value
of CDN $1,000 per share. As of September 30, 2002, there were 18,711,369 issued
and outstanding shares of common stock and no issued or outstanding shares of
preferred stock.

To the knowledge of the Company, the following beneficially own, directly or
indirectly, shares carrying more than five percent (5%) of the voting rights
attached to all shares of the Company:

<PAGE>

<TABLE>
<CAPTION>
=======================================================================================================
                            NAME AND ADDRESS OF             AMOUNT AND NATURE OF
TITLE OF CLASS              BENEFICIAL OWNER                BENEFICIAL OWNERSHIP       PERCENT OF CLASS
-------------------------------------------------------------------------------------------------------
<S>                         <C>                             <C>                        <C>
Common Stock                Simon Archdale                  1,500,000                  8.0%
                            Chalet Trois Nicholas
                            Courtavey, Crans Montana
                            Valais Switzerland
-------------------------------------------------------------------------------------------------------
Common Stock                Fidelity Investment             1,500,000                  8.0%
                            Services Limited
                            Oakhill House
                            130 Tombridge Road
                            Hildenborough
                            Kent, England TN119DZ
-------------------------------------------------------------------------------------------------------
Common Stock                TRW Inc.                        1,390,072                  7.4%
                            1900 Richmond Rd
                            Cleveland, OH
                            44124
-------------------------------------------------------------------------------------------------------
Common Stock                Lazard European                 1,050,800                  5.6%
                            Technologies
                            Opportunities Ltd.
                            Bank of Bermuda Building
                            6 Front Street, Hamilton
                            H11, Bermuda
-------------------------------------------------------------------------------------------------------
Common Stock                Andersen Maria Burrows            840,000                  4.5%
                            Le Corail, 17 Rue Sadi
                            Carrot
                            F-06600 Antibes
                            France
=======================================================================================================
</TABLE>

The following table sets forth specified information with respect to the
beneficial ownership of the Company's common stock as of September 30, 2002 by
shares and percentages beneficially owned. Under the rules of the United States
Securities and Exchange Commission, beneficial ownership includes shares over
which the named stockholder exercises voting control or investment power. Shares
of common stock subject to options or warrants that are currently exercisable or
will become exercisable within sixty days from September 30, 2002 are deemed
outstanding for purposes of the ownership of the person holding the option or
warrant, but are not deemed outstanding for purposes of computing the ownership
percentage of any other person. Unless indicated otherwise in the footnotes
below, each person's address is the Company's principal place of business.

<TABLE>
<CAPTION>
=======================================================================================================
                                                    TOTAL NUMBER OF SHARES
NAME                                                BENEFICIALLY OWNED                PERCENT OF CLASS
-------------------------------------------------------------------------------------------------------
<S>                                                 <C>                               <C>
Directors
-------------------------------------------------------------------------------------------------------
Lawrence Becerra (1)                                140,703                           *
-------------------------------------------------------------------------------------------------------
John Bolegoh (2)                                     51,372                           *
-------------------------------------------------------------------------------------------------------
William Cronin (3)                                  165,996                           *
-------------------------------------------------------------------------------------------------------
Robert Rudman (4)                                   452,667                           2.42%
-------------------------------------------------------------------------------------------------------

Named Executive Officers who are not Directors
-------------------------------------------------------------------------------------------------------
Ian Bateman (5)                                     142,001                           *
-------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------
Total Directors/Executive Officers                  952,739                           5.09%
(9 persons) (6)
=======================================================================================================
</TABLE>

<PAGE>

* Represents less than 1% of the Company's outstanding stock

(1)      Mr. Becerra has incentive stock options for the right to purchase up to
         an aggregate of 85,000 shares of common stock and warrants for the
         right to purchase up to an aggregate of 41,203 shares of common stock.
         The options and warrants are immediately exercisable. Mr. Becerra's
         address is 32 Meadow Bank, Primrose Hill, London, United Kingdom
         NW33AY.

(2)      Includes 12,990 Common Shares owned by Mr. Bolegoh's wife and children.
         Mrs. Bolegoh has sole voting and dispositive power with respect to her
         shares, and Mr. Bolegoh disclaims beneficial ownership of such shares.
         Mr. Bolegoh has incentive stock options for the right to purchase up to
         an aggregate of 15,900 shares of common stock. The options vest over
         time and currently 14,768 are immediately exercisable.

(3)      Mr. Cronin has incentive stock options for the right to purchase an
         aggregate of 78,750 shares of common stock. The options are immediately
         exercisable. Mr. Cronin's address is 180 Concord Dr. Madison,
         Connecticut, United States 06443.

(4)      Mr. Rudman is also a Named Executive Officer. Mr. Rudman has incentive
         stock options for the right to purchase 619,000 shares of common stock.
         The options vest over time and currently 421,000 options are
         immediately exercisable.

(5)      Mr. Bateman has incentive stock options for the right to purchase
         245,000 shares of common stock. The options vest over time and
         currently 142,001 options are immediately exercisable. Mr. Bateman's
         address is 56 Upper End, Chaddleworth, NR Newbury, Berkshire, England
         RG20 7DY.

(6)      Based on beneficial shares owned, directly or indirectly, or over which
         control or direction is exercised at September 30, 2002. The issued and
         outstanding Common Shares of the Company at September 30, 2002 were
         18,711,369.

The following table provides certain information with respect to all of the
Company's equity compensation plans in effect as of September 30, 2002.

EQUITY COMPENSATION PLAN INFORMATION


<TABLE>
<CAPTION>
==========================================================================================================
PLAN CATEGORY             NUMBER OF SECURITIES TO BE        WEIGHTED AVERAGE          NUMBER OF SECURITIES
                          ISSUED UPON EXERCISE OF           EXERCISE PRICE OF         REMAINING AVAILABLE
                          OUTSTANDING OPTIONS, WARRANTS     OUTSTANDING OPTIONS       FOR FUTURE ISSUANCE
                          AND RIGHTS                        WARRANTS AND RIGHTS
----------------------------------------------------------------------------------------------------------
<S>                                  <C>                            <C>                   <C>
Equity compensation
plans approved by
stockholders                         2,189,250                      2.30                  36,400
----------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
stockholders                            41,203                      1.91                     Nil
----------------------------------------------------------------------------------------------------------
Total                                2,230,453                      2.29                  36,400
==========================================================================================================

</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Becerra is a principal of West Sussex Trading Inc. During the year ended
July 31, 2002 the Company paid West Sussex Trading Inc. $115,900 for consulting
services and financing fees on the private sales of its common stock and issued
46,900 share purchase warrants at an exercise price of $1.70, expiring on
January 18, 2005 for financing services. During the year ended July 31, 2001,
the Company paid West Sussex Trading Inc. $78,510 for consulting services.

Mr. Pinsky is a partner of Clark, Wilson. He resigned as a director of the
Company on July 11, 2002. During the years ended July 31, 2002 and 2001 the
Company paid to Clark, Wilson $98,752 and $79,858, respectively, for legal
services.

<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      The following documents are filed as part of this report:

         Consolidated Financial Statements. See "Index" on Page F-1

         Auditor's Report, dated September 13, 2002;

         Consolidated Balance Sheets at July 31, 2002 and July 31, 2001;

         Consolidated Statements of Operations and Deficit for the Years Ended
         July 31, 2002, July 31, 2001 and July 31, 2000;

         Consolidated Statements of Stockholders' Equity and Comprehensive
         Income (loss) for the Years Ended July 31, 2002, July 31, 2001 and July
         31, 2000;

         Consolidated Statements of Cash Flows for the Years Ended July 31,
         2002, July 31, 2001 and July 31, 2000;

         Notes to Consolidated Financial Statements.

Exhibits. See "Exhibit Index"

(b)      Reports on form 8-K.

         On September 6, 2001, the Company filed a current report on Form 8-K
         relating to a news release issued September 5, 2001 regarding the
         restructuring of its strategic alliance with TRW Inc.

         On November 21, 2001, the Company filed a current report on Form 8-K
         relating to a news release issued November 16, 2001 regarding the
         arrangement of a private placement.

         On May 15, 2002, the Company filed a current report on Form 8-K
         relating to a news release issued May 13, 2002 regarding an agreement
         in principle with Visteon for tire pressure monitoring products.

         On May 17, 2002, the Company filed a current report on Form 8-K
         relating to a news release issued May 16, 2002 regarding the
         recruitment of a Chief Operating Officer.

         On July 31, 2002, the Company filed a current report on Form 8-K
         relating to a news release issued on July 31, 2002 regarding completion
         of a warrant offering and a private placement.

<PAGE>

ITEM 14.  CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the Company's disclosure controls and procedures within 90 days prior to the
date of filing of this Annual Report on Form 10-KSB. Management believes that
the Company's current internal controls and procedures are effective and
designed to ensure that information required to be disclosed by the Company in
its periodic reports is recorded, processed, summarized and reported, within the
appropriate time periods specified by the SEC, and that such information is
accumulated and communicated to the Company's CEO and CFO as appropriate to
allow timely decisions to be made regarding required disclosure.

As of September 30, 2002, there were no significant corrective actions taken by
the Company or other changes made to these internal controls. Management of the
Company does not believe there were changes in other factors that could
significantly affect these controls subsequent to the date of the evaluation.



<PAGE>

                                   SIGNATURES

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

                                    SMARTIRE SYSTEMS INC.


                                    By:      /s/ ROBERT V. RUDMAN
                                             --------------------------
                                             Robert V. Rudman, CA
                                             President, Chairman and
                                             Chief Executive Officer

Date: October 25, 2002



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on October 25, 2002:


NAME                                           TITLES
----                                           ------

/s/ ROBERT V. RUDMAN                           Director, President, Chairman and
---------------------                          Chief Executive Officer
Robert V. Rudman                               (Principal Executive Officer)


/s/ JEFF FINKELSTEIN                           Chief Financial Officer
---------------------                          (Principal Financial Officer and
Jeff Finkelstein                               Principal Accounting Officer)


/s/ JOHN I. BOLEGOH                             Director, and Technical Support
---------------------                           Manager
John I. Bolegoh


/s/ WILLIAM CRONIN                              Director
---------------------
William Cronin

<PAGE>

                                  CERTIFICATION

                            CERTIFICATION PURSUANT TO
                    18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Rudman, certify that:

1. I have reviewed this annual report on Form 10-KSB of SmarTire Systems 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; and

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.

Date: October 25, 2002


/s/ Robert Rudman
-----------------------------------------
Robert Rudman
President and Chief Executive Officer



I, Jeff Finkelstein, certify that:

1. I have reviewed this annual report on Form 10-KSB of SmarTire Systems 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; and

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.

Date: October 25, 2002


/s/ Jeff Finkelstein, C.A.
-----------------------------------------
Chief Financial Officer

<PAGE>

                            CERTIFICATION PURSUANT TO
                    18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Rudman, President and Chief Executive Officer of SmarTire Systems
Inc., certify that:

1. I have reviewed this annual report on Form 10-KSB of SmarTire Systems 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
SmarTire Systems Inc. as of, and for, the periods presented in this annual
report;

4. SmarTire Systems Inc.'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 SmarTire Systems Inc., 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 SmarTire Systems Inc.'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 SmarTire Systems Inc.'s other certifying officers and I have disclosed,
based on our most recent evaluation, to the SmarTire Systems Inc.'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 SmarTire Systems Inc.'s ability to record,
process, summarize and report financial data and have identified for SmarTire
Systems Inc.'s auditors any material weaknesses in internal controls; and

<PAGE>

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in SmarTire Systems Inc.'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: October 25, 2002


/s/ Robert Rudman
-----------------------------------------
Robert Rudman
President and Chief Executive Officer



I, Jeff Finkelstein, Chief Financial Officer of SmarTire Systems Inc., certify
that:

1. I have reviewed this annual report on Form 10-KSB of SmarTire Systems 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
SmarTire Systems Inc. as of, and for, the periods presented in this annual
report;

4. SmarTire Systems Inc.'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 SmarTire Systems Inc., 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 SmarTire Systems Inc.'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;

<PAGE>

5. The SmarTire Systems Inc.'s other certifying officers and I have disclosed,
based on our most recent evaluation, to the SmarTire Systems Inc.'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 SmarTire Systems Inc.'s ability to record,
process, summarize and report financial data and have identified for SmarTire
Systems Inc.'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 SmarTire Systems Inc.'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: October 25, 2002


/s/ Jeff Finkelstein
-----------------------------------------
Jeff Finkelstein
Chief Financial Officer
<PAGE>

                      Consolidated Financial Statements
                      (Expressed in United States dollars)



                      SMARTIRE SYSTEMS INC.



                      Years ended July 31, 2002, 2001 and 2000



<PAGE>

STATEMENT OF MANAGEMENT RESPONSIBILITY

The management of SmarTire Systems Inc. is responsible for the preparation of
the accompanying consolidated financial statements and the preparation and
presentation of all information in the Annual Report. The consolidated financial
statements have been prepared in accordance with the accounting principles
generally accepted in the United States and are considered by management to
present fairly the financial position and operating results of the Company.

The Company maintains various systems of internal control to provide reasonable
assurance that transactions are appropriately authorized and recorded, that
assets are safeguarded, and that financial records are properly maintained to
provide accurate and reliable financial statements.

The Company's Audit Committee is composed of two non-management directors and
the Chief Executive Officer of the Company and is appointed by the Board of
Directors annually. The committee meets periodically with the Company's
management and independent auditors to review financial reporting matters and
internal controls and to review the consolidated financial statements and the
independent auditors' report. The Audit Committee reported its findings to the
Board of Directors who have approved the consolidated financial statements.

The Company's independent auditors, KPMG LLP, have examined the consolidated
financial statements and their report follows.


/s/ Robert V. Rudman                        /s/ Jeff Finkelstein
--------------------------                  --------------------------
Robert V. Rudman                            Jeff Finkelstein
CHIEF EXECUTIVE OFFICER                     CHIEF FINANCIAL OFFICER

<PAGE>

AUDITORS' REPORT

To the Board of Directors of SmarTire Systems Inc.

We have audited the consolidated balance sheets of SmarTire Systems Inc. as at
July 31, 2002 and 2001 and the consolidated statements of operations and
deficit, stockholders' equity and comprehensive income (loss) and cash flows for
each of the years in the three year period ended July 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

With respect to the consolidated financial statements for the years ended July
31, 2002 and 2001, we conducted our audits in accordance with Canadian generally
accepted auditing standards and United States generally accepted accounting
standards. With respect to the consolidated financial statements for the year
ended July 31, 2000, we conducted our audit in accordance with Canadian
generally accepted auditing standards. 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at July 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 July 31, 2002 in accordance with accounting
principles generally accepted in the United States of America.


/s/ KPMG LLP
Chartered Accountants

Vancouver, Canada
September 13, 2002, except as to note 14
   which is as of October 7, 2002


COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described
in Note 1 to the financial statements. Our report to the board of directors
dated September 13, 2002, except as to note 14 which is as of October 7, 2002,
is expressed in accordance with Canadian reporting standards which do not
permit a reference to such events and conditions in the auditors' report when
these are adequately disclosed in the financial statements.


/s/ KPMG LLP
Chartered Accountants

Vancouver, Canada
September 13, 2002, except as to note 14
   which is as of October 7, 2002

<PAGE>

SMARTIRE SYSTEMS INC.
Consolidated Balance Sheets
(Expressed in United States dollars)

July 31, 2002 and 2001


<TABLE>
<CAPTION>
                                                                          2002               2001
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
ASSETS

Current assets:
        Cash and cash equivalents                                     $    525,968      $  2,930,257
        Receivables, net of allowance for doubtful accounts
           of nil (2001 - $46,232)                                         188,294           189,472
        Inventory (note 3)                                               1,277,953         1,477,751
        Prepaid expenses                                                   374,731            85,470
                                                                      ------------      ------------
                                                                         2,366,946         4,682,950

Fixed assets (note 4)                                                      625,182           706,149

Other assets (note 5)                                                    3,757,473         1,508,740
                                                                      ------------      ------------

                                                                      $  6,749,601      $  6,897,839
                                                                      ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
        Accounts payable and accrued liabilities                      $  1,110,555      $    782,690
        Promissory note payable (note 5)                                 1,350,000                --
                                                                      ------------      ------------
                                                                         2,460,555           782,690
Stockholders' equity:
        Share capital (note 7):
           Preferred shares, par value $1,000 Cdn per share
              20,000 shares authorized
                 Issued and outstanding: none
           Common shares, without par value
              200,000,000 shares authorized
           18,711,369 shares issued and outstanding at
              July 31, 2002 (2001 - 15,159,369)                         42,514,482        37,566,083
        Additional paid-in capital                                         885,461           683,462
        Deferred stock compensation                                        (17,005)          (40,773)
        Deficit                                                        (38,116,601)      (31,287,425)
        Accumulated other comprehensive loss                              (977,291)         (806,198)
                                                                      ------------      ------------
                                                                         4,289,046         6,115,149
                                                                      ------------      ------------
                                                                      $  6,749,601      $  6,897,839
                                                                      ============      ============
Commitments and contingencies (note 12)
Subsequent event (note 14)
</TABLE>

See accompanying notes to consolidated financial statements.


Approved on behalf of the Board:



/s/ Robert V. Rudman       Director         /s/ Bill Cronin            Director
---------------------------                 ---------------------------
Robert V. Rudman                            Bill Cronin


                                                                               1
<PAGE>

SMARTIRE SYSTEMS INC.
Consolidated Statements of Operations and Deficit
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                      2002              2001              2000
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>
Revenue                                           $  1,012,344      $    779,611      $    747,738

Cost of goods sold                                     699,955           385,897           339,722
                                                  ------------      ------------      ------------
                                                       312,389           393,714           408,016

Expenses:
        Depreciation and amortization                1,152,378           446,096           177,690
        Engineering, research and development        1,727,606         1,485,874         1,416,992
        General and administrative                   2,631,215         2,701,621         3,421,844
        Marketing                                    1,527,644         1,744,004         2,057,937
                                                  ------------      ------------      ------------
                                                     7,038,843         6,377,595         7,074,463
                                                  ------------      ------------      ------------

Loss from operations                                (6,726,454)       (5,983,881)       (6,666,447)

Other income (expenses):
        Gain on sale of investment (note 6)                 --                --         8,343,487
        Interest income                                 18,735           359,799           212,203
        Interest expense                              (145,472)               --                --
        Foreign exchange gain                           24,015           117,063            15,935
                                                  ------------      ------------      ------------
                                                      (102,722)          476,862         8,571,625
                                                  ------------      ------------      ------------

Net earnings (loss)                               $ (6,829,176)     $ (5,507,019)     $  1,905,178
                                                  ============      ============      ============

Weighted average number of common shares:
        Basic                                       16,743,977        14,296,240        13,159,385
        Diluted                                     16,743,977        14,296,240        13,296,988
                                                  ============      ============      ============

Earnings (loss) per share:
        Basic                                     $      (0.41)     $      (0.39)     $       0.14
        Diluted                                          (0.41)            (0.39)             0.14
                                                  ============      ============      ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                               2
<PAGE>
SMARTIRE SYSTEMS INC.
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                           Accumulated
                                                                  Deferred                    other                       Compre-
                                 Common shares        Additional    stock                    compre-                      hensive
                            -----------------------    paid-in     compen-                   hensive     Stockholders'     income
                              Shares       Amount      capital     sation      Deficit        loss          equity         (loss)
                            ----------   ----------   ----------  --------   -----------   -----------   -------------   ----------
                                              $           $           $           $             $              $             $
<S>                         <C>          <C>           <C>         <C>       <C>            <C>           <C>           <C>
Balance, July 31,
  1999                      11,042,447   29,763,110         --          --   (27,685,584)   (368,879)     1,708,647     (11,276,389)
                            ----------   ----------    -------    --------   -----------    --------      ---------     -----------
Issuance of common
  shares for cash upon
  private placements,
  net of issuance costs
  of $507,824                3,415,250    6,139,773         --          --            --          --      6,139,773              --
Fair value of warrants
  issued on private
  placement
  (note 7(b)(ii))                   --           --    182,903          --            --          --        182,903              --
Compensation expense
  on options granted
  to contractors                    --           --    398,539          --            --          --        398,539              --
Exercise of stock
  options for cash               1,600        3,200         --          --            --          --          3,200              --
Issuance of common
  shares on purchase
  of shares of Transense
  Technologies plc
  (note 6)                      25,000       37,500         --          --            --          --         37,500              --
Remuneration paid in
  shares, at their
  market value                  13,500       22,000         --          --            --          --         22,000              --
Net earnings                        --           --         --          --     1,905,178          --      1,905,178       1,905,178
Translation adjustment              --           --         --          --            --    (164,395)      (164,395)       (164,395)
                            ----------   ----------    -------    --------   -----------    --------      ---------     -----------
Balance at July 31,
  2000                      14,497,797   35,965,583    581,442          --   (25,780,406)   (533,274)    10,233,345       1,740,783
                            ----------   ----------    -------    --------   -----------    --------      ---------     -----------
Exercise of stock
  options for cash              11,500       23,000         --          --            --          --         23,000              --
Exercise of warrants
  for cash                     160,000      240,000         --          --            --          --        240,000              --
Issuance of common
  shares on purchase of
  license from TRW Inc.
  (note 5)                     490,072    1,337,500         --          --            --          --      1,337,500              --
Deferred compensation
  expense related to
  stock option plans
  (note 7(c))                       --           --    102,020    (102,020)           --          --             --              --
Compensation expense
  (note 7(c))                       --           --         --      61,247            --          --         61,247
Loss for the period                 --           --         --          --    (5,507,019)         --     (5,507,019)     (5,507,019)
Translation adjustment              --           --         --          --            --    (272,924)      (272,924)       (272,924)
                            ----------   ----------    -------    --------   -----------    --------      ---------     -----------
Balance at July 31,
  2001                      15,159,369   37,566,083    683,462     (40,773)  (31,287,425)   (806,198)     6,115,149      (5,779,943)
                            ----------   ----------    -------    --------   -----------    --------      ---------     -----------
Issuance of common
  shares for cash upon
  private placements,
  net of issuance costs
  of $551,569
  (note 7(b)(i))             3,352,000    4,650,289         --          --            --          --      4,650,289              --
Exercise of warrants
  for cash, net of
  issuance costs of
  $10,890 (note 7(b)(i))       200,000      298,110         --          --            --          --        298,110              --
Fair value of warrants
   issued on private
   placement
   (note 7(b)(i))                   --           --    206,340          --            --          --        206,340              --
Forfeiture of stock
  options                           --           --     (4,341)      4,341            --          --             --              --
Compensation expense                --           --         --      19,427            --          --         19,427              --
Loss for the period                 --           --         --          --    (6,829,176)         --     (6,829,176)     (6,829,176)
Translation adjustment              --           --         --          --            --    (171,093)      (171,093)       (171,093)
                            ----------   ----------    -------    --------   -----------    --------      ---------     -----------
Balance at July 31,
  2002                      18,711,369   42,514,482    885,461     (17,005)  (38,116,601)   (977,291)     4,289,046      (7,000,269)
                            ==========   ==========    =======    ========   ===========    ========      =========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                               3
<PAGE>

SMARTIRE SYSTEMS INC.
Consolidated Statements of Cash Flows
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                              2002            2001             2000
                                                          -----------      -----------      -----------
<S>                                                       <C>              <C>              <C>
Cash provided by (used for):

Operating activities:
        Net earnings (loss)                               $(6,829,176)     $(5,507,019)     $ 1,905,178
        Items not affecting cash:
             Depreciation and amortization                  1,152,378          446,096          177,690
             Gain on sale of investment (note 6)                   --               --       (8,343,487)
             Stock-based compensation                          19,427           61,247          420,539
        Change in non-cash working capital:
             Receivables                                       (5,266)        (115,379)         672,584
             Inventory                                        151,249       (1,310,788)         (26,950)
             Prepaid expenses                                (294,769)          15,963          (17,790)
             Accounts payable and accrued liabilities         346,652          301,335         (783,418)
                                                          -----------      -----------      -----------
        Net cash used in operating activities              (5,459,505)      (6,108,545)      (5,995,654)

Investing activities:
        Purchase of capital assets                           (164,886)        (332,832)        (446,701)
        Purchase of investment (note 6)                            --               --         (955,330)
        Purchase of other asset (note 5)                     (500,000)        (400,000)              --
        Redemption of short-term investments                       --               --        1,381,448
        Net proceeds on sale of investment (note 6)                --               --        9,336,317
                                                          -----------      -----------      -----------
        Net cash provided by (used in) investing
           activities                                        (664,886)        (732,832)       9,315,734

Financing activities:
        Issuance of common shares                           5,165,629          263,000        6,325,876
        Repayment of promissory note (note 5)              (1,450,000)              --               --
                                                          -----------      -----------      -----------
        Net cash provided by financing activities           3,715,629          263,000        6,325,876

Effect of exchange rate differences on cash
     and cash equivalents                                       4,473         (244,429)        (173,571)
                                                          -----------      -----------      -----------
Net increase (decrease) in cash and cash
     equivalents                                           (2,404,289)      (6,822,806)       9,472,385

Cash and cash equivalents, beginning of year                2,930,257        9,753,063          280,678
                                                          -----------      -----------      -----------
Cash and cash equivalents, end of year                    $   525,968      $ 2,930,257      $ 9,753,063
                                                          ===========      ===========      ===========

Supplementary information:
        Interest paid                                     $    92,093      $    12,408      $    15,903
Non-cash investing and financing activities:
        Purchase of investment through issuance of
           common shares                                           --               --           37,500
        Purchase of other asset through issuance of
           promissory note                                  2,800,000               --               --
        Purchase of other asset through issuance of
           common shares                                           --        1,337,500               --
        Warrants issued for financing services on
           private placement                                  206,340               --          182,903
        Shares issued for financing services on
           private placement                                   28,358               --               --
                                                          ===========      ===========      ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                                                               4
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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


1.       OPERATIONS:

         The Company and its subsidiaries develop and market products
         incorporating wireless data transmission and processing technologies,
         primarily for the automotive markets. The Company's primary product is
         a wireless tire monitoring system which it currently markets for use on
         passenger vehicles and other pneumatic tire applications. All sales of
         its product are made in this industry segment.

         The Company is continuing to develop its products and markets. The
         Company has incurred recurring operating losses and has a deficit of
         $38,116,601 and a working capital deficiency of $93,609 as at July 31,
         2002. Since 1998, the Company has raised approximately $28,000,000
         through ten private placements to fund its operations. The Company
         requires immediate additional financing to fund its operations and meet
         its overdue and maturing debt obligation. (see note 5).

         The Company is pursuing various alternatives for private placements and
         public financings to meet its immediate and long-term financial
         requirements. Subsequent to year end, the Company realized $750,000 on
         completion of a private placement (note 14). There can be no assurance
         that additional financing will be available to the Company when needed
         or, if available, that it can be obtained on commercially reasonable
         terms. These consolidated financial statements have been prepared on
         the going concern basis which assumes that adequate sources of
         financing will be obtained as required and that the Company's assets
         will be realized and liabilities settled in the ordinary course of
         business. Accordingly, these consolidated financial statements do not
         include any adjustments related to the recoverability of assets and
         classification of assets and liabilities that might be necessary should
         the Company be unable to continue as a going concern.

2.       SIGNIFICANT ACCOUNTING POLICIES:

         (a)  Basis of presentation:

              These consolidated financial statements include the accounts of
              the Company and its wholly-owned subsidiaries, SmarTire USA Inc.,
              SmarTire (Europe) Ltd., and SmarTire Technologies Inc. All
              intercompany balances and transactions have been eliminated.

         (b)  Research and development costs:

              Research and development costs are expensed as incurred. Equipment
              used in research and development is capitalized only if it has an
              alternative future use.

         (c)  Cash and cash equivalents:

              Cash and cash equivalents includes investments in short-term
              investments with a term to maturity when acquired of 90 days or
              less.


                                                                               5
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

         (d)  Inventory:

              Inventory is valued at the lower of cost and net realizable value.
              Cost is determined using the weighted average method and includes
              invoice cost, duties and freight. Provision for obsolescence is
              estimated by management based on historical and expected future
              sales.

         (e)  Fixed assets:

              Fixed assets are recorded at cost. Depreciation of computer
              hardware and software and office and shop equipment is provided
              for on the declining balance basis at 30% per annum. Leasehold
              improvements are depreciated over the lesser of their useful lives
              or the term of the lease.

         (f)  Other assets:

              Other assets includes the license to manufacture and sell tire
              monitoring systems to the original equipment vehicle manufacturers
              (note 5). Other assets are recorded at cost and are being
              amortized over five years on a straight-line basis.

         (g)  Impairment of long-lived assets:

              The Company monitors the recoverability of long-lived assets,
              based on estimates using factors such as expected future asset
              utilization, business climate and future undiscounted cash flows
              expected to result from the use of the related assets or be
              realized on sale. The Company recognizes an impairment loss if the
              projected undiscounted future cash flows is less than the carrying
              amount. The amount of the impairment charge, if any, is measured
              equal to the excess of the carrying value over the expected future
              cash flows discounted using the Company's average cost of funds.

         (h)  Revenue recognition:

              The Company recognizes revenue when goods are shipped and title
              passes, there is persuasive evidence of an arrangement, collection
              is probable, and the fee is fixed or determinable. Customer
              acceptance is used as the criterion for revenue recognition when
              the product sold does not have an established sales history to
              allow management to reasonably estimate returns and future
              provisions. Provisions are established for estimated product
              returns and warranty costs at the time the revenue is recognized.
              The Company records deferred revenue when cash is received in
              advance of the revenue recognition criteria being met.

         (i)  Earnings (loss) per share:

              Basic earnings (loss) per share computations are based on the
              weighted average number of shares outstanding during the year. If
              in a period the Company had outstanding dilutive stock options and
              warrants, diluted earnings (loss) per share is calculated using
              the treasury stock method.


                                                                               6
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

         (j)  Income taxes:

              The Company accounts for income taxes in accordance with the asset
              and liability method. Under this method, deferred income taxes are
              recognized for the future income tax consequences attributable to
              differences between the financial statement carrying amounts and
              their respective income tax bases and for loss and tax credit
              carryforwards. Deferred tax assets and liabilities are measured
              using enacted tax rates expected to apply to taxable income in the
              years in which temporary differences are expected to be recovered
              or settled. The effect on deferred income tax assets and
              liabilities of a change in tax rates is recognized in income in
              the period of enactment. Deferred income tax assets are evaluated
              and if their realization is not considered to be "more likely than
              not", a valuation allowance is provided.

         (k)  Foreign currency translation:

              The Company's functional or primary operating currency is the
              Canadian dollar. The Company's financial statements are prepared
              in Canadian dollars before translation to the U.S. dollar
              reporting currency. The Company translates transactions in
              currencies other than the Canadian dollar at the exchange rate in
              effect on the transaction date. Monetary assets and liabilities
              denominated in a currency other than the Canadian dollar are
              translated at the exchange rates in effect at the balance sheet
              date. The resulting exchange gains and losses are recognized in
              earnings.

              Amounts reported in Canadian dollars have been translated into
              U.S. dollars as follows: assets and liabilities are translated
              into U.S. dollars at the rate of exchange in effect at the balance
              sheet date and revenue and expense items are translated at the
              average rates for the period. Unrealized gains and losses
              resulting from the translation into the reporting currency are
              accumulated in a cumulative other comprehensive loss, a separate
              component of stockholders' equity.

         (l)  Use of estimates:

              The preparation of financial statements in conformity with
              accounting principles generally accepted in the United States of
              America requires management at the date of the financial
              statements to make estimates and assumptions that affect the
              reported amounts of assets and liabilities and disclosure of
              contingent assets and liabilities at the date of the financial
              statements and the reported amounts to revenues and expenses
              during the reporting period. Significant areas requiring the use
              of estimates include estimating the net realizable value of
              inventory and the future cash flows for assessing the net
              recoverable amount of long-lived assets. Actual results may differ
              from those estimates.


                                                                               7
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

         (m)  Stock-based compensation plans:

              The Company has elected under FAS 123, "Accounting for Stock-Based
              Compensation" to account for employee stock options using the
              intrinsic value method pursuant to Accounting Principles Board
              ("APB") Opinion No. 25, or "Accounting for Stock Issued to
              Employees" and related interpretations. As such, compensation
              expense under the Company's fixed option plans is recorded on the
              date of grant only if the market price of the underlying stock at
              the date of grant exceeds the exercise price. The pro forma stock
              compensation information required by FAS 123 is presented in note
              8(d).

              The Company recognizes compensation expense for stock options,
              common stock and other instruments issued to non-employees for
              services received based upon the fair value of the equity
              instruments issued as the services are performed and the
              instrument earned.

              If the exercise price of employee stock option award is not fixed
              in the functional currency of the Company or in the currency the
              employee is paid, the award is accounted for as a variable award
              until the award is exercised, forfeited, or expires unexercised.
              The Company measures compensation as the amount by which the
              quoted market value of the common shares of the Company's stock
              covered by the grant exceeds the option price with changes in the
              market price included in the measurement of loss.

         (n)  Comprehensive income:

              Under SFAS 130, "Reporting Comprehensive Income", the Company is
              required to report comprehensive income, which includes net
              earnings as well as changes in equity from non-owner sources. The
              other changes in equity included in comprehensive income for the
              periods presented comprise the foreign currency cumulative
              translation adjustments. Accumulated other comprehensive income
              (loss) is presented in the consolidated financial statements of
              stockholders' equity and comprehensive income (loss).

         (o)  Comparative figures:

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


3.       INVENTORY:

<TABLE>
<CAPTION>
                                                2002           2001
                                            ----------     ----------
<S>                                         <C>            <C>
         Raw materials                      $  143,368     $  823,366
         Work in progress                           --        351,516
         Finished goods                      1,134,585        302,869
                                            ----------     ----------
                                            $1,277,953     $1,477,751
                                            ==========     ==========
</TABLE>


                                                                               8
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

4.       FIXED ASSETS:

<TABLE>
<CAPTION>
                                                                   Accumulated    Net book
         2002                                            Cost      amortization    value
         ----                                         ----------   ------------   --------
<S>                                                   <C>            <C>          <C>
         Computer hardware and software               $  503,407     $307,693     $195,714
         Office and shop equipment                       764,573      438,806      325,767
         Leasehold improvements                          170,997       67,296      103,701
                                                      ----------     --------     --------
                                                      $1,438,977     $813,795     $625,182
                                                      ==========     ========     ========
</TABLE>


<TABLE>
<CAPTION>
                                                                   Accumulated    Net book
         2001                                            Cost      amortization    value
         ----                                         ----------   ------------   --------
<S>                                                   <C>            <C>          <C>
        Computer hardware and software                $  429,985     $247,955     $182,030
        Office and shop equipment                        715,567      325,278      390,289
        Leasehold improvements                           176,973       43,143      133,830
                                                      ----------     --------     --------
                                                      $1,322,525     $616,376     $706,149
                                                      ==========     ========     ========
</TABLE>


5.       OTHER ASSETS:

         On August 31, 2001, the Company and TRW Inc. entered into an agreement
         to restructure their strategic alliance. Under the terms of
         restructuring, SmarTire and TRW agreed to terminate a number of
         agreements. The Company now has the right to manufacture and sell tire
         monitoring systems to the original equipment vehicle manufacturers
         market ("OEM"). Consideration consisted of a promissory note of $2.8
         million, carrying an interest rate of 6% per annum plus cash of
         $500,000. The promissory note is secured by personal property and
         assets of the Company, including equipment, inventory, accounts
         receivable, intangibles and other personal property. The principal
         amount of the note is to be paid in installments accompanied by accrued
         interest to the date of each payment. The Company made three principal
         payments, totaling $1,450,000 in the aggregate, together with accrued
         interest, under the promissory note during the year ended July 31,
         2002.

         The remaining principal payments are repayable as follows:

<TABLE>
<S>                                                               <C>
         June 28, 2002                                            $450,000
         September 30, 2002                                        450,000
         December 13, 2002                                         450,000

</TABLE>

         Subsequent to year end, TRW Inc. granted an extension to the Company to
         make the balance of the principal payments (note 14).


                                                                               9
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

5.       OTHER ASSETS (CONTINUED):

         On December 13, 2000, the Company entered into an Assignment and
         Amendment Agreement with TRW Inc. that transfers to the Company the
         license to manufacture and sell tire monitoring systems to the original
         equipment vehicle manufacturers of most medium and heavy duty trucks.
         Consideration consisted of 490,072 shares of common stock valued at
         $1,337,500, based on the market value of the Company's stock at the
         date of purchase, plus cash of $400,000.

         The rights are being amortized over five years on a straight-line
         basis.

<TABLE>
<CAPTION>
                                                                     Accumulated     Net book
         2002                                            Cost       amortization      value
         ----                                         ----------    ------------    ----------
<S>                                                   <C>            <C>            <C>
         OEM - most medium and heavy duty
            trucks                                    $1,737,500     $  612,606     $1,124,894
         OEM - all other vehicles                      3,300,000        667,421      2,632,579
                                                      ----------     ----------     ----------
                                                      $5,037,500     $1,280,027     $3,757,473
                                                      ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                     Accumulated     Net book
         2001                                            Cost       amortization      value
         ----                                         ----------    ------------    ----------
<S>                                                   <C>            <C>            <C>
         OEM - most medium and heavy duty
            trucks                                    $1,737,500     $  228,760     $1,508,740
                                                      ==========     ==========     ==========
</TABLE>


6.       GAIN ON SALE OF INVESTMENT:

         During 2000, the Company made an investment in Transense Technologies
         plc ("Transense") through the issuance of 25,000 common shares of the
         Company valued at $37,500, based on the market value of the Company's
         stock at the date of investment, plus cash of $161,230 in exchange for
         250,000 common shares and 250,000 share purchase warrants of Transense.
         The Company exercised the Transense warrants at a cost of $794,100 and
         sold all its Transense common shares for net cash proceeds of
         $9,336,317. The Company still retains its rights under the license
         agreement with Transense. Under the terms of the agreement, the Company
         has a worldwide non-exclusive license to Transense's surface acoustic
         wave technology for certain tire pressure monitoring applications.


                                                                              10
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

7.       SHARE CAPITAL:

         (a)  Authorized capital was increased by 181,251 common shares in 2001,
              increasing the authorized capital to 200,000,000 common shares
              without par value.

         (b)  The subscribed and issued share capital of the Company is as
              follows:

              (i)  For the year ended July 31, 2002, the Company realized net
                   cash proceeds of $4,856,629 from the completion of three
                   separate private placements, each effected pursuant to
                   Regulation S under the Securities Act of 1933. In the first
                   private placement, the Company issued and sold 1,830,000
                   units for net cash proceeds of $2,955,469. Each unit was
                   issued at a price of $1.70 and consisted of one common share
                   and one common share purchase warrant. Each warrant entitles
                   the holder to purchase one common share of the Company and is
                   exercisable at a price of: (a) $2.30 if exercised on or
                   before June 30, 2002; (b) $2.80 if exercised after June 30,
                   2002 and on or before February 28, 2003; and (c) $3.30 if
                   exercised after February 28, 2003 but on or before October
                   31, 2003, on which date the warrant will expire. Advisors to
                   the private placement were issued 58,100 share purchase
                   warrants exercisable at a price of $1.70 and a cash
                   commission of $149,770 plus expenses of $5,761. The warrants
                   are exercisable over three years from the date of issuance.
                   The estimated fair value of these warrants is recorded as a
                   capital transaction as the services relate to an equity
                   transaction by a charge against share capital and a
                   corresponding credit to additional paid-in capital. The fair
                   value of these warrants at the date of grant was $110,625.

                   In the second private placement, the Company issued and sold
                   750,000 common shares at a price of $1.75 per share for net
                   cash proceeds of $1,173,660. Advisors to the private
                   placement were issued 52,500 share purchase warrants
                   exercisable at a price of $1.75 and a cash commission of
                   $131,250 plus expenses of $7,590. The warrants are
                   exercisable over three years from the date of issuance. The
                   fair value of these warrants at the date of grant was
                   $95,715.

                   In the third private placement, the Company issued and sold
                   750,000 common shares at a price of $1.00 per share for net
                   cash proceeds of $727,500. Advisors to the private placement
                   were issued 22,000 common shares plus a cash commission of
                   $22,500. The fair value of these shares at the date issued
                   was $28,358.

                   The Company also realized net proceeds of $298,110 from the
                   exercise of 200,000 warrants. On May 19, 2002, 140,000
                   warrants were exercised at $1.50. On June 26, 2002, 60,000
                   warrants issued in the Company's first private placement in
                   fiscal 2002 were repriced from $2.30 to $1.65 and exercised
                   and an additional 30,000 share purchase warrants exercisable
                   at a price of $2.80 per share were issued. The new warrants
                   are exercisable over three years from the date of issuance.
                   Advisors to the private placement earned a cash commission of
                   $10,890.


                                                                              11

<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

7.       SHARE CAPITAL (CONTINUED):

         (b)  The subscribed and issued share capital of the Company is as
              follows (continued):

              (ii)  During the year ended July 31, 2000, the Company agreed to
                    issue warrants to purchase 119,717 common shares at $2.00
                    per share for consulting and advisory services rendered in
                    connection with private placements. The warrants were all
                    exercisable on July 31, 2001 and will expire between
                    February 21, 2002 and March 31, 2003. The fair value of
                    these warrants at the date of grant was $182,903.

                    The fair value of the warrants was estimated on the date of
                    issuance using the Black-Scholes option valuation model with
                    the following assumptions:

<TABLE>
<CAPTION>
                                                         2002      2001        2000
                                                       -------    ------     ----------
<S>                                                    <C>          <C>      <C>
                    Expected dividend yield                 0%      --               0%
                    Expected stock price volatility       133%      --             196%
                    Risk-free interest rate              4.32%      --            6.03%
                    Expected life of warrants          3 years      --       2.65 years
</TABLE>


              (iii) The Company completed various private placement transactions
                    involving the sale of its common stock during the year ended
                    July 31, 2000 for net proceeds of $6,322,676 from the
                    issuance of 3,415,250 common shares at a price of $2.00 per
                    share. Of the total shares sold, 1,505,000 were issued in
                    October 1999 and an additional 1,910,250 were issued in
                    March 2000.

              (iv)  The exercise prices of warrants issued were not less than
                    the market price of the Company's common shares at the date
                    of issuance.

         (c)  Stock-based compensation plans:

              At July 31, 2002, the Company has five stock-based compensation
              plans that are described below.

              The Company has the following fixed stock option plans:

              (i)   Prior to 1998, the Company had an initial plan whereby the
                    Company could grant employees options to purchase common
                    stock. These options vested immediately on the date of grant
                    and expire five years after grant date. The exercise price
                    of cash option equals the fair value of the common stock on
                    the date of grant.

              (ii)  Under the "1998 US Stock Incentive Plan" the Company may
                    grant options to its employees for up to 300,000 common
                    shares.

                    Under the "1998 Stock Incentive Plan" the Company may grant
                    options to its employees for up to 600,000 common shares.

              (iii) Under the "1999 Stock Incentive Plan" the Company may grant
                    common shares to the employees based on the operating
                    results and the market value of the shares of the Company.
                    This plan does not specify a maximum number of common shares
                    that could be granted. No shares have been issued under this
                    plan.


                                                                              12
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

7.       SHARE CAPITAL (CONTINUED):

         (c)  Stock-based compensation plans (continued):

              (iii) Under the "1999 Stock Incentive Plan" the Company may grant
                    common shares to the employees based on the operating
                    results and the market value of the shares of the Company.
                    This plan does not specify a maximum number of common shares
                    that could be granted. No shares have been issued under this
                    plan.

              (iv)  Under the "2000 US Stock Incentive Plan" the Company may
                    grant options to its employees for up to 200,000 common
                    shares.

                    Under the "2000 Stock Incentive Plan" the Company may grant
                    options to its employees for up to 800,000 common shares.

              The options currently outstanding under "1998 US Stock Incentive
              Plan" and "2000 Stock Incentive Plan" generally vest from two to
              four years, with the first 20% to 33% vesting at the date of grant
              and the balance vesting annually at each anniversary date of the
              grant thereafter. The exercise price of each option is based on
              the fair value of the common stock at the date of grant. These
              options have a five year term.

         A summary of fixed stock option transactions and balances during the
         three years ended July 31, 2001 is as follows:

<TABLE>
<CAPTION>
                                                  2002                       2001                     2000
                                       -------------------------   -------------------------   -----------------------
                                                      Weighted                    Weighted                  Weighted
                                                       average                     average                   average
                                                      exercise                    exercise                  exercise
                                         Shares         price        Shares         price       Shares        price
                                       ---------     -----------   ---------     -----------   -------     -----------
<S>                                    <C>              <C>          <C>            <C>        <C>            <C>
         Outstanding, beginning        1,458,750        $ 3.20       997,625        $ 3.09     670,425        $ 3.47
            of year
               Options granted           484,700          2.88       498,600          3.44     674,500          2.78
               Options exercised              --            --       (11,500)        (2.00)     (1,600)        (2.00)
               Options forfeited        (266,200)        (3.40)      (25,975)        (2.99)   (345,700)        (3.35)
                                       ---------        ------     ---------        ------     -------        ------
          Outstanding, end of year     1,677,250        $ 3.08     1,458,750        $ 3.20     997,625        $ 3.09
                                       =========        ======     =========        ======     =======        ======
</TABLE>

<TABLE>
<CAPTION>
                                       Options outstanding                        Options exercisable
                             ----------------------------------------        ----------------------------
                                             Weighted
                                             average         Weighted                            Weighted
                                            remaining         average                             average
        Range of               Number      contractual       exercise           Number           exercise
        exercise prices      of shares         life            price         exercisable           price
        ----------------     ---------     -----------       --------        -----------         --------
<S>                          <C>                  <C>          <C>             <C>                 <C>
        $1.65 - 2.89           917,458            2.46         $ 2.61            776,860           $ 2.65
        $2.90 - 4.69           759,792            3.24           3.65            363,903             3.26
        ----------------     ---------     -----------       --------        -----------         --------
        $1.65 - 4.69         1,677,250            2.81         $ 3.08          1,140,763           $ 2.85
        ================     =========     ===========       ========        ===========         ========
</TABLE>



                                                                              13
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

7.       SHARE CAPITAL (CONTINUED):

         (c)  Stock-based compensation plans (continued):

              The Company normally issues options to directors at fixed exercise
              prices. 120,000 options issued to directors and outstanding as at
              July 31, 2002 (2001 - 90,000) vest immediately, but if not
              exercised each year, there is an annual 20% increase in the
              exercise price until the options expire. For accounting purposes
              these options are considered to be variable in nature and
              compensation expense is recorded to the extent of increases in the
              market value of the underlying common shares as compared to the
              exercise price at each reporting period.

              Where options issued after January 18, 2001 have an exercise price
              in a currency that is not either the (a) functional currency of
              the Company, or (b) the currency in which the employee is paid,
              the options are to be accounted for as variable plan options and
              compensation expense will be recorded equal to changes in the
              market value of the underlying common shares at each reporting
              period. During the year ended July 31, 2002 and 2001, the Company
              granted options in U.S. dollars when the functional currency of
              the Company is the Canadian dollar. Most employees of the Company
              are paid in Canadian dollars or British pounds. Accordingly, these
              employee options are considered to be variable options.

              The compensation recovery (expense) for variable options for the
              year ended July 31, 2002 is $3,190 (2001 - ($3,190); 2000 - nil).
              In addition, compensation expense is recognized to the extent that
              options are granted having an exercise price less than the market
              price of the underlying common stock on the date of grant.

         (d)  Stock-based compensation:

              As explained in note 2(m), the Company has adopted only the
              disclosure provisions of FAS 123, to account for grants under the
              Company's existing employee stock based compensation plans. The
              exercise price of each option is based on the fair value of the
              common stock at the date of the grant Accordingly, no compensation
              cost has been recognized for the stock option plan. Had
              compensation cost for the Company's stock option plan been
              determined based on the fair value at the grant date for awards
              under those plans consistent with the measurement provisions of
              FAS 123, the Company's net earnings (loss) and earnings (loss) per
              share would have been adjusted as follows:

<TABLE>
<CAPTION>
                                                                  2002            2001             2000
                                                              -----------      -----------      ----------
<S>                                                           <C>              <C>              <C>
              Net earnings (loss):
                 As reported                                  $(6,829,176)     $(5,507,019)     $1,905,178
                 Pro forma                                     (7,886,498)      (6,762,702)      1,375,301
              Basic and diluted earnings (loss) per share:
                 As reported                                        (0.41)           (0.39)           0.14
                 Pro forma                                          (0.47)           (0.47)           0.10
</TABLE>



                                                                              14
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

7.       SHARE CAPITAL (CONTINUED):

         (d)  Stock-based compensation (continued):

              The Company recognizes the compensation expense at the date of
              granting the stock options on a straight-line basis over the
              vesting period.

              The fair value of each option grant is estimated on the date of
              the grant using the Black-Scholes option valuation model with the
              following weighted average assumptions:

<TABLE>
<CAPTION>
                                                          2002              2001          2000
                                                       ----------       ---------      ----------
<S>                                                    <C>             <C>             <C>
              Expected dividend yield                          0%              0%              0%
              Expected stock price volatility                129%            220%            195%
              Risk-free interest rate                       4.35%           5.60%           5.89%
              Expected life of options                 1.67 years      2.00 years      3.80 years
</TABLE>


              Weighted-average fair values of options granted during the year
              are as follows:


<TABLE>
<CAPTION>
                                                                        2002         2001        2000
                                                                       -----        -----       -----
<S>                                                                    <C>          <C>         <C>
              Options whose exercise price at date of grant:
                  Equals the market price of stock                     $  --        $3.88       $  --
                  Exceeds the market price of stock                     2.07         3.04        1.64
                  Is less than the market price of stock                  --         3.25          --
</TABLE>

         (e)  Warrants:

              As at July 31, 2002, warrants outstanding were exercisable for
              2,030,317 (2001 - 309,717) common shares of the Company. The
              warrants entitle the holders to purchase common shares of the
              Company at prices ranging from $1.70 to $2.80 per share and expire
              on various dates until June 27, 2005.

8.       FINANCIAL INSTRUMENTS:

         (a)  Fair value of financial instruments:

              The carrying values of cash and cash equivalents, receivables,
              accounts payable and accrued liabilities and promissory notes
              payable approximate their fair values due to being in a ready cash
              form or the short-term maturity of these instruments.

         (b)  Credit risk:

              The majority of the Company's activities are concentrated in the
              automotive industry and sales are primarily to a few major
              customers (note 13). To reduce credit risk, management performs
              ongoing credit evaluations of its customers' financial condition.
              The Company maintains reserves for potential credit losses.


                                                                              15

<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

8.       FINANCIAL INSTRUMENTS (CONTINUED):

         (c)  Foreign currency risk:

              The Company operates internationally which gives rise to the risk
              that cash flows may be adversely impacted by exchange rate
              fluctuations. To July 31, 2002, the Company has not entered into
              derivatives or other hedging instruments to mitigate its foreign
              exchange risk.

9.       RELATED PARTY TRANSACTIONS:

         During the year ended July 31, 2002, the Company:

         (a)  Paid $115,900 (2001 - $78,510) for consulting services and
              financing fees on the private sales of its common stock and issued
              46,900 (2001 - nil) share purchase warrants at an exercise price
              of $1.70, expiring on January 18, 2005 for financing services to a
              company in which a director of the Company has significant
              influence. The director also received 15,000 (2001 - 15,000)
              options from the Company during the year.

         (b)  Paid $98,752 (2001 - $79,858) for legal fees to a legal firm in
              which a former director (resigned in July 2002) of the Company is
              a partner.


10.      INCOME TAXES:

         (a)  Effective tax rate:

              The effective income tax rates differ from the Canadian statutory
              rates for the following reasons:


<TABLE>
<CAPTION>
                                                                  2002                2001               2000
                                                              -----------         -----------        -----------
<S>                                                           <C>                 <C>                <C>
            Canadian statutory tax rate                              41.7%               45.6%             45.6%

            Computed tax expense                              $(2,847,766)        $(2,511,200)       $   868,761
            Foreign losses tax affected at lower rates            128,066             260,118            312,515
            Reduction in effective tax rates                      483,059           1,600,378                 --
            Permanent and other differences                       975,676             115,318         (1,304,630)
            Change in valuation allowance                       1,260,965             535,386            123,354
                                                              -----------         -----------        -----------
                                                              $        --         $        --        $        --
                                                              ===========         ===========        ===========
</TABLE>


                                                                              16
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

10.      INCOME TAXES (CONTINUED):

         (b)  Deferred tax assets and liabilities:

<TABLE>
<CAPTION>

                                                                      2002                2001               2000
                                                                ------------        ------------       ------------
<S>                                                             <C>                 <C>                <C>
              Deferred tax assets:
                  Fixed and other assets, accounting
                      depreciation in excess of tax             $    519,987        $    328,787       $    560,308
                  Loss carryforwards                              11,472,671          10,137,211          9,084,020
                  Scientific research and development                319,525             352,985            435,823
                      expenses
                  Share issue costs                                  192,718             218,050            415,712
                  Others                                               1,150             208,053            213,837
                                                                ------------        ------------       ------------
              Total gross deferred tax assets                     12,506,051          11,245,086         10,709,700
              Valuation allowance                                (12,506,051)        (11,245,086)       (10,709,700)
                                                                ------------        ------------       ------------
              Net deferred tax assets                           $         --        $         --       $         --
                                                                ============        ============       ============
</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 be realized. The ultimate realization
         of the deferred tax assets is dependent upon the generation of future
         taxable income during the periods in which those temporary differences
         become deductible.

         For Canadian tax purposes, the Company has approximately $21,600,000 of
         non-capital losses for income tax purposes available at July 31, 2002
         to reduce taxable income of future years. These losses will expire as
         follows:


<TABLE>
<S>                                                                <C>
         2003                                                        1,800,000
         2004                                                        2,300,000
         2005                                                        2,700,000
         2006                                                        6,400,000
         2007                                                          100,000
         2008                                                        3,600,000
         2009                                                        4,700,000
                                                                   -----------
                                                                   $21,600,000
                                                                   ===========
</TABLE>


         Additionally, for Canadian tax purposes, the Company has scientific
         research and development expenditures of $898,000 available to reduce
         future taxable income indefinitely.


                                                                              17
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2002 and 2000

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

10.      INCOME TAXES (CONTINUED):

         For United States tax purposes, the Company has approximately
         $5,400,000 of non-capital losses for income tax purposes available at
         July 31, 2002 to reduce taxable income of future years. These losses
         will expire as follows:

<TABLE>

<S>                                                                   <C>
         2012                                                         $  100,000
         2013                                                          1,000,000
         2019                                                          1,800,000
         2020                                                          1,300,000
         2021                                                            400,000
         2022                                                            800,000
                                                                      ----------
                                                                      $5,400,000
                                                                      ==========
</TABLE>

         For United Kingdom tax purposes, the Company has approximately
         $6,400,000 of non-capital losses for income tax purposes available at
         July 31, 2002 to reduce taxable income of future years. These losses
         may be carried forward indefinitely.


11.      EARNINGS (LOSS) PER SHARE:

         The weighted average number of shares outstanding used in the
         computation of earnings (loss) per share were as follows:

<TABLE>
<CAPTION>
                                                            2002           2001           2000
                                                         ----------     ----------     ----------
<S>                                                      <C>            <C>            <C>
         Weighted-average shares used in computation
            of basic earnings (loss) per share           16,743,977     14,296,240     13,159,385

         Weighted average shares from assumed
            conversion of dilutive warrants                      --             --        137,603

                                                         ----------     ----------     ----------
         Fully diluted weighted average number
            of common shares                             16,743,977     14,296,240     13,296,988
                                                         ==========     ==========     ==========
</TABLE>


12.      COMMITMENTS AND CONTINGENCIES:

         (a)  The Company is committed to the following payments under operating
              leases, and service agreements for premises and certain equipment
              and consultants:


<TABLE>
<S>                                                                     <C>
              2003                                                      $355,769
              2004                                                       316,316
              2005                                                       316,316
              2006                                                       136,587
              2007                                                       120,226
</TABLE>


                                                                              18
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

12.      COMMITMENTS AND CONTINGENCIES (CONTINUED):

         (b)  Cash and short-term investments are used to secure credit card
              advances in the amount of $40,777 (2001 - $41,340).

         (c)  A former sales representative has advanced a claim against the
              Company with respect to procuring customer relationships on behalf
              of the Company. The Company does not believe that any commissions
              are owing with respect to the services provided by this
              representative. No accrual has been provided in these financial
              statements for this contingent liability.


13.      SEGMENTED INFORMATION:

         The Company operates in the wireless tire monitoring technology
         industry. Management of the Company makes decisions about allocating
         resources based on this one operating segment.

         Substantially all revenue is derived from sales to United States and
         European customers. Geographic information is as follows:


<TABLE>
<CAPTION>
                                            Revenue from
                                         external customers
                             ----------------------------------------
                                 2002           2001           2000
                             ----------       --------       --------
<S>                          <C>              <C>            <C>
         United States       $  547,328       $581,514       $558,560
         Europe                 465,016        198,097        189,178
                             ----------       --------       --------
                             $1,012,344       $779,611       $747,738
                             ==========       ========       ========
</TABLE>


         72% of the Company's fixed assets are in Canada and 28% are in Europe.

         Major customers, representing 10% or more of total sales, include:

<TABLE>
<CAPTION>
                                               2002          2001          2000
                                            --------      --------      --------
<S>                                         <C>           <C>           <C>
         Customer A                         $ 27,995      $143,788      $106,098
         Customer B                           36,003       246,803       202,684
         Customer C                          143,487       126,742            --
         Customer D                          187,314            --            --
</TABLE>


                                                                              19
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

14.      SUBSEQUENT EVENTS:

         (a)  On September 26, 2002 and October 4, 2002, the Company realized
              gross cash proceeds of $500,000 and $250,000 respectively from the
              issuance of 10% redeemable convertible notes of the Company plus
              150,000 share purchase warrants from the completion of a private
              placement effected pursuant to Regulation S under the Securities
              Act of 1933. The agreements were signed on September 20, 2002 and
              the notes mature on December 20, 2002. Interest on these notes is
              payable when the notes are fully converted or redeemed. At the
              option of the Company, the Company may make interest payments and
              redeem the notes in cash or in shares of the Company's common
              stock. The conversion price of the notes is the lesser of:

              (i)  an amount which is equal to seventy-five percent (75%) of the
                   average of the three lowest Closing Bid Prices for the ten
                   (10) day period ending on the day before the Scheduled
                   Maturity Date; or

              (ii) $1.00


              Each warrant entitles the holder to purchase one of the Company's
              common shares and is exercisable at a price of $1.25 on or before
              September 20, 2005, on which date the warrant will expire.

              The Company shall have the right to prepay all of the principal
              and accrued interest outstanding under the notes as follows:

              (i)  for the period from September 20, 2002 until and including
                   October 20, 2002, 110% multiplied by the principal amount of
                   these notes plus all accrued and unpaid interest through the
                   date of repayment;

              (ii) for the period from October 21, 2002 until and including
                   November 19, 2002, 115% multiplied by the principal amount of
                   these notes plus all accrued and unpaid interest through the
                   date of prepayment; and

              (iii) for the period from November 20, 2002 until and including
                   December 20, 2002, 120% multiplied by the principal amount of
                   these notes plus all accrued and unpaid interest through the
                   date of prepayment.

              The fair value of warrants using the Black-Scholes model and
              intrinsic value of the beneficial conversion feature is $684,000
              and will be recorded as additional paid-in capital. The intrinsic
              value is the conversion price for the notes less the fair value of
              the underlying common shares at the date of the agreement. The
              remaining balance of $66,000 will be recorded as a liability. The
              carrying value of the liability will be accreted to the redemption
              value of the notes over the period from September 26, 2002 to its
              initial maturity date of December 20, 2002. The accretion amount
              would be charged to the statement of operations.


                                                                              20
<PAGE>

SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended July 31, 2002, 2001 and 2000

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

14.      SUBSEQUENT EVENTS (CONTINUED):

         (a)  (Continued):

              Advisors to the private placement will be issued a commission of
              8% on the face value of the notes and 60,000 share purchase
              warrants exercisable at a price equal to the conversion price of
              the convertible notes into common shares. The warrants are
              exercisable over three years from the date of issuance.

         (b)  On October 7, 2002, the Company paid TRW Inc. $250,000. TRW Inc.
              granted the Company an extension to make the balance of the
              principal payments as follows:

<TABLE>

<S>                                                                    <C>
              October 31, 2002                                         $650,000
              December 13, 2002                                         450,000
</TABLE>
<PAGE>

Index to Exhibits


    3.1     Certified of Incorporation of TTC/Truck Tech Corp. dated September
            8, 1987 (1)

    3.2     Memorandum and Articles of TTC/Truck Tech Corp. (1)

    3.3     Memorandum of TTC/Truck Tech Corp. dated September 2, 1987 (1)

    3.4     Altered Memorandum of TTC/Truck Tech Corp. dated October 25, 1991
            (1)

    3.5     Certificate of Change of Name from TTC/Truck Tech Corp. to UniComm
            Signal Inc. dated April 13, 1994 (1)

    3.6     Certificate of Change of Name from UniComm Signal Inc. to SmarTire
            Systems Inc. dated December 24, 1997 (1)

    3.7     Special Resolution and Altered Memorandum of UniComm Signal Inc.
            dated October 28, 1994 (1)

    3.8     Special Resolution and Altered Memorandum of UniComm Signal Inc.
            dated January 17, 1997 (1)

    3.9     Special Resolution and Altered Memorandum of SmarTire Systems Inc.
            dated November 17, 1995 (1)

    3.10    Special Resolution and Altered Memorandum of SmarTire Systems Inc.
            dated January 16, 1998 (1)

    3.11    Special Resolution and Altered Memorandum of SmarTire Systems Inc.
            dated December 5, 2000 (8)

    3.12    Substituted articles of SmarTire Systems Inc. adopted December 5,
            2000 (8)

    10.1    Supply Agreement dated April 20, 1998 between the Company and TRW
            Inc. (1)(2)

    10.2    Technical Cooperation Agreement dated as of April 20, 1998 between
            the Company and TRW Inc. (1)(2)

    10.3    License Agreement dated as April 20, 1998 between the Company and
            TRW Inc. (1)(2)

    10.4    Product Licensing Agreement dated May 5, 1998 between the Company
            and Advantage Enterprises Inc. (2)(3)

    10.5    Distribution Agreement dated March 28, 1995 between the Company and
            the Haulpak Division of Komatsu Dresser Company (1)

    10.6    Letter Agreement dated December 4, 1996 between the Company and Pi
            Research Limited (1)

    10.7    ASIS Development 1 Purchase Contract between SensoNor asa, TRW Inc.
            and SmarTire Systems Inc. dated as of September 1, 1998 (4)

    10.8    Release and Settlement Agreement between SmarTire Systems Inc and
            Joseph Merback dated as of June 4, 1999 (4)

    10.9    Management agreement between the Company and Kevin Carlson dated as
            of August 1, 1999 (5)

    10.10   Management agreement between SmarTire USA Inc. and Mark Desmarais
            and SmarTire Systems Inc. dated as of June 1, 1999 (6)

    10.11   Management Agreement between the Company and Shawn Lammers dated as
            of August 1, 1999 (6)

    10.12   Management Agreement between the Company and Robert Rudman dated as
            of August 1, 1999 (6)

    10.13   Management Agreement between SmarTire Europe Limited and Ian Bateman
            dated as of December 9, 1999 (6)

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    10.14   ASIS Development/Purchase Agreement dated as of December 13, 1999
            between the Company and SensoNor ASA (6)(2)

    10.15   License Agreement dated September 20, 1999 between the Company and
            Transense Technologies plc (6)(2)

    10.16   Management agreement between the Company and Erwin Bartz dated as of
            January 3, 2001 (9)

    10.17   Assignment and Amendment agreement with TRW Inc. dated December 13,
            2000 (7)(2)

    10.18   General Security agreement dated August 31, 2001 between the Company
            and TRW Inc. (10)(2)

    10.19   License agreement dated August 31, 2001 between the Company and TRW
            Inc. (10)(2)

    10.20   License agreement dated August 31, 2001 between TRW Inc. and the
            Company (10)(2)

    10.21   Secured Promising note dated August 31, 2001 between the Company and
            TRW Inc. (10)(2)

    10.22   Settlement and Release agreement dated August 31, 2001 between the
            Company and TRW Inc. (10)(2)

    10.23   Termination agreement dated August 31, 2001 between the Company and
            TRW Inc. (10)(2)

    10.24   Form of private placement subscription agreement between the Company
            and purchasers of securities in the Company's first private
            placement completed in January 2002 (11)

    10.25   Advisory fee payment and subscription agreement between the Company
            and West Sussex Trading, Inc. dated January 17, 2002 related to
            partial consideration paid under the Company's private placement
            completed in January 2002 (11)

    10.26   Advisory fee payment and subscription agreement between the Company
            and Seraph Capital AG dated February 12, 2002 related to partial
            consideration paid under the Company's private placement completed
            in January 2002 (11)

    10.27   Private placement subscription agreement between the Company and
            West LB Panmure Limited dated March 21, 2002 related to the
            Company's March 2002 private placement (11)

    10.28   Advisory fee payment and subscription agreement between the Company
            and Seraph Capital AG dated March 26, 2002 related to partial
            consideration paid under the Company's March 2002 private placement
            (11)

    10.29   Management agreement between the Company and Allan Kozak dated as of
            May 1, 2002**

    10.30   Memorandum of understanding between the Company and Visteon**

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    10.31   Form of securities purchase agreement between the Company and
            purchasers of the 10% convertible redeemable promissory note due
            December 20, 2002**

    10.32   Form of 10% convertible redeemable promissory note due December 20,
            2002**

    10.33   Form of share purchase warrants issued with the 10% convertible
            redeemable promissory note due on December 20, 2002**

    10.34   Advisory agreement between the Company and West Sussex Trading Inc.
            dated September 4, 2002**

    11.1    Computation of Earnings Per Share**

    **Filed Herewith

    (1)     Incorporated by reference to Form 10-KSB filed with the Securities
            and Exchange Commission on August 18, 1998.

    (2)     Portions of the Exhibit have been omitted pursuant to an order
            granting confidential treatment under the Securities Exchange Act of
            1934.

    (3)     Incorporated by reference to the Company's Form 10-QSB for the
            quarter ended April 30, 1998.

    (4)     Incorporated by reference to the Company's Form 10-KSB filed with
            the Securities and Exchange Commission on October 29, 1999.

    (5)     Incorporated by reference to the Company's Form S-8 filed with the
            Securities and Exchange Commission on December 17, 1999.

    (6)     Incorporated by reference to the Company's Form 10-QSB filed with
            the Securities and Exchange Commission on March 16, 2000.

    (7)     Incorporated by references to the Company's Form 10-QSB filed with
            the Securities and Exchange Commission on March 15, 2001.

    (8)     Incorporated by reference to the Company's definitive Proxy
            Statement and Information Circular on Schedule 14A filed with the
            Securities and Exchange Commission on October 31, 2000.

    (9)     Incorporated by reference to Form 10-KSB filed with the Securities
            and Exchange Commission on October 26, 2001.

    (10)    Incorporated by reference to the Company's Form 10-KSB/A filed with
            the Securities and Exchange Commission on August 19, 2002.

    (11)    Incorporated by reference to the Company's Form 10-QSB filed with
            the Securities and Exchange Commission on June 14, 2002.