UNITED STATES
U.S. SECURITIES AND EXCHANGE COMMISSION

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 December 31, 2001

OR

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

For the transition period from __________ to __________

Commission File Number: 000-30090

_________________________

IMAGIS TECHNOLOGIES INC.





|British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)              | Not Applicable
(I.R.S. Employer Identification No.)
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------------
|                                                                                                     |                                                    
|1300 - 1075 West Georgia Street
Vancouver, British Columbia
(Address of principal executive offices) | V6E 3C9
(Zip Code)                                 

(604) 684-2449
(Issuer's telephone number, including area code)
_________________________

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:
Common Shares, no par value

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 issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x  No
o

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

The Issuer's revenues for its most recent fiscal year were
Cdn$2,080,704.

The aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of March 18, 2002 was Cdn$43,741,497.  The number of shares
outstanding of each of the Issuer's classes of equity as of March 18, 2002 was
17,287,410 common shares.

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IMAGIS TECHNOLOGIES INC.

FORM 10-KSB

For the Year Ended December 31, 2001

INDEX



|PART I   |                                                                                                                 |   
|-------- | --------------------------------------------------------------------------------------------------------------- | --
|Item 1.  | Description of Business                                                                                         | 3 
|Item 2.  | Description of Property                                                                                         | 13
|Item 3.  | Legal Proceedings                                                                                               | 14
|Item 4.  | Submission of Matters to a Vote of Security Holders                                                             | 14
|         |                                                                                                                
|PART II  |                                                                                                                 |   
|Item 5.  | Market for Common Equity and Related Stockholder
Matters                                                        | 15
|Item 6.  | Management's Discussion and Analysis or Plan of
Operation                                                       | 23
|Item 7.  | Financial Statements                                                                                            | 28
|Item 8.  | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure                            | 45
|         |                                                                                                                
|PART III |                                                                                                                 |   
|Item 9.  | Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act | 46
|Item 10. | Executive Compensation                                                                                          | 48
|Item 11. | Security Ownership of Certain Beneficial Owners and
Management                                                  | 49
|Item 12. | Certain Relationships and Related Transactions                                                                  | 50
|Item 13. | Exhibits and Reports on Form 8-K                                                                                | 52
|         |                                                                                                                

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NOTE REGARDING FORWARD LOOKING
STATEMENTS

Except for statements of historical fact, certain information
contained herein constitutes "forward-looking statements," including
without limitation statements containing the words "believes,"
"anticipates," "intends," "expects," and words of
similar import, as well as all projections of future results.  Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results or achievements of the Issuer
to be materially different from any future results or achievements of the Issuer
expressed or implied by such forward-looking statements.  Such factors include,
but are not limited to the following: the Issuer's limited operating history,
need for additional financing, history of losses, dependence on a small number
of customers, risks involving new product development, competition, management
of growth and integration, risks of technological change, dependence on key
personnel, risks involving lengthy sales cycles, marketing relationships and
third-party suppliers, its ability to protect its intellectual property rights,
exchange rate fluctuations, risks of software defects, risks associated with
product liability, the directors' and officers' involvement in other projects,
the strategic alliance with Sanyo Semiconductor Company and Intacta Technologies
Inc. to form SecurityART Inc., the volatility of the Company's share price,
certain shareholders' exercise of control over certain matters and the other
risks and uncertainties described under "Description of Business - Risk
Factors" in this Form 10-KSB.  Certain of the forward-looking statements
contained in this annual report are identified with cross-references to this
section and/or to specific risks identified under "Description of
Business - Risk Factors."

CURRENCY AND EXCHANGE RATES

The following table sets forth the high and low exchange
rates for one (1) Canadian dollar expressed in terms of one (1) United States
dollar for each of the last six (6) months.



|                   |               |              |               |               |               |               
|------------------ | ------------- | ------------ | ------------- | ------------- | ------------- | --------------
|                   | February
2002 | January
2002 | December
2001 | November
2001 | October 
2001 | September
2001
|                   |               |              |               |               |               |               
|High for the month | .6322         | .6316        | .6418         | .6341         | .6430         | .6487         
|Low for the month  | .6200         | .6175        | .6227         | .6228         | .6325         | .6322         

Exchange rates are based upon the noon buying rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York.  The noon rate of exchange on
March 18, 2002 as reported by the United States Federal Reserve Bank of New York
for the conversion of Canadian dollars into United States dollars was Cdn$1.00
= US$0.6298.  The Issuer prepares its financial statements in Canadian Dollars
("Cdn").  Unless otherwise indicated in this annual report on Form
10-KSB (the "Annual Report" or "Form 10-KSB"), all
references herein are to Canadian Dollars.

2

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Item 1.     Description of Business.

Imagis Technologies Inc. (the "Company"), a British
Columbia corporation, is a developer and marketer of software applications and
advanced biometric facial recognition software solutions both as products and as
a Software Development Kit. These applications provide a range of security
solutions in various industry sectors including airports, law enforcement,
customs, immigration and other government agencies, and gaming. The Company's
principal product is its facial recognition and image identification system,
ID-2000TM, which has facial recognition capabilities that enable users to
use computer technology to identify individuals for processing, documenting,
record keeping, database management, verifying identities and other tasks
performed by law enforcement, security and gaming industry personnel.  See
"Business of the Company."

History of the Company

Incorporation/Name Changes/Initial Business

The Company was incorporated on March 23, 1998, as a British
Columbia corporation under the name 561648 B.C. Ltd., and commenced trading on
the Vancouver Stock Exchange (the "VSE") on September 29, 1998 as a
Venture Capital Pool ("VCP").  A VCP is a "blind pool"
company formed by qualified individuals that raises funds through an initial
public offering ("IPO") of securities, the proceeds of which must be
used primarily to investigate business opportunities for acquisition by the VCP.
As a VCP, The Company's sole business from the time of incorporation was to
investigate business opportunities with a view to completing a Qualifying
Transaction under the applicable rules of the VSE.  A Qualifying Transaction is
a transaction whereby the VCP: (a) issues or makes issuable securities
representing more than 25% of its securities issued and outstanding immediately
prior to the issuance in consideration for the acquisition of significant
assets; (b) enters into an arrangement, amalgamation, merger or reorganization
with another issuer with significant assets, whereby the ratio of securities
that are distributed to the security holders of the VCP and the other issuer
results in the security holders of the other issuer acquiring control of the
resulting entity; or (c) otherwise acquires "significant assets", but
excludes a transaction whereby, prior to completion of the Qualifying
Transaction, a VCP issues for cash securities representing more than 25% of its
securities issued and outstanding immediately prior to the issuance.
"Significant assets" means assets other than cash or securities of
another issuer that, when acquired by the VCP, results in the VCP meeting the
minimum listing requirements set by the VSE for a venture company, in accordance
with the applicable rules of the VSE.  On July 6, 1998 the Company changed its
name from 561648 B.C. Ltd. to Colloquium Capital Corp.

On February 23, 1999, the Company acquired all of the
outstanding shares of Imagis Cascade Technologies Inc.
("Imagis Cascade"), a British Columbia corporation, thereby completing
a Qualifying Transaction and becoming classified as a venture company by the
VSE.  As a result of the acquisition, the Company changed its name from
Colloquium Capital Corp. to Imagis Technologies Inc. on February 25, 1999.

Acquisition of Imagis Cascade

On February 23, 1999, the Company acquired 100% of the
issued and outstanding common shares of Imagis Cascade pursuant to a Share
Purchase Agreement by and among the Company, Imagis Cascade and the former
shareholders of Imagis Cascade (the "Former Imagis Shareholders")
dated December 14, 1998 (the "Imagis Acquisition").  The Company paid
a purchase price of $2,632,000, plus contingent additional consideration of up
to $400,000 (see discussion of contingency below) to the Former Imagis
Shareholders, allocated as described below.  The Former Imagis Shareholders were
Pacific Cascade Consultants Ltd. ("Pacific"), Sonora Logging Limited
("Sonora") and 385078 B.C. Ltd. ("B.C. Ltd").  Pacific, a
Canadian company, is owned by FWC Holdings Ltd., an entity controlled by
Frederick W. Clarke, a current director of the Company, and Andrew Amanovich,
the current Chief Technology Officer of the Company.  Sonora, a private Canadian
company, is controlled by Pamela Markie Clarke, the daughter of Mr. Clarke.
B.C. Ltd., a private Canadian company, has no other affiliation with the Company
other than as a former shareholder of Imagis Cascade.

Under the terms of the Share Purchase Agreement, the parties
thereto agreed to the following:

(a)     The Company collectively
paid Pacific, Sonora and B.C. Ltd. $2,632,000, plus contingent additional
consideration of up to $400,000.  The purchase price was paid to the Former
Imagis Shareholders as follows:

(i)     $100,000 to Pacific, by
application of the sum of $100,000 paid by the Company to Imagis Cascade on
behalf of the Former Imagis Shareholders pursuant to a Confidentiality and
Standstill Agreement by and among the Company, Imagis Cascade and the Former
Imagis Shareholders, dated October 6, 1998, as partial payment of the purchase
price (which amount has been applied);

3

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(ii)     $1,632,000 by allotment and
issue to the Former Imagis Shareholders and First Capital Invest Corp.
("FCIC") (a corporation to which the Former Imagis Shareholders were
indebted in connection with a $350,000 bridge loan provided to Imagis Cascade by
FCIC) of 3,400,000 common shares of the Company (the "Shares") at
$0.48 per share allocated as follows:

(A)     1,764,706 shares to Pacific,
(B)     441,176 shares to Sonora,
(C)     294,118 shares to B.C. Ltd. and
(D)     900,000 shares to FCIC

The shares were restricted securities, subject to a one (1)
year hold period;

(iii)     $900,000 paid to Pacific
as follows:  $150,000 paid through the subscription by Pacific on March 19, 1999
on a private placement basis for 267,857 shares at $0.56 per share, and the
balance paid on May 6, 1999; and

(iv)     up to $400,000 payable to
Pacific if, as and when, certain warrants issued by the Company are exercised
for net proceeds to the Company in excess of $400,000.

(b)     In consideration for
renouncing his right to acquire up to a 6% equity interest in Imagis Cascade,
the Company issued a warrant to purchase 400,000 Shares at an exercise price of
$1.25 per share to Iain Drummond (the "Drummond Warrant").
See "Item 10-Executive Compensation."



History of Business of Imagis Cascade

The Company's wholly owned subsidiary, Imagis Cascade,
acquired substantially all of its current assets pursuant to two technology
purchase agreements between Imagis Cascade, Pacific and B.C. Ltd. dated March 6,
1998 (the "Technology Purchase Agreements").  Pursuant to the
Technology Purchase Agreements, Pacific and B.C. Ltd. became the holders of all
of the issued and outstanding common shares of Imagis Cascade.  Pacific
received 3,000,000 common shares of Imagis Cascade and B.C. Ltd. received
400,000 common shares of Imagis Cascade.  Pacific subsequently transferred
600,000 common shares of Imagis Cascade to Sonora.

Pacific was established in 1989 by Andrew Amanovich, the
Company's Chief Technology Officer, and Frederick Clarke, a director of the
Company.  Pacific's core business was the engineering of complex timber
harvesting systems, the management of map-based data and the development of 3D
landscape visualization technology.

The Imagis Cascade technology and the Company's initial
customer base was developed originally by B.C. Ltd., a company incorporated in
1990 and founded by Penny Walker of Victoria, British Columbia.  B.C. Ltd. was a
software developer and reseller in the area of geographical information systems
and remote sensing services for the natural resources industry.  B.C. Ltd. also
developed and marketed several software systems to manage digital images and
recognized the commercial opportunity for software tools that manage digital
image databases.

In July 1994, Pacific entered into a strategic alliance
arrangement with B.C. Ltd. and loaned B.C. Ltd. funds to provide working capital
in exchange for an option to acquire shares of B.C. Ltd.  The two companies
worked cooperatively on the development of several software projects.  In 1995,
Pacific acquired the operations and revenues of B.C. Ltd., as well as its
intellectual property, the rights to the developed products, products under
development and source code.

Pursuant to the Technology Purchase Agreements,
Pacific and B.C. Ltd. sold to Imagis Cascade all rights to the business that is
now carried on by the Company and the intellectual property.  Under the
Technology Purchase Agreements, Pacific and B.C. Ltd. became the holders of all
of the issued and outstanding shares of Imagis Cascade.  The terms of the
Technology Purchase Agreements were as follows:

- Agreement between B.C. Ltd. and Imagis Cascade:  B.C.
Ltd. sold its business and technology to Imagis Cascade for a purchase price of
$600,000, consisting of 400,000 shares of Imagis Cascade at a price of $1.50 per
share.
- Agreement between Pacific and Imagis Cascade:  Pacific
sold its business and technology to Imagis Cascade for a purchase price of $1.5
million, consisting of 3,000,000 shares of Imagis Cascade at a price of $0.50
per share, plus a royalty equal to 5% of gross sales of the software products
(the "5% Royalty").

4

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The Technology Purchase Agreements transferred the technology
associated with CABSTM, ID-Inmate, Fraud-ID, ENVISAGE, ELMS AND AIREIS to
Imagis Cascade, including all source code, object code, link libraries,
applications, function calls, file structures, screen layouts, hardware
integration routines and documentation for both current an past releases.  All
relevant documentation, including manuals and brochures used in operation,
manufacturing, maintenance and marketing of the products, was included.

As part of the acquisition by the Company of all the issued
and outstanding shares of Imagis Cascade, Pacific agreed to cancel the 5%
Royalty.

The Company's Chief Technology Officer, Andrew Amanovich and
its Chief Engineer, David Lutes, who was instrumental in developing the original
Imagis Cascade product line, continue their work in the research, development,
applications of all software and the core technology.

Business of the Company

General Overview

The Company's principal product is its facial recognition and
image identification system, ID-2000.  ID-2000 is available in three different
formats - (i) a self-contained product providing facial recognition
capabilities, (ii) an Application Server version where the imagery can be
captured and accessed using a Web-browser, and (iii) a set of Active-X controls
that enables any of the Company's business partners to integrate its facial
recognition technology within their own applications.

While ID-2000 can be used with virtually any database of
facial images, the Company's Computerized Arrest & Booking System
("CABS") is designed to be used by law enforcement agencies to hold
all information relating to an offender, including text as well as images.

CABS has been written such that it can be readily adapted to
different markets with similar needs.  An example is the gaming industry, where
a variant on CABS, Casino-IDTM, has been developed to hold all information
on blacklisted players, with ID-2000 enabling their faces to be identified if
the players are on file.

Law enforcement agencies face a common need for time and
cost efficient arrest and booking systems.  Historically, law enforcement
agencies have relied on manual arrest and booking systems.  More recently, the
law enforcement industry has started to recognize the need for automated systems
to increase the efficiency of police officers and to control costs.  The Company
believes CABS can substantially reduce the time needed for an officer to process
and book offenders into the judicial system.  By removing the "paper and
picture" element from this tedious procedure, the Company believes that an
officer can process a repeat offender in less than one-third (1/3) the time
required by manual systems.  This translates directly into substantial cost
savings for police departments of any size, in addition to the operational
benefits that they gain, such as faster identification of suspects.

Products

Current Products

The Company's current products are designed to run on PCs
using Windows 98, Windows 2000, and Windows NT. The underlying database is built
on ORACLE RDBMS and SQL SERVER.  The software is modular in design, permitting
additional functions to be easily added.

The Company released CABS Version 7.0 in the spring of 1998,
which provides fast program execution due to its use of 32-bit program code and
specialized code for enhancing data sharing over wide area networks, and has
integrated its ID-2000 proprietary facial recognition software as part of the
image analysis portion of the CABS software.

CABS - Computerized Arrest & Booking
System

CABS is an integrated information and imaging system
developed for the Royal Canadian Mounted Police ("RCMP") and other law
enforcement agencies.  CABS currently has separate modules for offenders,
non-offenders, staff and evidence.  The offender module automates booking
activities and reports, the production of mugshots and the generation of
line-ups.  Pictures of criminal suspects, as well as their marks, scars, tattoos
and fingerprints, are all captured in the offender module of CABS.  The
non-offender module provides an electronic database of persons, such as teachers
and day-care providers, who are required to be registered with the police.  The
staff module provides for the creation and management of staff identification.
The evidence module provides for electronic management of photographs of
evidence obtained in connection with a criminal arrest.

5

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The CABS system is designed to collect the same information
that would be recorded manually during a traditional booking situation and to
store all of the information and photo images that are required in connection
with arresting and prisoner reports.  Compared to manual bookings, CABS offers
the following advantages:

- captures more information than manual booking systems and
allows the information to be retrieved quickly from multiple locations;
- allows offender information to be used for multiple
inquiries and report generating purposes;
- generates automated line-ups based on user-specified
criteria;
- provides a variety of required reports and other
documents with the offender's photograph;
- allows the collection and retrieval of photographs of the
offender, including identifying physical marks such as tattoos, scars and other
markings;
- creates a database of offender information for access in
the case of subsequent arrests or for generation of suspect lists;
- can be integrated with livescan electronic fingerprinting
systems and with other computer software systems; and
- integrates with key dispatch systems, digital composite
drawing programs and digital fingerprint systems to provide a complete police
information management system.

CABS advanced data sharing capabilities allow different
authorities to access decentralised information.  The Company has recently
implemented its first regional data sharing system.  This allows RCMP
detachments to share live information entered by their individual detachments.
The major advantage of this data sharing system is that it allows one detachment
to search a larger database containing offender information when booking a
suspect, increasing the probability that the booking officer will discover prior
arrests for the same individual.  The RCMP does not retain any ownership
interest or residual rights over the CABS system.

Secure-ID (Airport
Security)

Secure-ID is designed to use ID-2000 to scan the faces of
travellers entering or leaving an airport, isolate individual faces, encode them
and match them against a database of serious criminals or known terrorists.  A
variation on the system is already in use at Toronto's Pearson International
Airport, where the Royal Canadian Mounted Police have successfully used it to
identify wanted individuals trying to enter Canada.

Secure-ID uses standard surveillance cameras and requires no
manual intervention.  While it is possible to identify individuals in a crowd,
cameras should be positioned where they can obtain clear images, such as the
check-in desk, metal detector, gate and so on.  Where there is a possible match,
a monitor in the security office will display the image of the passenger,
together with the image of the possible match in the database.  The security
officer at the screen will visually compare the two images and, if they match,
take appropriate action.

Casino-ID

Casino-ID is a variant on CABS that has been designed for use
in the gaming industry.  While most of the underlying code remains the same, the
graphical user interface has been adapted to the specific needs of casinos.
Even though its primary use will likely be to identify blacklisted players,
Casino-ID is also highly useful in identifying high-rollers and self-barred
players, as well as casino employees.

ID-2000 - Image Detection and Biometric
Facial Recognition

This software technology has enabled the Company to enter the
biometric market.

ID-2000 is a facial recognition software system designed for
the law enforcement, airport security, gaming and security industries that
captures an offender's image, typically via a video camera, and then creates a
biometric code that can be compared to other encoded images in a database.
ID-2000 allows an individual in a database to be identified in seconds, using
only an image or photograph as the search criterion.  Matching records will be
displayed as a list, together with their associated thumbnail images.  From
this, any record can be selected and full details, together with a full size
image, will be displayed.  Extensive linkages enable the database to be mined to
display details, such as aliases, known associates and vehicles, as well as
images of other distinguishing features, such as marks, scars and tattoos.
Where appropriate, details such as previous crimes or gang memberships can also
be displayed.  ID-2000 also works with Casino-ID and Envisage for use in the
gaming and security sectors.

ID-2000 is also available as a Software Development Kit, or
SDK, which is designed to enable developers at the Company's business partners
to integrate its facial recognition capabilities into their own applications.
In early February, 2002, the

6

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Company announced the release of Version 8 of its SDK.  This
technology offers improved facial recognition accuracy from a wide range of
image quality.  Users now have the ability to detect motion, compare streams of
video to database images, authenticate a person's identity and determine
possible matches to a facial image, all within the SDK.  The software also
provides tools to protect, secure and synchronize images and data across a
network, an intranet or the Internet.

In addition, the Company has adapted its facial recognition
software to include the identification of non-facial objects in background
imagery and personally identifiable markings, such as tattoos.  The biometric
solution purchased by the UK's National Crime Squad will be used to crack down
on international online child pornography.  The ability of law enforcement
agencies to identify background imagery, as well as victims and perpetrators, is
an important factor in preparing for and solving missing persons
investigations.

Markets

The Company markets its products globally.  Its products are
currently installed or on order in over 100 sites in Canada, the United States,
Mexico, Korea and the United Kingdom.  Sales campaigns are currently underway in
Hong Kong, China, Malaysia, Saudi Arabia, Switzerland, Germany, Denmark, Czech
Republic, United Arab Emirates and Kuwait.  A key component of the Company's
strategy is to increase the number of its sales directors to enable it to
identify, train and develop new business partners in new territories.  The
benefit of using business partners is particularly important in remote
countries, as it is unlikely the Company could achieve worldwide market coverage
or market access on its own.

In each territory, the Company's products remain basically
the same, with the graphical user interface adapted to local requirements and,
where appropriate, the local language.  All of the Company's products are
language independent, such that a new language version can be produced in
approximately two (2) to three (3) weeks.

During 2000, the Company was awarded a contract through one
of its business partners, Orion Scientific Systems Inc. of Sacramento,
California ("Orion")  to provide all the application software for a
booking and criminal identification system at the 32 police departments within
Alameda County on the eastern side of the San Francisco Bay.  The Alameda County
installation was fully installed by the end of 2001, and is one of the largest
digital imaging systems on the West Coast of North America.

Competition

The law enforcement and security software markets are
competitive and fragmented, consisting of many fast-growing,  rapidly changing
competitors. The principle competitive factors affecting the market for the
Company's products include: supplier competency, product functionality,
performance and reliability of technology, depth and experience in distribution
and operations, ease of implementation, rapid deployment, customer service and
price.  There are several companies which have commercially available products
that have some application similarities to the Company's CABS and ID-2000
products.  Some of these companies have products that include arrest and booking
functions, with four (4) of them market facial recognition software.  The
following software products compete most directly with CABS:

IWS (ImageWare Software)
Smith & Wesson - EBS (Electronic Booking System)
Spillman - BookMate and Jail Management

The Company believes that IWS' installations are in use
across the United States, including statewide mugshot/booking software installed
in Arizona.  Smith & Wesson markets a comprehensive software portfolio for
use in the law enforcement and security industries.  Spillman's market is
primarily located in Utah and the Pacific Northwest of the United States.  These
companies are likely to be the most significant competitors to the Company in
their respective geographic areas.

In the area of facial recognition, Viisage Technology
(Viisage Gallery) and Visionics (FaceIt) are companies that have
products with application similarities to ID-2000.

Certain of the Company's competitors have substantially
greater financial, technical, marketing and distribution resources than the
Company.  As a result, they may be able to respond more quickly to new or
emerging technologies and changing customer requirements, or to devote greater
resources to the development and distribution of existing products.  There can
be no assurance that the Company will be able to compete successfully against
current or future competitors or alliances of such competitors, or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition, operating results and cash flows.
See "Risk Factors-Competition."

7

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Intellectual Property Rights

The Company's success will depend upon its ability to protect
its intellectual property rights.  The Company relies principally on a
combination of copyright and trade secret laws, non-disclosure agreements and
other contractual provisions to establish and maintain its proprietary
rights.

As part of its confidentiality procedures, the Company
generally enters into nondisclosure and confidentiality agreements with each of
its key employees, consultants and business partners and limits access to and
distribution of its technology, documentation and other proprietary information.
In particular, the Company has entered into non-disclosure agreements with each
of its employees and business partners.  The terms of the employee
non-disclosure agreements include provisions requiring assignment to the Company
of employee inventions.  In addition, the Company's source code for its software
products is maintained in a controlled environment within the technology and
development group.  For security purposes, a copy of the source code is
maintained in a lock-box at the Bank of Montreal in Vancouver, accessible only
by the board of directors of the Company.  There can be no assurance that the
Company's efforts to protect its intellectual property rights will be
successful.  Despite the Company's efforts to protect its intellectual property
rights, unauthorized third parties, including competitors, may from time to time
copy or reverse engineer certain portions of the Company's technology and use
such information to create competitive products.

While policing the unauthorized use of the Company's
technology is difficult, the Company has taken steps to make it extremely
difficult for organizations to use its products without registering with the
Company first.

The Company has not registered any trademarks in the Canada,
the United States or elsewhere, nor has it filed any patents.

Research and Development

The Company's personnel have considerable experience and
expertise in the development of integrated information and video imaging
systems.  The Company's senior technology personnel were the initial developers
of the Company's imaging products and have been involved in the development of
each of the versions of the CABS and ID-2000 products.  The Company's software
product development personnel employ modular software architecture,
object-oriented software development and graphical user interface design
technologies to develop scaleable, modular products.

As of December 31, 2001, the Company's research and
development staff consisted of twelve (12) employees in the Victoria office and
the Chief Technology Officer in the Company's Vancouver head office.

During the fiscal years ended December 31, 2001 and December
31, 2000, the Company's total expenditures for research and development were
$1,215,945 and $888,837, respectively.  Management believes that timely and
continuing product development is critical to the Company's success and plans to
continue to allocate significant resources to product development.

Plan of Operation and Business Strategy

The Company's objective is to be a leading provider of
biometric facial recognition systems in North America and globally.  The
Company's strategy encompasses the following key elements:

Leverage core capabilities
to develop configurable products.  The Company has experience and expertise
in (i) software application development for integrated information and video
imaging systems; (ii) a variety of computer platforms and operating
environments; (iii) the technical issues associated with installing an
integrated information and video imaging system; and (iv) the business and
operating issues in planning, managing and installing integrated information and
video imaging systems.  The Company intends to utilize these core capabilities
to develop customer configurable products that can be scaled and expanded to
meet specific requirements.

Expand market share of
automated arrest and booking and facial recognition systems.  The Company
designed CABS to the specifications of the RCMP and has installed the system in
over 30 RCMP detachments, including the two (2) largest detachments in Canada.
The Company intends to focus on expanding its existing market share in the area
of automated arrest and booking systems to other parts of the world by
incorporating enhancements to ID-2000, and increasing the functionality of CABS,
and by continuing to provide its customers, through its network of business
partners, with superior service and support.

Business Partners

The Company has over 35 business partners that resell and
market its products and provide consulting, integration and after-sales product
support to its clients.  The Company believes that its business partners can
provide substantial sales leverage,

8

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including access to established client bases, and can serve
as a source of qualified sales and technical staff at a relatively low cost.
The Company plans to expand its business partner network, thereby minimizing the
cost of establishing new offices and training personnel.  With its current
business strategy of developing business partners and utilizing value-added
resellers ("VARs") for both sales and installation support services,
the Company intends to achieve a strong global position.  See "Note
Regarding Forward Looking Statements."

The Company currently has business partner agreements with
the following companies:  Abbey Group Consultants; Acys Poland; API Services;
Biometrics S. Africa; Bull Information Systems; Cerulean Technology Inc.;
DataExpert; ExWay; Fujitsu (Malaysia); Intercai; Keyware; Opal Commercial Group;
Orion; PICS SmartCard; Radian Inc.; RCM Technologies; Rola; Serco; Sim; SPCH
Mexico; Total Data Solutions Inc.; Tovek; Vilsa; the West Covina Service Group;
Xplain AG; and Zalix France. The terms of these business partner agreements are
similar.  All agreements are non-exclusive, typically have a three (3) year
term, define a relationship in which the business partner is responsible for
selling the Company's products to end-users, and subsequently providing
first-line customer support, while the Company provides technical support to the
business partner.  The business partner earns a discount on list price of the
Company's products, typically 40%.  The Company's products are frequently
integrated with those of its business partners.

Of these business partner agreements, the agreement with
Orion represented a substantial portion, approximately 28%, of the Company's
revenues for the year ended December 31, 2001.  Orion is an international
software consulting firm founded in 1978.  Based in Sacramento, California,
Orion, among other things, provides consulting services to police department and
law enforcement agencies.  In 2000, the Company through Orion entered into a
contract to install CABS/ID-2000 in 32 police departments in Alameda County,
California.

Under the business partner agreements, the business partners
have agreed to sell the Company's products as part of their standard product
line.  While they typically have designated territories, the business partners
may sell the Company's products anywhere they have opportunities, including
Canada, the United States and other countries.  The Company provides training
and ongoing support, through training and support programs, on product
demonstration, operation, installation, and customer support to the business
partners' staff.  The business partners have agreed to promote the Company's
products and maintain sales and support teams to handle these functions.

Through the release of our SDK, we are allowing third-party
companies to integrate our products with theirs in order to market complete law
enforcement and security solutions, provide implementation and customization
services, provide technical support and maintenance on a continuing basis and
provide clients with software applications that can be bundled with our products
to address specific industry and customer requirements.  If we fail to maintain
our existing relationships, or to establish new relationships, or if existing or
new third-party integrators do not perform to our expectations, our ability to
market our products may suffer.

Sales and Marketing

With the exception of western Canada, the Company sells its
products exclusively through its business partner network.  The Company's target
customers typically prefer to purchase from a supplier with whom they have an
established relationship that understands their business needs, provides local
demonstrations and demonstration systems, directly supplies hardware components
and software and provides local software support within the customer's time
zone.  By relying on the local sales force of its business partners, the Company
believes it satisfies its customers' preferences, while increasing its sales
resources promoting the product.

The Company offers its customers the option to license or
subscribe to its software products.  Under the subscription model, a customer is
charged 1/24th of the license price per month for the duration of the
subscription agreement, thereby providing the Company an ongoing revenue stream.
The subscription model provides customers with free software upgrades and
updates.  The Newmarket, Ontario detachment of the RCMP was the first customer
to use the subscription model.

The modular design of CABS enables a customer to install an
inexpensive entry-level departmental system for approximately $20,000 (where
budgetary considerations preclude the user from investing in a larger system),
while providing the opportunity to enhance the system over time as funds become
available.  The cost for a comprehensive system for a large police department
can exceed $100,000. CABS is priced on a server basis, the license covering the
specific number of police officers within the department.  The price per officer
declines incrementally as the total number of police officers increases.

Installation of the Company's products, in particular CABS,
generally requires the approval of a governmental body such as a municipal,
county or state government, which can be a time intensive process and require
months before a decision can be made.  See "Risk Factors - Lengthy Sales
Cycles."  The Company believes, however, that its business and products are
not currently subject to any existing special regulatory approvals or
requirements.

9

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Employees

As of December 31, 2001, the Company had 27 full-time
employees, consisting of thirteen (13) employees in research and development,
four (4) employees in marketing and sales, six (6) employees in customer support
and four (4) employees in management, finance and administration.  The Company's
success will depend in large part on its ability to attract and retain skilled
and experienced employees.  None of the Company's employees are covered by a
collective bargaining agreement, and the Company believes that its relations
with its employees is generally good.  With the exception of Andy Amanovich, the
Company's Chief Technology Officer, and David Lutes, the Company's Chief
Engineer, the Company does not currently maintain "key man" insurance
on any of its directors, executive officers or key employees.  See "Risk
Factors - Dependence on Key Personnel."

Financial Statements

The Company's financial statements are prepared in accordance
with generally accepted accounting principles ("GAAP") of Canada, and
the notes to the financial statements include a reconciliation of the Company's
financial information from Canadian GAAP to U.S. GAAP.

Risk Factors

The Company's business is subject to the following risks.
These risks also could cause actual results to differ materially from results
projected in any forward-looking statement in this report.

Limited Operating History; History of Losses; Increased
Expenses

The Company commenced operations in March 1998 and,
therefore, has only a limited operating history upon which an evaluation of its
business and prospects can be based.  The Company and its predecessors incurred
net losses of $3,020,704 and $3,010,031 in the years ended December 31, 2001 and
December 31, 2000, respectively.  The Company has never been profitable and
there can be no assurance that, in the future, the Company will be profitable on
a quarterly or annual basis.  The Company plans to increase its operating
expenses to expand its sales and marketing operations, fund greater levels of
research and development, broaden its customer support capabilities and increase
its administration resources. In view of the rapidly evolving nature of the
Company's business and markets and limited operating history, the Company
believes that period-to-period comparisons of financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance.

The Auditors Report on the Company's December 31, 2001
Consolidated Financial Statements includes additional comments by the auditor on
Canada-United States reporting differences that indicate the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

Need for Additional Financing

Revenue from the Company's operations is not sufficient to
finance the cost of development and marketing of its technology.  Accordingly,
the Company estimates that it must raise approximately $1,000,000 in additional
funding to fund its capital requirements for 2001.  There is no assurance that
the Company will be able to secure financing or that such financing will be
obtained on terms favorable to it or at all.  Failure to obtain adequate
financing could result in significant delays in development of new products and
a substantial curtailment of operations.

New Product Development

The Company expects that a significant portion of its future
revenue will be derived from the sale of newly introduced products and from
enhancement of existing products, such as CABS and ID-2000.  See "Note
Regarding Forward-Looking Statements." The Company's success will depend in
part upon its ability to enhance its current products and to install such
products in end-user applications on a timely and cost-effective basis.  In
addition, the Company must develop new products that meet changing market
conditions, including changing customer needs, new competitive product offerings
and enhanced technology.  There can be no assurance that the Company will be
successful in developing and marketing on a timely and cost-effective basis, new
products and enhancements that respond to such changing market conditions.  If
the Company is unable to anticipate or adequately respond on a timely or
cost-effective basis to changing market conditions, to develop new software
products and enhancements to existing products, to correct errors on a timely
basis or to complete products currently under development, or if such new
products or enhancements do not achieve market acceptance, the Company's
business, financial condition, operating results and cash flows could be
materially adversely affected.  In light of the difficulties inherent in
software development, the Company expects that it will experience delays in the
completion and introduction of new software products. See "Note Regarding
Forward-Looking Statements."

10

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Lengthy Sales Cycles

The purchase of a computerized arrest and booking system is
often an enterprise-wide decision for prospective customers and requires the
Company (directly or through its business partners) to engage in sales efforts
over an extended period of time and to provide a significant level of education
to prospective customers regarding the use and benefits of such systems.  In
addition, an installation generally requires approval of a governmental body
such as municipal, county or state government, which can be a time-intensive
process and require months before a decision to be made.  Due in part to the
significant impact that the application of CABS has on the operations of a
business and the significant commitment of capital required by such a system,
potential customers tend to be cautious in making acquisition decisions.  As a
result, the Company's products generally have a lengthy sales cycle ranging from
three (3) to nine (9) months.  Consequently, if sales forecast from a specific
customer for a particular quarter are not realized in that quarter, the Company
may not be able to generate revenue from alternative sources in time to
compensate for the shortfall.  The loss or delay of a large contract could have
a material adverse effect on the Company's quarterly financial condition,
operating results and cash flows, which may cause such results to be less than
analysts' expectations.  Moreover, to the extent that significant contracts are
entered into and required to be performed earlier than expected, operating
results for subsequent quarters may be adversely affected.

Dependence on a Small Number of Customers

The Company derives a substantial portion of its revenues,
and it expects to continue to derive a substantial portion of its revenues in
the near future, from sales to a limited number of customers, in particular the
Alameda County, California police departments through Orion.  Unless and until
the Company further diversifies and expands its customer base, the Company's
success will depend significantly upon the timing and size of future purchase
orders, if any, from its largest customers, as well as their product
requirements, financial situation, and, in particular, the successful deployment
of services using the Company's products.  The loss of any one or more of these
customers, significant changes in their product requirements, delays of
significant orders could have a material adverse affect upon the Company's
business, operating results and financial condition.

Dependence on Key Personnel

The Company's performance and future operating results are
substantially dependent on the continued service and performance of its senior
management and key technical and sales personnel.  The Company intends to hire
a number of additional technical and sales personnel.  See "Note Regarding
Forward-Looking Statements." Competition for such personnel is intense, and
there can be no assurance that the Company can retain its key technical, sales
and managerial employees or that it will be able to attract or retain highly
qualified technical and managerial personnel in the future.  The loss of the
services of any of the Company's senior management or other key employees or the
inability to attract and retain the necessary technical, sales and managerial
personnel could have a material adverse effect upon its business, financial
condition, operating results and cash flows.  With the exception of Andy
Amanovich, the Company's Chief Technology Officer, and David Lutes, the
Company's Chief Engineer, the Company does not currently maintain "key
man" insurance for any senior management or other key employees.

Dependence on Marketing Relationships

The Company's products are primarily marketed by its business
partners.  The Company's existing agreements with business partners are
nonexclusive and may be terminated by either party without cause.  Such
organizations are not within the control of the Company, are not obligated to
purchase products from the Company and may also represent and sell competing
products.  There can be no assurance that the Company's existing business
partners will continue to provide the level of services and technical support
necessary to provide a complete solution to its customers or that they will not
emphasize their own or third-party products to the detriment of the Company's
products.  The loss of these business partners, the failure of such parties to
perform under agreements with the Company or the inability of the Company to
attract and retain new business with the technical, industry and application
experience required to market the Company's products successfully could have a
material adverse effect on the Company's business, financial condition,
operating results and cash flows.

Additionally, with respect to most sales, the Company
supplies products and services to a customer through a third-party supplier
acting as a project manager or systems integrator.  In such circumstances, the
Company has a sub-contract to supply its products and services to the customer
through the prime contractor.  In these circumstances, the Company is at risk
that situations may arise outside of its control that could lead to a delay,
cost over-run or cancellation of the prime contract which could also result in a
delay, cost over-run or cancellation of the Company's sub-contract.  The failure
of a third-party supplier to supply its products and services or perform its
contractual obligations to the customer in a timely manner could have a material
adverse effect on the Company's financial condition, results of operations and
cash flows.

11

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Competition

The markets for arrest and booking systems, and facial
recognition software are highly competitive.  Numerous factors affect the
Company's competitive position, including supplier competency, product
functionality, performance and reliability of technology, depth and experience
in distribution and operations, ease of implementation, rapid deployment,
customer service and price.

The Company primarily competes in the arrest and booking
systems market with ImageWare Software, Smith & Wesson and Spillman.  The
Company's primary competitors in the facial recognition software market with
Miros (Trueface), Viisage Technology (Viisage Gallery) and Visionics
(FaceIt).

Certain of the Company's competitors have substantially
greater financial, technical, marketing and distribution resources than the
Company.  As a result, they may be able to respond more quickly to new or
emerging technologies and changing customer requirements, or to devote greater
resources to the development and distribution of existing products.  There can
be no assurance that the Company will be able to compete successfully against
current or future competitors or alliances of such competitors, or that
competitive pressures faced by it will not materially adversely affect its
business, financial condition, operating results and cash flows.

Proprietary Technology

The Company's success will be dependent upon its ability to
protect its intellectual property rights.  The Company relies principally upon
a combination of copyright and trade secret laws, non-disclosure agreements and
other contractual provisions to establish and maintain its rights.  The source
codes for the Company's products and technology are protected both as trade
secrets and as unpublished copyrighted works.  To date, the Company has not
applied for any patents or trademarks.  As part of its confidentiality
procedures, the Company enters into nondisclosure and confidentiality agreements
with each of its key employees, consultants, distributors, customers and
corporate partners, to limit access to and distribution of its software,
documentation and other proprietary information.  There can be no assurance that
the Company's efforts to protect its intellectual property rights will be
successful.  Despite the Company's efforts to protect its intellectual property
rights, unauthorized third-parties, including competitors, may be able to copy
or reverse engineer certain portions of the Company's software products, and use
such copies to create competitive products.

Policing the unauthorized use of the Company's products is
difficult, and, while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to
continue.  In addition, the laws of certain countries in which the Company's
products are or may be licensed do not protect its products and intellectual
property rights to the same extent as do the laws of Canada and the United
States.  As a result, sales of products by the Company in such countries may
increase the likelihood that its proprietary technology is infringed upon by
unauthorized third-parties.

In addition, because third parties may attempt to develop
similar technologies independently, the Company expects that software product
developers will be increasingly subject to infringement claims as the number of
products and competitors in the Company's industry segments grow and the
functionality of products in different industry segments overlaps.  There can be
no assurance that third parties will not bring infringement claims (or claims
for indemnification resulting from infringement claims) against the Company with
respect to copyrights, trademarks, patents and other proprietary rights.  Any
such claims, whether with or without merit, could be time consuming, result in
costly litigation and diversion of resources, cause product shipment delays or
require the Company to enter into royalty or licensing agreements.  Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all.  A claim of product infringement against the Company
and failure or inability of the Company to license the infringed or similar
technology could have a material adverse effect on its business, financial
condition, operating results and cash flows.

Exchange Rate Fluctuations

Because the Company's reporting currency is the Canadian
dollar, its operations outside Canada face additional risks, including
fluctuating currency values and exchange rates, hard currency shortages and
controls on currency exchange.  The Company does not currently engage in hedging
activities or enter into foreign currency contracts in an attempt to reduce the
Company's exposure to foreign exchange risks.  In addition, to the extent the
Company has operations outside Canada, it is subject to the impact of foreign
currency fluctuations and exchange rate charges on the Company's reporting in
its financial statements of the results from such operations outside Canada.
Since such financial statements are prepared utilizing Canadian dollars as the
basis for presentation, results from operations outside Canada reported in the
financial statements must be restated into Canadian dollars utilizing the
appropriate foreign currency exchange rate, thereby subjecting such results to
the impact of currency and exchange rate fluctuations.

12

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Risk of Software Defects

Software products as complex as those offered by the Company
frequently contain errors or defects, especially when first introduced or when
new versions or enhancements are released.  Despite product testing, the Company
has in the past released products with defects in certain of its new versions
after introduction and experienced delays or lost revenue during the period
required to correct these errors.  The Company regularly introduces new versions
of its software.  There can be no assurance that, despite testing by the Company
and its customers, defects and errors will not be found in existing products or
in new products, releases, versions or enhancements after commencement of
commercial shipments.  Any such defects and errors could result in adverse
customer reactions, negative publicity regarding the Company and its products,
harm to the the Company's reputation, loss or delay in market acceptance or
required product changes, any of which could have a material adverse effect upon
its business, results of operations, financial condition and cash flows.

Product Liability

The license and support of products by the Company may
entail the risk of exposure to product liability claims.  A product liability
claim brought against the Company or a third-party that the Company is required
to indemnify, whether with or without merit, could have a material adverse
effect on the Company's business, financial condition, operating results and
cash flows.

Directors' and Officers' Involvement in Other
Projects

Many of the officers and directors of the Company serve as
directors, officers and/or employees of companies other than the Company.  While
the Company believes that such officers and directors will be devoting adequate
time to effectively manage the Company, there can be no assurance that such
other positions will not negatively impact an officer's or director's duties for
the Company.

Strategic Alliance with Sanyo Semiconductor Company and
Intacta Technologies Inc. for form SecurityART Inc.

The Company recently entered a strategic alliance agreement
with Sanyo Semiconductor Company and Intacta Technologies Inc. to form
SecurityART Inc., an entity that will integrate the hardware and software
technologies of all three companies and thereafter market security products for
use in airports, buildings, laboratories, document authentication and
verification for passports, visas and ID cards.  There can be no assurance that
this relationship or the integration of these technologies will prove to be
successful in the future or will result in any material revenue for the
Company.

Volatility of the Company's Share Price

The Company's share price has fluctuated substantially since
the Company's common shares were listed for trading on the Canadian Venture
Exchange ("CDNX)" and quoted on the Over-The-Counter Bulletin Board
("OTCBB").  The trading price of the Company's common shares is
subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant orders, announcements of
technological innovations, strategic alliances or new products by the Company or
its competirors, general conditions in the securities industries and other
events or factors.  In addition, the stock market in general has experienced
extreme price and volume fluctuations that have affected the market price for
many companies in industries similar or related to the Company and have been
unrelated to the operating performance of these companies.  These market
fluctuations may adversely affect the market price of the Company's common
shares.

Certain Shareholders May Exercise Control Over Matters
Voted Upon by the Company's Shareholders

Certain of the Company's officers, directors and entities
affiliated with the Company together beneficially owned a significant portion of
the Company's outstanding common shares as of December 31, 2001.  While these
shareholders do not hold a majority of the Company's outstanding common shares,
they will be able to exercise significant influence over matters requiring
shareholder approval, including the election of directors and the approval of
mergers, consolidations and sales of the Company's assets.  This may prevent or
discourage tender offers for the Company's common shares.

Item 2.     Description of
Property.

The Company subleases an approximately 800 square foot
facility as the Company's headquarters at 1300-1075 West Georgia Street in
Vancouver, British Columbia from International Portfolio Management Inc.  This
lease is on a month-to-month basis, with each payment totaling $10,000.

The Company leases an approximately 6,450 square foot
facility at 1027 Pandora Avenue in Victoria, British Columbia from Walter and
Norman Lee.  These premises are used by the Company's development and technical
support teams and other

13

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personnel who handle the coordination of the Company's
sales and marketing activities.   This lease agreement is for a three (3) year
term, with each monthly payment totaling $10,600.

Item 3.     Legal
Proceedings.

As of the date of this report, the Company is not a party to
any legal proceedings, the adverse outcome of which, in management's opinion,
individually or in the aggregate, would have a material effect on the Company's
results of operations or financial position.  From time to time, the Company
may be involved in litigation relating to claims arising out of its operations
in the normal course of business.

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

No matters were submitted to a vote of security holders
during the fourth quarter of the year ended December 31, 2001.

14

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PART II

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

The Company's common shares, no par value (the "Common
Shares"), began trading on the CDNX under the symbol "CAP" on
September 29, 1998 and changed its symbol to "NAB" on February 25,
1999.  The table below sets forth the reported high and low sales prices for the
Common Shares for the quarterly periods ended from March 31, 1999 to December
31, 2001 (as reported on the CDNX).  The last reported closing price of the
Common Shares on the CDNX on March 18, 2002 was Cdn $4.14.



|                   | High  | Low  
|------------------ | ----- | -----
|                   |       |      
|March 31, 2000     | $5.30 | $5.00
|June 30, 2000      | $3.99 | $3.70
|September 30, 2000 | $2.65 | $2.60
|December 31, 2000  | $2.05 | $1.68
|March 31, 2001     | $1.80 | $1.00
|June 30, 2001      | $1.20 | $0.75
|September 30, 2001 | $2.15 | $0.56
|December 31, 2001  | $2.95 | $1.50

The Common Shares are also quoted on the OTCBB,
under the symbol "IGSTF".  The table below sets forth the reported
high and low sales prices for the common shares on the OTCBB.



|2000                                              | High
(U.S.) | Low
(U.S.)
|------------------------------------------------- | ----------- | ----------
|                                                  |             |           
|First Quarter (February 3 through March 31, 2000) | $4.25       | $0.84     
|Second Quarter                                    | $4.25       | $1.75     
|Third Quarter                                     | $2.56       | $1.12     
|Fourth Quarter                                    | $2.00       | $1.12     
|                                                  |             |           
|2001                                              |             |           
|                                                  |             |           
|First Quarter                                     | $1.19       | $0.56     
|Second Quarter                                    | $0.80       | $0.46     
|Third Quarter                                     | $1.31       | $0.35     
|Fourth Quarter                                    | $1.90       | $0.88     
|                                                  |             |           
|2002                                              |             |           
|                                                  |             |           
|First Quarter (January 1 through March 18, 2002)  | $3.50       | $1.25     

Quotations commenced on the OTCBB on February 3, 2000.  These
OTCBB quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.

The closing price of the Common Shares on the OTCBB on
December 31, 2001 was U.S. $1.35.  On March 18, 2002, the closing price of the
Common Shares on the OTCBB was U.S. $2.66.

As of March 18, 2002, there were 14 holders of record based
on the records of the Company's transfer agent; this number does not include
beneficial owners of Common Shares whose shares are held in the names of various
securities brokers, dealers and registered clearing agencies.

The Company has never paid dividends on the Common Shares and
does not intend to pay dividends on the Common Shares in the foreseeable future.
The board of directors of the Company intends to retain any earnings to provide
funds for the operation and expansion of the Company's business.  See
"Item 6-Management's Discussion and Analysis."

15

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Exchange Controls

Canada has no system of exchange controls.  There are no
exchange restrictions on borrowing from foreign countries or on the remittance
of dividends, interest, royalties and similar payments, management fees, loan
repayments, settlement of trade debts, or the repatriation of capital.  However,
any dividends remitted to U.S. Holders, as defined below, will be subject to
withholding tax.  See the heading "Taxation" below.

There are no limitations under the laws of Canada or British
Columbia or in the Company's Memorandum and Articles on the rights of
non-Canadians to hold or vote the Common Shares.  Under the provisions of the
Investment Canada Act (the "ICA"), as amended by the Canada-United
States Free Trade Implementation Act (Canada) (the "Act"), and the
Canada-United States Free Trade Agreement, review and approval of the
transaction by the Investment Canada Agency ("Investment Canada"), the
federal agency created by the ICA are required where a U.S. person directly
acquires control of a Canadian business with assets of more than Cdn$209 million
(2001).  The term "control" is defined as any one or more non-Canadian
persons acquiring all or substantially all of the assets used in the Canadian
business, or the acquisition of the voting shares of a Canadian corporation
carrying on the Canadian business or the acquisition of the voting interest of
an entity controlling or carrying on the Canadian business.  The acquisition of
the majority of the outstanding shares is deemed to be an "acquisition of
control" of a corporation unless it can be established that the purchaser
will not, in fact, control the Canadian corporation.

Subject to the comments contained in the following paragraph
regarding WTO investors, investments requiring notification and review are all
direct acquisitions of Canadian businesses with assets of Cdn$5,000,000 or more
and all indirect acquisitions of Canadian businesses with assets between
Cdn$5,000,000 and Cdn$50,000,000 which represent more than 50% of the value of
the total international transaction.  (Indirect acquisition means the
acquisition of the voting rights of an entity controlling the Canadian
corporation.)  In addition, specific acquisitions or new businesses in
designated types of business activities related to Canada's cultural heritage or
national identity, which would normally only be notifiable, could be reviewed if
the Government of Canada considers it in the public interest to do so.

The Act was amended with the implementation of the agreement
establishing the World Trade Organization ("WTO") to provide for
special review thresholds for "WTO investors", as defined in the Act.
"WTO investor" generally means (i) an individual, other than a
Canadian, who is a national of a WTO member (such as, for example, the United
States), or who has the right of permanent residence in relation to that WTO
member, (ii) governments of WTO members, and (iii) entities that are
not Canadian controlled, but which are WTO investor controlled, as determined by
rules specified in the Act.  The special review thresholds for WTO investors do
not apply, and the general rules described above do apply, to the acquisition of
control of certain types of businesses specified in the Act, including a
business that is a "cultural business".  If the WTO Investor rules
apply, an investment in shares of the Issuer by or from a WTO investor will be
reviewable only if it is an investment to acquire control of the Issuer and the
value of the assets of the Issuer is equal to or greater than a specified amount
(the "WTO Review Threshold").  The WTO Review Threshold is adjusted
annually by a formula relating to increases in the nominal gross domestic
product of Canada.  The WTO Review Threshold is Cdn$209,000,000 (in 2001).

If any non-Canadian, whether or not a WTO Investor, acquires
control of the Issuer by the acquisition of shares, but the transaction is not
reviewable as described above, the non-Canadian is required to notify the
Canadian government and to provide certain basic information relating to the
investment.  A non-Canadian, whether or not a WTO investor, is also required to
provide a notice to the government on the establishment of a new Canadian
business.  If the business of the Issuer is a prescribed type of business
activity relating to Canada's cultural heritage or national identity, and if the
Canadian government considers it to be in the public interest to do so, then the
Canadian government may give a notice in writing within 21 days requiring the
investment be reviewed.

For non-Canadians (other than WTO investors), an indirect
acquisition of control, by the acquisition of voting interests of an entity that
directly or indirectly controls the Issuer, is reviewable if the value of the
assets of the Issuer is then Cdn$50,000,000 or more.  If the WTO investor rules
apply, then this requirement does not apply to a WTO investor, or to a person
acquiring the entity from a WTO investor.  Special rules specified in the Act
apply if the value of the assets of the Issuer is more than 50% of the value of
the entity so acquired.  By these special rules, if the non-Canadian (whether or
not a WTO investor) is acquiring control of an entity that directly or
indirectly controls the Issuer, and the value of the assets of the Issuer and
all other entities carrying on business in Canada, calculated in the manner
provided in the Act and the regulations under the Act, is more than 50% of the
value, calculated in the manner provided in the Act and the regulations under
the Act, of the assets of all entities, the control of which is acquired,
directly or indirectly, in the transaction of which the acquisition of control
of the Issuer forms a part, then the thresholds for a direct acquisition of
control as discussed above will apply.  That is, a WTO Review threshold of
Cdn$209 million (in 2001) for a WTO investor or a threshold of Cdn$5,000,000 for
a non-Canadian other than a WTO investor.  If the value exceeds that level, then
the transaction must be reviewed in the same manner as a direct acquisition of
control by the purchase of shares of the Issuer.

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If an investment is reviewable, an application for review in
the form prescribed by regulations is normally required to be filed with the
agency established by the Act (the "Agency") prior to the investment
and the investment may not be consummated until the review has been completed.
There are, however, certain exceptions.  Applications concerning indirect
acquisition may be filed up to 30 days after the investment is consummated and
applications concerning reviewable investments in culture-sensitive sectors are
required upon receipt of a notice for review.  There is, moreover, provision for
the Minister (a person designated as such under the Act) to permit an investment
to be consummated prior to completion of review, if he is satisfied that delay
would cause undue hardship to the acquirer or jeopardize the operation of the
Canadian business that is being acquired.  The Agency will submit the
application to the Minister, together with any other information or written
undertakings given by the acquirer and any representation submitted to the
Agency by a province that is likely to be significantly affected by the
investment.

The Minister will then determine whether the investment is
likely to be of net benefit to Canada, taking into account the information
provided and having regard for other factors where they are relevant.  Some of
the factors to be considered are the effect of the investment on the level and
nature of economic activity in Canada, including the effect on employment, on
resource processing, on the utilization of parts, components and services
produced in Canada, and on exports from Canada.

Additional factors of assessment include (i) the degree
and significance of participation by Canadians in the Canadian business and in
any industry in Canada of which it forms a part; (ii) the effect of the
investment on productivity, industrial efficiency, technological development,
product innovation and product variety in Canada; (iii) the effect of the
investment on competition within any industry or industries in Canada;
(iv) the compatibility of the investment with national industrial, economic
and cultural policies taking into consideration industrial, economic and
cultural objectives enunciated by the government or legislature of any province
likely to be significantly affected by the investment; and (v) the
contribution of the investment to Canada's ability to compete in world
markets.

To insure prompt review and decision, the Act sets certain
time limits for the Agency and the Minister.  Within 45 days after a completed
application has been received, the Minister must notify the acquirer that
(a) he is satisfied that the investment is likely to be of net benefit to
Canada, or (b) he is unable to complete his review, in which case he shall
have 30 additional days to complete his review (unless the acquirer agrees to a
longer period), or (c) he is not satisfied that the investment is likely to
be of net benefit to Canada.

Where the Minister has advised the acquirer that he is not
satisfied that the investment is likely to be of net benefit to Canada, the
acquirer has the right to make representations and submit undertakings within 30
days of the date of the notice (or any further period that is agreed upon
between the acquirer and the Minister).  On the expiration of the 30-day period
(or the agreed extension), the Minister must quickly notify the acquirer
(a) that he is now satisfied that the investment is likely to be of net
benefit to Canada or (b) confirming that he is not satisfied that the
investment is likely to be of net benefit to Canada.  In the latter case, the
acquirer may not proceed with the investment or, if the investment has already
been consummated, must relinquish control of the Canadian business.  The Act
authorizes the Minister to give written opinions, binding the Minister, on the
application of the Act or regulations to the persons seeking the opinions to the
Agency or a designated official.  The Act also authorizes the Minister to issue
guidelines and interpretations with respect to the application and
administration of any provision of the Act or the regulations.

The Act provides for civil penalties for non-compliance with
any provision except breach of confidentiality or provision of false
information, for which there are criminal penalties.

Taxation

United States Federal Income Tax Consequences

The following is a general discussion of certain possible
U.S. federal income tax consequences, under current law, generally applicable to
a U.S. Holder (as hereinafter defined) of common shares of the Company.  This
discussion does not address all potentially relevant U.S. federal income tax
matters and it does not address consequences peculiar to persons subject to
special provisions of U.S. federal income tax law, such as those described below
as excluded from the definition of a U.S. Holder.  In addition, this discussion
does not cover any state, local or foreign tax consequences.  (see
"Taxation - Canadian Federal Tax Consequences" above).

The following discussion is based upon the sections of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, published Internal Revenue Service ("IRS") rulings,
published administrative positions of the IRS and court decisions that are
currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis, at any time and which are subject to
differing interpretations.  This discussion does not consider the

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potential effects, both adverse and beneficial, of any
proposed legislation which, if enacted, could be applied, possibly on a
retroactive basis, at any time.

THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IT IS NOT
INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY
U.S. HOLDER OR PROSPECTIVE U.S. HOLDER OF COMMON SHARES OF THE COMPANY AND NO
OPINION OR REPRESENTATION WITH RESPECT TO THE U.S. FEDERAL INCOME TAX
CONSEQUENCES TO ANY SUCH U.S. HOLDER OR PROSPECTIVE U.S. HOLDER IS MADE.
ACCORDINGLY, HOLDERS AND PROSPECTIVE HOLDERS OF COMMON SHARES OF THE COMPANY
SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE U.S. FEDERAL, STATE, LOCAL, AND
FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF COMMON SHARES OF
THE COMPANY.

U.S. Holders

As used herein, a "U.S. Holder" means a holder of
the Common Shares who is (i) a citizen or individual resident of the United
States, (ii) a corporation or partnership created or organized in or under the
laws of the U.S. or of any political subdivision thereof, (iii) an estate whose
income is taxable in the U.S. irrespective of source or (iv) a trust subject to
the primary supervision of a court within the U.S. and control of a U.S.
fiduciary as described in Section 7701(a)(30) of the Code.

This summary does not address the tax consequences to, and
U.S. Holder does not include, persons subject to specific provisions of U.S.
federal income tax law, such as (i) tax-exempt organizations, (ii) qualified
retirement plans, (iii) individual retirement accounts and other tax-deferred
accounts, (iv) financial institutions, (v) insurance companies, (vi) real estate
investment trusts, (vii) regulated investment companies, (viii) broker-dealers,
(ix) persons or entities that have a "functional currency" other than
the U.S. dollar, (x) shareholders subject to the alternative minimum tax, (xi)
shareholders who hold Common Shares as part of a straddle, hedging, conversion
transaction, constructive sale or other arrangement involving more than one
position, and (xiii) shareholders who acquired their common shares through the
exercise of employee stock options or otherwise as compensation for services.
This summary is limited to U.S. Holders who own common shares as capital assets
within the meaning of Section 1221 of the Code.  This summary does not address
the consequences to a person or entity holding an interest in a shareholder or
the consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire common shares.

Distribution on Common Shares

U.S. Holders receiving dividend distributions (including
constructive dividends) with respect to common shares of the Company are
required to include in gross income for U.S. federal income tax purposes the
gross amount of such distributions, equal to the U.S. dollar value of such
distributions on the date of receipt (based on the exchange rate on such date),
to the extent that the Company has current or accumulated earnings and profits,
without reduction for any Canadian income tax withheld from such distributions.
Such Canadian tax withheld may be credited, subject to certain limitations,
against the U.S. Holder's U.S. federal income tax liability or, alternatively,
may be deducted in computing the U.S. Holder's U.S. federal taxable income by
those who itemize deductions.  (See more detailed discussion at "Foreign
Tax Credit" below).  To the extent that distributions exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S. Holder's adjusted basis in the common shares
and thereafter as gain from the sale or exchange of the common shares.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder which is an individual, estate or trust.  There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.

In the case of foreign currency received as a dividend that
is not converted by the recipient into U.S. dollars on the date of receipt, a
U.S. Holder will have a tax basis in the foreign currency equal to its U.S.
dollar value on the date of receipt.  Generally any gain or loss recognized upon
a subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss.  However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, to the extent that there are no expenses associated with the transaction
that meet the requirements for deductibility as a trade or business expense
(other than travel expenses in connection with a business trip) or as an expense
for the production of income.

Dividends paid on the common shares of the Company generally
will not be eligible for the dividends received deduction provided to
corporations receiving dividends from certain U.S. corporations.  A U.S. Holder
which is a corporation and which owns shares representing at least 10% of the
voting power and value of the Company may, under certain circumstances, be
entitled to a 70% deduction of the "U.S. source" portion of dividends
received from the Company (unless

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the Company qualifies as a "foreign personal holding
company" or a "passive foreign investment company," as defined
below).  The availability of the dividends received deduction is subject to
several complex limitations which are beyond the scope of this discussion.

Certain information reporting and backup withholding rules
may apply with respect to the common shares. In particular, a payor or middleman
within the U.S., or in certain cases outside the U.S.,  will be required to
withhold 30.5% (which rate is schedule for periodic reduction)  of any payments
to a holder of the Company's common shares of dividends on, or proceeds from the
sale of, such common shares within the U.S., if the holder fails to furnish its
correct taxpayer identification number or otherwise fails to comply with, or
establish an exemption from, the backup withholding tax requirements. Any
amounts withheld under the U.S. backup withholding tax rules will be allowed as
a refund or a credit against the U.S. Holder's U.S. federal income tax
liability, provided the required information is furnished to the IRS.  U.S.
Holders are urged to consult their own tax counsel regarding the information
reporting and backup withholding rules applicable to the Company's common
shares.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of common shares of the
Company may be entitled, at the option of the U.S. Holder, to either receive a
deduction or a tax credit for such foreign tax paid or withheld.  Generally, it
will be more advantageous to claim a credit because a credit reduces U.S.
federal income taxes on a dollar-for-dollar basis, while a deduction merely
reduces the taxpayer's income subject to tax.  This election is made on a
year-by-year basis and applies to all foreign taxes paid by (or withheld from)
the U.S. Holder during that year.

There are significant and complex limitations which apply to
the credit, among which is the general limitation that the credit cannot exceed
the proportionate share of the U.S. Holder's U.S. income tax liability that the
U.S. Holder's "foreign source" income bears to his or its worldwide
taxable income.  In applying this limitation, the various items of income and
dedution must be classified as either "foreign source" or "U.S.
source". Complex rules govern this classification process.  In addition,
this limitation is calculated separately with respect to specific classes of
income such as "passive income, " "high withholding tax
interest," "financial services income," "shipping
income," and certain other classifications of income.  Dividends
distributed by the Company will generally constitute "passive income"
or, in the case of certain U.S. Holders, "financial services income"
for these purposes.

In addition, U.S. Holders which are corporations that own 10%
or more of the voting stock of the Company may be entitled to an
"indirect" foreign tax credit under Section 902 with respect to the
payment of dividends by the Company under certain circumstances and subject to
complex rules and limitations.  The availability of the foreign tax credit and
the application of the limitations on the credit are fact specific, and U.S.
Holders of common shares of the Company should consult their own tax advisors
regarding their particular circumstances.

Disposition of Common Shares of the Company

A U.S. Holder will recognize a gain or loss upon the sale of
common shares equal to the difference, if any, between (i) the amount of
cash plus the fair market value of any property received, and (ii) the
shareholder's tax basis in the common shares of the Company.  This gain or loss
will be capital gain or loss if the common shares are a capital asset in the
hands of the U.S. Holder, which will be long-term capital gain or loss if the
common shares of the Company are held for more than one year.  Preferential tax
rates apply to long-term capital gains of U.S. Holders which are individuals,
estates or trusts.  There are currently no preferential tax rates for long-term
capital gains for a U.S. Holder which is a corporation. Deductions for net
capital losses are subject to significant limitations.  For U.S. Holders which
are not corporations, any unused portion of such net capital loss may be carried
over to be used in later tax years until such net capital loss is thereby
exhausted.  For U.S. Holders that are corporations (other than corporations
subject to Subchapter S of the Code), an unused net capital loss may be carried
back three years and carried forward five years from the loss year to be offset
against capital gains until such net capital loss is thereby exhausted.

Other Considerations

In the following circumstances, the above sections of this
discussion may not describe the U.S. federal income tax consequences resulting
from the holding and disposition of common shares:

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Foreign Personal Holding Company

If at any time during a taxable year (i) more than 50% of the
total combined voting power or the total value of the Company's outstanding
shares is owned, directly or indirectly, by five or fewer individuals who are
citizens or residents of the U.S. and (ii) 60% (or 50% in some circumstances) or
more of the Company's gross income for such year was "foreign personal
holding company income" as defined in Section 553 of the Code (e.g.
dividends, interest royalties, certain gains from the sale of stock and
securities, and certain gains from commodities transactions), the Company may be
treated as a "foreign personal holding company."  In that event, U.S.
Holders that hold common shares would be required to include in gross income for
such year their allocable portions of such "foreign personal holding
company income" to the extent the Company does not actually distribute such
income.

The Company does not believe that it currently qualifies as a
foreign personal holding company.  However, there can be no assurance that the
Company will not be considered a foreign personal holding company for the
current or any future taxable year.

Foreign Investment Company

If (i) 50% or more of the combined voting power or total
value of the Company's outstanding shares is held, directly or indirectly, by
citizens or residents of the U.S., U.S. domestic partnerships or corporations,
or estates or trusts other than foreign estates or trusts (as defined by the
Code Section 7701(a)(31)), and (ii) the Company is found to be engaged primarily
in the business of investing, reinvesting, or trading in securities,
commodities, or any interest therein, it is possible that the Company may be
treated as a "foreign investment company" as defined in Section 1246 of the
Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging common shares to be treated as ordinary income rather than capital
gain.

The Company does not believe that it currently qualifies as a
foreign investment company.  However, there can be no assurance that the Company
will not be considered a foreign investment company for the current or any
future taxable year.

Controlled Foreign Corporation

If more than 50% of the total combined voting power of all
classes of shares entitled to vote or the total value of the shares of the
Company is owned, actually or constructively, by citizens or residents of the
U.S., U.S. domestic partnerships or corporations, or estates or trusts other
than foreign estates or trusts (as defined by the Code Section 7701(a)(31)),
each of which own, actually or constructively, 10% or more of the total combined
voting power of all classes of shares entitled to vote of the Company ("10%
Shareholder"), the Company could be treated as a controlled foreign
corporation ("CFC") under Subpart F of the Code.  The classification
of the Company as a CFC would effect many complex results, including (i) such
10% Shareholders are generally treated as having received a current distribution
out of the CFC's Subpart F income, which they must include in incume, and
(ii) are also subject to current U.S. federal income tax on their pro rata
shares of the CFC's earnings invested in U.S. property.  The foreign tax credit
described above may reduce the U.S. federal income tax on these amounts.  In
addition, under Section 1248 of the Code, gain from the sale or exchange of
shares by a U.S. Holder of common shares which is or was a 10% Shareholder at
any time during the five-year period ending with the sale or exchange is treated
as ordinary income to the extent of earnings and profits of the Company
attributable to the shares sold or exchanged.  If a foreign corporation is both
a PFIC and a CFC, the foreign corporation generally will not be treated as a
PFIC with respect to 10% Shareholders of the CFC.  This rule generally will be
effective for taxable years of 10% Shareholders beginning after 1997 and for
taxable years of foreign corporations ending with or within such taxable years
of 10% Shareholders.  Special rules apply to 10% Shareholders who are subject to
the special taxation rules under Section 1291 discussed above with respect
to a PFIC.  Because of the complexity of Subpart F, a more detailed review of
these rules is outside of the scope of this discussion.

The Company does not believe that it currently qualifies as a
CFC.  However, there can be no assurance that the Company will not be considered
a CFC for the current or any future taxable year.

Passive Foreign Investment Company

As a foreign corporation with U.S. Holders, the Company could
potentially be treated as a passive foreign investment company ("PFIC"), as
defined in Section 1297 of the Code, depending upon the percentage of the
Company's income which is passive, or the percentage of the Company's assets
which produce or are held for the production of passive income.  U.S. Holders
owning common shares of a PFIC are subject to the highest rate of tax on
ordinary income in effect for the applicable taxable year and to an interest
charge based on the value of deferral of tax for the period during which the
common shares of the PFIC are owned with respect to certain "excess
distributions" on and dispositions of PFIC stock.  However, if the U.S.
Holder makes a timely election to treat a PFIC as a qualified electing fund
("QEF") with respect to such

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shareholder's interest therein, the above-described rules
generally will not apply.  Instead, the electing U.S. Holder would include
annually in his gross income his pro rata share of the PFIC's ordinary earnings
and net capital gain regardless of whether such income or gain was actually
distributed.  A U.S. Holder of a QEF can, however, elect to defer the payment of
U.S. federal income tax on such income inclusions.  Special rules apply to U.S.
Holders who own their interests in a PFIC through intermediate entities or
persons.  In addition, subject to certain limitations, U.S. Holders owning,
actually or constructively, marketable (as specifically defined) stock in a PFIC
will be permitted to elect to mark that stock to market annually, rather than be
subject to the excess distribution regime of section 1291 described above.
Amounts included in or deducted from income under this alternative (and actual
gains and losses realized upon disposition, subject to certain limitations) will
be treated as ordinary gains or losses.  This alternative will apply to taxable
years of U.S. Holders beginning after 1997 and taxable years of foreign
corporations ending with or within such taxable years of U.S. Holders.

The Company believes that it was not a PFIC for its fiscal
year ended December 31, 2001 and does not believe that it will be a PFIC for the
fiscal year ending December 31, 2002.  There can be no assurance that the
Company's determination concerning its PFIC status will not be challenged by the
IRS, or that it will be able to satisfy record keeping requirements that will be
imposed on QEFs.

EACH U.S. HOLDER OF THE COMPANY IS URGED TO CONSULT A TAX
ADVISOR WITH RESPECT TO HOW THE PFIC RULES AFFECT THEIR TAX SITUATION.

Canadian Federal Income Tax Considerations

The following summarizes certain Canadian federal income tax
considerations generally applicable to the holding and disposition of common
shares by a holder (a) who, for the purposes of the Income Tax Act
(Canada) (the "Tax Act"), is not resident in Canada, deals at arm's
length with the Company, is not affiliated with the Company, holds the Common
Shares as capital property, is not a "financial institution" and does
not use or hold the common shares in the course of carrying on, or otherwise in
connection with, a business in Canada, and (b) who, for the purposes of the
Canada-United States Income Tax Convention (the "Treaty"), is a
resident of the United States, has never been a resident of Canada, and has not
held or used (and does not hold or use) common shares in connection with a
permanent establishment or fixed base in Canada. Each such holder who meets all
such criteria in clauses (a) and (b) is referred to herein as a "U.S.
Holder." Except as otherwise expressly provided, the summary does not deal
with special situations, such as particular circumstances of traders or dealers,
limited liability companies, tax-exempt entities, insurers, financial
institutions (including those to which the mark-to-market provisions of the Tax
Act apply), or otherwise.

This summary is based on the current provisions of the Tax
Act and the regulations thereunder, all proposed amendments to the Tax Act and
regulations publicly announced by the Minister of Finance (Canada) to the date
hereof, the current provisions of the Treaty and the current administrative
practices of the Canada Customs and Revenue Agency, formerly known as Revenue
Canada. It has been assumed that all currently proposed amendments will be
enacted as proposed and that there will be no other relevant change in any
governing law, the Treaty or administrative policy, although no assurance can be
given in these respects. This summary does not take into account provincial,
U.S. or other foreign income tax considerations, which may differ significantly
from those discussed herein.

This summary is not exhaustive of all possible Canadian
income tax consequences. It is not intended as legal or tax advice to any
particular holder and should not be so construed. The tax consequences to any
particular holder will vary according to the status of that holder as an
individual, trust, corporation or member of a partnership, the jurisdictions in
which that holder is subject to taxation and, generally, according to that
holder's particular circumstances.  Each holder should consult the holder's own
tax advisors with respect to the income tax consequences applicable to the
holder's own particular circumstances.

Dividends

Dividends paid or credited or deemed to be paid or credited
to a U.S. Holder by the Company are subject to Canadian withholding tax. Under
the Treaty, the rate of withholding tax on dividends paid or credited to a U.S.
Holder is generally limited to 15% of the gross dividend (or 5% in the case of
corporate shareholders owning at least 10% of the Company's voting shares).

Disposition

A U.S. Holder is not subject to tax under the Tax Act in
respect of a capital gain realized on the disposition of a common share in the
open market unless the share is "taxable Canadian property" to the
holder thereof and the U.S. Holder is not entitled to relief under the
Treaty.

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A common share will be taxable Canadian property to a U.S.
Holder if, at any time during the 5 year period ending at the time of
disposition, the U.S. Holder or persons with whom the U.S. Holder did not deal
at arm's length (or the U.S. Holder together with such persons) owned, or had
options, warrants or other rights to acquire, 25% or more of the Company's
issued shares of any class or series. In the case of a U.S. Holder to whom
common shares represent taxable Canadian property, no tax under the Tax Act will
be payable on a capital gain realized on a disposition of such shares in the
open market by reason of the Treaty unless the value of such shares is derived
principally from real property situated in Canada. We believe that the value of
the Company's common shares is not derived principally from real property
situated in Canada, and that no tax will therefore be payable under the Tax Act
on a capital gain realized by a U.S. Holder on a disposition of common shares in
the open market.

Recent Sales of Unregistered Securities.

The Company issued 1,501,000 units, each consisting of one
(1) common share and one (1) warrant to purchase a common share, to ten (10)
non-U.S. persons in a private offering outside the United States for gross
proceeds of $1,501,000.  In addition, on March 12, 2001, the Company issued
20,000 common shares to one (1) non-U.S. person for services related to this
private offering.  This financing closed in three tranches, made up of 973,000
units on April 26, 2001, 418,000 units on June 12, 2001 and 110,000 units on
August 15, 2001.  All of the common shares were issued in reliance upon
Regulation S promulgated under the Securities Act of 1933, as amended (the
"Securities Act").

On November 9, 2001, the Company issued 229,332 Units, each
Unit consisting of one (1) common share and one-half (1/2) of a non-transferable
share purchase warrant to purchase a common share, to two (2) non-U.S. persons
in a private offering outside the United States for gross proceeds of $497,650.
All of the units, and underlying common shares, were issued in reliance upon
Regulation S promulgated under the Securities Act.

Concurrently with the issuance of the 229,332 units, the
Company issued 1,427,682 Special Warrants, each convertible into one (1)
common share and one-half (1/2) of a non-transferable share purchase warrant, to
eleven (11) non-U.S. persons in a private offering outside the United States for
gross proceeds of $3,098,070.  All of the common shares were issued in reliance
upon Regulation S promulgated under the Securities Act of 1933.

The Company issued 295,834 common shares upon the exercise of
stock options by sixteen (16) non-U.S. persons in private transactions outside
the United States for gross proceeds of $395,834.  The options were exercised on
the following dates for the following amounts:  January 24, 2001 - 3,333 options
for gross proceeds of $3,333; February 22, 2001 3,000 options for
gross proceeds of - $3,000; September 19, 2001 - 5,000 options
for gross proceeds of $5,000; September 26, 2001 - 28,334 options
for gross proceeds of $28,334; October 16, 2001 - 5,000 options
for gross proceeds of $5,000; October 22, 2001 - 8,500 options
for gross proceeds of $8,500; October 23, 2001 - 105,000 options
for gross proceeds of $155,000; October 29, 2001 - 100,000
options for gross proceeds of $150,000; November 8, 2001 - 6,000
options for gross proceeds of $6,000; November 9, 2001 - 18,667
options for gross proceeds of $18,667; December 12, 2001 - 8,000
options for gross proceeds of $8,000; and December 13, 2001 -
5,000 options for gross proceeds of $5,000.  The common shares were
issued in reliance upon Regulation S promulgated under the Securities Act.

The Company issued 1,407,000 common shares upon the exercise
of warrants by thirteen (13) non-U.S. persons in private transactions outside
the United States for gross proceeds of $1,523,700.  These warrants were
exercised on the following dates for the following amounts:  March 16, 2001 -
17,500 warrants for gross proceeds of $14,000; March 17, 2001 -
62,500 warrants for gross proceeds of $50,000; September 26, 2001 -
100,000 warrants for gross proceeds of $110,000, October 1,
2001 - 25,000 warrants for gross proceeds of $27,500; October 5,
2001 - 10,000 warrants for gross proceeds of $11,000; October 15,
2001 - 99,000 warrants for gross proceeds of $108,900; October
16, 2001 - 46,500 warrants for gross proceeds of $51,150; October
24, 2001 - 380,000 warrants for gross proceeds of $418,000;
October 30, 2001 - 115,000 warrants for gross proceeds of
$126,500; November 1, 2001 - 45,000 warrants for gross proceeds
of $49,500; November 8, 2001 - 49,500 warrants for gross proceeds
of $54,450; November 13, 2001 - 250,000 warrants for gross proceeds
of $275,000; November 26, 2001 - 6,000 warrants for gross proceeds
of $6,600; December 6, 2001 - 30,000 warrants for gross proceeds
of $33,000; December 13, 2001 - 61,000 warrants for gross proceeds
of $67,100; and December 17, 2001 - 110,000 warrants for gross
proceeds of $121,000.  The common shares were issued in reliance
upon Regulation S promulgated under the Securities Act.

The Company granted stock options exercisable to acquire
1,190,000 common sShares to certain employees, directors and consultants who
were non-U.S. persons in a private offering outside the United States.  The
options were issued in reliance upon Regulation S promulgated under the
Securities Act.

On December 19, 2001, the Company granted stock options
exercisable to acquire 100,000 common shares to Oliver "Buck" Revell,
the Company's Chairman and a director (the "Optionee").  The options
were issued in reliance upon Section 4(2) under the Securities Act of 1933.  In
relying upon such exemption (i) the Company did not engage in any "general
solicitation", (ii) the Optionee represented and the Company reasonably
believed that he had such knowledge and experience

22

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in financial matters such that he was capable of evaluating
the merits and risks of the prospective investment upon exercise of the stock
options and was able to bear the economic risk of such investment, (iii) the
Optionee was provided access to all necessary and adequate information to enable
him to evaluate the financial risk inherent in making such investment, (iv) the
offer was made only to the Optionee, and (v) the Optionee represented that he
will be acquiring the shares underlying the options for himself and not for
distribution.

Forward Looking Statements:

Statements in this Annual Report on Form 10-KSB, including
those concerning Imagis Technologies Inc.'s (the "Company")
expectations of results of the  Company's operations in future periods, the
amount and timing of revenues and earnings in future periods, future sales,
gross profits, sales and marketing expenses, technical services expenses,
technology development expenses, administration expenses, product introductions
and cash requirements include certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. As
such, the Company's actual results may vary materially from expectations as a
result of certain factors including, but not limited to, the failure of the
market for the Company's products to grow as anticipated; the success of certain
strategic alliances among the Company and certain third parties; product pricing
or other initiatives of the Company's competitors; the possibility that the
Company's other customers defer purchasing decisions due to economic or other
conditions or will purchase products offered by the Company's competitors;
product development, product pricing or other initiatives of the Company's
competitors; variations in the level of orders which can be affected by general
economic conditions and in the markets served by the Company's customers;
international economic and political climates; difficulties or delays in the
functionality or performance of the Company's products; the Company's timing of
future product releases or improvements; the Company's failure to respond
adequately to either changes in technology or customer preferences; changes in
pricing; the Company's ability to manage growth; risk of nonpayment of accounts
receivable; changes in budgeted costs and the factors listed in this Annual
Report.  See "Risk Factors."

In some cases, you can identify forward-looking statements by
the Company's use of  words such as "may," "will,"
"should," "could," "expect," "plan,"
"intend," "anticipate," "believe,"
"estimate," "predict," "potential" or
"continue" or the negative or other variations of these words, or
other comparable words or phrases.

Although the Company believes the expectations reflected in
its forward-looking statements are reasonable, it cannot guarantee future
results, levels of activity, performance or achievements or other future events.
The Company is under no duty to update any of our forward-looking statements
after the date of this filing. You should not place undue reliance on
forward-looking statements.

Unless otherwise indicated, all references herein are to
Canadian Dollars.

About Imagis

Imagis Technologies Inc. is a developer and marketer of
software applications and advanced biometric facial recognition software
solutions both as products and as a Software Development Kit.  These
applications provide a range of security solutions in various industry sectors
including airports, law enforcement, customs, immigration and other government
agencies, and gaming.  The Company currently has well over a hundred
installations, including Toronto's Pearson International Airport, the world's
16th busiest airport.  The Company markets its products through a
network of business partners located in North America, Asia, Europe and Latin
America, and has installations in the US, Canada, Mexico and the UK.

ID-2000 - Image Detection and Biometric Facial Recognition

This software technology has enabled the Company to enter the
biometric market.

ID-2000 is a facial recognition software system designed for
the law enforcement, airport security, gaming and security industries that
captures an offender's image, typically via a video camera, and then creates a
biometric code that can be compared to other encoded images in a database.
ID-2000 allows an individual in a database to be identified in seconds, using
only an image or photograph as the search criterion.  Matching records will be
displayed as a list, together with their associated thumbnail images.  From
this, any record can be selected and full details, together with a full size
image, will be displayed.  Extensive linkages enable the database to be mined to
display details, such as aliases, known associates and vehicles, as well as
images of other distinguishing features, such as marks, scars and tattoos.
Where appropriate, details such

23

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as previous crimes or gang memberships can also
be displayed.  ID-2000 also works with Casino-ID and Envisage for use in the
gaming and security sectors.

ID-2000 is also available as a Software Development Kit, or
SDK, which is designed to enable developers at the Company's business partners
to integrate its facial recognition capabilities into their own
applications.

In addition, the Company has adapted its facial recognition
software to include the identification of non-facial objects in background
imagery and personally identifiable markings, such as tattoos.  The biometric
solution purchased by the UK's National Crime Squad will be used to crack down
on international online child pornography.  The ability of law enforcement
agencies to identify background imagery, as well as victims and perpetrators, is
an important factor in preparing for and solving missing persons
investigations.

Secure-ID (Airport Security)

Secure-ID is designed to use ID-2000 to scan the faces of
travellers entering or leaving an airport, isolate individual faces, encode them
and match them against a database of serious criminals or known terrorists.  A
variation on the system is already in use at Toronto's Pearson International
Airport, where the Royal Canadian Mounted Police have successfully used it to
identify wanted individuals trying to enter Canada.

Secure-ID uses standard surveillance cameras and requires no
manual intervention.  While it is possible to identify individuals in a crowd,
cameras should be positioned where they can obtain clear images, such as the
check-in desk, metal detector, gate and so on.  Where there is a possible match,
a monitor in the security office will display the image of the passenger,
together with the image of the possible match in the database.  The security
officer at the screen will visually compare the two images and, if they match,
take appropriate action.

CABS - Computerized Arrest & Booking System

CABS is an integrated information and imaging system
developed for the Royal Canadian Mounted Police ("RCMP") and other law
enforcement agencies.  CABS currently has separate modules for offenders,
non-offenders, staff and evidence.  The offender module automates booking
activities and reports, the production of mugshots and the generation of
line-ups.  Pictures of criminal suspects, as well as their marks, scars, tattoos
and fingerprints, are all captured in the offender module of CABS.  The
non-offender module provides an electronic database of persons, such as teachers
and day-care providers, who are required to be registered with the police.  The
staff module provides for the creation and management of staff identification.
The evidence module provides for electronic management of photographs of
evidence obtained in connection with a criminal arrest.

The CABS system is designed to collect the same information
that would be recorded manually during a traditional booking situation and to
store all of the information and photo images that are required in connection
with arresting and prisoner reports.  Compared to manual bookings, CABS offers
the following advantages:

- captures more information than manual booking systems and
allows the information to be retrieved quickly from multiple locations;
- allows offender information to be used for multiple inquiries and report
generating purposes;
- generates automated line-ups based on user-specified criteria;
- provides a variety of required reports and other documents with the
offender's photograph;
- allows the collection and retrieval of photographs of the offender,
including identifying physical marks such as tattoos, scars and other
markings;
- creates a database of offender information for access in the case of
subsequent arrests or for generation of suspect lists;
- can be integrated with livescan electronic fingerprinting systems and with
other computer software systems; and
- integrates with key dispatch systems, digital composite drawing programs and
digital fingerprint systems to provide a complete police information management
system.

CABS advanced data sharing capabilities allow different
authorities to access decentralised information.  The Company has recently
implemented its first regional data sharing system.  This allows RCMP
detachments to share live information entered by their individual detachments.
The major advantage of this data sharing system is that it allows one detachment
to search a larger database containing offender information when booking a
suspect, increasing the probability that the booking officer will discover prior
arrests for the same individual.  The RCMP does not retain any ownership
interest or residual rights over the CABS system.

24

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Overview

Revenue for software and services has historically accounted
for a substantial portion of the Company's revenue.  Typically, the Company
enters into a fixed price contract with a customer for the licensing of selected
software products and the provision of specific services.  The Company generally
recognizes total revenue for software and services associated with a contract
using percentage of completion method based on the total costs incurred over the
total estimated costs to complete the contract.

The Company's revenue is dependent, in large part, on
significant contracts from a limited number of customers.  As a result, any
substantial delay in the Company's completion of a contract, the inability of
the Company to obtain new contracts or the cancellation of an existing contract
by a customer could have a material adverse effect on the Company's results of
operations.  The loss of certain contracts could have a material adverse effect
on the Company's business, financial condition, operating results and cash
flows.  As a result of these and other factors, the Company's results of
operations have fluctuated in the past and may continue to fluctuate from
period-to-period.

Recent events have increased awareness of and interest in
products that have law enforcement or other security applications.  There can be
no assurance, however, that such trends will continue or will result in
increased sales of the Company's products and services.

Results of Operations for the year ended December 31, 2001
Compared to December 31, 2000:

Revenues

The Company's overall revenues for the year 2001 rose 90% to
$2,080,704 over the year 2000 revenue level of $1,097,719. However, sales of the
Company's software products increased 108% to $1,519,925 in 2001 from the prior
year amount of $729,127. The gain in software sales revenue includes higher
revenues earned on sales of the Company's CABS and ID-2000 products to law
enforcement agencies, initial sales in the last quarter of its new ID-2000 SDK
version, and revenues of $453,208 for the sale of the Company's Casino-ID
software, a version of the Company's CABS product adapted for casinos, to a
US-based reseller for worldwide distribution. These gains are attributed to an
increased awareness of the Company and its software products as a result of the
Company's greater marketing efforts during 2001.

Support and service revenues rose $79,811 or 29% to $356,441
in 2001 from the year 2000 amount of $276,630. Software support revenues
included in this revenue category rose $44,182 or 39% to $157,254 in 2001 from
$113,072 in the prior year. The remainder of the gain was essentially all
derived from fees earned from a service contract, which has now been completed.
The Company intends to concentrate its focus exclusively on its software product
sales and development where higher gross margins on sales are realized and is
not seeking further such service contract income going forward.

Other revenues were $112,376 or 122% higher at $204,338 in
the 2001 fiscal year, up from the prior year 2000 amount of $91,962. Other
revenue in 2001 represents recoveries of costs for materials used in
installations of the Company's software products, but in prior years, it also
included cost recoveries for hardware also purchased in conjunction with
specific installations. No revenue from the recovery of hardware purchase costs
was earned in 2001, whereas in 2000, the Company earned approximately $44,000
from such recoveries.

Operating Costs

Total operating costs rose in 2001 to $5,101,408, an increase
of 24% over the year 2000 level of $4,107,750. The increase is due primarily to
significantly higher expenditures incurred by the Company's technology
development group for added development work on the Company's ID-2000 products
and higher administration costs incurred primarily to increase market awareness
of the Company and its products in the United States and internationally, and
for corporate and product branding.

Costs of materials and services

Costs of materials and services for the year 2001 were
$175,851, up fractionally from the prior year amount of $173,136. The primary
reason for the increase is materials required for the Alameda installation.
This was partially offset by the elimination in 2001 of costs for hardware
components previously purchased for customers in 2000 and prior years, which
amounted to approximately $128,000 in 2000. No purchased hardware costs were
incurred in 2001.

25

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Sales and marketing

Sales and marketing costs for the year 2001 of $923,010 were
16% lower than those in 2000 year of $1,102,140. The costs include staff
salaries, travel, marketing materials and facility expenses including
communications. The lower 2001-year level reflects a restraint in travel imposed
throughout the first half of the year due to cash constraints in that period
coupled with lower costs of printed product marketing materials. In 2000,
unusually high costs for such marketing materials were incurred related to the
initial launch of the Company's ID-2000 facial recognition software. Management
plans to add several sales and marketing staff in 2002 and to significantly
expand its sales and marketing programs to further increase awareness of the
Company's software products in North America and worldwide where biometric
security applications are needed.  As a consequence, management expects that
sales and marketing costs will rise significantly over the 2001 level.

Technical services

Costs for the technical services function were higher at
$732,906, up 19% over the year 2000 amount of $613,915. The technical services
function manages all product installations, either performing the installation
directly or assisting and supporting the installation made by one of the
Company's partners. Costs were higher in 2001 due to the direct involvement of a
number of technical services staff in the Alameda installation due to its
breadth of scope and technical complexity, and the increased function costs
reflect primarily additional travel costs of the installation team on site.
Generally, the Company relies on its sales partners for installation support.
However, should sales occur where a partner is unable to fulfill this support
function, the Company may need to again dedicate staff and incur travel and
other related costs to assist the customer, resulting in higher technical
services costs.

Technology development

The technology development function expenditures for 2001
rose 37% to $1,215,945 over the year 2000 comparable amount of $888,837.
Technology development costs include principally salaries, which represent 60%
of the total 2001 function costs. The increase in 2001 is due to higher salary
costs incurred for additional technical staff, and higher lease costs from the
significant expansion of the leased space to accommodate this larger development
group. For 2002, the Company intends to add several more development staff to
further increase the functionality of its existing products, but also to start
development work on a number of pattern recognition applications, which have
recently been identified. One such application is an extension to the
requirements of the Company's sale to the National Crime Squad (UK) to provide
scene analysis, an application unrelated to facial imaging but one which the
Company's core software is capable of delivering. These additions to staff are
expected to cause 2002 costs to increase above the 2001 expenditures.

Administration

Administration costs for the year 2001, which amounted to
$1,981,124, are 76% higher than those incurred in 2000 of $1,125,571.
Administration costs include administration staff salaries and travel, facility
costs, professional and consultant fees and shareholder and regulatory costs.
The significant cost increase in the current year reflects a 192% increase in
travel, and other corporate costs associated with an extensive general market
awareness and overall branding program undertaken directly by the Company's
executive with the aid of consultants, and deemed essential to position the
Company's products against those of its competitors in the intensified market
sectors of airport and government security in the United States and
internationally. All other administration costs were comparable to those
incurred in the prior year with some increases to support costs related to the
higher 2001 level of activity.

Net Loss for the Period

The Company incurred a net loss overall for the year
amounting to $3,020,704 or $0.21 per share, which is only fractionally higher
than the loss in 2000 of $3,010,031 or $0.26 per share.  Under U.S. GAAP
accounting requirements, additional costs, primarily related to stock-based
compensation to directors, officers, staff and consultants, amounting to
$150,111 would be incurred and, accordingly, the U.S. GAAP net loss would be
$3,170,815, or $0.22 per share, as compared to the prior year comparable net
loss of $4,730,508 or $0.41 per share.

Liquidity and Capital Resources

The Company's liquidity improved significantly in 2001, with
its cash on hand increasing from an opening position of $59,497 to the closing
balance at December 31, 2001 of $200,659 in cash and short-term investments
amounting to $2,560,000.  There were no short-term investments in 2000.  The
increase was realized through the exercise of the Company's options and
warrants, and the completion of three financings in the year. Funds derived in
the year from the exercise of options amounted to $395,834 and from the exercise
of warrants amounted to $1,523,700.

26

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With respect to financing, in its first round, a private
placement, the Company issued 1,501,000 units priced at $1 per unit, each unit
convertible into one common share and one full warrant convertible into another
common share at a price of $1.10. This yielded proceeds of $1,501,000 to the
Company. The second financing, completed early in the fourth quarter, was also a
unit private placement, in this case for the issue of 229,332 units priced at
$2.17 per unit. Each unit consisted of one common share and a half warrant, with
two half warrants converting into one common share at an exercise price of
$2.55, and this netted cash of $497,650 to the Company. These two financings
provided an aggregate cash infusion to the Company of $1,998,650. The third
financing was completed shortly after the second and involved the sale of
1,427,682 special warrants also priced at $2.17 per special warrant, and yielded
net proceeds of $2,822,061. Each special warrant is convertible into one common
share and one half warrant on similar terms to those of the private placement
unit and at a price of $2.55. In total, during 2001 the Company raised
approximately $6.7 million.

These new funds were used primarily to sustain the Company's
operating loss for the year of $3,020,704. With the stronger cash position, the
Company was also able to extinguish its related party loans amounting to
$1,072,317, to make short-term deposits amounting to $2,560,000 and to acquire
additional computer equipment at a cost of $24,772. After the loss for the year
adjusted for non-cash items and these disbursements, the Company had a net gain
in cash in the year of $141,162 and when added to the cash on hand at the
beginning of the year of $59,497, cash at December 31, 2001 available for future
operations, exclusive of the additional funds on deposit of $2,560,000,
aggregated the above-noted amount of $200,659.

At present with this operating capital and two major
outstanding order commitments, management believes the Company is capable of
sustaining its operations throughout the remainder of the year with no further
financing requirements. However as noted above, its business plan for 2002
anticipates continuing product development work in both its traditional
biometric applications and in new development of non-biometric applications, In
addition, the Company recently identified other areas in discussions with its
newest strategic partner, the Sanyo Semiconductor Company, and consequently sees
the need to continue to add development staff.

From a marketing perspective, a number of international
opportunities have arisen and the Company's plan calls for added emphasis in
advancing awareness of its products internationally, and additional sales and
marketing staff are planned for this undertaking. Taking into account these
various new opportunities, the Company may consider additional financing this
year to funds its 2002 operations.

27

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Item 7.     Financial Statements.



|Imagis Technologies Inc.

Index to Consolidated Financial Statements   
|-----------------------------------------------------------------------
|                                                                       
|Auditors' Report to the Shareholders                                   
|Comments by Auditor for U.S. Readers on Canada-US Reporting
Differences
|Consolidated Balance Sheets                                            
|Consolidated Statements of Operations and Retained
Earnings            
|Consolidated Statements of Cash Flows                                  
|Notes to Consolidated Financial Statements                             

28

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|AUDITOR'S REPORT TO THE SHAREHOLDERS

We have audited the consolidated
balance sheets of Imagis Technologies Inc. as at December 31, 2001 and 2000 and
the consolidated statements of operations and deficit and cash flows for the
years then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and United States generally accepted auditing
standards.  Those standards require that we plan and perform an audit to obtain
reasonable assurance 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 financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2001 and 2000 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
As required by the Company Act (British Columbia), we report that, in our
opinion, these principles have been applied on a consistent basis.
"signed"Chartered Accountants
Vancouver, Canada
February 8, 2002COMMENTS BY AUDITOR FOR U.S.
READERS ON CANADA-US REPORTING DIFFERENCES
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 shareholders dated February 8, 2002 is expressed
in accordance with Canadian reporting standards which does not permit a
reference to such events and conditions in the auditors' report when these are
adequately disclosed in the financial statements.
"signed"Chartered Accountants
Vancouver, Canada
February 8, 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

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|IMAGIS TECHNOLOGIES INC.                         
|-------------------------------------------------
|Consolidated Balance Sheets                      
|(Expressed in Canadian dollars)                  
|                                                 
|December 31, 2001 and 2000                       
|                                                 
|                                                 
|Assets                                           
|                                                 
|Current assets:                                  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Equipment (note 3)                               
|                                                 
|                                                 
|                                                 
|Liabilities and Shareholders' Equity
(Deficiency)
|                                                 
|Current liabilities:                             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Advances payable (note 4)                        
|                                                 
|Payable to related parties (note 5)              
|                                                 
|                                                 
|Shareholders' equity (deficiency):               
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 

Operations (note 1)
Commitments (note 9)
Subsequent events (note 11)

See accompanying notes to consolidated financial statements.

30

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|IMAGIS TECHNOLOGIES INC.                                   
|-----------------------------------------------------------
|Consolidated Statements of Operations and Retained
Earnings
|(Expressed in Canadian dollars)                            
|                                                           
|Years ended December 31, 2001 and 2000                     
|                                                           
|                                                           
|Revenues:                                                  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Expenses:                                                  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Loss for the year                                          
|                                                           
|Deficit, beginning of year                                 
|                                                           
|Deficit, end of year                                       
|                                                           
|Loss per share                                             
|Weighted average number of shares
outstanding              

See accompanying notes to consolidated financial statements.

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|IMAGIS TECHNOLOGIES INC.                                                                     
|---------------------------------------------------------------------------------------------
|Consolidated Statements of Cash Flows                                                        
|(Expressed in Canadian dollars)                                                              
|                                                                                             
|Years ended December 31, 2001 and 2000                                                       
|                                                                                             
|                                                                                             
|Cash provided by (used for):                                                                 
|                                                                                             
|Cash flows from operating activities:                                                        
|                                                                                             
|                                                                                             
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|                                                                                             
|                                                                                             
|                                                                                             
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|                                                                                             
|                                                                                             
|Cash flows from investing activities:                                                        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Cash flows from financing activities                                                         
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Increase in cash                                                                             
|                                                                                             
|Cash and cash equivalents, beginning of
year                                                 
|                                                                                             
|Cash and cash equivalents, end of year                                                       
|                                                                                             
|Supplementary information and disclosure of
non-cash 
    financing and investing activities:
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             

See accompanying notes to consolidated financial statements.

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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|1.                                        
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|2.                                        
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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|2.                                        
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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|2.                                        
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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|2.                                        
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|3.                                        
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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|4.                                        
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|5.                                        
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37

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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|6.                                        
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38

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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|6.                                        
|                                          
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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|6.                                        
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40

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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|8.                                        
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41

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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|10.                                       
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|11.                                       
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42



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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|12.                                       
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43

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|IMAGIS TECHNOLOGIES INC.                  
|------------------------------------------
|Notes to Consolidated Financial
Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended December 31, 2001 and 2000    
|                                          
|12.                                       
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44

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

Not applicable.

45

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PART III

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

Executive Officers and Directors

The following table sets forth certain information concerning
the Company's executive officers and directors as of December 31, 2001:

|Name                 | Age | Position with the
Company                          
|-------------------- | --- | ---------------------------------------------------
|Oliver "Buck"
Revell | 63  | Chairman and a Director                            
|Iain Drummond        | 56  | President, Chief Executive Officer and a
Director  
|Ross Wilmot          | 58  | Vice President, Finance and Chief
Financial Officer
|Andrew Amanovich     | 44  | Chief Technology Officer                           
|Rory Godinho*        | 43  | Secretary and a Director                           
|Altaf Nazerali*      | 48  | Director                                           
|Robert Gordon        | 55  | Director                                           
|Frederick Clarke*    | 66  | Director                                           

_____________________

*  Audit Committee Member

Oliver "Buck" Revell

Iain Drummond has served as a director since February
12, 1999, as President and Chief Executive Officer of the Company since February
23, 1999 and of Imagis Cascade Technologies Inc. since September 1, 1998.  Mr.
Drummond has extensive management experience in the high technology industry.
Most recently he served as the Vice-President, Strategic Partnerships with Alis
Technologies of Montreal, Quebec, a provider of integrated language-handling
technologies and translation solutions, from 1990 to 1998, where Mr. Drummond
set up the international sales network for its language translation software
products.  Previously, Mr. Drummond was President of Clan Technologies, a
developer and marketer of executive information systems, in Canada from 1988 to
1990.  Prior to that, he worked with International Computers Limited, a supplier
of integrated computer systems, from 1966 to 1988, including serving as
President for ICL Canada, a wholly owned subsidiary of International Computers
Limited, focused on selling integrated computer systems to large retailers.

Ross Wilmot has served as the Vice President, Finance
and Chief Financial Officer of the Company since July 7, 1998.  Mr. Wilmot was
a director of the Company from July 7, 1998 to February 12, 1999.  Mr. Wilmot
has over 25 years of international business experience in the resources and
technology industries.  Mr. Wilmot's principal occupation is as a corporate
executive of a number of publicly traded companies.  Mr. Wilmot serves as the
President of Paloma Ventures Inc., with oil and gas production in the United
States, and as Vice-President, Finance of the following companies:  (a)
Multivision Communications Corp., the operator of MMDS TV systems in Bolivia
(August 1995 to present); (b) Breckenridge Resources Ltd., a junior exploration
company with mining interests in China (January 1995 to present); (c) CTF
Technologies Inc., a company engaged in the servicing of electronic refueling
technology in Brazil (July 1996 to present); (d) Neuer Kapital Corp., an
inactive Canadian Venture Exchange junior exploration company with exploration
projects in Africa (January 1997 to present); (e) Radical Elastomers Inc., a
company engaged in the development and manufacturing of plastic-based material
used as replacement for traditional rubber, plastic, and latex compounds in many
applications (June 1996 to present); (f) Intacta Technologies Inc. (formerly,
InfoImaging Technologies Inc.), a software technology company, (1997 to
present); (g) Briyante Software Corp., a developer of eBusiness software
(January 1995 to present).  Mr. Wilmot holds Bachelor and Masters degrees in
engineering from the University of Toronto and is a chartered accountant in
Canada.

Andrew Amanovich has served as the Chief Technology
Officer of the Company since February 23, 1999.  Since 1989, Mr. Amanovich has
been employed by and is currently the president of Pacific Cascade Consultants
Ltd., a consulting service engaged in forestry mapping and surveys, where he
developed computer simulation models for forest visualization modeling

46

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and was involved in forest engineering, geotechnical
engineering, digital mapping and software development of technology in March of
1998.  Mr. Amanovich holds a Bachelor of Science from the University of British
Columbia.

Altaf Nazerali has served as a director of the Company
since July 7, 1998.  Mr. Nazerali also served as President and Chief Executive
Officer from July 7, 1998 through February 23, 1999.  In addition, Mr. Nazerali
has served in the following capacities of other companies:  (a) Chief Executive
Officer (November 1995 to present), President and a director (each October 1995
to present) of Multivision Communications Corp., the operator of MMDS TV systems
in Bolivia (b) Director of CTF Technologies Inc., a company engaged in the
servicing of electronic refueling technology in Brazil (April 1998 to present);
(c) President and a director of Intacta Technologies Inc. (formerly, InfoImaging
Technologies Inc.), a software technology company (October 1997 to present); and
(d) Chief Executive Officer and President of Canbras Communications Corp., an
operator of pay television and telephone systems in Brazil (November 1994 to
October 1995).

Robert Gordon was appointed as a director of the
Company on February 15, 2000.  Mr. Gordon is currently the Senior Vice President
of Oracle Corporation responsible for the operations in the Netherlands,
Belgium, Middle East and Africa and resides in London, England.  Prior to Mr.
Gordon's transfer to London, Mr. Gordon was President and Chief Executive
Officer of Oracle Canada.  Before joining Oracle in 1991, Mr. Gordon held senior
management positions at IBM, Northern Telecom and Bell Atlantic and is a past
Chair of the Information Technology Association of Canada (ITAC).  Mr. Gordon is
a graduate in engineering science from Universite Laval and the Advanced
Management Program of Duke University.

Rory Godinho has been a director of the Company since
July 7, 1998 and as Secretary since December 1, 2001.  Mr. Godinho is a
Principal with the law firm of Godinho Sinclair (since its formation in 1991).
Mr. Godinho restricts his practice to the areas of securities and corporate
commercial law. In addition, Mr. Godinho serves in the following capacities of
other companies:  (a) Secretary of Harambee Mining Corp., an inactive Canadian
Venture Exchange junior exploration company with exploration projects in Africa
(August 1996 to present); (b) Secretary of Intertech Minerals Corp., a junior
diamond exploration company with property in Northwest Territories Canada
(January 1999 to present); and President and a director of dot.com Technologies
Inc., an inactive Canadian Venture Exchange company with no current business
(July 1999 to present).  Mr. Godinho holds an LL.B. from the University of
British Columbia.

Frederick Clarke has been a director of the Company
since February 12, 1998.  In addition, over the past five (5) years, Mr. Clarke
has divided his time serving in the following positions of the following
companies:  (a) founder and Chairman of the board of directors of The Clarke
Group Companies, a diversified forestry conglomerate based in Mission, British
Columbia; (b) advisor/consultant to Green River Log Sales (1996) Ltd.; (c)
Chairman of the board of directors of Re-Con Building Products Inc., provider of
building materials; and (d) officer and a director of Pacific.

Board of Directors

Each member of the board of directors is elected annually and
holds office until the next annual meeting of shareholders or until his or her
successor has been elected or appointed, unless his or her office is earlier
vacated in accordance with the Bylaws of the Company.  Officers serve at the
discretion of the Board and are appointed annually.  The Board currently has one
committee, the Audit Committee, and an Advisory Board.

None of the Company's directors or executive officers are
parties to any arrangement or understanding with any other person pursuant to
which said individual was elected as a director or officer of the Company.  No
director or executive officer of the Company has any family relationship with
any other officer or director of the Company.

Audit Committee

The Audit Committee recommends independent accountants to the
Company to audit its financial statements, discusses the scope and results of
the audit with the independent accountants, reviews the Company's interim and
year-end operating results with its executive officers and its independent
accountants, considers the adequacy of the internal accounting controls,
considers the audit procedures of the Company and reviews the non-audit services
to be performed by the independent accountants.  The members of the Audit
Committee are Fred Clarke, Altaf Nazerali and Rory Godinho.

46

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Item 10.  Executive Compensation.

Compensation of Executive Officers

The following table sets forth the Company's executive
compensation information for the fiscal years ended December 31, 2001, 2000 and
1999 for its CEO and its other named executive officer:

Summary Compensation Table



|Name and
Principal Position                         | Fiscal
Year  | Compensation                  | Long-Term Compensation      | Payouts                       | All Other Compensation
($)
|--------------------------------------------------- | ------------ | ----------------------------- | --------------------------- | ----------------------------- | --------------------------
|Salary
($)                                          | Bonus
($)    | Other Annual Compensation
($) | Restricted Stock Awards
($) | Securities Under Options 
(#) | LTIP Payouts
($)          
|Iain Drummond
President and
Chief Executive
Officer | 200120001999 | 144,000143,667143,667         | N/AN/AN/A                   | 9,6009,6009,600               | N/AN/AN/A                 
|Andrew 
Amanovich
Chief Technology
Officer          | 200120001999 | 110,00095,00093,000           | N/AN/AN/A                   | N/AN/AN/A                     | N/AN/AN/A                 

(1)     Mr. Drummond was issued a
warrant to purchase
400,000 Common Shares at an exercise price of $1.25 per share in consideration
for renouncing his right to acquire up to a 6% interest in the equity in Imagis
Cascade.

Option Grants in Last Fiscal Year

The following table sets forth the Company's stock options
grants to its CEO and other named executive officer during the year ended
December 31, 2001:

Individual Grants



|Name             | Number of
Securities
Underlying
Options | % of Total
Options
Granted to
Employees in
Fiscal Year | Exercise
Price Per
Share | Expiration
Date
|---------------- | --------------------------------------- | ------------------------------------------------------ | ------------------------ | ---------------
|                 |                                         |                                                        |                          |                
|Iain Drummond    | 100,000                                 | 9.9%                                                   | $1.00                    | August 30, 2006
|Andrew Amanovich | 160,000                                 | 15.8%                                                  | $1.00                    | August 30, 2006

Options Exercised During 2001

The following table sets forth for the Company's CEO and
other named executive officer the number of shares acquired upon exercise of
stock options during the year ended December 31, 2001 and the number of shares
subject to exercised and unexercised stock options held as of December 31,
2001.

Aggregated Options Exercised During 2001 Fiscal Year
and Financial Year-End Option Values



|               |                             |                | Number of Securities
Underlying Unexercised
Options at Fiscal Year-End | Value of Unexercised
In-The-Money Options at
Fiscal Year End (1)
|-------------- | --------------------------- | -------------- | ---------------------------------------------------------------------- | ----------------------------------------------------------------
|Name           | Shares Acquired
on Exercise | Value
Realized | Exercisable                                                            | Unexercisable                                                   
|               |                             |                |                                                                        |                                                                 
|Iain Drummond  | --                          | --             | 33,333                                                                 | 66,667                                                          
|Andy Amanovich | 3,000                       | 900            | 92,334                                                                 | 5,000                                                           

(1) The value of unexercised in-the-money
options at December 31, 2001 is based upon a price of $2.16 per share, the
closing price of the Company's common shares on the CDNX at such time, less the
exercise price per share.

48

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Employment Agreements

Pursuant to an agreement dated February 23, 1999, the
Company retained Iain Drummond to act as President and Chief Executive Officer
effective September 1, 1998 (the "Drummond Employment Agreement").
Pursuant to the Drummond Employment Agreement, Mr. Drummond's current annual
salary is approximately $144,000.  If the Company achieved its
annual sales targets during Mr. Drummond's first year of
employment, Mr. Drummond would have received a bonus of $75,000.  The Company
did not achieve such sales targets for the year ended December 31, 1999 and,
therefore, Mr. Drummond did not receive a bonus.  For all years after Mr.
Drummond's first year of employment, Mr. Drummond will receive a bonus of 50% of
his base salary for that year, if the Company achieves its annual sales targets
during that year.  For the year ended December 31, 2000, the Company did not
achieve such sales targets and, therefore, Mr. Drummond did not receive such
bonus.  Any bonus paid to Mr. Drummond must be paid in cash within 90 days of
fiscal year end.  In addition, under the terms of the Drummond Employment
Agreement and the Share Purchase Agreement, the Company issued a warrant to
purchase 400,000 shares at an exercise price of $1.25 to Mr. Drummond.  The
Drummond Warrant is exercisable in accordance with the following vesting
schedule:

(a)  133,333 Shares may be acquired after February 23, 2000;
(b)  133,333 Shares may be acquired after February 23, 2001; and
(c)  133,334 Shares may be acquired after February 23, 2002.

Once vesting has occurred with respect to a portion of the
shares, Mr. Drummond has two (2) years from the date of vesting with respect to
that portion of the vested shares only to purchase the Common Shares.  In
addition, the Drummond Warrant is exercisable only if on the date of such
exercise, Mr. Drummond is a director, officer or employee of the Company.

Pursuant to an agreement dated February 23, 1999, the Company
retained Andrew Amanovich to act as Chief Technology officer (the "Amanovich
Employment Agreement").  Pursuant to the Amanovich Employment Agreement, Mr.
Amanovich's current annual salary is approximately $110,000.

Compensation of Directors

During the most recently completed financial year ended
December 31, 2001, there was no cash compensation paid by the Company to
the directors for their services as directors except as otherwise disclosed
herein. There are no standard arrangements for any such compensation to be paid
other than reimbursement for expenses incurred in connection with their services
as directors.

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

The following table sets forth certain information concerning
the number of Common Shares owned beneficially as of December 31, 2001 by: (i)
each person known to the Company to own more than five percent (5%) of any class
of the Company's voting securities; (ii) each director of the Company; and (iii)
all directors and officers as a group.  Unless otherwise indicated, the
shareholders listed possess sole voting and investment power with respect to the
shares shown.

|TITLE OFCLASS | NAME AND ADDRESS OF BENEFICIAL OWNER                                         | AMOUNT AND NATURE OFBENEFICIAL OWNER | PERCENTOF CLASS(1)
|------------- | ---------------------------------------------------------------------------- | ------------------------------------ | ------------------
|              |                                                                              |                                      |                   
|Common Shares | Iain Drummond
3307 West 6th Street
Vancouver, B.C.     V6R 1T2
Canada        | 440,833(2)                           | 2.6%              
|              |                                                                              |                                      |                   
|Common Shares | Altaf Nazerali 
555 Palisade Drive
North Vancouver, B.C.     V7R 2H9
Canada  | 968,166(3)                           | 5.7%              
|              |                                                                              |                                      |                   
|Common Shares | Rory Godinho
1590 23rd Street
West Vancouver, B.C.     V7V 4W9
Canada        | 352,167(4)                           | 2.1%              
|              |                                                                              |                                      |                   
|Common Shares | Frederick Clarke
33610 East Broadway Avenue
Mission, B.C.     V2V 4M4
Canada | 1,793,201(5)                         | 10.8%             

49

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|              |                                                                                   |               |      
|------------- | --------------------------------------------------------------------------------- | ------------- | -----
|Common Shares | Andy Amanovich
P.O. Box 33
Granthams Landing, B.C.     V0N 1X0
Canada             | 1,823,868(6)  | 11.0%
|              |                                                                                   |               |      
|Common Shares | Ross Wilmot
13548 19th Avenue
South Surrey, B.C.     V4A 6B4
Canada               | 176,666(7)    | 1.1% 
|              |                                                                                   |               |      
|Common Shares | Oliver "Buck" Revell
36 Victoria Drive, Suite A
Rowlett, TX     75088-6062
U.S.A. | 92,000(8)     | *    
|              |                                                                                   |               |      
|Common Shares | Robert Gordon
Cassini House
57 St. James Street
London     SW1A 1LD
U.K.          | 60,000(9)     | *    
|              |                                                                                   |               |      
|Common Shares | All directors and officers as a group (9 persons)                                 | 5,971,901(10) | 31.8%

*  Indicates less than one (1) percent

1. Based on an aggregate 16,537,480 Common Shares outstanding as of February
26, 2002.
2. Includes 433,333 Common Shares issuable pursuant to a warrant that is
exercisable within 60 days of February 26, 2002.
3. Includes 83,333 Common Shares held in escrow and options and warrants to
purchase 469,833 Common Shares exercisable within 60 days of February 26,
2002.
4. Includes 33,333Common Shares held in escrow and options to purchase 116,667
Common Shares exercisable within 60 days of February 26, 2002.
5. 1,661,387 Common Shares are indirectly held through Pacific Cascade
Consultants Ltd ("Pacific").  Mr. Clarke controls FWC Holdings Ltd.
which owns 50% of Pacific. Andy Amanovich, the current Chief Technology Officer
of the Corporation, owns the other 50% of Pacific.  65,147 Common Shares are
indirectly held through 385078 B.C. Ltd. ("B.C. Ltd.").  B.C. Ltd. is
50% owned by Pacific.  Through their holdings, Mr. Clarke and Mr. Amanovich each
own 25% of B.C. Ltd.  Includes options to purchase 16,667 Common Shares granted
to exercisable within 60 days of February 26, 2002.
6. 1,661,387 Common Shares are indirectly held through Pacific Cascade
Consultants Ltd ("Pacific").  Mr. Amanovich owns 50% of Pacific. Fred
Clarke, a director of the Company, owns the other 50% of Pacific.  65,147 Common
Shares are indirectly held through 385078 B.C. Ltd. ("B.C. Ltd.").
B.C. Ltd. is 50% owned by Pacific.  Through their holdings, Mr. Amanovich and
Mr. Clarke each own 25% of B.C. Ltd.  Includes options to purchase 97,334 Common
Shares granted to exercisable within 60 days of February 26, 2002.
7. Includes 16,666 Common Shares held in escrow and options to purchase 110,000
Common Shares exercisable within 60 days of February 26, 2002.
8. Includes options to purchase 92,000 Common Shares exercisable within 60 days
of February 26, 2002.
9. Includes options to purchase 60,000 Common Shares exercisable within 60 days
of February 26, 2002.
10. Includes options and warrants to purchase 1,505,834 Common Shares
exercisable within 60 days of February 26, 2002.

The Company is not aware of any arrangement that
might result in a change in control in the future.

Item 12.     Certain
Relationships and Related Transactions.

Warrants exercisable to acquire 400,000 Common Shares at
$1.25 per share were issued to Iain Drummond in connection with the Company's
acquisition of Imagis Cascade.  These warrants were to expire in three equal
amounts on February 21, 2001, 2002 and 2003.  The Company has extended the
expiry date of 266,666 warrants to June 25, 2002.

The Company had the following payables to related parties:

|                                        |   |      |  |   |           | 
|--------------------------------------- | - | ---- |  | - | --------- | 
|                                        |   | 2001 |  |   | 2000      | 
|International Portfolio Management Inc. | $ | -    |  | $ | 578,222   | 
|Pacific Cascade Consultants Ltd.        |   | -    |  |   | 494,095   | 
|                                        | $ | -    |  | $ | 1,072,317 | 

50

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The Company paid administration expenses in the amount of
$323,850 during the year ended December 31, 2001 to International Portfolio
Management Inc., a company with a director and two officers in common for
services rendered to the Company.

In the second quarter of 2001, the Company issued 1,501,000
units, each consisting of one (1) share purchase warrant, to ten (10) non-U.S.
persons in a private offering outside the United States for gross proceeds of
$1,501,000, of which Valor Invest Limited, a company in which Altaf Nazerali is
a director, purchased 203,000 units, and International Portfolio Management Inc.
purchased 97,500 units.

In the fourth quarter of 2001, the Company issued 229,332
units, each consisting of one (1) Common Share and one-half (1/2) of a
non-transferable Share Purchase Warrant, to two (2) non-U.S. persons in a
private offering outside the United States for gross proceeds of $497,650, of
which Pensbreigh Holdings Ltd., a company in which Altaf Nazerali is a
significant shareholder, purchased 45,000 units.

In the fourth quarter of 2001, the Company issued 1,427,682
Special Warrants, each convertible into one (1) Common Share and one-half (1/2)
of a non-transferable Share Purchase Warrant, to eleven (11) non-U.S. persons in
a private offering outside the United States for gross proceeds of $3,098,070,
of which Valor Invest Limited, a company in which Altaf Nazerali is a director,
purchased 45,400 units.

The Company paid administration expenses in the amount of
$572,638 during the year ended December 31, 2000 to International Portfolio
Management Inc., a company with a director and two officers in common for
services rendered to the Company.

In the first quarter of 2000, the Company issued 875,000
units, each consisting of one (1) share purchase warrant, to eight (8) non-U.S.
persons in a private offering outside the United States for gross proceeds of
$700,000, of which Valor Invest Limited, a company in which Altaf Nazerali is a
significant shareholder, purchased 187,500 units, Altaf Nazerali purchased
31,250 units, Rory Godhino purchased 62,500 units and Pacific purchased 250,000
units.

Subsequent to December 31, 2000, the Company arranged a
convertible loan of up to $200,000 with Valor Invest Limited, of which the
Company has drawn $145,000 and agreed to issue 20,000 Common Shares as a bonus
to the lender.  The loan bears interest at 8% per annum, is repayable on
December 31, 2001 and is convertible, at the election of the lender, into Common
Shares at a price of $1.50 each.  These bonus shares are to be subject to a hold
period expiring May 12, 2001.

Except as otherwise disclosed herein, no director, senior
officer, principal shareholder, or any associate or affiliate thereof, had any
material interest, direct or indirect, in any transaction since the beginning of
the last financial year of the Company that has materially affected it, or any
proposed transaction that would materially affect it, except for an interest
arising from the ownership of shares of the Company where the member will
receive no extra or special benefit or advantage not shared on a pro rata basis
by all holders of shares in the capital of the Company.

51

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

(a)     Exhibits

The following exhibits are filed (or incorporated by
reference herein) as part of this Form 10-KSB:

|3.1(1)   | Articles of Incorporation                                                                                                                                                                                        
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1(1)   | Shareholder Agreement dated February 23, 1999
among the Original Shareholders and the Former Imagis Shareholders                                                                                                 
|4.2(1)   | Escrow Agreement for a Venture Capital Pool
Issuer dated July 3, 1998 among Colloquium Capital Corp., CIBC Mellon Trust
Company and Sandra Buschau, Altaf Nazerali, Shafiq Nazerali, Rory Godinho and
Ross Wilmot
|4.3(1)   | Warrant dated February 25, 1999 issued to Iain
Drummond                                                                                                                                                          
|4.4(1)   | Warrant dated February 25, 1999 issued to
Armitage & Associates                                                                                                                                                  
|4.5(6)   | Form of Share Purchase Warrant                                                                                                                                                                                   
|10.1(1)+ | Incentive Stock Option Agreements dated July 7,
1998 between the Issuer and each of Sandra E. Buschau, Altaf Nazerali and Ross
Wilmot                                                                            
|10.2(1)  | Confidentiality and Non-Competition Agreement
dated February 23, 1999 among the Issuer, Imagis, the Former Imagis Shareholders
and the principals of the Former Imagis Shareholders                              
|10.3(1)  | Revenue Assignment Agreement dated December 15,
1998 among Imagis, Pacific, Imagis Solutions (US) Incorporated and Imagis North
West Solutions Inc.                                                              
|10.4(1)  | Agency Agreement dated March 29, 1999 among the
Issuer and the Agents                                                                                                                                            
|10.5(1)  | Subscription Agreement dated January 26, 1999
between the Issuer and Pacific Cascade Consultants Ltd.                                                                                                            
|10.6(1)  | Subscription Agreement dated January 26, 1999
between the Issuer and First Capital Invest Corp.                                                                                                                  
|10.7(1)+ | Incentive Stock Option Agreements dated February
25, 1999 and March 25, 1999 between the Issuer and certain directors, employees
and service providers of the Issuer or affiliates or subsidiaries thereof       
|10.8(1)+ | Consulting Services Agreement effective February
25, 1999 between the Issuer and Shafiq Nazerali-Walji                                                                                                           
|10.9(1)* | Employment Agreement dated February 23, 1999
between the Issuer and Iain Drummond                                                                                                                                
|10.10(1) | Technology Purchase Agreement dated March 6,
1998 among Imagis Technologies Inc., Imagis Cascade Technologies Inc. and
Penelope Walker, Richard Graham and William Hawkes                                        
|10.11(1) | Technology Purchase Agreement dated March 6,
1998 between Pacific Cascade Consultants Ltd. and Imagis Cascade Technologies
Inc.                                                                                  
|10.12(1) | Share Purchase Agreement dated December 14, 1998
among the Issuer, Imagis Cascade Technologies Inc. and the Former Imagis
Shareholders                                                                           

52

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|10.13(1) | Confidentiality and Standstill Agreement dated
October 6, 1998 among Colloquium Capital Corp., Imagis Cascade Technologies Inc.
and the Former Imagis Shareholders
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14(2) | Loan Agreement dated October 15, 1999 between
the Issuer and Rexton Corporation                                                                                   
|10.15(3) | Agreement dated May 1, 2000 between the Issuer
and Somerset Financial Group Inc.                                                                                  
|10.16(3) | Agreement dated August 15, 2000 between the
Issuer and GPC Communications                                                                                         
|10.17(3) | Agreement dated August 21, 2000 between the
Issuer and Fleishman-Hillard Canada Inc.                                                                              
|10.18(4) | Imagis Technologies Inc. 2000 Stock Option
Plan                                                                                                                   
|10.19(4) | Agreement dated October 11, 2000 between the
Issuer and Orion Scientific Systems Inc.                                                                             
|10.20(5) | Imagis Technologies Inc. 1999 Stock Option
Plan                                                                                                                   
|10.21(6) | Form of Unit Subscription Agreement                                                                                                                               
|10.22(2) | Convertible Note Subscription Agreement dated
October 1, 1999                                                                                                     
|99.1     | Form 51-901F as required by the British Columbia
Securities Commission                                                                                            

* Indiates management contract.
+ Indicates compensatory plan or arrangement.

1. Previously filed as part of the Company's Registration Statement on Form
10-SB (File No. 000-30090).
2. Previously filed as part of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999.
3. Previously filed as part of the Company's Quarterly Report on Form 10-QSB
for the period ended September 30, 2000.
4. Previously filed as part of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2000.
5. Previously filed as part of the Company's Quarterly Report on Form 10-QSB
for the period ended March 31, 2001.
6. Previously filed as part of the Company's Quarterly Report on Form 10-QSB
for the period ended June 30, 2001.

_________________________

(b)     Reports on Form 8-K

1. On October 16, 2001, the Company filed a Form 8-K to
report that the substantial increase in the company's stock price was due mostly
to the Company's biometric facial recognition technology. The tragedy that took
place on September 11, 2001 turned attention to those companies that have the
technology to assist in airport security, customs and immigration, law
enforcement and criminal justice.
2. On October 29, 2001, the Company filed a Form 8-K to
announce that the Company, in association with Intacta Technologies and SANYO
Semicondutor Company, will provide the first public demonstration of
XPRESS.ID-2000, the only integrated verification application available that
combines biometric facial recognition with software encoding technology, at this
week's IACP Conference.
3. On November 8, 2001, the Company filed a Form 8-K to
announce that the Company had renegotiated the non-brokered portion of its
private placement originally announced in its news release of October 24, 2001.
The non-brokered portion of the placement has been increased to $497,650 and
will now be for units rather than special warrants at $2.17 per unit. Each unit
consists of one common share and one half of a non-transferable share
purchase

53

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warrant, with each whole warrant entitling the holder thereof
to acquire one additional common share in the capital of the Company at an
exercise price of $2.55 for a period of one year from the date on which the
warrants are issued.

Further, the Company announced that API Technologies LLC will
purchase the rights to the Company's Casino-ID product and will pay royalty fees
to the Company associated with API product sales that incorporate the Casino-ID
software application. Casino-ID is an advanced software application for tracking
incident-based information and images within the Casino environment.

1. On November 26, 2001, the Company filed a Form 8-K to
announce that the Company, together with Abbey Group Consultants Inc. ("AGC"),
would be installing the Company's facial recognition as a key component of the
integrated Criminal Justice System which will serve the Madera County
Corrections, Sheriff's, and Probation Departments, as well as the Office of the
District Attorney.
2. On December 6, 2001, the Company filed a Form 8-K to
announce, at the Biometrics 2001 Conference in London, that it, along with the
National Crime Squad's strategic IT partner, Serco Plc, an international
provider of management services to government and industry, is developing an
application based on its advanced ID-2000TM facial recognition
technology.
3. On December 17, 2001, the Company filed a Form 8-K to
acknowledge that, at the Biometrics and Security Technology Investment Forum
held in New York City, Iain Drummond, president and CEO of the Company discussed
the increase in demand for biometric facial recognition technology due to the
heightened focus on homeland security. He also noted the technology's growing
adoption rate among law enforcement agencies in the U.S. and in Europe.

54

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SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of Vancouver, Province
of British Columbia, on March 18, 2002.



| | IMAGIS TECHNOLOGIES INC.                                             
| | ---------------------------------------------------------------------
| | /s/  Iain Drummond
Iain DrummondPresident and Chief Executive Officer

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

|Signature                              | Title                                                                                           | Date          
|-------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------
|/s/  Oliver Revell
Oliver Revell       | Chairman and a Director                                                                         | March 18, 2002
|                                       |                                                                                                 |               
|/s/  Iain Drummond
Iain Drummond       | President, Chief Executive Officer and a Director
(Principal Executive Officer )                | March 18, 2002
|                                       |                                                                                                 |               
|/s/  Ross Wilmot
Ross Wilmot           | Vice President Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) | March 18, 2002
|                                       |                                                                                                 |               
|/s/  Rory Godinho
Rory Godinho         | Secretary and a Director                                                                        | March 18, 2002
|                                       |                                                                                                 |               
|/s/  Frederick Clarke
Frederick Clarke | Director                                                                                        | March 18, 2002
|                                       |                                                                                                 |               
|/s/  Altaf NazeraliAltaf Nazerali      | Director                                                                                        | March 18, 2002
|                                       |                                                                                                 |               
|/s/  Robert GordonRobert Gordon        | Director                                                                                        | March 18, 2002
|                                       |                                                                                                 |