# UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

_________________

# FORM 10-KSB

_________________

# (Mark One)

||X| | ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
|--- | -----------------------------------------------------------------------------

| | For the
fiscal year ended December 31, 2002
| | -------------------------------------------

# OR

||_| | TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------

| | For the
transition period from _______________ to  _______________
| | ------------------------------------------------------------------

# Commission file
Number: 000-30090

_________________

IMAGIS TECHNOLOGIES INC.(Exact name of small business issuer in its charter)

_________________

|British Columbia, Canada
(State or other jurisdiction of
incorporation or organization) | Not Applicable
(I.R.S. Employer Identification No.)
|--------------------------------------------------------------------------------------- | ---------------------------------------------------

1630  1075 West Georgia Street
Vancouver, British Columbia 
V6E 3C9
(Address of principal executive offices, including 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 |_|

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$3,022,888.

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 27, 2003 was Cdn$20,802,672. The number of shares outstanding
of each of the Issuers classes of equity as of March 27, 2003 was 20,596,705 common
shares.

Transitional Small Business
Disclosure:  Yes |_|    No |X|

---

# IMAGIS TECHNOLOGIES
INC.

FORM 10-KSB 

For the Year Ended December 31, 2002 

INDEX

|         | 
|-------- | 
|PART I   | 
|Item 1   | 
|Item 2   | 
|Item 3   | 
|Item 4   | 
|PART II  | 
|Item 5   | 
|Item 6   | 
|Item 7   | 
|Item 8   | 
|PART III | 
|Item 9   | 
|Item 10  | 
|Item 11  | 
|Item 12  | 
|Item 13  | 
|Item 14  | 

---

# 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; the Issuers need for additional financing; the
Issuers history of losses; the Issuers dependence on a small number of
customers; risks involving new product development; competition, management of growth and
integration; risks of technological change; the Issuers dependence on key personnel;
risks involving lengthy sales cycles; marketing relationships and third-party suppliers;
the Issuers ability to protect its intellectual property rights; risks associated
with exchange rate fluctuations; risks of software defects; risks associated with product
liability; the directors and officers involvement in other projects; the
Issuers strategic alliances with Sanyo Semiconductor Company and Intacta
Technologies Inc. (Intacta) to form Zixsys Inc.; the Issuers agreements
with OSI Systems Inc. (OSI); the volatility of the Issuers share price;
risks associated with certain shareholders exercising 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.

Although the Issuer believes that
expectations reflected in these forward-looking statements are reasonable, the Issuer
cannot guarantee future results, levels of activity, performance, achievements or other
future events. Moreover, neither the Issuer nor anyone else assumes responsibility for the
accuracy and completeness of these forward-looking statements. The Issuer is under no duty
to update any of these forward-looking statements after the date of this report. You
should not place undue reliance on these forward-looking statements.

# 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.

|                   | 
|------------------ | 
|
|
|High for the month | 
|
|Low for the month  | 

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
March21, 2003 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$0.6709. 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.

1

---

# PART I

# Item 1.  Description of
Business.

Imagis Technologies Inc. (the
Company), a British Columbia corporation, is a developer and marketer of
advanced biometric facial recognition software applications and solutions. The
Companys products are marketed as stand-alone products and as Software Development
Kits, or SDKs, to systems integrators. The Companys software applications provide a
range of security solutions in various industry sectors, including transportation and law
enforcement, as well as in the public sector to various government agencies such as
customs and immigration. The Companys principal product is ID-2000, a facial
recognition and image identification system, which utilizes computer technology to
identify individuals for processing, documenting, record-keeping, database management,
identification verification and other tasks performed by personnel in the law enforcement,
security and gaming industries. The Company currently has more than one hundred and forty
installations of its products, including Alameda County in California, USA, Torontos
Pearson International Airport in Toronto, Canada, and with a United Kingdom national police agency.
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 TSX Venture Exchange (TSX Venture Exchange) which was formerly
known as the Vancouver Stock Exchange, on September 29, 1998 as a Venture Capital Pool
Company (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 (Qualifying Transaction) under the
applicable rules of the TSX Venture Exchange. A Qualifying Transaction is a transaction
whereby the VCP: (a) issues or makes issuable securities representing more than 25% of its
securities that are issued and outstanding immediately prior to such 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 that are issued
and outstanding immediately prior to such 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 TSX Venture
Exchange for a venture company, in accordance with the applicable rules of the TSX Venture
Exchange. 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 TSX Venture Exchange. 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 a
prior director of the Company, and Andrew Amanovich, the current Chief Technology Officer
of the Company. Sonora, a private Canadian company, is controlled by the daughter of a
prior director of the Company. 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:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2

---

| | (i) | 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);
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (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 at                $0.48 per share allocated as follows:
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (A) | 1,764,706
common shares to Pacific,
| | --- | -----------------------------------

| | (B) | 441,176
common shares to Sonora,
| | --- | --------------------------------

| | (C) | 294,118
common shares to B.C. Ltd. and
| | --- | --------------------------------------

| | (D) | 900,000
common shares to FCIC
| | --- | -----------------------------

| | The
common 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 common
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 common
               shares at an exercise price of $1.25 per share to Iain Drummond (the
               Drummond Warrant), the Companys current President and
Chief                Executive Officer.  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 a prior 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 were developed originally by B.C. Ltd., a company
incorporated in 1990. 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  common
shares of Imagis  Cascade at a price      of $1.50 per share.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

---

| |  | 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 common 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).
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Technology Purchase Agreements
transferred the technology associated with CABS, 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

The Company derives a substantial
portion of its revenues, and it expects to derive a substantial portion of its revenues in
the near future, from sales to a limited number of customers. The Companys success
will depend significantly upon the timing and size of future purchase orders from its
largest customers.

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-ID, 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
substantially reduces 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.

Current Products

ID-2000 and ID-2000
SDK  ID-2000 is a proprietary software solution that enables
identification and verification through biometric face and image recognition. The solution
is marketed both to third party solution providers and as a core component to Imagis
other software applications. Imagis face recognition technique uses a combination of
spectral analysis and 3-D modelling to locate and fit a face. Once a face has been
identified, Imagis converts the face into a deformable surface model that can be used to
make both one-to-one and one-to-many matches. Imagis ID-2000 is also fully
extensible to non-facial imagery. This product is commercially available.

CABS (Computerized Arrest
and Booking System)  CABS is an integrated offender management system featuring
traditional arrest and booking system combined with advanced face and image recognition
system by way of Imagis ID-2000 software. Imagis has also already developed an
interface component for its IJS technology directly into CABS to facilitate data sharing
amongst CABS clients. CABS is currently in use by over 100 law enforcement agencies across
the United States, Canada, and Mexico.

4

---

ChildBase 
ChildBase is a child recovery and identification application, particularly for use in
investigations of child abuse imagery cases. ChildBase uses ID-2000 face and image
recognition technology to help investigators identify victims, offenders, and patterns of
crime. A United Kingdom national police agency is currently using ChildBase.

InVideo  InVideo
is a video analysis and surveillance intelligence solution for private security and law
enforcement agencies. This solution can automatically extract and classify both facial
imagery and other objects from any live or recorded video feed, generating actions based
on image identified. This includes using Imagis ID-2000 face recognition technology
to identify person or persons of interest. This product is under development and the first
release of the solution is scheduled for commercial availability in the second quarter of
2003.

Markets

In September 2002, the International
Biometric Group (IBG) published the first comprehensive report on the biometric market
that takes into account the post September 11th market factors. Among the
reports findings are the following:

|(a) |  | Global
2002 industry revenues of US$600 million are projected to reach US$4.04
               billion by 2007, driven by large-scale public sector biometric
deployments, the                emergence of transactional revenue models, and the
adoption of standardized                biometric infrastructures and data formats.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Within
the emerging biometric technologies market, face recognition technology                is
projected to reach US$200 million in annual revenues by 2007.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | The
government sector will likely be the leading biometric vertical market
               through 2007 with a projected US$1.2 billion in annual revenues. Financial
               Sector and Travel and Transportation will likely follow with projected
revenues                of US$672 million and US$556 million, respectively, by 2007. The
various                scenarios in which government agencies must identify and
authenticate both                citizens and employees, particularly subsequent to
September 11th, is a critical                growth factor.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the aforementioned
homeland security and information sharing initiatives identified above, there are several
other pieces of government legislation that are increasing the demand for biometric
identification and biometric systems.

The most noteworthy initiative is the
Enhanced Border Security and Visa Entry Reform Act of 2002 (the Act), which
seeks to eliminate the vulnerabilities of the U.S. immigration system by enhancing border
security and immigration, principally through adoption of biometric technologies. This
includes, among other things, the following:

|(a) |  | State
Department to issue visas and travel documents to international visitors
               that are tamper-resistant and machine-readable using biometrics by October
26,                2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | INS
plans to install readers to scan biometrics documents at all ports of entry
               to the U.S. by October 26, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|(c) |  | This
Act authorizes up to US$150 million in funding for INS to improve
               technology for enhanced border security.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------

|(d) |  | This
Act is an extremely important milestone for the biometrics industry. Not
               only does it mandate the use of biometrics in visas and travel documents,
but                also generates international repercussions. In order to continue to
take part in                the Visa Waiver program, participating countries will be
required to issue                machine-readable passports to its nationals. This
includes Australia, France,                the UK, and most other participating nations
of the European Union. The Canadian                government is also issuing a Request
for Proposal (RFP) for                biometric face recognition technology
to evaluate embedding face recognition                into Canadian passports.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) |  | The
U.S. House of Representatives has also put forth a bill calling for the
               modernization of all State-issued drivers license programs. If
passed,                States will be given five years to embed biometric technologies
onto all                licenses and identification cards.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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Competition

A few existing companies currently
compete with Imagis various product lines. These are broken down as follows:

Biometric Face Recognition and
Identification  While there are several vendors that offer face recognition
technology, there are only three recognized market leaders within the space, of which
Imagis is one. The other two category leaders are: Minnetonka, Minnesotas Identix
Inc. (via their acquisition of Visionics) and Viisage Technology, Inc. of Littleton,
Massachusetts.

Child Recovery and Identification
Software  Imagis believes that it is the only vendor to combine face recognition
and scene/image analysis functionality into a full suite of child identification,
investigation, and recovery products. While Paris-based LTU Technologies, competes with
Imagis scene recognition capabilities, at present this vendor does not have any face
recognition capabilities within their product. Imagis installation with a  United
Kingdom national police agency is also the only functioning application of this
technology in the world.

Video Analysis and Surveillance
Intelligence  The majority of solutions for video analysis are tools that assist
the process of acquiring, processing, and enhancing the quality of video rather than
assisting the investigative or identification process. The following vendors offer video
analysis solutions: Mate-CCTV, ObjectVideo, Avid, Ocean Systems, Cognitech, Intergraph,
Convera, Loronix, and Pyramid Vision.

Arrest and Booking Software
 There are several vendors who have commercially available products that have some
similarities or overlapping functionality to Imagis CABS application. This includes:
Printrak International (a subsidiary of Motorola), ImageWare Systems Inc. and Niche
Technologies Inc.

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.

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
difficult for organizations to use its products without registering with the Company
first. This includes requiring its customers to obtain computer-specific and IP
address-specific registration codes that limit usage based on the software licensing
agreement that is in place.

The Company has not registered any
trademarks in the Canada, the United States or elsewhere (although some applications have
been filed), nor has it filed any patents. The Company has, however, purchased certain
patents from Intacta relating to its data compression technologies. The patent purchase
agreement is included in this filing as an exhibit.

6

---

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, 2002, 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, 2002 and December 31, 2001, the Companys total expenditures for
research and development were $1,668,027 and $1,215,945, 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.

Sales and Marketing

Sales Strategy

Imagis employs multiple sales and
distribution channels to effectively penetrate markets including:

| |  | Direct
Sales Force (to identify and develop business partner and strategic relationships)
|- |  | -----------------------------------------------------------------------------------------

| |  | Strategic
Partnerships and Alliances
|- |  | ------------------------------------

| |  | Business
Partners
|- |  | -----------------

| |  | Strategic
Acquisitions
|- |  | ----------------------

Direct Sales Force

Imagis employs a team of direct sales
personnel consisting of regional sales directors and technical sales managers who, among
other duties, actively recruit new business partners, assist existing partners in
qualifying sales opportunities, conducting joint customer calls, and performing needs
analysis with the end customer. From time-to-time, Imagis sales force will directly
pursue target customers or market opportunities as they arise. In particular,
opportunities within Canada and opportunities as they relate to regional information
sharing are serviced with a direct sales model.

Strategic Partnerships
and Alliances

To address the needs of customers
outside of Imagis core market focus, the company relies on strategic partnerships
that complement or enhance Imagis products. These alliances provide existing
relationships, marketing resources, and credibility in new markets. Imagis strategic
partnerships include:

Datacard Group
(Datacard)  Datacard is a leading provider of smart card and
identity card solutions. Datacard has committed to integrating Imagis face
recognition technology into its applications, promoting it as a value-added component to
its identity solutions.

Zixsys Inc. (Zixsys)
(a division of SANYO Semiconductor)  Zixsys has signed a license agreement with
Imagis facial recognition software to design, manufacture and market highly secure
products for access control, public protection in and around airports, passenger
identification, and employee identification.

API Technologies, LLC
(API)  Imagis has licensed exclusive use of Imagis Casino-ID
application within the United States to API in exchange for ongoing royalty payments

7

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OSI In addition to
being a strategic investor in Imagis, OSI helps Imagis sell its identification
technologies into the airport security market. Imagis has already collaborated with
Metorex Security Products Oy of Finland, an OSI subsidiary, to embed biometric
identification into walk-through metal detection equipment. This combined prototype
solution, known as METOR-ID, is anticipated to be undergoing pilot installations during
2003.

Business Partners

Imagis distributes its products on a
global basis through business partners. These are typically companies with products to
which the Companys imaging solutions add value, and who are already established and
reputable suppliers in the appropriate vertical market. Using partners to promote and sell
its products extends Imagis network of direct sales people, gives the company global
visibility, and ensures the customer receives high-quality local support. At present,
Imagis has over 35 business partners worldwide.

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.

The Company also allows third-party
vendors to integrate Imagis products with their solutions 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.

Strategic Acquisitions

The Company is continually evaluating
potential strategic acquisition candidates. There can be no assurance, however, that the
Company will find such strategic acquisition candidates or if found that terms can be
negotiated on acceptable terms to the Company.

During December of 2002, the Company
announced that it had signed a Letter of Agreement whereby Imagis proposed to acquire all
the issued and outstanding shares of Briyante Software Corp in consideration of receiving
shares of the Company. The Company had identified Briyante as an important acquisition
because of Briyante Justice Integration Server (JIS). The JIS solution uses
Microsofts .NET architecture and XML Web Services to enable data sharing between all
aspects of the justice and public safety markets. This ability to access information
across disparate and incompatible data sources regardless of the database type or location
has been identified as a critical need by both the law enforcement community and by many
of the agencies involved in homeland security. Pursuant to an Arrangement Agreement dated
February 14, 2003 the Company has agreed to acquire 100% of the issued and outstanding
shares of Briyante. Under the terms of this agreement the Company will issue 0.2857 of a
common share for each 1 common share of Briyante. The arrangement agreement was approved
by the shareholders of Briyante at an annual and special general meeting held on March 17,
2003 and by an order of the Supreme Court of British Columbia on March 20, 2003. The
Company and Briyante intend to attend to all items necessary to close the transaction in
due course.

8

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Marketing Strategy

Rather than segment the biometrics
industry by technology (facial recognition, fingerprint, iris scan, etc.) or by horizontal
applications (access control, surveillance), Imagis identifies market opportunities by
industry and builds specific solutions that address the needs of that market. These market
opportunities share similar defined problems and often reference one another in their
buying decisions.

Imagis has identified several key
marketing strategies in its efforts to realize its growth and revenue objectives. These
include:

| |  | Leveraging
and building on its success in the law enforcement market by introducing new products,
expanding its client base, and selling add-on products and services to current customers;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Using
strategic partners to expand into new markets, including, airport security (OSI), drivers
licenses, visas, and passports (Datacard); and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | Increasing
global visibility by expanding its network of business partners.
|- |  | ---------------------------------------------------------------------------

Current Position

The Company believes it has made
significant progress in completing the groundwork necessary to achieve its growth plans.
Specifically, the following elements are in place:

| |  | The
Company has several complementary products and technologies and a global network of
business partners ready to pursue opportunities as they arise.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company has established its position as a leading provider of software to the law
enforcement market, including information sharing, identification technologies, and child
protection.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Companys biometric identification technology is recognized as a market leader in
face recognition and identification.
|- |  | --------------------------------------------------------------------------------------------------------------------------

| |  | ID-2000
has been successfully installed at a number of law enforcement agencies and achieved
notable success in identifying offenders and suspects. In the United States, over 94
percent of the Companys arrest and booking software installations use facial
recognition to help identify offenders.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company believes it can leverage the success of its ChildBase application and
relationship with a United Kingdom national police agency to promote other child
identification and law enforcement applications.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company is one of the only face recognition vendors to successfully deploy an airport
identification technology. Imagis technology was successfully deployed to enhance
airport security at the 2002 APEC conference.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Excellent
customer references have been established, including the Royal Canadian Mounted Police
and over thirty police departments and sheriffs offices in Alameda County,
California  the largest digital imaging system on the west coast.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Imagis products
are available both as complete applications and as a series of components delivered
within a software development kit that can be easily integrated into other products. Ease
of integration ensures that new applications can be developed quickly to adapt to
changing market needs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employees

As of December 31, 2002, the Company
had 35 full-time employees, consisting of twelve (12) employees in research and
development, nine (9) employees in marketing and sales, seven (7) employees in customer
support and seven (7) 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 employee relations are
good. The Company has obtained key man insurance on its President and Chief Executive
Officer and two of its senior software developers, in the aggregate amount of $3 million.
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.

9

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# Important Factors that
may affect the Companys Business, Results of Operations, and Common Share Price

The price of the Companys
common shares is subject to the risks and uncertainty inherent in the Companys
business. You should consider the following factors as well as other information set forth
in this Annual Report, in connection with any investment in the Companys common
shares. If any of the risks described below occurs, the Companys business, results
of operations and financial condition could be adversely affected. In such cases, the
price of the Companys common shares could decline, and you could lose all or part of
your investment.

Although the Company believes that
the expectations reflected in its forward-looking statements are reasonable, the Company
cannot guarantee future results, levels of activity, performance or achievements or other
future events. Moreover, neither the Company nor anyone else assumes responsibility for
the accuracy or completeness of forward-looking statements. You should consider the
Companys forward-looking statements in light of the following risk factors and other
information in this annual report. If any of the risks described below occurs, the
Companys business, results of operation and financial condition could differ from
those projected in its forward-looking statements. The Company is under no duty to update
any of its forward-looking statements after the date of the annual report. You should not
place undue reliance on forward-looking statements.

Limited Operating
History; History of Losses

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 $6,951,393 and $3,020,704 in the years ended December 31, 2002 and December 31,
2001, 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.

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, 2002 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

The Company will be required to seek
additional financing to fund its operations during the 2003 fiscal year. There is no
assurance that the Company will be able to secure financing or that such financing will be
obtained on terms favorable to the Company. Failure to obtain adequate financing could
result in significant delays in development of new products and a substantial curtailment
of Imagis 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, ID-2000, and
ChildBase. 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.

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

10

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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 six
(6) to twelve (12) 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. 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
may need to hire a number of technical and sales personnel. 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 its President and Chief Executive Officer and two software
developers, 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.

Competition

The markets for face and image
recognition systems and arrest and booking systems 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.

11

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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. See also Item 1  Business  Competition.

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 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.

Involvement of Directors
and Officers 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
OSI

The Company entered into a share
subscription agreement and ancillary business agreements with OSI, a diversified global
developer, manufacturer and seller of optoelectronic based components and systems. The
Company issued to OSI 1,166,667 common shares and 291,667 warrants, each warrant to
purchase one common share exercisable until July 8, 2004, at an exercise price of US$1.50
per share, at an aggregate purchase price of US$1,750,000. The subscription agreement
provides for an adjustment to the purchase price through the issuance of additional shares
if the Company issues common shares or other securities convertible into or exercisable
for common shares in another financing (with some exceptions) prior to July 9, 2003, at a
price less than US$1.50 per share. The warrants provide for a similar adjustment as to the
number of warrants and exercise price in the event of such an issuance. The Company agreed
to designate one nominee of OSI to its Board of Directors, and OSI has designated Deepak
Chopra, its Chief Executive Officer and a director, who was subsequently appointed as a
director of Imagis. As a result of its purchase of the shares and warrants, OSI has become
a significant shareholder of Imagis.

In connection with OSIs
purchase of shares and warrants, on July 8, 2002, the Company entered into the following
additional agreements with OSI:

|i. |  | Product Development and Marketing Agreement. Under this agreement, the Company
                    formed a strategic alliance with OSI to develop mutually agreed integrated
                    airport and transportation security products using its facial recognition
                    technologies and OSIs security products. The Company agreed to form an
                    internal transportation security group and commit a minimum of US$250,000 to
                    develop these products and operate this group. Imagis will receive a royalty for
                    all sales made by OSI of products developed under this agreement.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ii. |  | Software Developer Services Agreement. Under this agreement, Imagis agreed to
                    engage, and OSI agreed to make available, the services of software engineers and
                    equipment in OSIs software development facility in Hyderabad, India. The
                    Company agreed to pay to OSI a minimum of US$250,000 during the term of the
                    agreement, which expires on June 30, 2003, provided that if the aggregate amount
                    paid to OSI on such date is less than US$250,000, the agreement can be extended
                    for six months.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|iii. |  | Joint Venture Letter of Intent. Under this letter of intent, upon OSIs
                    establishment of a Brazilian entity to oversee marketing, sales, service and
                    assembly and marketing of OSIs products, in Brazil and the establishment
                    of an office in Brazil, Imagis will invest US$250,000 for a 20% equity ownership
                    in that entity.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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Subsequent to December 31, 2002 the
above agreements were amended as follows:

|i. |  | the strategic alliance agreement to develop and market integrated airport and
                    security products with OSI has been extended to July 8, 2004. The expenditure
                    commitment has been reduced to a minimum of US$125,000 on product development
                    and the operation of an Airport Security Group to market the products.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ii. |  | the agreement to engage OSI to provide software development services has been
                    extended to December 31, 2004. The expenditure commitment has been reduced to a
                    minimum of US$125,000, based on hourly rates charged at 85% of fair market
                    value.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|iii. |  | the Company has agreed that, subject to regulatory approval, the exercise price
                    of the warrants for the purchase of 291,667 shares, issued in conjunction with
                    the private placement to OSI completed during 2002, will be reduced from US$1.50
                    (CDN$2.28) to the same price per share as that afforded the investors under the
                    financing currently under negotiation.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|iv. |  | The Company has agreed to pay OSI a management fee of US$250,000 on or before
                    March 20, 2004
|--- |  | ----------------------------------------------------------------------------------------------------------------

There can be no assurance that the
relationships with OSI will prove to be successful in the future or will result in any
material revenue for the Company.

The adjustment to the purchase price
of the securities issued to OSI through the issuance of additional shares and warrants
that may occur as a result of future financings completed at a price less than US$1.50 may
make these financings less attractive to investors.

Strategic Alliance with Sanyo
Semiconductor Company and Intacta Technologies Inc. to form Zixsys. (formerly known
as SecurityART Inc.)

During the second quarter of 2002,
the Company entered into a strategic alliance agreement with Sanyo Semiconductor Company
and Intacta to form Zixsys (formerly known as SecurityART Inc.). Zixsys 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. During the quarter ended September 30,
2002 Imagis acquired the rights to Intactas royalties payable under the
strategic alliance agreement for consideration of US$150,000.
During the fourth quarter of the year the Company acquired all patents held by Intacta
outside the United States for consideration of US$50,000.  There can be no assurance
that the relationship with Zixsys or the integration of technologies with Zixsys 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 TSX Venture Exchange 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 competitors, 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,
2002. 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.

14

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# Item 2.  Description of
Property.

The Company subleases approximately
5,000 square feet of office space at 1075 West Georgia Street in Vancouver, British
Columbia, Canada for use as its headquarters. This lease expires on June 29, 2005, with
monthly payments totaling $10,820.

The Company also leases a 6,450
square foot facility at 1027 Pandora Avenue in Victoria, British Columbia, Canada. The
Companys development and technical support teams primarily use these premises. This
lease expires on April 30, 2003, with monthly payments totaling $11,997.

# 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.

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

No matters were submitted to a vote
of security holders during the quarter ended December 31, 2002.

15

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# PART II

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

The Companys common shares, no
par value, began trading on the TSX Venture Exchange 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 Companys
common shares for the quarterly periods ended from March 31, 2001 to December 31, 2002 (as
reported on the TSX Venture Exchange). The last reported closing price of the
Companys common shares on the TSX Venture Exchange on March 18, 2003 was $0.81.

|2001               | High | Low  
|------------------ | ---- | -----
|
|March 31           |      | $1.80
|June 30            |      | $1.20
|September 30       |      | $2.15
|December 31        |      | $2.95
|
|
|
|March 31, 2002     |      | $5.66
|June 30, 2002      |      | $4.40
|September 30, 2002 |      | $2.82
|December 31, 2002  |      | $2.23

The Companys common shares are
also quoted on the OTCBB, under the symbol IGSTF.OB. The table below sets
forth the reported high and low sales prices for the Companys common shares on the
OTCBB for the quarterly periods ended March 31, 2001 to December 31, 2002. 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
Companys common shares on the OTCBB on December 31, 2002 was U.S. $1.00. On March
18, 2003, the closing price of the Companys common shares on the OTCBB was US$0.51.

|2001               | High  (U.S.) | Low  (U.S.)
|------------------ | ------------ | -----------
|
|March 31           |              | $1.19      
|June 30            |              | $0.80      
|September 30       |              | $1.40      
|December 31        |              | $1.90      
|
|
|
|March 31, 2002     |              | $3.50      
|June 30, 2002      |              | $2.77      
|September 30, 2002 |              | $1.87      
|December 31, 2002  |              | $1.46      

As of March 18, 2003, there were 48
holders of record based on the records of the Companys transfer agent. This number
does not include beneficial owners of the Companys 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 its common shares and does not intend to pay dividends on its 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.

16

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|                            
|----------------------------
|
|                            
|
|                            
|Equity compensation plan    
|approved by security holders
|                            
|Equity compensation plans   
|not approved by security    
|holders (1)                 
|                            
|                            

|(1) | Includes
the following warrants:
|--- | --------------------------------

|(i) |  | 133,334
warrants exercisable to acquire 133,334 common shares of the Company at                a
price of $1.25 are held by Iain Drummond who is the President and Chief
               Executive Officer of the Company. These warrants were issued in
consideration of                Mr. Drummond renouncing his rights to acquire up to 6%
equity interest in Imagis                Cascade.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) |  | 15,633
warrants exercisable to acquire 15,633 common shares of the Company at a
               price of $1.81 are held by Canaccord Capital. These warrants were issued
in                conjunction with a private placement completed during November 2001.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) |  | 50,000
warrants exercisable to acquire 50,000 common shares of the Company at a
               price of $2.20 are held by Pembridge Group. These warrants were issued as
               compensation for consulting services provided to the Company.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iv) |  | 105,000
warrants exercisable to acquire 105,000 common shares of the Company at                a
price of $2.84 are held by Roth Capital Partners (Roth). These
               warrants were issued as compensation to Roth for service rendered in
connection                with the OSI private placement.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Exchange Controls

Other than as provided in the
Investment Canada Act(Canada) (the ICA) and certain industry specific
statutes imposing restrictions on ownership of businesses in Canada (for example, banking,
customs and telecommunications, etc.), there is no limitation imposed by the laws of
Canada or British Columbia to hold or vote the common shares of Imagis. The following
discussion summarizes the material features of the ICA for a non-Canadian who proposes to
acquire a controlling number of the Companys common shares. It is general only, it
is not a substitute for independent advice from an investors own advisor, and it
does not anticipate statutory or regulatory amendments.

A non-Canadian would acquire
control of the Company for the purposes of the ICA if the non-Canadian acquired a
majority of its common shares. The acquisition of less than a majority but more than
one-third of the common shares would be presumed to be an acquisition of control of
Imagis unless it could be established that, on the acquisition, Imagis was not controlled
in fact by the acquiror through the ownership of the common shares.

Except in very limited situations,
the ICA prohibits implementation of a reviewable investment by a non-Canadian,
unless after review the Minister responsible for the ICA is satisfied that the investment
is likely to be of net benefit to Canada. An investment in the Companys common
shares by a non-Canadian (other than a WTO Investor as that term is defined in
the ICA and which term includes entities which are nationals of or are controlled by
nationals of member states of the World Trade Organization), when the Company was not
controlled by a WTO Investor, would be reviewable under the ICA if:

|(i) | the
investment was a direct investment to acquire control of the Company and the
               value of the Companys assets, as determined in accordance with the
               regulations promulgated under the ICA, was over $5 million,
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) | the
investment was an indirect investment in the Company (i.e. the acquisition
               of control, directly or indirectly, of a corporation incorporated outside
Canada                which in turn controls the Company, directly or indirectly) and the
value of the                Companys assets, as determined in accordance with the
regulations                promulgated under the ICA,
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | was
at least $50 million, or
| | -- | ----------------------------

| | 2. | was
between $5 million and $50 million and comprised more than 50% of the value
               of the assets of all entities whose control had been acquired in the
               international transaction, or
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

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|(iii) | an
order for review was made by the federal cabinet on the grounds that the
          investment related to Canadas cultural heritage or national identity,
          regardless of the value of the assets of the Company
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

An investment in the common shares by
a WTO Investor, or by a non-Canadian when the Company was controlled by a WTO Investor,
would be reviewable under the ICA if:

|(i) | the
investment was a direct investment to acquire control of the Company and the
          value of the Companys assets, as determined in accordance with the
          regulations promulgated under the ICA, was not less than a specified amount,
          which for 2003 is $223 million,
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) | the
investment was an indirect investment in the Company and the value of the
          Companys assets, as determined in accordance with the regulations
          promulgated under the ICA, was not less than $223 million (for 2003) and
          comprised more than 50% of the value of the assets of all entities whose
control           had been acquired in the international transaction, or
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) | the
Company (i) engages in the production of uranium or owns an interest in a
          producing uranium property in Canada, (ii) provides any financial service,
(iii)           provides any transportation service, or (iv) is a cultural business.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Certain transactions relating to the
Companys common shares would be exempt from the ICA, including:

|(i) | an
acquisition of the Companys common shares by a person in the ordinary
          course of that persons business as a trader or dealer in securities,
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) | an
acquisition of control of the Company in connection with the realization of
          security granted for a loan or other financial assistance and not for a purpose
          related to the provisions of the ICA, and
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) | an
acquisition of control of the Company by reason of an amalgamation, merger,
          consolidation or corporate reorganization following which the ultimate direct
or           indirect control in fact of the Company, through the ownership of the common
          shares, remained unchanged.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Certain Canadian Federal
Income Tax Information for United States Residents

The following summarizes the
principal Canadian federal income tax considerations generally applicable to the holding
and disposition of common shares of the Company 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, holds the common shares as capital property 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, has not held or used (and does not hold or use) common
shares in connection with a permanent establishment or fixed base in Canada, and who
otherwise qualifies for the full benefits of the Treaty. Holders who meet all such
criteria in clauses (a) and (b) are referred to herein as a U.S. Holder
or U.S. Holders, and this summary only addresses such U.S. Holders. 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. 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 of common shares and should not be so construed. The tax
consequences to any particular holder of common shares 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 or prospective investor should
consult their own tax advisor with respect to the income tax consequences applicable to
the holders or investors own particular circumstances.

18

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# Dividend

Dividends paid or deemed to be paid
or credited by the Company to a U.S. Holder are subject to Canadian withholding tax. Under
the Treaty, the rate of withholding tax on dividends paid 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 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 even then only if the U.S. Holder is not entitled to relief under the
Treaty.

A common share will be taxable
Canadian property to a U.S. Holder if, at any time during the 60 month 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 issued shares of any
class or series of the Company. 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. Management of the Company believes that the value of its common shares is not
derived principally from real property situated in Canada, and that no tax will be payable
under the Tax Act on a capital gain realized by a U.S. Holder (as defined above) on a
disposition of common shares in the open market.

# ALL PROSPECTIVE
INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAXCONSEQUENCES
OF PURCHASING THE COMPANYS COMMON SHARES

# Recent Sales of
Unregistered Securities

The Company issued 80,935 of its
common shares upon the exercise of stock options by five (5) non-U.S. persons in private
transactions outside the United States for gross proceeds to the Company of $92,569. The
options were exercised on the following dates for the following amounts: November 1, 2002
 5,000 options for gross proceeds to the Company of $5,000; November 8, 2002 
6,667 options for gross proceeds to the Company of $10,001; November 19, 2002 
43,334 options for gross proceeds to the Company of $48,334; November 21, 2002 
16,600 options for gross proceeds to the Company of $19,900; November 25, 2002 
6,000 options for gross proceeds to the Company of $6,000; and December 10, 2002 
3,334 options for gross proceeds to the Company of $3,334. The common shares were issued
in reliance upon Regulation S promulgated under the Securities Act of 1933, as amended
(the Securities Act).

On October 1, 2002, the Company
issued 21,505 of its common shares upon the exercise of stock options to a consultant to
the Company for gross proceeds of $63,870. The options were issued in reliance upon Rule
506 of Regulation D under the Securities Act of 1933. The consultant represented to the
Company that he is an accredited investor, as such term is defined under Rule
501 of Regulation D promulgated under the Securities Act.

The Company issued 288,019 of its
common shares on December 30, 2002 upon the exercise of warrants by two (2) non-U.S.
persons in private transactions outside the United States for gross proceeds to the
Company of $469,471. The common shares were issued in reliance upon Regulation S
promulgated under the Securities Act.

The Company issued 576,037 of its
common shares upon the conversion of special warrants into common shares of the Company by
two (2) non-U.S. persons in private non-cash transactions outside the United States for
deemed gross proceeds to the Company of $1,250,000. The common shares were issued in
reliance upon Regulation S promulgated under the Securities Act.

On November 8, 2002, the Company
issued a warrant exercisable to acquire 105,000 of its common shares to Roth Capital
Partners (RCP) as required by the financial services agreement between RCP and
the Company. The warrants were issued in reliance upon Rule 506 of Regulation D
promulgated under the Securities Act of 1933. RCP represented to the Company that it was
an accredited investor, as such term is defined under Rule 501 of Regulation D
promulgated under the Securities Act.

19

---

On November 25, 2002, the Company
issued 30,000 of its common shares to a non-U.S. person and a company not resident in the
United States for deemed proceeds to the Company of $44,000. The common shares were issued
in reliance upon Regulation S promulgated under the Securities Act.

During 2002, the Company granted
stock options exercisable to acquire 1,210,000 common shares to certain employees,
directors and consultants who were non-U.S. persons and were located outside the United
States. The options were granted in reliance upon Regulation S promulgated under the
Securities Act.

# Item 6.  
Managements Discussion and Analysis or Plan of Operations

# 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 over one hundred and forty installations of its software products.

# 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 world events
and concerns regarding security 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.

# Critical Accounting
Polices

On December 12, 2001, the Securities
and Exchange Commission issued a cautionary advice regarding the disclosure of critical
accounting policies. Critical accounting policies are those that management believes are
both most important to the portrayal of the Companys financial conditions and
results, and that require difficult, subjective, or complex judgements, often as a result
of the need to make estimates about the effects of matters that involve uncertainty.

We believe the critical
accounting policies we use in preparation of our financial statements are as follows:

Revenue recognition

|(i) | Software
sales revenue:
|--- | -----------------------

| | The
Company recognizes revenue consistent with Statement of Position 97-2, Software
Revenue Recognition. In accordance with this Statement, revenue is recognized,
except as noted below, when all of the following criteria are met: persuasive evidence of
a contractual arrangement exists, title has passed, delivery and customer acceptance has
occurred, the sales price is fixed or determinable and collection is reasonably assured.
Funds received in advance of meeting the revenue recognition criteria are recorded as
deferred revenue.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

| | When
a software product requires significant production, modification or customization, the
Company generally accounts for the arrangement using the percentage-of-completion method
of contract accounting. Progress to completion is measured by the proportion that
activities completed are to the activities required under each arrangement. When the
current estimate on a contract indicates a loss, a provision for the entire loss on the
contract is made.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | When
software is sold under contractual arrangements that includes post contract customer
support (PCS), the elements are accounted for separately if vendor specific
objective evidence (VSOE) of fair value exists for all undelivered elements.
VSOE is identified by reference to renewal arrangements for similar levels of support
covering comparable periods. If such evidence does not exist, revenue on the completed
arrangement is deferred until the earlier of (a) VSOE being established or (b) all of the
undelivered elements are delivered or performed, with the following exceptions: if the
only undelivered element is PCS, the entire fee is recognized ratably over the PCS
period, and if the only undelivered element is service, the entire fee is recognized as
the services are performed.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company provides for estimated returns and warranty costs, which to date have been
nominal, on recognition of revenue.
| | --------------------------------------------------------------------------------------------------------------------------

|(ii) | Support
and services revenue:
|---- | -----------------------------

| | Contract
support and services revenue is deferred and is amortized to revenue ratably over the
period that the support and services are provided.
| | -------------------------------------------------------------------------------------------------------------------------------------------------

Use of estimates

The preparation of financial
statements in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported or disclosed in the
financial statements. Actual amounts may differ from these estimates.

Stock-based compensation

Effective January 1, 2002, the
Company adopted the new recommendations of the Canadian Institute of Chartered Accountants
with respect to the accounting for stock-based compensation and other stock-based
payments. The new recommendations require equity instruments awarded to employees and the
cost of the service received as consideration to be measured and recognized based on the
fair value of the equity instruments issued. Compensation expense is recorded over the
period of related employee service, usually the vesting period of the equity instrument
awarded. Alternatively, the new recommendations permit the measurement of compensation
expense for stock option grants to employees and directors that are not direct awards of
stock, stock appreciation rights or otherwise call for settlement in cash or other assets
by an alternative method and to provide pro forma disclosure of the financial results
using the fair value method. The Company has elected to follow an alternative method and
continue with the former accounting policy of recognizing no compensation expense when
stock options are granted to employees because the Company grants stock options with an
exercise price based on the market price at the date of the grant. The Company recognizes
compensation expense for consultants based on the fair value of the equity instruments
issued.

Results of Operations for the year
ended December 31, 2002 compared to December 31, 2001:

# Revenues

Imagis total revenues increased 44%
to $3,022,888 for the year ended December 31, 2002 over the comparable prior year level of
$2,094,707. The higher revenues were attributable to higher software sales revenues.
Management intends to continue to focus on increasing software sales revenues.

Sales of the Companys software
products rose 70% to $2,584,039 this year as compared to $1,519,925 for 2001. The increase
in software sales revenues this year is primarily due to a United Kingdom national
police agency installation and the sale of a licensing agreement to Zixys, as well as the overall
increased number of customers.

Support and services revenues for
2002 were $344,456 and were 3% lower than in 2001 of $356,441. The lower 2002 level
resulted from reduced revenues derived from contract services this year, and the
difference from 2001 is solely attributable to the completion of a single special contract
the Company had taken on in 2000 directly rather than through a partner and which
concluded mid-2001. As stated last year, the Company is not seeking such contract work but
intends to remain focused on both development and the more profitable sales of its
software products. The support revenues are increasing as sales revenues increase and the
deferred revenue of $339,485 recorded as at

21

---

December 31, 2002 consists solely of
ongoing support contracts, this represents a 474% increase over the 2001 deferred revenue
balance of $59,184.

Other revenues were $94,393 for 2002,
whereas comparable revenues of $218,341 were earned in the prior year, a decrease of 57%.
The 2002 revenues were primarily earned through interest revenue whereas the 2001 revenues
were primarily due to cost recoveries of supplies and equipment relating to software
installations. As the majority of the 2002 revenues were earned through sales via business
partners Imagis did not incur the associated installation costs and there were no
significant cost recoveries.

# Operating Costs

Operating expenses totaled $9,974,281
for 2002, which is 95% higher than the 2001 operating expenses of $5,115,411. The higher
costs over the prior year resulted from increases in permanent and contracted staff,
greater travel in sales and marketing and administration, and exceptional corporate costs
included in the administrative category. Operating costs include cost of materials and
services, sales and marketing, technical services, technology development, administration,
stock based compensation, interest and amortization. The increase in operating costs
during 2002 was due to increased levels of activity in all areas in expectation of an
increased level of demand for the companys products. The increased level of demand
did not materialize primarily due to the total lack of any of the post-September 11th
business that had been forecast in the United States being placed.  Management of
the company has implemented significant cost reduction strategies during the final quarter
of 2002 and the current operating expense rate is equivalent to approximately $7,000,000
per annum.

# Administration

Administrative costs for 2002 were
$3,712,717, which is 92% higher than for 2001 of $1,932,813. Administrative costs include
staff salaries and related benefits and travel, stock based compensation, consulting and
professional fees, facility and support costs, shareholder, regulatory and investor
relations costs and 2002 special financial advisory costs incurred related to the
Companys corporate strategies, which includes the new strategic partnership achieved
with OSI Systems, Inc. and a special corporate privatization proposal received in the
first quarter.

Generally all categories were higher
due to the higher level of corporate activity this year, however there were a number of
exceptional expenses. Consulting and professional fees rose $1,017,335, primarily due to
an increase in legal costs of $296,422 and financial advisory consulting costs of
$503,956. These costs represent 80% of the total consulting and professional fees and are
due to a combination of the costs associated with the OSI strategic partnership and the
privatization proposal received during the first quarter. There were no comparable costs
incurred during 2001 and they are not expected to be incurred in future years. Stock based
compensation for the year was $290,723 and consists of the estimated fair market value of
options granted to non-employees, based on the Black-Scholes model. The policy of
recording stock based compensation was adopted as of January 1, 2002, consequently there
is no comparable figure for the prior year. Staff costs rose $165,089 due to the addition
of staff. Facility and support costs rose $262,220 over the prior year due to the overall
staff growth and use of contract support staff. The balance of the increase of $58,540 was
due to general increases in office overhead.

The Companys administrative
costs have declined since the second quarter of the year due to no longer using the
financial advisory services and contract support staff. Management has also implemented
significant cost reduction strategies during the final quarter of 2002 that will further
reduce administrative costs during future periods.

# Bad debt expense

The bad debt expense in 2002 consists
of a single customer that defaulted on payment for a software license. While the customer
has confirmed their intention to pay the outstanding amount, management of the Company has
determined that collection is doubtful. Bad debt expense in 2001 also consists of a single
customer that defaulted on payment for a software installation.

# Costs of materials and
services

The costs of materials and services
are incurred in conjunction with the support services that the Company provides to
customers. These costs amounted to $179,090 in 2002, which is comparable to the level in
2001 of $175,851.

# Interest and Amortization

Interest expense incurred this year
related to financing of equipment amounted to $31,089, down 25% from the prior year of
$41,556. Amortization in 2002 amounted to $140,408 as compared to $31,016 for 2001. The
increase in amortization expense reflects purchases of equipment and the amortization
expense associated with the acquisition of the Intacta license and patents.

22

---

# Sales and marketing

Sales and marketing expenses for 2002
were $3,139,740, and were 240% higher than those in 2001 of $923,010. The increase is
attributable to higher costs incurred for new sales representatives in the US, Europe and
the Far East engaged on a contract basis in 2002, and additions to salaried sales staff.
The sales representatives cost increased $1,050,410. There were no contracted sales
representatives prior to this time, and hence no comparable 2001 contract costs. In
addition, travel and trade show costs for both staff and these representatives rose
$805,187 due to the increase in the amount of traveling and overall activity this year
over that in the prior year when funds were limited. The companys website also
incurred costs of $63,751 over 2001 levels. Imagis significantly increased its sales and
marketing efforts during 2002 in order to increase market awareness of the Company and its
products and capitalize on expected increased sales opportunities. The Company may
increase its sales team further in the future should the need arise but no further
additions are currently contemplated. In addition, management is now using a more targeted
marketing and sales strategy as it is believed that the efforts to achieve increased
general market awareness of the Company and its products have been successful during 2002.
Consequently, the Company expects that sales and marketing expenses will continue at
approximately the same or reduced levels in future periods.

# Technology development

The technology development expenses
for 2002 were $1,668,027, which is 37% higher than the 2001 comparable costs of
$1,215,945. The increase over the prior period reflects a number of additions to staff and
higher travel costs incurred this year. The Company also contracted another software
development company to develop an application for $200,000. The Company has been adding to
its development staff throughout 2002 and has increased its development group capability.
Technology development expenses are expected to remain at this approximate level until
such time as market demand for new products necessitates adding resources. This will only
occur when specific sales opportunities are identified.

# Technical services

Costs for the technical services
group were $820,030 this year, which is 12% higher than the comparable 2001 costs of
$732,906. The costs in 2001 reflect primarily the travel and staff costs in support of the
Alameda installation, necessitated by the technical aspects of the application. This
installation is now completed. The increased costs in 2002 reflect the increase in
software sales and include the costs incurred to complete the Alameda project. The
technical services group generally assists the Companys strategic partners in their
installation of Imagis products and also provides clients with any technical support
they may require under annual support contracts, and includes primarily costs for
salaries, facilities and travel. Costs for future quarters will be dependent on the sales
levels achieved by the Company.

# Net Loss for the Period

Overall, the Company incurred a net
loss for 2002 of $6,951,393 or $0.38 per share, which is 130% higher than the net loss
incurred in 2001 of $3,020,704 or $0.21 per share. While revenues rose 45% during the
year, significantly higher operating costs incurred in sales and marketing, technology
development, and administration offset the revenue gain.

# Liquidity and Capital
Resources

The Companys cash on hand at
the beginning of the year, including funds on deposit, aggregated $2,760,659. During 2002,
the Company received additional funds of $1,994,283 from the exercise of both stock
options and warrants. In total, 375,110 options and 894,776 warrants were exercised which
resulted in aggregate proceeds to the Company of $423,193 and $1,571,090, respectively. On
July 8, 2002, the Company also completed a private placement of 1,166,667 common shares,
described below, that resulted in net proceeds to the Company of $2,416,713 after
commissions and share issue costs. The total received for the issuance of common shares
was $4,410,996.

The Company used these funds
primarily to finance its operating loss for the year. The impact on cash of the loss of
$6,951,393, after adjustment for non-cash items and changes to other working capital
accounts in the period, resulted in a negative cash flow from operations of $5,961,464.
The Company also used funds to purchase capital equipment amounting to $311,587, to
purchase software royalty rights for $236,395, and to purchase software patents for
$78,227 during the year.

To meet the requirements of the
adjusted loss coupled with the equipment and other asset purchases, a call on the
Companys short-term cash deposits amounting to $2,560,000 was made.

23

---

In summary, the Companys cash
position rose by $206,010 from $141,162 at the beginning of the year to $347,172 at
December 31, 2002, and additional funds on deposit declined from $2,560,000 at January 1,
2002, to $nil at the year end.

On July 8, 2002, pursuant to a
subscription agreement, the Company issued to OSI 1,166,667 common shares and 291,667
warrants, each warrant to purchase one common share exercisable until July 8, 2004, at an
exercise price of US$1.50 per share, at an aggregate purchase price of US$1,750,000. The
subscription agreement provides, among other things, for an adjustment to the purchase
price through the issuance of additional shares if the Company issues common shares or
other securities convertible into or exercisable for common shares in another financing
(with some exceptions) prior to July 9, 2003, at a price less than US$1.50 per share. The
warrants provide for a similar adjustment as to the number of warrants and exercise price
in the event of such an issuance.

Pursuant to the subscription
agreement, the Company also agreed to designate one nominee of OSI to our Board of
Directors, currently OSI does not have a nominee appointed to the Board. As a result of
its purchase of the shares and warrants, OSI has become a principal shareholder of Imagis.

In connection with OSIs
purchase of shares and warrants, on July 8, 2002, the Company entered into the following
additional agreements with OSI:

|(i) | Product Development and Marketing Agreement. Under this agreement, the
Company           formed a strategic alliance with OSI to develop mutually agreed
integrated           airport and transportation security products using its facial
recognition           technologies and OSIs security products. The Company agreed
to form an           internal transportation security group and commit a minimum of
US$250,000 to           develop these products and operate this group. Imagis will
receive a royalty for           all sales made by OSI of products developed under this
agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) | Software Developer Services Agreement. Under this agreement, Imagis
agreed to           engage, and OSI agreed to make available, the services of software
engineers and           equipment in OSIs software development facility in
Hyderabad, India. The           Company agreed to pay to OSI a minimum of US$250,000
during the term of the           agreement, which expires on June 30, 2003, provided that
if the aggregate amount           paid to OSI on such date is less than US$250,000, the
agreement can be extended           for six months.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) | Joint Venture Letter of Intent. Under this letter of intent, upon OSIs
          establishment of a Brazilian entity to oversee marketing, sales, service and
          assembly and marketing of OSIs products, in Brazil and the establishment
          of an office in Brazil, Imagis will invest US$250,000 for a 20% equity
ownership           in that entity.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subsequent to December 31, 2002 the
above agreements were amended as follows:

|(i) | the strategic alliance agreement to develop and market integrated airport
and           security products with OSI has been extended to July 8, 2004. The
expenditure           commitment has been reduced to a minimum of US$125,000 on product
development           and the operation of an Airport Security Group to market the
products.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) | the agreement to engage OSI to provide software development services has
been           extended to December 31, 2004. The expenditure commitment has been reduced
to a           minimum of US$125,000, based on hourly rates charged at 85% of fair market
          value.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) | the Company has agreed that, subject to regulatory approval, the exercise
price           of the warrants for the purchase of 291,667 shares, issued in conjunction
with           the private placement to OSI completed during 2002, will be reduced from
US$1.50           (CDN$2.28) to the same price per share as that afforded the investors
under the           financing currently under negotiation.
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iv) | The Company has agreed to pay OSI a management fee of US$250,000 on or
before           March 20, 2004
|---- | ------------------------------------------------------------------------------------------------------

During the second quarter of this
year the Company entered into a strategic alliance agreement with Sanyo Semiconductor
Company and Intacta to form Zixsys Inc. (formerly known as SecurityART Inc.). Zixsys 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. During the quarter
ended September 30, 2002, Imagis acquired the rights to Intacta Technologies Inc.s
royalties payable under the strategic alliance agreement for consideration of
US$150,000. During the fourth quarter of the year the Company acquired all patents held by
Intacta outside the United States for consideration of US$50,000.

There can be no assurance that the
relationships with OSI or Zixsys or the integration of technologies with OSI or Zixsys
will prove to be successful in the future or will result in any material revenue for the
Company.

The Company does not have sufficient
cash flow from operations to fund its operations beyond April 2003 and will be required to seek
additional financing. In recognition of this situation, the Company is currently actively
seeking financing. Pursuant to the terms of a non-binding term sheet dated February 20, 2003
between the Company and a third-party, the Company has negotiated a private placement,
the terms of which include: the sale of US$500,000 of special warrants that are
exercisable for no additional consideration, which will be part of a proposed
US $1.5 million offering of such securities, and an equity line of up to US $2.5
million may be drawn down by the Company subject to certain restrictions.

24

---

The terms of such financing are subject to final documentation,
approval of the board of directors of the Company and regulatory approval.

There is no assurance that the
Company will be able to secure this financing or any other financing or that any other financing
will be available on terms favorable to the Company. The failure to obtain adequate financing
could result in a substantial curtailment of Imagis operations.

25

---

# 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

26

---

# AUDITORS REPORT TO
THE DIRECTORS

We have audited the consolidated
balance sheets of Imagis Technologies Inc. as at December 31, 2002 and 2001 and the
consolidated statements of operations and deficit and cash flows for the year 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, 2002 and 2001 and the results of its operations and its cash flows for
the year then ended in accordance with Canadian generally accepted accounting principles.

# KPMG LLP (signed)

Chartered Accountants 

Vancouver, Canada 
March 4, 2003, except to note 12 which is 
    as of March 26, 2003

# COMMENTS 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 directors
dated March 4, 2003, except as to note 12 which is as of March 26, 2003, 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.

# KPMG LLP (signed)

Chartered Accountants 

Vancouver, Canada 
March 4, 2003, except to note 12 which is 
    as of March 26, 2003

27

---

IMAGIS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2002 AND DECEMBER 31, 2001 
(expressed in Canadian dollars)



|                                         | Dec. 31,2002 | Dec. 31,2001  
|---------------------------------------- | ------------ | --------------
|Current assets:                          |              |               
|Cash and cash equivalents                |              | $      547,831
|Short-term investment                    |              | --            
|Accounts receivable                      |              | 437,770       
|Prepaid expenses and deposit             |              | 75,537        
|                                         |              |               
|                                         |              | 1,061,138     
|                                         |             
|Equipment (note 3)                       |              | 328,402       
|                                         |             
|Other assets (note 4)                    |              | 306,231       
|                                         |              |               
|                                         |              | $   1,695,771 
|                                         |              |               
|LIABILITIES AND SHAREHOLDERS' EQUITY     |             
|                                         |             
|Current liabilities                      |             
|Accounts payable and accrued liabilities |              | $      648,901
|Deferred revenue                         |              | 339,485       
|Capital lease obligations (note 5)       |              | 19,123        
|                                         |              |               
|                                         |              | 1,007,509     
|                                         |              |               
|Long-term liabilities                    |             
|                                         |             
|Capital lease obligations (note 5)       |              | 41,720        
|                                         |              |               
|                                         |              | 41.720        
|                                         |              |               
|Shareholders' equity:                    |             
|Share capital (note 6)                   |              | 17,361,118    
|Special warrants (note 6)                |              | --            
|Contributed surplus                      |              | 427,453       
|Deficit                                  |              | (17,142,029   
|                                         |              |               
|                                         |              | 646,542       
|                                         |              |               
|                                         |              | $   1,695,771 
|                                         |              |               
|                                         |             

Operations (note 1)
Commitments (note 9)
Subsequent Events (note 12)

Approved on behalf of the Board:/s/ Iain Drummond  Director /s/ Treyton Thomas  Director

See accompanying notes to
consolidated financial statements.

28

---

IMAGIS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 
(expressed in Canadian dollars)



|                                   | 2002 | 2001             
|---------------------------------- | ---- | -----------------
|Revenues:                          |      |                  
|                                  
|Software sales                     |      | $   2,584,039    
|                                  
|Support and services               |      | 344,456          
|                                  
|Other                              |      | 94,393           
|                                   |      |                  
|                                   |      |                  
|                                   |      | 3,022,888        
|                                   |      |                  
|Expenses:                          |     
|                                  
|Administration, including stock    |     
|based compensation of 2002         |     
|-$290,723 and 2001 - nil           |      | 3,712,717        
|                                  
|Amortization                       |      | 140,408          
|                                  
|Bad debt expense                   |      | 283,180          
|                                  
|Cost of materials                  |      | 179,090          
|                                  
|Interest                           |      | 31,089           
|                                  
|Sales and marketing                |      | 3,139,740        
|                                  
|Technology development             |      | 1,668,027        
|                                  
|Technical services                 |      | 820,030          
|                                   |      |                  
|                                   |      | 9,974,281        
|                                   |      |                  
|Loss for the year                  |      | (6,951,393       
|                                   |      |                  
|Deficit, beginning of year         |      | (10,190,636      
|                                   |      |                  
|Deficit, end of year               |      | $(17,142,029     
|                                   |      |                  
|Loss per share - basic and diluted |      | $           (0.38
|                                   |      |                  
|                                   |      |                  
|Weighted average number of         |     
|shares outstanding                 |      | 18,352,395       
|                                   |      |                  

See accompanying notes to consolidated financial
statements.

29

---

IMAGIS TECHNOLOGIES INC.
CONSOLIATED STATEMENTS OF CASH FLOWS 
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 
(expressed in Canadian dollars)



|                                                                   | 2002 | 2001        
|------------------------------------------------------------------ | ---- | ------------
|Cash provided by (used for):                                       |      |             
|                                                                   |     
|Operations:                                                        |     
|                                                                   |     
|Loss for the year                                                  |      | $(6,951,393 
|                                                                   |     
|Items not involving cash:                                          |     
|                                                                   |     
|Amortization                                                       |      | 140,408     
|                                                                   |     
|Stock-based compensation                                           |      | 413,473     
|                                                                   |     
|Changes in non-cash operating working capital:                     |     
|                                                                   |     
|Accounts receivable                                                |      | 17,493      
|                                                                   |     
|Prepaids                                                           |      | (65,776     
|                                                                   |     
|Accounts payable and accrued liabilities                           |      | 204,030     
|                                                                   |     
|Deferred revenue                                                   |      | 280,301     
|                                                                   |      |             
|                                                                   |      | (5,961,464  
|                                                                   |      |             
|Investments:                                                       |     
|                                                                   |     
|Purchase of equipment                                              |      | (311,587    
|                                                                   |     
|Purchase of other assets                                           |      | (314,622    
|                                                                   |     
|Short-term investments                                             |      | 2,560,000   
|                                                                   |     
|Deferred acquisition costs                                         |      | (20,048     
|                                                                   |      |             
|                                                                   |      | 1,913,743   
|                                                                   |      |             
|Financing:                                                         |     
|                                                                   |     
|Issuance of common shares for cash                                 |      | 4,654,283   
|                                                                   |     
|Issuance of special warrants for cash, net of share issuance costs |      | --          
|                                                                   |     
|Share issue costs                                                  |      | (243,287    
|                                                                   |     
|Capital lease obligations                                          |      | (16,103     
|                                                                   |     
|Loan from related parties                                          |      | --          
|                                                                   |      |             
|                                                                   |      | 4,394,893   
|                                                                   |      |             
|Increase in cash                                                   |      | 347,172     
|                                                                   |     
|Cash and cash equivalents, beginning of year                       |      | 200,659     
|                                                                   |      |             
|Cash and cash equivalents, end of year                             |      | $    547,831
|                                                                   |      |             

See accompanying notes to consolidated financial
statements.

30

---

IMAGIS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 
(expressed in Canadian dollars)

|                                                   |  |             
|-------------------------------------------------- |  | ------------
|Supplementary information and disclosures:         |  |             
|                                                   |  |             
|Interest paid                                      |  | $     12,089
|                                                   |  |             
|Issuance of common shares on conversion of special | 
|warrants                                           |  | 3,098,070   
|                                                   |  |             
|Equipment acquired under capital lease             |  | 76,946      

See accompanying notes to
consolidated financial statements

31

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|1. | Operations:
|-- | -----------

| | Imagis
Technologies Inc. (the Company) was incorporated under the Company Act
(British Columbia) on March 23, 1998. The Company operates in a single segment, being the
development and sale of software applications and advanced biometric facial recognition
software solutions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
financial statements have been prepared on a going concern basis which includes the
assumption that the Company will be able to realize its assets and settle its liabilities
in the normal course of business. For the year ended December 31, 2002, the Company has
incurred a loss from operations of $6,951,393 and a deficiency in operating cash flow of
$5,961,464. In addition, the Company has incurred significant operating losses and net
utilization of cash in operations in all prior periods. Accordingly, the Company will
require continued financial support from its shareholders and creditors until it is able
to generate sufficient cash flow from operations on a sustained basis. Failure to obtain
ongoing support of its shareholders and creditors may make the going concern basis of
accounting inappropriate, in which case the Companys assets and liabilities would
need to be recognized at their liquidation values. These financial statements do not
include any adjustment due to this going concern uncertainty.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Significant accounting policies:
|-- | --------------------------------

| | The
Company prepares its financial statements in accordance with generally accepted accounting
principles in Canada and, except as set out in Note 13, also comply, in all material
respects, with accounting principles generally accepted in the United States. The
financial statements reflect the following significant accounting policies:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Cash equivalents:
| | --- | -----------------

| | The
Company considers all highly liquid investments with a term to maturity of three months or
less when purchased to be cash equivalents. Investments having a term in excess of three
months but less than one year are classified as short-term investments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Equipment:
| | --- | ----------

| | Equipment
is recorded at cost and is amortized over its estimated useful life on a straight-line
basis at the following annual rates:
| | -------------------------------------------------------------------------------------------------------------------------------------

|Asset                  | Rate
|---------------------- | ----
|Computer hardware      |     
|Furniture and fixtures |     
|Software               |     

32

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|2. | Significant accounting policies, continued:
|-- | -------------------------------------------

| | (c) | Other Assets:
| | --- | -------------

| | Other
assets is comprised of patents and rights to royalty payments purchased during 2002. The
assets are recorded at cost and are amortized over their estimated useful life on a
straight-line basis at the following annual rates:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Asset   | Rate
|------- | ----
|Patents |     
|License |     

| | Included
in other assets is $20,048 which represents costs incurred by the Company through December
31, 2002 relating to a proposed acquisition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Revenue recognition:
| | --- | --------------------

| | (i) | Software sales revenue:
| | --- | -----------------------

| | The
Company recognizes revenue consistent with Statement of Position 97-2, Software
Revenue Recognition. In accordance with this Statement, revenue is recognized,
except as noted below, when all of the following criteria are met; persuasive evidence of
a contractual arrangement exists, title has passed, delivery and customer acceptance has
occurred, the sales price is fixed or determinable and collection is reasonably assured.
Funds received in advance of meeting the revenue recognition criteria are recorded as
deferred revenue.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | When
a software product requires significant production, modification or customization, the
Company generally accounts for the arrangement using the percentage-of-completion method
of contract accounting. Progress to completion is measured by the proportion that
activities completed are to the activities required under each arrangement. When the
current estimate on a contract indicates a loss, a provision for the entire loss on the
contract is made.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | When
software is sold under contractual arrangements that includes post contract customer
support (PCS), the elements are accounted for separately if vendor specific
objective evidence (VSOE) of fair value exists for all undelivered elements.
VSOE is identified by reference to renewal arrangements for similar levels of support
covering comparable periods. If such evidence does not exist, revenue on the completed
arrangement is deferred until the earlier of (a) VSOE being established or (b) all of the
undelivered elements are delivered or performed, with the following exceptions: if the
only undelivered element is PCS, the entire fee is recognized ratably over the PCS period,
and if the only undelivered element is service, the entire fee is recognized as the
services are performed.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company provides for estimated returns and warranty costs, which to date have been
nominal, on recognition of revenue.
| | --------------------------------------------------------------------------------------------------------------------------

| | (ii) | Support and services revenue:
| | ---- | -----------------------------

| | Up front payments for Contract
support and services revenue is deferred and is amortized to revenue over the period that
the support and services are provided.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Use of estimates:
| | --- | -----------------

| | The
preparation of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts
reported or disclosed in the financial statements. Actual amounts may differ from these
estimates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|2. | Significant accounting policies, continued:
|-- | -------------------------------------------

| | (f) | Foreign currency:
| | --- | -----------------

| | Monetary
assets and liabilities denominated in foreign currencies are translated into Canadian
dollars at exchange rates in effect at the balance sheet date. Revenues and expenses are
translated using rates in effect at the time of the transactions. Foreign exchange gains
and losses are included in income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Income taxes:
| | --- | -------------

| | The
Company uses the asset and liability method of accounting for income taxes. Under the
asset and liability method, future tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Future
tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on future tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the date of substantive
enactment. To the extent that it is not considered to be more likely than not that a
deferred tax asset will be realized, a valuation allowance is provided.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Stock-based compensation:
| | --- | -------------------------

| | Effective
January 1, 2002, the Company adopted the new recommendations of the Canadian Institute of
Chartered Accountants with respect to the accounting for stock-based compensation and
other stock-based payments. The new recommendations require direct awards of stock, stock
appreciation rights or awards that call for the settlement in cash or other assets awarded
to employees and the cost of the service received as consideration to be measured and
recognized based on the fair value of the equity instruments issued. Compensation expense
is recorded over the period of related employee service, usually the vesting period of the
equity instrument awarded. The new recommendations permit the measurement of compensation
expense for stock option grants to employees and directors that are not direct awards of
stock, stock appreciation rights or otherwise call for settlement in cash or other assets
by an alternative method and to provide pro forma disclosure of the financial results
using the fair value method. The Company has elected to adopt an alternative method and
continue with its policy of not recognizing compensation expense for stock options granted
to employees. The Company recognizes compensation expense for non-employees based on the
estimated fair value of the equity instruments issued and recognizes stock based
compensation under Canadian GAAP.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Had
compensation expense for employees been determined based on the fair value method, the
Companys net loss and net loss per share for the year ended December 31, 2002, would
have been adjusted to the pro forma amounts indicated below:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | 2002
|--------------------------------- | ----
|                                  |     
|Net loss -  as reported           |     
|Net loss -  pro forma             |     
|                                  |     
|Net loss per share -  as reported |     
|Net loss per share - pro forma    |     

| | The
pro forma amounts exclude the effect of stock options granted prior to January 1, 2002.
The fair value of each stock option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following average inputs:
volatility  120%, risk free interest rate  5%, option term  5 years, and
dividend yield  nil.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average fair value of employee stock options granted during the year ended
December 31, 2002 was $2.05 per share purchase option.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

34

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|2. | Significant accounting policies, continued:
|-- | -------------------------------------------

| | (i) | Loss per share:
| | --- | ---------------

| | Loss
per share is calculated using the weighted average number of shares outstanding during the
reporting period. This average includes common shares issued in a reporting period from
their date of issuance. Diluted per share amounts are calculated by the treasury stock
method whereby the assumed proceeds of dilutive exercisable instruments are applied to
repurchase common shares at the average market price for the period. The resulting net
issuance is included in the weighted average number for purposes of the diluted per share
calculation. As all outstanding shares and warrants are anti-dilutive, there is no
difference between basic and diluted loss per share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (j) | Comparative figures:
| | --- | --------------------

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

|3. | Equipment:
|-- | ----------

|                      
|----------------------
|
|                      
|Computer hardware     
|                      
|Furniture and fixtures
|                      
|Software              
|                      
|                      
|                      

|                      
|----------------------
|
|                      
|Computer hardware     
|                      
|Furniture and fixtures
|                      
|Software              
|                      
|                      
|                      

| | Assets
under capital lease with a cost of $76,946 (2001 - nil) and accumulated amortization of
$12,609 (2001 - nil) are included in equipment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

35

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|4. | Other assets:
|-- | -------------

|                          
|--------------------------
|
|                          
|Patents (note 7 (c))      
|                          
|License (note 7 (d))      
|                          
|Deferred acquisition costs
|                          
|                          
|                          

|5. | Capital lease obligations:
|-- | --------------------------

|                                              
|----------------------------------------------
|2003                                          
|                                              
|2004                                          
|                                              
|2005, including buy-out options               
|                                              
|Sub-total                                     
|                                              
|Implicit interest portion                     
|                                              
|Sub-total                                     
|                                              
|Current portion of capital lease obligations  
|                                              
|Long-term portion of capital lease obligations
|                                              

|6. | Share capital:
|-- | --------------

| | (a) | Authorized:
| | --- | -----------

| |  | 100,000,000  common shares without par value
| |  | --------------------------------------------

36

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|6. | Share capital (continued):
|-- | --------------------------

| | (b) | Issued:
| | --- | -------

|                                                 | Number
        of shares | Amount    
|------------------------------------------------ | ------------------------ | ----------
|                                                 |                         
|Balance, December 31, 2000                       |                          | 12,965,965
|                                                 |                         
|Issued during year:                              |                         
|On private placement                             |                          | 1,730,332 
|Options exercised                                |                          | 295,834   
|Warrants exercised                               |                          | 1,407,000 
|Issued for services related to private placement |                          | 20,000    
|Share issuance costs                             |                          | --        
|                                                 |                          |           
|Balance, December 31, 2001                       |                          | 16,419,131
|                                                 |                          |           
|                                                 |                         
|Issued during year:                              |                         
|On private placement                             |                          | 1,166,667 
|Options exercised                                |                          | 375,110   
|Warrants exercised                               |                          | 894,776   
|Issued on conversion of special warrants         |                          | 1,427,682 
|Issued as bonus for consulting agreement         |                          | 37,500    
|Issued as bonus in consideration of loan         |                          | 10,000    
|Issued as bonus to a director and officer        |                          | 20,000    
|Share issuance costs                             |                          | --        
|                                                 |                          |           
|Balance, December 31, 2002                       |                          | 20,350,866
|                                                 |                          |           

| | (c) | Escrowed shares:
| | --- | ----------------

| | As
at December 31, 2001, 266,669 common shares were being held in escrow. These common shares
were released from escrow on February 23, 2002.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Special warrants:
| | --- | -----------------

| | On
November 9, 2001, 1,427,682 Special Warrants were sold at a price of $2.17 per Special
Warrant  were sold at a price of $2.17 per Special Warrant (gross proceeds less
offering costs equaled $2,822,861), each of which entitles the holder, upon
exercise and without payment of further
consideration, to acquire one common share of the Company and one-half of one common share
purchase warrant (the Warrants) of the Company.
These Special Warrants were not issued as compensation for services rendered.
Each whole Warrant will
entitle the holder to purchase one common share of the Company at a price of $2.55 with
the following expiration dates:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i)
(ii) | 114,666 warrants expired on November 9, 2002  
1,313,016 warrants expire on March 9, 2003
| | -------- | -----------------------------------------------------------------------------------------

| | The
securities issued pursuant to the brokered private placement and all underlying securities
were subject to resale restrictions that expired on March 9, 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

37

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|6. | Share capital (continued):
|-- | --------------------------

| | (d) | Special warrants (continued):
| | --- | -----------------------------

| | During
2002, all special warrants were converted into common shares. Also during 2002, the
Company reduced the exercise price on some of the share purchase warrants as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i)
(ii)
(iii) | 288,018 share purchase warrants from $2.55 to $1.63;   
220,200 share purchase warrants from $2.55 to $1.81;
15,633 share purchase warrants from $2.17 to $1.81.
| | -------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Warrants:
| | --- | ---------

| | At
December 31, 2001 and 2002, the following warrants were outstanding:
| | -----------------------------------------------------------------------

|         
|---------
|
|         
|266,666  
|133,334  
|50,000   
|274,000  
|114,666  
|205,622  
|288,018  
|220,200  
|--       
|--       
|--       
|--       
|--       
|         
|1,552,506
|         

38

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|6. | Share capital, continued:
|-- | -------------------------

| | (e) | Warrants, continued:
| | --- | --------------------

| | At
December 31, 2000 and 2001, the following warrants were outstanding:
| | -----------------------------------------------------------------------

|       
|-------
|
|       
|400,000
|80,000 
|200,000
|50,000 
|--     
|--     
|--     
|       
|730,000
|       

| | The
400,000 warrants having an exercise price of $1.25 per share that were outstanding at
December 31, 2001 were due to expire in two tranches. The first tranche of 266,666
warrants had an expiry of June 25, 2002 and the second tranche of 133,334 has an expiry of
February 23, 2003. The first tranches expiry date was extended to August 31, 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Of
the 713,840 warrants outstanding at December 31, 2001 with an exercise price of $2.55,
288,018 were modified to reduce the exercise price from $2.55 to $1.63 and 220,200 were
modified to reduce the exercise price from $2.55 to $1.81.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|6. | Share capital, continued:
|-- | -------------------------

| | (f) | Options:
| | --- | --------

| | The
Company has granted stock options to certain employees, directors, officers, advisors, and
consultants to buy an aggregate of 4,795,000 (2001  3,185,000) common shares of the
Company at prices ranging from $0.30 to $3.75 (2001  $0.30 to $2.20). Of the
4,795,000 options granted, 674,998 have been cancelled and 1,113,114 have been exercised
(2001  493,332 and 738,004 respectively). All options expire five years from the
date of grant with the exception of 100,000 options issued during 2002 to a consultant
that expire two years from the date of grant. A summary of the status of the
Companys stock options at December 31, 2002 and 2001 and changes during the years
ended on those dates is presented below:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | 2002 | 2001     
|------------------------------ | ---- | ---------
|                               |     
|
|                              
|Outstanding, beginning of year |      | 1,953,664
|                              
|Granted                        |      | 1,610,000
|Exercised                      |      | (375,110)
|Cancelled                      |      | (181,666)
|                              
|Outstanding, end of year       |      | 3,006,888
|                              

40

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|6. | Share capital, continued:
|-- | -------------------------

| | (f) | Options (continued):
| | --- | --------------------

| | The
following table summarizes information about stock options outstanding at December 31,
2002:
| | ------------------------------------------------------------------------------------------------

|      | Options outstanding | Options exercisable
|----- | ------------------- | -------------------
|      |                    
|
|     
|$0.30 |                     | 155,000            
|$1.00 |                     | 50,000             
|$1.00 |                     | 45,000             
|$1.00 |                     | 60,000             
|$1.00 |                     | 196,999            
|$1.00 |                     | 546,666            
|$2.35 |                     | 15,000             
|$2.35 |                     | 15,000             
|$2.20 |                     | 160,000            
|$2.06 |                     | 15,000             
|$1.99 |                     | 27,000             
|$1.50 |                     | 8,400              
|$1.50 |                     | 245,833            
|$2.35 |                     | 305,000            
|$2.97 |                     | 56,990             
|$2.24 |                     | 10,000             
|$2.35 |                     | 170,000            
|$2.35 |                     | 155,000            
|$2.35 |                     | 385,000            
|$1.50 |                     | 300,000            
|$2.35 |                     | 85,000             
|     
|      |                     | 3,006,888          
|     

| | Effective
June 30, 2002, the Company amended the exercise price of 560,000 options with exercise
prices ranging from $2.65 to $3.50 to $2.35.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

41

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|7. | Related party transactions not disclosed elsewhere are as follows:
|-- | ------------------------------------------------------------------

| | (a) | included in administration expense is $315,942 (2001  $484,255) for
               payments made to a company with a director in common for services rendered to
               the Company.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | included in interest expense is $19,000 (2001  $nil) representing the fair
               value of 10,000 shares issued to a company with a director in common in
               consideration of a loan made to the Company in 2001.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | On September 4, 2002 the Company acquired a license to certain software
               applications related to their use in certain specified business fields from a
               company related by virtue of having a director in common. The Company paid
               USD$150,000 (CDN$236,395, recorded in Other Assets) cash in consideration of the
               license. The license expires on the latter of August 31, 2017 and the expiry
               date of the last patent of the underlying software. The cost of the license will
               be amortized over their esimated useful life of 3 years.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | During 2002, the Company acquired patents from a company related by virtue of
               having a director in common. The Company paid USD$50,000 (CDN$78,227, recorded
               on Other Assets) cash in consideration for the patents. The cost of the patents
               will be amortized over their estimated useful life of 3 years.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|8. | Income taxes:
|-- | -------------

| | Income  tax expense differs from the amount that would be computed by applying the federal and
provincial statutory income tax rates of 39.6% (2001 - 44.6%) to income before taxes due
to valuation allowances provided against losses incurred in the year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                              | 2002 | 2001             |  
|--------------------------------------------- | ---- | ---------------- | -
|                                              |      |                 
|                                              |      |                  |  
|Canadian statutory rates                      |      | 39.6             | %
|                                              |      |                  |  
|Canadian federal and provincial taxes         |      | $(2,752,752      | )
|Reduction in effective tax rates              |      | 715,786          |  
|Permanent and other differences               |      | 78,275           |  
|Financing costs charged against share capital |      | (214,153         | )
|Changes in valuation allowance                |      | 2,172,844        |  
|                                              |      |                 
|                                              |      | $             -- |  

|                         | 2002 | 2001             
|------------------------ | ---- | -----------------
|                         |      |                  
|Future income tax asset: |      |                  
|Loss carry forwards      |      | $ 5,600,309      
|Capital assets           |      | 88,978           
|Financing costs          |      | 192,630          
|Other                    |      | 44,730           
|                         |      |                  
|Sub-total                |      | 5,926,647        
|                         |      |                  
|Valuation allowance      |      | (5,926,647       
|                         |      |                  
|Total                    |      | $               -
|                         |      |                  

| | In
assessing the realizability of future tax assets, management considers whether it is more
likely than note that some portion or all of the future tax assets will be realized.  The
ultimate realization of the future tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at December 31, 2002, the Company has non-capital loss carry forwards aggregating
approximately $15,721,000 available to reduce taxable income otherwise calculated in
future years. These losses expire as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | 
|---- | 
|2005 | 
|2006 | 
|2007 | 
|2008 | 
|2009 | 

43

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|9. | Commitments:
|-- | ------------

| | The
Company is committed to the following lease payments over the next five years:
| | ----------------------------------------------------------------------------------

|     | Equipment | Building | 
|---- | --------- | -------- | 
|     |           |          | 
|
|    
|2003 |           | 29,046   | 
|2004 |           | 29,046   | 
|2005 |           | 13,239   | 
|2006 |           | --       | 
|2007 |           | --       | 
|     |           | 71,331   | 
|    

| | The
Company has entered into the following commitments with a company related by virtue of
having a director in common:
| | -----------------------------------------------------------------------------------------------------------------------

| | (i) | the
Company has entered into a strategic  alliance to develop and market  integrated  airport
and security  products  with the                related company.  The Company has
committed to expend a minimum of USD$250,000 on product  development and the operation
               of an Airport Security Group to market the products.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | the
Company has committed to engage the related company to provide software  development
 services.  The Company has agreed to                expend a minimum of USD$250,000,
based on hourly rates charged at 85% of fair market value, prior to December 31, 2003.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | the
Company has entered into a Letter of Intent to form a joint venture for the purpose of
 establishing a  manufacturing  and                marketing  operation  in Brazil.  The
Company  has agreed to invest  USD$250,000  cash in the joint  venture in order to
               acquire a 20% interest.  This  investment is contingent  upon the Company's
 joint venture  partner  fulfilling  certain                obligations prior to July 8,
2004.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2002, the Company modified the terms of the commitments (note 12).
| | ---------------------------------------------------------------------------------------------

|10. | Financial instruments and risk management:
|--- | ------------------------------------------

| | (a) | Fair values:
| | --- | ------------

| | The
fair value of the Companys financial instruments, represented by cash, accounts
receivable, accounts payable and accrued liabilities, approximates their carrying values
due to their ability to be promptly liquidated or their immediate or short term to
maturity. Based on current interest rates relative to those implicit in the leases, the
fair value of capital lease obligations is estimated to not be materially different from
their carrying values.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Credit risk:
| | --- | ------------

| | The
Company is exposed to credit risk only with respect to uncertainty as to timing and amount
of collectability of accounts receivable. The Companys maximum credit risk is the
carrying value of accounts receivable.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|10. | Financial instruments and risk management:
|--- | ------------------------------------------

| | (c) | Foreign currency risk:
| | --- | ----------------------

| | Foreign
currency risk is the risk to the Companys earnings that arises from fluctuations in
foreign currency exchange rates, and the degree of volatility of these rates. Management
has not entered into any foreign exchange contracts to mitigate this risk.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | Segmented information:
|--- | ----------------------

| | The
Company operates in a single segment, the development and sale of software.
Management of the Company makes decisions about allocating resources based on this one
operating segment.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Substantially
all revenue is derived from sales to customers located in Canada, the United States, the
United Kingdom and Japan. Geographic information is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|               | 2002 | 2001     
|-------------- | ---- | ---------
|               |     
|Canada         |      | 270,655  
|United States  |      | 1,061,794
|United Kingdom |      | 1,062,277
|Japan          |      | 485,640  
|Other          |      | 142,522  
|               |     
|               |      | 3,022,888

| | Substantially
all of the Companys fixed assets are in Canada.
| | --------------------------------------------------------------

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

|           | 2002 | 2001     
|---------- | ---- | ---------
|           |     
|Customer A |      | 507,971  
|Customer B |      | 1,046,294
|Customer C |      | 483,091  
|Customer D |      | 84,315   

45

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|12. | Subsequent events:
|--- | ------------------

|(a) |  | Subsequent
to December 31, 2002, 112,050 options were exercised for proceeds to           the
Company of $98,870 and 133,334 warrants were exercised for proceeds to the
          Company of $166,668
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Pursuant
to a Letter of Intent dated December 6, 2002 and an Arrangement           Agreement dated
February 14, 2003 the Company has agreed to acquire 100% of the           issued and
outstanding shares of Briyante Software Corp. (Briyante),           a
software development company. Under the terms of this agreement the Company
          will issue 0.2857 of a common share for each 1 common share of Briyante. The
          arrangement agreement was approved by the shareholders of Briyante at an annual
          and special general meeting held on March 17, 2003 and by an order of the
          Supreme Court of British Columbia on March 20, 2003. The Company and Briyante
          intend to attend to all items necessary to close the transaction in due course.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | Pursuant
to a term sheet dated February 20, 2003, the Company has entered into a           private
placement agreement to obtain financing of up to USD$4.0 million, with           an
initial sale of up to USD$1.5 million in the form of a special warrant and up
          to USD$2.5 million in the form of a series of sales of common shares under an
          effective registration agreement filed with the Securities and Exchange
          Commission. This agreement is subject to final documentation, approval of the
          board of directors of the Company, and regulatory approval.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | The
following commitments with a company related by virtue of having a director           in
common were amended as follows:
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

| | (i) | The
strategic alliance agreement to develop and market integrated airport and
          security products with the related company has been extended to July 8, 2004.
          The expenditure commitment has been reduced to a minimum of USD$125,000 on
          product development and the operation of an Airport Security Group to market
the           products.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | The
agreement to engage the related company to provide software development
          services has been extended to December 31, 2004. The expenditure commitment has
          been reduced to a minimum of USD$125,000, based on hourly rates charged at 85%
          of hourly rates charged to third parties.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | The
Company has agreed that, subject to regulatory approval, the exercise price           of
the warrants for the purchase of 291,667 shares, issued in conjunction with a
          private placement to the related company completed during 2002, will be reduced
          from USD$1.50 (CDN$2.28) to the same price per share as that afforded the
          investors under the financing currently under negotiation.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iv) |  | The
Company has agreed to pay the related company a management fee of           USD$250,000
on or before March 20, 2004.
|---- |  | ------------------------------------------------------------------------------------------------------------------------

46

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|13. | United States generally accepted accounting principles:
|--- | -------------------------------------------------------

| | These
financial statements have been prepared in accordance with generally accepted accounting
principles in Canada (Canadian GAAP) which differ in certain respects with
accounting principles generally accepted in the United States (U.S. GAAP).
Material issues that could give rise to measurement differences to these consolidated
financial statements are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Stock-based compensation:
| | --- | -------------------------

| | As
described in note 6, the Company has granted stock options to certain employees,
directors, advisors, and consultants. These options are granted for services provided to
the Company. For options issued subsequent to December 31, 2001, the Company amortizes the
expense of all options issued to non-employees based on the Black-Scholes model under
Canadian GAAP. For U.S. GAAP purposes, an enterprise recognizes or, at its option,
discloses the impact of the fair value of stock options and other forms of stock-based
compensation in the determination of income. The Company has elected under U.S. GAAP to
continue to measure compensation cost for stock options granted to employees by the
intrinsic value method. Options granted to non-employees prior to January 1, 2002, are
required to be measured and recognized at their fair value as the services are provided
and the options are earned. In addition, during the year ended December 31, 2001 and 2002,
the Company repriced certain options and consequently, under U.S. GAAP, such
options are accounted for as
variable options and increases in the underlying common shares market price since the
repricing date are recognized as compensation cost until the options are exercised, expire
or forfeited.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Beneficial
conversion option:
| | --- | -----------------------------

| | During
the year ended December 31, 2000, the Company issued convertible debentures with
detachable warrants attached. For Canadian GAAP purposes, the issuance is considered to be
of a compound debt and equity instrument and the proceeds were allocated between the two
elements based on their relative fair values. For U.S. GAAP purposes, this allocation
results in a beneficial conversion option as the fair value of the shares issuable on
conversion of the debt is in excess of the value at which such shares would be issuable based on the
reduced carrying value of the debt element. This beneficial conversion option was
amortized over the period to the first conversion date.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Warrant
issuance for services:
| | --- | ------------------------------

| | During
the year ended December 31, 2000, the Company issued 200,000 warrants having an exercise
price of $3.50 each for services rendered. In accordance with the Companys
accounting policies, for Canadian GAAP purposes no value has been assigned to these
warrant issuances. For U.S. GAAP purposes, the fair value of these warrants would be
determined based on an option pricing model and recognized as the services are provided.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47

---

IMAGIS TECHNOLOGIES INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(expressed in Canadian dollars)

|13. | United States generally accepted accounting principles (continued):
|--- | -------------------------------------------------------------------

| | (d) | Loss per share:
| | --- | ---------------

| | In
accordance with U.S. GAAP, common shares issuable on exercise of the Special Warrants are
included in the calculation of the weighted average number of shares outstanding for
purposes of the loss per share calculations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
effect of these accounting differences on deficit, net loss, loss per share and future
income taxes under United States accounting principles are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | 2002 | 2001        
|--------------------------------------- | ---- | ------------
|                                        |      |             
|Deficit, Canadian GAAP                  |      | $(17,361,118
|                                        |      |             
|Cumulative stock based compensation (a) |      | (1,295,024  
|                                        |      |             
|Beneficial conversion options (b)       |      | (208,200    
|                                        |      |             
|Warrants issued for services (c)        |      | (722,000    
|                                        |      |             
|Deficit, U.S. GAAP                      |      | $(19,586,342
|                                        |      |             

|                                              | 2002 | 2001           
|--------------------------------------------- | ---- | ---------------
|                                              |      |                
|Loss for the period, Canadian GAAP            |     
|                                              |      | $(6,951,393    
|Stock-based compensation                      |     
|                                              |      | (240,412       
|                                              |      |                
|Loss for the period, U.S. GAAP                |     
|                                              |      | (7,191,805     
|                                              |      |                
|Loss per share, U.S. GAAP - basic and diluted |      | $         (0.38
|                                              |      |                

48

---

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

Not applicable.

# 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, 2002:

|Name                    | Age | Position with the Company
|----------------------- | --- | -------------------------
|Oliver "Buck" Revell    |     | 64                       
|Iain Drummond           |     | 57                       
|Wayne Smith             |     | 46                       
|Andrew Amanovich        |     | 45                       
|Richard Katrusiak(1)    |     | 37                       
|Altaf Nazerali          |     | 49                       
|Robert Gordon(3),(2)    |     | 56                       
|Roy Davidson Trivett(3) |     | 55                       
|Treyton L Thomas(3)     |     | 46                       
|Deepak Chopra(2)        |     | 52                       
|                        |    

|(1) |  | As of January 8, 2003, Richard Katrusiak was replaced by Tim Ruggles (age 55) in
               the position of Vice-President Business Product Development & Services.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On March 21, 2003 both Robert Gordon and Deepak Chopra resigned their Board
               position with the Company.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(3) |  | Audit Committee Member
|--- |  | ----------------------

Oliver Buck
Revellwas appointed as our Chairman of the board of directors on January 31,
2000. From September 1994 until the present, Mr. Revell has served on a number of
Presidential and Vice Presidential task forces, including as Vice-Chairman of the
Interagency Group for Counter-Intelligence and as a member of both the National Foreign
Intelligence Board and the Terrorist Crisis Management Committee of the National Security
Council. Previously, Mr. Revell served for over 30 years in the United States Federal
Bureau of Investigation, and during his career advanced to the position of Associate
Deputy Director. Mr. Revell is a life member of the International Association of Chiefs of
Police, and the founding Chairman of its Committee on Terrorism. Mr. Revell is President
of the Law Enforcement Television Network and also serves as Chairman of the Greater
Dallas Crime Commission.

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

49

---

Wayne Smithhas been an
employee since May 2002 and has served as our Chief Financial Officer since September 1,
2002. Since 1997, Mr. Smith has also been a partner of TelePartners Consulting Inc., a
consulting services company that provides management and financial consulting services,
primarily in the call center and help desk areas. From May 2002 to September 2002, Mr.
Smith served as comptroller of International Portfolio Management. From October 2001 to
May 2002, Mr. Smith was risk management advisor of Peter Reimer & Associates and, from
1997 to July 2001, Mr. Smith was Audit Senior of Amisano Hanson Chartered Accountants. Mr.
Smith holds a Chartered Accountants designation in Canada.

Andrew Amanovichhas
served as our Chief Technology Officer 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 company and principal shareholder of Imagis, which is engaged in
forestry mapping and surveys. At Pacific Cascade, Mr. Amanovich developed computer
simulation models for forest visualization modeling and was involved in forest
engineering, geotechnical engineering, digital mapping and technology and software
development. Mr. Amanovich holds a Bachelor of Science degree from the University of
British Columbia.

Tim Ruggles has
served as our Vice President, Product Development & Services since January 2003. Mr.
Ruggles worked from September 2000 to January 2002 with Expression Array Technology, a
software firm specializing in image processing and feature analysis software as President
and Chief Executive Officer. Mr. Ruggles worked from August 1996 to September 2000 with
SAGEM Morpho, Inc., a large-scale automated fingerprint identification systems provider
for local, state, and federal government agencies as the Senior Vice President, Business
Development. Mr. Ruggles has also worked from September 1990 to August 1996 with the
Avionics and Surveillance Group of TRW, Inc. as a Program Manager. Mr. Ruggles was the
co-founder of and worked from July 1985 to September 1990 with MORPHO Systems Inc., a
predecessor company to SAGEM Morpho as a senior executive and was co-founder of and worked
from June 1979 to July 1985 with Applied Systems Technology, Inc., a government-focused
consulting group as a Vice President. Mr. Ruggles holds a Juris Doctorate from the William
Mitchell School of Law as well as a Bachelor of Science from the University of Minnesota.

Altaf Nazeralihas
served as a director of Imagis since July 7, 1998. Mr. Nazerali also served as President
and Chief Executive Officer of Imagis from July 7, 1998 through February 23, 1999. In
addition, Mr. Nazerali also serves in the following capacities of other public 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) President and Chief Executive Officer (October 1997 to May 2001)
and Chairman of the board of directors (October 1997 to present) of Intacta Technologies
Inc. (formerly, InfoImaging Technologies Inc.), a software technology company. Mr.
Nazerali is also President of International Portfolio Management. From November 1994
through October 1995, Mr. Nazerali served as Chief Executive Officer and President of
Canbras Communications Corp., an operator of pay television and telephone systems in
Brazil. Mr. Nazerali holds a Bachelor of Arts and an M.B.A. from Columbia University.

Robert Gordonhas
served as a director of Imagis since February 15, 2000. Mr. Gordon has also served as the
Chief Executive Officer and a director of Platform Computing Inc. since August 2001. From
November 2000 to August 2001, Mr. Gordon was a technology venture capitalist in Europe.
Previously, from September 1991 through November 2000, Mr. Gordon served initially as
President and Chief Executive Officer of Oracle Canada and then as Senior Vice President
of Oracle Corporation for Europe, Middle East and Africa. Before joining Oracle, Mr.
Gordon held senior management positions at IBM, Nortel and Bell Atlantic. He is a past
Chair of the Information Technology Association of Canada. Mr. Gordon holds a degree in
engineering science from Université Laval and the Advanced Management Program of
Duke University.

Roy Davidson Trivettwas appointed as a director of Imagis on March 4, 2002. Mr. Trivett has been the
President of Trivett Holdings Ltd. since August 1994 and the President and a director of
Silicon Slopes Capital Corp. since October 1998. From June 1986 through July 1994, Mr.
Trivett served as President of Architel Systems Corp. Mr. Trivett served as a director of
Architel from April 1996 through June 2000. Mr. Trivett currently serves as a director of
Softcare EC Inc. and has served as a director of OCS Technologies Inc. (October 1996 to
January 1997); and (d) DBA Telecom Corporation (April 1998 to June 1999). Mr. Trivett
holds Bachelor and Masters degrees in engineering from Carleton University in Canada.

Treyton L. Thomaswas
appointed as a director of Imagis on July 9, 2002. Mr. Thomas founded the investment firm
Pembridge Group in 1995 and serves as its Chairman. Prior to founding Pembridge, he spent
eleven years in investment banking. Mr. Thomas graduated cum laude with a Bachelor of
Liberal Arts from Harvard University with a concentration in Natural Sciences, and an
optional field-of-study in Computer Science. He graduated tied for first in his class and
was the recipient of both the Deans Academic Achievement Award, and the Phelps
Award, which is the highest academic award given to three graduates each year based on
academic achievement and character. Mr. Thomas completed the Advanced Management Program
of the Harvard Business School.

50

---

Deepak Choprahas been a director of Imagis since July 8, 2002. Mr. Chopra is Chairman
and CEO of OSI Systems, Inc. Mr. Chopra has served as OSIs Chief Executive Officer
and Director of OSI since OSIs inception in May 1987, and has served as OSIs
Chairman of the Board since February 1992. From 1976 to 1987, Mr. Chopra held various
positions with ILC Technology, Inc. a publicly-held manufacturer of lighting products,
including serving as Chairman of the Board, Chief Executive Officer, President and Chief
Operating Officer of ILCs United Detector Technology Division, which was later
acquired by OSI in 1990. Mr. Chopra has also held various positions at Intel Corporation,
TRW Semiconductors and RCA Semiconductors. Mr. Chopra holds a B.S. in Electronics and a
M.S. in Semiconductor Electronics.

# Board of Directors

Each board member 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 our Bylaws. Officers serve at the discretion of our Board and are
appointed annually.

Except for Mr. Chopra, who was
designated as a nominee to our Board by OSI pursuant to an agreement between OSI and
Imagis, none of our directors or executive officers are parties to any arrangement or
understanding with any other person with respect to their appointment as a director or
officer of Imagis. None of our directors or executive officers has any family relationship
with any other officer or director.

# Audit Committee

Imagis has established an audit
committee which was comprised of Robert Gordon, Treyton L. Thomas and Roy Davidson Trivett
as of December 31, 2002. The audit committee recommends independent accountants to audit
its financial statements, discusses the scope and results of the audit with the
independent accountants, reviews its interim and year-end operating results with its
executive officers and 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.

# Compliance with Section
16(a) of the Exchange Act

The Company is a foreign
private issuer as defined in Rule 3b-4 promulgated under the Securities Exchange Act
of 1934, as amended, and therefore its officers, directors and greater than 10%
shareholders are not subject to Section 16 of the Securities Exchange Act of 1934, as
amended, pursuant to Rule 3a12-3(b) promulgated under such Act.

51

---

# Item 10.  Executive
Compensation.

# Compensation of Named
Executive Officers

The following table sets forth
compensation paid to the Companys only named executive officer. Only Imagis
President and Chief Executive Officer received compensation in excess of US$100,000 during
the year ended December 31, 2002.

Summary Compensation Table

|Summary Compensation Table
|--------------------------
|
|
|
|                          
|Iain Drummond             
|President and             
|Chief Executive           
|Officer                   
|                          

_____________________________________

|(1) | Mr.
Drummond was issued 20,000 as a discretionary bonus at a deemed price of $1.25 based upon
the closing      price of the Company's common shares as of the date of board
authorization.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Options Granted during
the Year Ended December 31, 2002

The following table sets forth the
Companys stock options grants to its President and Chief Executive Officer during
the year ended December 31, 2002:

|             
|-------------
|
|             
|
|             
|Iain Drummond
|             

# Options Exercised during
the Year Ended December 31, 2002

The following table sets forth for
the Companys President and Chief Executive Officer the number of shares acquired
upon exercise of stock options during the year ended December 31, 2002 and the number of
shares issuable subject to exercised and unexercised stock options held as of December 31,
2002.

|Aggregated Options Exercised During 2002 Fiscal Year and Financial Year-End
Option Values
|-----------------------------------------------------------------------------------------
|                                                                                         
|
|                                                                                         
|
|                                                                                         
|Iain Drummond                                                                            
|                                                                                         

|(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 at December 31, 2002 on
the TSX Venture Exchange less the exercise price per share.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

52

---

# Employment Agreements

Imagis has entered into an employment
agreement with Iain Drummond, the Companys President and Chief Executive Officer.
Mr. Drummonds employment contract stipulates an annual salary of $155,000 and a
bonus of up to $100,000 per year. The bonus can be earned on achievement of certain
targets. Mr. Drummonds contract does not contain any severance provisions.

# Compensation of Directors

During the most recently completed
financial year ended December 31, 2002, there was no cash compensation paid by Imagis to
its directors for their services. There are no standard arrangements for any such
compensation to be paid to members of Imagis board of directors other than
reimbursement for expenses incurred in connection with their services as directors. The
Company may grant stock options to its directors of which the timing, number, and exercise
price are established on a case by case basis.

The following table outlines the
stock purchase options that have been granted to the Companys directors during the
fiscal year ended December 31, 2002:

|             
|-------------
|
|             
|Roy Trivett  
|Trey Thomas  
|Iain Drummond
|             

Four directors of Imagis have
received consulting fees for work done outside of their duties as directors of Imagis. Mr.
Revell has a consulting agreement with Imagis that provides for annual payments of
US$100,000. Mr. Nazerali has a consulting agreement (effective October 1, 2002)
that provides for annual payments of $150,000. See also  Certain Relationships
and Related Transactions. Messrs. Thomas and Trivett were paid $22,992 and $20,000
(of which $10,000 was unpaid at December 31, 2002), respectively, in consulting fees for
year ended December 31, 2002.

53

---

Item 11.   Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth
certain information concerning the number of the Companys common shares owned
beneficially as of December 31, 2002 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.

|             
|-------------
|
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|Common Shares
|             
|             
|             
|             
|             
|Common Shares
|             

|* |  | Indicates
less than one (1) percent
|- |  | -----------------------------------

|(1) |  | Based
on an aggregate 20,596,705 common shares outstanding as of March 18, 2003.
|--- |  | --------------------------------------------------------------------------------

|(2) |  | Includes
166,666 common chares issuable pursuant to options exercisable within 60 days of March
18, 2003.
|--- |  | ---------------------------------------------------------------------------------------------------------

|(3) |  | Includes
231,667 common shares issuable pursuant to options exercisable within 60 days of March
18, 2003          and 146,000 common shares owned by a company controlled by Mr. Nazerali.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | 1,811,387
common shares are indirectly held through Pacific Cascade Consultants Ltd ("Pacific").
         Pacific Cascade is owned jointly by FWC Holdings Ltd. (a company controlled by
Frederick Clarke) which          owns 50% and Mr. Andy Amanovich (an officer of Imagis)
who owns 50%.  260,588 common shares are          indirectly held through 385078 B.C.
Ltd. ("B.C. Ltd.").  B.C. Ltd. is 50% owned by Pacific.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | 1,811,387
common shares are indirectly held through Pacific Cascade Consultants Ltd ("Pacific").
         Pacific Cascade is owned jointly by FWC Holdings Ltd. (a company controlled by
Frederick Clarke) which          owns 50% and Mr. Andy Amanovich (an officer of Imagis)
who owns 50%.  260,588 common shares are          indirectly held through 385078 B.C.
Ltd. ("B.C. Ltd.").  B.C. Ltd. is 50% owned by Pacific.  Includes          119,666 common
shares issuable pursuant to options exercisable within 60 days of March 18, 2003.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes
250,000 common shares issuable pursuant to options exercisable within 60 days of March
18, 2003          and 45,000 common shares held by Trivett Holdings (a company controlled
by Mr. Trivett).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Represents
100,000 common shares issuable pursuant to options exercisable within 60 days of March
18,          2003.
|--- |  | --------------------------------------------------------------------------------------------------------------------

|(8) |  | Includes
160,000 common shares issuable pursuant to options exercisable within 60 days of March
18,          2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------

|(9) |  | Represents
60,000 common shares issuable pursuant to options exercisable within 60 days of March 18,
         2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(10) |  | Includes
1,166,667 common shares and warrants to purchase 291,667 common shares exercisable within
60          days of March 18, 2003 held by OSI Systems Inc., of which Mr. Chopra is
President and Chief Executive          Officer.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Includes
options to purchase 1,238,001 common shares exercisable within 60 days of March 18, 2003
and          291,667 common shares issuable pursuant to warrants exercisable within 60
days of March 18, 2003.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                             
|-----------------------------
|
|                             
|Equity Compensation Plans    
|Approved by Security Holders 
|                             
|Equity Compensation Plans Not
|Approved by Security Holders 
|                             
|Total                        
|                             

|(1) |  | Includes the following warrants:
|--- |  | --------------------------------

|(i) |  | 133,334 warrants exercisable to acquire 133,334 common shares of the Company at
               a price of $1.25 are held by Iain Drummond who is the President and Chief
               Executive Officer of the Company. These warrants were issued in consideration of
               Mr. Drummond renouncing his rights to acquire up to 6% equity interest in Imagis
               Cascade.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) |  | 15,633 warrants exercisable to acquire 15,633 common shares of the Company at a
               price of $1.81 are held by Canaccord Capital. These warrants were issued in
               conjunction with a private placement completed in November 2001.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) |  | 50,000 warrants exercisable to acquire 50,000 common shares of the Company at a
               price of $2.20 are held by Pembridge Group. These warrants were issued as
               compensation for consulting services provided to the Company.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iv) |  | 105,000 warrants exercisable to acquire 105,000 common shares of the Company at
               a price of $2.84 are held by Roth Capital Partners (Roth). These
               warrants were issued as compensation to Roth for service rendered in connection
               with the OSI private placement.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

54

---

# Item 12. Certain
Relationships and Related Transactions.

|(a) | Imagis paid administration expenses in the amount of $315,942 and $323,850
          during the years ended December 31, 2002 and 2001 respectively, to International
          Portfolio Management Inc. (IPM) for administration services provided
          to Imagis. Mr. Nazerali, one of Imagis directors, is also a director,
          officer and shareholder of IPM. In addition, during 2001, Imagis repaid $578,222
          and $494,095 of payables owed to IPM and Pacific Cascade Consultants Ltd., a
          company jointly owned by Andrew Amanovich, the Chief Technology Officer of
          Imagis and a former director of Imagis, for similar administrative services
          rendered to Imagis before 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | From October 2000 through August 2001 IPM made non-interest bearing advances to
          Imagis in the aggregate amount of $770,852, of which an aggregate of $620,852
          was repaid. As of September 2001, the balance of $150,000 of unpaid advances was
          converted into the principal amount of an unsecured loan to Imagis with a
          one-year term and bearing interest at the annual rate of 10%. The loan was
          repaid in full during 2002 and 10,000 common shares of Imagis were issued to IPM
          as consideration for providing the unsecured loan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | During July 2002, the Company issued 1,166,667 common shares for gross proceeds
          to the company of US$1,750,001 by way of a private placement to OSI of which
          Deepak Chopra is a director and officer. The Company also issued 291,667
          warrants to purchase the common shares of the Company for a period of two years
          at US$1.50 per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company
entered into the following commitments with OSI:
| | ------------------------------------------------------------

| | (i) | the
Company has entered into a strategic alliance to develop and market
               integrated airport and security products with the related company. The
Company                has committed to expend a minimum of USD$250,000 on product
development and the                operation of an Airport Security Group to market the
products.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | the
Company has committed to engage the related company to provide software
               development services. The Company has agreed to expend a minimum of
USD$250,000,                based on hourly rates charged at 85% of fair market value,
prior to December 31,                2003.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | the
Company has entered into a Letter of Intent to form a joint venture for the
               purpose of establishing a manufacturing and marketing operation in Brazil.
The                Company has agreed to invest USD$250,000 cash in the joint venture in
order to                acquire a 20% interest. This investment is contingent upon the
Companys                joint venture partner fulfilling certain obligations prior
to July 8, 2004.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Subsequent  to
December 31, 2002 the above agreements were amended as follows:
| |  | ------------------------------------------------------------------------------

| | (i) | the
strategic alliance agreement to develop and market integrated airport and
          security products with OSI has been extended to July 8, 2004. The expenditure
          commitment has been reduced to a minimum of US$125,000 on product development
          and the operation of an Airport Security Group to market the products.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | the
agreement to engage OSI to provide software development services has been
          extended to December 31, 2004. The expenditure commitment has been reduced to a
          minimum of US$125,000, based on hourly rates charged at 85% of fair market
          value.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | the
Company has agreed that, subject to regulatory approval, the exercise price           of
the warrants for the purchase of 291,667 shares, issued in conjunction with           the
private placement to OSI completed during 2002, will be reduced from US$1.50
          (CDN$2.28) to the same price per share as that afforded the investors under the
          financing currently under negotiation.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) | The
Company has agreed to pay OSI a management fee of US$250,000 on or before           March
20, 2004
| | ---- | ------------------------------------------------------------------------------------------------------

|(d) | On September 4, 2002 the Company acquired a license to certain software
          applications related to their use in certain specified business fields from
          Intacta, a company related by virtue of having a director in common. The Company
          paid USD$150,000 (CDN$236,395, recorded in Other Assets) cash in consideration
          of the license. The license expires on the latter of August 31, 2017 and the
          expiry date of the last patent of the underlying software. The cost of the
          license will be amortized over its 3 year expected useful life.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | During 2002, the Company acquired patents from Intacta, a company related by
          virtue of having a director in common. The Company paid USD$50,000 (CDN$78,227,
          recorded in Other Assets) cash in consideration for the patents. The cost of the
          patents will be amortized over their 3 year estimated useful life.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

55

---

|(f) | During 2002, the Company paid consulting fees to its Chairman, Mr. Oliver (Buck)
          Revell in the amount of $156,714.
|--- | ----------------------------------------------------------------------------------------------------------------------------

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 fiscal 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.

56

---

# 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:

|ExhibitNumber | Description
|------------- | -----------
|
|3             | .1(1)      
|
|4             | .1(1)      
|
|              |            
|
|4             | .2(5)      
|
|10            | .1(1)*     
|
|10            | .2(2)*     
|
|10            | .3(3)      
|
|10            | .4(4)      
|
|              |            
|
|10            | .5(5)      
|
|10            | .6(5)      
|
|10            | .7(5)      
|
|10            | .8(5)      
|
|10            | .9         
|
|              |            
|
|10            | .10        
|
|10            | .11        
|
|10            | .12        
|
|10            | .13*       
|
|10            | .14        
|
|              |            
|
|21            | .1         

_________________

|* | Indicates
a management contract or compensatory plan or arrangement
|- | -------------------------------------------------------------------

|(1) | Previously
filed as part of Imagis' Registration Statement on Form 10-SB (File No. 000-30090).
|--- | ----------------------------------------------------------------------------------------------

|(2) | Previously
filed as part of Imagis' Annual Report on Form 10-KSB for the year ended December 31,
2000.
|--- | ------------------------------------------------------------------------------------------------------

|(3) | Previously
filed as part of Imagis' Quarterly Report on Form 10-QSB for the period ended June 30,
2001.
|--- | -------------------------------------------------------------------------------------------------------

|(4) | Previously
filed as part of Imagis' Quarterly Report on Form 10-QSB for the period ended March 31,
2002.
|--- | --------------------------------------------------------------------------------------------------------

|(5) | Previously
filed as part of Imagis' Current Report on Form 8-K filed on December 19, 2002.
|--- | ------------------------------------------------------------------------------------------

|(b) | Reports
on Form 8-K
|--- | -------------------

| | (i) | On
October 23, 2002, the Company filed a Form 8-K with a press release attached
               announcing that the Company in conjunction with its business partner Orion
               Scientific Systems had completed the deployment of one of the largest
digital                imaging sharing systems in the United States. The completion
triggered the final                payment on the previously announced contract including
a final payment to the                Company of US$500,000.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | On
December 2, 2002, the Company filed a Form 8-K with the following documents
               attached as exhibits thereto:
| | ---- | ---------------------------------------------------------------------------------------------------------------------------

| |  | a
Registration Rights Agreement, a Subscription Agreement, a Letter of Intent to establish
a joint venture in Brazil, a Product Development and Marketing Agreement to develop
mutually agreed airport and transportation security products and the Software Developer
Services Agreement, with all such agreements being between the Company and OSI and dated
July 8, 2002;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
Company's information circular dated May 15, 2002.
| | - | ------------------------------------------------------

| | (iii) | On
December 19, 2002, the Company furnished on Form 8-K a press release
               announcing to disclose that the Company had signed a letter of agreement
with                Briyante Software Corp to acquire all the issued and outstanding
shares of                Briyante in return for common shares of the Company. The
information and any                exhibits in the Form 8-K furnished pursuant to Item 9
shall not be deemed to be                filed under the Securities Exchange Act of 1934,
as amended.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

57

---

# Item 14.  Controls and
Procedures

|(a) | Evaluation
of Disclosure Controls and Procedures
|--- | ------------------------------------------------

| | Under the
supervision and with the participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial Officer, the Company evaluated
the effectiveness of the design and operation of its disclosure controls and procedures
(as defined in Rule 139-14(c) under the Securities Exchange Act of 1934, as amended) as
of a date (the Evaluation Date) within 60 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, the Companys disclosure controls
and procedures were effective in timely alerting them to the material information
relating to the Company (or its consolidated subsidiaries) required to included in the
Companys periodic SEC filings.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Changes
in Internal Controls
|--- | ----------------------------

| | There were
no significant changes made to the Companys internal controls or, to its knowledge,
in other factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions taken with regard to significant
deficiencies and material weaknesses.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

58

---

# SIGNATURES

In accordance with Section 13 or
15(d) of the Exchange Act, the registrant 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 31, 2003.

| | IMAGIS
TECHNOLOGIES INC./s/ Iain Drummond

Iain Drummond 
President and Chief Executive Officer
| | -----------------------------------------------------------------------------------------------

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

|Signature                         | Title                                                                         | Date          
|--------------------------------- | ----------------------------------------------------------------------------- | --------------
|                                 
|/s/ Oliver Revell
 Oliver Revell  | Chairman and Director                                                         | March 31, 2003
|                                 
|/s/ Iain Drummond
Iain Drummond   | President, Chief Executive Officer and Director
(Principal Executive Officer) | March 31, 2003
|                                 
|/s/ Wayne Smith
 Wayne Smith      | Chief Financial Officer
(Principal Financial and Accounting Officer)          | March 31, 2003
|                                 
|/s/ Treyton Thomas
Treyton Thomas | Director                                                                      | March 31, 2003

59

---

# CERTIFICATION

I, Wayne Smith, certify
that:

|1. | I have reviewed this annual report on Form 10-KSB of Imagis Technologies Inc.;
|-- | ------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

|Date:  March 31, 2003 | /s/ Wayne Smith 
Chief Financial Officer 
(Principal Financial and Accounting Officer)
|--------------------- | --------------------------------------------------------------------------------------

---

# CERTIFICATION

I, Iain Drummond, certify
that:

|1. | I have reviewed this annual report on Form 10-KSB of Imagis Technologies Inc.;
|-- | ------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

|Date:  March 31, 2003 | /s/ Iain Drummond 
Iain Drummond 
 Chief Executive Officer
|--------------------- | ----------------------------------------------------------

---

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

In connection with the Annual Report
of Imagis Technologies Inc. (the Company) on Form 10-KSB for the period ended
December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Wayne Smith, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

|(1) |  | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(2) |  | The
information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | /s/ Wayne Smith 
Chief Financial Officer 
(Principal Financial and Accounting Officer)
March 31, 2003
| | -----------------------------------------------------------------------------------------------------

---

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

In connection with the Annual Report
of Imagis Technologies Inc. (the Company) on Form 10-KSB for the period ended
December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Iain Drummond, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

|(1) |  | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(2) |  | The
information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | /s/ Iain Drummond 
Iain Drummond 
 Chief Executive Officer
March 31, 2003
| | -------------------------------------------------------------------------

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