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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934                                    
|- |  | ----------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | OR                                                                                                                                
| 
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended November 30, 2002.  
| 
|  |  | OR                                                                                                                                
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
         to

Commission File Number [          ]

OFFSHORE SYSTEMS INTERNATIONAL LTD.(Exact name of Registrant as specified in its charter)

Offshore Systems International Ltd.
(Translation of Registrants name into English)

British Columbia, Canada
(Jurisdiction of incorporation or organization)

107  930 West 1st Street
North Vancouver, British Columbia, Canada V7P 3N4
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
None.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

|                                 |  |                                                  
|-------------------------------- |  | -------------------------------------------------
|Title of each class              |  | Name of each exchange on which registered        
|Common Shares, Without Par Value |  | Toronto Stock Exchange and
O.T.C. Bulletin Board.

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None.

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of November 30, 2002: 26,043,243 shares of Common
Shares without par value and 41,296 shares of Class A Preference Series A
Convertible.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

x    Yes o    No

Indicate by check mark which financial statement item the registrant has
elected to follow.       o Item 17 x Item 18





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|                           |                                                                                       |         |    |  |  |  |  |  |  | 
|-------------------------- | ------------------------------------------------------------------------------------- | ------- | -- |  |  |  |  |  |  | 
|                           |                                                                                       | Page   
|                           |                                                                                       |        
|                           |                                                                                       |        
|PART I.                    |                                                                                       | 1      
|                           | Item 1. Identity of Directors, Senior Management and Advisors                         |         | 1 
|                           | Item 2. Offer Statistics and Expected Timetable                                       |         | 1 
|                           | Item 3. Key Information                                                               |         | 1 
|                           | Item 4. Information on the Company                                                    |         | 9 
|                           | Item 5. Operating and Financial Review and Prospects                                  |         | 16
|                           | Item 6. Directors, Senior Management and Employees                                    |         | 28
|                           | Item 7. Major Shareholders and Related Party Transactions                             |         | 33
|                           | Item 8. Financial Information                                                         |         | 35
|                           | Item 9. The Offer and Listing                                                         |         | 35
|                           | Item 10. Additional Information                                                       |         | 37
|                           | Item 11. Quantitative and Qualitative Disclosures About Market Risk                   |         | 50
|                           | Item 12. Description of Securities Other than Equity Securities                       |         | 50
|PART II.                   |                                                                                       | 50     
|                           | Item 13. Defaults, Dividends Arrearages and Delinquencies                             |         | 50
|                           | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds |         | 50
|                           | Item 15. Controls and Procedures                                                      |         | 51
|                           | Item 16A. Audit Committee Financial Expert                                            |         | 51
|                           | Item 16B. Code of ethics                                                              |         | 51
|PART III.                  |                                                                                       | 51     
|                           | Item 17. Financial Statements                                                         |         | 51
|                           | Item 18. Financial Statements                                                         |         | 51
|                           | Item 19. Exhibits                                                                     |         | 52
|List of Subsidiaries       |                                                                                       | Ex-8.1 
|Section 906 Certifications |                                                                                       | Ex-10.2



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PART I.

Item 1.     Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2.     Offer Statistics and Expected Timetable

Not applicable.

Item 3.     Key Information

A.Selected financial data.

The following selected consolidated financial data as of November 30,
2000, 2001 and 2002 and for the years ended November 30, 2000, 2001 and 2002
has been derived from the Companys audited Consolidated Financial Statements,
which are included elsewhere herein, and was prepared in accordance with U.S.
generally accepted accounting principles (GAAP). The selected consolidated
financial data as of November 30, 1998 and 1999 and for the years ended
November 30, 1998 and 1999 has been derived from unaudited historical
consolidated financial information, prepared by management from the audited
historical financial statements. These statements were prepared in accordance
with Canadian GAAP for those dates and periods and adjusted by management for
material differences between Canadian and U.S. GAAP. The information should be
read in conjunction with the Consolidated Financial Statements and Notes and
Item 5. Operating and Financial Review and Prospects appearing elsewhere in
this annual report.

The Companys Consolidated Financial Statements are stated in Canadian
Dollars (CDN$ or $).

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Offshore Systems International Ltd.
Selected Consolidated Financial Information
Consolidated Statement of Earnings and Deficit Data

|                                                               |  |                                 |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|-------------------------------------------------------------- |  | ------------------------------- | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                               |  | For the year ended November 30,
|                                                               |  |                                
|                                                               |  | 2002                            |            | 2001 |  | 2000 |            | 1999 |  | 1998
|                                                               |  |                                 |            |      |  |      |            |      |  |     
|Revenue                                                        |  | $                               | 13,814,133 |      |  | $    | 7,909,713  |      |  | $    | 5,651,665  |   |  | $ | 7,291,619  |   |  | $ | 7,642,752  |  
|Cost of sales                                                  |  | $                               | 6,968,768  |      |  | $    | 3,333,358  |      |  | $    | 1,364,053  |   |  | $ | 4,010,649  |   |  | $ | 6,277,390  |  
|Gross profit                                                   |  | $                               | 6,845,365  |      |  | $    | 4,576,355  |      |  | $    | 4,287,612  |   |  | $ | 3,280,970  |   |  | $ | 1,365,362  |  
|Expenses                                                       |  | $                               | 5,799,633  |      |  | $    | 4,205,916  |      |  | $    | 4,122,027  |   |  | $ | 5,503,620  |   |  | $ | 6,098,151  |  
|Proceeds on settlement of claim                                |  | $                               | (221,978   | )    |  | $    |           |      |  | $    |           |   |  | $ |           |   |  | $ |           |  
|Income taxes (recovery)                                        |  | $                               | (426,416   | )    |  | $    | (227,300   | )    |  | $    |           |   |  | $ |           |   |  | $ |           |  
|Earnings (loss) from continuing operations                     |  | $                               | 1,694,126  |      |  | $    | 597,739    |      |  | $    | 165,585    |   |  | $ | (2,222,650 | ) |  | $ | (4,732,789 | )
|Earnings (loss) from discontinued operations                   |  | $                               |           |      |  | $    |           |      |  | $    | (316,673   | ) |  | $ | 141,732    |   |  | $ | 167,477    |  
|Net Earnings (loss) for the year                               |  | $                               | 1,694,126  |      |  | $    | 597,739    |      |  | $    | (151,088   | ) |  | $ | (2,080,918 | ) |  | $ | (4,565,312 | )
|Earnings (loss) per share from continuing
operations           |  | $                               | 0.07       |      |  | $    | 0.03       |      |  | $    | 0.01       |   |  | $ | (0.11      | ) |  | $ | (0.21      | )
|Net Earnings (loss) per share                                  |  | $                               | 0.07       |      |  | $    | 0.03       |      |  | $    | (0.01      | ) |  | $ | (0.11      | ) |  | $ | (0.21      | )
|Diluted earnings (loss) per share from
continuing operations   |  | $                               | 0.06       |      |  | $    | 0.03       |      |  | $    | 0.01       |   |  | $ | (0.11      | ) |  | $ | (0.21      | )
|Diluted net earnings (loss) per share                          |  | $                               | 0.06       |      |  | $    | 0.03       |      |  | $    | (0.01      | ) |  | $ | (0.11      | ) |  | $ | (0.21      | )
|Weighted average number of Common Shares
outstanding  basic   |  |                                 | 25,288,725 |      |  |      | 23,842,549 |      |  |      | 23,050,201 |   |  |   | 22,672,628 |   |  |   | 22,672,628 |  
|Weighted average number of Common Shares
outstanding  diluted |  |                                 | 27,285,617 |      |  |      | 25,476,614 |      |  |      | 24,526,875 |   |  |   | 22,672,628 |   |  |   | 22,672,628 |  

Offshore Systems International Ltd.
Selected Consolidated Financial Information
Consolidated Balance Sheet Data

|                                                             |  |                    |            |      |  |      |            |      |  |      |            |  |  |   |            |  |  |   |            | 
|------------------------------------------------------------ |  | ------------------ | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- |  |  | - | ---------- | 
|                                                             |  | As at November 30,
|                                                             |  |                   
|                                                             |  | 2002               |            | 2001 |  | 2000 |            | 1999 |  | 1998
|                                                             |  |                    |            |      |  |      |            |      |  |     
|Working capital                                              |  | $                  | 4,575,423  |      |  | $    | 2,923,207  |      |  | $    | 1,871,000  |  |  | $ | 1,153,711  |  |  | $ | 2,719,329  | 
|Total assets                                                 |  | $                  | 10,795,577 |      |  | $    | 7,353,509  |      |  | $    | 4,713,296  |  |  | $ | 7,673,785  |  |  | $ | 7,371,658  | 
|Total liabilities                                            |  | $                  | 4,618,779  |      |  | $    | 3,470,589  |      |  | $    | 1,913,235  |  |  | $ | 5,676,438  |  |  | $ | 3,285,499  | 
|Net assets                                                   |  | $                  | 6,176,798  |      |  | $    | 3,882,920  |      |  | $    | 2,800,061  |  |  | $ | 1,997,347  |  |  | $ | 4,086,159  | 
|Capital Stock                                                |  | $                  | 19,258,997 |      |  | $    | 18,554,063 |      |  | $    | 17,842,869 |  |  | $ | 17,243,855 |  |  | $ | 17,223,235 | 
|Outstanding Common Shares                                    |  |                    | 26,043,243 |      |  |      | 24,694,549 |      |  |      | 23,540,975 |  |  |   | 22,672,628 |  |  |   | 22,672,628 | 
|Outstanding Class A Preference Shares Series A Convertible |  |                    | 41,296     |      |  |      | 58,326     |      |  |      | 74,702     |  |  |   | 74,702     |  |  |   | 74,702     | 

The Company has not declared or paid any dividends during the periods
indicated.

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Currency and Exchange Rates

Canadian Dollar Value for 1 US$ (as published by the Federal Reserve Bank
of New York):

On May 21, 2003, the noon buying rate in New York City for cable transfer
in Canadian dollars as certified for customs purposes by the Federal Reserve
Bank of New York was $1.00 U.S. = $1.3498 Canadian.

All exchange rate calculations below are based on the noon buying rate in
New York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.

The average exchange rates for each of the past five (5) fiscal years were
calculated using the average of the exchange rates in effect on the last day of
each month during the period indicated.

|                             |  |  |        | 
|---------------------------- |  |  | ------ | 
|Year Ended November 30, 1998 |  |  | 1.4804 | 
|Year Ended November 30, 1999 |  |  | 1.4905 | 
|Year Ended November 30, 2000 |  |  | 1.4834 | 
|Year Ended November 30, 2001 |  |  | 1.5441 | 
|Year Ended November 30, 2002 |  |  | 1.5713 | 

|              |  |           |        |          |  |  |        | 
|------------- |  | --------- | ------ | -------- |  |  | ------ | 
|              |  | High Rate |        | Low Rate
|              |  |           |        |         
|November 2002 |  |           | 1.5903 |          |  |  | 1.5528 | 
|December 2002 |  |           | 1.5800 |          |  |  | 1.5478 | 
|January 2003  |  |           | 1.5750 |          |  |  | 1.5220 | 
|February 2003 |  |           | 1.5315 |          |  |  | 1.4880 | 
|March 2003    |  |           | 1.4905 |          |  |  | 1.4659 | 
|April 2003    |  |           | 1.4843 |          |  |  | 1.4336 | 

All dollar amounts set forth herein are in Canadian dollars, except where
otherwise indicated.

B.Capitalization and indebtedness.

Not applicable.

C.Reasons for the offer and use of proceeds.

Not applicable.

D.Risk factors.

An investment in the Companys Common Shares should be considered highly
speculative. In addition to other information in this Form 20-F, you should
carefully consider the following factors when evaluating the Company and its
business.

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The Company depends heavily on its government contracts, which are only
partially funded, subject to termination, heavily regulated and audited. The
termination of one or more of these contracts could have a negative impact on
the Companys operations. The contract termination clauses are generally in
favor of the government agencies. Typically, the termination for convenience
clause is 30 days or less with the condition that all costs to that date are
paid by the government agency.

The termination of funding for a government program would result in a loss
of anticipated future revenues attributable to that program and could have a
negative impact on the Companys operations. The Company can give no assurance
that it would be able to procure new government contracts to offset the
revenues lost as a result of any termination of its contracts. As the Companys
revenues are dependent on its procurement, performance and payment under its
contracts, the loss of one or more critical contracts could have a negative
impact on the Companys financial condition.

In addition, sales to the governments the Company works with may be affected by:



| |  |  | changes in procurement policies;                                                     
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | budget considerations;                                                               
|
| |  |  | changing concepts of national defense;                                               
|
| |  |  | actual or anticipated military conflicts by a government or against a government; and
|
| |  |  | political developments abroad.                                                       

The influence of any of these factors, which are largely beyond the
Companys control, could also negatively impact the Companys financial
condition.

The Company derives a significant amount of revenue from only a few
customers. The Company depends on the United States, Canadian and Danish
governments for a significant portion of its sales, and the loss of any of
these relationships or a shift in any of these governments funding could have
severe consequences on the Companys financial condition.

Approximately 38%, 23% and 23% of the Companys revenue in fiscal 2002
were from the U.S. Coast Guard, Canadian Navy and Royal Danish Navy,
respectively. Therefore, any significant disruption or deterioration of any of
the Companys relationships with these entities governments would
significantly reduce its revenues. These governments may choose to use other
competing corporations for their navigational equipment. In addition, a shift
in government spending to other programs in which the Company is not involved
could have severe consequences on its results of operations.

The Companys product lines are not broadly diversified.

The Company derives and expects to derive a substantial majority of its
revenue from navigational system sales. If customers do not purchase the
Companys products as a result of competition, technological change, budget
constraints or other factors, the Company does not have other product
categories that it could rely on to make up any shortfall in sales. As a
result, the Companys revenue could decrease and its business and operating
results would be adversely affected.

The Company derives a significant portion of its revenues from
international sales and is subject to the risks of doing business in foreign
countries.

In fiscal 2002, approximately 76% of the Companys revenue came from
international customers, including governmental customers: 53% from the United
States and 23% from international customers. The Company expects that
international sales will continue to account for a significant portion of its
revenues for the foreseeable future. As a result, the Company is subject to
risks of doing business internationally, including those risks related to:

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| |  |  | changes in regulatory requirements;                                                                                                                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | domestic and foreign government policies, including
requirements to expend a portion of program funds locally and to
comply with governmental industrial cooperation requirements;
|
| |  |  | fluctuations in foreign currency exchange rates;                                                                                                                                  
|
| |  |  | the complexity and necessity of using foreign representatives and consultants;                                                                                                    
|
| |  |  | the imposition of tariffs or embargoes, export controls and other trade restrictions; and                                                                                         
|
| |  |  | compliance with a variety of foreign laws.                                                                                                                                        

While the presence of these factors and the impact of these factors are
difficult to predict, any one or more of them could adversely affect the
Companys operations in the future.

The Companys revenues and costs are affected by fluctuations in the rate
of exchange between the Canadian dollar, which is its reporting currency, and
the U.S. dollar.

Exposure to exchange rate fluctuations exists because a significant
portion of the Companys trade receivable and revenue transactions and, to a
lesser extent, the Companys sub contract payable and direct cost transactions
are in U.S. dollars. In fiscal 2002, approximately 76% of the Companys revenue
and 27% of its expenses were transacted in U.S. dollars. The Company expects
that U.S. dollar sales will continue to account for a significant portion of
its revenues for the foreseeable future. As a result, exchange rate
fluctuations may affect the Companys revenue and earnings growth materially in
the future.

Competition within the Companys markets may reduce its procurement of
future contracts and sales.

The defense industry in which the Company operates is highly competitive.
The Companys competitors range from smaller companies, which are primarily
targeting the small boat market, to large diversified corporations in the
radar/marine equipment segment of the industry. Some of the Companys
competitors may have more extensive or more specialized engineering,
manufacturing and marketing capabilities than the Company. There can be no
assurance that the Company can continue to compete effectively with these
companies.

The Companys future success will depend on its ability to develop new
technologies that achieve market acceptance.

The defense market is characterized by rapidly changing technologies and
evolving industry standards. Accordingly, the Companys future performance
depends on a number of factors, including its ability to:



| |  |  | identify emerging technological trends in its market;                                                                
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | develop and maintain competitive products;                                                                           
|
| |  |  | enhance its products by adding innovative features that
differentiate its products from those of its competitors; and
|
| |  |  | manufacture and bring products to market quickly at
cost-effective prices.                                           

The Company believes that, in order to remain competitive in the future,
it will need to continue to develop new products, which will require the
investment of significant financial resources in new product development. In
addition, there can be no assurance that the market for the Companys products
will develop or continue to expand as the Company currently anticipates. The
failure of the Companys technology to gain market acceptance could
significantly reduce its revenues and harm its business. Furthermore, the
Company cannot be sure that its competitors will not develop competing
technology, which gains market acceptance in advance of the Companys products.
If the Companys competitors develop new technology or products, the Companys
existing technology and products might become obsolete. If the Company fails in
its new product development efforts or its products fail to achieve market
acceptance more rapidly than its competitors products, its revenues will
decline and its business, financial condition and results of operations will be
negatively affected.

The Company depends on the recruitment and retention of qualified
personnel, and a failure to attract and retain such personnel could seriously
harm its business.

Due to the specialized nature of the Companys business, its future
performance is highly dependent upon the continued services of its key
engineering personnel and executive officers. The Companys prospects depend
upon its ability to

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attract and retain qualified engineering, manufacturing, marketing, sales
and management personnel for its operations. Competition for personnel is
intense, and the Company may not be successful in attracting or retaining
qualified personnel. The Companys failure to successfully compete for these
personnel could seriously harm its business, results of operations and
financial condition.

The Company may be unable to adequately protect its intellectual property
rights, which could affect its ability to compete.

Protecting the Companys intellectual property rights is critical to its
ability to compete and succeed as a company. The Company has trademark and
copyright registrations, which are necessary and contribute significantly to
the preservation of its competitive position in the market. There can be no
assurance that any of these patents and other intellectual property will not be
challenged, invalidated or circumvented by third parties. In the future, the
Company may not be able to obtain necessary licenses on commercially reasonable
terms. The Company enters into confidentiality and invention assignment
agreements with its employees, and enters into nondisclosure agreements with
its suppliers and customers, as appropriate, so as to limit access to and
disclosure of the Companys proprietary information. These measures may not
suffice to deter misappropriation or independent third party development of
similar technologies.

The Company depends on component availability and its key suppliers to
manufacture and deliver its products and services.

The Companys operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. While the Company enters
into purchase agreements with a few of its suppliers, it cannot be sure that
materials, components, and subsystems will be available in the quantities
required, if at all. If any of the suppliers fail to meet the Companys needs,
the Company may not have readily available alternatives. The Companys
inability to fill its supply needs would jeopardize the Companys ability to
satisfactorily complete its obligations under its contracts on a timely basis.
Any delay might result in reduced sales, contractually imposed penalties for
delay in delivery, termination of one or more of these contracts or damage to
the Companys reputation and relationships with its customers. All of these
events could have a negative effect on the Companys financial condition.

The Company depends on offshore sub-contract labor in its geomatics
operations to maintain a competitive position in the geomatics marketplace.

The Companys geomatics operations are highly dependent upon labor
resources located outside North America. While the Company enters into
sub-contract agreements for this labor, it cannot be sure that the labor
resources will be available when required and at the levels required.
Accordingly, maintaining the Companys competitiveness will depend on a number
of factors, including:



| |  |  | the geopolitical uncertainties specific to the home country of each sub-contractor;     
| | - |  | ----------------------------------------------------------------------------------------
|
| |  |  | the cultural compatibility between Canada and the home country of each sub-contractor;  
|
| |  |  | the English language proficiency of the labor resources made available to the Company;  
|
| |  |  | labor pool characteristics such as work ethic, education, skill level and attrition; and
|
| |  |  | the infrastructure of both the sub-contractors home country and the sub-contractor.    

While the presence of these factors and the impact of these factors are
difficult to predict, any one or more of them could adversely affect the
Companys geomatics operations in the future.

The unpredictability of the Companys results may harm or contribute to
the volatility of the trading price of its securities.

The Companys operating results may vary significantly over time for a
variety of reasons, many of which are outside its control and any of which may
harm its business. The value of the Companys securities may fluctuate as a
result of considerations that are difficult to forecast, such as:

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| |  |  | the volume and timing of product orders received and delivered;                            
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | levels of product demand;                                                                  
|
| |  |  | government spending patterns;                                                              
|
| |  |  | the timing of contract receipt and funding;                                                
|
| |  |  | its ability and the ability of its key suppliers to respond to changes in customer orders; 
|
| |  |  | the timing of its new product introductions and its competitors new product introductions;
|
| |  |  | the cost and availability of components and subsystems;                                    
|
| |  |  | price erosion;                                                                             
|
| |  |  | the adoption of new technologies and industry standards;                                   
|
| |  |  | competitive factors, including pricing, availability and demand for competing products;    
|
| |  |  | fluctuations in foreign currency exchange rates; and                                       
|
| |  |  | regulatory developments.                                                                   

The Company may require additional capital, in which case it may need to
raise additional funds from lenders and equity markets in the future.

If the Companys expenses exceed its revenues, it may choose to raise
additional financing. In addition, the Company may choose to raise additional
financing in order to capitalize on potential opportunities in the marketplace
that may accelerate its growth objectives. The Companys ability to arrange
such financing in the future will depend in part on the prevailing capital
market conditions as well as on its business performance. There can be no
assurance that the Company will be successful in its efforts to arrange
additional financing, if needed, on terms satisfactory to it. If additional
financing is raised by the issuance of shares, shareholders may experience
dilution to their equity interest in the Company.

The Companys business could be adversely affected if it fails to manage
its growth effectively.

If the Company fails to manage its growth effectively, its business and
operating results could be adversely affected, which could cause the market
price of the Companys stock to fall. The Company expects to continue to grow
its operations domestically and internationally, and to hire additional
employees. The growth in the Companys operations and staff has placed, and
will continue to place, a significant strain on its management systems and
resources. If the Company fails to manage its future anticipated growth, it may
experience higher operating expenses, and it may be unable to meet the
expectations of investors with respect to future operating results. To manage
this growth the Company must, among other things, continue to:



| |  |  | improve its financial and management controls, reporting systems and procedures;
| | - |  | --------------------------------------------------------------------------------
|
| |  |  | add and integrate new senior management personnel;                              
|
| |  |  | improve its licensing models and procedures;                                    
|
| |  |  | hire, train and retain qualified employees;                                     
|
| |  |  | control expenses;                                                               
|
| |  |  | diversify channel sales strategies; and                                         
|
| |  |  | invest in its internal networking infrastructure and facilities.                

The Company has committed a significant amount of funds to obtaining
additional systems and facilities to accommodate its current and future
anticipated growth. To the extent that this anticipated growth does not occur
or occurs more slowly than the Company anticipates, it may not be able to
reduce expenses to the same degree. If the Company incurs operating expenses
out of proportion to revenue in any given quarter, its operating results may be
adversely impacted.

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Third parties may claim that the Company infringes their proprietary
rights.

The Company may receive claims that it has infringed the intellectual
property rights of others. As the number of products in the software industry
increases and the functionality of these products further overlap, the Company
may become increasingly subject to infringement claims, including patent,
trademark and copyright infringement claims. In addition, former employers of
the Companys former, current or future employees may assert claims that such
employees have improperly disclosed to the Company the confidential or
proprietary information of these former employers. Any such claim, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert managements attention from the Companys core business, require it to
stop selling or delay shipping, or cause the redesign of its product. In
addition, the Company may be required to pay damages, pay royalty or licensing
arrangements, or satisfy indemnification obligations that it has with some of
its customers.

The Company licenses and uses software from third parties in its business.
These third party software licenses may not continue to be available to the
Company on acceptable terms. Also, these third parties may from time to time
receive claims that they have infringed the intellectual property rights of
others, including patent and copyright infringement claims, which may affect
the Companys ability to continue licensing their software. The Companys
inability to use any of this third party software could result in shipment
delays or other disruptions in its business, which could materially and
adversely affect its operating results.

The Company may not be able to protect its proprietary information.

The Company relies on a combination of copyright, trademark and trade
secret laws, confidentiality procedures, contractual provisions and other
measures to protect its proprietary information. All of these measures afford
only limited protection. These measures may be invalidated, circumvented or
challenged, and other companies may develop technologies or processes that are
similar or superior to the Companys technology. Despite the Companys efforts
to protect its proprietary rights, unauthorized parties may attempt to copy the
Companys products or to obtain or use information that the Company regards as
proprietary.

The Companys products may contain significant defects which may result in
liability and/or decreased sales.

Software products frequently contain errors or failures, especially when
first introduced or when new versions are released. Despite the Companys
efforts to test its products, the Company might experience significant errors
or failures in its products, or they might not work with other hardware or
software as expected, which could delay the development or release of new
products or new versions of products, or which could adversely affect market
acceptance of its products. End-user customers use the Companys products for
applications that are critical to their businesses, and have a greater
sensitivity to product defects than the market for other software products
generally. The Companys customers may claim that the Company is responsible
for damages to the extent they are harmed by the failure of any of its
products. If the Company were to experience significant delays in the release
of new products or new versions of products, or if customers were dissatisfied
with product functionality or performance, it could lose revenue or be subject
to liability for service or warranty costs, and its business and operating
results could be adversely affected.

U.S. investors may have difficulty enforcing judgments against the Company
or its management.

The Company is incorporated in British Columbia, Canada. All but two of
the Companys directors and all of its executive officers reside in Canada. In
addition, substantially all of the Companys assets are located outside the
United States. As a result, U.S. investors may not be able to:



| |  |  | effect service of process upon the Company, its directors or
its executive officers within the United States; or                                                                                                                                                  
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | enforce against the Company, its directors or its executive
officers in United States courts, judgments obtained in United States
courts, including judgments predicated on the civil liability
provisions of the federal securities laws of the United States; or
|
| |  |  | initiate a directive suit on behalf of the Company.                                                                                                                                                                                                               

As all or a substantial portion of the Companys assets and the assets of
its directors and executive officers are located in Canada, there may be
difficulty in enforcing against the Company or such persons or against the
Companys assets, judgments obtained in United States courts predicated upon
the civil liability provisions of the federal securities laws of the United
States or the securities laws of any state of the United States.

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Item 4.     Information on the Company

A.History and development of the Company.

The Company

The Company was incorporated in Canada under British Columbias Company
Acton June 10, 1987, under the name Kappa Resource Corporation. On April
23, 1990, the Memorandum of the Corporation was altered to change the name of
the Company to Offshore Systems International Ltd. The address of the
Companys principal place of business is 107 - 930 West 1st Street, North
Vancouver, British Columbia, Canada V7P 3N4, and its telephone number at that
address is 604-904-4600.

Subsidiaries

The Company presently has four wholly owned subsidiaries: Offshore Systems
Ltd. (OSL), incorporated under the Company Actof British Columbia on
February 18, 1990; OSI Geomatics Inc. (OGI) (formerly Offshore Systems
International Inc.), incorporated under the laws of Washington State on
September 15, 1992; OSI Geomatics Ltd., (OGL) (formerly Offshore Charts
Ltd.), incorporated under the Business Corporations Actof Yukon Territory on
March 20, 1998; and Offshore Survey and Positioning Services Ltd. (OSPS),
incorporated under the Company Actof British Columbia on November 16, 1977.
The Companys electronic chart display business activities are carried on
through OSL. Its production, sale and marketing of geomatics data is conducted
through the combined operations of OGL and OGI. OSPS is currently inactive, has
no material assets and has not been wound up. OSPS has been inactive since
1990.

Registered Agents

The Companys registered transfer agent in Canada is Computershare Trust
Company of Canada, located at 4th Floor, 510 Burrard Street, Vancouver, British
Columbia, Canada V6C 3B9. The Company has a registered agent for service in the
State of Washington, G&D, Inc., for the United States subsidiary, OGI. G&D,
Inc. is located in Seattle, Washington.

During the last three years, there have been no immovables and no major
capital expenditures. No such major capital expenditures are currently planned.

History

|     |  |   |  |                                                                                                                                                                                                            
|---- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1977 |  | - |  | The Company incorporated in the name of Offshore Survey & Positioning Services Ltd. (OSPS).                                                                                                              
|    
|1979 |  | - |  | Development of the First Precise Navigation System (PNS) begun.                                                                                                                                          
|    
|1980 |  | - |  | Development of PNS completed.                                                                                                                                                                              
|    
|     |  | - |  | PNS installed in the Arctic for CANMAR, a division of Dome Petroleum for Oil Exploration in the Beaufort Sea.                                                                                              
|    
|1984 |  | - |  | Introduction of Precise Integrated Navigation System 9000 (PINS 9000).                                                                                                                                   
|    
|1985 |  | - |  | First commercial sale of PINS 9000 aboard the 587-foot Caribou, Canadas
then largest ferry operating in the Cabot Strait Crossing between
Newfoundland and Nova Scotia.                                   
|    
|1986 |  | - |  | Development of Sonar Tracking And Navigation System (STANS) begun for
U.S. Navy Deep Submergence Rescue Vehicle, Submarine Rescue Operations and
surface ship tracking begun.                            
|    
|1987 |  | - |  | Kappa Resource Corporation incorporated.                                                                                                                                                                   
|    
|     |  | - |  | Completion of STANS development and installation of system.                                                                                                                                                
|    
|1989 |  | - |  | Development of Shore based Tracking and Control Subsystem (STCS) for
U.S. Navy Southeast Alaska Acoustic Measurement Facility, Boehm Canal.                                                              
|    
|1990 |  | - |  | Canadian subsidiary, Offshore Systems Ltd., incorporated and the net
assets of OSPS were transferred to it. OSPS became an inactive company.                                                               
|    
|     |  | - |  | Reverse take-over of Kappa Resource Corporation, through which the
Company became listed on the Vancouver Stock Exchange. At that time, the
Company changed its name to Offshore Systems International Ltd.

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|     |  |   |  |                                                                                                                                                                                                                                            
|---- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1991 |  | - |  | Introduction of Electronic Chart Precise Integrated Navigation System
(ECPINS®) Versa Module Europe (VME) 1.0 software release.                                                                                                          
|    
|     |  | - |  | Installation of STCS at Boehm Canal, Alaska.                                                                                                                                                                                               
|    
|     |  | - |  | ECPINS® selected by U.S. Coast Guard for evaluation of International Maritime Organization/International Hydrographic
Organization Performance Standards Human Engineering Tests.                                                          
|    
|1992 |  | - |  | The Company was selected by Canadian Hydrographic Service for the Electronic Chart Pilot Project.                                                                                                                                          
|    
|     |  | - |  | U.S. subsidiary, Offshore Systems International Inc., incorporated.                                                                                                                                                                        
|    
|1993 |  | - |  | The Company was listed on the Toronto Stock Exchange (TSX).                                                                                                                                                                              
|    
|     |  | - |  | Provision of ECPINS® system for the Canadian Navy Maritime Coastal Defense Vessel project.                                                                                                                                                 
|    
|     |  | - |  | Completion of prototype ECPINS®-Floating Aids Positioning & Status Monitoring System.                                                                                                                                                      
|    
|     |  | - |  | VME 1.3 software release.                                                                                                                                                                                                                  
|    
|1994 |  | - |  | The Company was contracted by the U.S. Coast Guard for the supply of a
fully integrated ECPINS®-Aids to Navigation (ECPINS®-ATON).                                                                                                       
|    
|1995 |  | - |  | VME 1.4 software release.                                                                                                                                                                                                                  
|    
|1996 |  | - |  | ECPINS® Tactical Consul software release.                                                                                                                                                                                                  
|    
|     |  | - |  | VME version 1.5 software release.                                                                                                                                                                                                          
|    
|1997 |  | - |  | ECPINS®-ATON 1.0 software release.                                                                                                                                                                                                         
|    
|1998 |  | - |  | Canadian subsidiary, Offshore Charts Ltd., incorporated.                                                                                                                                                                                   
|    
|     |  | - |  | Development of Extended Line Of Sight system.                                                                                                                                                                                              
|    
|     |  | - |  | ECPINS®  New Generation (NG) 2.0 software release.                                                                                                                                                                                        
|    
|     |  | - |  | ECPINS®  NG 3.0 software release.                                                                                                                                                                                                         
|    
|1999 |  | - |  | ECPINS® selected as standard navigation system for Canadian Navy.                                                                                                                                                                          
|    
|     |  | - |  | ECPINS® 3.11 software release.                                                                                                                                                                                                             
|    
|2000 |  | - |  | Voluntary withdrawal of the Companys listing on the Vancouver Stock Exchange.                                                                                                                                                             
|    
|     |  | - |  | Development of U.S. Coast Guard Buoy Tender land based support facility.                                                                                                                                                                   
|    
|     |  | - |  | ECPINS®-ATON 1.73 software release.                                                                                                                                                                                                        
|    
|     |  | - |  | VME 2.1 software release.                                                                                                                                                                                                                  
|    
|     |  | - |  | Shipborne Integrated Navigation Systems Tactical Display software release.                                                                                                                                                                 
|    
|     |  | - |  | Received British Admiralty Raster Chart Service certification.                                                                                                                                                                             
|    
|2001 |  | - |  | ECPINS®-M system was evaluated by the U.S. Navy SMARTSHIP program.                                                                                                                                                                         
|    
|     |  | - |  | ECPINS® 4.0 software release.                                                                                                                                                                                                              
|    
|     |  | - |  | ECPINS®-ATON 2.0 software release.                                                                                                                                                                                                         
|    
|2002 |  | - |  | ECPINS® 4.1 software release.                                                                                                                                                                                                              
|    
|     |  | - |  | The Company entered a Teaming Agreement with Lockheed Martin Corporation, whereby Lockheed Martin Marine Systems will
integrate ECPINS® into the Lockheed Martin Marine Systems Total Ship Automation System as the next generation bridge.
|    
|     |  | - |  | Received International Maritime Organization (IMO) Electronic Chart Display and Information Systems (ECDIS) Type
Approval from Bundesamt für Seeschifffahrt und Hyrdographie.                                                          
|    
|     |  | - |  | Form 20-F Registration of Offshore Systems International Ltd. Common Shares with the U.S. Securities and Exchange
Commission.                                                                                                              

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|     |  |   |  |                                                                                                                                                                                                               
|---- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | - |  | Expansion into Land-Based Mapping products and services.                                                                                                                                                      
|    
|     |  | - |  | Quotation for Trading on the Over the Counter Bulletin Board (OTCBB) commenced.                                                                                                                               
|    
|2003 |  | - |  | The Company proceeded with a normal course issuer bid that will allow it
to purchase for cancellation up to 1,300,000 of its Common Shares.                                                                   
|    
|     |  | - |  | Private placement in the U.S. consisting of 61,244 units at a
subscription price of $50.00 per unit. Each unit consisted of one Class
B Series 1 Preference Share, and 22.75 Common Share purchase warrants.

B.Business overview.

General Development of the Business

The Companys principal business is the ownership and management of its
three operating subsidiaries, namely, Offshore Systems Ltd., OSI Geomatics Ltd.
(formerly Offshore Charts Ltd.) and OSI Geomatics Inc. (formerly Offshore
Systems International Inc.).

OSL develops, produces and sells marine electronic chart display
instruments and related products for precise positioning and navigation of
ships. OGI and OGL develop and provide analysis, production, and distribution
of geo-spatial data for electronic display. The combined operations of OGL and
OGI are referred to as OSI Geomatics (OSIG).

The OSL subsidiary principally produces ECPINS® for use in the shipping
industry. ECPINS® reads navigation position inputs from a ships position,
velocity, and heading sensors, such as the speed log, the gyrocompass and the
Differential Global Positioning System receiver, and displays a ships position
continuously on a computer screen against the background of an electronic
chart. The ECPINS® product line includes an optional radar overlay display
system, which enables a navigator using the system to track other ships and
objects. With this option, ECPINS® combines the collision avoidance
capabilities of radar with the grounding avoidance capabilities of electronic
nautical charts. In 2001, OSL completed the introduction of the Windows NT
based ECPINS-M® Military System and introduced ECPINS® for the commercial
market, which replaced the ECPINS® NG Series.

With a growing market demand for high-end ECPINS® systems for military
customers, OSL offers systems solutions and services to government customers,
including the Canadian Navy, the Canadian Coast Guard, the U.S. Coast Guard and
the Royal Danish Navy. These customers have unique requirements requiring a
systems solution, which usually involves bundling the ECPINS® products with
customized systems, training and installation. These customers often have
non-recurring engineering needs that are met by OSLs engineering capabilities.

On February 25, 2003, the Company announced the launch of a new product,
Common Operational Picture  Image Display Server (COP-IDS®), a client server
application that allows customers to integrate the Companys mapping and
imagery display technology into existing Command and Control (C2) systems
rapidly and cost effectively. COP-IDS® is designed to meet the emerging
requirements for international fleets to be able to operate from and share
common tactical data in the field. COP-IDS® allows the Companys customers to
share data across C2 systems, regardless of which C2 applications systems are
in use. COP-IDS® is a C2 product that addresses the needs of not only Navy
applications but also Army and Air Force applications.

OSIG produces and sells electronic chart data to national chart agencies
and hydrographic offices worldwide. OSIG also provides chart services to the
U.S. Coast Guard and land mapping services to local, regional and federal
governments.

The Company recognizes revenues from the three subsidiaries in four
sources: Systems and System Components, Software, Geomatics (formerly Charts),
and Other. Systems and system components revenues are derived from sales of
navigation systems solutions and components of navigation systems solutions.
Software revenues are derived from the sale of ECPINS® and COP-IDS® software.
Geomatics revenues are generated from hydrographic chart and land-based mapping
services, and from the sales of geo-spatial data for electronic display. Other
revenue includes revenue derived from system repairs, system servicing,
training and consulting.

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The following table presents revenues for the past three fiscal years
ended November 30 by source:

|                              |  |      |            |      |  |      |           |  |  |  |           | 
|----------------------------- |  | ---- | ---------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                              |  | 2002 |            | 2001 |  | 2000
|                              |  |      |            |      |  |     
|Systems and system components |  |      | 9,707,393  |      |  |      | 5,874,568 |  |  |  | 4,274,945 | 
|Geomatics (formerly Charts)   |  |      | 2,347,464  |      |  |      | 1,073,157 |  |  |  | 969,856   | 
|Software                      |  |      | 970,323    |      |  |      | 617,373   |  |  |  |          | 
|Other                         |  |      | 788,953    |      |  |      | 344,615   |  |  |  | 406,864   | 
|                              |  |      |            |      |  |      |           |  |  |  |           | 
|Total Revenue                 |  |      | 13,814,133 |      |  |      | 7,909,713 |  |  |  | 5,651,665 | 
|                              |  |      |            |      |  |      |           |  |  |  |           | 

The Company purchases computer components and other electronic hardware
for assembly into its navigation systems. These goods are available from
multiple suppliers and prices are subject to the normal trade practices for the
industry. No raw materials are used in the Companys products.

Principal Products

During the last three (3) years, the principal products sold by the Company
were as follows:

Electronic Chart Precise Integrated Navigation System (ECPINS®)

ECPINS®, introduced in 1991, is a real time electronic chart display and
information system. ECPINS® analyzes critical information such as the ships
heading, speed and position and displays the ships position in real time on an
electronic chart, as well as tracking other vessels with its optional radar
overlay and Universal Automatic Identification System interfaces. In addition,
ECPINS® has the ability to display unsafe water depth (soundings) and to
project an anti-grounding sector ahead of the ship, which will trigger alarms
if the vessel is approaching shoals, reefs or other hazards in any selected
time interval.

ECPINS® is a high-end commercial market product, selling for $75,000 to
$125,000. OSL also makes highly customized versions of ECPINS® for the Navy
and Coast Guard markets.

In August 2000, OSL launched the latest version of the ECPINS-M®, a new
product specifically designed for the military market, and ECPINS® 3000 series
through 5000 series products for the commercial market. All current ECPINS®
models run on an Intel x86 computer (PC) with a Microsoft Windows NT 4.0
operating system. ECPINS-M® was designed to incorporate OSLs high performance
seamless and simultaneous chart display with the specific navigational demands
of the military market. ECPINS® commercial products have three separate product
series with functions ranging from basic entry-level to complex instruments
with radar overlay display capability, all at lower prices than the original
ECPINS® product. The three models in the separate product series are known as
the ECPINS® 3000, 4000, and 5000.

The Company provides post-contract customer support for its ECPINS® and
COP-IDS® products on an optional basis to its customers under separate
contractual arrangements. The Company also provides upgrade options on a
limited basis to existing customers under separate contractual arrangements.

Geomatics

OSIG analyzes, produces and distributes electronic nautical chart and land
mapping data. These services are provided on a contract basis to government and
commercial organizations such as hydrographic offices, regional and local
governments, military agencies and shipping companies. OSIG also sells
electronic navigation charts from various national hydrographic offices and its
own intellectual property inventory to commercial and government customers.

Projects

OSL, from time to time, accepts contracts to develop additional features
and capabilities for incorporation into ECPINS®. The results of these projects
are often specialized products specific to the customer.

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##### Table of Contents



Recent Corporate Developments

July 2002: the Company announced that it had received IMO ECDIS Type
Approval.

July 2002: the Company announced its latest ECPINS-M system aboard
Lockheed Martin Corporations Sea Slice advanced technology demonstration
vessel.

October 2002: the Company announced a strategic expansion to Land-Based
Mapping. The Company began expanding the business scope of its wholly-owned
subsidiary, Offshore Charts Ltd., beyond production of electronic navigation
charts to include production of land-based mapping products, and has re-named
the subsidiary as OSI Geomatics Ltd. to better reflect the subsidiarys
business expansion.

October 2002: the Company announced that the Common Shares of the Company
would be quoted for trading in the United States on the OTC Electronic Bulletin
Board under the ticker symbol, OFSYF.

January 2003: the Company proceeded with a normal course issuer bid
whereby it will purchase its own shares from the market through the facilities
of the TSX. All shares repurchased by the Company will be cancelled. The bid
commenced on January 16, 2003 and will terminate on January 15, 2004.

February 2003: the Company announced that it had completed a private
placement of US$2,000,000 (CDN$3,100,000) with four New York-based
institutional funds. The net proceeds from the placement provided the Company
with additional working capital funds.

February 2003: the Company announced the launch of COP-IDS®.

Major Customers

The Companys government customers continue to play a significant role in
the success of the ECPINS® product line. Sales to the Canadian Navy, U.S.
Coast Guard and Royal Danish Navy accounted for an aggregate of 84% of the
Companys 2002 consolidated revenue: the U.S. Coast Guard accounted for 38%,
the Canadian Navy accounted for 23% and the Royal Danish Navy accounted for
23%. No other single customer represented more than 10% of sales during this
reporting period. The remaining 16% of the Companys 2002 consolidated revenue
was generated through sales to commercial and other military customers.

The Company does not depend on any major supplier, licenses or patents.

The Companys business does not vary seasonally.

Geographic Markets

Approximately 24%, 53%, and 23% of the Companys revenues in fiscal year
2002 were from Canada, the United States and other international customers,
respectively. Approximately 35%, 52% and 13% of the Companys revenues in
fiscal year 2001 were from Canada, the United States and other international
customers, respectively. Approximately 12%, 84% and 4% of the Companys
revenues in fiscal year 2000 were from Canada, the United States and other
international customers, respectively.

|                                             |  |                                              |  |                                             
|-------------------------------------------- |  | -------------------------------------------- |  | --------------------------------------------
|Year Ended November 30, 2002(2002 Pie Chart) |  | Year Ended November 30, 2001(2001 Pie Chart) |  | Year Ended November 30, 2000(2000 Pie Chart)

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Trademarks and Intellectual Property Rights

The Company has registered its trademark ECPINS® and COP-IDS® in
Canada and the United States. The Company either owns or licenses the rights
to all intellectual property used in its products.

The Company has trademark and copyright registrations, which are necessary
and contribute significantly to the preservation of its competitive position in
the market. There can be no assurance that any of these patents and other
intellectual property will not be challenged, invalidated or circumvented by
third parties. In the future, the Company may not be able to obtain necessary
licenses on commercially reasonable terms. The Company enters into
confidentiality and invention assignment agreements with its employees, and
enters into nondisclosure agreements with its suppliers and customers, as
appropriate, so as to limit access to and disclosure of its proprietary
information. These measures may not suffice to deter misappropriation or
independent third party development of similar technologies, which may
adversely affect the Company.

Sales, Marketing and Distribution

OSLs marketing strategy is based on a technically-oriented direct sales
approach, using both the Companys personnel and qualified distributors.

OSIGs marketing strategy is to sell its products and services to OSLs
customers, as an adjunct to the sales of ECPINS® products. OSIG also conducts
technically oriented sales calls from time to time to new customers.

The establishment of strategic alliances with large multi-national
corporations, such as Lockheed Martin Corporation and Nautronix Limited,
enables the Company to enter markets where the Company does not have a
significant presence and helps establish new markets.

During its fiscal year 2002, the Company had 12 employees engaged in
selling and marketing products and had three principal distributors. Products
were distributed to the U.S. Navy, the Canadian Navy and the Royal Danish Navy
and to the U.S. and Canadian Coast Guards, as well as commercial shipping
companies in the Great Lakes Region.

The Company attends selected major international trade shows and
conferences. During its fiscal year 2002, the Company showed ECPINS®-M and/or
ECPINS® at the following trade shows:



| | (a) |  | CARIS 2002  Canadian Hydrographic Conference in Toronto,
Canada;                   
| | --- |  | ------------------------------------------------------------------------------------
|
| | (b) |  | AFCEA/US Naval Institute Western Conference Exposition (West
2002) in San Diego; and
|
| | (c) |  | Surface Navy Association National Symposium in Washington DC.                       

The Company also attends selected major international trade shows and
conferences with its partners. During the fiscal year 2002, the Company
attended the following events with the following partners:



| | (a) |  | Lockheed Martin Corporation  Shipbuilding, Machinery and
Marine Technology International Trade (SMM 2002) in Hamburg, Germany;
and
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Nautronix Limited  International Maritime and Naval Exposition
(Pacific 2002) in Sydney, Australia.                               

Competition

Competition for OSLs ECPINS® products could come from companies who sell
other integrated navigational systems based on electronic chart technology.
These systems exist in a wide variety of formats, each offering features and
benefits for differing applications.

A potential group of competitors comes from the radar/marine equipment
segment of the industry and generally consists of large corporations including
Raytheon Marine GmbH from Germany, STN Atlas Elektronik GmbH from Germany,
Kongsberg Maritime AS from Norway, Kelvin Hughes Limited from the United
Kingdom, Sperry Marine, a division of Northrop Grumman Corporation, from the
United States and Transas Marine Limited from the United Kingdom. All of these
companies offer competing products.

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Another category of potential competitors comes from mostly smaller
companies, which primarily target the pleasure boat market. While the Company
currently does not market or intend to market its ECPINS® products into the
pleasure boat market, these companies may extend their operations to compete
with the Company in the navigational systems market. Through extensive research
and development, these companies existing product or products could evolve
into a solution that could compete with ECPINS®. In fact, some of these
companies entered the pleasure boat market a few years ago and may have
hundreds of systems in use, any of which could be developed further to compete
with ECPINS®. The companies in this group include: C-Map, Laserplot Inc.,
Electronic Marine Systems and Maptech.

Competition for OSLs COP-IDS® products would come from companies who sell
other similar systems based on electronic chart and land map technology. OSL
was first to offer this solution in the market place. The Company is not aware
of any other company that currently offers or is developing a similar product
but the introduction of the COP-IDS® solution may prompt other companies to
develop and market a competing product. Companies that may elect to do this
would be those who currently offer products that compete with our ECPINS®
products or companies such as Intergraph Corporation and ERSI in the U.S. that
offer similar land-based information products.

Competition for OSIGs products and services comes from two groups of
organizations.

The first and larger group consists of organizations that are largely
focused on providing photogrammetric and mapping services and products. This
group is dominated by a few large and medium sized firms and over 300 small
firms. The small firms may also provide services to the large and medium sized
firms on a sub-contract basis. Organizations that fall in the group of large
and medium sized firms include (i) Woolpert LLC, BAE Systems/ADR Inc., HJW
GeoSpatial, Inc., Surdex Corporation, 3DI LLC, Aerial Services Inc., Merrick &
Company, EarthData, Photo Science, Inc. and 3001 Inc., all of which are from
the U.S., and (ii) the Mapping Group of MacDonald Detwiller & Associates Ltd.s
Geographic Information Products Division, Intermap Technologies Corporation,
Hauts-Monts International Inc. and SNC  LAVALIN Environment Inc., all of which
are from Canada. Firms outside of Canada and the U.S. that fall into this
group are Ordnance Survey of England, Institut Géographique National of France,
Hansa Luftbild AG of Germany, Trabajos Catastrales, S.A. of Spain, Geocart S.A.
of Spain, Cartographic Institute of Cataluña (ICC) of Spain and Sistemas de
Información Geográfica S.A. de C.V. of Mexico.

The second group consists of organizations that are largely focused on
providing analysis, production and distribution of electronic nautical chart
data. This group is dominated by the government hydrographic offices of
approximately 30 countries which have historically provided the majority of the
worlds nautical charts. Many of these hydrographic offices now sub-contract a
portion of their nautical chart production to private companies. Private sector
competition is limited to a handful of companies. Companies in this group
include: C-Map of Norway and the U.S., Nautical Data International Inc. of
Canada, Transas Dataco Ltd. of Britian, 3001 Inc. of the U.S. through their
association with IIC Technologies Inc. of India, Infotech Enterprises Limited
of India and GeoNet Technologies Inc. of Canada.

Government Regulations

To managements knowledge, there are no known government regulations that
would adversely affect the Companys business. Certain government standards
are a part of industry practice, and as such, would be understood and acted
upon by the Company in the normal course of doing business.

Plan of Operation

The Company does not expect any material changes in its plan of operations
in fiscal year 2003.

C.Organizational structure.

The Company has the following four wholly owned subsidiaries: Offshore
Systems Ltd., incorporated in Canada under the Company Actof British Columbia;
OSI Geomatics Inc., incorporated in the U.S. under the laws of Washington
State; OSI Geomatics Ltd., incorporated in Canada under the Business
Corporations Actof the Yukon Territory and Offshore Survey and Positioning
Services Ltd., incorporated in Canada under the Company Actof British Columbia
(inactive).

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(Organizational Chart)

D.Property, plants and equipment.

Human Resources and Facilities

As at November 30, 2002, the Company had 64 employees based at its
facilities in North Vancouver, British Columbia. The Company leases 18,206
square feet and uses the property for its Headquarters, Sales and Marketing,
Research and Development, Software Development, Service and Production
Divisions.

Two employees operate from leased offices located in Baltimore, Maryland,
United States, and Montreal, Quebec, Canada and one consultant operates from
San Diego, California, United States. These offices are used for sales and
marketing purposes by the Company.

There are no present plans to construct, expand, or improve facilities.

Environmental Protection Requirements

Environmental protection requirements do not have any material adverse
financial or operational effect on the capital expenditures, earnings or
competitive position of the Company. Environmental protection requirements
also do not affect the Companys utilization of its property or products.

Item 5.     Operating and Financial Review and Prospects

Forward-Looking Statements

Statements in this report, or any document filed by the Company with the
different governing authorities, by or on behalf of the Company, to the extent
not directly and exclusively based on historical events, constitute
forward-looking statements within the meaning of the United States Private
Securities Litigation Reforms Act of 1995, Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the
Securities Act of 1933, as amended. These statements represent the Companys
intentions, plans, expectations, and beliefs, and no assurance can be given
that the results described in such statements will be achieved.

Forward-looking statements include, without limitation, statements
evaluating market and general economic conditions in the following sections,
and statements regarding future-oriented revenues, costs and expenditures.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which reflect managements analysis only as of the date thereof.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially. Such risks and
uncertainties with respect to the Company include the effects of general
economic conditions, changing foreign exchange rates and actions by government
authorities, uncertainties associated with legal proceedings and

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negotiations, industry supply levels, competitive pricing pressures and
misjudgments in the course of preparing forward-looking statements.

The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

A.Operating results

Overview

The Companys consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States and are
presented in Canadian dollars unless otherwise indicated. All references in
this report to financial information concerning the Company refer to such
information in accordance with U.S. GAAP and all dollar amounts in this report
are in Canadian dollars unless otherwise indicated.

The following discussion and analysis provides a review of activities and
results of operations of the Company for the fiscal year ended November 30,
2002 (FY2002) in comparison with those for the fiscal year ended November 30,
2001 (FY2001) and for the fiscal year ended November 30, 2001 in comparison
with those for the fiscal year ended November 30, 2000 (FY2000). This
discussion should be read in conjunction with the Companys 2002, 2001 and 2000
Audited Financial Statements.

The Company has had a volatile operating history, making an evaluation of
the Company and its prospects complex and challenging. The Companys prospects
must be evaluated while keeping in mind the risks, expenses and difficulties
encountered by companies seeking to introduce new products into rapidly
evolving niche markets with a limited number of competitors, only a few of
which are well financed. To address these risks and uncertainties, the Company
must, among other things, successfully market its existing products and
technologies, complete and introduce products under development in a timely
manner, continue to upgrade and commercialize its technologies, attract, retain
and motivate qualified personnel, manage rapid growth and establish strategic
alliances with large multi-national corporations. There can be no assurance
that the Company will successfully address all of these challenges.

The Companys annual and quarterly operating results are primarily
affected by the level, timing and duration of customer orders, relative mix of
value added products and services and fluctuations in the costs of materials.
The Companys operating results are also affected by, among other factors,
price competition, manufacturing effectiveness and efficiency, the ability to
manage inventory and capital assets effectively, foreign exchange fluctuations,
the timing of expenditures in anticipation of increased sales, customer product
delivery requirements and shortages of components or labor.

Most of the Companys sales are in U.S. dollars. In addition, a
significant portion of costs are paid in U.S. dollars or in Canadian dollars
linked to the exchange rate of the U.S. dollar. These transactions are
recorded in the Companys financial statements in Canadian dollars using the
appropriate exchange rates required under U.S. GAAP.

During the fiscal year 2002, the value of the U.S. dollar decreased
relative to the Canadian dollar and the rate of inflation in Canada exceeded
the rate in the United States. In the fiscal years 2001 and 2000, the value of
the U.S. dollar increased relative to the Canadian dollar, and the rate of
inflation in Canada was lower than the rate in the United States. The annual
rate of inflation in Canada in the fiscal year 2001 was 0.61% and increased to
4.40% in the fiscal year 2002. The Canadian dollar was devalued against the
U.S. dollar by approximately 4.30% in the fiscal year 2000, by approximately
2.40% in the fiscal year 2001 and increased in value by approximately 0.40% in
the fiscal year 2002. The Company cannot predict whether the change in
valuation of the Canadian dollar against the U.S. dollar will or will not
exceed the rate of inflation in the future and whether these conditions will
have a material adverse effect on the Company.

The representative dollar exchange rate for converting the Canadian dollar
to U.S. dollars, as reported by the Federal Reserve Bank of New York, was
$1.5658 Canadian dollars for one U.S. dollar on November 30, 2002. The
representative dollar exchange rate was $1.5717 Canadian dollars for one U.S.
dollar on November 30, 2001 and $1.5355 Canadian dollars for one U.S. dollar on
November 30, 2000. The representative average dollar exchange rate for
converting the Canadian dollar to U.S. dollars, as reported by the Federal
Reserve Bank of New York, was $1.5713 Canadian dollars for one U.S. dollar for
the fiscal year 2002. The representative average dollar exchange rate was
$1.5441 Canadian dollars for one U.S. dollar for the fiscal year 2001 and
$1.4834 Canadian dollars for one U.S. dollar for the fiscal year 2000.

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In order to reduce the impact of exchange rate fluctuations between the
U.S. and Canadian Dollar, the Company has used the forward exchange contract
facility described in B. Liquidity and capital resources. The Company used
the forward exchange contract facility to set the exchange rate between the
U.S. and Canadian Dollar for specific transactions at a specific, agreed upon
rate, thereby removing any unexpected foreign exchange gain or loss that might
occur on those transactions.

To managements knowledge, there are no known governmental economic,
fiscal, monetary or political policies or factors that have materially
affected, or could materially affect, directly or indirectly, the Companys
operations or investments by the Companys U.S. shareholders.

The Company has incurred losses from continuing operations in three of the
last six years and as at November 30, 2002, had an accumulated deficit in
shareholders equity of $13,384,967. In FY2002, the Company recorded
$13,814,133 in revenue, driven by contracts executed by the Company during the
year with the United States Coast Guard, the Royal Danish Navy and the Canadian
Navy. In addition, cash and cash equivalents strengthened to $3,244,048, with
positive cash flow from operations for the past three years. The Company had a
positive cash flow in FY2000 even though it sustained a loss for the year
because the Company recorded expenses that did not affect the FY2000 cash flow.

Critical Accounting Policies

The Company prepares its consolidated financial statements in accordance
with U.S. GAAP, and makes estimates and assumptions that affect its reported
amounts of assets, liabilities, revenue and expenses, and the related
disclosure of contingent liabilities. The Company reviews the estimates and
assumptions regularly and bases its estimates on historical experience and
other assumptions that it believes are reasonable in the circumstances. Actual
results may differ from these estimates.

The following critical accounting policies affect the Companys more
significant estimates and assumptions used in preparing its consolidated
financial statements:

Revenue

The Company is required to estimate the costs to complete certain systems
and geomatics services contracts. These estimates are made after taking into
consideration factors such as overall contract value, contract profitability
and the timing of revenue recognition. Revenues from these contracts are
recognized using the percentage of completion method in conformity with the
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, which measures the percentage of costs
incurred of the total estimated costs to complete for each contract. If the
actual results differ from the estimates included in the financial statements,
or if the Company adjusts its estimates in future periods, the Company may need
to adjust the stated revenues for these projects. If the Company determines
that a contract will generate a loss for the Company, the Company will estimate
that loss and provide for the total expected loss on the contract.

Deferred Income Taxes

The Company is required to estimate its income taxes in each of the
jurisdictions in which it operates. This process involves estimating the
Companys actual current tax exposure and assessing any temporary differences
resulting from the differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities that
may be included on the Companys consolidated balance sheet to the extent a net
deferred tax asset or liability exists. The Company recognizes deferred income
tax assets to the extent that their realizations are considered more likely
than not, and provides a valuation allowance against any remaining asset
balance. A valuation allowance is provided for in the Companys financial
statements, based on the Companys estimates of taxable income in the
jurisdictions in which it operates and the period over which its deferred tax
assets will be recoverable. In the event that actual results differ from these
estimates, or the Company adjusts these estimates in future periods, the
Company may need to adjust the valuation allowance.

Technology Partnerships Canada

The Company is required to estimate the repayment amount of the
contribution from Technology Partnerships Canada (TPC). TPC is a technology
investment fund of the Canadian Federal Government established to contribute to
the achievement of increasing economic growth, creating jobs and wealth, and
supporting sustainable development in Canada. TPC granted financial assistance
to the Company for the purpose of funding research and development activities.
If the Company achieves a certain type of revenues, it will need to pay the TPC
a royalty. The Company includes an estimate of this royalty, which is a
percentage of the revenues, in its estimate of the repayment amount. The
estimate assesses the likelihood

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that the Company will earn the type of revenues that triggers the payment
of the TPC royalty. In the event that actual results differ from these
estimates, or the Company adjusts these estimates in future periods, the
Company may need to adjust the TPC royalty.

Inventory

The Company values its inventory at the lower of either (a) cost,
determined on an average cost basis and (b) net realizable value. The Company
assesses the need for inventory write-downs based on its assessment of
estimated net realizable value using assumptions about future demand and market
conditions. If market conditions differ from those originally estimated by the
Company, an additional inventory write-down may be required.

Accounts Receivable

The Company maintains an allowance for doubtful accounts for estimated
losses that may arise if any of its customers are unable to make required
payments. Management specifically analyses the age of outstanding customer
balances, historical bad debts, customer credit-worthiness and changes in
customer payment terms when making estimates of the uncollectability of the
Companys accounts receivable. If the Company determines that the financial
condition of any of its customers deteriorates, increases in the allowance may
be made.

Results of Operations  Years ended November 30, 2002 and 2001

For the fiscal year ended November 30, 2002, the Company had net earnings
of $1,694,126, or $0.06 per share on a fully diluted basis.

The table below presents, for the periods indicated, selected financial
data of the Company expressed as a percentage of total revenues:

|                                |                                             |  |                        |      |      |  |       |      |   
|------------------------------- | ------------------------------------------- |  | ---------------------- | ---- | ---- |  | ----- | ---- | --
|                                |                                             |  | Year ended November 30
|                                |                                             |  |                       
|                                |                                             |  | 2002                   |      | 2001
|                                |                                             |  |                        |      |     
|Revenues:                       |                                             |  |                        |      |      |  |       |     
|                                | Systems and system components               |  |                        | 70.3 | %    |  |       | 74.3 | % 
|                                | Geomatics                                   |  |                        | 17.0 | %    |  |       | 13.5 | % 
|                                | Software                                    |  |                        | 7.0  | %    |  |       | 7.8  | % 
|                                | Other                                       |  |                        | 5.7  | %    |  |       | 4.4  | % 
|                                |                                             |  |                        |      |      |  |       |      |   
|                                |                                             |  | 100.0                  | %    |      |  | 100.0 | %   
|Cost of sales                   |                                             |  | 50.4                   | %    |      |  | 42.1  | %   
|                                |                                             |  |                        |      |      |  |       |      |   
|Gross Profit                    |                                             |  | 49.6                   | %    |      |  | 57.9  | %   
|Expenses                        |                                             |  |                        |      |      |  |       |     
|                                | General and administrative                  |  |                        | 19.0 | %    |  |       | 25.6 | % 
|                                | Research and development                    |  |                        | 11.0 | %    |  |       | 15.2 | % 
|                                | Sales and marketing                         |  |                        | 12.8 | %    |  |       | 14.4 | % 
|                                | Depreciation                                |  |                        | 2.2  | %    |  |       | 3.0  | % 
|                                | Interest                                    |  |                        | 0.0  | %    |  |       | 0.7  | % 
|                                | Foreign exchange gain                       |  |                        | (0.2 | %)   |  |       | (1.1 | %)
|                                | Technology Partnerships Canada royalty      |  |                        | 3.4  | %    |  |       | 5.1  | % 
|                                | Technology Partnerships Canada contribution |  |                        | (6.2 | %)   |  |       | (9.7 | %)
|                                |                                             |  |                        |      |      |  |       |      |   
|                                |                                             |  | 42.0                   | %    |      |  | 53.2  | %   
|                                |                                             |  |                        |      |      |  |       |      |   
|Earnings before undernoted      |                                             |  | 7.6                    | %    |      |  | 4.7   | %   
|Proceeds on settlement of claim |                                             |  | 1.6                    | %    |      |  | 0.0   | %   
|                                |                                             |  |                        |      |      |  |       |      |   
|Earnings before tax recovery    |                                             |  | 9.2                    | %    |      |  | 4.7   | %   
|Income tax recovery             |                                             |  | 3.1                    | %    |      |  | 2.9   | %   
|                                |                                             |  |                        |      |      |  |       |      |   
|Earnings for the year           |                                             |  | 12.3                   | %    |      |  | 7.6   | %   
|                                |                                             |  |                        |      |      |  |       |      |   

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Revenues

The Companys core revenue stream is divided into the Systems segment and
the Geomatics segment. The core revenue stream is derived from four sources:
Systems and system components, Software, Geomatics (formerly Charts), and
Other, which includes system repairs and servicing, training and consulting.
The Systems segment derives its revenue from three sources: Systems and system
components, Software and Other. The Geomatics segment derives its revenue from
two sources: Geomatics (formerly Charts), and Other. The Companys principal
developed and manufactured product, ECPINS®, delivers the majority of the
Companys revenue.

Certain systems revenues were recognized using the percentage of
completion method, in conformity with the AICPA SOP 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts. System
components revenues were recognized when significant risks and rewards of
ownership were transferred, which is generally when the components were
delivered. Certain other systems revenues and all software revenues were
accounted for following the AICPA SOP 97-2, Software Revenue Recognition, as
amended by SOP 98-4 and 98-9. The Company recorded these revenues when
persuasive evidence of an arrangement (as defined in the AICPA SOP 97-2)
existed, the software product had been shipped, there were no significant
uncertainties surrounding product acceptance, the fees were fixed and
determinable and collection was considered probable. Systems revenues that were
not recognized under SOP 81-1 or SOP 97-2 were recognized in accordance with
the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 101 (SAB 101). Geomatics revenues from the sale of products were
recognized when significant risks and rewards of ownership were transferred,
which was generally when the products were delivered. Certain geomatics
services revenues were recognized in the period the services were performed.
Geomatics services revenues were recognized using the percentage of completion
method, in conformity with the AICPA SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. Other revenues were
recognized in the period the services were performed.

The Company does not provide post-contract support as part of its software
licensing arrangements. In order to upgrade, a customer must purchase the most
up-to-date version at the current market price. Depending on the nature of the
post-contract support, revenue from post-contract support would be recorded in
up to three revenue sources: Systems and system components, Software and Other.

The Companys revenue and margins can vary from period to period as a
result of the level of business volumes, mix of contracts and component supply
availability. The Companys contracts with its key customers generally provide
a framework for its relationships with its other customers. Actual production
volumes are based on orders for the delivery of products.

Consolidated revenue for FY 2002 was $13,814,133, compared with $7,909,713
for FY2001, an increase of 75%. In FY2002, the Company increased revenue levels
from its FY2001 customer base and generated additional revenues from new
customers. The main customers for the Companys products and services were the
U.S. Coast Guard (USCG), the Canadian Coast Guard, the Canadian Department of
National Defence, the Royal Danish Navy and the U.S. Navy. Sales from these
customers accounted for 91% of the 2002 consolidated revenue and 90% of the
2001 consolidated revenue.

Segment Results

Systems Revenue from the Systems segment for FY2002 was $11,466,668,
compared to $6,836,556 for FY2001, an increase of 68%. In FY2002, the existing
customer base generated the additional revenues. Revenue from the USCG, the
Canadian Coast Guard, the Canadian Department of National Defence, the Royal
Danish Navy and the U.S. Navy provided 94% of the segments FY2002 revenues.

Geomatics Revenue from the Geomatics segment for FY2002 was $2,347,465
compared to $1,073,157, an increase of 119%. In FY2002, most of the increased
revenue resulted from the Companys expansion into the land mapping market,
although some increases in revenues stemmed from the existing customer base.

Gross Profit

The Companys gross profit increased $2,269,010 to $6,845,365 in FY2002
from $4,576,355 in FY2001. The gross profit percentage decreased to 49.6% in
FY2002 from 57.9% in FY2001. This decrease was attributable to a major project
that included a large proportion of third-party systems. If the effect of this
project were eliminated, the gross profit percentage for FY2002 would have been
56.0%.

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General and Administrative Expenses

General and administrative (G&A) expenses consisted mainly of salaries
and benefits for management and administrative personnel, professional fees,
public company expenses, related facility costs and general administrative
expenses. G&A increased by $602,090 in FY2002 to $2,628,395 from $2,026,305 in
FY2001. The increase is the result of additions to the Companys management
team, the addition of U.S.-based investor relations support and one-time
professional fees relating to the Companys initial SEC registration and
settlement of lawsuits, as disclosed in the FY2002 audited financial
statements. As a percentage of revenue, G&A decreased to 19.0% in FY2002 from
25.6% in FY2001.

Research and Development Expenses

Research and development (R&D) expenses consisted mainly of salaries and
benefits for software and hardware engineering personnel, sub-contractor costs
and related overhead and facilities expenses. The Company continued to invest
in new product development in 2002. The Company believes that in order to
maintain its technological advantage, it must continue to fine-tune existing
products and introduce new high quality products that challenge and redefine
the industry standards. As a result, FY2002 spending on R&D increased to
$1,516,528 or 11.0% of revenue, compared to $1,206,974 or 15.2% of revenue in
FY2001.

Until March 31, 2003, the Company had the ability to claim up to
$4,000,177 of TPCs repayable contribution to help pay for its R&D expenses.
During FY2002, the Company incurred costs of $863,851 and claimed the full
$863,851. The Company recorded this contribution as a reduction of expenses on
its statement of earnings. As of November 30, 2002, the Company had claimed a
total of $3,623,295 of TPCs repayable contribution. During FY2002, the
Company also paid or accrued royalties to TPC. As of November 30, 2002, the
Company had paid $354,159 in royalties and had accrued $712,097 in royalties
for payment after November 30, 2002.

Sales and Marketing Expenses

Sales and marketing (S&M) expenses consisted primarily of compensation
of sales and marketing personnel, as well as expenses associated with
advertising, trade shows, facilities and other expenses related to the sales
and marketing of the Companys products and services. S&M expenses increased by
$620,010 or 54.3%, in FY2002 to $1,761,669 (12.8% of revenue) from $1,141,659
(14.4% of revenue) in FY2001. The increase in expenses was the result of the
Companys increased level of business development activity relating to its
expansion efforts in the American, European and Asia-Pacific markets. These
expansion efforts required the Company to hire five additional S&M staff. The
expansion effort targets the military agencies of Canadas NATO and other
allies to increase the profile of the Company and its products.

Depreciation

Total depreciation increased slightly to $303,407 in FY2002 from $238,958
in FY2001. The increase reflects the effect of plant and equipment additions,
and intangible asset additions during FY2002.

Interest

Interest expenses decreased to $3,582 in FY2002 from $55,380 in FY2001
because the Company did not utilize its credit facility during FY2002.

Earnings from Operations

Earnings from operations for FY2002 were $1,045,732, or 7.6% of revenue,
compared to $370,439 for FY2001, or 4.7% of revenue. Earnings from operations
increased as the result of the general increase in business volumes.

Proceeds on Settlement of Claim

Proceeds from settlement of claim for FY2002 were $221,978. This amount is
the gross amount of a settlement of a lawsuit in favor of the Company. Because
this claim was still pending in FY2001, and no other lawsuits had been settled
in FY2001, there were no such proceeds in FY2001.

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Income Taxes

Based on the information available at the time the annual audited
financial statements were issued, the Company estimated that it will have
sufficient taxable earnings in future years to utilize a portion of the
Companys $4,855,787 Canadian non-capital losses carried forward. As a result
of this assessment, the Company recognized a deferred tax asset of $426,416 for
the year ended November 30, 2002. In accordance with U.S. GAAP, the Company
provided a valuation allowance of $2,985,840 against the total deferred tax
asset, as it is not considered more likely than not that the remaining deferred
tax asset will be recovered. The Company continues to evaluate its taxable
position quarterly and considers factors such as estimated taxable income, the
history of losses for tax purposes and the growth of the Company.

Net Earnings

Consolidated net earnings for the year were $1,694,126, or 12.3% of
revenue, compared to $597,739 for FY2001, or 7.6% of revenue.

Backlog

Backlog consists of firm, fixed, signed orders issued to the Company and
executable by the Company subsequent to the balance sheet date. Order backlog
as at November 30, 2002, was $3.7 million compared to $8.4 million one year
earlier. The backlog balance as at November 30, 2001 was much higher than as at
November 30, 2002 because two major contracts, one with the Royal Danish Navy
and the other with the Canadian Department of National Defence, were awarded to
the Company in the last half of FY2001 and remained substantially incomplete as
at November 30, 2001. Although governments approve budget expenditures on an
annual basis, multi-year contracts with government agencies have a
termination-for-convenience clause that allows the contract to be terminated
should the governments future budget funding not be approved; the Company has
included the full value of these contracts in backlog as no evidence existed
that such contracts would be terminated.

Results of Operations  Years ended November 30, 2001 and 2000

For the year ended November 30, 2001, the Company had a net earnings of
$597,739, or $.02 per share on a fully diluted basis.

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The table below presents, for the periods indicated, selected financial
data of the Company, expressed as a percentage of total revenues:

|                                                            |                                             |  |                        |      |      |  |       |       |   
|----------------------------------------------------------- | ------------------------------------------- |  | ---------------------- | ---- | ---- |  | ----- | ----- | --
|                                                            |                                             |  | Year ended November 30
|                                                            |                                             |  |                       
|                                                            |                                             |  | 2001                   |      | 2000
|                                                            |                                             |  |                        |      |     
|Revenues:                                                   |                                             |  |                        |      |      |  |       |      
|                                                            | Systems and system components               |  |                        | 74.3 | %    |  |       | 75.6  | % 
|                                                            | Software                                    |  |                        | 7.8  | %    |  |       | 0.0   | % 
|                                                            | Charts                                      |  |                        | 13.5 | %    |  |       | 17.2  | % 
|                                                            | Other                                       |  |                        | 4.4  | %    |  |       | 7.2   | % 
|                                                            |                                             |  |                        |      |      |  |       |       |   
|                                                            |                                             |  | 100.0                  | %    |      |  | 100.0 | %    
|Direct Costs                                                |                                             |  | 42.1                   | %    |      |  | 24.1  | %    
|                                                            |                                             |  |                        |      |      |  |       |       |   
|Gross Profit                                                |                                             |  | 57.9                   | %    |      |  | 75.9  | %    
|Expenses                                                    |                                             |  |                        |      |      |  |       |      
|                                                            | General and administrative                  |  |                        | 25.6 | %    |  |       | 39.8  | % 
|                                                            | Research and development                    |  |                        | 15.2 | %    |  |       | 26.9  | % 
|                                                            | Sales and marketing                         |  |                        | 14.4 | %    |  |       | 15.5  | % 
|                                                            | Amortization                                |  |                        | 3.0  | %    |  |       | 3.8   | % 
|                                                            | Interest                                    |  |                        | 0.7  | %    |  |       | 3.7   | % 
|                                                            | Foreign exchange loss (gain)                |  |                        | (1.1 | %)   |  |       | 0.1   | % 
|                                                            | Technology Partnerships Canada royalty      |  |                        | 5.1  | %    |  |       | 3.5   | % 
|                                                            | Technology Partnerships Canada contribution |  |                        | (9.7 | %)   |  |       | (20.3 | %)
|                                                            |                                             |  |                        |      |      |  |       |       |   
|                                                            |                                             |  | 53.2                   | %    |      |  | 73.0  | %    
|                                                            |                                             |  |                        |      |      |  |       |       |   
|Earnings from operations and before discontinued operations |                                             |  | 4.7                    | %    |      |  | 2.9   | %    
|Loss from discontinued operations                           |                                             |  | 0.0                    | %    |      |  | (1.2  | %)   
|Loss on disposal of discontinued operations                 |                                             |  | 0.0                    | %    |      |  | (4.4  | %)   
|                                                            |                                             |  |                        |      |      |  |       |       |   
|Earnings before tax recovery                                |                                             |  | 4.7                    | %    |      |  | (2.7  | %)   
|Income tax recovery                                         |                                             |  | 2.9                    | %    |      |  | 0.0   | %    
|                                                            |                                             |  |                        |      |      |  |       |       |   
|Earnings for the year                                       |                                             |  | 7.6                    | %    |      |  | (2.7  | %)   
|                                                            |                                             |  |                        |      |      |  |       |       |   

Revenues

Consolidated revenue for FY2001 was $7,909,713, compared with $5,651,665
for FY2000, for an increase of 40%. In FY2001, the Company maintained revenue
levels from its FY2000 customer base and added two major contracts from the
Royal Danish and Canadian Navies. The main customers for the Companys products
and services were the U.S. Coast Guard, Canadian Coast Guard, Canadian
Department of National Defence, Royal Danish Navy and the U.S. Navy. Sales from
these customers accounted for 90% of the 2001 consolidated revenue. With the
introduction of the Windows NT based ECPINS-M® Military System and ECPINS® into
the market in FY2000, the Company completed and recorded sales for software
only contracts amounting to $617,373 in FY2001. Prior to FY2001, the Company
sold systems that combined the ECPINS® software with specialized hardware.

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Segment Results

Systems Revenue from the Systems segment for FY2001 was $6,836,556,
compared to $4,706,764 for FY2000, an increase of 45%. In FY2001, a contract
from an existing customer, the Canadian Department of National Defence, and a
contract from a new customer, the Royal Danish Navy, were responsible for the
increased revenue.

Geomatics Revenue from the Geomatics segment for FY2001 was $1,073,157,
compared to $9,44,901, an increase of 14%. The revenue level in FY2001 was
maintained at a fairly constant level due to contracts with the Companys
existing customer base.

Gross Profit

The Companys gross profit increased by $288,743 to $4,576,355 in FY2001
from $4,287,612 in FY2000. Gross margin decreased to 57.9% in FY2001 from
75.9% in FY2000. FY2000s high gross margin resulted from lower than expected
costs incurred in achieving IMO compliance in connection with certain
contracts. Excluding the effect of the lower than expected costs on these
contracts, the FY2000 gross profit percentage was 63.9%. The decline in the
gross profit percentage was the result of an increase in third party products
that integrated into customer deliverables with a lower component margin.

General and Administrative Expenses

General and administrative expenses decreased by $224,923 in FY2001 to
$2,026,305 from $2,251,228 in FY2000. As a percentage of revenue, G&A decreased
to 25.6% in FY2001 from 39.8% in FY2000. The most significant decrease was from
a decrease of $293,817 in stock-based compensation to G&A employees, directors
and external third parties.

Research and Development Expenses

During FY2000, the Company refocused its research and development efforts
towards the development of a single baseline PC-based product - ECPINS® v4.0.
As a result of the efficiencies gained through this effort, FY2001 spending on
R&D decreased to $1,206,974 or 15.2% of revenue, compared to $1,518,343 or
26.9% of revenue in FY2000.

During FY2001, the Company incurred costs of $768,818 and claimed the full
amount under its agreement with TPC. As of November 30, 2001, the Company had
claimed a total of $2,759,435 ($768,818 for FY2001, $1,146,371 for FY2000 and
$844,246 for FY1999). The Company recorded each contribution as a reduction of
expenses on its statement of earnings in the fiscal year in which such
contribution was received. During FY2001, the Company also commenced payments
of royalties to TPC. As of November 30, 2001, the Company had paid or accrued
for future payment $590,067 in royalties.

Sales and Marketing Expenses

Sales and marketing expenses increased by $268,610, or 30.7%, in FY2001
from $873,049 (15.5% of revenue) in FY2000 to $1,141,659 (14.4% of revenue).
The increase in expenses was the result of the Companys increased level of
business development activity.

Depreciation

Total depreciation increased slightly in FY2001 from $212,621 in FY2000 to
$238,958. This increase reflects the addition of new assets in FY2001.

Interest

Interest expenses decreased in FY2001 from $210,581 in FY2000 to $55,380.
This decrease reflects the Companys decision to discontinue the factoring of
Accounts Receivable as a financing tool.

Discontinued Operations

The Company disposed of substantially all of the assets of its
wholly-owned US subsidiary, OGI, by March 31, 2001. OGI was a distributor and
service and support organization for a number of third party manufacturers
primarily in Canada and the United States. It provided OEM parts, equipment
sales, engineering services and service coordination.

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OGIs revenue for FY2000 was $1,936,113. The loss on disposal of OGI
recorded in FY2000 was $247,657 net of income taxes of $nil. There was no
impact to the Companys results in FY2001.

Income Taxes

Based on the information available at the time the annual audited
financial statements were issued, the Company estimated that it will have
sufficient taxable earnings in future years to utilize a portion of the
Companys $5,865,389 Canadian non-capital losses carried forward. As a result
of this assessment, a future tax asset of $227,300 was recorded as of November
30, 2001. In accordance with U.S. GAAP, a valuation allowance of $4,594,893
was recorded against the total future tax asset as, more likely than not, the
use of the remaining portion of the future tax asset will not be obtained. The
Company continued to evaluate its taxable position quarterly and considered
factors such as estimated taxable income, the history of losses for tax
purposes and the growth of the Company.

Net Earnings

For the reasons described above, consolidated net earnings for FY2001
increased to $597,739, or 7.6% of revenue, compared to a loss of $151,088 for
FY2000.

Backlog

Order backlog as of November 30, 2001, reflected the Companys continuing
growth and was at $8.4 million compared to $2.3 million the previous year. As
described with respect to the November 30, 2002 financial statements, the
Company included the full value of its multi-year government contracts in
backlog as no evidence existed that the contracts would be terminated.

B.Liquidity and capital resources

Years ended November 30, 2002 and 2001

At November 30, 2002, the Company had current assets of $8,821,485,
current liabilities of $4,246,062 and a cash position of $3,244,048. Working
capital increased by $1,652,216 to $4,575,423 at November 30, 2002 from
$2,923,207 a year earlier. The Company had credit facilities consisting of an
operating line (i.e., a revolving credit facility), standby letters of credit,
and forward exchange contract facilities. The operating line bears interest at
the chartered banks prime lending rate plus 1.25% per annum with interest
payable monthly. The standby letters of credit are denominated in U.S. dollars
and bear interest at rates between 1% and 2% per annum. Funds drawn on the
operating line and standby letters of credit are repayable on demand. The
maximum available to the Company under the operating line and forward exchange
contract facility is $1,000,000 and US$1,000,000, respectively. No borrowings
against the operating line were outstanding as at November 30, 2002. The
Company has issued standby letters of credit totaling US$859,900. The Company
has utilized the standby letters of credit to back certain performance
obligations with its customers. The Company has entered forward exchange
contracts in the amount of US$350,000. The Company utilizes its forward
exchange contract facility to reduce the level of exposure to exchange rate
movements between the U.S. dollar and Canadian dollar.

Operating cash flow in fiscal year ended November 30, 2002, before changes
in non-cash working capital items, was $1,587,170, compared with $705,647 in
the fiscal year ended November 30, 2001, for an increase of $881,523. The
improvement reflected the increased profitability of the Company for the fiscal
year 2002. Changes in non-cash working capital items were a usage of cash of
$357,400 for FY2002 compared to a providing of cash of $484,172 for the
previous year. Changes occurred in most non-cash working capital items between
the two fiscal years  all within the normal business activities of the
Company. The two largest changes in non-cash working capital were to accounts
receivable, and accounts payable and accrued liabilities. Both of these
increases reflect the increased business activities of the Company.

Net cash provided by financing activities amounted to $568,252 in FY2002,
compared to $291,120 in FY2001. The improvement of $277,132 was largely the
result of the issue of Common Shares through the employee stock option plans.

Cash used in investing activities totaled $591,599, compared with $205,637
in FY2001. The increase reflects the equipment and software upgrades purchased
in the systems line of business and additional equipment and software to
support the new initiatives in the Geomatics line of business.

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The net increase in cash and cash equivalents amounted to $1,206,423 in
FY2002, compared with a net cash position increase of $1,275,302 in FY2001.

Years ended November 30, 2001 and 2000

At November 30, 2001, the Company had current assets of $6,022,312,
current liabilities of $3,099,105 and a cash position of $2,037,625. Working
capital increased by $1,052,207 to $2,923,207 at November 30, 2001 from
$1,871,000 a year earlier. The Company had credit facilities consisting of an
operating line, standby letters of credit, receivables purchase agreement and
forward exchange contract facilities. The operating line bears interest at the
chartered banks prime lending rate plus 1.25% per annum with interest payable
monthly. The standby letters of credit are denominated in U.S. dollars and bear
interest at rates between 1% and 2% per annum. Funds drawn on the operating
line and the standby letters of credit are repayable on demand. The maximum
available to the Company under the operating line, receivables purchase
agreement and forward exchange contract facility is $400,000, US$2,500,000 and
US$500,000, respectively. Advances under these facilities are repayable on
demand. No borrowings against the operating line, receivables purchase
agreement and forward exchange contract facilities were outstanding as at
November 30, 2001. The Company has caused the issuance of standby letters of
credit totaling $2,592,882. The standby letters expire one year after issue and
advances are repayable on demand.

FY2001 operating cash flow, before changes in non-cash working capital
items, increased by $256,107 from $676,840 in FY2000 to $932,947. The
improvement reflected favorable contract payment terms on specific contracts
and a strong focus on cash management. Changes in non-cash working capital
items were providing cash of $256,872 for FY2001 compared to providing cash of
$918,799 for the previous year.

Net cash provided by financing activities amounted to $291,120 in FY2001,
compared to a usage of cash of $916,498 in FY2000. The improvement of
$1,252,206 was largely because the Company no longer factored in accounts
receivable, which used cash of $1,334,211 in FY2000 to repay factoring
arrangements from FY1999.

Cash used in investing activities totaled $205,637, compared with $73,950
in FY2000. This increase mainly reflects the increase in capital and other
asset acquisitions.

The net increase in cash and cash equivalents amounted to $1,275,302 in
FY2001, compared with a net cash position increase of $660,300 in FY2000.

The Company believes that cash flow from operating activities, together
with cash on hand, borrowings available under its revolving credit facilities
and the additional funds provided by the private placement announced on
February 18, 2003 (see Item 8.B of this document), will be sufficient to fund
currently anticipated working capital, planned capital spending and debt
service requirements for the next twelve months. The Company has not made any
material commitments for capital expenditures. There can be no assurance that
thereafter resources will be adequate and that additional financing will be
available to the Company. The Company has not identified any further potential
sources of long-term liquidity.

C.Research and development, patents and licenses, etc.

See Item 5. Operating results  Research and Development Expenses.

D.Trend information.

The Companys annual and quarterly operating results are primarily
affected by the level, timing and duration of customer orders, relative mix of
value added products and services and fluctuations in materials costs.

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The table below presents, for the periods indicated, selected quarterly
financial data of the Company:

|                                                                          |  |                               |           |    |  |    |           |    |  |  |           |   |  |  |           |  
|------------------------------------------------------------------------- |  | ----------------------------- | --------- | -- |  | -- | --------- | -- |  |  | --------- | - |  |  | --------- | -
|                                                                          |  | Fiscal Year 2001 (unreviewed)
|                                                                          |  |                              
|                                                                          |  | Q1                            |           | Q2 |  | Q3 |           | Q4
|                                                                          |  |                               |           |    |  |    |           |   
|Revenue                                                                   |  |                               | 1,889,364 |    |  |    | 1,631,966 |    |  |  | 1,802,300 |   |  |  | 2,586,083 |  
|Net income before proceeds on
settlement of claim and income
tax recovery |  |                               | (19,074   | )  |  |    | 18,607    |    |  |  | 77,569    |   |  |  | 293,337   |  
|Above as a percentage of revenue                                          |  |                               | (1.0      | %) |  |    | 1.1       | %  |  |  | 4.3       | % |  |  | 11.3      | %
|Net income                                                                |  |                               | (19,074   | )  |  |    | 18,607    |    |  |  | 77,569    |   |  |  | 520,637   |  
|Above as a percentage of revenue                                          |  |                               | (1.0      | %) |  |    | 1.1       | %  |  |  | 4.3       | % |  |  | 20.1      | %
|Earnings per share  diluted                                              |  |                               | 0.00      |    |  |    | 0.00      |    |  |  | 0.00      |   |  |  | 0.02      |  

|                                                                          |  |                               |           |    |  |    |           |    |  |  |           |   |  |  |           |  
|------------------------------------------------------------------------- |  | ----------------------------- | --------- | -- |  | -- | --------- | -- |  |  | --------- | - |  |  | --------- | -
|                                                                          |  | Fiscal Year 2002 (unreviewed)
|                                                                          |  |                              
|                                                                          |  | Q1                            |           | Q2 |  | Q3 |           | Q4
|                                                                          |  |                               |           |    |  |    |           |   
|Revenue                                                                   |  |                               | 3,278,877 |    |  |    | 3,833,229 |    |  |  | 2,671,754 |   |  |  | 4,030,273 |  
|Net income before proceeds on
settlement of claim and income
tax recovery |  |                               | 203,928   |    |  |    | 239,053   |    |  |  | 253,906   |   |  |  | 348,845   |  
|Above as a percentage of revenue                                          |  |                               | 6.2       | %  |  |    | 6.2       | %  |  |  | 9.5       | % |  |  | 8.7       | %
|Net income                                                                |  |                               | 301,918   |    |  |    | 296,053   |    |  |  | 566,618   |   |  |  | 529,537   |  
|Above as a percentage of revenue                                          |  |                               | 9.2       | %  |  |    | 7.7       | %  |  |  | 21.2      | % |  |  | 13.1      | %
|Earnings per share  diluted                                              |  |                               | 0.01      |    |  |    | 0.01      |    |  |  | 0.02      |   |  |  | 0.02      |  

The timing and duration of major contracts awarded to the Company have
largely dictated trends in the Companys revenue stream. The major contracts
that were awarded to the Company during the fiscal years 2001 and 2002 were
with the Danish Navy in the third quarter of FY2001, the Canadian Navy at the
end of the fourth quarter of FY2001 and the U.S. Coast Guard during the third
quarter of FY2002. As delivery under each of these contracts extends into 2003,
such contracts will impact the Companys revenues through that year. The
duration of the Danish Navy contract extends into FY2003. The terms of the
Canadian Navy contract requires that delivery of the ECPINS® systems be
substantially completed by the second quarter of FY2002 and be entirely
completed by the second quarter of FY2003. The U.S. Coast Guard contract
requires completion during the second quarter of FY2003. See Exhibit 4.1 to
Form 20-F filed July 24, 2002, and Exhibits 4.5 and 4.7 to Amendment No. 1 to
Form 20-F, filed September 10, 2002, which are incorporated by reference
herein.

The relative mix of value added products and services, and fluctuations in
the costs of materials in the contracts that were awarded to the Company during
the fiscal years 2001 and 2002 will affect the net income before proceeds on
settlement of claim and income tax recovery, and net income of the Company.
Contracts that included a large proportion of third-party systems or software
will provide a lower return to the Company as these costs generally flow
through to the customer with little to no markup by the Company. On the other
hand, contracts for ECPINS® software or systems contracts that have a large
software component will provide a high return to the Company as the costs
associated with this type of contract are relatively minor. Examples of the
latter occurred in the third and fourth quarters of FY2002, where the Company
received one or more contracts of this nature in each quarter, and as a result,
the net income before proceeds on settlement of claim and income tax recovery
as a percentage of revenue was higher than in the first two quarters of FY2002.

Another trend that affects the profitability of the Company is the lengthy
sales cycle required to establish new customers. In some cases, the sales
effort to win a contract with a new customer can be as long as three years. As
a result, the Company often incurs sales and marketing costs in the current
fiscal year, but does not receive sales revenues as a result of such sales
efforts until two or three years later. Starting in FY2001 and continuing in
FY2002, the Company increased its sales and marketing spending to expand its
market in the U.S., Asia-Pacific and Europe. This increased spending may result
in contracts from new customers starting some time during FY2003.

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Item 6. Directors, Senior Management and Employees

A.Directors and senior management.

The following table lists the names of the directors and officers of the
Company, their residence, their principal occupations within the past five
years, and the periods during which each has served in such capacity.

|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  |                    
|-------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- |  | -------------------
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  | Number and         
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  | Percentage of      
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  | Common Shares Owned
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  | or Controlled by   
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  | Directors and      
|Name and                                                                                           |  | Principal Occupation                                                                                                                                                                                                        |  | Director / Officer                |  | Officers at        
|Office Held                                                                                        |  | for Past Five Years                                                                                                                                                                                                         |  | Since                             |  | February 28, 2003  
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  |                    
|RAYMOND JOHNSTON
Director,
Chairman,
Montréal, Québec, Canada                                      |  | 11/00 to present: Director & Chairman12/99 to present: President, Chamber of Maritime Commerce5/92 to 6/99: CEO, Canada
Steamship Lines                                                                                     |  | 11/14/00
(and from 12/94 to
9/98) |  | 0.06%
15,000       
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  |                    
|JOHN A. JACOBSON
Director
President &
Chief Executive Officer,
Vancouver, British Columbia,
Canada |  | 3/98 to present: Director, President &
Chief Executive Officer4/97 to 9/97: President,
International Operations,
GeoTrain Corporation                                                                                       |  | 3/19/98                           |  | 0.82%
215,000      
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  |                    
|TONY PEZZOTTI
Director
Burnaby, British Columbia, Canada                                           |  | 4/90 to present: Director
Previous Co-owner of PSL Steel Ltd., Independent Businessman                                                                                                                                      |  | 4/26/90                           |  | 1.7%
453,733       
|                                                                                                   |  |                                                                                                                                                                                                                             |  |                                   |  |                    
|HELMUT F. LOBMEIER
Director
Maple Ridge, British Columbia,
Canada                                  |  | 04/90 to present: Director
Previous Co-owner of PSL Steel Ltd., Independent Businessman                                                                                                                                     |  | 4/26/90                           |  | 2.4%
631,951       
|                                                                                                  
|CAPT. WALTER P. PURIO
Director
Houston, Texas, United States                                       |  | 01/99 to present: Director2000 to present: Independent Marine Consultant1993 to 2000: President, P and H Marine Associates, Inc.1985 to present: Shipmaster- Oceans, General Dynamics, American Overseas Marine Corporation |  | 1/14/99                           |  | 0.20%
55,000       

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|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  |                    
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | -------------------
|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  | Number and         
|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  | Percentage of      
|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  | Common Shares Owned
|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  | or Controlled by   
|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  | Directors and      
|Name and                                                                                                       |  | Principal Occupation                                                                                                                                                                                                                                                                                                                      |  | Director / Officer |  | Officers at        
|Office Held                                                                                                    |  | for Past Five Years                                                                                                                                                                                                                                                                                                                       |  | Since              |  | February 28, 2003  
|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  |                    
|BRIAN E. WALSH
Director
Rye, New York, United States                                                           |  | 12/01 to present: Director1997 to present: Co-Founder of Qvan Capital (formerly Veritas Capital Management)1996 to 1997: Asset and Money Management of the Bass family, Fort Worth, Texas                                                                                                                                                 |  | 12/18/01           |  | 1.3%
332,500       
|                                                                                                              
|ANDREW A. CARNIEL
Corporate Secretary/
Vice President Business
Development
Coquitlam, British Columbia,
Canada |  | 7/99 to present: Vice
President of Business Development, OSL, and Corporate Secretary, OSIL5/98 to 5/01: Director of Operations, OSL10/97 to 5/98: Independent Business Consultant11/96 to 10/97: Operations Manager, Asia Pacific, GeoTrain Corporation1/95 to 11/96: Manager,
HR Operations, MacDonald Dettwiler & Associates Ltd.      |  | N/A                |  | 0.44%
116,250      
|                                                                                                              
|KENNETH KIRKPATRICK
Vice President Operations
Richmond, British Columbia,
Canada                               |  | 5/01 to present: Vice
President of Operations12/97 to 5/01: Vice
President & Chief
Operating Officer,
Triathlon Ltd., a
subsidiary of MacDonald
Dettwiler & Associates4/97 to 11/97: Vice
President of International
Operations, GeoTrain
Corporation4/96 to 4/97: Manager
North American Operations,
PSC Group International
Corporation |  | N/A                |  | 0.25%
67,500       
|                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                           |  |                    |  |                    

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|                                                                       |  |                                                                                                                                                                                                                                                                   |  |                    |  |                    
|---------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | -------------------
|                                                                       |  |                                                                                                                                                                                                                                                                   |  |                    |  | Number and         
|                                                                       |  |                                                                                                                                                                                                                                                                   |  |                    |  | Percentage of      
|                                                                       |  |                                                                                                                                                                                                                                                                   |  |                    |  | Common Shares Owned
|                                                                       |  |                                                                                                                                                                                                                                                                   |  |                    |  | or Controlled by   
|                                                                       |  |                                                                                                                                                                                                                                                                   |  |                    |  | Directors and      
|Name and                                                               |  | Principal Occupation                                                                                                                                                                                                                                              |  | Director / Officer |  | Officers at        
|Office Held                                                            |  | for Past Five Years                                                                                                                                                                                                                                               |  | Since              |  | February 28, 2003  
|                                                                       |  |                                                                                                                                                                                                                                                                   |  |                    |  |                    
|JOHN SENTJENS
Corporate Controller
Vancouver, British Columbia,
Canada |  | 8/01 to present: Corporate Controller11/99 to 8/01: Controller, Triathlon Ltd., a subsidiary of MacDonald Dettwiler & Associates Ltd.4/98 to 11/99: Controller, Fulcrum Technologies, a subsidiary of PC Docs Group7/95 to 3/98: Controller, GeoTrain Corporation |  | N/A                |  | 0.04%
10,000       

The directors and officers of the Company do not own any Class A
Preference Shares Series A Convertible or Class B Series 1 Preference Shares.

B.Compensation.

Pursuant to the 1994, 1996, and 1998 Option Plan, each director receives
an annual entitlement of 100,000 shares and the Chairman of the Board of
Directors receives an annual entitlement of 125,000 shares. Each Canadian
director is entitled to $1,500 and each U.S. director is entitled to US$1,500
for attending each meeting of the Board of Directors.

Listing of Directors Geographically

|                    |  |                                                                       |  |  |  |  |  |  |  | 
|------------------- |  | --------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Canadian Directors: |  | Raymond W. Johnston
John A. Jacobson
Tony Pezzotti
Helmut F. Lobmeier
|                    |  |                                                                      
|U.S. Directors      |  | Capt. Walter P. Purio
Brian E. Walsh                                 

Total Compensation Accrued and/or Paid to Key Senior Management for Fiscal 2002

|                                                         |  |                     |         |       |  |       |        |  |  |     |  | 
|-------------------------------------------------------- |  | ------------------- | ------- | ----- |  | ----- | ------ |  |  | --- |  | 
|                                                         |  | Annual Compensation
|                                                         |  |                    
|Officer's Name                                           |  | Salary              |         | Bonus |  | Other
|                                                         |  |                     |         |       |  |      
|John A. Jacobson  President and Chief Executive Officer |  | $                   | 172,115 |       |  | $     | 70,000 |  |  | Nil
|Andrew Carniel, Vice President of Business Development   |  | $                   | 122,115 |       |  | $     | 35,000 |  |  | Nil
|Kenneth Kirkpatrick, Vice President of Operations        |  | $                   | 124,038 |       |  | $     | 35,000 |  |  | Nil

No pension, retirement or similar benefits are given to senior management
or officers of the Company. John Jacobson, however, has an employment contract
with the Company regarding his employment as President and Chief Executive
Officer.

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Share Options Granted to Directors and Officers for the Fiscal Year ended November 30, 2002

|                                                                       |  |                   |         |          |  |        |      |  |  |              |  | 
|---------------------------------------------------------------------- |  | ----------------- | ------- | -------- |  | ------ | ---- |  |  | ------------ |  | 
|                                                                       |  | Common Share      |         |          |  |       
|                                                                       |  | Options           |         | Exercise |  | Expiry
|Directors Name                                                        |  | Granted in FY2002 |         | Price    |  | Date  
|                                                                       |  |                   |         |          |  |       
|Raymond W. Johnston  Chairman and Director                            |  |                   | 125,000 |          |  | $      | 1.20 |  |  | Dec 5, 2004 
|John A. Jacobson  President and Chief Executive Officer, and Director |  |                   | 33,333  |          |  | $      | 1.20 |  |  | Dec 5, 2004 
|                                                                       |  |                   | 33,333  |          |  | $      | 1.20 |  |  | Dec 5, 2005 
|                                                                       |  |                   | 33,334  |          |  | $      | 1.20 |  |  | Dec 5, 2006 
|Tony Pezzotti  Director                                               |  |                   | 100,000 |          |  | $      | 1.20 |  |  | Dec 5, 2004 
|Helmut F. Lobmeier  Director                                          |  |                   | 100,000 |          |  | $      | 1.20 |  |  | Dec 5, 2004 
|Capt. Walter P. Purio  Director                                       |  |                   | 100,000 |          |  | $      | 1.20 |  |  | Dec 5, 2004 
|Brian E. Walsh  Director                                              |  |                   | 100,000 |          |  | $      | 0.96 |  |  | Nov 19, 2004

|                                                                               |  |              |        |          |  |        |      |  |  |             |  | 
|------------------------------------------------------------------------------ |  | ------------ | ------ | -------- |  | ------ | ---- |  |  | ----------- |  | 
|                                                                               |  | Common Share |        |          |  |       
|                                                                               |  | Options      |        |          |  |       
|                                                                               |  | Granted in   |        | Exercise |  | Expiry
|Officers Name                                                                 |  | FY2002       |        | Price    |  | Date  
|                                                                               |  |              |        |          |  |       
|Andrew Carniel, Vice President of Business Development and Corporate
Secretary |  |              | 16,666 |          |  | $      | 1.20 |  |  | Dec 5, 2004
|                                                                               |  |              | 16,666 |          |  | $      | 1.20 |  |  | Dec 5, 2005
|                                                                               |  |              | 16,667 |          |  | $      | 1.20 |  |  | Dec 5, 2006
|Kenneth Kirkpatrick, Vice President of Operations                              |  |              | 16,666 |          |  | $      | 1.20 |  |  | Dec 5, 2004
|                                                                               |  |              | 16,666 |          |  | $      | 1.20 |  |  | Dec 5, 2005
|                                                                               |  |              | 16,667 |          |  | $      | 1.20 |  |  | Dec 5, 2006
|John Sentjens, Controller                                                      |  |              | 10,000 |          |  | $      | 1.20 |  |  | Dec 5, 2004
|                                                                               |  |              | 10,000 |          |  | $      | 1.20 |  |  | Dec 5, 2005
|                                                                               |  |              | 10,000 |          |  | $      | 1.20 |  |  | Dec 5, 2006

C.Board practices

Directors are elected annually to the Board of Directors (Board) at the
Annual General Meeting of the Company. As of March 15, 2003, the directors on
the Board and the period during which they have served on the Board are as
follows:

|                            |  |                     |  | 
|--------------------------- |  | ------------------- |  | 
|Name                        |  | Period Served      
|                            |  |                    
|Raymond Johnston (Chairman) |  | since November 2000
|John A. Jacobson            |  | since March 1998   
|Tony Pezzotti               |  | since April 1990   
|Helmut F. Lobmeier          |  | since April 1990   
|Walter P. Purio             |  | since January 1999 
|Brian E. Walsh              |  | since December 2001

The Board is relatively independent of management; five of the Companys
six directors are unrelated directors, as defined by the TSX corporate
governance guidelines (TSX Guidelines), while one director is a member of
management (i.e., John Jacobson, the President and CEO). The independence of
the Board is reinforced through the separation of the positions of Chairman and
Chief Executive Officer. The Chairman may not be a member of management.

No director has a service contract with the Company or its subsidiaries.
John Jacobson, however, does have an employment contract with the Company
regarding his employment as President and Chief Executive Officer.

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Duties and Obligations of the Board of Directors

The Board oversees the management and operations of the business of the
Company and supervises management, which is responsible for the day-to-day
conduct of the business. The Board reviews and approves all appointments of
senior officers. The Board also establishes the overall policies for the
Company, monitors and evaluates the Companys strategic direction and retains
plenary power for those functions not specifically delegated by it to
management. In particular, the Board is responsible for the Companys approach
to corporate governance issues, including Company disclosures pursuant to the
TSX Guidelines, periodic reviews of the Board, committee composition and the
discharge of any obligations to the Companys shareholders.

The Board has established three standing committees: the Audit Committee,
the Compensation Committee and the Executive Committee. Each of the committees
has specific authority to retain external advisors, as appropriate (at the
expense of the Company), upon notice to the Chairman of the Board.

Audit Committee

The members of the Companys Audit Committee are Helmut F. Lobmeier
(Chairman), Tony Pezzotti and Walter P. Purio, all of whom are unrelated
directors.

The Audit Committees responsibilities include:



| | (a) |  | reviewing and monitoring the audit functions, risk-management
systems, management information systems, accounting policies,
disaster recovery plans, and financial exposure of the Company and
undertaking ongoing efforts to identify risks and appropriate
safeguards;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | reviewing the Companys financial statements prepared by
management and meeting with the Companys external auditors to
discuss the results of annual audits; and                                                                                                       
|
| | (c) |  | recommending for approval to the Board all public disclosure
information such as financial statements, quarterly reports,
financial news releases, annual information forms, management
discussions and analyses, and prospectuses.                                     

Compensation Committee

The members of the Companys Compensation Committee are Tony Pezzotti
(Chairman), Walter P. Purio and Brian E. Walsh, all of whom are unrelated
directors.

The Compensation Committee reviews and recommends to the Board for
approval the remuneration of senior management and directors. To fulfill this
responsibility, the Compensation Committee considers a positions
responsibilities, risks, time commitment and comparative remuneration. The
Board meets annually without the related directors to receive the Compensation
Committees report concerning recommendations for any adjustment to senior
managements compensation.

Executive Committee

The members of the Companys Executive Committee are Raymond Johnston
(Chairman) and Helmut F. Lobmeier, who are unrelated directors, and John A.
Jacobson, who is President and CEO.

The Executive Committees responsibilities include:



| | (a) |  | recommending to the Board corporate procedures in order to
address the issues of corporate governance within the organization;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | defining the limits of managements responsibilities;                                                                         
|
| | (c) |  | identifying new directors for nomination to the Board and
assessing existing directors on an ongoing basis; and               

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| | (d) |  | overseeing the implementation of the business plan for the
Companys subsidiaries in terms of operating capital and related
expenditures as approved by the Board as a whole.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

D.Employees

At November 30, 2002, there were a total of 16 employees working for OSI
Geomatics and 48 employees working for Offshore Systems Ltd. The Company has
no labor unions and no temporary staff.

|                                                                                       |  |                                                                                        |  |                                                                                       
|-------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------
|Number of Employees  U.S. 2, Canada 64
at November 30, 2000(Employees 2000 Pie Chart) |  | Number of Employees  U.S. 2, Canada 51
at November 30, 2001(Employees 2001 Pie Chart) |  | Number of Employees  U.S. 1, Canada 63
at November 30, 2002(Employees 2002 Pie Chart)

E.Share ownership.

Information as to share and option information for directors, officers and
key employees is discussed above in Item 6. A. Directors and Senior
Management and in Item 6. B. Compensation.

Item 7. Major Shareholders and Related Party Transactions

A.Major shareholders.

The following table sets forth, as of April 30, 2003, with respect to each
person known to the Company to beneficially own more than 5% of the Companys
Common Shares or more than 5% of the Companys Class A Preference Shares
Series A Convertible, or more than 5% of the Companys Class B Series 1
Preference Shares. As used in this table, beneficial ownership means the
sole or shared power to vote or direct the voting or to dispose or direct the
disposition of any security. For purposes of this table, a person is deemed to
have beneficial ownership of any securities that such person has a right to
acquire within 60 days of April 30, 2003. Any security that any person named
below has the right to acquire within 60 days is deemed outstanding for the
purpose of calculating the ownership of such person, but is not deemed
outstanding for the purpose of calculating the ownership percentage of any
other person. The amounts and percentages are based upon 26,076,029 Common
Shares, 30,262 Class A Preference Shares Series A Convertible and 61,244
Class B Series 1 Preference Shares outstanding as of April 30, 2003.

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|                                                 |  |                        |  |                    |        |                     |  |  |      |   |  | 
|------------------------------------------------ |  | ---------------------- |  | ------------------ | ------ | ------------------- |  |  | ---- | - |  | 
|                                                 |  |                        |  | Number of Shares   |        | Percentage of Class
|Title of Class of Securities                     |  | Name of Shareholders   |  | Beneficially Owned |        | Beneficially Owned 
|                                                 |  |                        |  |                    |        |                    
|Common                                           |  | None                   |  | None               |        | None               
|Class A Preference Shares
Series A Convertible |  | John Visnapu           |  |                    | 16,375 |                     |  |  | 54.1 | %
|Class A Preference Shares
Series A Convertible |  | G.A. Lachapelle        |  |                    | 3,275  |                     |  |  | 10.8 | %
|Class A Preference Shares
Series A Convertible |  | Dennis Kong            |  |                    | 3,275  |                     |  |  | 10.8 | %
|Class A Preference Shares
Series A Convertible |  | Daniel Jacobson*       |  |                    | 3,275  |                     |  |  | 10.8 | %
|Class B Series 1 Preference                    |  | SDS Merchant Fund, LP  |  |                    | 18,373 |                     |  |  | 30   | %
|Class B Series 1 Preference                    |  | DMG Legacy             |  |                    |        |                     |  |  |      |  
|                                                 |  | Institutional Fund LLC |  |                    | 19,935 |                     |  |  | 32.5 | %
|Class B Series 1 Preference                    |  | DMG Legacy             |  |                    |        |                     |  |  |      |  
|                                                 |  | International Ltd.     |  |                    | 20,792 |                     |  |  | 34   | %



---

|* |  | unrelated to John Jacobson, President and CEO of the Company
|- |  | ------------------------------------------------------------

The shareholders of the Class A Preference Shares Series A Convertible
Shares listed above became the beneficial owners of those shares during the
fiscal year 1990. The shareholders of the Class B Series 1 Preference Shares
became the beneficial owners of those shares during FY2003. The Companys
major shareholders do not have different voting rights than any other
shareholder. As of April 30, 2003, 1,105,885 Common Shares and 61,244 Class
B Series 1 Preference Shares are held by 22 U.S. shareholders. No Class A
Preference Shares Series A Convertible are held by U.S. shareholders.

B.Related party transactions.

Between December 1, 2000 and March 31, 2001, the assets of the Companys
subsidiary OSII were disposed of through a transfer to the Companys subsidiary
OSL at their net realizable value of $65,834. OSII was inactive until the
fiscal year 2002 and had no material assets prior to the fiscal year 2002.
During FY2002, OSII started operations under a new name, OSI Geomatics Inc.

There are no other related party transactions other than those described
above.

The Companys policy for transactions with affiliates is that they must be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

In the case of transactions involving a director, any of the Companys
directors who, in any way, whether directly or indirectly, has an interest in a
proposed contract or transaction with the Company, must disclose the nature and
extent of such interest to the Companys Board and must abstain from voting on
whether to approve the proposed contract or transaction. If such director fails
to obtain such Board Approval, he or she must account to the Company for any
profit made as a consequence of the Company entering into the contract or
transaction, unless the contract was fair and reasonable to the Company at the
time it was entered into, and unless after full disclosure of the nature and
extent of his or her interest, the contract or transaction is approved by the
Companys shareholders by a resolution passed by a majority of not less than
75% of the votes cast at a duly convened shareholders meeting. In addition,
if a Company director or officer holds any office or possesses any property
whereby, whether directly or indirectly, he or she may have duties or interests
that conflict with his or her duties or interests as a director or officer,
such director or officer must disclose that fact and the nature and extent of
the conflict. In the case of a director, this disclosure must be made at a
Board meeting. In the case of transactions involving an officer, the
disclosure must be made in writing to the Companys President. Since the
Companys President is required by law to be a director, his or her disclosure
must be made at a Board meeting.

C.Interests of experts and counsel.

Not applicable.

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##### Table of Contents



Item 8.     Financial Information

A.Consolidated statements and other financial information.

Please see Item 18. Financial Statements for a list of the financial
statements filed as part of this registration statement.

In the fiscal year 2002, the Companys export revenues totaled
$10,553,270, 76% of the total revenue of $13,814,133. In the fiscal year 2001,
the Companys export revenues totaled $5,154,560, 65% of the total revenue of
$7,909,713.

The Company has neither declared nor paid dividends on any of its
outstanding Common Shares, Class A Preference Shares Series A Convertible or
Class B Series 1 Preference Shares. The Company does not intend to pay
dividends to the Common or Class A Preference Shares Series A Convertible in
the foreseeable future. The Company is required to pay dividends, commencing as
of the date of issue, on the outstanding Class B Series 1 Preference Shares
at a rate of 6% per annum. The Company intends to retain any future earnings
less the Class B Series 1 Preference Share dividend to finance the expansion
of its business. Any future determination to pay additional dividends will be
at the discretion of the Board of Directors and will be dependent upon the
Companys earnings, capital requirements and financial position, as well as any
other factors deemed relevant by the Board of Directors.

During the fiscal year 2002, the Company settled a lawsuit against the
following defendants: Yokogawa Denshikiki, a Japanese corporation, AG Marine,
Inc., a U.S. corporation, and Devon Liles and Janet Liles, both U.S. citizens.
The Companys legal claim was based on the wrongful termination of a product
distribution agreement. This suit was settled in favor of the Company and the
proceeds have been recorded in the Companys FY2002 financial statements.

During the fiscal year 2002, the Company became the object of a lawsuit by
a former employee for wrongful dismissal. The suit has been settled out of
court and the costs have been recorded in the Companys FY2002 financial
statements.

The Company currently has two legal suits pending.



| |  |  | The Company and three employees are the defendants of a lawsuit
by Triathlon Ltd., a subsidiary of MacDonald, Dettwiler and
Associates Ltd., related to the use of confidential information and
breach of fiduciary duty. The Company believes the suit poses limited
financial risk. The Companys current Vice President of Operations
and Corporate Controller were officers of Triathlon Ltd. prior to
their employment with the Company.  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company filed a claim against IIC Technologies Inc. (IIC),
a U.S. subsidiary of the Indian company, IIC Technologies Private
Limited and two former employees of the Company. The suit claims that
IIC and the two former employees engaged in intentional interference
with contractual relations with a venture partner. IIC has not filed
any counter claims. The Company believes the suit does not pose
financial risk to the Company.

B.Significant changes.

In February 2003, the Company completed a private placement in the U.S. of
61,244 units at a subscription price of $50.00 per unit. Each unit consisted
of one Class B Series 1 Preference Share, and 22.75 Common Share purchase
warrants. Each Common Share purchase warrant is exercisable for the purchase
of one Common Share. Each Class B Series 1 Preference Share is convertible
at the option of the holder into 45.5 Common Shares at a deemed conversion
price of $1.10 each.

Item 9.     The Offer and Listing

A.Offer and listing details.

The issued and outstanding Common Shares of the Company (26,043,243 shares
as of November 30, 2002) are listed and posted for trading on the TSX under the
trading symbol OSI and on the OTCBB under the trading symbol OFSYF. The
Companys Common Shares are registered shares.

Page 35



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##### Table of Contents



The following summary of the trading history (in Canadian dollars) of the
Common Shares on the Toronto Stock Exchange lists:



| |  |  | the annual high and low market prices for the five most recent
full financial years;                                
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | the quarterly high and low market prices for the two most
recent full financial years and any subsequent period; and
|
| |  |  | the monthly high and low market prices for the most recent six
months.                                              

|                              |                                     |  |                 |      |     |  |   |      | 
|----------------------------- | ----------------------------------- |  | --------------- | ---- | --- |  | - | ---- | 
|                              |                                     |  | Price per share
|                              |                                     |  |                
|                              |                                     |  | High            |      | Low
|                              |                                     |  |                 |      |    
|Year                          |                                     |  |                 |      |     |  |   |     
|                              | Fiscal year ended November 30, 1998 |  | $               | 0.75 |     |  | $ | 0.25 | 
|                              | Fiscal year ended November 30, 1999 |  | $               | 0.65 |     |  | $ | 0.25 | 
|                              | Fiscal year ended November 30, 2000 |  | $               | 1.84 |     |  | $ | 0.39 | 
|                              | Fiscal year ended November 30, 2001 |  | $               | 1.25 |     |  | $ | 0.36 | 
|                              | Fiscal year ended November 30, 2002 |  | $               | 1.95 |     |  | $ | 0.90 | 
|Quarter                       |                                     |  |                 |      |     |  |   |     
|Year Ending November 30, 2001 |                                     |  |                 |      |     |  |   |     
|                              | First Quarter                       |  | $               | 0.56 |     |  | $ | 0.36 | 
|                              | Second Quarter                      |  | $               | 0.59 |     |  | $ | 0.36 | 
|                              | Third Quarter                       |  | $               | 1.04 |     |  | $ | 0.42 | 
|                              | Fourth Quarter                      |  | $               | 1.25 |     |  | $ | 0.52 | 
|Year Ending November 30, 2002 |                                     |  |                 |      |     |  |   |     
|                              | First Quarter                       |  | $               | 1.65 |     |  | $ | 1.10 | 
|                              | Second Quarter                      |  | $               | 1.53 |     |  | $ | 1.14 | 
|                              | Third Quarter                       |  | $               | 1.95 |     |  | $ | 0.99 | 
|                              | Fourth Quarter                      |  | $               | 1.45 |     |  | $ | 0.90 | 
|Most Recent Six Months        |                                     |  |                 |      |     |  |   |     
|                              | November 2002                       |  | $               | 1.29 |     |  | $ | 0.90 | 
|                              | December 2002                       |  | $               | 1.22 |     |  | $ | 0.98 | 
|                              | January 2003                        |  | $               | 1.19 |     |  | $ | 1.01 | 
|                              | February 2003                       |  | $               | 1.17 |     |  | $ | 1.01 | 
|                              | March 2003                          |  | $               | 1.12 |     |  | $ | 1.03 | 
|                              | April 2003                          |  | $               | 1.20 |     |  | $ | 1.08 | 

B.Plan of distribution.

Not applicable.

C.Markets.

The Companys Common Shares are quoted for trading on the OTCBB in the
United States under the symbol OFSYF and listed on the TSX under the symbol
OSI.

D.Selling shareholders.

Not applicable.

E.Dilution.

Not applicable.

F.Expenses of the issue.

Not applicable.

Page 36



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##### Table of Contents



Item 10. Additional Information

A.Share capital.

As of November 30, 2002, the Company had 26,043,243 voting Common Shares
without par value issued and outstanding and 41,296 Class A Preference Shares
Series A Convertible issued and outstanding, for a total of 26,084,539 issued
and outstanding shares entitled to vote.

As of April 30, 2003, the Company had 26,044,015 voting Common Shares,
30,262 Class A Preference Shares Series A Convertible and 61,244 Class B
Series 1 Preference Shares issued and outstanding, for a total of 26,135,521
issued and outstanding shares entitled to vote. All of the issued and
outstanding shares of the Company are fully paid and non-assessable.

The authorized capital of the Company consists of 300,000,000 shares,
divided into 100,000,000 Common Shares without par value, 100,000,000 Class A
Preference Shares without par value and issuable in series, of which 10,000,000
shares are designated as Class A Preference Shares Series A Convertible, and
100,000,000 Class B Preference Shares with a par value of $50.00 per share
and issuable in series, of which 10,000,000 are designated Class B Series 1
Preference Shares. The holders of Common Shares, Class A Preference Shares
Series A Convertible and Class B Series 1 Preference Shares are entitled to
receive notice of and to attend and vote at any meetings of the shareholders of
the Company.

|                                                    |  |                   |            |                   |  |                   |            |                   |  |               |            |        |  |               |            |        |  |  |            |  |  |  |            |   |  |  |            |  |  |  |            | 
|--------------------------------------------------- |  | ----------------- | ---------- | ----------------- |  | ----------------- | ---------- | ----------------- |  | ------------- | ---------- | ------ |  | ------------- | ---------- | ------ |  |  | ---------- |  |  |  | ---------- | - |  |  | ---------- |  |  |  | ---------- | 
|                                                    |  | February 28, 2003 |            | November 30, 2002 |  | November 30, 2001 |            | November 30, 2000
|                                                    |  |                   |            |                   |  |                   |            |                  
|                                                    |  | Number of         |            | Amount            |  | Number of         |            | Amount            |  | Number of     |            | Amount |  | Number of     |            | Amount
|Issued Common Shares                                |  | Common Shares     |            | $                 |  | Common Shares     |            | $                 |  | Common Shares |            | $      |  | Common Shares |            | $     
|                                                    |  |                   |            |                   |  |                   |            |                   |  |               |            |        |  |               |            |       
|Balance beginning of period                         |  |                   | 26,043,243 |                   |  |                   | 19,217,701 |                   |  |               | 24,694,549 |        |  |               | 18,495,737 |        |  |  | 23,540,975 |  |  |  | 17,768,167 |   |  |  | 22,672,628 |  |  |  | 17,169,153 | 
|Issued during the period Exercise of stock options |  |                   | 16,852     |                   |  |                   | 9,128      |                   |  |               | 1,206,664  |        |  |               | 605,184    |        |  |  | 1,137,198  |  |  |  | 711,689    |   |  |  | 868,347    |  |  |  | 599,014    | 
| Exercise of share purchase
warrants               |  |                   |           |                   |  |                   |           |                   |  |               | 125,000    |        |  |               | 99,750     |        |  |  |           |  |  |  |           |   |  |  |           |  |  |  |           | 
| Conversion of Class A
Preference shares         |  |                   | 11,034     |                   |  |                   | 11,034     |                   |  |               | 17,030     |        |  |               | 17,030     |        |  |  | 16,376     |  |  |  | 16,376     |   |  |  |           |  |  |  |           | 
|Purchased and cancelled                             |  |                   | (45,100    | )                 |  |                   | (31,570    | )                 |  |               |            |        |  |               |            |        |  |  |            |  |  |  |            |   |  |  |            |  |  |  |            | 
|Share issue costs                                   |  |                   |            |                   |  |                   |           |                   |  |               |            |        |  |               |           |        |  |  |            |  |  |  | (495       | ) |  |  |            |  |  |  |           | 
|                                                    |  |                   |            |                   |  |                   |            |                   |  |               |            |        |  |               |            |        |  |  |            |  |  |  |            |   |  |  |            |  |  |  |            | 
|Balance end of period                               |  |                   | 26,026,029 |                   |  |                   | 19,206,293 |                   |  |               | 26,043,243 |        |  |               | 19,217,701 |        |  |  | 24,694,549 |  |  |  | 18,495,737 |   |  |  | 23,540,975 |  |  |  | 17,768,167 | 
|                                                    |  |                   |            |                   |  |                   |            |                   |  |               |            |        |  |               |            |        |  |  |            |  |  |  |            |   |  |  |            |  |  |  |            | 

|                                                         |  |                     |        |                   |  |                     |        |                   |  |                     |        |        |  |                     |        |        |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|-------------------------------------------------------- |  | ------------------- | ------ | ----------------- |  | ------------------- | ------ | ----------------- |  | ------------------- | ------ | ------ |  | ------------------- | ------ | ------ |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                                         |  | February 28, 2003   |        | November 30, 2002 |  | November 30, 2001   |        | November 30, 2000
|                                                         |  |                     |        |                   |  |                     |        |                  
|Issued Class A Preference                              |  | Number of Class A |        | Amount            |  | Number of Class A |        | Amount            |  | Number of Class A |        | Amount |  | Number of Class A |        | Amount
|Shares                                                   |  | Preference Shares   |        | $                 |  | Preference Shares   |        | $                 |  | Preference Shares   |        | $      |  | Preference Shares   |        | $     
|                                                         |  |                     |        |                   |  |                     |        |                   |  |                     |        |        |  |                     |        |       
|Balance beginning of period                              |  |                     | 41,296 |                   |  |                     | 41,296 |                   |  |                     | 58,326 |        |  |                     | 58,326 |        |  |  | 74,702 |  |  |  | 74,702 |  |  |  | 74,702 |  |  |  | 74,702 | 
|Redeemed during the period
 Conversion to Common Shares |  |                     | 11,034 |                   |  |                     | 11,034 |                   |  |                     | 17,030 |        |  |                     | 17,030 |        |  |  | 16,376 |  |  |  | 16,376 |  |  |  |       |  |  |  |       | 
|                                                         |  |                     |        |                   |  |                     |        |                   |  |                     |        |        |  |                     |        |        |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|Balance end of period                                    |  |                     | 30,262 |                   |  |                     | 30,262 |                   |  |                     | 41,296 |        |  |                     | 41,296 |        |  |  | 58,326 |  |  |  | 58,326 |  |  |  | 74,702 |  |  |  | 74,702 | 
|                                                         |  |                     |        |                   |  |                     |        |                   |  |                     |        |        |  |                     |        |        |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 

|                            |  |                     |        |                   |  |                     |           |                   |  |                     |   |        |  |                     |   |        |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|--------------------------- |  | ------------------- | ------ | ----------------- |  | ------------------- | --------- | ----------------- |  | ------------------- | - | ------ |  | ------------------- | - | ------ |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - | 
|                            |  | February 28, 2003   |        | November 30, 2002 |  | November 30, 2001   |           | November 30, 2000
|                            |  |                     |        |                   |  |                     |           |                  
|Issued Class B Preference |  | Number of Class B |        | Amount            |  | Number of Class B |           | Amount            |  | Number of Class B |   | Amount |  | Number of Class B |   | Amount
|Shares                      |  | Preference Shares   |        | $                 |  | Preference Shares   |           | $                 |  | Preference Shares   |   | $      |  | Preference Shares   |   | $     
|                            |  |                     |        |                   |  |                     |           |                   |  |                     |   |        |  |                     |   |       
|Balance beginning of period |  |                     |       |                   |  |                     |          |                   |  |                     |  |        |  |                     |  |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Issued during the period    |  |                     | 61,244 |                   |  |                     | 2,079,960 |                   |  |                     |  |        |  |                     |  |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                            |  |                     |        |                   |  |                     |           |                   |  |                     |   |        |  |                     |   |        |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|Balance end of period       |  |                     | 61,244 |                   |  |                     | 2,079,960 |                   |  |                     |  |        |  |                     |  |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                            |  |                     |        |                   |  |                     |           |                   |  |                     |   |        |  |                     |   |        |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 

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No subsidiary of the Company holds any shares in the Company. As at
November 30, 2002, the Company did not hold any shares of its capital stock as
Treasury stock. On January 14, 2003, the Company announced its intention to
proceed with a normal course issuer bid, whereby it will purchase its own
Common Shares out of the market through the facilities of the TSX. As at
February 28, 2003, the Company had purchased 45,100 Common Shares. These shares
will be redeemed, canceled and returned to the authorized but unissued share
capital of the Company.

Warrants

During 2000, the Company issued 125,000 Common Share purchase warrants in
connection with a note payable financing. Each Common Share purchase warrant
allows the holder to acquire one Common Share of the Company at an exercise
price of $0.58 per share. All 125,000 Common Share purchase warrants were
exercised before the October 18, 2002 expiration date.

In February 2003, the Company issued 1,393,301 Common Share purchase
warrants as part of an equity financing package (see Item 8.B). None of these
Common Share purchase warrants have been exercised.

No one has preferential subscription rights to the capital of the Company.

Stock Option Plans

The Company has established three stock option plans under which options
to purchase Common Shares may be granted to directors, officers, employees and
consultants of the Company, as well as to any other person or company entitled
to be granted options in accordance with the policies and rules of the
applicable regulatory authorities. As of November 30, 2002, a total of
3,413,579 Common Shares are available for grant under the three plans. The
exercise price of options granted pursuant to the plans may not be less than
the market price of the Common Shares at the time of the grant. The plans
provide that options may be granted with vesting periods and expiry dates at
the discretion of the Board of Directors.

The Company had 4,165,938 options outstanding at February 28, 2003, of
which approximately 1,708,438 options were held by employees and the remainder
are held by the directors and external third parties. The Company had 3,130,047
options outstanding at November 30, 2002, of which approximately 1,235,047
options were held by employees and the remainder were held by the directors and
external third parties.

A summary of the status of the Companys stock option plans is as follows:

|                                       |  |                   |           |                   |  |                   |            |                   |  |  |            |   |  |  |           |  
|-------------------------------------- |  | ----------------- | --------- | ----------------- |  | ----------------- | ---------- | ----------------- |  |  | ---------- | - |  |  | --------- | -
|                                       |  | February 28, 2003 |           | November 30, 2002 |  | November 30, 2001 |            | November 30, 2000
|                                       |  | Number of Shares  |           | Number of Shares  |  | Number of Shares  |            | Number of Shares 
|                                       |  |                   |           |                   |  |                   |            |                  
|Outstanding at beginning of the
period |  |                   | 3,130,047 |                   |  |                   | 3,497,496  |                   |  |  | 3,237,450  |   |  |  | 3,765,740 |  
| Granted                              |  |                   | 1,055,601 |                   |  |                   | 865,000    |                   |  |  | 2,535,346  |   |  |  | 1,050,000 |  
| Exercised                            |  |                   | (16,852   | )                 |  |                   | (1,206,664 | )                 |  |  | (1,137,198 | ) |  |  | (868,347  | )
| Forfeited                            |  |                   | (2,858    | )                 |  |                   | (15,897    | )                 |  |  | (259,527   | ) |  |  | (263,519  | )
| Expired                              |  |                   |          |                   |  |                   | (9,888     | )                 |  |  | (878,574   | ) |  |  | (446,424  | )
|                                       |  |                   |           |                   |  |                   |            |                   |  |  |            |   |  |  |           |  
|Outstanding at end of the period       |  |                   | 4,165,938 |                   |  |                   | 3,130,047  |                   |  |  | 3,497,496  |   |  |  | 3,237,450 |  
|                                       |  |                   |           |                   |  |                   |            |                   |  |  |            |   |  |  |           |  
|Options vested at end of period        |  |                   | 3,997,938 |                   |  |                   | 3,130,047  |                   |  |  | 2,665,418  |   |  |  | 2,446,048 |  
|                                       |  |                   |           |                   |  |                   |            |                   |  |  |            |   |  |  |           |  

A summary of the Companys stock options, which were outstanding and
vested at February 28, 2003, is as follows:

|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 
|----------------- |  | --------------------- | --------- | ----------------- |  | ------------ | --------- |  |  | ------------------------------ |  | 
|Range of Exercise |  | Number Outstanding at |           | Number Vested at  |  |              |           | 
|Prices            |  | February 28, 2003     |           | February 28, 2003 |  | Expiry Dates
|                  |  |                       |           |                   |  |             
|$0.40  0.60      |  |                       | 1,133,138 |                   |  |              | 1,133,138 |  |  | March 2003 to May 2004        
|$0.61  0.90      |  |                       | 695,250   |                   |  |              | 695,250   |  |  | November 2003 to October 2004 
|$0.90  1.35      |  |                       | 2,067,300 |                   |  |              | 1,899,300 |  |  | November 2004 to December 2006
|$1.36
 1.50      |  |                       | 270,250   |                   |  |              | 270,250   |  |  | November 2004 to July 2005    
|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 
|$0.40
 1.50      |  |                       | 4,165,938 |                   |  |              | 3,997,938 |  |  |                                |  | 
|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 

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A summary of the Companys stock options, which were outstanding and
vested at November 30, 2002, is as follows:

|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 
|----------------- |  | --------------------- | --------- | ----------------- |  | ------------ | --------- |  |  | ------------------------------ |  | 
|Range of Exercise |  | Number Outstanding at |           | Number Vested at  |  |              |           | 
|Prices            |  | November 30, 2002     |           | November 30, 2002 |  | Expiry Dates
|                  |  |                       |           |                   |  |             
|$0.40  0.60      |  |                       | 1,133,138 |                   |  |              | 1,133,138 |  |  | March 2003 to May 2004        
|$0.61  0.90      |  |                       | 695,250   |                   |  |              | 695,250   |  |  | November 2003 to October 2004 
|$0.90  1.35      |  |                       | 1,031,409 |                   |  |              | 1,031,409 |  |  | November 2004 to December 2006
|$1.36
 1.50      |  |                       | 270,250   |                   |  |              | 270,250   |  |  | November 2004 to July 2005    
|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 
|$0.40
 1.50      |  |                       | 3,130,047 |                   |  |              | 3,130,047 |  |  |                                |  | 
|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 

A summary of the Companys stock options, which were outstanding and
vested at November 30, 2001, is as follows:

|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 
|----------------- |  | --------------------- | --------- | ----------------- |  | ------------ | --------- |  |  | ------------------------------ |  | 
|Range of Exercise |  | Number Outstanding at |           | Number Vested at  |  |              |           | 
|Prices            |  | November 30, 2001     |           | November 30, 2001 |  | Expiry Dates
|                  |  |                       |           |                   |  |             
|$0.28  0.39      |  |                       | 598,274   |                   |  |              | 598,274   |  |  | May 2002 to November 2002     
|$0.40  0.49      |  |                       | 1,221,166 |                   |  |              | 631,394   |  |  | March 2002 to December 2003   
|$0.50  0.76      |  |                       | 1,225,500 |                   |  |              | 1,225,500 |  |  | November 2002 to August 2004  
|$0.77
 1.50      |  |                       | 452,556   |                   |  |              | 210,250   |  |  | November 2003 to November 2004
|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 
|$0.28
 1.50      |  |                       | 3,497,496 |                   |  |              | 2,665,418 |  |  |                                |  | 
|                  |  |                       |           |                   |  |              |           |  |  |                                |  | 

Shares Issuances During the Past Three Years

In February 2003, the Company completed a private placement of 61,244
units at a subscription price of $50.00 per unit. Each unit consists of one
Class B Series 1 Preference Share and 22.75 Common Share purchase warrants.
Each Class B Series 1 Preference Share is convertible at the option of the
holder into 45.5 Common Shares of OSI at a deemed conversion price of $1.10
each.

Changes relating to Stock Option Plans and Warrants are discussed
previously in this section.

Shareholder Rights Plan

On April 18, 2001, the Board of Directors adopted a shareholder rights
plan (the Rights Plan). The Rights Plan was approved by the Toronto Stock
Exchange in accordance with its policies, and was also approved by the
shareholders of the Company by ordinary resolution at the annual general
meeting of the Company held on May 28, 2001. Terms used below but not defined
shall have the meanings set forth in the Rights Plan.

Background and Purpose of the Rights Plan

The objectives of the Rights Plan are to ensure, to the extent possible,
that all shareholders of the Company are treated equally and fairly in
connection with any take-over offer of the Company. Take-over offers may not
always result in shareholders receiving equal or fair treatment or full value
for their investment. In addition, current Canadian securities law only
requires a take-over offer to remain open for 21 days. The Board believes that
this period may be insufficient for the shareholders to evaluate a bid, or for
the Board to pursue alternatives which could maximize shareholder value and to
make informed recommendations to shareholders.

The Rights Plan is designed to discourage discriminatory or unfair
take-over offers for the Company and to give the Board time, if appropriate, to
pursue alternatives to maximize shareholder value in the event of an
unsolicited Take-over Bid for the Company. The Rights Plan will encourage an
Offeror to proceed by way of a Permitted Bid or to approach the Board with a
view to negotiation by creating the potential for substantial dilution of the
Offerors position. The Permitted Bid provisions of the Rights Plan are
designed to ensure that, in any Take-over Bid, all shareholders are treated
equally, receive the maximum value for their investment and are given adequate
time to properly assess the Take-over Bid on a fully informed basis.

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The following is a summary of the terms of the Rights Plan:

Issue of Rights

Under the Rights Plan, share purchase rights (the Rights) were created
on May 28,2001, with respect to the shares of the Company at the rate of one
Right per each share outstanding as at 5:00 p.m. (Pacific Time) on that date
(the Record Date) and each Common Share issued after the Record Time but
before the earlier of the Separation Time and the Expiration Time (as those
terms are defined below). In the case of convertible securities (i.e. options,
warrants and Class A Preference Shares Series A Convertible) exercisable into
Common Shares of the Company, the Rights attach at the same rate for so long as
such convertible securities are outstanding, and thereafter to the underlying
shares. References to shares should be read as references to shares or
convertible securities, as applicable.

Separation Time

Until the Separation Time, the Rights will trade together with the Common
Shares, will be represented by the Common Share certificates and will not be
exercisable. Certificates for Common Shares issued after the Record Time but
prior to the earlier of the Separation Time and the Expiration Time (as defined
below) will bear a legend incorporating the Rights Agreement by reference.
Promptly following the Separation Time, separate certificates evidencing the
Rights (Rights Certificates) will be mailed to the holders of record of
Common Shares as of the Separation Time. After such time, the Rights
Certificates alone will represent the Rights, and the Rights will be
transferable separately from the Common Shares.

The Separation Time is the close of business on the eighth business day
(or such later day as may be determined by the Board) after the earlier of:



| | (a) |  | the Stock Acquisition Date which is the date of the first
public announcement of facts indicating that a person has become an
Acquiring Person (as defined below);                                                                                                                                                                                                                                                                                                                                                    
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | the date of the commencement of, or the first public
announcement of the intent of any person (other than the Company or a
subsidiary of the Company) to commence, a take-over bid (other than a
Permitted Bid or Competing Permitted Bid (each as defined below)) to
acquire Beneficial Ownership of shares of the Company, which will
have the right to vote for the election of all directors and together
with such persons voting shares, will constitute in the aggregate
more than 20% of the voting shares; and
|
| | (c) |  | the date upon which a Permitted Bid or Competing Permitted Bid
(each as defined below) ceases to be such.                                                                                                                                                                                                                                                                                                                                                                                                               

After the Separation Time, and prior to the Expiration Time (as defined
below), each Right may be exercised to purchase one Common Share of the Company
at the Exercise Price (as defined below).

The Rights Plan has a term of approximately three years and will expire at
the close of the next annual general meeting of shareholders after April 18,
2004 (the Expiration Time) unless the Rights are redeemed or exchanged
earlier by the Company, or the Rights Plan is extended by further approval of
the shareholders.

Acquiring Person

Subject to certain exceptions set forth in the Rights Agreement, the
dilutive effects of the Rights are triggered when a person becomes an Acquiring
Person upon the acquisition of Beneficial Ownership of 20% or more of the
voting shares. A person will not trigger the separation and exercisability of
the Rights if he or she becomes the Beneficial Owner of 20% or more of the
shares as a result of: (a) a voting share Reduction which, by reducing the
number of shares outstanding, increases the percentage of shares Beneficially
Owned by such person to 20% or more; (b) a Pro-Rata Acquisition; or (c) share
acquisitions made pursuant to a Permitted Bid or otherwise on terms approved by
the Board of Directors, provided that if he or she becomes the Beneficial Owner
of 20% or more of the voting shares by such means and subsequently becomes the
Beneficial Owner of additional shares, other than by such means, then, as of
the date of such additional acquisition, he or she shall become an Acquiring
Person. A person who is an Acquiring Person at the Record Time may acquire an
additional maximum of 1% of the voting shares without triggering the dilutive
effects of the Rights.

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Beneficial Ownership

In general, a person Beneficially Owns voting shares held by such person
as well as voting shares actually held by others in circumstances where those
holdings are or should be grouped together for purposes of the Rights Plan.
Holdings which will be grouped with an individuals holding include those held
by the persons Affiliates (generally, a person that controls, is controlled
by, or under common control with the other person) and Associates (generally,
a corporation with more than 10% of its shares controlled by the person, a
partner of the person, a trust in which the person has a substantial beneficial
interest or of which the person is the trustee and the spouse or relatives of
the person sharing the persons residence). They also include securities which
the person or any of the persons Affiliates or Associates has the right to
acquire within 60 days (other than customary agreements with and between
underwriters and/or banking group and/or selling group shareholders with
respect to a distribution of securities, and other than pledges of securities
in the ordinary course of business).

A person is also deemed to Beneficially Own any securities that are
Beneficially Owned by any other person with whom the person is acting jointly
or in concert.

Investment advisors (for fully managed accounts) and trust companies
(acting in their capacities as trustees and administrators) acquiring greater
than 20% of the Companys shares will not be considered to be the Beneficial
Owners of such shares, and so will be exempt from triggering the dilutive
effects of the Rights, provided that they are not, either alone or as part of a
group, making a Take-over Bid.

Rights Exercise Privilege

The Rights will separate from the shares and become exercisable eight
business days after a person has acquired 20% or more of, or has commenced or
announced a Take-over Bid for, the Companys outstanding Common Shares, other
than by an acquisition pursuant to a Permitted Bid. The acquisition by an
Acquiring Person of 20% or more of the Companys shares is referred to as a
Flip-in Event. Prior to the Rights being triggered by a Flip-in Event, the
Rights will have no value and will have no dilutive effect on the shares.

When a Flip-in Event occurs, each Right (except for the Rights
beneficially owned by an Acquiring Person or certain transferees of an
Acquiring Person, which Rights shall be void) becomes a right to purchase from
the Company, upon exercise thereof in accordance with the terms of the Rights
Agreement, Common Shares having an aggregate market price of twice the Exercise
Price (as defined below) for an amount equal to the Exercise Price.
Accordingly, a Flip-in Event that is not approved by the Board of Directors
will result in significant dilution to an Acquiring Person. The Rights Plan
is designed to require any person interested in acquiring more than 20% of the
Companys shares to do so by way of a Permitted Bid or to make an offer which
the Board considers to represent the full value of the shares.

Exercise Price and Anti-Dilution Adjustments

The price at which a holder of a Right may purchase the Common Shares
issuable upon exercise of such right (the Exercise Price) will initially be
$30.00 per Right. The Rights Agreement provides for adjustments to the number
of Rights outstanding, the number of shares which may be acquired pursuant to
each Right and the Exercise Price (or a combination of the foregoing) in
certain circumstances or upon the occurrence of certain events, including
consolidations or subdivisions of the shares, the payment of dividends,
limitations that may exist from time to time in respect of the Companys
authorized but unissued share capital or the exchange of existing shares for
other shares or securities of the Company.

Permitted Bid and Competing Permitted Bid

A Permitted Bid will not trigger the dilutive effects of the Rights Plan.
The Permitted Bid requirements include the following:



| | (a) |  | the offer must be made for all shares and must be made by way
of a Take-over Bid circular to all holders of the Companys shares;                                                                                                                                                                                                          
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | the Offeror must not Beneficially Own more than 10% of the
outstanding shares (this restriction does not apply to Offerors who
Beneficially Own 10% or more of the outstanding shares as at the
Record Time provided that they do not increase their Beneficial
Ownership by more than 1% of the outstanding shares after the Record
Time);

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| | (c) |  | the offer must be outstanding for a minimum of 60 days to
permit shareholders of the Company to properly assess the bid and to
allow competing bids to emerge. This time period also gives the
Board of Directors sufficient time to review the offer, seek or
formulate alternatives and communicate its recommendation to
shareholders of the Company. Should more than 50% of shares held by
the shareholders other than the Offeror be tendered to the offer,
shareholders of the Company are to be provided with an additional ten
business days during which they may tender any shares not already
tendered to the offer;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) |  | the offer must provide that shares may only be taken up and
paid for if more than 50% of the shares held by shareholders of the
Company other than the Offeror have been deposited or tendered and
not withdrawn;                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (e) |  | when the offer has been made, no further shares may be acquired
by the Offeror except pursuant to the Permitted Bid; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (f) |  | if the consideration offered is not payable entirely in cash, a
fairness opinion must be provided to the shareholders of the Company
in connection with the offer.                                                                                                                                                                                                                                                                                                                                                                                                                                                              

A Permitted Bid, even if not approved by the Board, may be made directly
to the shareholders of the Company. Shareholders approval at a special
meeting will not be required for a Permitted Bid. Instead, shareholders of the
Company will initially have at least 60 days to decide whether to deposit their
shares.

A Competing Permitted Bid is a Take-over Bid that is made after a
Permitted Bid has been made, but prior to its expiry, and satisfies all the
requirements of a Permitted Bid as described above, except that a Competing
Permitted Bid is not required to remain open for 60 days so long as it is open
until the later of 21 days after the date the Competing Permitted Bid was made
and 60 days after the earliest date on which a Permitted Bid then in existence
was made.

If one or more Permitted Bids or Competing Permitted Bids are made, the
Board of Directors may require that in order for any such bid to retain its
status as a Permitted Bid or Competing Permitted Bid, it must provide that no
voting shares will be taken up or paid for prior to the latest time at which
such Permitted Bid or Competing Permitted Bid expires (the Extension Time),
provided that the Extension Time is not later than 90 days after the date on
which such Take-over Bid was made.

Redemption and Waiver

The Board of Directors may, at its option, at any time prior to the
Separation Time, elect to redeem all but not less than all of the Rights at a
redemption price of $0.001 per Right and, in that event, the right of holders
of Rights to exercise the Rights will terminate.

The Board of Directors may, prior to the occurrence of the relevant
Flip-in Event, waive the application of the Rights Plan to a Flip-in Event that
may occur by reason of a take-over bid made by a Take-over Bid circular to all
holders of record of voting shares. However, if the Board waives the
application of the Rights Plan, the Board shall be deemed to have waived the
application of the Rights Plan with respect to any other Flip-in Event
occurring by reason of such Take-over Bid made prior to the expiry of a bid for
which a waiver is, or is deemed to have been, granted.

The Board of Directors may, prior to the occurrence of the relevant
Flip-in Event, with the prior consent of the holders of voting shares, waive
the application of the Rights Plan to a Flip-in Event that may occur by reason
of an acquisition of voting shares otherwise than pursuant to a take-over bid
made by means of a Take-over Bid circular to all holders of record of voting
shares. In the event that the Board proposes such waiver, the Board shall
extend the Separation Time to a date that is no later than 10 business days
following the date of the meeting of holders of voting shares called to approve
such waiver.

Amendments

Following shareholder ratification of the Rights Agreement, the Company
may, from time to time, amend the Rights Agreement to correct any clerical or
typographical error without the approval of the holders of shares or Rights.
The Company may also, with the consent of the holders of shares, at any time
prior to the Separation Time, amend, vary or rescind any of the provisions of
the Rights Agreement. After the Separation Time, the Rights Agreement may be
amended only with the consent of the holders of Rights.

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##### Table of Contents



B.Memorandum and articles of association.

See Item 10.B. to Form 20-F, filed July 24, 2002, Exhibit 1.1 to Form 20-F
filed July 24, 2002, Exhibit 1.2 to Form 20-F filed July 24, 2002 and Item
10.B. to Amendment No. 1 to Form 20-F, filed September 10, 2002, which are
incorporated by reference herein.

Rights Attached to Shares

The following is a description of the rights, preferences, and restrictions
attached to each class of the Companys shares:

a)     100,000,000 Common Shares without par value  Each Common Share carries the
right to one vote at any general meeting of shareholders of the Company.
Cumulative voting is not permitted or required. Dividends are payable on the
Common Shares in the discretion of the Board of Directors. The holders of the
Common Shares are not liable to further capital calls on such shares by the
Company. In the event of the liquidation, dissolution or winding-up of the
Company or any distribution of its assets for the purpose of winding up its
affairs, after the payment of any dividends which had been declared but had not
been paid, the Common Shares rank subordinate to the Class A Preference
Shares and the Class B Preference Shares with respect to the amount of
capital paid out with respect of such Class A Preference Shares and Class B
Preference Shares. Thereafter, the Class A Preference Shares and Class B
Preference Shares are not entitled to any further distributions and the holders
of the Common Shares shall be entitled to the distribution of all residual
amounts. The Common Shares are not redeemable at the option of the Company or
the holders. Except as expressly provided by any special rights and
restrictions which the directors may create, define or attach to any series of
Class A Preference Shares or Class B Preference Shares (described below),
the directors of the Company may, in their discretion, declare dividends with
respect to the Common Shares only or with respect to any other class or series
of shares. To date, the Class A Preference Shares Series A Convertible and
the Class B Series 1 Preference Shares are the only Preference Shares which
have been issued with a priority for payment of dividends over the Common
Shares. There are no sinking fund provisions respecting the Common Shares.

b)     100,000,000 Class A Preference Shares without par value   These shares
may be issued in one or more series. The directors have the power to alter the
Memorandum and Articles (i.e., By-Laws) of the Company from time to time to fix
the number of shares in, and to determine the rights, privileges and
restrictions attached to each series of Class A Preference Shares, including
voting rights; however, no one series of Class A Preference Shares may be
issued with a right to payment of dividends or a return of capital on a
winding-up or dissolution of the Company in priority to any other series of
Class A Preference Shares. In addition, if the right to cumulative dividends
is attached to a series of Class A Preference Shares issued by the Company,
and such dividends are not paid in full, the shares of all series of the Class
A Preference Shares are entitled to participate ratably in respect of
accumulated dividends in accordance with the amounts that would be payable on
those shares if all the accumulated dividends were paid in full. In the event
of the liquidation, dissolution, or winding-up of the Company or any
distribution of its assets for the purpose of winding up its affairs, after the
payment of any dividends which have been declared but unpaid, the holders of
the Class A Preference Shares and the Class B Preference Shares (described
below) shall be entitled pari passu to be paid such amount as the special
rights and restrictions attaching to such shares shall provide and, in the
absence of any express provision with respect to such payments, the amount of
paid up capital on such shares, out of the assets of the Company in preference
to and in priority over any payment or distribution of any capital asset or
monies to the holders of the Common Shares of the Company. After such payment,
the holders of the Class A Preference Shares and Class B Preference Shares
shall not be entitled to share in any other distribution of the property or
assets of the Company. Once a series of Class A Preference Shares is
designated by the Board of Directors, the rights, privileges and conditions
attached to such series of Class A Preference Shares may be altered or
amended only by way of a special resolution passed by a majority of not less
than 75% of the votes cast by holders of voting shares at a meeting of the
holders of that series of Class A Preference Shares.

To date, only one series of shares has been designated by the Board of
Directors out of the Class A Preference Shares, namely, 10,000,000 shares
have been designated as Class A Preference Shares Series A Convertible
without par value (the Series A Convertible Shares). Each Series A
Convertible Share entitles the holder to one vote either in person or by proxy
at any general meeting of the shareholders of the Company. Each Series A
Convertible Share may be converted at the option of the holder into one Common
Share at any time. In each calendar year, the holders of the Series A
Convertible Shares shall be entitled to receive, in priority to the Common
Shares, non-cumulative dividends at a rate not exceeding $0.01 per Series A
Convertible Share, when, as and if so declared by the Board of Directors, in
its discretion, out of the net profits and surplus of the Company properly
applicable to the payment of dividends. The Series A Convertible Shares are not
subject to any right of redemption at the option of the holder or the Company.
In the event of the liquidation, dissolution, or winding-up of the Company or
any distribution of its assets for the purpose of winding up its affairs, after
the payment of any dividends which have been declared or accrued but unpaid,
the holders of the Series A Convertible Shares shall be entitled to be paid the
amount of paid up capital on such shares, out of the assets of the Company in
preference to and in priority over any payment or distribution of any capital
asset or monies to the holders of the Common Shares of the Company, but in
subordination to

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payment of the paid up capital plus any accrued but unpaid dividends on the
Class B Preference Shares. After such payment, the holders of the Series A
Convertible Shares shall not be entitled to share in any other distribution of
the property or assets of the Company. There are no sinking fund provisions
for any further capital calls on such shares. All issued and outstanding
Series A Convertible Shares are fully paid.

c)     100,000,000
Class B Preference Shares with a par value of $50.00 each

These shares may be issued in one or more series. The directors have the power
to alter the Memorandum and Articles of the Company from time to time to fix
the number of shares in, and to determine the rights, privileges and
restrictions attached to each series of Class B Preference Shares, including
voting rights; however, no one series of Class B Preference Shares may be
issued with rights to payment of dividends or a return of capital on a
winding-up or dissolution of the Company in priority to any other series of
Class B Preference Shares. In addition, if the right to cumulative dividends
is attached to a series of Class B Preference Shares issued by the Company,
and such dividends are not paid in full, the shares of all series of Class B
Preference Shares are entitled to participate ratably in respect of accumulated
dividends in accordance with the amounts that would be payable on those shares
if all the accumulated dividends were paid in full. In the event of the
liquidation, dissolution, or winding-up of the Company or any distribution of
its assets for the purpose of winding up its affairs, after the payment of any
dividends which have been declared but unpaid, the holders of the Class A
Preference Shares described above and the Class B Preference Shares shall be
entitled pari passu to be paid such amount as the special rights and
restrictions attaching to such shares shall provide and, in the absence of any
express provision with respect to such payments, the amount of paid up capital
on such shares, out of the assets of the Company in preference to and priority
over any payment or distribution of any capital asset or monies to the holders
of the Common Shares of the Company. After such payment, the holders of the
Class A Preference Shares and Class B Preference Shares shall not be
entitled to share in any other distribution of the property or assets of the
Company. Once a series of Class B Preference Shares is designated by the
Board of Directors, the rights, privileges and conditions attached to such
series of Class B Preference Shares may be altered or amended only by a
special resolution passed by a majority of not less than 75% of the votes cast
by holders of voting shares at a meeting of the holders of that series of Class
B Preference Shares.

To date, only one series of shares has been designated by the Board of
Directors out of the Class B Preference Shares, namely, 10,000,000 million
shares have been designated as Class B Series 1 Preference Shares without par
value (the Series 1 Preference Shares). Each Series 1 Preference Share
entitles the holder to one vote either in person or by proxy at any general
meeting of the shareholders of the Company. Each Series 1 Preference Share may
be converted at the option of the holder into 45.5 Common Shares at any time.
The Company has the right to require the shareholders of the Series 1
Preference Shares to convert each such share into 45.5 Common Shares if (i) at
any time after 13 months following the issuance of the Series 1 Preference
Share, the closing trade price of the Companys Common Shares exceeds $2.00 for
at least 20 consecutive trading days, or (ii) at any time, the Company
completes a firm public underwritten offering of its Common Shares for more
than US$40,000,000 at a price per Common Share greater than $2.20. The holders
of the Series 1 Preference Shares shall be entitled to receive in each calendar
year when, as and if declared by the Board of Directors, in its discretion,
cumulative dividends at a rate of $3.00 per Series 1 Preference Share, out of
the net profits and surplus of the Company properly applicable to the payment
of dividends, in priority to the payment of any dividend on the Common Shares
or Class A Preference Shares. The Series 1 Preference Shares are redeemable
at the option of the Company at any time after the fifth anniversary of the
issuance date for an amount equal to the original issuance price plus all
accrued but unpaid dividends on such shares. The Series 1 Preference Shares
are not subject to any right of redemption at the option of the holder. In the
event of the liquidation, dissolution, or winding-up of the Company or any
distribution of its assets for the purpose of winding up its affairs, the
holders of the Series 1 Preference Shares shall be entitled to be paid the
amount of paid up capital plus all accrued but unpaid dividends on such shares,
out of the assets of the Company in preference to and in priority over any
payment or distribution of any capital asset or monies to the holders of the
Common Shares or Class A Preference Shares. After such payment, the holders
of the Series 1 Preference Shares shall not be entitled to share in any other
distribution of the property or assets of the Company. There are no sinking
fund provisions for any further capital calls on such shares. All issued and
outstanding Series 1 Preference Shares are fully paid.

C.Material contracts.

The Company has entered into three material contracts in the ordinary
course of business for the two years preceding this annual report.

On August 20, 2001, the Company, through its subsidiary OSL, entered into
a contract with Naval Materiel Command (NMC), Denmark for the supply,
installation and testing of Electronic Chart Display and Information Systems
(ECDIS), Automatic Radar Plotting Aids, Navigation Computers and Voyage Data
Recorders to the Royal Danish Navy. The total contract price is US$2,975,681.
The contract contains a termination for convenience clause (Clause 16.1), that
allows NMC to terminate the contract, in whole or in part, at any time by
giving the Company thirty days written notice. As of February 28,

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2003, the Company had completed 85% of the contract. As of May 9, 2003 no
evidence existed that NMC has any intentions of terminating this contract.

On November 29, 2001, the Company, through its subsidiary OSL, entered
into a contract with Public Works and Government Services Canada (PWGSC) for
the supply and delivery of Shipboard Integrated Navigation and Display Systems
(SHINNADS) Upgrade for the Canadian Department of Defence. The total contract
price will be between $4,243,266 and $4,538,266. The contract is subject to
the General Condition document DSS-MAS 9601 dated May 12, 2000, which contains
a termination for convenience clause (Clause 9601 27), that allows PWGSC to
terminate the contract, in whole or in part, at any time by giving the Company
written notice. As of February 28, 2003, the Company had completed 94% of the
contract. As of May 9, 2003, no evidence existed that PWGSC has any intentions
of terminating this contract.

On June 14, 2002, the Company, through its subsidiary OSL, entered into a
contract with the U.S. Coast Guard for the supply and delivery of vessel
licenses for ECPINS-M® software and VME to PC hardware upgrade kits. The total
contract price is US$1,353,574. The contract requires that the vessel licenses
for ECPINS-M® software be supplied and delivered within 60 days after receipt
of the U.S. Coast Guards order and that the U.S. Coast Guard provide its final
acceptance of the software provided by March 2003. The supply and delivery of
the VME to PC hardware upgrade kits is also required within 60 days of receipt
of order.

See Exhibit 4.1 to Form 20-F, filed July 24, 2002, and Exhibits 4.5 and
4.7 to Amendment No. 1 to Form 20-F, filed September 10, 2002, which are
incorporated by reference herein.

The Company has entered into one material contract other than in the
ordinary course of business during the two years preceding this annual report.
The Shareholder Rights Plan Agreement, dated April 19, 2001, between the
Company and Computershare Trust Company of Canada established the Companys
Rights Plan. See Shareholder Rights Plan in Item 10.A. Additional
Information  Share Capital above.

D.Exchange controls

There is no law or governmental decree or regulation in Canada that
restricts the export or import of capital or affects the remittance of
dividends, interest or other payments to a non-resident holder of shares of the
Company, other than withholding tax requirements. See E. Taxation.

E.Taxation.

The following summary is provided by the Company regarding the material
Canadian and U.S. federal income tax considerations generally applicable in
respect of the holding or disposing of Common Shares. This summary does not
address all possible tax consequences relating to an investment in the Common
Shares of the Company. There may be provincial, territorial, state and local
taxes applicable to a potential shareholder, depending on the shareholders
particular circumstances, which are not addressed in this summary. The tax
consequences to any particular holder, including a U.S. Holder of Common Shares
(defined below) will vary according to the status of that holder as an
individual, trust, corporation, or member of a partnership, the jurisdiction in
which the holder is subject to taxation, the place where the holder is resident
and generally, according to the holders particular circumstances.

U.S. Holder of Common Shares

References to a U.S. Holder of Common Shares in this section include
individuals, corporations, trusts or estates who are holders of Common Shares
and who:

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| |  |  | for purposes of the Income Tax Act (Canada) (the ITA) and the
Canada-United States Income Tax Convention (1980), as amended by the
protocol signed on July 29, 1997, (the Treaty) are residents of the
U.S. and have never been residents of Canada;                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | for purposes of the U.S. Internal Revenue Code of 1986 (the Code) are U.S. persons;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | deal at arms length with the Company;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | will hold the Common Shares as capital property for purposes of the ITA;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | will hold the Common Shares as capital assets for purposes of the Code;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | do not and will not hold the Common Shares in carrying on a business in Canada;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | will not perform independent personal services from a fixed base situated in Canada; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | are not or will not be subject to special provisions of
Canadian or U.S. federal income tax law, including, without limiting
the generality of the foregoing, financial institutions, real estate
investment trusts, shareholders that have a functional currency other
than U.S. dollar, shareholders that own shares through a partnership
or other pass-through entity, shareholders that hold shares as part
of a straddle, hedge or conversion transaction, tax-exempt
organizations, qualified retirement plans, insurance companies, or
shareholders who acquired their shares through the exercise of
employee stock options or otherwise as compensation and mutual fund
companies.

The following summary of Canadian federal and U.S. federal income tax
considerations generally applicable to a U.S. Holder of Common Shares of the
Company is based on the following, as at the time of this statement:



| |  |  | the ITA and the Income Tax Regulations (Canada) (the Regulations);                                   
| | - |  | -------------------------------------------------------------------------------------------------------
|
| |  |  | published proposals to amend the ITA and the Regulations;                                              
|
| |  |  | published administrative positions and practices of the Canada
Customs and Revenue Agency (the CCRA);
|
| |  |  | the Code;                                                                                              
|
| |  |  | Treasury Regulations;                                                                                  
|
| |  |  | published Internal Revenue Service (IRS) rulings;                                                    
|
| |  |  | published administrative positions of the IRS;                                                         
|
| |  |  | published jurisprudence that is considered applicable; and                                             
|
| |  |  | the Treaty.                                                                                            

All of the foregoing are subject to material or adverse change, on a
prospective or retroactive basis, at any time. The tax laws of the various
provinces or territories of Canada and the tax laws of the various state and
local jurisdictions of the U.S. are not considered in this summary.

This summary is not exhaustive of all possible income tax consequences.
The following discussion is for general information only and is not intended to
be, nor should it be construed to be, legal or tax advice to any holder or
prospective holder of Common Shares of the Company and no opinion or
representation with respect to any such holder or prospective holder with
respect to the income tax consequences to any such holder or prospective holder
is made. Accordingly, holders and prospective holders of Common Shares of the
Company should consult their own tax advisors about the Canadian federal and
provincial and U.S. federal, state, local, and foreign tax consequences of
purchasing, owning and disposing of Common Shares of the Company.

Canadian Federal Income Tax Consequences

Disposition of Common Shares

A U.S. Holder of Common Shares will not be subject to tax in Canada under
the ITA on capital gains realized on the disposition of such Common Shares
unless the shares are taxable Canadian property. Such Common Shares will be
taxable Canadian property if, in general, at any time during the sixty month
period immediately preceding the disposition, 25% or more of the Companys
issued shares of any class were owned by such holder, or by such holder and
persons with whom such holder did not deal at arms length. If the Companys
shares are taxable Canadian property to a U.S. Holder of Common Shares,

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50% of any resulting capital gain realized on the disposition of such
shares may be subject to tax in Canada. However, the Treaty provides that
gains realized by a U.S. Holder of Common Shares on the disposition of shares
of a Canadian corporation will be exempt from federal tax in Canada unless the
value of the Canadian corporation is derived principally from real property
situated in Canada.

Dividend Distributions on Shares of the Company

Dividends paid on the Companys Common Shares held by a U.S. Holder of
Common Shares will be subject to Canadian non-resident withholding tax. The
Company is required to withhold taxes at source. Under the Treaty, a
withholding rate of 5% is applicable to corporations resident in the United
States, who do not have a permanent establishment in Canada in respect of which
the dividends are effectively connected, and who are beneficial owners of at
least 10% of the voting shares of the Company. Under the Treaty, a withholding
rate of 15% is applicable in all other cases.

United States Federal Income Tax Consequences

The U.S. federal income tax consequences related to the disposition and
ownership of Common Shares, subject to the Foreign Personal Holding Company
Rules, Passive Foreign Investment Company and Controlled Foreign Corporation
Rules contained in the Code, are generally as follows:

Disposition of Common Shares

On a disposition of Common Shares, a U.S. Holder of Common Shares
generally will recognize a gain or loss. The gain or loss will be equal to the
difference between the amount realized on the sale and the U.S. Holder of
Common Shares adjusted tax basis in those shares. Any such gain or loss will
be a long-term capital gain or loss if the shareholder has held the shares for
more than one year. Otherwise the gain or loss will be a short-term capital
gain or loss. However, a gain realized on the disposition of Common Shares
may be treated as ordinary income if the Company was a collapsible
corporation within the meaning of the Code. The gain or loss will generally
be a U.S. source gain or loss.

Dividend Distributions on Shares of the Company

Dividend distributions (including constructive dividends) paid by the
Company will be required to be included in the income of a U.S. Holder of
Common Shares to the extent of the Companys current or accumulated earnings
and profits (E&P) attributable to the distribution without reduction for any
Canadian withholding tax withheld from such distributions. Even if such
payment is in fact not converted to U.S. dollars, the amount of any cash
distribution paid in Canadian dollars will be equal to the U.S. dollar value of
the Canadian dollars on the date of distribution based on the exchange rate on
such date. To the extent distributions paid by the Company on the Common
Shares exceed the Companys current or accumulated E&P, they will be treated
first as a return of capital up to a shareholders adjusted tax basis in the
shares and then as capital gain from the sale or exchange of the shares.

Dividends paid by the Company on the Common Shares generally will not be
eligible for the dividends received deduction provided to corporations
receiving dividends from certain U.S. corporations. These dividends generally
may be subject to backup withholding tax, unless a U.S. Holder of Common Shares
furnishes the Company with a duly completed and signed Form W-9. The U.S.
Holder of Common Shares will be allowed a refund or a credit equal to any
amount withheld under the U.S. backup withholding tax rules against the U.S.
Holder of Common Shares U.S. federal income tax liability, provided the
shareholder furnishes the required information to the IRS.

Foreign Tax Credit

A U.S. Holder of Common Shares will generally be entitled to a foreign tax
credit or deduction in an amount equal to the Canadian tax withheld. Dividends
paid by the Company generally will constitute foreign source dividend income
and passive income for purposes of the foreign tax credit, which could reduce
the amount of foreign tax credits available to shareholders. There are
significant and complex limitations that apply to the credit. The U.S. Holders
of Common Shares should consult their own tax advisors in this regard.

Foreign Personal Holding Company Rules

Special U.S. tax rules apply to a shareholder of a foreign personal
holding company (FPHC). The Company would be classified as a FPHC in any
taxable year if both of the following tests are satisfied:

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| |  |  | at least 60% of the Companys gross income consists of foreign
personal holding company income, which generally includes passive
income such as dividends, interest, royalties, gains from shares and
commodity transactions and rents; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | more than 50% of the total voting power of all classes of
voting shares or the total value of outstanding shares is owned
directly or indirectly by five or fewer individuals who are U.S.
citizens or residents.                            

Passive Foreign Investment Company Rules

Special U.S. tax rules apply to a shareholder of a Passive Foreign
Investment Company (PFIC). The Company could be classified as a PFIC if,
after the application of certain look through rules, for any taxable year,
either:



| |  |  | 75% or more of the Companys gross income for the taxable year
is passive income, which includes interest, dividends and certain
rents and royalties; or                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the average quarterly percentage, by fair market value of the
Companys assets that produce or are held for the production of
passive income is 50% or more of the fair market value of all of
the Companys assets.

To the extent the Company owns at least 25% by value of the shares of
another corporation, the Company is treated for purposes of the PFIC tests as
owning the Companys proportionate share of the assets of such corporation, and
as receiving directly the Companys proportionate share of the income of such
corporation.

Distributions which constitute excess distributions from a PFIC and
dispositions of Common Shares of a PFIC are subject to the following special
rules:



| |  |  | the excess distributions (generally any distributions received
by a U.S. Holder of Common Shares on the shares in any taxable year
that are greater than 125% of the average annual distributions
received by such U.S. Holder of Common Shares in the three preceding
taxable years, or the U.S. Holder of Common Shares holding period
for the shares, if shorter) or gain would be allocated on a pro rata
basis over a U.S. Holder of Common Shares holding period for the
shares;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the amount allocated to the current taxable year and any
taxable year prior to the first taxable year in which the Company is
a PFIC would be treated as ordinary income in the current taxable
year; and                                                                                                                                                                                                                                                                               
|
| |  |  | the amount allocated to each of the other taxable years would
be subject to the highest rate of tax on ordinary income in effect
for that year and to an interest charge based on the value of the tax
deferred during the period during which the shares are owned.                                                                                                                                                                                                                    

U.S. Holders of Common Shares who actually or constructively own shares in
a PFIC may be eligible to make certain elections which require them to include
income for the PFIC on an annual basis.

Controlled Foreign Corporation Rules

Generally, if more than 50% of the voting power or total value of all
classes of the Companys shares is owned, directly or indirectly, by U.S.
shareholders who individually own 10% or more of the total combined voting
power of all classes of the Companys shares, the Company could be treated as a
controlled foreign corporation (CFC) under Subpart F of the Code. This
classification would require such 10% or greater shareholders to include in
income their pro rata shares of the Companys Subpart F Income, as defined in
the Code. In addition, a gain from the sale or exchange of shares by a U.S.
Holder of Common Shares who is or was a 10% or greater shareholder at any time
during the five year period ending with the sale or exchange will be deemed
ordinary dividend income to the extent that the Companys E&P is attributable
to the shares sold or exchanged.

F.Dividends and paying agents.

Not applicable.

G.Statement by experts.

Not applicable.

H.Documents on display.

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You may read and copy any of the reports and other information filed by
the Company with the SEC at, and obtain copies upon payment of prescribed fees
from, the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. In addition, the SEC maintains a
website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC at
http://www.sec.gov. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.

The Company is required to file reports and other information with the
securities commission in all provinces of Canada. You are invited to read and
copy any reports, statements or other information, other than confidential
filings, that the Company files with the provincial securities commissions.
These filings are also electronically available from the Canadian System for
Electronic Document Analysis and Retrieval (SEDAR) (http://www.sedar.com), the
Canadian equivalent of the SECs electronic document gathering and retrieval
system.

The Company will provide, without charge, to each person, including any
beneficial owner, on the written or oral request of such person, a copy of any
or all documents referred to above which have been or may be incorporated by
reference in this report (not including exhibits to such incorporated
information that are not specifically incorporated by reference into such
information). Requests for such copies should be directed to the Companys
principal executive offices at 107  930 West 1st Street, North Vancouver,
British Columbia, Canada V7P 3N4.

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I.Subsidiary information.

For more information on the Companys subsidiaries, see Item 4.
Information on the Company  Organizational structure and refer to Exhibit 8.1
to this annual statement.

Item 11.     Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to cash flow and translation risk due to changes in
the Canadian/United States dollar exchange rate and interest rate fluctuations.

The information below about the foreign exchange and interest rate
sensitivity constitutes a forward looking statement.

Inflation and Fluctuation of Currencies

The Companys foreign exchange rate and interest exposure is due to the
changing exchange rate between the Canadian and United States dollars and
fluctuations in interest rates in Canada. Exposure to exchange rate
fluctuations are due to the translation of the significant portion of the
Companys trade receivables and revenues and, to a lesser extent, the Companys
sub contract payables and direct costs. Because the Companys reporting
currency is Canadian dollars, the U.S. dollar transactions and balances must be
translated into Canadian dollars for financial statement reporting purposes. A
reduction in the value of the Canadian dollar relative to the U.S. dollar
therefore results in lower trade receivable, revenue, trade payable and expense
amounts when U.S. dollar transactions and balances are translated to Canadian
dollars. As at November 30, 2002, the Company estimates that a CDN $0.01
decrease in the value of the Canadian dollar relative to the United States
dollar would have an annualized impact of reducing earnings from operations
before taxes by approximately $47,000. See Item 3.D. Key Information  Risk
factors for further explanation of the impact of inflation and the fluctuation
of currencies.

In order to reduce the impact of U.S. to Canadian dollar exchange rate
fluctuations, the Company has used the forward exchange contract facility
described in B. Liquidity and capital resources. The Company used the
forward exchange contract facility to set the exchange rate between the U.S.
and Canadian dollar for specific transactions at a specific agreed upon rate,
thereby removing any foreign exchange gain or loss that might occur on those
transactions. The Company uses the forward exchange contract facility only for
known or reasonably certain future U.S. dollar transactions.

Interest Rate

The Company is exposed to interest rate risks relating to any debt
incurred under its operating line (i.e., its revolving credit facility). The
Company has not drawn on this facility. The operating line bears interest at
the chartered banks prime lending rate plus 1.25% per annum with interest
payable monthly. The Company is also exposed to interest rate risks relating
to cash balances. The Companys policy is to deposit surplus cash in treasury
accounts at a major Canadian chartered bank. These accounts earn interest at
rates applicable for 30-day treasury bills. Any reduction in the chartered
banks interest rate will reduce the interest earned by the Company.

The Company does not otherwise believe the disclosure required by Item 11
of this annual report to be material to the Company.

Item 12.     Description of Securities Other than Equity Securities

Not applicable.

PART II.

Item 13.     Defaults, Dividends Arrearages and Delinquencies

Not applicable.

Item 14.     Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

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Item 15.     Controls and Procedures

The Companys President and Chief Executive Officer and the Companys
Corporate Controller, after evaluating the effectiveness of the Companys
disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c))
within 90 days of the date of this Form 20-F, have concluded that, as of such
date, the Companys disclosure controls and procedures during the period in
which this Form 20-F was being prepared were effective to ensure that material
information relating to the Company was made known to them by others within the
Company.

There were no significant changes in the Companys internal controls or in
other factors that could significantly affect these controls subsequent to the
date the Companys President and Chief Executive Officer and the Companys
Corporate Controller completed their evaluation, nor were there any significant
deficiencies or material weaknesses in the Companys internal controls
requiring corrective actions.

Item 16A.     Audit Committee Financial Expert

As of March 15, 2003, the Board does not have an audit committee financial
expert, as defined by the SEC, on its Audit Committee. The Board has retained
an international executive search firm to assist the Company in recruiting a
director with such financial and accounting expertise to serve on the Audit
Committee. The search, however, has not yet identified an individual who both
meets the SECs requirements and will accept an appointment to the Companys
Board and Audit Committee.

Item 16B.     Code of ethics

The Company has not yet finalized its code of ethics. The Companys
management and Board of Directors are currently developing the Companys code
of ethics for completion during the fiscal year 2003.

PART III.

Item 17.     Financial
Statements

See Item 18. Financial Statements for a list of the Financial Statements filed as part of this annual report.

Item 18.     Financial Statements

The following financial statements are filed as part of this annual
report, together with the report of the independent auditors:

Financial Statement Schedules

Other than as set forth below, all schedules have been omitted as the
required information is either not applicable or presented in the financial
statements or notes thereto.

|   |  |                                                                                                   
|-- |  | --------------------------------------------------------------------------------------------------
|F1 |  | Independent Auditors Report  November 30, 2002, 2001 and 2000                                   
|  
|F2 |  | Consolidated Balance Sheet as of November 30, 2002 and 2001                                       
|  
|F3 |  | Consolidated Statement of Earnings & Deficit for
the years ended November 30, 2002, 2001 and 2000 
|  
|F4 |  | Consolidated Statement of Shareholders Equity for
the years ended November 30, 2002, 2001 and 2000
|  
|F5 |  | Consolidated Statements of Cash Flow for the years ended November 2002, 2001 and 2000             
|  
|F6 |  | Notes to the Consolidated Financial Statements  November 30, 2002, 2001 and 2000                 

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Item 19.     Exhibits

|               |  |                                                                                                                                         |  | 
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Exhibit Number |  | Description                                                                                                                            
|               |  |                                                                                                                                        
|              
|1.1*           |  | Memorandum of Offshore Systems International Ltd.                                                                                      
|              
|1.2*           |  | By-Laws of Offshore Systems International Ltd.                                                                                         
|              
|4.1*           |  | Contract  No. X0132 between Naval Materiel Command, Denmark and Offshore Systems Ltd. dated August 20, 2001                           
|              
|4.2**          |  | Contract-No. W8472-OICJ 26/001/QC between Public Works and Government Services Canada and Offshore Systems Ltd. dated November 29, 2001
|              
|4.3**          |  | Contract No. GS-35F-0211L between the United States Coast Guard and Offshore Systems Ltd. dated June 14, 2002                          
|              
|4.4*           |  | Shareholders' Rights Plan                                                                                                              
|              
|8.1            |  | List of Subsidiaries and Jurisdictions                                                                                                 
|              
|10.2           |  | Sarbanes-Oxley Act of 2002, Section 906 Certifications                                                                                 



---

|*  |  | Previously filed with the Companys Form 20-F, dated as of July 24, 2002 and
incorporated by reference herein.       
|-- |  | ---------------------------------------------------------------------------------------------------------------------
|  
|** |  | Previously filed with the Companys Form 20-F/A, dated as of September 10,
2002 and incorporated by reference herein.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

|                    |                                     |                                                                
|------------------- | ----------------------------------- | ---------------------------------------------------------------
|                    | OFFSHORE SYSTEMS INTERNATIONAL LTD.
|                    |                                     |                                                                
|Dated: May 27, 2003 | By:                                 | /s/ John A. Jacobson
     John A. Jacobson
     President & CEO

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Offshore Systems International Ltd.

Consolidated Financial Statements
(Prepared in accordance with United States
Generally Accepted Accounting Principles)November 30, 2002, 2001 and 2000
(expressed in Canadian dollars)

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(PRICEWATERHOUSECOOPERS LETTERHEAD)

Auditors Report

To the Shareholders of
Offshore Systems International Ltd.

We have audited the consolidated balance sheets of Offshore Systems
International Ltd.as at November 30, 2002 and 2001 and the consolidated
statements of earnings and deficit, shareholders equity and cash flows for the
years ended November 30, 2002, 2001 and 2000. 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 generally accepted auditing
standards in the United States. 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 consolidated financial statements present fairly, in all
material respects, the financial position of the company as at November 30,
2002 and 2001 and the results of its operations and its cash flows for years
ended November 30, 2002, 2001 and 2000 in accordance with generally accepted
accounting principles in the United States.

On January 17, 2003, we reported separately, in accordance with generally
accepted auditing standards in Canada, to the shareholders of Offshore Systems
International Ltd.on consolidated financial statements for each of the two
years in the period ended November 30, 2002, prepared in accordance with
generally accepted accounting principles in Canada.

-s- PricewaterhouseCoopers LLP

Chartered Accountants

Vancouver, British Columbia
January 17, 2003

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers
LLP and the other member firms of PricewaterhouseCoopers International Limited,
each of which is a separate and independent legal entity.

F1

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Offshore Systems International Ltd.
Consolidated Balanced SheetsAs of November 30, 2002 and 2001

(expressed in Canadian dollars)

|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |            | 
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | ---- |  | ----------- | ---------- | 
|                                                  |                                                                                                                                                                                                          |  | 2002        |            | 2001
|                                                  |                                                                                                                                                                                                          |  | $           |            | $   
|                                                  |                                                                                                                                                                                                          |  |             |            |     
|Assets                                            |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Current assets                                    |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Cash and cash equivalents                         |                                                                                                                                                                                                          |  | 3,244,048   |            |      |  | 2,037,625   |           
|Accounts receivable (note 3)                      |                                                                                                                                                                                                          |  | 3,960,846   |            |      |  | 2,857,370   |           
|Inventory (note 4)                                |                                                                                                                                                                                                          |  | 1,284,966   |            |      |  | 870,354     |           
|Prepaid expenses and deposits                     |                                                                                                                                                                                                          |  | 232,765     |            |      |  | 245,263     |           
|Deferred income taxes (note 14)                   |                                                                                                                                                                                                          |  | 98,860      |            |      |  | 11,700      |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  |                                                                                                                                                                                                          |  | 8,821,485   |            |      |  | 6,022,312   |           
|Deferred income taxes(note 14)                    |                                                                                                                                                                                                          |  | 554,856     |            |      |  | 215,600     |           
|Plant and equipment(note 5)                       |                                                                                                                                                                                                          |  | 1,020,731   |            |      |  | 970,887     |           
|Intangible and other assets(note 6)               |                                                                                                                                                                                                          |  | 398,505     |            |      |  | 144,710     |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  |                                                                                                                                                                                                          |  | 10,795,577  |            |      |  | 7,353,509   |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Liabilities                                       |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Current liabilities                               |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Accounts payable and accrued liabilities (note 7) |                                                                                                                                                                                                          |  | 2,475,966   |            |      |  | 1,308,309   |           
|Unearned revenue                                  |                                                                                                                                                                                                          |  | 1,636,154   |            |      |  | 1,750,430   |           
|Rent payable (note 9)                             |                                                                                                                                                                                                          |  | 133,942     |            |      |  | 40,366      |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  |                                                                                                                                                                                                          |  | 4,246,062   |            |      |  | 3,099,105   |           
|Accrued long-term royalties(note 12)              |                                                                                                                                                                                                          |  | 372,717     |            |      |  | 240,183     |           
|Rent payable(note 9)                              |                                                                                                                                                                                                          |  |            |            |      |  | 131,301     |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  |                                                                                                                                                                                                          |  | 4,618,779   |            |      |  | 3,470,589   |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Shareholders Equity                              |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Capital stock(note 10)                            |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|Authorized                                        |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  | 100,000,000 Class A preference shares without par value,
issuable in series, of which 10,000,000 shares are
designated Series A voting, non-cumulative, convertible at
a 1:1 ratio, 1% preference shares |  |             |            |      |  |             |            | 
|                                                  | 100,000,000 Class B preference shares with a par value of
$50 each, issuable in series                                                                                                                   |  |             |            |      |  |             |            | 
|                                                  | 100,000,000 common shares without par value                                                                                                                                                              |  |             |            |      |  |             |            | 
|Issued and outstanding                            |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  | 41,296 (2001  58,326) Class A preference shares  Series A                                                                                                                                              |  |             | 41,296     |      |  |             | 58,326     | 
|                                                  | 26,043,243 (2001 - 24,694,549) common shares                                                                                                                                                             |  |             | 19,217,701 |      |  |             | 18,495,737 | 
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  |                                                                                                                                                                                                          |  | 19,258,997  |            |      |  | 18,554,063  |           
|Warrants(note 10)                                 |                                                                                                                                                                                                          |  |            |            |      |  | 27,250      |           
|Additional paid-in capital                        |                                                                                                                                                                                                          |  | 191,968     |            |      |  | 269,900     |           
|Accumulated other comprehensive income            |                                                                                                                                                                                                          |  | 110,800     |            |      |  | 110,800     |           
|Deficit                                           |                                                                                                                                                                                                          |  | (13,384,967 | )          |      |  | (15,079,093 | )         
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  |                                                                                                                                                                                                          |  | 6,176,798   |            |      |  | 3,882,920   |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           
|                                                  |                                                                                                                                                                                                          |  | 10,795,577  |            |      |  | 7,353,509   |           
|                                                  |                                                                                                                                                                                                          |  |             |            |      |  |             |           

Commitments and contingencies(note 13)Subsequent events(note 19)

Approved by the Board of Directors

|                  |  |          |  |                     |  |         
|----------------- |  | -------- |  | ------------------- |  | --------
|/s/ Tony Pezzotti |  | Director |  | /s/ Helmut Lobmeier |  | Director

The accompanying notes are an
integral part of these consolidated financial statements.

F2

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Offshore Systems International Ltd.
Consolidated Statements of Earnings and DeficitFor the years ended November 30, 2002, 2001 and 2000

(expressed in Canadian dollars)

|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|--------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ----------- | - |  |  | ----------- | -
|                                                                |  | 2002 |             | 2001 |  | 2000
|                                                                |  | $    |             | $    |  | $   
|                                                                |  |      |             |      |  |     
|Revenue                                                         |  |      |             |      |  |      |             |   |  |  |             |  
|Systems and system components                                   |  |      | 9,707,393   |      |  |      | 5,874,568   |   |  |  | 4,274,945   |  
|Geomatics                                                       |  |      | 2,347,464   |      |  |      | 1,073,157   |   |  |  | 969,856     |  
|Software                                                        |  |      | 970,323     |      |  |      | 617,373     |   |  |  |            |  
|Other                                                           |  |      | 788,953     |      |  |      | 344,615     |   |  |  | 406,864     |  
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|                                                                |  |      | 13,814,133  |      |  |      | 7,909,713   |   |  |  | 5,651,665   |  
|Cost of sales                                                   |  |      | 6,968,768   |      |  |      | 3,333,358   |   |  |  | 1,364,053   |  
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Gross profit                                                    |  |      | 6,845,365   |      |  |      | 4,576,355   |   |  |  | 4,287,612   |  
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Expenses
General and administrative                             |  |      | 2,628,395   |      |  |      | 2,026,305   |   |  |  | 2,251,228   |  
|Research and development                                        |  |      | 1,516,528   |      |  |      | 1,206,974   |   |  |  | 1,518,343   |  
|Sales and marketing                                             |  |      | 1,761,669   |      |  |      | 1,141,659   |   |  |  | 873,049     |  
|Depreciation                                                    |  |      | 303,407     |      |  |      | 238,958     |   |  |  | 212,621     |  
|Interest                                                        |  |      | 3,582       |      |  |      | 55,380      |   |  |  | 210,581     |  
|Foreign exchange gain                                           |  |      | (26,286     | )    |  |      | (86,493     | ) |  |  | 4,470       |  
|Technology Partnerships Canada royalty (note 12)                |  |      | 476,189     |      |  |      | 391,951     |   |  |  | 198,116     |  
|Technology Partnerships Canada contribution (note 12)           |  |      | (863,851    | )    |  |      | (768,818    | ) |  |  | (1,146,381  | )
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|                                                                |  |      | 5,799,633   |      |  |      | 4,205,916   |   |  |  | 4,122,027   |  
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Earnings before undernoted                                      |  |      | 1,045,732   |      |  |      | 370,439     |   |  |  | 165,585     |  
|Proceeds on settlement of claim(note 13)                        |  |      | 221,978     |      |  |      |            |   |  |  |            |  
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Earnings before income tax recovery and discontinued
operations |  |      | 1,267,710   |      |  |      | 370,439     |   |  |  | 165,585     |  
|Deferred income tax recovery(note 14)                           |  |      | 426,416     |      |  |      | 227,300     |   |  |  |            |  
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Net earnings from continuing operations                         |  |      | 1,694,126   |      |  |      | 597,739     |   |  |  | 165,585     |  
|Loss from discontinued operations(note 17 )                     |  |      |            |      |  |      |            |   |  |  | (69,016     | )
|Loss on disposal of discontinued operations(note 17 )           |  |      |            |      |  |      |            |   |  |  | (247,657    | )
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Net earnings (loss) for the year                                |  |      | 1,694,126   |      |  |      | 597,739     |   |  |  | (151,088    | )
|Deficit  Beginning of year                                     |  |      | (15,079,093 | )    |  |      | (15,676,832 | ) |  |  | (15,525,744 | )
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Deficit  End of year                                           |  |      | (13,384,967 | )    |  |      | (15,079,093 | ) |  |  | (15,676,832 | )
|                                                                |  |      |             |      |  |      |             |   |  |  |             |  
|Earnings per share(note 11)                                     |  |      |             |      |  |      |             |   |  |  |             |  
|Basic earnings per share from continuing operations             |  |      | 0.07        |      |  |      | 0.03        |   |  |  | 0.01        |  
|Basic net earnings (loss) per share                             |  |      | 0.07        |      |  |      | 0.03        |   |  |  | (0.01       | )
|Diluted earnings per share from continuing operations           |  |      | 0.06        |      |  |      | 0.02        |   |  |  | 0.01        |  
|Diluted net earnings (loss) per share                           |  |      | 0.06        |      |  |      | 0.02        |   |  |  | (0.01       | )
|Weighted average number of common shares outstanding            |  |      |             |      |  |      |             |   |  |  |             |  
|Basic                                                           |  |      | 25,288,725  |      |  |      | 23,842,549  |   |  |  | 23,050,201  |  
|Diluted                                                         |  |      | 27,285,617  |      |  |      | 25,476,614  |   |  |  | 24,526,875  |  

The accompanying notes are an integral part of these consolidated financial statements.

F3

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Offshore Systems International
Ltd.
Consolidated Statements of Shareholders EquityFor the years ended November 30, 2002, 2001 and 2000

(expressed in Canadian dollars)

|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |         |  
|--------------------------- | ----------------------------------- |  | ------------ | --------- | ------------------------ |  | ---------- | ------- | ---------- |  | ------ | ------- | ------------- |  | ------ | ------- | - |  | ------- | -------- | ------- |  | ------- | ------- | ----------- |  | ------- | -------- | - |  | ----------- | - |  |  | ------- | ------ |  |  | --------- | ------- | -
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         | Accumulated |  |        
|                            |                                     |  | Common stock |           | Class A preference stock |  | Warrants   |         | Additional |  |        |         |               |  | other  |         |   |  |        
|                            |                                     |  |              |           |                          |  |            |         | paid-in    |  |        |         | comprehensive |  |       
|                            |                                     |  |              |           |                          |  | Amount     |         |            |  |        |         | Amount        |  |        |         |   |  | Amount  |          | capital |  | Deficit |         | income      |  | Total  
|                            |                                     |  | Shares       |           | $                        |  | Shares     |         | $          |  | Shares |         | $             |  | $      |         | $ |  | $       |          | $      
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |        
|Balance  November 30, 1999 |                                     |  | 22,672,628   |           |                          |  | 17,169,153 |         |            |  | 74,702 |         |               |  | 74,702 |         |   |  |        |          |         |  |        |         |             |  | 197,167 |          |   |  | (15,525,744 | ) |  |  | 82,069  |        |  |  | 1,997,347 |        
|Issue of common shares      |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |         |  
|                            | Exercise of stock options           |  |              | 868,347   |                          |  |            | 599,014 |            |  |        |        |               |  |        |        |   |  |         |         |         |  |         |        |             |  |         | (156,301 | ) |  |             |  |  |  |         |       |  |  |           | 442,713 |  
|Issue of warrants           |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  | 125,000 |          |         |  | 27,250  |         |             |  |        |          |   |  |            |   |  |  |        |        |  |  | 27,250    |        
|Stock-based compensation    |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  | 455,108 |          |   |  |            |   |  |  |        |        |  |  | 455,108   |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|                            |                                     |  | 23,540,975   |           |                          |  | 17,768,167 |         |            |  | 74,702 |         |               |  | 74,702 |         |   |  | 125,000 |          |         |  | 27,250  |         |             |  | 495,974 |          |   |  | (15,525,744 | ) |  |  | 82,069  |        |  |  | 2,922,418 |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Net loss for the year       |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  |        |          |   |  | (151,088    | ) |  |  |        |        |  |  | (151,088  | )      
|Other comprehensive income  |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   | 
|                            | Foreign currency translation        |  |              |          |                          |  |            |        |            |  |        |        |               |  |        |        |   |  |         |         |         |  |         |        |             |  |         |         |   |  |             |  |  |  |         | 28,731 |  |  |           | 28,731  |  
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Comprehensive income        |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  |        |          |   |  | (151,088    | ) |  |  | 28,731  |        |  |  | (122,357  | )      
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Balance  November 30, 2000 |                                     |  | 23,540,975   |           |                          |  | 17,768,167 |         |            |  | 74,702 |         |               |  | 74,702 |         |   |  | 125,000 |          |         |  | 27,250  |         |             |  | 495,974 |          |   |  | (15,676,832 | ) |  |  | 110,800 |        |  |  | 2,800,061 |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Issue of common shares      |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|                            | Class A preference shares
converted |  |              | 16,376    |                          |  |            | 16,376  |            |  |        | (16,376 | )             |  |        | (16,376 | ) |  |         |         |         |  |         |        |             |  |         |         |   |  |             |  |  |  |         |       |  |  |           |        |  
|                            | Exercise of stock options           |  |              | 1,137,198 |                          |  |            | 711,689 |            |  |        |        |               |  |        |        |   |  |         |         |         |  |         |        |             |  |         | (295,074 | ) |  |             |  |  |  |         |       |  |  |           | 416,615 |  
|                            | Share issue costs                   |  |              |          |                          |  |            | (495    | )          |  |        |        |               |  |        |        |   |  |         |         |         |  |         |        |             |  |         |         |   |  |             |  |  |  |         |       |  |  |           | (495    | )
|Stock-based compensation    |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  | 69,000  |          |   |  |            |   |  |  |        |        |  |  | 69,000    |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|                            |                                     |  | 24,694,549   |           |                          |  | 18,495,737 |         |            |  | 58,326 |         |               |  | 58,326 |         |   |  | 125,000 |          |         |  | 27,250  |         |             |  | 269,900 |          |   |  | (15,676,832 | ) |  |  | 110,800 |        |  |  | 3,285,181 |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Net earnings for the year   |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  |        |          |   |  | 597,739     |   |  |  |        |        |  |  | 597,739   |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Comprehensive income        |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  |         |          |   |  | 597,739     |   |  |  |        |        |  |  | 597,739   |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Balance  November 30, 2001 |                                     |  | 24,694,549   |           |                          |  | 18,495,737 |         |            |  | 58,326 |         |               |  | 58,326 |         |   |  | 125,000 |          |         |  | 27,250  |         |             |  | 269,900 |          |   |  | (15,079,093 | ) |  |  | 110,800 |        |  |  | 3,882,920 |        
|Issue of common shares      |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|                            | Class A preference shares
converted |  |              | 17,030    |                          |  |            | 17,030  |            |  |        | (17,030 | )             |  |        | (17,030 | ) |  |         |         |         |  |         |        |             |  |         |         |   |  |             |  |  |  |         |       |  |  |           |        |  
|                            | Exercise of stock options           |  |              | 1,206,664 |                          |  |            | 605,184 |            |  |        |        |               |  |        |        |   |  |         |         |         |  |         |        |             |  |         | (109,432 | ) |  |             |  |  |  |         |       |  |  |           | 495,752 |  
|                            | Exercise of share purchase
warrants |  |              | 125,000   |                          |  |            | 99,750  |            |  |        |        |               |  |        |        |   |  |         | (125,000 | )       |  |         | (27,250 | )           |  |         |         |   |  |             |  |  |  |         |       |  |  |           | 72,500  |  
|Stock-based compensation    |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  | 31,500  |          |   |  |            |   |  |  |        |        |  |  | 31,500    |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|                            |                                     |  | 26,043,243   |           |                          |  | 19,217,701 |         |            |  | 41,296 |         |               |  | 41,296 |         |   |  |        |          |         |  |        |         |             |  | 191,968 |          |   |  | (15,079,093 | ) |  |  | 110,800 |        |  |  | 4,482,672 |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Net earnings for the year   |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  |        |          |   |  | 1,694,126   |   |  |  |        |        |  |  | 1,694,126 |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Comprehensive income        |                                     |  |             |           |                          |  |           |         |            |  |       |         |               |  |       |         |   |  |        |          |         |  |        |         |             |  |        |          |   |  | 1,694,126   |   |  |  |        |        |  |  | 1,694,126 |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        
|Balance  November 30, 2002 |                                     |  | 26,043,243   |           |                          |  | 19,217,701 |         |            |  | 41,296 |         |               |  | 41,296 |         |   |  |        |          |         |  |        |         |             |  | 191,968 |          |   |  | (13,384,967 | ) |  |  | 110,800 |        |  |  | 6,176,798 |        
|                            |                                     |  |              |           |                          |  |            |         |            |  |        |         |               |  |        |         |   |  |         |          |         |  |         |         |             |  |         |          |   |  |             |   |  |  |         |        |  |  |           |        

The accompanying notes are an integral part of these consolidated financial statements.

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Offshore Systems International Ltd.
Consolidated Statements of Cash FlowsFor the years ended November 30, 2002, 2001 and 2000

(expressed in Canadian dollars)

|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |            |         |  
|----------------------------------------------------- | ---------------------------------------- | ------------------------------------------- | --------- | ---------- | -------- | ---- | --------- | ---------- | -------- | - | ---------- | ---------- | ------- | -
|                                                      |                                          |                                             |           | 2002       |          | 2001 |           | 2000      
|                                                      |                                          |                                             |           | $          |          | $    |           | $         
|                                                      |                                          |                                             |           |            |          |      |           |           
|Cash flows from operating activities                  |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Net earnings (loss) for the year                      |                                          |                                             | 1,694,126 |            |          |      | 597,739   |            |          |   | (151,088   | )         
|                                                      | Items not affecting cash                 |                                             |           |            |          |      |           |            |          |   |            |            |        
|                                                      |                                          | Depreciation                                |           |            | 303,407  |      |           |            | 238,958  |   |            |            | 212,621 |  
|                                                      |                                          | Deferred income taxes                       |           |            | (426,416 | )    |           |            | (227,300 | ) |            |            |        |  
|                                                      |                                          | Accretion of note payable discount          |           |            |         |      |           |            | 27,250   |   |            |            |        |  
|                                                      |                                          | Stock-based compensation                    |           |            | 31,500   |      |           |            | 69,000   |   |            |            | 455,108 |  
|                                                      |                                          | Loss on disposal of discontinued operations |           |            |         |      |           |            |         |   |            |            | 247,657 |  
|                                                      |                                          | Gain on disposal of plant and equipment     |           |            | (15,447  | )    |           |            |         |   |            |            |        |  
|                                                      |                                          | Other                                       |           |            |         |      |           |            |         |   |            |            | (87,458 | )
|Changes in non-cash working capital items             |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|                                                      | Accounts receivable                      |                                             |           | (1,103,476 | )        |      |           | (1,517,723 | )        |   |            | 2,748,548  |        
|                                                      | Inventory                                |                                             |           | (414,612   | )        |      |           | 533,087    |          |   |            | 199,788    |        
|                                                      | Prepaid expenses and deposits            |                                             |           | 12,498     |          |      |           | (186,296   | )        |   |            | 21,960     |        
|                                                      | Accounts payable and accrued liabilities |                                             |           | 1,167,657  |          |      |           | (170,468   | )        |   |            | (2,151,805 | )      
|                                                      | Unearned revenue                         |                                             |           | (114,276   | )        |      |           | 1,652,887  |          |   |            | (53,289    | )      
|                                                      | Accrued royalties                        |                                             |           | 132,534    |          |      |           | 193,546    |          |   |            | 46,637     |        
|                                                      | Rent payable                             |                                             |           | (37,725    | )        |      |           | (20,861    | )        |   |            | 106,960    |        
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|                                                      |                                          |                                             | 1,229,770 |            |          |      | 1,189,819 |            |          |   | 1,595,639  |           
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Cash flows from financing activities                  |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Issue of common shares                                |                                          |                                             | 568,252   |            |          |      | 416,120   |            |          |   | 442,713    |           
|Repayment of note payable                             |                                          |                                             |          |            |          |      | (125,000  | )          |          |   | (150,000   | )         
|Issue of note payable and warrants                    |                                          |                                             |          |            |          |      |          |            |          |   | 125,000    |           
|Repayment of borrowing secured by accounts receivable |                                          |                                             |          |            |          |      |          |            |          |   | (1,334,211 | )         
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|                                                      |                                          |                                             | 568,252   |            |          |      | 291,120   |            |          |   | (916,498   | )         
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Cash flows from investing activities                  |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Additions to plant and equipment                      |                                          |                                             | (326,141  | )          |          |      | (128,128  | )          |          |   | (52,976    | )         
|Additions to other assets                             |                                          |                                             | (345,458  | )          |          |      | (77,509   | )          |          |   | (22,362    | )         
|Proceeds from disposal of plant and equipment         |                                          |                                             | 80,000    |            |          |      |          |            |          |   | 1,388      |           
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|                                                      |                                          |                                             | (591,599  | )          |          |      | (205,637  | )          |          |   | (73,950    | )         
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Effect of exchange rate changes on cash               |                                          |                                             |          |            |          |      |          |            |          |   | 55,109     |           
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Increase in cash and cash equivalents                 |                                          |                                             | 1,206,423 |            |          |      | 1,275,302 |            |          |   | 660,300    |           
|Cash and cash equivalents  Beginning of year         |                                          |                                             | 2,037,625 |            |          |      | 762,323   |            |          |   | 102,023    |           
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           
|Cash and cash equivalents  End of year               |                                          |                                             | 3,244,048 |            |          |      | 2,037,625 |            |          |   | 762,323    |           
|                                                      |                                          |                                             |           |            |          |      |           |            |          |   |            |           

Refer to note 18 for supplemental cash flow information

The accompanying notes are an integral part of these consolidated financial statements.

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|1 |  | Nature of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Offshore Systems International Ltd. (OSIL) develops and markets military and
commercial electronic navigation aids and produces geomatics products and
services. Collectively, OSIL and its subsidiaries are referred to as the
company. The companys systems line of business develops and produces
electronic marine navigation aids. The companys geomatics line of business
produces land mapping and nautical charting products and services.                                                                                                                                                                                                                                                                     
| 
|2 |  | Summary of significant accounting policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
|  |  | Accounting principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | These consolidated financial statements and accompanying notes are prepared
in accordance with generally accepted accounting principles in the United
States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | Principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
|  |  | These consolidated financial statements include the accounts of the company
and its wholly owned subsidiaries. All material intercompany transactions
and balances have been eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
|  |  | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| 
|  |  | In prior years, the functional currency of the companys U.S. based
subsidiary, which provided sales, support and distribution services for a
number of third party manufacturers of navigation aids and marine
technologies, was the U.S. dollar. During the fiscal year ended November 30,
2002, the nature of the entitys operations changed such that it services
the companys U.S. market of the geomatics business line and the functional
currency is now the Canadian dollar. Accordingly, monetary items are
translated into Canadian dollars at the rates in effect at the balance sheet
dates. Non-monetary items are translated at historical rates. Translation
gains and losses are included in earnings.
| 
|  |  | Foreign currency denominated monetary assets and liabilities of Canadian
operations are remeasured into Canadian dollars at rates of exchange in
effect at the balance sheet date, and revenues and expenses at average rates
of exchange during the year. Exchange gains and losses arising on
translation are included in earnings.                                                                                                                                                                                                                                                                                                                                                                                    
| 
|  |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
|  |  | The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts that are recorded in the
financial statements and accompanying disclosures. Actual results may differ
from these estimates.                                                                                                                                                                                                                                                                                                                                                                                              
| 
|  |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
|  |  | Cash and cash equivalents consist of cash and deposit instruments with an
initial maturity of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | Inventory                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Raw materials and parts are stated at the lower of cost and replacement
value. Work-in-process and manufactured parts are stated at the cost of
materials and direct labour applied to the product and the applicable share
of overhead. Finished goods are stated at the lower of cost and net
realizable value. Cost is determined on an average cost basis.
|
| |  | Plant and equipment                                                                                                                                                                                                                                                                                                                                           
|
| |  | Plant and equipment are recorded at cost. Depreciation is provided using the
declining balance method based on the assets estimated useful lives as
follows:                                                                                                                                                                                                 

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|                                |  | %
|                                |  |  
|Training and development vessel |  |   | 7       | 
|Equipment                       |  |   | 20  25 | 
|Furniture and fixtures          |  |   | 20      | 
|Leasehold improvements          |  |   | 20      | 



| |  | Other depreciable assets                                                                                                                                          
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Other depreciable assets are recorded at cost. Depreciation is provided
using the declining balance method based on the assets estimated useful
lives as follows:

|                     |  |   |    | 
|-------------------- |  | - | -- | 
|                     |  | %
|                     |  |  
|Computer software    |  |   | 33 | 
|Patents and licenses |  |   | 10 | 



| |  | Long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of. SFAS No. 121 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. An impairment
review is performed whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. In the event of any
impairment, a loss is recognized based on the amount by which the carrying
value exceeds the fair value of the long-lived asset, reduced for the cost
of disposal. No losses from impairment have been recognized in the financial
statements.
|
| |  | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The company accounts for income taxes using the asset and liability method,
under which deferred income tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the tax rates and laws expected to be in
effect when the differences are expected to reverse. The company provides a
valuation allowance to the extent that the company does not consider it to
be more likely than not that a deferred income tax asset will be recovered.                                                                                                                                                                                                                                                                                                     

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Certain revenue from projects for navigation systems is recognized using the
percentage of completion method, in conformity with the American Institute
of Certified Public Accountants (AICPA) Statement of Position (SOP) 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts, whereby revenue and profit in the period are based on the ratio
of costs incurred to total estimated costs of the project for each segment
of the project. Costs include all direct costs including materials, labour
and subcontracting costs and certain indirect costs related to contracts. A
provision is made for the entire amount of future estimated losses, if any,
on contracts in progress. The company issues invoices related to these
projects based on the achievement of milestones during the project or other
contractual terms. Differences between the timing of billings, based on
contract milestones or other contractual terms, and the recognition of
revenue, based on the percentage of completion method, are recognized as
either unbilled accounts receivable or deferred revenue.
|
| |  | Certain other systems revenue and revenue from navigation software are
accounted for following the AICPA SOP 97-2, Software Revenue Recognition, as
amended by SOP 98-4 and 98-9. Revenue is recognized at the time of delivery
of the software and software locks to the customer if persuasive evidence
exists of an agreement with the customer, the price is fixed and
determinable, collection is probable, and there are no ongoing obligations
of the company to provide future services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The company does not provide post-contract support as part of its software
licensing arrangements. In order to upgrade, a customer must purchase the
most up-to-date version at the current market price.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Systems revenue under bill-and-hold arrangements, whereby revenue has been
recognized but the goods have not been shipped, is recognized when the
customer has substantial business purpose for ordering the goods on a
bill-and-hold basis and the company does not retain any specific performance
obligations such that the earnings are not complete. Goods held under such
arrangements are segregated, ready for shipment and not subject to fill
other orders. The customers are charged additional fees for storage and
other associated costs until shipment occurs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Revenue from systems components is recognized at the time delivery of the
systems components to the customer has occurred and title has passed or as
the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Geomatics sales revenue is recognized in the period the products are
delivered. Geomatics service revenue is recognized using the percentage of
completion method, in conformity with the AICPA SOP 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts,
whereby revenue and profit in the period are based on the ratio of costs
incurred to total estimated costs of the project. Costs include all direct
costs including materials, labour and subcontracting costs and certain
indirect costs related to contracts. A provision is made for the entire
amount of future estimated losses, if any, on contracts in progress. The
company issues invoices related to these projects based on the achievement
of milestones during the project or other contractual terms. Differences
between the timing of billings, based on contract milestones or other
contractual terms, and the recognition of revenue, based on the percentage
of completion method, are recognized as either unbilled accounts receivable
or deferred revenue.                                                        
|
| |  | Revenue from system repairs and servicing, as well as training and
consulting revenue, is recorded as the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | Unearned revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Unearned revenue represents unearned income associated with agreements for
the sale of navigation systems and charts subscription agreements where
significant vendor obligations remain or payments are received in advance of
revenue recognition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Research and development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Development costs incurred internally in creating computer software to be
sold, licensed, or otherwise marketed are expensed as incurred unless they
meet generally accepted accounting criteria for deferral and amortization.
Software development costs incurred prior to technical feasibility that do
not meet these criteria are expensed as incurred. To date, the period
between achieving technological feasibility, which the company has defined
as the establishment of a working model, which typically occurs when beta
testing commences, and the general availability of such software has been
short and development costs qualifying for capitalization have been
insignificant. Research costs are expensed in the period incurred.
|
| |  | Government assistance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Government assistance is recorded in the accounts when there is reasonable
assurance that the company has complied with, and will continue to comply
with, all conditions necessary to obtain the grants. Government assistance
towards current research expenditures is recorded as a reduction of expenses
in the consolidated statement of earnings. The liability to repay government
assistance is recognized as an expense in the period in which events occur
that make the prospect of repayment probable.                                                                                                                                                                                                                                    
|
| |  | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | For the employee stock option plans, the company has elected to follow
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and present pro forma information that is required by
SFAS No. 123, Accounting for Stock-Based Compensation. APB No. 25 requires
compensation cost for stock-based employee compensation plans to be
recognized over the vesting period based on the difference, if any, between
the quoted market price of the companys stock as of the grant date and the
amount an employee must pay to acquire the stock.                                                                                                                                                                     
|
| |  | For stock options granted to non-employees, the company follows the
requirements of SFAS No. 123 and related interpretations. Costs are measured
at the estimated fair value of the consideration received or the estimated
fair value of the options issued, whichever is more reliably measurable. The
value of the options issued for consideration other than employee services
is determined on the earlier of a performance commitment or completion of
performance by the provider of goods or services.                                                                                                                                                                                                                                       
|
| |  | Accounting for derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Effective December 1, 2001, the company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and its subsequent amendments
and interpretations. The adoption of SFAS No. 133 did not result in any
transitional adjustments. The company manages its foreign exposure on
anticipated net cash inflows on U.S. dollars through the use of forward
foreign exchange contracts. Additionally, certain of the companys purchase
and sales contracts with international entities are not denominated in the
functional currency of either the                                                                                                                                                                              

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|  |  | company, the customer or the supplier, but rather the U.S. dollar. In
accordance with SFAS No. 133, these contracts have been accounted for as
embedded derivatives and the resulting foreign currency rate contracts are
separated from the host contracts. Under SFAS No. 133, derivatives are
recorded on the balance sheet at fair value. Changes in derivative fair
values are recognized in earnings.                                                                                                                                                                                                                                                                                                                       
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
|  |  | Basic earnings per share are computed using the weighted average number of
common shares outstanding. Diluted earnings per share are computed using the
weighted average number of common shares and dilutive common stock
equivalents, using the treasury stock method, outstanding during the year.                                                                                                                                                                                                                                                                                                                                                                                                                             
| 
|  |  | Investment tax credits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
|  |  | The company is able to claim investment tax credits for certain research and
development expenditures including salaries and wages. The investment tax
credits are applied against Canadian federal income taxes payable and may be
carried forward for a period of up to seven years. These investment tax
credits are accounted for by using the cost reduction method. Under this
method, investment tax credits are treated as a reduction of research and
development expenses in the period the net deferred tax asset is recognized.
A deferred tax valuation allowance is recorded to the extent that it is more
likely than not that the investment tax credit will not be recovered from
income taxes otherwise payable.
| 
|  |  | Comparative figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
|  |  | Certain of the prior year figures have been reclassified to conform with the
current years financial statement presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
|  |  | Recent accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
|  |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. Under this standard, exit costs and
restructuring liabilities generally will be recognized only when incurred.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                
| 
|3 |  | Accounts receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                      |  |      |           |      |  |  |           |  
|----------------------------------------------------- |  | ---- | --------- | ---- |  |  | --------- | -
|                                                      |  | 2002 |           | 2001
|                                                      |  | $    |           | $   
|                                                      |  |      |           |     
|Trade                                                 |  |      | 2,787,128 |      |  |  | 2,404,474 |  
|Unbilled accounts receivable                          |  |      | 872,128   |      |  |  | 340,484   |  
|Holdbacks                                             |  |      |          |      |  |  | 6,631     |  
|Technology Partnerships Canada contribution (note 12) |  |      | 157,708   |      |  |  | 119,080   |  
|Other                                                 |  |      | 153,272   |      |  |  | 10,150    |  
|Allowance for doubtful accounts                       |  |      | (9,390    | )    |  |  | (23,449   | )
|                                                      |  |      |           |      |  |  |           |  
|                                                      |  |      | 3,960,846 |      |  |  | 2,857,370 |  
|                                                      |  |      |           |      |  |  |           |  

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | As at November 30, 2002, government contract receivables were $2,620,929
(2001  $2,175,275) and unbilled government contract receivables were
$827,946 (2001  $328,461).
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            |  |   |         |   |      |  |          |   | 
|------------------------------------------- |  | - | ------- | - | ---- |  | -------- | - | 
|                                            |  |   | 2002    |   | 2001
|Analysis of allowance for doubtful accounts |  | $ |         | $
|                                            |  |   |         |  
|Balance at beginning of year                |  |   | 23,449  |   |      |  | 167,111  |  
|Recovered from costs                        |  |   | (11,392 | ) |      |  | (123,216 | )
|Write off of accounts receivable            |  |   | (2,667  | ) |      |  | (20,446  | )
|                                            |  |   |         |   |      |  |          |  
|Balance at end of year                      |  |   | 9,390   |   |      |  | 23,449   |  
|                                            |  |   |         |   |      |  |          |  



|4 |  | Inventory
|- |  | ---------

|                         |  |      |           |      |  |  |         | 
|------------------------ |  | ---- | --------- | ---- |  |  | ------- | 
|                         |  | 2002 |           | 2001
|                         |  | $    |           | $   
|                         |  |      |           |     
|Materials and components |  |      | 1,216,879 |      |  |  | 870,354 | 
|Finished goods           |  |      | 68,087    |      |  |  |        | 
|                         |  |      |           |      |  |  |         | 
|                         |  |      | 1,284,966 |      |  |  | 870,354 | 
|                         |  |      |           |      |  |  |         | 



|5 |  | Plant and equipment
|- |  | -------------------

|                       |  |      |           |              |  |             |           |  |  |  |           | 
|---------------------- |  | ---- | --------- | ------------ |  | ----------- | --------- |  |  |  | --------- | 
|                       |  | 2002
|                       |  |     
|                       |  |      |           |              |  | Accumulated |           |  |  | 
|                       |  | Cost |           | depreciation |  | Net        
|                       |  | $    |           | $            |  | $          
|                       |  |      |           |              |  |            
|Equipment              |  |      | 3,557,622 |              |  |             | 2,629,162 |  |  |  | 928,460   | 
|Furniture and fixtures |  |      | 123,331   |              |  |             | 76,771    |  |  |  | 46,560    | 
|Leasehold improvements |  |      | 222,196   |              |  |             | 176,485   |  |  |  | 45,711    | 
|                       |  |      |           |              |  |             |           |  |  |  |           | 
|                       |  |      | 3,903,149 |              |  |             | 2,882,418 |  |  |  | 1,020,731 | 
|                       |  |      |           |              |  |             |           |  |  |  |           | 

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)

|                                |  |      |           |              |  |             |           |  |  |  |         | 
|------------------------------- |  | ---- | --------- | ------------ |  | ----------- | --------- |  |  |  | ------- | 
|                                |  | 2001
|                                |  |     
|                                |  |      |           |              |  | Accumulated |           |  |  | 
|                                |  | Cost |           | depreciation |  | Net        
|                                |  | $    |           | $            |  | $          
|                                |  |      |           |              |  |            
|Training and development vessel |  |      | 234,644   |              |  |             | 170,091   |  |  |  | 64,553  | 
|Equipment                       |  |      | 3,239,503 |              |  |             | 2,438,863 |  |  |  | 800,640 | 
|Furniture and fixtures          |  |      | 115,309   |              |  |             | 66,754    |  |  |  | 48,555  | 
|Leasehold improvements          |  |      | 222,196   |              |  |             | 165,057   |  |  |  | 57,139  | 
|                                |  |      |           |              |  |             |           |  |  |  |         | 
|                                |  |      | 3,811,652 |              |  |             | 2,840,765 |  |  |  | 970,887 | 
|                                |  |      |           |              |  |             |           |  |  |  |         | 



|  |  | Chart acquisitions and development costs are expensed as incurred.
|- |  | ------------------------------------------------------------------
| 
|6 |  | Intangible and other assets                                       

|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |         | 
|------------------- | ----------------------- | -------------------- | ------- | ---- | ------- | ------------ | ------- | ----------- | ------- |  | ------- |  | ------- | 
|                    |                         |                      |         | 2002
|                    |                         |                      |         |     
|                    |                         |                      |         |      |         |              |         | Accumulated |         |  |         | 
|                    |                         |                      |         | Cost |         | depreciation |         | Net        
|                    |                         |                      |         | $    |         | $            |         | $          
|                    |                         |                      |         |      |         |              |         |            
|                    | Amortizable intangibles |                      |         |      |         |              |         |             |         |  |         |  |        
|                    |                         | Computer software    |         |      | 630,036 |              |         |             | 272,235 |  |         |  | 357,801 | 
|                    |                         | Patents and licenses |         |      | 57,267  |              |         |             | 34,785  |  |         |  | 22,482  | 
|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |         | 
|                    |                         |                      | 687,303 |      |         |              | 307,020 |             |         |  | 380,283 | 
|Embedded derivative |                         |                      |         |      |         |              |         |             |         |  | 18,222  | 
|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |         | 
|                    |                         |                      |         |      |         |              |         |             |         |  | 398,505 | 
|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |         | 

|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |        | 
|------------------- | ----------------------- | -------------------- | ------- | ---- | ------- | ------------ | ------- | ----------- | ------- |  | ------- |  | ------ | 
|                    |                         |                      |         | 2001
|                    |                         |                      |         |     
|                    |                         |                      |         |      |         |              |         | Accumulated |         |  |         | 
|                    |                         |                      |         | Cost |         | depreciation |         | Net        
|                    |                         |                      |         | $    |         | $            |         | $          
|                    |                         |                      |         |      |         |              |         |            
|                    | Amortizable intangibles |                      |         |      |         |              |         |             |         |  |         |  |       
|                    |                         | Computer software    |         |      | 251,936 |              |         |             | 183,070 |  |         |  | 68,866 | 
|                    |                         | Patents and licenses |         |      | 57,267  |              |         |             | 32,287  |  |         |  | 24,980 | 
|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |        | 
|                    |                         |                      | 309,203 |      |         |              | 215,357 |             |         |  | 93,846  | 
|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |        | 
|Embedded derivative |                         |                      |         |      |         |              |         |             |         |  | 50,864  | 
|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |        | 
|                    |                         |                      |         |      |         |              |         |             |         |  | 144,710 | 
|                    |                         |                      |         |      |         |              |         |             |         |  |         |  |        | 



| |  | The fair value of the derivative instrument is determined by reference to
the spot market foreign currency rates at the balance sheet date.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|7 |  | Accounts payable and accrued liabilities
|- |  | ----------------------------------------

|                            |  |      |           |      |  |  |           | 
|--------------------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                            |  | 2002 |           | 2001
|                            |  | $    |           | $   
|                            |  |      |           |     
|Trade                       |  |      | 1,320,754 |      |  |  | 226,983   | 
|Accrued liabilities         |  |      | 243,868   |      |  |  | 246,428   | 
|Accrued employee costs      |  |      | 475,201   |      |  |  | 534,670   | 
|Accrued royalties (note 12) |  |      | 339,380   |      |  |  | 209,429   | 
|Accrued professional fees   |  |      | 89,394    |      |  |  | 87,765    | 
|Derivative instrument       |  |      | 7,369     |      |  |  | 3,034     | 
|                            |  |      |           |      |  |  |           | 
|                            |  |      | 2,475,966 |      |  |  | 1,308,309 | 
|                            |  |      |           |      |  |  |           | 

|                                                                 |  |   |         |   |      |  |         |   | 
|---------------------------------------------------------------- |  | - | ------- | - | ---- |  | ------- | - | 
|                                                                 |  |   | 2002    |   | 2001
|Analysis of warranty provision (included in accrued liabilities) |  | $ |         | $
|                                                                 |  |   |         |  
|Balance at beginning of year                                     |  |   | 52,936  |   |      |  | 67,700  |  
|Charged to costs                                                 |  |   | 30,285  |   |      |  | 26,288  |  
|Warranty expenditures                                            |  |   | (52,813 | ) |      |  | (41,052 | )
|                                                                 |  |   |         |   |      |  |         |  
|Balance at end of year                                           |  |   | 30,408  |   |      |  | 52,936  |  
|                                                                 |  |   |         |   |      |  |         |  

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|8  |  | Credit facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In November 2002, the company renewed certain credit facilities with a
Canadian chartered bank. The credit facilities consist of an operating line,
a forward exchange contract facility and standby letters of credit. The
maximum amounts available to the company under the operating line and
forward exchange contract facility are $1,000,000 and US$1,000,000,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The operating line, which is to be used to finance the companys accounts
receivable and inventory, bears interest at the chartered banks prime
lending rate plus 1.25% with interest payable monthly. The standby letters
of credit are denominated in U.S. dollars and bear interest at rates between
1% and 2% per annum. Funds drawn on the operating line are repayable on
demand. The credit facilities are secured by a general assignment of book
debts, a general security agreement and a guarantee, also secured by general
security agreements, from each of OSL, OSI Geomatics Ltd., and OSI Geomatics
Inc. In addition, the company is required to meet certain covenants as
outlined in the credit facilities agreement. As at November 30, 2002, the
company had drawn on its foreign exchange contract facility in the amount of
US$350,000. The company has not drawn on the operating line facility.
|  
|   |  | As of November 30, 2002, letters of credit, relating principally to customer
contracts, amounting to US$859,900 have been issued. The company utilizes
letters of credit as security for certain performance obligations with its
customers. These standby letters of credit have been insured through Export
Development Canada. Funds drawn on the standby letters of credit are
repayable on demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|9  |  | Rent payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | During 1999, the company negotiated a deferral of rent payments under the
operating lease for its premises. The deferred rental payments covering the
nine-month period commencing August 1, 1999 are payable at an amount of 15%
of the companys net earnings for fiscal years subsequent to 1999. The total
amount of deferred rent expense at November 30, 2002 is $133,942
(2001  $171,667). The current and non-current amounts are determined each period
end based on managements forecasted payments for the next 12-month period.                                                                                                                                                                                                                                                                                                                                                                           
|  
|10 |  | Capital stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Authorized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 100,000,000 common shares without par value100,000,000 Class A preference shares without par value, issuable in
series, with rights as set by the companys board of directors, of
which 10,000,000 shares are designated Series A preference shares,
voting, convertible at a 1:1 ratio, with a non-cumulative dividend
rate of 1%
100,000,000 Class B preference shares, issuable in series, with rights as
set by the companys board of directors, with a par value of $50
each

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | Preference shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On April 27, 1990, 2,914,654 Class A Series A preference shares were
issued to the former shareholders of OSL, a Canadian controlled private
company at that time, as part of the reverse takeover transaction of
OSIL. Subsequent to April 27, 1990, these preference shares were
amended to allow conversion to common shares of OSIL. As at November
30, 2002, 41,296 Class A Series A preference shares remain outstanding
(2001  58,326).                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Stock option plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The company has established three stock option plans under which options to
purchase common shares may be granted to directors, officers and employees
of the company and to any other person or company permitted by the
applicable regulatory authorities to purchase unissued common shares. During
2002, the shareholders approved an increase in the number of common shares
authorized for grant under the companys stock option plans to 10,930,732.
The exercise price of options granted pursuant to the plans may not be less
than the market price of the common shares at the time of grant. The plans
provide that options may be granted with vesting periods and expiry dates at
the discretion of the board of directors. Options granted to directors vest
immediately and options granted to employees vest one year after the date
granted.
|
| |  | Stock-based compensation recorded in the financial statements is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                           |  |      |        |      |  |      |        |  |  |  |         | 
|-------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------- | 
|                           |  | 2002 |        | 2001 |  | 2000
|                           |  | $    |        | $    |  | $   
|                           |  |      |        |      |  |     
|General and administrative |  |      | 31,500 |      |  |      | 69,000 |  |  |  | 362,817 | 
|Research and development   |  |      |       |      |  |      |       |  |  |  | 60,388  | 
|Sales and marketing        |  |      |       |      |  |      |       |  |  |  | 31,903  | 
|                           |  |      |        |      |  |      |        |  |  |  |         | 
|                           |  |      | 31,500 |      |  |      | 69,000 |  |  |  | 455,108 | 
|                           |  |      |        |      |  |      |        |  |  |  |         | 



| |  | The company applies the intrinsic value method for employee stock options
granted as prescribed in APB No. 25. Had compensation cost been determined
using the fair value approach set forth in SFAS No. 123, the companys
earnings (loss) for the year and earnings (loss) per share would have been
in accordance with the pro forma amounts indicated below:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      |  |      |           |      |  |      |          |   |  |  |          |  
|----------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                      |  | 2002 |           | 2001 |  | 2000
|                                                      |  | $    |           | $    |  | $   
|                                                      |  |      |           |      |  |     
|Net earnings (loss) for the year                      |  |      | 1,694,126 |      |  |      | 597,739  |   |  |  | (151,088 | )
|Additional compensation expense                       |  |      | (389,149  | )    |  |      | (716,322 | ) |  |  | (672,108 | )
|                                                      |  |      |           |      |  |      |          |   |  |  |          |  
|Pro forma net earnings (loss) for the year            |  |      | 1,304,977 |      |  |      | (118,583 | ) |  |  | (823,196 | )
|                                                      |  |      |           |      |  |      |          |   |  |  |          |  
|Pro forma basic and diluted earnings
(loss) per share |  |      | 0.05      |      |  |      | 0.00     |   |  |  | (0.04    | )
|                                                      |  |      |           |      |  |      |          |   |  |  |          |  

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | The pro forma compensation expense reflected above has been estimated using
the Black-Scholes option pricing model. Assumptions used in the pricing
model included: (i) risk free interest rate between 2.1% and 2.6% (2001 and
2000  3.1% and 5.5%); (ii) expected volatility between 50% and 73% (2001
and 2000  75% and 202%); (iii) an estimated average life of 3 to 5 years
(2001 and 2000  3 years); and (iv) an expected dividend yield of 0% (2001
and 2000  0%).
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The weighted average fair value of the options granted during the year ended
November 30, 2002 was $0.48 per option (2001  $0.36, 2000  $0.95).                                                                                                                                                                                                                                                                                                                             
|
| |  | A summary of the status of the companys stock option plans at November 30
is as follows:                                                                                                                                                                                                                                                                                                                                                                                     

|                                |           |  |                  |            |      |  |                  |      |   |  |                  |            |                  |  |      |      |  |  |                  |           |   |  |      |      | 
|------------------------------- | --------- |  | ---------------- | ---------- | ---- |  | ---------------- | ---- | - |  | ---------------- | ---------- | ---------------- |  | ---- | ---- |  |  | ---------------- | --------- | - |  | ---- | ---- | 
|                                |           |  | 2002             |            | 2001 |  | 2000            
|                                |           |  |                  |            |      |  |                 
|                                |           |  |                  |            |      |  | Weighted average |      |   |  |                  |            | Weighted average |  |      |      |  |  | Weighted average
|                                |           |  |                  |            |      |  | exercise price   |      |   |  |                  |            | exercise price   |  |      |      |  |  | exercise price  
|                                |           |  | Number of shares |            | $    |  | Number of shares |      | $ |  | Number of shares |            | $               
|                                |           |  |                  |            |      |  |                  |      |   |  |                  |            |                 
|Outstanding  Beginning
of year |           |  | 3,497,496        |            |      |  | 0.59             |      |   |  | 3,237,450        |            |                  |  | 0.54 |      |  |  | 3,765,740        |           |   |  | 0.61 |     
|                                | Granted   |  |                  | 865,000    |      |  |                  | 1.19 |   |  |                  | 2,535,346  |                  |  |      | 0.59 |  |  |                  | 1,050,000 |   |  |      | 0.63 | 
|                                | Exercised |  |                  | (1,206,664 | )    |  |                  | 0.41 |   |  |                  | (1,137,198 | )                |  |      | 0.35 |  |  |                  | (868,347  | ) |  |      | 0.51 | 
|                                | Forfeited |  |                  | (15,897    | )    |  |                  | 0.96 |   |  |                  | (297,028   | )                |  |      | 0.57 |  |  |                  | (263,519  | ) |  |      | 0.52 | 
|                                | Expired   |  |                  | (9,888     | )    |  |                  | 0.28 |   |  |                  | (841,074   | )                |  |      | 0.45 |  |  |                  | (446,424  | ) |  |      | 1.68 | 
|                                |           |  |                  |            |      |  |                  |      |   |  |                  |            |                  |  |      |      |  |  |                  |           |   |  |      |     
|Outstanding  End of year       |           |  | 3,130,047        |            |      |  | 0.83             |      |   |  | 3,497,496        |            |                  |  | 0.59 |      |  |  | 3,237,450        |           |   |  | 0.54 |     
|                                |           |  |                  |            |      |  |                  |      |   |  |                  |            |                  |  |      |      |  |  |                  |           |   |  |      |     
|Exercisable  End of year       |           |  | 3,130,047        |            |      |  | 0.83             |      |   |  | 2,665,418        |            |                  |  | 0.60 |      |  |  | 2,446,048        |           |   |  | 0.62 |     
|                                |           |  |                  |            |      |  |                  |      |   |  |                  |            |                  |  |      |      |  |  |                  |           |   |  |      |     



| |  | A summary of the companys stock options outstanding and exercisable at
November 30, 2002 is as follows:
| |  | --------------------------------------------------------------------------------------------------------

|                |  |                     |           |                     |  |                  |      |                    |  |                  |      |  |  |  |           |  |  |  |      | 
|--------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ------------------ |  | ---------------- | ---- |  |  |  | --------- |  |  |  | ---- | 
|                |  | Options outstanding |           | Options exercisable
|                |  |                     |           |                    
|                |  |                     |           |                     |  | Weighted average |      |                    |  |                  |      |  |  |  |           |  |  | 
|Range of        |  | Number outstanding  |           | remaining           |  | Weighted average |      | Number exercisable |  | Weighted average
|exercise prices |  | at November 30,     |           | contractual life    |  | exercise price   |      | at November 30,    |  | exercise price  
|$               |  | 2002                |           | (years)             |  | $                |      | 2002               |  | $               
|                |  |                     |           |                     |  |                  |      |                    |  |                 
|0.40
 0.60     |  |                     | 1,133,138 |                     |  |                  | 1.02 |                    |  |                  | 0.45 |  |  |  | 1,133,138 |  |  |  | 0.45 | 
|0.61
 0.90     |  |                     | 695,250   |                     |  |                  | 1.51 |                    |  |                  | 0.76 |  |  |  | 695,250   |  |  |  | 0.76 | 
|0.91
 1.35     |  |                     | 1,031,409 |                     |  |                  | 2.23 |                    |  |                  | 1.12 |  |  |  | 1,031,409 |  |  |  | 1.12 | 
|1.36
 1.50     |  |                     | 270,250   |                     |  |                  | 1.38 |                    |  |                  | 1.48 |  |  |  | 270,250   |  |  |  | 1.48 | 
|                |  |                     |           |                     |  |                  |      |                    |  |                  |      |  |  |  |           |  |  |  |      | 
|0.40
 1.50     |  |                     | 3,130,047 |                     |  |                  | 1.56 |                    |  |                  | 0.83 |  |  |  | 3,130,047 |  |  |  | 0.83 | 
|                |  |                     |           |                     |  |                  |      |                    |  |                  |      |  |  |  |           |  |  |  |      | 

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | Shareholder Rights Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On April 18, 2001, the board of directors of the company adopted a
shareholder rights plan (the Rights Plan). The Rights Plan was approved by
the Toronto Stock Exchange in accordance with its policies, and was also
approved by the shareholders of the company by ordinary resolution at the
annual general meeting of the company held on May 28, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The objectives of the Rights Plan are to ensure, to the extent possible,
that all shareholders of the company are treated equally and fairly in
connection with any take-over offer for the company. Take-over offers may
not always result in shareholders receiving equal or fair treatment or full
value for their investment. In addition, current Canadian securities
legislation only requires a take-over offer to remain open for 21 days. The
board believes that this period may be insufficient for the shareholders to
evaluate a bid, or for the board to pursue alternatives that could maximize
shareholder value and to make informed recommendations to shareholders.                                                                                                                                                                                                           
|
| |  | The Rights Plan is designed to discourage discriminatory or unfair take-over
offers for the company and gives the board time, if appropriate, to pursue
alternatives to maximize shareholder value in the event of an unsolicited
take-over bid for the company. The Rights Plan will encourage an offeror to
proceed by way of a permitted bid or to approach the board with a view to
negotiation by creating the potential for substantial dilution of the
offerors position. The permitted bid provisions of the Rights Plan are
designed to ensure that, in any take-over bid, all shareholders are treated
equally, receive the maximum value for their investment, and are given
adequate time to properly assess the take-over bid on a fully informed
basis.                                                                                                                           
|
| |  | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | During 2000, the company issued 125,000 share purchase warrants in
connection with a note payable financing. Each share purchase warrant allows
the holder to acquire one common share of the company at an exercise price
of $0.58 per share. The warrants were exercisable on the date of issue,
October 18, 2000. The warrants issued with the note payable have been
separately allocated within shareholders equity. The value allocated to the
warrants was estimated using the Black-Scholes valuation model. The proceeds
were allocated to the note payable and warrants based on their relative fair
values. Assumptions used in the pricing model included: (i) risk free
interest rate of 5.0%; (ii) expected volatility of 80%; (iii) an estimated
average life of two years; and (iv) an expected dividend yield of 0%. As of
November 30, 2002, all warrants have been exercised.

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|11 |  | Earnings per share
|-- |  | ------------------

|                                                              |  |      |            |      |  |      |            |  |  |  |            |  
|------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | -
|                                                              |  | 2002 |            | 2001 |  | 2000
|                                                              |  | $    |            | $    |  | $   
|                                                              |  |      |            |      |  |     
|Basic earnings per share                                      |  |      |            |      |  |      |            |  |  |  |            |  
|Net earnings (loss)                                           |  |      | 1,694,126  |      |  |      | 597,739    |  |  |  | (151,088   | )
|                                                              |  |      |            |      |  |      |            |  |  |  |            |  
|Weighted average number of common
shares outstanding          |  |      | 25,288,725 |      |  |      | 23,842,549 |  |  |  | 23,050,201 |  
|                                                              |  |      |            |      |  |      |            |  |  |  |            |  
|Basic earnings (loss) per share                               |  |      | 0.07       |      |  |      | 0.03       |  |  |  | (0.01      | )
|                                                              |  |      |            |      |  |      |            |  |  |  |            |  
|Diluted earnings per share                                    |  |      |            |      |  |      |            |  |  |  |            |  
|Net earnings (loss)                                           |  |      | 1,694,126  |      |  |      | 597,739    |  |  |  | (151,088   | )
|                                                              |  |      |            |      |  |      |            |  |  |  |            |  
|Weighted average number of common
shares outstanding          |  |      | 25,288,725 |      |  |      | 23,842,549 |  |  |  | 23,050,201 |  
|Dilutive effect of stock options                              |  |      | 1,955,596  |      |  |      | 1,496,146  |  |  |  | 1,391,543  |  
|Dilutive effect of preference shares                          |  |      | 41,296     |      |  |      | 58,326     |  |  |  | 74,702     |  
|Dilutive effect of warrants                                   |  |      |           |      |  |      | 79,593     |  |  |  | 10,429     |  
|                                                              |  |      |            |      |  |      |            |  |  |  |            |  
|Adjusted weighted average number of
common shares outstanding |  |      | 27,285,617 |      |  |      | 25,476,614 |  |  |  | 24,526,875 |  
|                                                              |  |      |            |      |  |      |            |  |  |  |            |  
|Diluted earnings (loss) per share                             |  |      | 0.06       |      |  |      | 0.02       |  |  |  | (0.01      | )
|                                                              |  |      |            |      |  |      |            |  |  |  |            |  



|12 |  | Technology Partnerships Canada                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Effective December 23, 1998, the company entered into an agreement with
Technology Partnerships Canada (TPC). TPC is a technology investment fund of
the Canadian federal government established to contribute to the achievement
of increasing economic growth, creating jobs and wealth, and supporting
sustainable development in Canada. TPC granted financial assistance to the
company for the purpose of funding research and development activities to be
completed on or before March 31, 2003. To receive the financial assistance,
the company must submit claims to TPC for eligible costs. Eligible costs
include labour, material and other costs directly attributable to the
research and development activities. Under the agreement with TPC, the
company is eligible to receive contributions to a maximum of $4,000,177 over
the period from December 23, 1998 to March 31, 2003. To November 30, 2002,
the company has received $3,614,997. The company is eligible to claim a
further $376,882 from December 1, 2002 to March 31, 2003. During 2002, the
company incurred eligible costs of $863,851 (2001  $768,818) and has
claimed the full amount from TPC. These amounts have been applied to reduce
expenses in the consolidated statements of earnings.

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | In addition, the company is required to pay a royalty of 3% to TPC on all
revenues that OSL, the companys wholly owned subsidiary, earns from
December 1, 1999 to November 30, 2008. The royalty payments do not relate to
the ownership of the intellectual property (IP). Ownership of the IP remains
with the company. Royalty payments will continue until the cumulative
royalties paid or payable to November 30, 2008 are at least $7,810,230 or
until November 30, 2014. The company accrues royalties when evidence exists
that the realization of revenue from customers becomes probable.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | TPC royalties paid and accrued are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                  |            |  |         |         |      |  |         |         | 
|----------------- | ---------- |  | ------- | ------- | ---- |  | ------- | ------- | 
|                  |            |  | 2002    |         | 2001
|                  |            |  | $       |         | $   
|                  |            |  |         |         |     
|Royalties paid    |            |  | 213,704 |         |      |  | 140,455 |        
|                  |            |  |         |         |      |  |         |        
|Accrued royalties |            |  |         |         |      |  |         |        
|                  | Short term |  |         | 339,380 |      |  |         | 209,429 | 
|                  | Long term  |  |         | 372,717 |      |  |         | 240,183 | 
|                  |            |  |         |         |      |  |         |        
|                  |            |  | 712,097 |         |      |  | 449,612 |        
|                  |            |  |         |         |      |  |         |        



|   |  | If the company causes an event of default, as defined in the agreement, TPC
can suspend or terminate any obligation to contribute to the costs of the
project or require the company to repay all or part of the contributions
made, together with interest, from the date of demand.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|13 |  | Commitments and contingencies                                                                                                                                                                                                                                                        
|  
|   |  | The company has entered into operating leases for its office premises in
Canada and for certain equipment. Future minimum lease payments, not
including the deferred rent amounts described in note 9, required under
non-cancellable lease obligations are as follows:              

|                         |      |  |           |         | 
|------------------------ | ---- |  | --------- | ------- | 
|                         |      |  | $        
|                         |      |  |          
|Years ending November 30 |      |  |           |        
|                         | 2003 |  |           | 276,039 | 
|                         | 2004 |  |           | 266,032 | 
|                         | 2005 |  |           | 264,588 | 
|                         | 2006 |  |           | 256,705 | 
|                         | 2007 |  |           | 171,137 | 
|                         |      |  |           |         | 
|                         |      |  | 1,234,501 |        
|                         |      |  |           |         | 



| |  | Rent expense amounted to $256,705 in 2002 (2001  $256,705, 2000 -
$256,705). In addition to basic rent, the company is required to pay a
portion of certain costs and property taxes for the above commitments. In
2002, the company paid $79,973 (2001  $73,142, 2000  $75,793) for these
costs.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|   |  | During 2000, the company received the preliminary findings of a Canadian
government contract audit. In June 1992, the company entered into a contract
with the Canadian Hydrographic Service (the CHS). Under the terms of the
contract, the company received $1,845,925, over a four-year period, relating
to certain expenditures made for its electronic chart demonstration project.
The preliminary findings of the audit had concluded that approximately
$416,000 of project costs were to be clarified. During 2001, the company
received the results of the government contract audit, which indicated the
company had overclaimed approximately $95,000 under the program and was to
reimburse the Crown. During 2002, the company settled with the Crown without
any repayment being required by the company.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In October 2000, the company filed a lawsuit against a supplier to Offshore
Systems International Inc. (OSII) in response to this suppliers decision to
terminate its supply agreement with OSII. As part of the same lawsuit, the
company also filed against two former employees of OSII and a company of
which they are officers. The suit sought damages on the grounds that these
employees interfered with OSIIs contractual relationship with this same
supplier. This suit has been settled in favour of OSII and the proceeds have
been recorded in the companys financial statements. During 2002, OSII was
renamed to OSI Geomatics Inc.                                                                                                                                                                  
|  
|   |  | In July 2002, the companys subsidiary OSL and three employees became the
objects of a lawsuit by Triathlon Ltd., a subsidiary of MacDonald, Dettwiler
and Associates Ltd., related to use of confidential information and breach
of fiduciary duty. No amount had been accrued at November 30, 2002 in
respect of this claim because it is the opinion of management that the claim
is without merit and the amount of loss, if any, cannot be reasonably
estimated.                                                                                                                                                                                                                                                                                                                                                   
|  
|14 |  | Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The company is subject to Canadian federal and British Columbia provincial
taxes in Canada. The company is also subject to U.S. federal income taxes in
the U.S. and Danish income tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Earnings before income taxes consisted of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                |  |      |           |      |  |      |         |  |  |  |          |  
|--------------- |  | ---- | --------- | ---- |  | ---- | ------- |  |  |  | -------- | -
|                |  | 2002 |           | 2001 |  | 2000
|                |  | $    |           | $    |  | $   
|                |  |      |           |      |  |     
|Canadian income |  |      | 1,123,785 |      |  |      | 370,439 |  |  |  | 165,585  |  
|U.S. income     |  |      | 143,925   |      |  |      |        |  |  |  | (316,673 | )
|                |  |      |           |      |  |      |         |  |  |  |          |  
|                |  |      | 1,267,710 |      |  |      | 370,439 |  |  |  | (151,088 | )
|                |  |      |           |      |  |      |         |  |  |  |          |  



| |  | The income tax recovery of $426,416 relates to Canadian deferred income
taxes.
| |  | ------------------------------------------------------------------------------

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | The company has non-capital losses for Canadian income tax purposes of
approximately $4,855,787, which are available for carry forward to reduce
future years taxable income. These income tax losses expire as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |      |  |   |           | 
|----------------------- | ---- |  | - | --------- | 
|                        |      |  | $
|                        |      |  |  
|Year ending November 30 |      |  |   |          
|                        | 2003 |  |   | 172,395   | 
|                        | 2004 |  |   |          | 
|                        | 2005 |  |   | 1,759,504 | 
|                        | 2006 |  |   | 2,533,022 | 
|                        | 2007 |  |   | 193,676   | 
|                        | 2008 |  |   |          | 
|                        | 2009 |  |   | 197,190   | 



| |  | The company has non-capital losses for U.S. income tax purposes of
approximately $787,062, which are available for carry forward to reduce
future years taxable income of the U.S. company. These income tax losses
expire as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |      |  |   |         | 
|----------------------- | ---- |  | - | ------- | 
|                        |      |  | $
|                        |      |  |  
|Year ending November 30 |      |  |   |        
|                        | 2018 |  |   | 426,172 | 
|                        | 2019 |  |   |        | 
|                        | 2020 |  |   | 319,778 | 
|                        | 2021 |  |   | 41,112  | 



| |  | The company also has investment tax credits of approximately $329,410, which
can be used to offset future Canadian income taxes otherwise payable and
expire as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |      |  |   |         | 
|----------------------- | ---- |  | - | ------- | 
|                        |      |  | $
|                        |      |  |  
|Year ending November 30 |      |  |   |        
|                        | 2005 |  |   | 117,678 | 
|                        | 2006 |  |   | 130,114 | 
|                        | 2007 |  |   |        | 
|                        | 2008 |  |   |        | 
|                        | 2009 |  |   |        | 
|                        | 2010 |  |   |        | 
|                        | 2011 |  |   | 81,618  | 



| |  | The company has capital losses for Canadian income tax purposes of
approximately $354,466 (2001  $298,466) which are available for carry
forward to reduce future years income from capital gains. These capital
losses carry forward indefinitely.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | The net deferred tax asset consists of the following:
| |  | -----------------------------------------------------

|                                                       |  |      |            |      |  |  |            |  
|------------------------------------------------------ |  | ---- | ---------- | ---- |  |  | ---------- | -
|                                                       |  | 2002 |            | 2001
|                                                       |  | $    |            | $   
|                                                       |  |      |            |     
|Deferred tax assets                                    |  |      |            |      |  |  |            |  
|Non-capital loss carry-forwards                        |  |      | 2,027,491  |      |  |  | 2,710,520  |  
|Net capital loss carry-forwards                        |  |      | 126,261    |      |  |  | 126,261    |  
|Scientific research and experimental development costs |  |      | 700,718    |      |  |  | 638,112    |  
|Investment tax credits                                 |  |      | 212,074    |      |  |  | 212,074    |  
|Plant and equipment                                    |  |      | 544,893    |      |  |  | 459,935    |  
|Other                                                  |  |      | 28,119     |      |  |  | 38,472     |  
|                                                       |  |      |            |      |  |  |            |  
|                                                       |  |      | 3,639,556  |      |  |  | 4,185,374  |  
|Valuation allowance                                    |  |      | (2,985,840 | )    |  |  | (3,958,074 | )
|                                                       |  |      |            |      |  |  |            |  
|Net deferred tax asset                                 |  |      | 653,716    |      |  |  | 227,300    |  
|                                                       |  |      |            |      |  |  |            |  



| |  | A reconciliation of the combined Canadian federal and provincial income tax
rate with the companys effective income tax rate is as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------

|                                                   |  |      |          |      |  |      |            |   |  |  |          |  
|-------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | ---------- | - |  |  | -------- | -
|                                                   |  | 2002 |          | 2001 |  | 2000
|                                                   |  | $    |          | $    |  | $   
|                                                   |  |      |          |      |  |     
|Expected statutory rate                            |  |      | 40.04    | %    |  |      | 44.62      | % |  |  | 45.62    | %
|                                                   |  |      |          |      |  |      |            |   |  |  |          |  
|Expected provision for income taxes                |  |      | 507,591  |      |  |      | 120,076    |   |  |  | (68,926  | )
|Change in tax rates applied in
valuation allowance |  |      | (41,915  | )    |  |      | 1,002,721  |   |  |  |         |  
|Change in valuation allowance                      |  |      | (972,234 | )    |  |      | (1,426,355 | ) |  |  | (131,710 | )
|Effect of foreign tax rate differences             |  |      | (39,828  | )    |  |      |           |   |  |  | 24,194   |  
|Non-deductible expenses and other                  |  |      | 119,970  |      |  |      | 76,258     |   |  |  | 176,442  |  
|                                                   |  |      |          |      |  |      |            |   |  |  |          |  
|                                                   |  |      | (426,416 | )    |  |      | (227,300   | ) |  |  |         |  
|                                                   |  |      |          |      |  |      |            |   |  |  |          |  



| |  | As a result of a Canadian federal tax reassessment non-capital loss carry
forwards, scientific research and experimental developmental costs and
related income tax credits have been adjusted resulting in a decrease of
available deferred tax assets of approximately $637,000. The 2001 balances
have been restated to reflect these amounts.       
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The company believes that sufficient uncertainty exists regarding the
realization of certain deferred tax assets that a valuation allowance is
required. The company continues to evaluate and examine the valuation
allowance on a quarterly basis, and at such time future uncertainties are
resolved, the valuation allowance may be further reduced.

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|15 |  | Segmented information                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The companys reportable segments are as outlined in note 1 and below.
Accounting policies used by these segments are the same as those described
in the summary of significant accounting policies.

|                                 |              |  |            |          |           |  |           |   |                |  |            |          |   |  |       |   |  |  |            |          |  
|-------------------------------- | ------------ |  | ---------- | -------- | --------- |  | --------- | - | -------------- |  | ---------- | -------- | - |  | ----- | - |  |  | ---------- | -------- | -
|                                 |              |  | 2002      
|                                 |              |  |           
|                                 |              |  |            |          |           |  |           |   |                |  |            |          |   |  | Other |   |  |  |           
|                                 |              |  | Systems    |          | Geomatics |  | Subtotal  |   | (discontinued) |  | Total     
|                                 |              |  | $          |          | $         |  | $         |   | $              |  | $         
|                                 |              |  |            |          |           |  |           |   |                |  |           
|Revenue                          |              |  | 11,466,668 |          |           |  | 2,347,465 |   |                |  | 13,814,133 |          |   |  |      |   |  |  | 13,814,133 |         
|Technology Partnerships          |              |  |            |          |           |  |           |   |                |  |            |          |   |  |       |   |  |  |            |         
|                                 | Canada  net |  |            | (387,662 | )         |  |           |  |                |  |            | (387,662 | ) |  |       |  |  |  |            | (387,662 | )
|Interest expense                 |              |  | 2,869      |          |           |  | 713       |   |                |  | 3,582      |          |   |  |      |   |  |  | 3,582      |         
|Income tax recovery              |              |  | (426,416   | )        |           |  |          |   |                |  | (426,416   | )        |   |  |       |   |  |  | (426,416   | )       
|Net earnings                     |              |  | 1,446,857  |          |           |  | 247,269   |   |                |  | 1,694,126  |          |   |  |      |   |  |  | 1,694,126  |         
|Assets employed                  |              |  | 9,662,484  |          |           |  | 1,133,093 |   |                |  | 10,795,577 |          |   |  |      |   |  |  | 10,795,577 |         
|Plant and equipment
expenditures |              |  | 231,100    |          |           |  | 95,041    |   |                |  | 326,141    |          |   |  |      |   |  |  | 326,141    |         
|Other asset expenditures         |              |  | 136,189    |          |           |  | 209,269   |   |                |  | 345,458    |          |   |  |      |   |  |  | 345,458    |         
|Depreciation                     |              |  | 242,362    |          |           |  | 61,045    |   |                |  | 303,407    |          |   |  |      |   |  |  | 303,407    |         

|                                 |              |  |           |          |           |  |           |   |                |  |           |          |   |  |       |   |  |  |           |          |  
|-------------------------------- | ------------ |  | --------- | -------- | --------- |  | --------- | - | -------------- |  | --------- | -------- | - |  | ----- | - |  |  | --------- | -------- | -
|                                 |              |  | 2001     
|                                 |              |  |          
|                                 |              |  |           |          |           |  |           |   |                |  |           |          |   |  | Other |   |  |  |          
|                                 |              |  | Systems   |          | Geomatics |  | Subtotal  |   | (discontinued) |  | Total    
|                                 |              |  | $         |          | $         |  | $         |   | $              |  | $        
|                                 |              |  |           |          |           |  |           |   |                |  |          
|Revenue                          |              |  | 6,836,556 |          |           |  | 1,073,157 |   |                |  | 7,909,713 |          |   |  |      |   |  |  | 7,909,713 |         
|Technology Partnerships          |              |  |           |          |           |  |           |   |                |  |           |          |   |  |       |   |  |  |           |         
|                                 | Canada  net |  |           | (376,867 | )         |  |           |  |                |  |           | (376,867 | ) |  |       |  |  |  |           | (376,867 | )
|Interest expense                 |              |  | 53,303    |          |           |  | 2,077     |   |                |  | 55,380    |          |   |  |      |   |  |  | 55,380    |         
|Income tax recovery              |              |  | (227,300  | )        |           |  |          |   |                |  | (227,300  | )        |   |  |       |   |  |  | (227,300  | )       
|Net earnings                     |              |  | 590,100   |          |           |  | 7,639     |   |                |  | 597,739   |          |   |  |      |   |  |  | 597,739   |         
|Assets employed                  |              |  | 7,143,990 |          |           |  | 209,519   |   |                |  | 7,353,509 |          |   |  |      |   |  |  | 7,353,509 |         
|Plant and equipment
expenditures |              |  | 124,216   |          |           |  | 3,912     |   |                |  | 128,128   |          |   |  |      |   |  |  | 128,128   |         
|Other asset expenditures         |              |  | 74,681    |          |           |  | 2,828     |   |                |  | 77,509    |          |   |  |      |   |  |  | 77,509    |         
|Depreciation                     |              |  | 212,051   |          |           |  | 26,907    |   |                |  | 238,958   |          |   |  |      |   |  |  | 238,958   |         

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)

|                                 |              |  |           |          |           |  |          |   |                |  |           |          |   |  |           |   |  |  |           |          |  
|-------------------------------- | ------------ |  | --------- | -------- | --------- |  | -------- | - | -------------- |  | --------- | -------- | - |  | --------- | - |  |  | --------- | -------- | -
|                                 |              |  | 2000     
|                                 |              |  |          
|                                 |              |  |           |          |           |  |          |   |                |  |           |          |   |  | Other     |   |  |  |          
|                                 |              |  | Systems   |          | Geomatics |  | Subtotal |   | (discontinued) |  | Total    
|                                 |              |  | $         |          | $         |  | $        |   | $              |  | $        
|                                 |              |  |           |          |           |  |          |   |                |  |          
|Revenue                          |              |  | 4,706,764 |          |           |  | 944,901  |   |                |  | 5,651,665 |          |   |  | 1,936,113 |   |  |  | 7,587,778 |         
|Inventory write-down             |              |  |          |          |           |  |         |   |                |  |          |          |   |  | 181,405   |   |  |  | 181,405   |         
|Technology Partnerships          |              |  |           |          |           |  |          |   |                |  |           |          |   |  |           |   |  |  |           |         
|                                 | Canada  net |  |           | (948,265 | )         |  |          |  |                |  |           | (948,265 | ) |  |           |  |  |  |           | (948,265 | )
|Interest expense                 |              |  | 210,222   |          |           |  | 359      |   |                |  | 210,581   |          |   |  | 26,753    |   |  |  | 237,334   |         
|Net earnings                     |              |  | 112,896   |          |           |  | 52,689   |   |                |  | 165,585   |          |   |  | (316,673  | ) |  |  | (151,088  | )       
|Assets employed                  |              |  | 4,529,249 |          |           |  | 10,974   |   |                |  | 4,540,223 |          |   |  | 173,073   |   |  |  | 4,713,296 |         
|Plant and equipment
expenditures |              |  | 34,566    |          |           |  | 18,286   |   |                |  | 52,852    |          |   |  | 124       |   |  |  | 52,976    |         
|Other asset expenditures         |              |  | 4,929     |          |           |  | 17,272   |   |                |  | 22,201    |          |   |  | 161       |   |  |  | 22,362    |         
|Depreciation                     |              |  | 184,061   |          |           |  | 28,560   |   |                |  | 212,621   |          |   |  | 8,229     |   |  |  | 220,850   |         



| |  | Geographically, revenues reported are based on the location of the companys
customers and include revenues from discontinued operations. Plant and
equipment are reported based on location.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |        |           |        |  |         |           |       |  |       |           |  |  |  |       |  |  |  |            | 
|------------------- |  | ------ | --------- | ------ |  | ------- | --------- | ----- |  | ----- | --------- |  |  |  | ----- |  |  |  | ---------- | 
|                    |  | 2002  
|                    |  |       
|                    |  |        |           |        |  | United  |           |       |  |       |           |  |  |  |       |  |  | 
|                    |  | Canada |           | States |  | Denmark |           | Other |  | Total
|                    |  | $      |           | $      |  | $       |           | $     |  | $    
|                    |  |        |           |        |  |         |           |       |  |      
|Revenue             |  |        | 3,315,510 |        |  |         | 7,366,982 |       |  |       | 3,123,998 |  |  |  | 7,643 |  |  |  | 13,814,133 | 
|Plant and equipment |  |        | 1,020,731 |        |  |         |          |       |  |       |          |  |  |  |      |  |  |  | 1,020,731  | 

|                    |  |        |           |        |  |         |           |       |  |       |         |  |  |  |        |  |  |  |           | 
|------------------- |  | ------ | --------- | ------ |  | ------- | --------- | ----- |  | ----- | ------- |  |  |  | ------ |  |  |  | --------- | 
|                    |  | 2001  
|                    |  |       
|                    |  |        |           |        |  | United  |           |       |  |       |         |  |  |  |        |  |  | 
|                    |  | Canada |           | States |  | Denmark |           | Other |  | Total
|                    |  | $      |           | $      |  | $       |           | $     |  | $    
|                    |  |        |           |        |  |         |           |       |  |      
|Revenue             |  |        | 2,765,071 |        |  |         | 4,090,320 |       |  |       | 964,931 |  |  |  | 89,391 |  |  |  | 7,909,713 | 
|Plant and equipment |  |        | 970,887   |        |  |         |          |       |  |       |        |  |  |  |       |  |  |  | 970,887   | 

|                    |  |        |           |        |  |         |           |       |  |       |   |  |  |  |         |  |  |  |           | 
|------------------- |  | ------ | --------- | ------ |  | ------- | --------- | ----- |  | ----- | - |  |  |  | ------- |  |  |  | --------- | 
|                    |  | 2000  
|                    |  |       
|                    |  |        |           |        |  | United  |           |       |  |       |   |  |  |  |         |  |  | 
|                    |  | Canada |           | States |  | Denmark |           | Other |  | Total
|                    |  | $      |           | $      |  | $       |           | $     |  | $    
|                    |  |        |           |        |  |         |           |       |  |      
|Revenue             |  |        | 932,452   |        |  |         | 6,361,227 |       |  |       |  |  |  |  | 294,099 |  |  |  | 7,587,778 | 
|Plant and equipment |  |        | 1,051,716 |        |  |         |          |       |  |       |  |  |  |  |        |  |  |  | 1,051,716 | 

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|   |  | Approximately 84% of revenue for
the year ended November 30, 2002 (2001 
88%, 2000  48%) is derived from three ultimate customers at 38%, 23% and
23%, respectively (2001  48%, 28%, 12%, 2000  48%, 0%, 0%).                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|16 |  | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Fluctuations in foreign currency exchange rates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | The company enters into transactions denominated in U.S. dollars and as such
its revenue, expenses, monetary assets and liabilities will be affected by
fluctuations in the U.S. dollar relative to the Canadian dollar.                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | In order to reduce the potential negative effects of a fluctuating Canadian
dollar, the company has entered into forward foreign exchange contracts in
the current year to stabilize anticipated future net cash inflows
denominated in U.S. dollars. The forward foreign exchange contracts mature
on March 21 and 24, 2003 with an average exchange rate of 1.58 for a total
contractual amount of US$350,000.                                                                                                                                                                                                                                       
|  
|   |  | The fair value of derivative financial instruments generally reflects the
estimated amounts that the company would receive or pay to settle the
contracts at November 30, 2002. As at this date, the spot exchange rate was
1.57 and the fair value of the above derivative financial instruments was
$4,690.                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Fair value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Financial instruments include cash and cash equivalents, letters of credit,
accounts receivable, derivative financial instruments, accounts payable and
accrued liabilities, rent payable and royalties payable. Due to the short
period to maturity of these instruments, the carrying values as presented in
the consolidated balance sheets approximate fair values.                                                                                                                                                                                                                                                                                
|  
|   |  | Concentration of credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Financial instruments that potentially subject the company to a significant
concentration of credit risk consist primarily of cash and cash equivalents,
and accounts receivable which are not collateralized. The company limits its
exposure to credit loss by placing its cash and cash equivalents with high
credit quality financial institutions. Concentrations of credit risk with
respect to accounts receivable are considered to be limited due to the
credit quality of the customers comprising the companys customer base. The
maximum amount of credit risk exposure is limited to the carrying amounts of
these financial instruments.
|  
|   |  | The company performs ongoing credit evaluations of its customers financial
condition to determine the need for an allowance for doubtful accounts. The
company has not experienced significant credit losses to date.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | The company directly markets and supports its products internationally and
currently depends on three major ultimate customers. Credit risk related to
these three customers is minimal as these customers are government
departments in stable, democratic countries.                                                                                                                                                                                                                                                                                                                                                                                 

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



|17 |  | Discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Offshore Systems International Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | On September 30, 2000 (the measurement date), the company discontinued the
operations of its wholly owned U.S. subsidiary, OSII. OSII provided sales,
support and distribution services for a number of third party manufacturers
of navigation aids and marine technologies. The assets of OSII were
substantially disposed of by March 31, 2001 (the disposal date) through a
transfer to Offshore Systems Ltd. at their net realizable value of $65,834.
Accordingly, the financial position and results of operations related to
this business have been accounted for as discontinued operations.
|  
|   |  | OSIIs financial position as at November 30, 2000 and results of operations
for the period from December 1, 1999 to September 30, 2000 were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                      |  |   |           |  
|----------------------------------------------------- |  | - | --------- | -
|                                                      |  | $
|                                                      |  |  
|Current assets                                        |  |   | 173,073   |  
|Current liabilities                                   |  |   | 66,575    |  
|Revenue                                               |  |   | 1,697,994 |  
|Net loss from operations, net of income taxes of $nil |  |   | (69,016   | )



|   |  | OSIIs revenue for the year ended November 30, 2000 was $1,936,113. The loss
on disposal of OSII was $247,657 net of income taxes of $nil. All of OSIIs
revenues for the year ended November 30, 2000 were dependent on product
sourced from one supplier.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|18 |  | Supplemental cash flow information                                                                                                                                                                                                                         

|                                             |  |      |        |      |  |      |        |  |  |  |         | 
|-------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------- | 
|                                             |  | 2002 |        | 2001 |  | 2000
|                                             |  | $    |        | $    |  | $   
|                                             |  |      |        |      |  |     
|Cash paid during the year for interest       |  |      | 3,583  |      |  |      | 55,380 |  |  |  | 210,581 | 
|                                             |  |      |        |      |  |      |        |  |  |  |         | 
|Cash received for interest                   |  |      | 20,192 |      |  |      |       |  |  |  |        | 
|                                             |  |      |        |      |  |      |        |  |  |  |         | 
|Cash paid during the year for income taxes   |  |      |       |      |  |      |       |  |  |  |        | 
|                                             |  |      |        |      |  |      |        |  |  |  |         | 
|Non-cash financing and investing activities  |  |      |        |      |  |      |        |  |  |  |         | 
|                                             |  |      |        |      |  |      |        |  |  |  |         | 
|Inventory transferred to plant and equipment |  |      | 62,741 |      |  |      | 48,203 |  |  |  | 277,476 | 
|                                             |  |      |        |      |  |      |        |  |  |  |         | 



|19 |  | Subsequent events                                                                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In December 2002, the company granted 1,055,601 stock options to directors
and employees of the company. These stock options were granted at a price of
$1.01 per stock option.

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Offshore Systems International Ltd.
Notes to Consolidated Financial StatementsNovember 30, 2002, 2001 and 2000

(expressed in Canadian dollars)



| |  | In January 2003, the company announced that it intends to proceed with a
normal course issuer bid whereby it will purchase its own common shares out
of the market through the facilities of the Toronto Stock Exchange. The
board of directors of the company has authorized the repurchase of up to
1,300,000 common shares, representing approximately 5% of the issued and
outstanding common shares of the company. All shares repurchased by the
company will be cancelled. The bid will commence on January 16, 2003 and
terminate on January 15, 2004.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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