##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended November 30, 2006.
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from   to
 Commission File Number [ 000-49944 ]
 OSI Geospatial Inc.
  British Columbia, Canada
 107  930 West 1st Street
North Vancouver, British Columbia, Canada V7P 3N4
 None
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, Without Par Value
    
    Toronto Stock Exchange
O.T.C. Bulletin Board.
 None
  
    
    35,137,046 shares of Common Stock, no par value,
    
    30,262 shares of Class A Preference Shares Series A Convertible, no par value
    
    279,840 shares of Class B Series 2 Preference Shares, par value of CAD$50.00
  o þ
  o þ
   þ o
  o o þ
  o þ
  o þ
   o o




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##### 



TABLE OF CONTENTS
 Page #PART IItem 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    1Item 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    1Item 3.
    
    KEY INFORMATION
    
    
    1Item 4.
    
    INFORMATION ON THE COMPANY
    
    
    12Item 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    23Item 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    45Item 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    54Item 8.
    
    FINANCIAL INFORMATION
    
    
    57Item 9.
    
    THE OFFER AND LISTING
    
    
    58Item 10.
    
    ADDITIONAL INFORMATION
    
    
    60Item 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    72Item 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    73PART IIItem 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    73Item 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    73Item 15.
    
    CONTROLS AND PROCEDURES
    
    
    73Item 16.
    
    [RESERVED]
    
    
    74Item 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    74Item 16B.
    
    CODE OF ETHICS
    
    
    74Item 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    74Item 16D.
    
    EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    75Item 16E.
    
    PURCHASES OF EQUITY SECURITIES BY ISSUER AND AFFILIATED PURCHASERS
    
    
    75PART IIIItem 17.
    
    FINANCIAL STATEMENTS
    
    
    76Item 18.
    
    FINANCIAL STATEMENTS
    
    
    76Item 19.
    
    EXHIBITS
    
    
    77




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##### 



PART I
      
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 A. Selected financial data.
  Page 1




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##### 



OSI Geospatial Inc.
Selected Consolidated Financial Information
Consolidated Statement of Earnings (Loss) and Deficit Data
 In thousands of U.S. dollars, except share related data
    
    For the years ended November 30,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Revenue
    
    
    24,137
    
    
    
    11,126
    
    
    
    10,411
    
    
    
    8,102
    
    
    
    8,782Direct costs
    
    
    13,162
    
    
    
    5,696
    
    
    
    4,393
    
    
    
    3,633
    
    
    
    4,387Gross profit
    
    
    10,975
    
    
    
    5,430
    
    
    
    6,018
    
    
    
    4,469
    
    
    
    4,395Expenses
    
    
    10,340
    
    
    
    7,306
    
    
    
    5,783
    
    
    
    4,249
    
    
    
    3,634Earnings (loss) before income taxes
    
    
    635
    
    
    
    (1,876
    )
    
    
    346
    
    
    
    219
    
    
    
    761Income tax expense (recovery)
    
    
    (58
    )
    
    
    873
    
    
    
    43
    
    
    
    (106
    )
    
    
    (271
    )Net earnings (loss) for the period
    
    
    693
    
    
    
    (2,749
    )
    
    
    303
    
    
    
    325
    
    
    
    1,032Net earnings (loss) attributable to common shareholders
    
    
    (825
    )
    
    
    (9,400
    )
    
    
    (14
    )
    
    
    (320
    )
    
    
    1,032Basic earnings (loss) per share
    
    
    (0.03
    )
    
    
    (0.34
    )
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    0.04Diluted earnings (loss) per share
    
    
    (0.05
    )
    
    
    (0.34
    )
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    0.04Weighted average number of Common Shares outstanding 
basic
    
    
    32,381,992
    
    
    
    27,989,832
    
    
    
    27,147,246
    
    
    
    25,977,123
    
    
    
    25,288,725Weighted average number of Common Shares outstanding 
diluted
    
    
    48,843,160
    
    
    
    27,989,832
    
    
    
    29,856,412
    
    
    
    27,142,492
    
    
    
    27,285,617
 OSI Geospatial Inc.
Selected Consolidated Financial Information
 In thousands of U.S. dollars, except share related data
    
    As at November 30,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Working capital
    
    
    7,789
    
    
    
    15,245
    
    
    
    6.331
    
    
    
    5,494
    
    
    
    2,621Total assets
    
    
    24,345
    
    
    
    21,202
    
    
    
    10,377
    
    
    
    8,982
    
    
    
    6,874Total liabilities
    
    
    6,564
    
    
    
    4,257
    
    
    
    2,256
    
    
    
    1,920
    
    
    
    3,025Net assets
    
    
    17,781
    
    
    
    16,945
    
    
    
    8,121
    
    
    
    7,062
    
    
    
    3,849Capital stock
    
    
    26,937
    
    
    
    24,917
    
    
    
    14,396
    
    
    
    13,910
    
    
    
    12,238Outstanding Common Shares
    
    
    35,137,046
    
    
    
    30,367,309
    
    
    
    27,488,074
    
    
    
    26,807,475
    
    
    
    26,043,243Outstanding Class A Preference Shares Series A
Convertible
    
    
    30,262
    
    
    
    30,262
    
    
    
    30,262
    
    
    
    30,262
    
    
    
    41,296Outstanding Class B Preference Shares Series 1
Convertible
    
    
    
    
    
    
    
    
    
    
    57,711
    
    
    
    61,244
    
    
    
    Outstanding Class B Preference Shares Series 2
Convertible
    
    
    279,840
    
    
    
    341,240
    
    
    
    
    
    
    
    
    
    
    
    
  Page 2




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Currency and Exchange Rates
  B . Capitalization and indebtedness .
  C. Reasons for the offer and use of proceeds .
  D. Risk factors.
  
 We depend heavily on 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 our operations. The contract termination clauses are generally in favor of the
government agencies. Typically the termination clause for convenience is 30 days or less with the
condition that all costs to that date are paid by the government agencies.
  Page 3




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
    
    changes in procurement policies;
    
    changes in the structure and management of government departments;
    
    budget considerations;
    
    changing concepts of national defense;
    
    political developments domestically and abroad; and
    
    increased protectionism.
  We derive a significant amount of revenue from only a few customers. We depend on national and
international governments for a significant portion of our sales, and the loss of any of these
relationships or a shift in any of these governments funding could have severe consequences on our
financial condition.
  Our product lines are not broadly diversified.
  We derive a significant portion of our revenues from international sales and are subject to the
risks of doing business in foreign countries.
  
    
    changes in regulatory requirements;
    
    domestic and foreign government policies, including requirements to expend a portion of program funds locally and
governmental industrial co-operation requirements;
    
    fluctuations in foreign currency exchange rates;
    
    the complexity and necessity of dealing with foreign representatives and consultants;
    
    imposition of tariffs or embargoes, export controls, and other trade restrictions; and
    
    compliance with a variety of foreign laws.
  Page 4




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The Company derives significant revenue from contracts awarded through a competitive bidding
process, which can impose substantial costs upon it, and the Company will fail to maintain its
current and projected revenue if it fails to compete effectively.
  
    
    the need to bid on engagements in advance of the completion of their design, which may result in unforeseen
difficulties in executing the engagement and cost overruns;
    
    the substantial cost and managerial time and effort that the Company spends to prepare bids and proposals for contracts
that may not be awarded to them;
    
    the need to accurately estimate the resources and costs that will be required to service any contract the Company is
awarded;
    
    the expense and delay that may arise if the Companys competitors protest or challenge contract awards made to them
pursuant to competitive bidding, and the risk that any such protest or challenge could result in the resubmission of
bids on modified specifications, or in termination, reduction, or modification of the awarded contract; and
    
    the opportunity cost of not bidding on and winning other contracts the Company might otherwise pursue.
  Our revenues and costs are affected by fluctuations in the rate of exchange between the U.S.
dollar, which is our reporting currency, the Canadian dollar, the British pound, the Australian
dollar, the Danish kroner and the euro.
  We have established teaming relationships and strategic partnerships with international
corporations to pursue major international government procurements, and our reputation and results
of operations could be adversely affected by our inability to control their operations.
  
    
    remain in business;
    
    maintain the financial stability required to fulfill the requirements of these international procurements; and
    
    continue to consider our products in their business priorities.
 Page 5




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Competition within our markets may reduce our ability to procure future contracts and sales.
  Our ability to procure contracts and gain sales in foreign markets may be negatively impacted by
increasing protectionism of foreign governments.
  Our future success will depend on our ability to develop new technologies that achieve market
acceptance.
  
    
    identify emerging technological trends in our market;
    
    develop and maintain competitive products;
    
    enhance our products by adding innovative features that differentiate our products from those of our competitors; and
    
    manufacture and bring products to market quickly at cost-effective prices.
  Page 6




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We depend on the recruitment and retention of qualified personnel, and our failure to attract and
retain such personnel could seriously harm our business.
  We do not have fixed-term employment agreements with our officers and key employees and the loss of
any officer or key employee could seriously harm our business.
  We depend on foreign sub-contract labor in our mapping operations to maintain a competitive
position in the mapping marketplace.
  
    
    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.
  We may be unable to adequately protect our intellectual property rights, which could affect our
ability to compete.
  Our operations depend on component availability and our key suppliers to manufacture and deliver
our products and services.
  Page 7




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The Company may not be able to meet the delivery terms or budgeted costs of its firm fixed price
contracts.
  The unpredictability of our results may harm or contribute to the volatility of the trading price
of our common stock.
  
    
    the volume and timing of product orders received and delivered;
    
    levels of product demand;
    
    government and corporate spending patterns;
    
    the timing of contract receipt and funding and resulting impact on our working capital position;
    
    our ability and the ability of our key suppliers to respond to changes in customer orders;
    
    the timing of our new product introductions and our 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.
 Sales of a significant number of shares of our common stock by existing shareholders could cause
the market price of our common stock to decline.
  Investors interests will be diluted and investors may suffer dilution in their net book value per
share if we issue additional shares or raise funds through the sale of equity securities.
  Page 8




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We may pursue strategic relationships, investment, and acquisitions. We may not be able to
successfully manage our operations if it fails to successfully integrate the acquired technologies
and/or businesses.
  
    
    difficulty in integrating the third-party product with our products;
    
    undiscovered software errors in the third-party product;
    
    difficulties in selling the third-party product;
    
    difficulties in providing satisfactory support for the third-party product;
    
    potential infringement claims from the use of the third-party product; and
    
    discontinuation of third-party product lines.
  
    
    issues related to product transition (such as development, distribution and customer support);
    
    the substantial management time devoted to such activities;
    
    the potential disruption of our ongoing business;
    
    undisclosed liabilities;
    
    failure to realize anticipated benefits (such as synergies and cost savings);
    
    the difficulty of integrating previously distinct businesses into one business unit; and
    
    technological uncertainty regarding the current and future functionality of the product.
 We may require additional capital, in which case we may need to raise additional funds from lenders
and equity markets in the future.
  Our business could be adversely affected if we fail to manage our growth effectively.
  
    
    improve our financial and management controls, reporting systems, and procedures;
    
    add and integrate new senior management personnel;
    
    improve our licensing models and procedures;
    
    hire, train, and retain qualified employees;
    
    maintain sufficient working capital;
    
    control expenses;
    
    diversify channel sales strategies; and
 Page 9




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##### 




    
    invest in our internal networking infrastructure and facilities.
  Third parties may claim that we infringe their proprietary rights.
   We may not be able to protect our proprietary information.
  Our products may contain significant defects, which may result in liability and/or decreased sales.
  Our products depend on third-party software products and our reputation and results of operations
could be adversely affected by our inability to control their operations.
  
    
    remain in business;
    
    support our product lines;
 Page 10




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##### 




    
    maintain viable and functional product lines; and
    
    make their product lines available to the Company on commercially acceptable terms.
    The Company is subject to various government audits, which may result in unfavorable assessments or
penalties to the Company.
  Page 11




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Item 4. Information on the Company
 A. History and development of the Company.
 The Company
 Company Act The Company Act Business Corporations Act
 a)
    
    by increasing the number of authorized Common Shares from 100,000,000
to an unlimited number;b)
    
    to create a new series of 10,000,000 shares designated as Class B
Series 2 Preference Shares;c)
    
    to create a new class of shares designated as an unlimited number of
Class C Preference Shares which may be issued in series; andd)
    
    to replace the Companys Articles with new Articles.
  st
 Registered Agents
 th
 History
   Page 12




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® ® ® ® ®


® ®




® ®




Business Development






®




Page 13



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Recent Financing and Acquisitions
       B. Business overview
 Business Units
  Page 14




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##### 



Principal Products and Services
  Electronic Chart Precise Integrated Navigation System (ECPINS®)
 ® ® ®
 ® ® ® ® ® ®
 ® ®
  Page 15




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##### 



Projects
 ®
 Common Operational Picture (COP) Products
 ® ® ®
 ®
 
    
    COP- TDS: a tactical display server that provides track, target and tactical
information such as mission and operational data; and
    
    COP-WDS: an open GIS WMS compliant web map server.
  Warship Automatic Identification Systems (W-AIS)
  C3Core
  IGEN
  Mapping
  Page 16




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Seasonality
  Major Customers
  Geographic Markets
  Sources and Availability of Components
  Sales, Marketing and Distribution
    
    
    Surface Navy Show from January 9 to 12 in Arlington, VA
    
    Surface Navy League from January 10 to 12 in Washington, DC
    
    Game Developers Conference from March 20 to 24 in San Francisco, CA
    
    Sea-Air-Space Expo from April 4 to 6 in Washington, DC
    
    CanSec from April 5 to 6 in Ottawa, ON
    
    Information Technology Exposition and Conference from May 13 to 20 in San Francisco, CA
 Page 17




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
    
    MACC Show 2006 from June 6 to 8 in Norfolk, VA
    
    Behaviour Representation Modelling and Simulation from May 15 to 17 in Baltimore, MA
    
    Command & Control Research Technology Symposium from June 16 to 24 in San Diego, CA
    
    International Conference on Intelligence Virtual Agents for August 20 to 24 in Marina Del Ray, CA
    
    Society for Applied Learning Technology on August 23 in Orlando, FL
    
    Shipbuilding Machinery & Marine Technology from September 26 to 29 in Hamburg, Germany
    
    Defense Imagery Exploitation from October 17 to 18 in London, England
    
    NATO GMWG  Geo-Spatial Maritime Working Group from October 17 to 19 in Gdynia, Europe
    
    Euronaval from October 23 to 27 in Paris, France
    
    Army Science Conference from November 27 to 28 in Orlando, FL
    
    Exponaval from November 28 to December 1 in Valparaiso, IN
    
    Interservice/Industry Training Simulation & Education Conference from December 5-9
in Orlando, FL
 Competition
 Electronic Chart Precise Integrated Navigation System (ECPINS®)
 ®
  ® ® ®
  Common Operational Picture (COP) Products
 ® ®
 Page 18




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##### 



Warship Automatic Identification Systems (W-AIS)
  IGEN
  C3Core
 st
 Mapping
    Trademarks and Intellectual Property Rights
 ® ® Page 19
        Government Regulations
  Research and Product Development
  Plan of Operation
 Page 20
       C. Organizational structure.
  
   D. Property, plants and equipment.
 Human Resources and Facilities
     Page 21




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##### 



In thousands of U.S. dollars
    As at November 30, 2006AccumulatedCost
    
    
    depreciation
    
    
    NetEquipment
    
    $
    4,626
    
    
    $
    3,710
    
    
    $
    919Vehicle
    
    
    9
    
    
    
    3
    
    
    
    6Furniture and fixtures
    
    
    599
    
    
    
    482
    
    
    
    117Leasehold improvements
    
    
    300
    
    
    
    253
    
    
    
    47$
    5,537
    
    
    $
    4,448
    
    
    $
    1,089
 In thousands of U.S. dollars
    As at November 30, 2005AccumulatedCost
    
    
    depreciation
    
    
    NetEquipment
    
    $
    3,575
    
    
    $
    2,771
    
    
    $
    804Vehicle
    
    
    9
    
    
    
    1
    
    
    
    8Furniture and fixtures
    
    
    120
    
    
    
    92
    
    
    
    28Leasehold improvements
    
    
    201
    
    
    
    172
    
    
    
    29$
    3,905
    
    
    $
    3,036
    
    
    $
    869
 Environmental Protection Requirements
  Item 4A. Unresolved Staff Comments
 Page 22
       
 Item 5. Operating and Financial Review and Prospects
 Forward-Looking Statements
   A. Operating results
   Overview
  Page 23
       Critical Accounting Policies
   Revenue recognition
       Page 24
          Unbilled revenue
  Unearned revenue
  Accounts Receivable
  Unbilled accounts receivable
  Inventory
  Deferred Income Taxes
  Page 25




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##### 



Stock-Based Compensation and Other Stock-Based Payments
    Goodwill
  Impact of Recent Accounting Pronouncements
  Page 26




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##### 



Page 27
       Results of Operations  November 30, 2006 compared to November 30, 2005
 Overall Performance
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Net earnings (loss) before
income taxes
    
    $
    635
    
    
    $
    (1,876
    )
    
    $
    2,511Net earnings (loss)
    
    $
    693
    
    
    $
    (2,749
    )
    
    $
    3,442Net loss attributable to
common shareholders
    
    $
    (825
    )
    
    $
    (9,400
    )
    
    $
    8,575Loss per share  basic
    
    
    (0.03
    )
    
    
    (0.34
    )
    
    
    0.31Loss per share  diluted
    
    $
    (0.05
    )
    
    $
    (0.34
    )
    
    $
    0.29
  Revenue
 % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalIn thousands of U.S. dollars
    
    2006
    
    
    revenue
    
    
    2005
    
    
    revenue
    
    
    2006 to 2005Marine systems
    
    $
    11,274
    
    
    
    47
    
    
    $
    8,181
    
    
    
    74
    
    
    $
    3,093Land and air systems
    
    
    8,761
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    8,761Mapping
    
    
    4,102
    
    
    
    17
    
    
    
    2,945
    
    
    
    26
    
    
    
    1,157$
    24,137
    
    
    
    100
    
    
    $
    11,126
    
    
    
    100
    
    
    $
    13,011
 ® ® ®
  Page 28
       Revenue by Segment
 % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalIn thousands of U.S. dollars
    
    2006
    
    
    revenue
    
    
    2005
    
    
    revenue
    
    
    2006 to 2005International Systems operations
    
    $
    9,518
    
    
    
    39
    
    
    $
    8,181
    
    
    
    74
    
    
    $
    1,337U.S. Systems operations
    
    
    10,517
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    10,517Mapping operations
    
    
    4,102
    
    
    
    17
    
    
    
    2,945
    
    
    
    26
    
    
    
    1,157$
    24,137
    
    
    
    100
    
    
    $
    11,126
    
    
    
    100
    
    
    $
    13,011
     Gross Profit
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Gross profit
    
    $
    10,975
    
    
    $
    5,430
    
    
    $
    5,545Gross profit percentage
    
    
    45
    %
    
    
    49
    %
    
    
    (4
    )%
  Gross Profit by Segment
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Gross profit:International Systems operations
    
    $
    5,963
    
    
    $
    4,381
    
    
    $
    1,582U.S. Systems operations
    
    
    3,672
    
    
    
    
    
    
    
    3,672Mapping operations
    
    
    1,340
    
    
    
    1,049
    
    
    
    291Consolidated operations
    
    $
    10,975
    
    
    $
    5,430
    
    
    $
    5,545Gross profit percentage:International Systems operations
    
    
    63
    %
    
    
    54
    %
    
    
    9
    %U.S. Systems operations
    
    
    35
    %
    
    
    
    
    
    
    35
    %Mapping operations
    
    
    33
    %
    
    
    36
    %
    
    
    (3
    )%Consolidated operations
    
    
    45
    %
    
    
    49
    %
    
    
    (4
    )%
 Page 29




---



##### 



Operating Expenses
 % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalIn thousands of U.S. dollars
    
    2006
    
    
    revenue
    
    
    2005
    
    
    revenue
    
    
    2006 to 2005General and administrative
    
    $
    6,034
    
    
    
    25
    %
    
    $
    3,923
    
    
    
    35
    %
    
    $
    2,111Engineering
    
    
    1,783
    
    
    
    7
    %
    
    
    1,670
    
    
    
    15
    %
    
    
    113Sales and marketing
    
    
    2,527
    
    
    
    10
    %
    
    
    2,354
    
    
    
    21
    %
    
    
    172
 General and administrative
  Engineering
  Sales and marketing
 Page 30
       Depreciation and amortization
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Depreciation and amortization
    
    $
    772
    
    
    $
    408
    
    
    $
    364
  Interest expense
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Interest expense
    
    $
    21
    
    
    $
    23
    
    
    $
    (2
    )
  Interest income
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Interest income
    
    $
    37
    
    
    $
    156
    
    
    $
    (119
    )
  Foreign exchange
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Foreign exchange loss (gain)
    
    $
    (233
    )
    
    $
    90
    
    
    $
    (323
    )
  Technology Partnerships Canada
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Royalty
    
    $
    493
    
    
    $
    243
    
    
    $
    250Contribution
    
    
    (760
    )
    
    
    (1,090
    )
    
    
    330
 Page 31
         Income taxes
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Deferred income tax expense (recovery)
    
    $
    (265
    )
    
    $
    726
    
    
    $
    (991
    )Current income tax expense
    
    
    207
    
    
    
    147
    
    
    
    60(58
    )
    
    
    873
    
    
    
    (931
    )
  Backlog
     Page 32




---



##### 



Page 33




---



##### 



Results of Operations  November 30, 2005 compared to November 30, 2004
 Overall Performance
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Net earnings (loss) before income taxes
    
    $
    (1,876
    )
    
    $
    346
    
    
    $
    (2,222
    )Net earnings (loss)
    
    $
    (2,749
    )
    
    $
    303
    
    
    $
    (3,052
    )Net loss attributable to
common shareholders
    
    $
    (9,400
    )
    
    $
    (14
    )
    
    $
    (9,386
    )Loss per share  basic and
diluted
    
    
    (0.34
    )
    
    
    (0.00
    )
    
    
    (0.34
    )
  Revenue
 % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalIn thousands of U.S. dollars
    
    2005
    
    
    revenue
    
    
    2004
    
    
    revenue
    
    
    2005 to 2004Marine systems
    
    $
    8,181
    
    
    
    74
    
    
    $
    8,090
    
    
    
    78
    
    
    $
    91Mapping
    
    
    2,945
    
    
    
    26
    
    
    
    2,321
    
    
    
    22
    
    
    
    624$
    11,126
    
    
    
    100
    
    
    $
    10,411
    
    
    
    100
    
    
    $
    715
   Revenue by Segment
 % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalIn thousands of U.S. dollars
    
    2005
    
    
    revenue
    
    
    2004
    
    
    revenue
    
    
    2005 to 2004International Systems operations
    
    $
    8,181
    
    
    
    74
    
    
    $
    8,090
    
    
    
    78
    
    
    $
    91Mapping operations
    
    
    2,945
    
    
    
    26
    
    
    
    2,321
    
    
    
    22
    
    
    
    624$
    11,126
    
    
    
    100
    
    
    $
    10,411
    
    
    
    100
    
    
    $
    715
  Page 34




---



##### 



Gross Profit
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Gross profit
    
    $
    5,430
    
    
    $
    6,018
    
    
    $
    (588
    )Gross profit percentage
    
    
    49
    %
    
    
    58
    %
    
    
    (9
    )%
  Gross Profit by Segment
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Gross profit:International Systems operations
    
    $
    4,381
    
    
    $
    5,214
    
    
    $
    (833
    )Mapping operations
    
    
    1,049
    
    
    
    804
    
    
    
    245$
    5,430
    
    
    $
    6,018
    
    
    $
    (588
    )Gross profit percentage:International Systems operations
    
    
    54
    %
    
    
    64
    %
    
    
    (10
    )%Mapping operations
    
    
    36
    %
    
    
    35
    %
    
    
    1
    %49
    %
    
    
    58
    %
    
    
    (9
    )%
   Operating Expenses
 % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalIn thousands of U.S. dollars
    
    2005
    
    
    revenue
    
    
    2004
    
    
    revenue
    
    
    2005 to 2004General and administrative
    
    $
    3,923
    
    
    
    35
    %
    
    $
    2,531
    
    
    
    24
    %
    
    $
    1,392Engineering
    
    
    1,670
    
    
    
    15
    %
    
    
    1,611
    
    
    
    15
    %
    
    
    59Sales and marketing
    
    
    2,354
    
    
    
    21
    %
    
    
    2,421
    
    
    
    23
    %
    
    
    (67
    )
 General and administrative
 Page 35




---



##### 



Engineering
  Sales and marketing
 Depreciation and amortization
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Depreciation and amortization
    
    $
    404
    
    
    $
    278
    
    
    
    126
  Interest expense
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Interest expense
    
    $
    23
    
    
    $
    2
    
    
    
    21
  Page 36




---



##### 



Interest income
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Interest income
    
    $
    156
    
    
    $
    22
    
    
    
    134
  Foreign exchange
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Foreign exchange loss (gain)
    
    $
    90
    
    
    $
    (35
    )
    
    
    125
  Technology Partnerships Canada
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Royalty
    
    $
    243
    
    
    $
    99
    
    
    
    144Contribution
    
    
    (1,090
    )
    
    
    (1,112
    )
    
    
    22
   Income taxes
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Deferred income tax expense (recovery)
    
    $
    726
    
    
    $
    (491
    )
    
    $
    1,217Current income tax expense
    
    
    147
    
    
    
    534
    
    
    
    (387
    )873
    
    
    
    43
    
    
    
    830
  Page 37




---



##### 



Backlog
    B. Liquidity and capital resources
 November 30 2006 compared to November 30, 2005
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Cash and cash equivalents
    
    $
    
    
    
    $
    8,222
    
    
    $
    (8,222
    )Current assets
    
    
    14,333
    
    
    
    19,301
    
    
    
    (4,968
    )Current liabilities
    
    
    6,544
    
    
    
    4,056
    
    
    
    2,488Working capital (1)
    
    
    7,789
    
    
    
    15,245
    
    
    
    (7,456
    )
 
 (1)
    
    Working capital is defined as current assets less current liabilities. Working
capital does not have a standardized meaning or comparable measure under generally accepted
accounting principles and may not be comparable to similar measures presented by other companies.    Page 38




---



##### 



Cash Flows
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2006 to 2005Cash flows provided by (used in):Operating activities
    
    $
    157
    
    
    $
    (1,717
    )
    
    $
    1,874Investing activities
    
    
    (8,484
    )
    
    
    (1,448
    )
    
    
    (7,036
    )Financing activities
    
    
    (44
    )
    
    
    10,729
    
    
    
    (10,773
    )Translation adjustment
    
    
    149
    
    
    
    446
    
    
    
    (297
    )
       November 30 2005 compared to November 30, 2004
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Cash and cash equivalents
    
    $
    8,222
    
    
    $
    212
    
    
    $
    8,010Current assets
    
    
    19,301
    
    
    
    8,587
    
    
    
    10,714Current liabilities
    
    
    4,056
    
    
    
    2,256
    
    
    
    1,800Working capital (1)
    
    
    15,245
    
    
    
    6,331
    
    
    
    8,914
   Page 39




---



##### 



Cash Flows
 In thousands of U.S. dollars
    
    2005
    
    
    2004
    
    
    2005 to 2004Cash flows provided by (used in):Operating activities
    
    $
    (1,717
    )
    
    $
    (2,543
    )
    
    $
    826Investing activities
    
    
    (1,448
    )
    
    
    (268
    )
    
    
    (1,180
    )Financing activities
    
    
    10,729
    
    
    
    87
    
    
    
    10,642Translation adjustment
    
    
    446
    
    
    
    (13
    )
    
    
    459
     C. Research and development, patents and licenses, etc.
 Research and Development
  Patents and Licenses, etc.
  Page 40




---



##### 



D. Trend information.
  In thousands of U.S. dollars except share related dataFor the three months ended
    
    November 30
    
    
    August 31
    
    
    May 31
    
    
    February 282006
    
    
    2006
    
    
    2006
    
    
    2006Revenue
    
    $
    10,018
    
    
    $
    4,316
    
    
    $
    6,140
    
    
    $
    3,663Gross profit
    
    
    5,783
    
    
    
    1,403
    
    
    
    2,595
    
    
    
    1,194Gross profit percentage
    
    
    58
    %
    
    
    32
    %
    
    
    42
    %
    
    
    33
    %Net earnings (loss)
    
    
    2,691
    
    
    
    (766
    )
    
    
    (2
    )
    
    
    (1,230
    )Net earnings (loss) attributable to
common shareholders
    
    
    2,249
    
    
    
    (953
    )
    
    
    (715
    )
    
    
    (1,406
    )Loss per share  basic
    
    
    0.07
    
    
    
    (0.03
    )
    
    
    (0.02
    )
    
    
    (0.05
    )Loss per share  diluted
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.02
    )
    
    
    (0.05
    )
 In thousands of U.S. dollars except share related dataFor the three months ended
    
    November 30
    
    
    August 31
    
    
    May 31
    
    
    February 282005
    
    
    2005
    
    
    2005
    
    
    2005Revenue
    
    $
    5,137
    
    
    $
    2,618
    
    
    $
    1,533
    
    
    $
    1,838Gross profit
    
    
    2,636
    
    
    
    1,472
    
    
    
    317
    
    
    
    1,005Gross profit percentage
    
    
    51
    %
    
    
    56
    %
    
    
    21
    %
    
    
    55
    %Net earnings (loss)
    
    
    (872
    )
    
    
    (308
    )
    
    
    (1,370
    )
    
    
    (199
    )Net earnings (loss) attributable to
common shareholders
    
    
    (2,594
    )
    
    
    (1,026
    )
    
    
    (5,560
    )
    
    
    (220
    )Loss per share  basic and diluted
    
    
    (0.09
    )
    
    
    (0.04
    )
    
    
    (0.20
    )
    
    
    (0.01
    )
 Sales Contracts 
 Page 41




---



##### 



Product mix  ®
 Strategic acquisitions
 Customers 
 Foreign Exchange
 Accounting Pronouncement
 E. Off-balance sheet arrangements
 Derivatives
   Page 42




---



##### 



Sell
    
    Exchange rate in relation to CAD
    
    Value dateGBP 107,017
    
    2.1046
    
    December 15, 2006AUD 375,000
    
    0.8489
    
    December 15, 2006USD 147,591
    
    1.0992
    
    December 29, 2006USD 82,880
    
    1.0981
    
    January 31, 2007USD 310,979
    
    1.1220
    
    January 31, 2007USD 348,919
    
    1.1289
    
    February 28, 2007AUD 125,000
    
    0.8442
    
    April 16, 2007USD 371,276
    
    1.1258
    
    May 30, 2007
 Guarantees
  F. Tabular disclosure of contractual obligations.
  In thousands of U.S. dollars
    
    Payments due by periodLess than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsLong-term debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    $
    3,714
    
    
    $
    622
    
    
    $
    907
    
    
    $
    804
    
    
    $
    1,381Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,714
    
    
    $
    622
    
    
    $
    907
    
    
    $
    804
    
    
    $
    1,381
  G. Safe Harbor
  Page 43




---



##### 



Page 44




---



##### 



Item 6. Directors, Senior Management and Employees
 A. Directors and senior management.
  Number and Percentage of VotingShares Beneficially Owned orName and
    
    Principal Occupation
    
    
    
    Controlled by Directors andOffice Held
    
    For Past Five Years
    
    Director Since
    
    Officers at April 25,
2007(a)RAYMOND JOHNSTON
Director,
Chair of the Board,
Québec, Canada
    
    1999 to present: President, of
Chamber of Maritime Commerce,
an entity which promotes the
interests of the commercial
marine industry in Canada.
    
    11/14/00
(and from
12/94 to 9/98)
    
    274,000 common
shares (includes
220,000 options
to purchase
common shares)
0.7% of common
sharesHELMUT F. LOBMEIER
Director
British Columbia, Canada
    
    2001 to present: Retired
1979 to 2001: Co-owner PSL
Steel Ltd., and Independent
Businessman
    
    4/26/90
    
    951,695 common
shares (includes
220,000 options
to purchase
common shares)
2.4% of common
sharesCAPT. WALTER P. PURIO
Director
Western Australia, Australia
    
    2000 to present: Independent
Marine Consultant
1993 to 2000: President, P and
H Marine Associates, Inc.
1985 to present: Shipmaster-Oceans, General Dynamics,
American Overseas Marine
Corporation
    
    1/14/99
    
    290,000 common
shares (includes
220,000 options
to purchase
common shares)

0.7% of common
sharesE. BRINTON COXE
Director
Connecticut, United States
    
    1999 to present: Chair of E.B.
Coxe & Co., LLC a company
which specializes in finding,
funding, and managing small
cap companies and providing
consulting services to
investment funds.
1999 to present: Strategic
partner of SDS Capital
Partners, LLC, which is a
group of investment funds.
    
    7/20/04 to
04/18/07
    
    730,197 common
shares
(includes
203,750 options
to purchase
common shares,
warrants to
purchase 408,800
common shares,
and 2,000 Class
B Series 2
Preference
shares
convertible into
117,647 common
shares)

1.8% of common
shares
 Page 45




---



##### 



Number and Percentage of VotingShares Beneficially Owned orName and
    
    Principal Occupation
    
    
    
    Controlled by Directors andOffice Held
    
    For Past Five Years
    
    Director Since
    
    Officers at April 25, 2007(a)GERALD J. SHIELDS
Director
British Columbia, Canada
    
    2006 to present: Principal,
Providia Investment Group
2005 to 2006: Lawyer engaged
in private practice with the
firm of Clark Wilson LLP
1998 to 2005: Lawyer engaged
in private practice with the
firm of Godinho Sinclair
Shields
    
    4/08/05
    
    270,000 common
shares (includes
220,000 options
to purchase
common shares)

0.7% of common
sharesKENNETH H. KIRKPATRICK
Director
President and Chief Executive
Officer
British Columbia, Canada
    
    2005 to present: President and
Chief Executive Officer, OSI
Geospatial Inc.
2005: Chief Operating Officer,
OSI Geospatial Inc.
2001 to 2005: Vice President,
Operations, OSI Geospatial Inc.
1997 to 2001: Vice President &
Chief Operating Officer,
Triathlon Ltd. subsidiary of
MacDonald Dettwiler &
Associates
    
    11/07/05
    
    363,833 common
shares (includes
308,333 options
to purchase
common shares)

0.9% of common
sharesJOSEPH A. STROUD
Director
Virginia, United States
    
    2005 to present: Partner at
General Management Partners,
LLC
1997 to present:
Partner/Consultant at J.F.
Lehman Equity Investors I, LLP
    
    03/15/06
    
    198,750 common
shares (includes
98,750 options
to purchase
common shares)

0.5% of common
sharesDONALD W. YOUNG
Director
British Columbia, Canada
    
    2005 to present: Retired
1979 to 2005: Partner at KPMG
LLP
    
    03/15/06
    
    150,750 common
shares (includes
98,750 options
to purchase
common shares)
0.4% of common
sharesANDREW CARNIEL
Vice President Business 
Development
British Columbia, Canada
    
    2005 to present: Vice
President, Business
Development, OSI Geospatial
Inc.
2001 to 2005: Vice President,
Business Development and
Corporate Secretary, OSI
Geospatial Inc.
1998 to 2001: Director of
Operations, Offshore Systems
Ltd.
    
    N/A
    
    313,333 common
shares (includes
213,333 options
to purchase
common shares)

0.8% of common
shares
 Page 46




---



##### 



Number and Percentage of VotingShares Beneficially Owned orName and
    
    Principal Occupation
    
    
    
    Controlled by Directors andOffice Held
    
    For Past Five Years
    
    Director Since
    
    Officers at April 25, 2007(a)JOHN T. SENTJENS
Vice President Finance and
Corporate Secretary
British Columbia, Canada
    
    2005 to present: Vice
President Finance and
Corporate Secretary, OSI
Geospatial Inc.
2001 to 2005: Corporate
Controller, OSI Geospatial
Inc.
1999 to 2001: Controller,
Triathlon Ltd. subsidiary of
MacDonald Dettwiler &
Associates Ltd.
    
    N/A
    
    277,000 common
shares (includes
247,000 options
to purchase
common shares)

0.7% of common
shares
 (a)
    
    As used in the table above, 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 25, 2007 through the exercise of any option or
warrant. 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 to be outstanding for the purpose of calculating the ownership percentage of any other
person.    B. Compensation.
  (1) (1)
 Page 47




---



##### 



(1) (1)
 
 (1) Canadian directors are paid in Canadian funds and all other directors are paid the
same amount, but in U.S. funds. Listing of Directors GeographicallyCanadian Directors
    
    Raymond W. Johnston (Chair)Kenneth H. KirkpatrickHelmut F. LobmeierGerald J. ShieldsDonald W. YoungU.S. Directors
    
    E. Brinton CoxeJoseph A. StroudAustralian Director
    
    Capt. Walter P. Purio(1)
 
 NOTES:(1)
    
    Captain Purio is a U.S. citizen.  In thousands of U.S. dollars
    
    
    
    
    
    Annual CompensationOther AnnualSalary
    
    Bonus
    
    CompensationName
    
    Year
    
    ($)
    
    ($)
    
    ($)Kenneth H. Kirkpatrick
    
    
    2006
    
    
    
    220
    
    
    
    69
    
    
    
    8President & CEO (1)
    
    
    2005
    
    
    
    129
    
    
    
    18
    
    
    
    5OSI Geospatial Inc.
    
    
    2004
    
    
    
    106
    
    
    
    8
    
    
    
    4John T. Sentjens
    
    
    2006
    
    
    
    116
    
    
    
    34
    
    
    NilVice President Finance and Secretary
    
    
    2005
    
    
    
    89
    
    
    
    12
    
    
    NilOSI Geospatial Inc.
    
    
    2004
    
    
    
    75
    
    
    
    6
    
    
    NilAndrew Carniel
    
    
    2006
    
    
    
    146
    
    
    
    29
    
    
    
    5Vice President Business Development
    
    
    2005
    
    
    
    115
    
    
    
    6
    
    
    NilOSI Geospatial Inc.
    
    
    2004
    
    
    
    105
    
    
    
    7
    
    
    
    2Wayne Zachary(2)
    
    
    2006
    
    
    
    143
    
    
    
    30
    
    
    
    7Vice President & General Manager
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    CHI Systems Inc.
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    Wayne Hoyle(3)
    
    
    2006
    
    
    
    112
    
    
    Nil
    
    
    51Vice President & General Manager
    
    
    2005
    
    
    
    86
    
    
    Nil
    
    
    52Offshore Systems Ltd.
    
    
    2004
    
    
    
    68
    
    
    Nil
    
    
    74
 Page 48




---



##### 



NOTES:(1)
    
    Mr. Kirkpatrick was promoted from COO to President and CEO on November 7, 2005.(2)
    
    Mr. Zachary joined the organization on December 15, 2005 through its acquisition of CHI Systems.(3)
    
    Mr. Hoyles remuneration arrangement includes compensation paid under a
commission arrangement tied to the closing of sales. The above figures include variable
compensation paid to him under this arrangement of $58,000 (fiscal 2006) $52,000 (fiscal 2005) and
$74,000 (fiscal 2004).   Kenneth Kirkpatrick
 John Sentjens
 Andrew Carniel
 Page 49




---



##### 



Wayne Zachary
 Wayne Hoyle
  CommonName and
    
    Share
    
    
    Exercise
    
    
    Vesting
    
    
    ExpiryOffice Held
    
    Options
    
    
    Price
    
    
    Date
    
    
    DateRaymond W. Johnston  Chair and Director
    
    
    25,000
    
    
    
    0.73
    
    
    April 02, 2006
    
    April 12, 2011Helmut F. Lobmeier  Director
    
    
    25,000
    
    
    
    0.73
    
    
    April 02, 2006
    
    April 12, 2011Captain Walter Purio  Director
    
    
    25,000
    
    
    
    0.73
    
    
    April 02, 2006
    
    April 12, 2011E. Brinton Coxe  Director
    
    
    25,000
    
    
    
    0.73
    
    
    April 02, 2006
    
    April 12, 2011Gerald J. Shields  Director
    
    
    25,000
    
    
    
    0.73
    
    
    April 02, 2006
    
    April 12, 2011Joseph A. Stroud  Director
    
    
    3,750
    
    
    
    0.73
    
    
    March 15, 2006
    
    March 15, 201145,000
    
    
    
    0.73
    
    
    April 02, 2006
    
    April 12, 2011Donald W. Young  Director
    
    
    3,750
    
    
    
    0.73
    
    
    March 15, 2006
    
    March 15, 201145,000
    
    
    
    0.73
    
    
    April 02, 2006
    
    April 12, 2011
 Page 50




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##### 



Board practices
  Name
    
    Period ServedRaymond Johnston (Chair)
    
    since November 2000Kenneth H. Kirkpatrick
    
    since November 2005Helmut F. Lobmeier
    
    since April 1990Walter P. Purio
    
    since January 1999E. Brinton Coxe(1)
    
    since July 2004Gerald J. Shields
    
    since April 2005Joseph A. Stroud
    
    since March 2006Donald W. Young
    
    since March 2006
 
 (1)
    
    Mr. Coxes term as director ended at the Annual General Meeting on April 18, 2007.   Duties and Obligations of the Board of Directors
   Page 51




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##### 



(a)
    
    adopting a strategic planning process for the Company which establishes the Companys
long-term goals and strategies, and monitoring the success of the Companys management in
achieving those goals and implementing the strategy;
 (b)
    
    identifying the principal risks with respect to all aspects of the Companys business,
ensuring that there are systems in place to effectively monitor and manage such risks with a
view to the long-term viability of the Company, and achieving a proper balance between the
risks incurred and the potential return to the Companys members;
 (c)
    
    engaging in succession planning, including appointing, training and monitoring senior
management (which includes ensuring that objectives are in place against which managements
performance can be measured), establishing and maintaining programs to train and develop
management, providing for the orderly succession of management, and assessing the performance
and contribution of the Chief Executive Officer of the Company against mutually established
objectives; and
 (d)
    
    ensuring that the Company has a policy in place to enable it to communicate effectively with
its shareholders, other stakeholders and the general public, effectively interpreting the
operations of the Company to shareholders, accommodating feedback from shareholders, and
ensuring that there are effective controls and information systems in place for the Board of
Directors to discharge its responsibilities, such as an audit system which can inform the
Board of Directors about the integrity of the data and the compliance of the financial
information with appropriate accounting principles.
 Committees of the Board of Directors
  Audit Committee
   (a)
    
    reviewing and monitoring the audit functions, risk-management systems, management information
systems, and accounting policies;
 (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;
 (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;
 (d)
    
    directly appointing, compensating, retaining and overseeing the work of the Companys
external auditors, who report directly to the Audit Committee;
 (e)
    
    establishing procedures for (i) the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or auditing matters and (ii)
the confidential, anonymous submission by employees of the Company of concerns regarding
questionable accounting and auditing matters; and
 (f)
    
    engaging independent counsel and other advisors, as it deems necessary to carry out its
duties.
 Human Resource and Compensation Committee
   Page 52




---



##### 



Executive Committee
   (a)
    
    recommending to the Board corporate procedures in order to address the issues of corporate
governance within the organization;
  (c)
    
    assisting the board in identifying new directors for nomination to the Board and assessing
existing directors on an ongoing basis;
 (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;
 (e)
    
    approving the engagement of individual directors and outside advisors at the Companys
expense at appropriate circumstances; and
 (f)
    
    overseeing the Companys activities in the area of investor relations and relations with the
capital markets.
 D. Employees
   Canada
    
    U.S.
    
    U.K.
    
    Australia
    
    TotalMarch 31, 2007
    
    
    72
    
    
    
    64
    
    
    
    1
    
    
    
    
    
    
    
    137November 30, 2006
    
    
    73
    
    
    
    61
    
    
    
    1
    
    
    
    
    
    
    
    135November 30, 2005
    
    
    76
    
    
    
    12
    
    
    
    
    
    
    
    1
    
    
    
    89November 30, 2004
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    70
  E. Share ownership
   Page 53




---



##### 



Item 7. Major Shareholders and Related Party Transactions
 A. Major shareholders.
  Page 54




---



##### 



Common Shares Beneficially OwnedClass B Series 2
    
    (upon conversion of Class B Series 2Name of Shareholders
    

Preference Shares
    
    Preference Shares )#
    
    %
    
    #
    
    %SF Capital Partners Ltd.
    
    
    48,600
    (1)
    
    
    21.6
    %
    
    
    4,287,664
    (1)
    
    
    10.0
    %Basso Multi-Strategy Holding Fund Ltd.
    
    
    24,300
    (2)
    
    
    10.8
    %
    
    
    2,143,831
    (2)
    
    
    5.4
    %Basso Private Opportunity Holding Fund Ltd.Millennium Partners, LP
    
    
    24,300
    (3)
    
    
    10.8
    %
    
    
    2,143,831
    (3)
    
    
    5.4
    %Shannon River Partners II, LP
    
    
    24,300
    (4)
    
    
    10.8
    %
    
    
    2,143,831
    (4)
    
    
    5.4
    %Shannon River Partners, LPNorth Sound Legacy International Ltd.
    
    
    23,800
    (5)
    
    
    10.6
    %
    
    
    4,707,322
    (5)
    
    
    11.6
    %North Sound Legacy Institutional Fund LLCNorth Sound Legacy Fund LLCSDS Capital Group SPC, Ltd.
    
    
    18,500
    (6)
    
    
    8.2
    %
    
    
    2,371,169
    (6)
    
    
    5.8
    %
 Class A Series APreference SharesName of Shareholders
    
    Convertible#
    
    %John Visnapu
    
    
    16,376
    
    
    
    54.1
    %G.A. Lachapelle
    
    
    3,275
    
    
    
    10.8
    %Dennis Kong
    
    
    3,275
    
    
    
    10.8
    %Daniel Jacobson
    
    
    3,275
    
    
    
    10.8
    %
 
 (1)
    
    Consist of 48,600 Class B Series 2 Preference Shares convertible into
2,858,824 Common Shares and Warrants to purchase 1,428,840 Common Shares.(2)
    
    Consist of 18,700 Class B Series 2 Preference Shares convertible into 1,100,000
Common Shares and Warrants to purchase 549,780 Common Shares held by Basso Multi-Strategy Holding
Fund Ltd. and 5,600 Class B Series 2 Preference Shares convertible into 329,412 Common Shares and
Warrants to purchase 164,640 Common Shares held by Basso Private Opportunity Holding Fund, a
related group.(3)
    
    Consist of 24,300 Class B Series 2 Preference Shares convertible into 1,429,412
Common Shares and Warrants to purchase 714,420 Common Shares.(4)
    
    Consist of 14,300 Class B Series 2 Preference Shares convertible into 841,176
Common Shares and Warrants to purchase 420,420 Common Shares held by Shannon River Partners II, LP
and 10,000 Class B Series 2 Preference Shares convertible into 588,235 Common Shares and Warrants
to purchase 294,000 Common Shares held by Shannon River Partners, LP, a related group.(5)
    
    Consist of 23,800 Class B Series 2 Preference Shares convertible into 1,400,000
Common Shares and Warrants to purchase 3,307,323 Common Shares held by North Sound Legacy
International Ltd., North Sound Legacy Institutional Fund LLC, and North sound Legacy Fund LLC.(6)
    
    Consist of 18,500 Class B Series 2 Preference Shares convertible into 1,088,235
Common Shares and Warrants to purchase 864,948 Common Shares. Page 55




---



##### 



,
 B. Related party transactions.
     C. Interests of experts and counsel.
 .
 Page 56




---



##### 



Item 8. Financial Information
 A. Consolidated statements and other financial information.
   In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2004Europe
    
    $
    6,816
    
    
    $
    4,093
    
    
    $
    3,332Australia/New Zealand
    
    
    1,200
    
    
    
    2,149
    
    
    
    3,748United States
    
    
    13,717
    
    
    
    2,410
    
    
    
    2,186Canada
    
    
    2,404
    
    
    
    2,415
    
    
    
    1,145Other
    
    
    
    
    
    
    59
    
    
    
    Total
    
    $
    24,137
    
    
    $
    11,126
    
    
    $
    10,411
 .
  
    
    The Company and four employees became the objects 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 C.E.O. and President and the Vice President Finance were
officers of Triathlon Ltd. prior to their employment with the Company. This suit remains
unresolved.
  B. Significant changes.
  Page 57




---



##### 



Item 9. The Offer and Listing
 A. Offer and listing details.
   
    
    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 high and low monthly market prices for the most recent six months.
 Price per shareTSX (in C$)
    
    
    OTCBB (in US$)High
    
    
    Low
    
    
    High
    
    
    LowYearFiscal year ended November 30, 2001
    
    $
    1.25
    
    
    $
    0.36
    
    
    
    N/A
    
    
    
    N/AFiscal year ended November 30, 2002(1)
    
    $
    1.95
    
    
    $
    0.90
    
    
    $
    0.80
    
    
    $
    0.60Fiscal year ended November 30, 2003
    
    $
    1.35
    
    
    $
    0.76
    
    
    $
    0.95
    
    
    $
    0.60Fiscal year ended November 30, 2004
    
    $
    1.50
    
    
    $
    0.76
    
    
    $
    1.30
    
    
    $
    0.62Fiscal year ended November 30, 2005
    
    $
    1.14
    
    
    $
    0.67
    
    
    $
    0.96
    
    
    $
    0.53Fiscal year ended November 30, 2006
    
    $
    1.10
    
    
    $
    0.65
    
    
    $
    0.98
    
    
    $
    0.55
 Page 58




---



##### 



Price per shareTSX (in C$)
    
    
    OTCBB (in US$)High
    
    
    Low
    
    
    High
    
    
    LowYear Ending November 30, 2004First Quarter
    
    $
    1.50
    
    
    $
    0.91
    
    
    $
    1.30
    
    
    $
    0.74Second Quarter
    
    $
    1.42
    
    
    $
    1.02
    
    
    $
    1.12
    
    
    $
    0.76Third Quarter
    
    $
    1.14
    
    
    $
    0.80
    
    
    $
    0.94
    
    
    $
    0.67Fourth Quarter
    
    $
    1.15
    
    
    $
    0.76
    
    
    $
    0.99
    
    
    $
    0.62Year Ending November 30, 2005First Quarter
    
    $
    0.90
    
    
    $
    0.70
    
    
    $
    0.78
    
    
    $
    0.60Second Quarter
    
    $
    0.94
    
    
    $
    0.67
    
    
    $
    0.80
    
    
    $
    0.53Third Quarter
    
    $
    1.14
    
    
    $
    0.70
    
    
    $
    0.95
    
    
    $
    0.53Fourth Quarter
    
    $
    1.11
    
    
    $
    0.75
    
    
    $
    0.96
    
    
    $
    0.70Year Ending November 30, 2006First Quarter
    
    $
    0.94
    
    
    $
    0.65
    
    
    $
    0.85
    
    
    $
    0.61Second Quarter
    
    $
    0.86
    
    
    $
    0.68
    
    
    $
    0.75
    
    
    $
    0.60Third Quarter
    
    $
    1.10
    
    
    $
    0.70
    
    
    $
    0.98
    
    
    $
    0.63Fourth Quarter
    
    $
    0.86
    
    
    $
    0.66
    
    
    $
    0.82
    
    
    $
    0.55Most Recent Six MonthsOctober 2006
    
    $
    0.83
    
    
    $
    0.71
    
    
    $
    0.82
    
    
    $
    0.63November 2006
    
    $
    0.84
    
    
    $
    0.66
    
    
    $
    0.72
    
    
    $
    0.55December 2006
    
    $
    0.78
    
    
    $
    0.56
    
    
    $
    0.67
    
    
    $
    0.48January 2007
    
    $
    0.72
    
    
    $
    0.57
    
    
    $
    0.64
    
    
    $
    0.48February 2007
    
    $
    0.91
    
    
    $
    0.69
    
    
    $
    0.79
    
    
    $
    0.55March 2007
    
    $
    0.85
    
    
    $
    0.62
    
    
    $
    0.72
    
    
    $
    0.58
  B. Plan of distribution.
  C. Markets.
  D. Selling shareholders.
  E. Dilution.
  Page 59




---



##### 



F. Expenses of the issue.
  Item 10. Additional Information
 A. Share capital.
  B. Memorandum and articles of association.
  Directors Powers and Conflicts of Interest
   Borrowing Powers
  Page 60




---



##### 



2/3
 Directors
      Rights Attached to Shares
  
    
    an unlimited number of Common Shares without par value
 
    
    100,000,000 Class A Preference Shares without value, issuable in series
 
    
    100,000,000 Class B Preference Shares with a par value of $50 each, issuable in series, and
 
    
    an unlimited number of Class C Preference Shares without par value issuable in series.
  a)
    
    Unlimited number of 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 at 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
 Page 61




---



##### 



which have been declared but had not been paid, the Common Shares rank subordinate to the
Class A Preference Shares, the Class B Preference Shares and the Class C Preference Shares
with respect to the amount paid up capital together with any fixed premium with respect of
such Class A Preference Shares and Class B Preference Shares. Thereafter, the Class A
Preference Shares, Class B Preference Shares and Class C 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, Class B Preference Shares or Class C 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 Series A Preference Shares Convertible, the Class B Series 1 Preference Shares and
the Class B Series 2 Preference 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 Notice of Articles 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 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 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 and Class C 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 662/3% 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 which 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
 Page 62




---



##### 



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 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 Notice of Articles
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 attached 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 662/3% 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, two series of shares have been designated by the Board of Directors out of the
Class B Preference Shares as follows:
 (i)
    
    10,000,000 million shares which have been designated as Class B Series 1
Preference Shares with a par value of CAD $50.00 each (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 Class B
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 CAD $2 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 CAD $2.20. The holders of the Class B 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 CAD $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 Class B 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
 Page 63




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##### 



the original issuance price plus all accrued but unpaid dividends on such shares.
The Class B 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 Class B 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 Class B 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 Class B Series 1 Preference Shares are fully paid; and(ii)
    
    10,000,000 million shares which have been designated as Class B Series 2
Preference Shares with a par value of CAD $50.00 each (Series 2 Preference Shares).
Each Series 2 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 2
Preference Share may be converted at the option of the holder into 58.82 Common Shares
at any time. The Company has the right to require the shareholders of the Class B
Series 2 Preference Shares to convert each such share into 58.82 Common Shares if (i)
at any time after 12 months following the issuance of the Series 2 Preference Share,
the closing trade price of the Companys Common Shares exceeds CAD $2.13 for at least
20 consecutive trading days, or (ii) at any time, the Company completes a firm
commitment public underwritten offering of its Common Shares for more than CAD
$40,000,000 at a price per Common Share greater than CAD $1.70. The holders of the
Class B Series 2 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 7% of the amount of paid up capital on each Class B Series 2
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, Class A Preference Shares. The Class B Series 2 Preference Shares are
redeemable at the option of the Company at any time after the third anniversary of the
issuance date for an amount equal to the original issuance price plus all accrued but
unpaid dividends on such shares. The Class B Series 2 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 Class B Series 2
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 of shares ranking junior to the
Class B Class B Series 2 Preference Shares. After such payment, the holders of the
Class B Series 2 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
Class B Series 2 Preference Shares are fully paid.
 (d)
    
    An unlimited number of Class C Preference shares without par value -These shares may be
issued in one or more series. The directors have the power to alter the Notice of Articles and
Articles 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 C Preference shares, including
voting rights; however, no one series of Class C 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 the Class C Preference shares. In addition, if the right to cumulative
dividends is attached to a series of Class C Preference shares issued by the Company, and such
dividends are not paid in full, the shares of all series of the Class C 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. The holders of Class C Preference Shares shall be entitled, on the liquidation or
dissolution of the Company,
 Page 64




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##### 



whether voluntary or involuntary, or on any other distribution of its assets among its
shareholders for the purpose of winding up its affairs, to receive, before any distribution is
made to the holders of common shares or any other shares of the Company ranking junior to the
Class C Preference Shares with respect to repayment of capital on the liquidation or dissolution
of the Company, whether voluntary or involuntary, or on any other distribution of its assets
among its shareholders for the purpose of winding up its affairs, the amount paid up with
respect to each Preferred share held by them, together with the fixed premium (if any) thereon,
all accrued and unpaid cumulative dividends (if any and if preferential) thereon, which for such
purpose shall be calculated as if such dividends were accruing on a day-to-day basis up to the
date of such distribution, whether or not earned or declared, and all declared and unpaid
non-cumulative dividends (if any and if preferential) thereon. After payment to the holders of
Class C Preference Shares of the amounts so payable to them, they shall not, as such, be
entitled to share in any further distribution of the property or assets of the Company except as
specifically provided in the special rights and restrictions attached to any particular series.
Once a series of Class C shares is designated by the Board of Directors of the Company, the
rights, privileges and conditions attached to such series of Class C Preference shares may be
altered or amended only by way of a special resolution passed by a majority of not less than
662/3% of the votes cast by holders of voting shares at a meeting of the holders of
that series of Class C Preference shares. To date, none of the Class C Preference shares have
been issued in any series, nor has any such series been designated by the Board of Directors.Our Articles do not contain a description of our objects and purposes.Our Articles do not restrict a directors power to vote on a proposal, arrangement or contract
in which the director is materially interested, vote compensation to themselves or any other
members of their body in the absence of an independent quorum or exercise borrowing powers.
There is no mandatory retirement age for our directors and our directors are not required to own
securities of our company in order to serve as directors.
 Alteration of the Rights of Shareholders
 2/3
  Shareholders Meetings
      Page 65




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##### 



C. Material Contracts.
   Page 66




---



##### 



D. Exchange controls.
  E. Income Taxation.
  Page 67




---



##### 



U.S. Holder of Common Shares
  
    
    for purposes of the Income Tax Act (Canada) (ITA) and the Canada-United States
Income Tax Convention (1980), as amended by the protocol signed on July 29, 1997,
(Treaty) are residents of the U.S., not Limited Liability Corporations (LLC) and have
never been residents of Canada;
    
    for purposes of the U.S. Internal Revenue Code of 1986 (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 the 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, shareholders who acquired their shares through the exercise of
employee stock options or otherwise as compensation and mutual fund companies.
  
    
    the ITA and the Income Tax Regulations (Canada) (Regulations);
    
    published proposals to amend the ITA and the Regulations;
    
    published administrative positions and practices of the Canada Revenue Agency (CRA);
    
    the Code, as amended;
    
    Treasury Regulations;
    
    published Internal Revenue Service (IRS) rulings;
    
    published administrative positions of the IRS;
    
    published jurisprudence that is considered applicable; and
    
    the Treaty.
   Page 68




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##### 



Canadian Federal Income Tax Consequences
 Disposition of Common Shares
  Dividend Distributions on Shares of the Company
  United States Federal Income Tax Consequences
  Disposition of Common Shares
  Dividend Distributions on Shares of the Company
  Page 69




---



##### 



Foreign Tax Credit
  Passive Foreign Investment Company Rules
  
    
    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.
   
    
    the excess distributions (generally any distributions received by a shareholder of a
PFIC in any taxable year that are greater than 125% of the average annual distributions
received by such shareholder in the three preceding taxable years or the shareholder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.
 Page 70




---



##### 



Controlled Foreign Corporation Rules
  F. Dividends and paying agents.
  G. Statement by experts.
  H. Documents on display.
  Page 71




---



##### 



I. Subsidiary information.
  
 Item 11. Quantitative and Qualitative Disclosure about Market Risk
 Foreign Exchange Risk
    Interest rate risk
  Page 72




---



##### 



Credit Risk
  
 Item 12. Description of Securities Other than Equity Securities
  
 Part II
 
 Item 13. Defaults, Dividends Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
     Page 73




---



##### 



Item 16. [Reserved]
  
 Item 16A. Audit committee financial expert
  
 Item 16B. Code of ethics
   
 Item 16C. Principal Accountant Fees and Services
  Page 74




---



##### 



.
  Years ended November 30Expressed in thousands of U.S. dollars
    
    2006
    
    
    2005Audit fees (1)
    
    $
    323
    
    
    $
    197Audit-related fees (2)
    
    
    224
    
    
    
    92Tax fees (3)
    
    
    109
    
    
    
    134All other fees (4)
    
    
    2
    
    
    
    2Total
    
    $
    658
    
    
    $
    425
 
 (1)
    
    Audit Fees consist of fees billed by E&Y for assurance and related services
reasonably related to the performance of the audit or review of the Companys financial
statements.(2)
    
    Audit-Related Fees consist of fees billed by E&Y for assurance and related
services that are reasonably related to the performance of the audit or review of the
Companys financial statements and are not reported as Audit Fees. For the fiscal year 2006,
these fees are for the financial statement audit of CHI Systems Inc. for the years ended
September 30, 2004 and 2005 that were required as part of the Business Acquisition Report
filed by the Company on February 27, 2006. For fiscal 2005, these fees were for consulting
services relative to accounting and financial disclosure standards.(3)
    
    Tax Fees consist of fees billed by E&Y for professional services rendered for tax
compliance, tax advice, and tax planning for the Company and in connection with the Companys
Canadian federal and provincial tax returns and U.S. federal and state income tax returns.(4)
    
    All Other Fees consist of fees billed by E&Y for products and services other than
Audit Fees, Audit-Related Fees and Tax Fees. For fiscal years 2006 and 2005, this fee was for
an annual subscription to E&Ys on-line accounting research website.   
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by Issuer and Affiliated Purchasers
  Page 75




---



##### 



Part III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  Financial Statement Schedules
  F1
    
    Independent Auditors Report  November 30, 2006
 F2
    
    Consolidated Balance Sheets as of November 30, 2006 and 2005
 F3
    
    Consolidated Statements of Earnings (Loss) for the years ended
November 30, 2006, 2005, and 2004
 F4
    
    Consolidated Statements of Stockholders Equity and Accumulated
Deficit for the years ended November 30, 2006, 2005, and 2004
 F5
    
    Consolidated Statements of Cash Flows for the years ended
November 30, 2006, 2005, and 2004
 F6
    
    Notes to the Consolidated Financial Statements  November 30,
2006, 2005 and 2004
 Page 76




---



##### 



Item 19. Exhibits
 Exhibit Number
    
    Description1.1(4)
    
    Articles pursuant to The Business Corporations Act of British Columbia4.1(1)
    
    Contract No. X0132 between Naval Materiel Command, Denmark and Offshore Systems
Ltd. dated August 20, 2001.4.2(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(2)
    
    Contract No. GS-35F-0211L between the United States Coast Guard and Offshore
Systems Ltd. dated June 14, 2002.4.4(3)
    
    Contract No. 265-004-002 between Nautronix Ltd. and Offshore Systems Ltd. dated
March 18, 2004.4.5
    
    Shareholder Rights Plan Agreement dated April 19, 2001 and amended and restated March 19,
20074.6(4)
    
    Agreement, dated April 26, 2004, between the Company and Technology
Partnerships Canada4.7(4)
    
    Contract between C.E. Unterberg, Towbin, LLC and Offshore Systems International
Ltd. dated March 8, 2005.4.8(4)
    
    Contract between Mr. E. Brinton Coxe and Offshore Systems International Ltd.
dated March 8, 2005.4.9(4)
    
    Subscription agreement.4.10(4)
    
    Letter of Intent to acquire Mapcon Mapping Consultants Inc.4.11(5)
    
    CHI Systems Inc. Purchase Agreement8.1
    
    List of Subsidiaries and Jurisdictions.11.1
    
    Code of Ethics12.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.12.2
    
    Certification by Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Previously filed with the Companys Form 20-F, dated as of July 24, 2002 and
incorporated by reference herein.(2)
    
    Previously filed with the Companys Form 20-F/A, dated as of September 10, 2002 and
incorporated by reference herein.(3)
    
    Previously filed with the Companys Form 20-F, dated as of May 27, 2004 and
incorporated by reference herein.(4)
    
    Previously filed with the Companys Form 20-F, dated as of May 30, 2005 and
incorporated by reference herein.(5)
    
    Previously filed with the Companys Form 20-F, dated as of May 26, 2006 and
incorporated by reference herein. Page 77




---



##### 



SIGNATURES
  OSI GEOSPATIAL INC.Dated: May 7, 2007
    By:
    /s/ Ken KirkpatrickKenneth H. KirkpatrickPresident & CEO Page 78




---



##### 



Exhibits Attached
 Exhibit Number
    
    Description4.5
    
    Shareholder Rights Plan Agreement dated April 19, 2001 and amended and restated March 19, 20078.1
    
    List of Subsidiaries and Jurisdictions11.1
    
    Code of Ethics12.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.12.2
    
    Certification by Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 Page 79




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##### 



REPORT OF
INDEPENDENT AUDITORS
 OSI Geospatial Inc.
 OSI Geospatial Inc.
    Vancouver, Canada,
February 16, 2007.
    
    (ERNST & YOUNG LLP SIGNATURE)
Chartered Accountants
  Page 80




---



##### 



OSI Geospatial Inc.    As at November 30, 2006 and 2005
 In thousands of U.S. dollars
    
    2006
    
    
    2005Assets(note 12)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    8,222Restricted cash (note 6)
    
    
    
    
    
    
    190Accounts receivable (note 7)
    
    
    12,707
    
    
    
    9,419Income taxes recoverable
    
    
    28
    
    
    
    Inventory (note 8)
    
    
    1,063
    
    
    
    938Prepaid expenses and deposits
    
    
    535
    
    
    
    53214,333
    
    
    
    19,301Plant and equipment(note 9)
    
    
    1,089
    
    
    
    869Intangible and other assets(note 10)
    
    
    794
    
    
    
    626Goodwill(note 5)
    
    
    8,129
    
    
    
    406$
    24,345
    
    
    $
    21,202LiabilitiesCurrent liabilitiesBank indebtedness
    
    $
    904
    
    
    $
    Accounts payable and accrued liabilities (note 11)
    
    
    4,887
    
    
    
    3,360Income taxes payable
    
    
    86
    
    
    
    242Unearned revenue
    
    
    667
    
    
    
    4546,544
    
    
    
    4,056Deferred income taxes(note 17)
    
    
    20
    
    
    
    2016,564
    
    
    
    4,257Stockholders EquityIssued and outstanding
30,262 Class A Series A preference shares (2005  30,262)
(note 13b)
    
    
    19
    
    
    
    19279,840 Class B, Series 2 preference shares (2005 
341,240) (note 13c)
    
    
    8,696
    
    
    
    9,62435,137,046 common shares (2005  30,367,309)
    
    
    18,222
    
    
    
    15,27426,937
    
    
    
    24,917Warrants(note 13e)
    
    
    4,286
    
    
    
    4,286Additional paid in capital
    
    
    3,357
    
    
    
    3,852Accumulated deficit
    
    
    (19,226
    )
    
    
    (18,401
    )Accumulated other comprehensive income
    
    
    2,427
    
    
    
    2,29117,781
    
    
    
    16,945$
    24,345
    
    
    $
    21,202
 Commitments and Contingency
 Approved by the Board of Directors
 Raymond Johnston
    
    Director
    
    Donald Young
    
    Director
   Page 81




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##### 



OSI Geospatial Inc.   For the years ended November 30, 2006, 2005 and 2004
 In thousands of U.S. dollars, except share related data
    
    2006
    
    
    2005
    
    
    2004RevenueMarine Systems
    
    $
    11,274
    
    
    $
    8,181
    
    
    $
    8,090Land and air systems
    
    
    8,761
    
    
    
    
    
    
    
    Mapping
    
    
    4,102
    
    
    
    2,945
    
    
    
    2,32124,137
    
    
    
    11,126
    
    
    
    10,411Cost of sales
    
    
    13,162
    
    
    
    5,696
    
    
    
    4,393Gross profit
    
    
    10,975
    
    
    
    5,430
    
    
    
    6,018ExpensesGeneral and administrative
    
    
    6,034
    
    
    
    3,923
    
    
    
    2,531Engineering
    
    
    1,783
    
    
    
    1,670
    
    
    
    1,611Sales and marketing
    
    
    2,527
    
    
    
    2,354
    
    
    
    2,421Depreciation and amortization
    
    
    510
    
    
    
    245
    
    
    
    177Interest expense
    
    
    21
    
    
    
    23
    
    
    
    2Interest income
    
    
    (37
    )
    
    
    (156
    )
    
    
    (22
    )Foreign exchange loss (gain)
    
    
    (233
    )
    
    
    90
    
    
    
    (35
    )Loss on sale of plant and equipment
    
    
    2
    
    
    
    4
    
    
    
    Technology Partnerships Canada royalty (note 14)
    
    
    493
    
    
    
    243
    
    
    
    99Technology Partnerships Canada contribution (note 14)
    
    
    (760
    )
    
    
    (1,090
    )
    
    
    (1,112
    )10,340
    
    
    
    7,306
    
    
    
    5,672Net earnings (loss) before income taxes
    
    
    635
    
    
    
    (1,876
    )
    
    
    346Deferred income tax expense (recovery)
    
    
    (265
    )
    
    
    726
    
    
    
    (491
    )Current income tax expense
    
    
    207
    
    
    
    147
    
    
    
    534Income tax expense (recovery)(note 17)
    
    
    (58
    )
    
    
    873
    
    
    
    43Net earnings (loss)
    
    $
    693
    
    
    $
    (2,749
    )
    
    $
    303Net loss attributable to common shareholders(note 13(f))
    
    $
    (825
    )
    
    $
    (9,400
    )
    
    $
    (14
    )Loss per share(note 13(f))Basic
    
    $
    (0.03
    )
    
    $
    (0.34
    )
    
    $
    (0.00
    )Diluted
    
    $
    (0.05
    )
    
    $
    (0.34
    )
    
    $
    (0.00
    )Weighted average number of common shares outstanding(note
13(f))Basic
    
    
    32,381,992
    
    
    
    27,989,832
    
    
    
    27,147,246Diluted
    
    
    48,843,168
    
    
    
    27,989,832
    
    
    
    29,856,412Dividends declared per shareClass B preference shares  Series 1
    
    $
    
    
    
    $
    2.36
    
    
    $
    3.48Class B preference shares  Series 2
    
    $
    3.13
    
    
    $
    3.52
    
    
    $
    
   Page 82




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##### 



OSI Geospatial Inc.   For the years ended November 30, 2006, 2005 and 2004
 In thousands of U.S. dollars except share numbers
    
    2006
    
    2005
    
    2004Number
    
    Amount
    
    
    Number
    
    Amount
    
    
    Number
    
    AmountClass A preference sharesBalance at beginning of year
    
    
    30,262
    
    
    $
    19
    

    
    
    30,262
    
    
    $
    19
    

    
    
    30,262
    
    
    $
    19Balance at end of year
    
    
    30,262
    
    
    $
    19
    

    
    
    30,262
    
    
    $
    19
    

    
    
    30,262
    
    
    $
    19Class B preference sharesBalance at beginning of year
    
    
    341,240
    
    
    $
    9,624
    

    
    
    57,711
    
    
    $
    1,441
    

    
    
    61,244
    
    
    $
    1,434Accretion of discount on Class B Series 1 preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    262
    

    
    
    
    
    
    
    Repurchase of Class B Series 1 preference shares
    
    
    
    
    
    
    
    

    
    
    (57,711
    )
    
    
    (1,179
    )

    
    
    
    
    
    
    Issue of Class B Series 2 preference shares, net
    
    
    
    
    
    
    
    

    
    
    390,000
    
    
    
    9,908
    

    
    
    
    
    
    
    Beneficial Conversion feature on Class B Series 2
preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    (3,948
    )

    
    
    
    
    
    
    Accretion of beneficial conversion on Class B series 2
preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    3,948
    

    
    
    
    
    
    
    Accretion of discount on Class B Series 2 preference shares
    
    
    
    
    
    
    674
    

    
    
    
    
    
    
    431
    

    
    
    
    
    
    
    112Class B preference shares converted to common shares
    
    
    (61,400
    )
    
    
    (1,707
    )

    
    
    (48,760
    )
    
    
    (1,239
    )

    
    
    (3,533
    )
    
    
    (90
    )Tax benefit related to share issue costs
    
    
    
    
    
    
    99
    

    
    
    
    
    
    
    
    

    
    
    
    
    
    
    Share issue costs
    
    
    
    
    
    
    6
    

    
    
    
    
    
    
    
    

    
    
    
    
    
    
    (15
    )Balance at end of year
    
    
    279,840
    
    
    $
    8,696
    

    
    
    341,240
    
    
    $
    9,624
    

    
    
    57,711
    
    
    $
    1,441Common sharesBalance at beginning of year
    
    
    30,367,309
    
    
    $
    15,274
    

    
    
    27,488,074
    
    
    $
    12,937
    

    
    
    26,807,475
    
    
    $
    12,540Shares Issued to CHI shareholders (note 5)
    
    
    1,067,975
    
    
    
    753
    

    
    
    
    
    
    
    
    

    
    
    
    
    
    
    Class B preference shares converted to common shares
    
    
    3,611,762
    
    
    
    2,135
    

    
    
    2,868,235
    
    
    
    2,330
    

    
    
    160,752
    
    
    
    90Exercise of stock options
    
    
    90,000
    
    
    
    60
    

    
    
    11,000
    
    
    
    7
    

    
    
    519,847
    
    
    
    307Balance at end of year
    
    
    35,137,046
    
    
    $
    18,222
    

    
    
    30,367,309
    
    
    $
    15,274
    

    
    
    27,488,074
    
    
    $
    12,937WarrantsBalance at beginning of year
    
    
    13,788,368
    
    
    $
    4,286
    

    
    
    1,393,301
    
    
    $
    437
    

    
    
    1,393,301
    
    
    $
    437Issue of warrants  net of issue costs
    
    
    
    
    
    
    
    

    
    
    12,395,067
    
    
    
    3,849
    

    
    
    
    
    
    
    Balance at end of year
    
    
    13,788,368
    
    
    $
    4,286
    

    
    
    13,788,368
    
    
    $
    4,286
    

    
    
    1,393,301
    
    
    $
    437Additional paid-in capitalBalance at beginning of year
    
    
    
    
    
    $
    3,852
    
    
    
    
    
    
    
    $
    598
    
    
    
    

    
    
    $
    594Repurchase of Class B Series 1 preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    (442
    )
    
    
    

    
    
    
    Beneficial conversion feature on Class B Series 2
preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    3,948
    
    
    
    

    
    
    
    Class B preference shares converted to common shares
    
    
    
    
    
    
    (599
    )

    
    
    
    
    
    
    (494
    )
    
    
    

    
    
    
    Stock-based compensation
    
    
    
    
    
    
    104
    

    
    
    
    
    
    
    242
    
    
    
    

    
    
    
    4Balance at end of year
    
    
    
    
    
    $
    3,357
    

    
    
    
    
    
    $
    3,852
    
    
    
    

    
    
    $
    598Accumulated deficitBalance at beginning of year
    
    
    
    
    
    $
    (18,401
    )

    
    
    
    
    
    $
    (9,001
    )
    
    
    

    
    
    $
    (8,987
    )Repurchase of Class B Series 1 preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    (659
    )
    
    
    

    
    
    
    Accretion of beneficial conversion on Class B series 2
preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    (3,948
    )
    
    
    

    
    
    
    Accretion of discount on Class B Series 1 preference shares
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    (262
    )
    
    
    

    
    
    
    Accretion of discount on Class B Series 2 preference shares
    
    
    
    
    
    
    (674
    )

    
    
    
    
    
    
    (431
    )
    
    
    

    
    
    
    (112
    )Difference between conversion consideration and carrying
value of Class B Series 2 preference shares
    
    
    
    
    
    
    170
    

    
    
    
    
    
    
    (598
    )
    
    
    

    
    
    
    Dividends on Class B preference shares
    
    
    
    
    
    
    (1,014
    )

    
    
    
    
    
    
    (753
    )
    
    
    

    
    
    
    (205
    )Net earnings (loss) for the year
    
    
    
    
    
    
    693
    

    
    
    
    
    
    
    (2,749
    )
    
    
    

    
    
    
    303Balance at end of year
    
    
    
    
    
    $
    (19,226
    )

    
    
    
    
    
    $
    (18,401
    )
    
    
    

    
    
    $
    (9,001
    )Accumulated other comprehensive incomeForeign currency translation adjustment
Balance at beginning of year
    
    
    
    
    
    $
    2,291
    

    
    
    
    
    
    $
    1,691
    
    
    
    

    
    
    $
    1,024Adjustment for the year
    
    
    
    
    
    
    136
    

    
    
    
    
    
    
    600
    
    
    
    

    
    
    
    667Balance at end of year
    
    
    
    
    
    $
    2,427
    

    
    
    
    
    
    $
    2,291
    
    
    
    

    
    
    $
    1,691Total stockholders equity
    
    
    
    
    
    $
    17,781
    
    
    
    
    
    
    
    $
    16,945
    
    
    
    
    
    
    
    $
    8,122
   Page 83




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##### 



OSI Geospatial Inc.   For the years ended November 30, 2006, 2005 and 2004
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2004Cash flows from (used) in operating activitiesNet earnings (loss) for the year
    
    $
    693
    
    
    $
    (2,749
    )
    
    $
    303Items not affecting cashDepreciation and amortization
    
    
    763
    
    
    
    404
    
    
    
    278Loss on disposal of equipment
    
    
    2
    
    
    
    3
    
    
    
    Stock-based compensation
    
    
    104
    
    
    
    242
    
    
    
    4Deferred income taxes
    
    
    (319
    )
    
    
    764
    
    
    
    431,243
    
    
    
    (1,336
    )
    
    
    628Changes in non-cash working capital itemsAccounts receivable
    
    
    (1,995
    )
    
    
    (1,222
    )
    
    
    (3,684
    )Inventory
    
    
    (109
    )
    
    
    (363
    )
    
    
    33Prepaid expenses and deposits
    
    
    185
    
    
    
    (362
    )
    
    
    216Accounts payable and accrued liabilities
    
    
    809
    
    
    
    1,079
    
    
    
    247Income taxes payable
    
    
    (173
    )
    
    
    131
    
    
    
    (10
    )Unearned revenue
    
    
    197
    
    
    
    356
    
    
    
    27(1,086
    )
    
    
    (381
    )
    
    
    (3,171
    )157
    
    
    
    (1,717
    )
    
    
    (2,543
    )Cash flows used in investing activitiesPurchase of CHI Systems Inc., net of cash acquired (note 5)
    
    
    (8,146
    )
    
    
    
    
    
    
    Purchase of Mapcon Mapping Consultants Inc., net of cash acquired (note 5)
    
    
    
    
    
    
    (973
    )
    
    
    Decrease (increase) in restricted cash
    
    
    189
    
    
    
    (189
    )
    
    
    Additions to plant and equipment
    
    
    (290
    )
    
    
    (70
    )
    
    
    (110
    )Additions to intangibles and other assets
    
    
    (237
    )
    
    
    (216
    )
    
    
    (158
    )(8,484
    )
    
    
    (1,448
    )
    
    
    (268
    )Cash flows from (used in) financing activitiesAdvances from operating line of credit
    
    
    904
    
    
    
    
    
    
    
    Issue of common shares
    
    
    60
    
    
    
    7
    
    
    
    307Issue of Class B Series 2 preference shares and warrants, net of issue costs
    
    
    
    
    
    
    13,756
    
    
    
    Class B preference share issue costs
    
    
    6
    
    
    
    
    
    
    
    (15
    )Repurchase of Class B Series 1 preference shares
    
    
    
    
    
    
    (2,281
    )
    
    
    Class B preference share dividends declared and paid
    
    
    (1,014
    )
    
    
    (753
    )
    
    
    (205
    )(44
    )
    
    
    10,729
    
    
    
    87Translation adjustment
    
    
    149
    
    
    
    446
    
    
    
    (13
    )Increase (decrease) in cash and cash equivalents
    
    
    (8,222
    )
    
    
    8,010
    
    
    
    (2,737
    )Cash and cash equivalents  beginning of year
    
    
    8,222
    
    
    
    212
    
    
    
    2,949Cash and cash equivalents  end of year
    
    $
    
    
    
    $
    8,222
    
    
    $
    212
    Page 84




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 1
    
    Basis of presentationOn April 12, 2006 at the Companys annual general meeting its shareholders voted in favor
of changing the Companys name from Offshore Systems International Ltd. to OSI Geospatial Inc.
The name change was effective June 5, 2006. For the purposes of this report, the Company is
referred to by its new legal identity.These audited consolidated financial statements have been prepared by management and include
the accounts of OSI Geospatial Inc. and its subsidiaries, collectively referred to as the
Company. These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States (U.S. GAAP) and all amounts
herein have been expressed in thousands of U.S. dollars unless otherwise noted. As described in
Note 21, these principles differ in certain material respects from those that the Company would
have followed had the consolidated financial statements been prepared in accordance with
Canadian generally accepted accounting principles.2
    
    Nature of operationsOSI Geospatial Inc. designs, develops, and markets software and systems for enhancing
situational awareness in command, control, and intelligence applications. OSI Geospatials
principal product is the proprietary ECPINS® line of electronic chart navigation systems for
commercial and military customers. OSI Geospatial conducts its operations through three
business units  International Systems Operations, U.S. Systems Operations and Mapping
Operations. The Companys International and U.S. Systems business units develop and produce
geographic information display systems and software for the marine navigation, and command and
control markets, and situational awareness products for land-based and aeronautical command and
control markets. The Companys Mapping business unit (formerly the Geomatics business unit)
provides digital land map and electronic nautical chart production services, and produces and
distributes electronic nautical chart data.3
    
    Accounting changes
 a)
    
    Change in reporting currencyEffective March 1, 2006, the Company adopted the U.S. dollar as its reporting currency. In
general this change results from an increase in the overall proportion of business
activities conducted in U.S. dollars. Under U.S. GAAP, the change was effected by
translating assets and liabilities at the existing U.S./Canadian dollar foreign exchange
spot rate on the last day of the month, while earnings were translated at the average rate
for each month. Equity transactions have been translated at historical rates; with opening
equity restated at the rate of exchange on December 1, 2001. The resulting net translation
adjustment has been credited to the foreign currency translation adjustment.Prior to March 1, 2006, the reporting currency of the Company was Canadian dollars.b)
    
    Changes in accounting policies relating to the adoption of U.S. GAAPEffective December 1, 2004, the Company elected to report its consolidated financial
statements in conformity with U.S. GAAP. All accounting policies are the same as described
in note 4 to the Companys audited financial statements for the year ended November 30,
2004, which were prepared in accordance with Canadian GAAP filed with the appropriate
securities commissions except for the following which have been retroactively adopted to
comply with U.S. GAAP:Stock-based compensationThe Company grants stock options to employees, officers, directors, and persons providing
management or consulting services to the Company pursuant to the stock option plans
described in note 13(d). As allowed by Statement of Financial Accounting Standard 123
Accounting for Share-Based Payments,
  Page 85




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 (SFAS 123) as amended by Statement of Financial Accounting Standard 148, the Company
followed the Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees, (APB 25) and presented pro forma information required by SFAS 123. APB 25
required 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 followed the requirements of SFAS
123 and related interpretations. Costs were measured at the estimated fair value of the
consideration received or the estimated fair value of the stock options issued, whichever
was more reliably measurable. The value of the stock 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. Effective December 1, 2005
the Company adopted the provisions of Statement of Financial Accounting Standard 123(R)
Accounting for Share-Based Payments, see note 4(o).Beneficial conversion feature and accretion of discount on preference shares issued with
attached warrantsFor U.S. GAAP purposes, during the fiscal year 2005, the Company recorded beneficial
conversion features of $3.9 million on the issuance of Class B Series 2 preference shares,
as a reduction to the net earnings available to common shareholders calculated on the
effective conversion price of the preference shares to common shares based on the proceeds
allocated to the preference shares. The conversion feature of the preference shares vested
immediately and the Company recorded the accretion of the full amount of the beneficial
conversion feature. The discount on these shares that resulted from the allocation of the
gross proceeds to the Class B preference shares and to the attached warrants is accreted
over the five-year life of the warrants. This resulted in an accretion of $674,000 for the
Series 2 and $nil for the Series 1 to accumulated deficit for the year ended November 30,
2006 ($431,000 for the Series 2 and $262,000 for the Series 1 to accumulated deficit for the
year ended November 30, 2005).Under Canadian GAAP, there is not a requirement to record the beneficial conversion feature
and accretion of discount when preference shares are issued with attached warrants.Derivative financial instrumentsUnder Canadian GAAP, there is a requirement for derivatives outside of hedging relationships
to be recognized on the balance sheet at fair market value; however for derivatives in
hedging relationships, Canadian GAAP does not specify how such derivatives should be
recorded. As a result, under Canadian GAAP, in some instances derivatives may not be
recorded on the balance sheet. Under U.S. GAAP, it is required that all derivatives be
recorded as assets or liabilities, measured at fair value. Derivatives that are not hedges
are adjusted to fair value through income. If the derivative is a hedge, depending upon the
nature of the hedge, changes in the fair value of the derivative are either offset against
the fair value of assets, liabilities or firm commitments through income, or recognized in
other comprehensive income until the hedged item is recognized in income. The ineffective
portion of a derivatives change in fair value is immediately recognized into income.c)
    
    Recent pronouncementsIn June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. This Interpretation also
provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. This Interpretation is effective for fiscal
years
  Page 86




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 beginning after December 15, 2006. The Company has not completed its analysis of the
adoption of FIN 48 at this time.In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement applies
under other accounting pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any new fair
value measurements. However, the application of this Statement will change current practice,
effective December 1, 2007. The adoption of SFAS 157 will not have a material impact on the
Companys consolidated financial statements.
 4
    
    Summary of significant accounting policies
 a)
    
    Principles of consolidationThese 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.b)
    
    Foreign currency translationFor Canadian subsidiaries, the Canadian dollar is the functional currency. In accordance
with the Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency
Translation, the financial statements of these subsidiaries are translated into U.S.
dollars as follows: assets and liabilities at year-end exchange rates; income, expenses and
cash flows at average exchange rates; and shareholders equity at historical exchange rates.
For those subsidiaries for which the Canadian dollar is the functional currency, the
resulting translation adjustment is recorded as a component of accumulated other
comprehensive income in the consolidated financial statements.For U.S. subsidiaries, operations are conducted primarily in U.S. dollars, which is
therefore the functional currency.The Company purchases foreign exchange forward contracts to hedge sales to customers
denominated in U.S. dollars, Australian dollars and Euros and the related accounts
receivable. Foreign exchange translation gains and losses on foreign currency denominated
derivative financial instruments used to hedge anticipated U.S. dollar, Australian dollar,
and Euro denominated sales are recognized as an adjustment of the revenues when the sale is
recorded. The Company does not utilize derivative financial instruments for trading or
speculative purposes.c)
    
    Use of estimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions which affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses for the years reported. Actual results could differ
from these estimates.d)
    
    Cash and cash equivalentsCash and cash equivalents consist of cash and deposit instruments with an initial maturity
of three months or less.
  Page 87




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 e)
    
    Accounts receivableThe Company maintains an allowance for doubtful accounts against its accounts receivable for
estimated losses that may arise if any of its customers are unable to make required
payments. Management specifically analyzes 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.f)
    
    InventoryMaterials and components are stated at the lower of cost and replacement value as determined
by the first-in first-out method. 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. The
Company assesses the need for inventory write-downs based on its assessment of estimated
replacement or 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.g)
    
    Plant and equipmentPlant and equipment are recorded at cost. Amortization is provided using the methods
indicated below and rates based on the assets estimated useful lives as follows:
 Method
    
    PercentageEquipment
    
    Declining balance
    
    20  25Vehicles
    
    Declining balance
    
    30Furniture and fixtures
    
    Declining balance
    
    20Leasehold improvements
    
    Straight line
    
    50
 An impairment loss is recognized when the undiscounted cash flows expected from use and
eventual disposition of the asset are less than the carrying amount of the asset. An
impairment charge is recorded to reduce the carrying value of the asset to its fair value.h)
    
    Intangible and other assetsIntangible and other assets are recorded at cost. Amortization is provided using the methods
indicated below and rates based on the assets estimated useful lives as follows:
 Method
    
    PercentageComputer software
    
    Declining balance
    
    33Customer contracts
    
    Straight line
    
    75Customer relationships
    
    Straight line
    
    10  25Security clearance
    
    Straight line
    
    17Licenses and patents
    
    Declining balance
    
    10
 An impairment loss is recognized when the undiscounted cash flows expected from use and
eventual disposition of the asset are less than the carrying amount of the asset. An
impairment charge is recorded to reduce the carrying value of the asset to its fair value.i)
    
    GoodwillAcquisitions are accounted for using the purchase method whereby acquired assets and
liabilities are recorded at fair value as of the date of acquisition. The excess of
purchase price over such fair value is recorded as goodwill. The Company evaluates, on at
least an annual basis, the carrying amounts of
  Page 88




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 goodwill for impairment. To accomplish this,
the Company compares the fair value of the reporting unit to the carrying amount. If the
carrying value of the reporting unit were to exceed its fair value, the Company
would perform the second step of the impairment test. In the second step, the Company would
compare the fair value of the reporting unit goodwill to the carrying amount and any excess
would be written down.j)
    
    Income taxesThe Company accounts for income taxes using the liability method of tax allocation. Under
the liability method, deferred income tax assets and liabilities are determined based on
differences between their financial reporting and tax bases and are measured using enacted
tax rates and laws expected to be in effect when the differences are expected to reverse.
The Company provides a valuation allowance against deferred tax assets to the extent that
the Company does not consider them to be more likely than not of being realized.k)
    
    Revenue recognitionRevenue from certain projects in the International and U.S. Systems Operations segments are
recognized using the percentage of completion method of accounting, 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
material, labor 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.Revenue from certain projects in the Mapping Operations segment are recognized using the
proportional performance method of accounting, whereby revenue and profit in the period are
based on the output completed to total units of work completed of the project for each
segment of the project. A provision is made for the entire amount of future estimated
losses, if any, on contracts in progress.Certain other systems and system components revenue, and software revenue from the
International and U.S. Systems Operations segments are recognized at the time of delivery of
the system to the customer or the delivery of the software and software locks to the
customer if persuasive evidence exists of an agreement with the customer, the price is fixed
or determinable, collection is probable, and there are no ongoing obligations of the Company
to provide future services with the exception of warranties and maintenance.Revenue from the sale of products by Mapcon is recorded at the time of delivery. Revenue
from systems components and other revenues are recorded at the time of delivery or as the
services are provided.Revenue from contracts with multiple deliverables is recognized based on the division of the
multiple deliverables into separate units of accounting and arrangement consideration is
allocated among separate units based on their relative fair values. Revenue from each unit
is recognized in accordance with the applicable policies as described above.Maintenance and technical support revenues are recognized ratably based on the terms of the
respective contract agreements, which is generally one to four years.Revenue under bill-and-hold arrangements in the International and U.S. Systems Operations
segments, whereby revenue has been recognized but the goods have not been shipped, is
recognized when risks of ownership have been passed on to the customer, there is a signed
contract with the customer, the customer has a substantial business purpose for ordering the
goods on a bill-and-hold basis, a fixed delivery schedule has been established with the
customer, and the Company does not retain any specific performance obligations such that the
earnings process is not complete. Goods held under such arrangements are segregated, ready
for shipment and not subject to being used to fill other orders. The customers are charged
additional fees for storage and other associated costs until shipment occurs.
  Page 89




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 l)
    
    Unbilled revenueUnbilled revenue is revenue that has been recognized using the percentage of completion or
the proportional performance methods of accounting less amounts billed to the customer in
accordance with the milestone terms of the contract. Unbilled revenue is reduced when
customers are invoiced and the respective accounts receivable is recorded.m)
    
    Unearned revenueUnearned revenue is amounts that have been billed to the customer but have not been
recognized in revenue.n)
    
    EngineeringEngineering research costs are expensed in the period incurred.o)
    
    Government assistanceGovernment assistance is recorded when there is reasonable assurance that the Company has
complied with, and will continue to comply with, all conditions necessary to obtain the
government assistance. Government assistance towards current research expenditures is
recorded as a reduction of expenses in the consolidated statement of earnings (loss). The
liability to repay government assistance is recognized as an expense in the period in which
conditions arise that cause the government assistance to be repayable.p)
    
    Stock-based compensationEffective December 1, 2005 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123(R) (FAS 123(R)), Share-Based Payment, which establishes
accounting for equity instruments exchanged for services. Under the provisions of FAS
123(R), share-based compensation cost is measured at the grant date, based on the fair value
of the award, and is recognized as an expense over the employees requisite service period
(generally the vesting period of the equity grant). The Company elected to adopt the
modified prospective transition method as provided by FAS 123(R) effective December 1, 2005
and, accordingly, financial statement amounts for the prior periods presented have not been
restated to reflect the fair value based method of expensing share-based compensation.
Compensation cost is recognized for all awards granted, modified or cancelled on or after
December 1, 2005, as well as all awards granted prior to December 1, 2005 that were unvested
as of November 30, 2005.Prior to December 1, 2005, the Company accounted for stock-based compensation in accordance
with the intrinsic value method of the Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and has adopted only the disclosure provisions
of SFAS No. 123, Accounting for Stock-Based Compensation, to present the fair value of
grants under the Companys existing stock-based compensation plans to employees. 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. Compensation was recognized for grants made under the stock option plan where the
market price exceeds the exercise price.
  Page 90




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 Prior to December 1, 2005, for stock options granted to non-employees, the Company followed
the requirements of SFAS No. 123 and related interpretations. Costs were measured at the
estimated fair value of the consideration received or the estimated fair value of the stock
options issued, whichever was more reliably measurable. The value of the stock options
issued for consideration other than employee services was determined on the earlier of a
performance commitment or completion of performance by the provider of goods or services.q)
    
    Earnings per shareBasic earnings per share are computed using the weighted average number of common shares
outstanding during the year. The treasury stock method is used for the calculation of
diluted earnings per share. Under the treasury stock method, the weighted average number of
common shares outstanding for the calculation of diluted earnings per share assumes that the
proceeds to be received on the exercise of dilutive stock options and warrants are applied
to repurchase common shares at the average market price for the period. Stock options and
warrants are dilutive when the average market price of the common shares during the period
exceeds the exercise price of the options and warrants.r)
    
    GuaranteesThe Company guarantees that its software and hardware products will operate substantially in
conformity with product documentation and that the physical media will be free from defect.
The specific terms and conditions of the warranties are generally one year but may vary
depending on the country in which the products are sold. The Company accrues for known
warranty issues if a loss is probable and can be reasonably estimated, and accrues for
estimated incurred but unidentified warranty issues based on historical activity. To date,
the Company has had no material warranty claims.s)
    
    Derivative financial instrumentsDerivative financial instruments are utilized by the Company in the management of its
foreign currency exposure to reduce its exposure to fluctuations in foreign exchange on
certain committed and anticipated transactions. The Company formally documents the
relationships between derivative financial instruments and hedged items, as well as the risk
management objective and strategy. The Company assesses, on an ongoing basis, whether the
derivative financial instruments continue to be effective in offsetting changes in fair
values or cash flows of the hedged transactions.Changes in fair value of foreign currency denominated derivative financial instruments used
to hedge anticipated or committed foreign currency exposures are recognized as an adjustment
to the related operating costs, or revenue when the hedged transaction is recorded.
Derivatives that are not subject to hedge accounting are recorded on the balance sheet with
the changes in fair value being recorded in the statement of earnings (loss) each period.
 5
    
    Acquisitions
 a)
    
    CHI Systems Inc.On December 14, 2005, the Company acquired CHI Systems Inc. (CHI Systems), a United States
defense contracting company. CHI Systems has multiple offices in the United States and is a
supplier of technology and services to the U.S. Department of Defense and key defense prime
contractors. Under the terms of the agreement, the Company paid approximately $9.0 million for
100% of the outstanding shares of CHI Systems, of which $8.1 million was paid in cash with
the balance paid by the issuance of 1,067,975 common shares of the Company. The
results of CHI Systems operations have been included in the consolidated financial statements
commencing December 14, 2005.
  Page 91




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 The following table summarizes the fair value of the assets acquired and liabilities assumed by
the Company at December 14, 2005, the date of acquisition. The acquisition was accounted for
using the purchase method whereby assets acquired and liabilities assumed were recorded at
their fair values at December 14, 2005. The excess of the purchase price over the fair market
value was recorded as goodwill.
 In thousands of U.S. dollarsAssetsCurrent assets
    
    $
    2,058Plant and equipment
    
    
    225Intangible and other assets
    
    
    439Goodwill
    
    
    7,714Total assets acquired
    
    $
    10,436LiabilitiesCurrent liabilities not including deferred tax liabilities
    
    
    720Deferred tax liabilities
    
    
    181Total liabilities assumed
    
    $
    901Net assets acquired (cash and common share consideration)
    
    $
    8,849Direct acquisition costs incurred by the Company
    
    
    699Total acquisition costs
    
    
    9,548Less fair value of net identifiable assets acquired
    
    
    1,821Goodwill
    
    $
    7,727Cash of acquired operations
    
    $
    627
 The fair value of the assets acquired, including goodwill, and liabilities assumed in the
acquisition have been pushed down to CHI Systems.The following table presents details of the purchased intangible assets:
 In thousands of U.S. dollarsEstimated useful life
    
    
    AmountPatents
    
    5 years
    
    $
    6Customer contracts
    
    2 to 36 months
      
    
    158Security clearance
    
    6 years
    
    
    275Total intangible assets
    
    
    
    
    
    $
    439
 The pro forma OSI Geospatial Inc. consolidated operating results assuming the acquisition of CHI
Systems Inc. had occurred as of December 1, 2004 are as follows:
 In thousands of U.S. dollars except loss per share
    
    Year Ended November 30,2006
    
    
    2005Revenue
    
    $
    24,520
    
    
    $
    22,185Net income (loss)
    
    
    605
    
    
    
    (1,957
    )Net loss attributable to common shareholders
    
    
    (913
    )
    
    
    (8,608
    )Net loss per share  basic
    
    
    (0.03
    )
    
    
    (0.31
    )Net loss per share  diluted
    
    $
    (0.06
    )
    
    $
    (0.31
    )
  92




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 b)
    
    Mapcon Mapping Consultants Inc.On April 8, 2005, the Company acquired all of the issued and outstanding shares of Mapcon
Mapping Consultants Inc. (Mapcon Mapping) of Salt Lake City, Utah for cash consideration of
$1.1 million. The acquisition was effective April 1, 2005. Mapcon Mapping was a privately held
land mapping company in the U.S. digital and electronic geomatics data production market. The
results of Mapcon Mappings operations have been included in the consolidated financial
statements commencing April 1, 2005.The following table summarizes the fair value of the assets acquired and liabilities assumed by
the Company at April 1, 2005, the date of acquisition. The acquisition was accounted for using
the purchase method whereby assets acquired and liabilities assumed were recorded at their fair
values at April 1, 2005. The excess of the purchase price over the fair market value was
recorded as goodwill.
 In thousands of U.S. dollarsAssetsCurrent assets
    
    $
    677Equipment
    
    
    173Deferred tax assets  current
    
    
    153Intangible assets
    
    
    290Goodwill
    
    
    402Total assets acquired
    
    
    1,695LiabilitiesCurrent liabilities not including deferred tax liabilities
    
    
    164Deferred tax liabilities  current
    
    
    224Deferred tax liabilities  long term
    
    
    60Total liabilities assumed
    
    $
    448Net assets acquired (cash consideration)
    
    $
    1,115Direct acquisition costs incurred by the Company
    
    
    132Total acquisition costs
    
    
    1,247Less fair value of net identifiable assets acquired
    
    
    845Goodwill
    
    $
    402Cash of acquired operations
    
    $
    223
 The following table presents details of the purchased intangible assets:
 In thousands of U.S. dollars
    
    Estimated useful life
    
    
    AmountCustomer contract
    
    16 months
    
    $
    130Customer relationships
    
    4 to 10 years
    
        
    160Total intangible assets
    
    
    
    
    
    $
    290
 6
    
    Restricted cashRestricted cash consists of cash pledged with a bank as collateral for bid bonds. The
restricted cash is held in an interest-bearing bank account.
  93




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 7
    
    Accounts receivable
 In thousands of U.S. dollars
    
    November 30,2006
    
    
    2005Trade
    
    $
    5,143
    
    
    $
    6,218Unbilled revenue
    
    
    7,257
    
    
    
    2,564Technology Partnerships Canada contribution
    
    
    269
    
    
    
    625Other
    
    
    97
    
    
    
    48Allowance for doubtful accounts
    
    
    (59
    )
    
    
    (36
    )$
    12,707
    
    
    $
    9,419
 As at November 30, 2006, government contract trade receivables were $4,044,000 (2005 
$5,121,000) and unbilled government contract revenues were $6,680,000 (2005  $1,935,000).8
    
    Inventory
 In thousands of U.S. dollars
    
    November 30,2006
    
    
    2005Materials and components
    
    $
    958
    
    
    $
    938Finished goods
    
    
    105
    
    
    
    $
    1,063
    
    
    $
    938
 9
    
    Plant and equipment
 In thousands of U.S. dollars
    
    November 30, 2006AccumulatedCost
    
    
    Amortization
    
    
    Net AmountEquipment
    
    $
    4,629
    
    
    $
    3,710
    
    
    $
    919Vehicle
    
    
    9
    
    
    
    3
    
    
    
    6Furniture and fixtures
    
    
    599
    
    
    
    482
    
    
    
    117Leasehold improvements
    
    
    300
    
    
    
    253
    
    
    
    47$
    5,537
    
    
    $
    4,448
    
    
    $
    1,089
  94




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 In thousands of U.S. dollars
    
    November 30, 2005AccumulatedCost
    
    
    Amortization
    
    
    Net AmountEquipment
    
    $
    3,575
    
    
    $
    2,771
    
    
    $
    804Vehicle
    
    
    9
    
    
    
    1
    
    
    
    8Furniture and fixtures
    
    
    120
    
    
    
    92
    
    
    
    28Leasehold improvements
    
    
    201
    
    
    
    172
    
    
    
    29$
    3,905
    
    
    $
    3,036
    
    
    $
    869
 10
    
    Intangible and other assets
 In thousands of U.S. dollars
    
    November 30, 2006AccumulatedCost
    
    
    Amortization
    
    
    Net AmountComputer software
    
    $
    1,189
    
    
    $
    791
    
    
    $
    398Customer contracts
    
    
    288
    
    
    
    278
    
    
    
    10Customer relationships
    
    
    160
    
    
    
    42
    
    
    
    118Security clearance
    
    
    275
    
    
    
    46
    
    
    
    229Licenses and patents
    
    
    80
    
    
    
    41
    
    
    
    39$
    1,992
    
    
    $
    1,198
    
    
    $
    794
 In thousands of U.S. dollars
    
    November 30, 2005AccumulatedCost
    
    
    Amortization
    
    
    Net AmountComputer software
    
    $
    1,020
    
    
    $
    618
    
    
    $
    402Customer contracts
    
    
    132
    
    
    
    67
    
    
    
    65Customer relationships
    
    
    162
    
    
    
    17
    
    
    
    145Licenses and patents
    
    
    49
    
    
    
    35
    
    
    
    14$
    1,363
    
    
    $
    737
    
    
    $
    626
 The aggregate amortization expense for intangible assets for the fiscal year was $288,000 (2005
  $81,000, 2004  $nil).The estimated aggregate amortization expense for intangible assets for the next five years is
as follows:
 In thousands of U.S. dollarsYear ending November 302007
    
    $
    2072008
    
    
    1542009
    
    
    1242010
    
    
    952011
    
    
    782012 and after
    
    
    136
  95




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 11
    
    Accounts payable and accrued liabilities
 In thousands of U.S. dollars
    
    November 30,2006
    
    
    2005Trade
    
    $
    2,016
    
    
    $
    1,895Accrued employee compensation
    
    
    1,318
    
    
    
    545Accrued employee benefits and payroll deductions
    
    
    280
    
    
    
    341Accrued royalties (note 14)
    
    
    490
    
    
    
    256Other accrued liabilities
    
    
    783
    
    
    
    323$
    4,887
    
    
    $
    3,360
 12
    
    Credit facilitiesIn March 2006, the Company renewed certain credit facilities with a Canadian chartered
bank, which consist of an operating line, a foreign exchange forward contract facility and
standby letters of credit. The operating line bears interest at the chartered banks prime
lending rate plus 0.5% with interest payable monthly. The prime lending rate at November 30,
2006 was 6.00% (2005  4.75%). The Company also has an operating line with a U.S. chartered
bank. Funds drawn on the operating lines and the standby letters of credit are repayable on
demand. As of November 30, 2006, letters of credit, relating principally to customer contracts,
amounting to Australian $nil (2005  Australian $284,000) have been issued. The Company
utilizes letters of credit to back certain performance obligations with its customers.The maximum amount available to the Company under the operating lines are CAD $2,000,000 and US
$600,000 and under the foreign exchange forward contract facility is US $2,000,000 (2005 US
$2,000,000). The credit facilities are collateralized by a general assignment of book debts, a
general security agreement and general security agreements, from each of Offshore Systems Ltd.,
Mapcon Mapping Ltd and Mapcon Mapping Inc. In addition, the Company is required to meet certain
covenants as outlined in the credit facilities agreement. As at November 30, 2006, the Company
had not drawn on its foreign exchange contract facility.13
    
    Capital Stock
 a.
    
    Authorized
 
 
 
 b.
    
    Class A preference sharesThe Company has 30,262 (November 30, 2005  30,262) Class A preference shares outstanding
that have a value of $19,000 (November 30, 2005  $19,000) for financial statement purposes.
These Class A preference shares are being held in escrow but are no longer subject to any
escrow restrictions and may be converted at any time into common shares of the Company, by
notice in writing from the holders.
  96




---



##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 c.
    
    Class B preference shares
 i.
    
    Series 1On April 11, 2005, 57,711 Class B Series 1 preference shares were repurchased by the Company
at their par value of $41.15 (CAD $50) per share for aggregate cash consideration of $2.3
million. The unamortized discount in the amount of $321,000 as of the repurchase date was
amortized and accreted to the Class B Series 1 preference shares and the beneficial
conversion feature of $442,000 was deducted from additional paid in capital. The repurchase
resulted in an increase of $659,000 to deficit. As a result of the repurchase of all
remaining Class B Series 1 preference shares, the remaining un-accreted balance of the
discount has been accreted to accumulated deficit in the amount of $355,000 for fiscal 2005.ii.
    
    Series 2On April 11, 2005, the Company completed a private placement consisting of 19,500 units for
total gross proceeds of $16.0 million. The issue price was $823.05 (CAD $1,000.01) per unit.
Each unit consist of 20 voting Class B Series 2 preference shares (preference shares) and
588 share purchase warrants (warrants). The preference shares entitle the holders to
receive a fixed preferential cumulative 7% dividend payable semi-annually. Each preference
share is convertible at the option of the holder at any time into 58.8235 of the Companys
common shares, calculated by dividing the issue price of CAD $50.00 for each preference
share by the conversion price of CAD $0.85. Each warrant entitles the holder to purchase one
of the Companys common shares at the exercise price of CAD $0.85 for a period of five
years. Fees for advisory, investment banking and legal and other professional services in
connection with this private placement were paid in the amount of $2.0 million and 929,064
warrants were issued to an investment bank and related party (note 16) in connection with
the private placement. The fair value of the finders fee warrants was estimated to be CAD
$0.47 per warrant, using the Black-Scholes option pricing model, and has been recognized as
a share issue cost.The gross proceeds of $16.0 million were allocated between the preference shares and
warrants based on their relative fair value at the date of issuance. The $16.6 million fair
value of the preference shares has been estimated based on the fair value of the underlying
common shares. The $4.3 million fair value of the warrants has been estimated using the
Black-Scholes option pricing model. Assumptions used in the pricing model included: (i) risk
free interest rate of 2.88%, (ii) expected volatility of 59%, (iii) an estimated life of
five years and (iv)an expected dividend rate of 0%. The Company has recorded a beneficial
conversion feature of $4.0 million as a reduction to the net earnings available to common
shareholders calculated on the effective conversion price of the preference shares to common shares based on the proceeds allocated to the preference shares. The conversion feature of
the preference shares vested immediately and the Company recorded the accretion of the full
amount of the beneficial conversion feature. The preference share discount that resulted
from the allocation of the gross proceeds is accreted over the five-year life of the
warrants. This resulted in an accretion of $674,000 to accumulated deficit for year ended
November 30, 2006 (2005  $431,000).Each Series 2 preference share entitles the holder to one vote either in person or by proxy
at any general meeting of the shareholders of the Company. The Company has the right to
require the shareholders of the preference shares to convert each such share into 58.8235
common shares if (i) at any time after 13 months following the issuance of the preference shares, the closing trade price of the Companys common shares exceeds CAD $2.13 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 CAD$40,000,000 at a price per
common share greater than CAD $1.70. The preference shares are redeemable at the option of
the Company at any time after the third anniversary of the issuance date for an amount equal
to the original issuance price plus a premium of 20% of the original issue price. The
preference shares are not subject to any right of redemption at the option of the holder.During the fiscal year 2006 61,400 preference shares were converted into 3,611,762 common shares with an aggregated fair market value of $2.1 million (2005  48,760 preference shares
were converted into 2,868,235 common shares with an aggregate fair market value of $2.3
million). The Class B preference
  Page 97




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 shares were reduced by $1.7 million (2005  $1.2 million) the carrying value of the shares converted, and the beneficial conversion feature attributed to the converted shares
resulted in a deduction of $599,000 (2005  $494,000) from additional paid in capital. The
conversion resulted in a decrease of $170,000 (2005  increase of $598,000) to deficit.d.
    
    Stock option plansThe Company has established three stock option plans under which stock 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. The number of common shares authorized for grant under the
Companys stock option plans is 10,930,732, of which 4,364,494 are available for future
granting. The exercise price of stock 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
stock options may be granted with vesting periods and expiry dates at the discretion of the
board of directors. Stock options granted to directors, management and employees vest over
periods ranging from immediately to five years.
  In U.S. dollars
    
    2006
    
    
    2005
    
    
    2004Number
    
    
    Weighted
    
    
    Number
    
    
    Weighted
    
    
    Number
    
    
    Weightedof
    
    
    average
    
    
    of
    
    
    average
    
    
    of
    
    
    averageshares
    
    
    exercise
    
    
    shares
    
    
    exercise
    
    
    shares
    
    
    exerciseprice
    
    
    
    
    
    price
    
    
    
    
    
    priceOutstanding  beginning of year
    
    
    3,674,417
    
    
    $
    0.81
    
    
    
    2,254,047
    
    
    $
    0.94
    
    
    
    2,890,046
    
    
    $
    0.86Granted
    
    
    247,500
    
    
    
    0.65
    
    
    
    3,054,666
    
    
    
    0.79
    
    
    
    496,750
    
    
    
    0.94Exercised
    
    
    (90,000
    )
    
    
    0.73
    
    
    
    (11,000
    )
    
    
    0.65
    
    
    
    (519,847
    )
    
    
    0.35Forfeited
    
    
    (196,000
    )
    
    
    0.82
    
    
    
    (18,384
    )
    
    
    0.80
    
    
    
    (22,725
    )
    
    
    0.62Surrendered
    
    
    
    
    
    
    
    
    
    
    (632,784
    )
    
    
    0.87
    
    
    
    
    
    
    
    Expired
    
    
    (218,333
    )
    
    
    0.87
    
    
    
    (972,128
    )
    
    
    0.98
    
    
    
    (590,177
    )
    
    
    0.89Outstanding  end of year
    
    
    3,417,584
    
    
    $
    0.83
    
    
    
    3,674,417
    
    
    $
    0.82
    
    
    
    2,254,047
    
    
    $
    0.94Exercisable  end of year
    
    
    3,417,584
    
    
    $
    0.83
    
    
    
    3,378,417
    
    
    $
    0.81
    
    
    
    2,108,047
    
    
    $
    0.93
 A summary of the Companys stock options outstanding and exercisable at November 30, 2006
is as follows:
 In U.S. dollars
    
    
    
    
    
    Options outstanding
    
    
    Options exercisableNumber
    
    
    Weighted
    
    
    Weighted
    
    
    Number
    
    
    WeightedRange of
    
    outstanding
    
    
    average
    
    
    average
    
    
    exercisable at
    
    
    averageExercise
    
    at November
    
    
    remaining
    
    
    exercise
    
    
    November 30,
    
    
    exerciseprices
    
    30, 2006
    
    
    contractual life
    
    
    price
    
    
    2006
    
    
    price$
    
    
    
    
    (years)
    
    
    $
    
    
    
    
    
    $0.64  0.96
    
    
    2,902,916
    
    
    
    3.58
    
    
    
    0.80
    
    
    
    2,902,916
    
    
    
    0.800.97  1.21
    
    
    514,668
    
    
    
    0.35
    
    
    
    1.00
    
    
    
    514,668
    
    
    
    1.000.64  1.21
    
    
    3,417,584
    
    
    
    3.10
    
    
    
    0.83
    
    
    
    3,417,584
    
    
    
    0.83
  Page 98




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 A summary of the Companys stock options outstanding and exercisable at November 30,
2005 is as follows:
 In U.S. dollars
    
    
    
    
    
    Options outstanding
    
    
    Options exercisableNumber
    
    
    Weighted
    
    
    Weighted
    
    
    Number
    
    
    Weightedoutstanding at
    
    
    average
    
    
    average
    
    
    exercisable at
    
    
    averageRange of
    
    November 30,
    
    
    remaining
    
    
    exercise
    
    
    November 30,
    
    
    exerciseExercise prices
    
    2005
    
    
    contractual life
    
    
    price
    
    
    2005
    
    
    price$
    
    
    
    
    (years)
    
    
    $
    
    
    
    
    
    $0.64  0.96
    
    
    3,101,416
    
    
    
    4.19
    
    
    
    0.79
    
    
    
    3,101,416
    
    
    
    0.790.97  1.21
    
    
    573,001
    
    
    
    1.26
    
    
    
    0.98
    
    
    
    573,001
    
    
    
    0.980.64  1.21
    
    
    3,674,417
    
    
    
    3.73
    
    
    
    0.82
    
    
    
    3,674,417
    
    
    
    0.81
 A summary of the Companys stock options outstanding and exercisable at November 30, 2004
is as follows:
 In U.S. dollars
    
    
    
    
    
    Options outstanding
    
    
    Options exercisableNumber
    
    
    Weighted
    
    
    Weighted
    
    
    Number
    
    
    Weightedoutstanding
    
    
    average
    
    
    average
    
    
    outstanding at
    
    
    averageRange of
    
    at November 30,
    
    
    remaining
    
    
    exercise
    
    
    November 30,
    
    
    exerciseexercise prices
    
    2004
    
    
    contractual life
    
    
    price
    
    
    2004
    
    
    price$
    
    
    
    
    (years)
    
    
    $
    
    
    
    
    
    $0.64  0.96
    
    
    1,026,047
    
    
    
    1.08
    
    
    
    0.85
    
    
    
    1,026,047
    
    
    
    0.850.97  1.21
    
    
    1,228,000
    
    
    
    1.12
    
    
    
    0.99
    
    
    
    1,082,000
    
    
    
    1.000.64  1.21
    
    
    2,254,047
    
    
    
    1.10
    
    
    
    0.94
    
    
    
    2,108,047
    
    
    
    0.93
 Stock-based compensationFor the year ended November 30, 2006, the Company incurred non-cash stock-based
compensation expense of $104,000 (2005  $242,000, 2004  $4,000) related to stock options
granted. The expense was included in general and administrative costs and was recorded in
additional paid-in capital.The fair value of stock options was estimated using the Black-Scholes option pricing model
using the following weighted average assumptions by grant year:
 2006
    
    2005
    
    2004Risk-free interest rate
    
    
    4.14
    %
    
    
    2.87
    %
    
    
    2.24
    %Volatility
    
    
    53
    %
    
    
    49
    %
    
    
    58
    %Estimated average option lives
    
    5 years
    
    3.2 years
    
    3.0 yearsDividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
  Page 99




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 Prior to December 1, 2005 the Company applied 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:
 In thousands of U.S. dollars, except share related data
    
    2005
    
    
    2004Net earnings (loss) for the year  as reported
    
    
    (2,749
    )
    
    
    303Stock-based compensation expenses
    
    
    (836
    )
    
    
    (102
    )Pro forma net earnings (loss) for the year
    
    $
    (3,585
    )
    
    $
    201Pro forma net earnings (loss) attributable to common shareholders
    
    $
    (10,236
    )
    
    $
    (33
    )Basic earnings (loss) per share  as reported
    
    $
    (0.34
    )
    
    $
    0.00Diluted earnings (loss) per share  as reported
    
    $
    (0.34
    )
    
    $
    0.00Pro forma basic earnings (loss) per share
    
    $
    (0.37
    )
    
    $
    (0.00
    )Pro forma diluted earnings (loss) per share
    
    $
    (0.37
    )
    
    $
    (0.00
    )
 The fair value of employee stock options was estimated using the Black-Scholes option pricing
model using the following weighted average assumptions by grant year:
 2005
    
    2004Risk-free interest rate
    
    
    3.0
    %
    
    
    2.2
    %Volatility
    
    
    54
    %
    
    
    58
    %Estimated average option lives
    
    4.2 years
    
    3.0 yearsDividend yield
    
    
    0.0
    %
    
    
    0.0
    %
 Shareholder rights planOn 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. On March 12, 2004, the Board of Directors carried a resolution regarding
the continued existence of the Rights Plan, subject to receipt of shareholder approval, for
an additional three year period. The continued existence of the Rights Plan was approved by
the shareholders of the Company by ordinary resolution at the annual general meeting of the
Company held on April 22, 2004.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 of Directors 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
  Page 100




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 value for their investment and are given adequate time to properly assess the take-over
bid on a fully informed basis.e.
    
    Warrants
 In Canadian dollars
    
    
    
    
    
    
    
    
    
    Weighed averageremaining contractualNumber of Warrants
    
    
    Exercise Price
    
    
    life in years1,393,301
    
    
    
    $1.10
    
    
    
    1.2112,395,067
    
    
    
    $0.85
    
    
    
    3.3613,788,368
    
    
    
    $0.88
    
    
    
    3.14
 f.
    
    Earnings (loss) per share
 In thousands of U.S. dollars, except share related data
    
    Years ended November 30,Basic earnings (loss) per share
    
    2006
    
    
    2005
    
    
    2004Net earnings (loss)
    
    $
    693
    
    
    $
    (2,749
    )
    
    $
    303Accretion of discount on Class B Series 1 preference shares
    
    
    
    
    
    
    (262
    )
    
    
    (112
    )Accretion of discount on Class B Series 2 preference shares
    
    
    (674
    )
    
    
    (431
    )
    
    
    Accretion of beneficial conversion feature on Class B
Series 2 preference shares
    
    
    
    
    
    
    (3,948
    )
    
    
    Class B Series 1 preference share dividends
    
    
    
    
    
    
    (51
    )
    
    
    (205
    )Class B Series 2 preference share dividends
    
    
    (1,014
    )
    
    
    (702
    )
    
    
    Difference between conversion consideration and carrying
value of Class B Series 2 preference shares
    
    
    170
    
    
    
    (598
    )
    
    
    Excess of carrying value of Class B Series 1
preference shares and beneficial conversion feature
over repurchase consideration paid.
    
    
    
    
    
    
    (659
    )
    
    
    Loss available to common shareholders
    
    $
    (825
    )
    
    $
    (9,400
    )
    
    $
    (14
    )Weighted average number of common shares outstanding
    
    
    32,381,992
    
    
    
    27,989,832
    
    
    
    27,147,246Basic loss per share
    
    $
    (0.03
    )
    
    $
    (0.34
    )
    
    $
    (0.00
    )
  Page 101




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 In thousands of U.S. dollars, except share related data
    
    Years ended November 30,Diluted earnings (loss) per share
    
    2006
    
    
    2005
    
    
    2004Net earnings (loss)
    
    $
    693
    
    
    $
    (2,749
    )
    
    $
    303Accretion of discount on Class B Series 1 preference shares
    
    
    
    
    
    
    (262
    )
    
    
    (374
    )Accretion of discount on Class B Series 2 preference shares
    
    
    (3,517
    )
    
    
    (431
    )
    
    
    Accretion of beneficial conversion feature on Class B Series 2 preference shares
    
    
    
    
    
    
    (3,948
    )
    
    
    Class B Series 1 preference share dividends
    
    
    
    
    
    
    (51
    )
    
    
    Class B Series 2 preference share dividends
    
    
    
    
    
    
    (702
    )
    
    
    Difference between conversion consideration and carrying value of Class B Series 2 preference shares
    
    
    170
    
    
    
    (598
    )
    
    
    Excess of carrying value of Class B Series 1 preference shares and beneficial conversion feature
over repurchase consideration paid.
    
    
    
    
    
    
    (659
    )
    
    
    Loss available to common shareholders
    
    $
    (2,654
    )
    
    $
    (9,400
    )
    
    $
    (71
    )Weighted average number of common shares outstanding
    
    
    32,381,992
    
    
    
    27,989,832
    
    
    
    27,230,561Dilutive effect of Class A preference shares  Series A (*1)
    
    
    
    
    
    
    
    
    
    
    Dilutive effect of Class B preference shares  Series 1 (*2)
    
    
    
    
    
    
    
    
    
    
    2,625,851Dilutive effect of Class B preference shares  Series 2 (*3)
    
    
    
    
    
    
    
    
    
    
    Dilutive effect of warrants (*1)
    
    
    16,461,176
    
    
    
    
    
    
    
    Dilutive effect of stock options (*1)
    
    
    
    
    
    
    
    
    
    
    Adjusted weighted average number of common shares outstanding
    
    
    48,843,168
    
    
    
    27,989,832
    
    
    
    29,856,412Diluted loss per share
    
    $
    (0.05
    )
    
    $
    (0.34
    )
    
    $
    (0.00
    )
 (*1) The Class A preference shares  Series A, the outstanding warrants and stock options were
anti-dilutive for the purposes of calculating diluted earnings per share for the years ended
November 30, 2006, 2005 and 2004.(*2) The Class B preference shares  Series 1 were anti-dilutive for the purposes of
calculating diluted earnings per share for the years ended November 30, 2005. There were no
Class B preference shares  Series 1 outstanding at November 30, 2006.(*3) The Class B preference shares  Series 2 were anti-dilutive for the purposes of
calculating diluted earnings per share for the years ended November 30, 2006, 2005 and 2004.14
    
    Technology Partnerships CanadaOn April 26, 2004, the Company entered into an agreement with Technology Partnerships
Canada (TPC) whereby TPC granted financial assistance to the Company for the purpose of
funding research and development activities to be completed on or before March 31, 2007. The
maximum eligible contribution by TPC is $3.3 million. At November 30, 2006, the Company has
claimed for $3.3 million of assistance under the agreement (2005  $2.5 million, 2004  $1.2
million). Accounts receivable at November 30, 2006 includes $269,000 of amounts receivable from
TPC in connection with these claims (2005  $625,000).In addition, the Company is required to pay a royalty of 1.4% on annual gross revenue in the
International Systems Operations segment for the period January 1, 2006 to December 31, 2008
and a royalty of 2.5% on
  Page 102




---



##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 annual gross revenue in the International Systems Operations segment for the period
January 1, 2009 to December 31, 2013. Royalty payments will continue until the cumulative
royalties paid or payable to December 31, 2013 are at least $5.3 million or until December 31,
2017. The Company has not paid royalties in connection with this agreement and has accrued
royalties of $155,000 at November 30, 2006 (November 30, 2005  $nil).In addition, the Company is required to pay a royalty of 3% on annual gross revenue in the
International Systems Operations segment for the period December 1, 1999 to November 30, 2008.
The Company has paid royalties of $1.3 million to date (2005  $1.1 million) and has accrued
royalties of $335,000 at November 30, 2006 (November 30, 2005  $256,000). Royalty payments
will continue until the cumulative royalties paid or payable to November 30, 2008 are at least
$6.8 million or until November 30, 2014.Although the Company believes that its submissions for TPC funding meet the terms and
conditions of the TPC agreements, the final determination may be subject to audit by government
authorities in the ordinary course of business.During the year ended November 30, 2005, the Company was subject to three audits by government
authorities. The results of the cost audit did not have a financial impact on the Companys
results. The results of the compliance audit required a repayment of contributions received of
$105,000 recognized in the current fiscal year as a reduction in TPC contributions. The royalty
audit has not yet been concluded. The Company has no reason to believe that the audit will have
a material impact on the Companys financial results.TPC royalties paid and accrued are as follows:
 In thousands of U.S. dollars
    
    Years ended November 30,2006
    
    
    2005
    
    
    2004Royalties paid
    
    $
    256
    
    
    $
    263
    
    
    $
    138Accrued royalties  current
    
    $
    490
    
    
    $
    256
    
    
    $
    263
 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.15
    
    Commitments and contingencyThe Company has entered into operating leases for its office premises in Canada, United
States and for certain equipment. Minimum lease payments required under the remaining terms of
the leases are as follows:
 In thousands of U.S. dollars
    
    2006Years ending November 302007
    
    $
    6222008
    
    
    4682009
    
    
    4392010
    
    
    4102011
    
    
    394$
    2,333
 For the fiscal year ended November 30, 2006, the Company paid basic rent of $709,000 (2005 -
$240,000). The increase was mainly due to the acquisition of CHI. In addition to basic rent,
the Company is required to pay a portion of certain costs and property taxes for the above
commitments. In 2006, the Company paid $88,000 (2005  $73,000) for these costs.
  Page 103




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 In July 2002, two of the Companys subsidiaries, Offshore Systems Ltd. and OSI Geomatics
Ltd. (now Mapcon Mapping Ltd.), and four employees became subject to a lawsuit for an
undisclosed amount by Triathlon Ltd., a subsidiary of MacDonald, Dettwiler and Associates Ltd.,
related to use of confidential information and breach of fiduciary duty. No amount has been
accrued at November 30, 2006 in respect of these claims because the potential liability for the
claims and the amount of damages, if any, cannot be reasonably estimated.16
    
    Related party transactionsOn April 11, 2005, Mr. E. Brinton Coxe, a director of the Company, assisted the Company in
structuring and arranging the private placement financing (note 13(c)(ii)). In consideration
for his services, the Company paid him compensation of $672,000 and 350,000 common share
purchase warrants. Mr. Coxe has also participated in the financing by purchasing 100 units
personally. Mr. Coxe was paid an additional $125,000 for professional services provided during
2005 and to be provided to April 2006. For the year ended November 30, 2006, $25,000 was
charged to expenses (2005  $100,000).On April 8, 2005, Gerald J. Shields, a related party by virtue of the provision of legal
services to the Company by two law firms in which he has an interest (Mr. Shields having moved
from his former firm to his current firm in July, 2005) was elected to the Companys Board of
Directors. Fees paid to these two law firms for services Mr. Shields provided to the Company
during the fiscal year 2006 totalled $177,000 (2005  totalled $164,000). As of November 17,
2006, Mr. Shields no longer has an interest in any law firm that provided legal services to the
Company.17
    
    Income taxesThe Company is subject to Canadian federal and British Columbia provincial taxes in
Canada. The Company is also subject to federal income taxes in the U.S and state taxes in
Pennsylvania, Utah, California and Florida.Earnings (loss) before income taxes consisted of the following:
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2004Canadian income (loss)
    
    $
    1112
    
    
    $
    (2,175
    )
    
    $
    172U.S. income (loss)
    
    
    (477
    )
    
    
    299
    
    
    
    174$
    635
    
    
    $
    (1,876
    )
    
    $
    346
  In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2004Canadian income tax expense
    
    $
    240
    
    
    $
    729
    
    
    $
    U.S. income tax expense (recovery)
    
    
    (298
    )
    
    
    144
    
    
    
    43$
    (58
    )
    
    $
    873
    
    
    $
    43
  Page 104




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 The Company has non-capital losses for Canadian income tax purposes of approximately
$1,563,000, which are available for carry forward to reduce future years taxable income. These
income tax losses expire as follows:
 Year ending November 302009
    
    $
    20,0002014
    
    
    197,0002015
    
    
    948,0002026
    
    
    398,000
  Year ending November 302020
    
    $
    188,0002021
    
    
    28,0002025
    
    
    36,000
 The Company also has investment tax credits for Canadian income tax purposes of approximately
$2.0 million, which can be used to offset future income taxes otherwise payable and expire as
follows:
 Year ending November 302011
    
    
    125,0002012
    
    
    112,0002013
    
    
    175,0002014
    
    
    425,0002015
    
    
    628,0002016
    
    
    193,0002026
    
    
    348,000
 The Company has capital losses for Canadian income tax purposes of approximately $310,000,
which are available for carry forward to reduce future years income from capital gains. These
capital losses carry forward indefinitely.The Company has un-deducted scientific research and experimental development expenses for
Canadian income tax purposes of approximately $6,805,000, which are available for carry forward
to reduce future years income for tax purposes. These expenses carry forward indefinitely.
  Page 105




---



##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 The net deferred tax consists of the following:
 In thousands of U.S. dollars
    
    2006
    
    
    2005Deferred tax assetsNon-capital loss carry-forwards and net operating losses
    
    $
    585
    
    
    $
    1,486Net capital loss carry-forwards
    
    
    48
    
    
    
    52Scientific research and experimental development costs
    
    
    2,110
    
    
    
    1,527Share issue costs
    
    
    376
    
    
    
    550Investment tax credits
    
    
    1,494
    
    
    
    717Plant and equipment
    
    
    900
    
    
    
    841Accrued operating expenses
    
    
    238
    
    
    
    Other
    
    
    20
    
    
    
    225,771
    
    
    
    5,195Valuation allowance
    
    
    (5,533
    )
    
    
    (5,195
    )Deferred tax assets
    
    $
    238
    
    
    $
    Deferred tax liabilitiesChange in tax accounting method
    
    $
    67
    
    
    $
    82Intangible assets
    
    
    100
    
    
    
    77Plant and equipment
    
    
    91
    
    
    
    42258
    
    
    
    201Deferred tax assets
    
    
    238
    
    
    
    Deferred tax liabilities
    
    
    (258
    )
    
    
    (201
    )Net deferred tax
    
    
    (20
    )
    
    
    (201
    )
 The Company increased its valuation allowance in 2006 against deferred income tax assets to reflect
the amount of the future tax benefit that was more likely than not to be realized. A valuation
allowance continues to be provided against deferred income tax assets for which the more likely
than not criteria of future realization has not been met. Although the Company believes
that its tax estimates are reasonable, the ultimate tax determination involves significant judgment
that could become subject to audit by tax authorities in the ordinary course of business.
  Page 106




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
  In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2004Expected statutory rate
    
    
    34.12
    %
    
    
    35.00
    %
    
    
    35.79
    %Expected provision for income taxes
    
    $
    217
    
    
    $
    (657
    )
    
    $
    124Change in tax rates applied in valuation allowance
    
    
    372
    
    
    
    128
    
    
    
    1Change in valuation allowance
    
    
    338
    
    
    
    1,881
    
    
    
    65Foreign tax differentials
    
    
    (27
    )
    
    
    (3
    )
    
    
    (6
    )Foreign exchange effect on valuation allowance
    
    
    (114
    )
    
    
    
    
    
    
    Temporary differences related to share issues
costs and other items arising during the year not
included in accounting income
    
    
    (252
    )
    
    
    (650
    )
    
    
    (145
    )Part VI.1 Tax
    
    
    34
    
    
    
    86
    
    
    
    Non-deductible expenses and other
    
    
    (626
    )
    
    
    88
    
    
    
    4Income tax expense (recovery)
    
    $
    (58
    )
    
    $
    873
    
    
    $
    43
 18
    
    Segmented information
   In thousands of U.S. dollars
    
    2006CorporateInternational
    
    
    U.S.
    
    
    
    
    
    
    and PublicSystems
    
    
    Systems
    
    
    Mapping
    
    
    CompanyOperations
    
    
    Operations
    
    
    Operations
    
    
    Costs
    
    
    TotalRevenue
    
    $
    9,518
    
    
    
    10,517
    
    
    
    4,102
    
    
    
    
    
    
    
    24,137Gross profit
    
    
    5,963
    
    
    
    3,672
    
    
    
    1,340
    
    
    
    
    
    
    
    10,975Technology Partnerships Canada  net
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Income tax expense (recovery)
    
    
    1
    
    
    
    (95
    )
    
    
    (202
    )
    
    
    238
    
    
    
    (58
    )Net earnings (loss)
    
    
    1,720
    
    
    
    1,853
    
    
    
    205
    
    
    
    (3,085
    )
    
    
    693Plant and equipment expenditures
    
    
    182
    
    
    
    66
    
    
    
    40
    
    
    
    2
    
    
    
    290Intangible expenditures
    
    
    114
    
    
    
    88
    
    
    
    35
    
    
    
    
    
    
    
    237Depreciation and amortization
    
    $
    209
    
    
    
    296
    
    
    
    253
    
    
    
    5
    
    
    
    763
  Page 107




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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 In thousands of U.S. dollars
    
    2005CorporateInternational
    
    
    U.S.
    
    
    
    
    
    
    and PublicSystems
    
    
    Systems
    
    
    Mapping
    
    
    CompanyOperations
    
    
    Operations
    
    
    Operations
    
    
    Costs
    
    
    TotalRevenue
    
    $
    8,181
    
    
    
    
    
    
    
    2,945
    
    
    
    
    
    
    
    11,126Gross profit
    
    
    4,381
    
    
    
    
    
    
    
    1,049
    
    
    
    
    
    
    
    5,430Technology Partnerships Canada  net
    
    
    847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    847Interest expense
    
    
    11
    
    
    
    
    
    
    
    2
    
    
    
    10
    
    
    
    23Income tax expense
    
    
    640
    
    
    
    
    
    
    
    225
    
    
    
    8
    
    
    
    873Net earnings (loss)
    
    
    105
    
    
    
    
    
    
    
    (270
    )
    
    
    (2,584
    )
    
    
    (2,749
    )Plant and equipment expenditures
    
    
    157
    
    
    
    
    
    
    
    (92
    )
    
    
    5
    
    
    
    70Intangible expenditures
    
    
    21
    
    
    
    
    
    
    
    193
    
    
    
    2
    
    
    
    216Depreciation and amortization
    
    $
    177
    
    
    
    
    
    
    
    221
    
    
    
    6
    
    
    
    404
 In thousands of U.S. dollars
    
    2004CorporateInternational
    
    
    U.S.
    
    
    
    
    
    
    and PublicSystems
    
    
    Systems
    
    
    Mapping
    
    
    CompanyOperations
    
    
    Operations
    
    
    Operations
    
    
    Costs
    
    
    TotalRevenue
    
    $
    8,090
    
    
    
    
    
    
    
    2,321
    
    
    
    
    
    
    
    10,411Gross profit
    
    
    5,213
    
    
    
    
    
    
    
    805
    
    
    
    
    
    
    
    6,018Technology Partnerships Canada  net
    
    
    1,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,013Interest expense
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Income tax expense
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    43Net earnings (loss)
    
    
    1,825
    
    
    
    
    
    
    
    63
    
    
    
    (1,585
    )
    
    
    303Plant and equipment expenditures
    
    
    89
    
    
    
    
    
    
    
    16
    
    
    
    5
    
    
    
    110Intangible expenditures
    
    
    19
    
    
    
    
    
    
    
    132
    
    
    
    7
    
    
    
    158Depreciation and amortization
    
    $
    177
    
    
    
    
    
    
    
    97
    
    
    
    4
    
    
    
    278
 In thousands of U.S. dollarsCorporateInternational
    
    
    
    
    
    
    
    
    
    
    and PublicSystems
    
    
    U.S. Systems
    
    
    Mapping
    
    
    CompanyTotal assets employed
    
    Operations
    
    
    Operations
    
    
    Operations
    
    
    Costs
    
    
    TotalAs at November 30, 2006
    
    $
    10,483
    
    
    
    10,599
    
    
    
    3,283
    
    
    
    (20
    )
    
    
    24,345As at November 30, 2005
    
    $
    17,649
    
    
    
    
    
    
    
    3,553
    
    
    
    
    
    
    
    21,202
 Geographically, revenues reported are based on the location of the Companys customers as
follows:
 In thousands of U.S. dollars
    
    2006
    
    
    2005
    
    
    2004Europe
    
    $
    6,816
    
    
    $
    4,093
    
    
    $
    3,332Australia/New Zealand
    
    
    1,200
    
    
    
    2,149
    
    
    
    3,748United States
    
    
    13,717
    
    
    
    2,410
    
    
    
    2,186Canada
    
    
    2,404
    
    
    
    2,415
    
    
    
    1,145Other
    
    
    
    
    
    
    59
    
    
    
    Total
    
    $
    24,137
    
    
    $
    11,126
    
    
    $
    10,411
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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 Approximately 47% of revenue for the year ended November 30, 2006 (2005  40%, 2004 
58%) is derived from the three largest customers at 24%, 15% and 8%, respectively (2005  22%,
10%, 8%, 2004  26%, 24%, 8%).The three largest customers for 2006 were the Royal Navy of the United Kingdom, the U.S. Army
and the U.S. Navy. The three largest customers for 2005 were the Royal Navy of the United
Kingdom, Royal Australian Navy and the Canadian Navy. The three largest customers for 2004
were the Royal Australian Navy, the Royal Navy of the United Kingdom and the U.S. Coast Guard.Geographically, plant and equipment and intangible and other assets are reported based on
location. At November 30, 2006 and 2005, all of the Companys plant and equipment and
intangible and other assets were located in Canada and the U.S. as follows:
 In thousands of U.S. dollars
    
    November 30, 2006Canada
    
    
    U.S.
    
    
    TotalPlant and equipment
    
    $
    859
    
    
    $
    230
    
    
    $
    1,089Intangible and other assets
    
    
    322
    
    
    
    472
    
    
    
    794Goodwill
    
    
    
    
    
    
    8,116
    
    
    
    8,116Total
    
    $
    1,181
    
    
    $
    8,818
    
    
    $
    9,999
 In thousands of U.S. dollars
    
    November 30, 2005Canada
    
    
    U.S.
    
    
    TotalPlant and equipment
    
    $
    817
    
    
    $
    52
    
    
    $
    869Intangible and other assets
    
    
    297
    
    
    
    329
    
    
    
    626Goodwill
    
    
    
    
    
    
    406
    
    
    
    406Total
    
    $
    1,114
    
    
    $
    787
    
    
    $
    1,901
 19
    
    Financial instrumentsFluctuations in foreign currency exchange ratesThe Companys Canadian subsidiaries enter into transactions denominated in U.S. dollars, UK
pounds, Australian dollars and euros and as such its revenue, expenses, monetary assets and
liabilities will be affected by fluctuations in the various currencies relative to its
functional currency, the Canadian dollar.The Companys Canadian subsidiaries use foreign exchange forward contracts to hedge
transactions denominated in U.S. dollars, Australian dollars and Euros. The purpose of the
Companys hedging activities is to reduce the level of exposure to exchange rate movements. At
November 30, 2006, the Company had foreign exchange forward contracts maturing in the following
year to sell US $1,262,000 (2005  US $nil), GBP 107,000 (2005  GBP nil) and Australian
$500,000 (2005  Australian $nil).The fair value of derivative instruments generally reflects the estimated amounts that the
Company would receive or pay to settle the contracts at November 30, 2006. The fair value of
the above derivative financial instruments was a recorded liability in accounts payable and
accrued liabilities of $55,000 at November 30, 2006 (2005  $nil).
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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 20
    
    Supplemental cash flow information
 In thousands of U.S. dollars
    
    2006
    
    
    2005Cash paid during the year for interest
    
    $
    21
    
    
    $
    23Cash paid during the year for income taxes
    
    $
    263
    
    
    $
    5
 21
    
    Reconciliation of generally accepted accounting principlesThe Company prepares its audited consolidated financial statements in accordance with U.S.
generally accepted accounting principles which, as applied in these audited consolidated
financial statements, conform in all material respects to Canadian GAAP, except for the
differences below as follows:(a) Under Canadian GAAP, for stock option awards granted by the Company after December 1, 2003,
the Company is required to recognize compensation when stock options are granted to employees
and directors under stock option plans with no cash settlement feature based on the fair value
based method. As permitted by the standard, the Company had applied this change prospectively
for new awards granted on or after December 1, 2003. Prior to December 1, 2005 under U.S. GAAP,
the Company accounted for stock-based compensation to employees and directors in accordance
with the intrinsic value method of the Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Effective December 1, 2005, under U.S. GAAP the Company
accounts for stock-based compensation to employees and directors in accordance with the fair
value based method of FASB Statement 123(R).(b) Under Canadian GAAP, there is no requirement to record the beneficial conversion feature
and accretion of discount when preference shares are issued with attached warrants. For U.S.
GAAP purposes, during the fiscal years 2003 and 2005 the Company recorded beneficial conversion
features of $442,000 and $3.9 million, respectively, on the issuance of Class B Series 1 and 2
preference shares, as a reduction to the net earnings available to common shareholders
calculated on the effective conversion price of the preference shares to common shares based on
the proceeds allocated to the preference shares. In both cases, the conversion feature of the
preference shares vested immediately and the Company recorded the accretion of the full amount
of the beneficial conversion feature. For both the Series 1 and Series 2 Class B preference shares, the discount on these shares that resulted from the allocation of the gross proceeds to
the Class B preference shares and to the attached warrants is accreted over the five-year life
of the warrants. This resulted in an accretion of $674,000 for the year ended November 30, 2006
($431,000 for the year ended November 30, 2005, $112,000 for the year ended November 30, 2004).(c) Under Canadian GAAP, there is a requirement for derivatives outside of hedging
relationships to be recognized on the balance sheet at fair value, however for derivatives in
hedging relationships, Canadian GAAP does not specify how such derivatives should be recorded.
As a result, under Canadian GAAP in some instances derivatives may not be recorded on the
balance sheet. Under U.S. GAAP it is required that all derivatives be recorded as assets or
liabilities, measured at fair value. Derivatives that are not hedges are adjusted to fair value
through income. If the derivative is a hedge, depending upon the nature of the hedge, changes
in the fair value of the derivative are either offset against the fair value of assets,
liabilities or firm commitments through income, or recognized in other comprehensive income
until the hedged item is recognized in income. The ineffective portion of a derivatives change
in fair value is immediately recognized into income. With respect to the ineffective portion of
derivatives changes in fair value, the Company had a foreign exchange loss of $5,000 for the
year ended November 30, 2006 under U.S. GAAP which has not been recorded under Canadian GAAP.
With respect to the ineffective portion of derivatives changes in fair value, the Company did not have a foreign exchange gain or loss amount for the
year ended November 30, 2005, under U.S. GAAP which has not been recorded under Canadian GAAP.(d) Under Canadian GAAP, the Company was not required to record stock-based compensation for
stock options granted to non-employees prior to December 1, 2001. Under U.S. GAAP, the Company
is required to
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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 record stock-based compensation for options granted to non-employees based on the fair
value based method as required by SFAS 123(R) retroactive for all prior periods. These
stock-based compensation transactions, result in differences of $649,000 (November 30, 2005 -
$649,000, November 30, 2004  $649,000) when compared to the same balances as previously
reported under Canadian GAAP.(e) For Canadian GAAP financial statement purposes, the Companys 30,262 (November 30, 2005 -
30,262) Class A preference shares have been presented at a nominal value. For U.S. GAAP
financial statement purposes, these shares have been presented at a value of $19,000.(f) For Canadian GAAP financial statement purposes, the Company has recorded a cumulative
translation adjustment of $2.4 million (at November 30, 2005 $2.3 million) which is a separate
component of shareholders equity. For U.S. GAAP purposes changes in the cumulative
translation adjustment are included as a component of accumulated other comprehensive income.(g) If Canadian GAAP were followed:
 i)
    
    the effect on the Consolidated Statements of Earnings would be:
 In thousands of U.S. dollars except earnings (loss) per share
    
    For the year ended November 30,2006
    
    
    2005
    
    
    2004Earnings (loss), U.S. GAAP
    
    $
    693
    
    
    $
    (2,749
    )
    
    $
    303Adjustment for stock based compensation (a),(d)
    
    
    
    
    
    
    (855
    )
    
    
    (102
    )Adjustment for loss on derivative (c)
    
    
    (5
    )
    
    
    
    
    
    
    Earnings (loss), Canadian GAAP
    
    $
    688
    
    
    $
    (3,604
    )
    
    $
    201Loss attributable to common shareholders, Canadian GAAP
    
    $
    (326
    )
    
    $
    (4,357
    )
    
    $
    (4
    )Basic and diluted earnings (loss) per common share, Canadian GAAP
    
    $
    (0.01
    )
    
    $
    (0.16
    )
    
    $
    0.00Weighted average number of common shares  basic, Canadian GAAP
    
    
    32,381,992
    
    
    
    27,989,832
    
    
    
    27,230,561Weighted average number of common shares  diluted, Canadian GAAP
    
    
    48,431,168
    
    
    
    27,989,832
    
    
    
    29,856,412
 ii)
    
    Balance Sheet items which would differ under Canadian GAAP are as follows:
 In thousands of U.S. dollars
    
    At November 30,2006
    
    
    2005Common shares (d)
    
    $
    17,573
    
    
    $
    14,624Class B Series 2 preference shares (b)
    
    
    7,148
    
    
    
    8,076Additional paid in capital (a), (b)
    
    
    79
    
    
    
    416Accumulated deficit (a), (b), (c), (d), (f)
    
    
    11,180
    
    
    
    (26,324
    )Accounts payable and accrued liabilities (c)
    
    
    4,832
    
    
    
    3,360
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##### 



OSI Geospatial Inc.   November 30, 2006 and 2005
 (h) Pro forma information  Stock based compensation
 The following pro forma financial information as required by The Canadian Institute of
Chartered Accountants (CICA) Handbook section 3870, Stock-based Compensation and Other
Stock-based Payments, presents the earnings had the Company recognized stock-based compensation
using a fair based value method for all stock awards granted, modified or settled prior to
December 1, 2003:
 In thousands of U.S. dollars except earnings (loss) per share
    
    For the year ended November 30,2006
    
    
    2005
    
    
    2004Earnings (loss) for the period, Canadian GAAP
    
    $
    698
    
    
    $
    (3,604
    )
    
    $
    201Add: Stock-based compensation cost
    
    
    104
    
    
    
    1,069
    
    
    
    131Less: Pro forma stock-based compensation cost
    
    
    (104
    )
    
    
    (1,085
    )
    
    
    (150
    )Pro forma income (loss)
    
    $
    698
    
    
    $
    (3,620
    )
    
    $
    182Pro forma basic earnings (loss) per share
    
    
    0.02
    
    
    
    (0.13
    )
    
    
    0.01Pro forma diluted earnings (loss) per share
    
    
    0.01
    
    
    
    (0.13
    )
    
    
    0.01Weighted average number of common shares  basic
    
    
    32,381,992
    
    
    
    27,989,832
    
    
    
    27,230,561Weighted average number of common shares  diluted
    
    
    48,431,160
    
    
    
    27,989,832
    
    
    
    29,856,412
 The fair value of the stock options was estimated using the Black-Scholes option pricing model
using the following weighted average assumptions by grant year:
 2006
    
    2005
    
    2004Risk-free interest rate
    
    
    4.1
    %
    
    
    3.0
    %
    
    
    2.2
    %Volatility
    
    
    53
    %
    
    
    54
    %
    
    
    58
    %Estimated average option lives
    
    5.0 years
    
    5.2 years
    
    3.0 yearsDividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
 22
    
    Subsequent eventsOn January 17, 2007, the Company signed a 10 year lease for new office facilities. It
will relocate its North Vancouver, British Columbia operations to Burnaby, British Columbia on
August 1, 2007.On February 12, 2007, the Company announced that it will relocate its corporate headquarters
from North Vancouver, British Columbia to Ottawa, Ontario. The company will maintain its
Offshore Systems, Ltd. operations in Vancouver, its CHI Systems Inc. operations in
Philadelphia, San Diego and Orlando and its Mapcon Mapping Inc. operations in Salt Lake City
and Vancouver. Its Ottawa headquarters will be established by June 2007 and will become the
base of operations for the companys executive management team and senior business development
personnel.
  Page 112