CC Filed by Filing Services Canada Inc. 403-717-3898

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 50,646,026 common shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934 from their obligation under those Sections.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Indicate by check mark which financial statement item the registrant has elected to follow.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐No

All dollar amounts presented in the Annual Report on Form 20-F are presented in Canadian dollars unless otherwise indicated. Reference should be made to Item 3A for information on exchange rates between the Canadian dollar and the United States dollar.

Table 1 below summarizes selected consolidated financial data for Norsat International Inc.(“the Company”, or “Norsat”) for the last five fiscal years ended December 31, 2007, 2006, 2005, 2004, and 2003 prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Table 2 below summarizes certain corresponding information calculated in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The information for the last three fiscal years ended December 31, 2007, 2006, and 2005 have been extracted from the Company’s audited consolidated financial statements and related notes included herein and should be read in conjunction with such financial statements appearing under the heading “Item 8 - Financial Information” and with the information appearing under the heading “Item 5 - Operating and Financial Review and Prospects”. Information for the year ended December 31, 2004 and 2003 have been extracted from audited consolidated financial statements not disclosed elsewhere and presented below.

Reference is made to Note 23 of the consolidated financial statements included herein for a discussion of the material differences between Canadian GAAP and U.S. GAAP, and their effect on the Company’s financial statements.


Year Ended December 31	2007	2006	2005	2004	2003
Sales ($000’s)	17,581	15,256	18,116	17,521	12,980
Earnings (loss) from operations ($000’s)	1,522	(4,397)	(5,888)	429	(8,169)
Net earnings (loss) ($000’s)	1,522	(4,348)	(5,889)	1,153	(8,245)
Earnings (loss) per share from operations – basic and diluted ($)	0.03	(0.09)	(0.14)	0.01	(0.23)
Earnings (loss) per share – basic and diluted ($)	0.03	(0.09)	(0.14)	0.03	(0.23)
Weighted average number of shares – basic (000s)	50,599	46,681	42,518	40,282	36,101
Weighted average number of shares – diluted (000s)	55,806	46,681	42,518	40,721	36,101
Dividends per share	-	-	-	-	-
As at December 31
Total assets ($000s)	9,445	9,820	10,524	12,199	9,515
Net assets ($000s)	5,747	3,583	3,554	8,096	5,175
Long-term debt (excluding current portion) ($000s)	-	-	2,008	1,468	1,271
Capital Stock ($000s)	45,243	44,855	41,416	40,901	39,153


Year Ended December 31	2007	2006	2005 (Restated)	2004	2003
Sales ($000’s)	17,581	15,256	18,116	17,521	12,980
Earnings (loss) from operations ($000’s)	1,622	(3,986)	(5,170)	897	(7,349)
Net earnings (loss) ($000’s)	1,622	(3,934)	(5,170)	1,622	(7,425)
Earnings (loss) per share from operations – basic and diluted ($)	0.03	(0.08)	(0.12)	0.02	(0.21)
Earnings (loss) per share – basic and diluted ($)	0.03	(0.08)	(0.12)	0.04	(0.21)
Weighted average number of shares – basic (000s)	50,599	46,681	42,518	40,282	36,101
Weighted average number of shares – diluted (000s)	55,806	46,681	42,518	40,721	36,101
Dividends per share	-	-	-	-	-
As at December 31
Total assets ($000s)	9,445	9,817	10,507	12,632	9,991
Net assets ($000s)	5,747	3,504	3,219	7,593	4,330
Long-term debt (excluding current portion ($000s)	-	-	2,322	2,404	2,593
Capital Stock ($000s)	119,786	119,398	116,401	115,535	113,788

In this Form 20-F Annual Report, unless otherwise specified, all monetary amounts are expressed in Canadian dollars.

The exchange rate as of the date of close of business on March 28, 2008 was 1.0215.

The following tables set out the Exchange Rates, based on the noon buying rates for the Bank of Canada, for the conversion of United States dollars into Canadian dollars (“Exchange Rates”).

Table I presents the range of high and low Exchange Rates for each of the six month periods ending February 29^th, January 31^st, December 31^st, November 30^th, October 31^st and September 30^th (collectively “Month Close Dates”)

Table II presents the average of the Exchange Rates on each of the Month Close Dates.

Investors should carefully consider the risks and uncertainties described below before making an investment decision. If any of the following risks actually occur, our business, financial condition or operating results could be materially harmed. This could cause the trading price of our common shares to decline, and you may lose all or part of your investment.

The Company’s inability to generate sufficient cash flows from its operations. The Company’s consolidated financial statements have been prepared on a going concern basis, which presumes the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern basis is dependent upon the Company having sufficient available cash resources and achieving profitable operations to generate sufficient cash flows to fund continued operations. Should the Company fail to generate sufficient cash flows from operations, it will require additional financing to remain a going concern. At December 31, 2007, the Company has accumulated a deficit of $44,649,604. The Company started to generate net profit from its continued operations through the fourth quarter of 2006 to the fourth quarter of 2007. However, it cannot be used as an indication of the Company’s future performance.

On March 28, 2007 the Company repaid the US$2 million convertible debt partially through a short term financing at cheaper costs since the short term financing bears the same interest rate without the convertible feature. The retirement of the convertible debenture reflects on management’s commitment to strengthen the Company’s financial foundation on a compressed schedule. However, the Company’s ability to meet its short term debt obligations depends on its success in future operations which are not fully predictable due to a rapidly changing economic environment.

In view of these conditions, the ability of the Company to continue as a going concern is dependent upon achieving profitable operations and on the ability of the Company to obtain additional financing. The outcome of these matters can not be predicted at this time. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue in business.

The Company’s inability to accurately forecast its results from quarter to quarter may affect its cash resources and result in wide fluctuations in the market price of the Company's stock. The operating results have varied on a quarterly basis in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are described below. Due to these and other factors, most of which are outside of the Company’s control, the quarterly revenues and operating results are difficult to forecast. As a result, the Company may not be able to accurately predict its necessary cash expenditures during each quarter or obtain financing in a timely manner to cover any shortfalls. The Company also believes that period-to-period comparisons of its operating results may not be meaningful and one should not rely on any such comparisons as an indication of its future performance.

The Company cannot be sure it will be able to identify emerging technology and market trends, enhance its existing technologies or develop new technologies in order to effectively compete in the satellite communications industry. The satellite communications industry is characterized by rapid technological changes, short technology and product life cycles, pressure to provide improved solutions at increasingly lower prices and frequent introduction of new technologies and products. To succeed, the Company must be able to identify emerging trends and enhance its existing technologies and develop new technologies and products to meet market requirements. To drive sales, the satellite products must meet the needs of the Company’s existing and potential customers and be competitively priced. Additionally, there must be sufficient interest in and demand for the Company’s products. If the Company does not develop these new technologies and products in a timely and cost effective manner, or if others develop new technologies ahead of the Company, the Company will not achieve profitability in the satellite communications industry and it may not be able to participate in selling these new technologies or products.

The Company has customer concentration. A significant portion of the Company’s revenues have been recognized from a limited number of customers. While the Company has been diversifying its customer base, the efforts to date may be insufficient to offset the effects of the quarterly variance of sales and delays associated with selling to the Government sector. The Company expects that a majority of the Satellite Systems revenues will continue to depend on sales of products to a small number of customers. The Company also expect that customers will vary from period-to-period as existing customers are under no obligation to continue buying from Norsat.

If the Company fails to sell the products to one or more targeted customers in any particular period, or are unable to diversify the customer base and segments, its ability to generate revenues, achieve profitability, and meet debt obligations generally as they become due will be adversely affected. While the Company has been diversifying its customer base, the efforts to date may be insufficient to offset the effects of uneven sales and delays associated with selling to the Government sector. There are additional risks associated with non-US companies such as Norsat directly supplying to the US military.

The Company has supplier concentration and some suppliers may circumvent us and sell directly to the Company’s customers. The Company purchases substantially all of its microwave products from six suppliers, and certain critical components for its Satellite Systems products from sole source suppliers. If any of these suppliers is unable or unwilling to supply products to the Company at prices that the Company deems fair, or if the Company is unable to diversify its supplier base, the revenues and profits will be adversely affected. If any of these suppliers decide to enter the component market and sell directly to our customers, the revenues and profits will be adversely affected.

The Company cannot be sure that it will be able to compete effectively with the current competitors. The satellite communications industry is intensely competitive. Some competitors have technologies and products that may be more advantageous and compete directly with the Company. Some of these competitors are large, established companies which have significantly greater resources than those of the Company.

The Company’s ability to compete effectively will depend on its ability to increase sales; attract new customers in a timely and cost effective manner and sell these products at competitive prices. The Company is dependent on others for the supply and manufacture of components and products it sells. The Company has outsourced substantially all of the manufacturing of the microwave products it sells and for some of its portable satellite systems the Company relies on its suppliers to provide components for the production of these satellite systems. If either the

manufacturers or suppliers cannot deliver products to the Company on time, its revenues and profits will be adversely affected.

The Company has limited intellectual property protection. The Company’s success and ability to compete are dependent, in part, upon its proprietary technology, brand and reputation in the marketplace, and customer relationships. While the Company currently holds four patents (US Patents # 5,019,910, 6,931,245 and 7,218,289; European Patent #1 184 930) and has applied for patent protection on certain other parts of its technology, it relies primarily on trade secrets and does not have adequate trademark and patent protection on all of its technology. The Company also enters into confidentiality, and non-compete agreements with its employees and limits the access to and distribution of the product design documentation and other proprietary information. The Company has also enacted a policy requiring its front-facing personnel, such as salespeople, to input the details of their customer interactions into a customer relationship management tool. The Company cannot be sure that these efforts will deter misappropriation or prevent an unauthorized third party, including former associates and former employees, from obtaining or using information, which it deems to be proprietary. Although the Company believes that its technology does not currently infringe upon patents or trademarks held by others, the Company cannot be sure that such infringements do not exist or will not exist in the future, particularly as the number of products and competitors in its industry segment grows.

If the Company experiences rapid growth and does not manage it effectively, profitability may be affected. If its technologies and products achieve widespread acceptance the Company may experience rapid growth. This growth may require the Company to hire more employees, recruit additional management, improve the Company’s financial control systems, and expand and manage the technical, sales and support service operations. The Company would need increased revenues and additional funding to operate these increased activities. If the Company does not manage its growth effectively, its profitability may be impacted.

The Company has had high employee turnover. In 2007, twenty-one employees were terminated or resigned and nineteen employees were hired. High employee turnover affects knowledge retention, the effectiveness of processes, the value of existing intellectual property, and the ability to hire qualified candidates and maintain the healthy relationships with outside parties. The Company continues to evolve its hiring practices and is actively working on improving the work culture and its image in the community. The Company cannot be sure that these efforts will be successful in reducing employee turnover in the short term.

The Company depends on its key employees and it cannot be sure that it will be able to keep these employees or hire and train replacements. Our success depends on the skills, experience and performance of the senior management and other key personnel. While it offers competitive compensation packages and stock options to attract key employees, the Company does not carry key person insurance on these employees. Highly skilled technical employees and management in the satellite communications industry are in demand and the market for such persons is highly competitive. The Company cannot be sure that it will be able to retain these employees or hire replacements. If the Company does not successfully retain the key personnel or hire and train replacements it will be unable to develop the new products and technologies necessary to compete in its markets or to effectively manage its business.

The Company intends to expand its international operations, and thus faces a number of risks including tariffs, export controls and other trade barriers; political and economic instability in foreign markets; and fluctuations in foreign currencies. These external risks may not be under the Company’s control. Additional human and financial resources may be required for this expansion which the Company may not be able to attract or afford. Failure to expand internationally may impact the Company’s prospects for revenue growth and profitability.

The Company sells products which may, in certain instances, be subject to export and/or re-export restrictions. The export laws of the governments of Canada and United States apply

to products that the Company sells. The United States Department of Commerce, through its Export Administration Regulations (EAR), and the Government of Canada, through its Export Controls Division, regulate exports and re-exports of "dual-use" items, i.e., goods, software and technologies with commercial and proliferation/ military applications. In ascertaining whether such items may be subject to export control restrictions, the Company is sometime forced to rely on information in the specifications of certain components from the manufacturers and vendors. Should this information later prove to be incorrect, the Company may be subjected to penalties and fines. It may also be subjected to penalties and fines should there be a breach in the processes. The Company has formed a committee to actively oversee compliance with all such export regulations.

The Company buys components and products which may, in certain instances, be subject to contractual obligations to purchase minimum quantities during a given period, maintain resale records and abide by certain resale restrictions. Failure to fulfil any or all of these may negatively impact liquidity should the Company be forced to take ownership of any un-purchased units. It may also affect the Company’s ability to continue supplying products as originally specified and thus affect obligations to fulfil orders.

Some of the Company’s contracts require the Company to guarantee certain forms of price protection over an extended period of time. Failure to contain costs during the terms of these contracts may affect the Company’s profitability and liquidity. Failure to fulfil contractual obligations in this respect, may result in penalties or the cancellation of such contracts.

The Company may be subject to product liability claims, which are not fully covered by insurance. The manufacture, sale and marketing of the Company’s satellite products expose us to the risk of product liability claims. Given the complex nature of our products, the products may contain undetected errors or performance problems may arise. Although the Company’s products undergo testing prior to release into the market, it is possible that such products may yet still contain errors and performance problems, which are discovered only after commercial introduction. If these defects and errors are discovered after shipment, they could result in a loss of sales revenues, delay in market acceptance, product returns, warranty claims and the loss of a potential market. In addition, components and other products manufactured and distributed by others, which are incorporated into the Company’s products, may also contain such defects and errors, which could substantially reduce the performance of the products. The Company is also at risk of exposure to potential product liability claims from distributors and end-users for damages resulting from defects in products that it distributes. Although product defects have not been a significant factor, the Company maintains comprehensive general liability insurance which provides limited coverage against claims originating in product failure. We cannot be sure that this insurance will be adequate to cover all claims brought against us or that this insurance will continue to be available to us on acceptable terms. If these claims are not fully covered by the Company’s product liability insurance, they could severely and negatively impact the business liability insurance coverage and the available cash resources. A product liability claim, even one without merit or for which the Company has substantial coverage, could result in significant legal defence costs, thereby increasing the expenses, lowering the earnings and, depending on revenues, potentially resulting in additional losses.

The Company’s operations may be disrupted by natural disasters and extreme weather conditions. The Company’s headquarters is located in the Greater Vancouver region which has, in recent times, been subjected to high winds and extreme weather conditions. While the Company has managed to continue operating through some of these conditions, employee productivity during these periods is negatively impacted. Experts are also expecting a major earthquake in this region; a significant natural disaster may have the effect of paralysing the Company’s operations for an indefinite period.

The exercise of the existing outstanding options, warrants, warrants to be issued, and the number of shares available for future issuance may substantially dilute the value of the Company’s common shares. The Company has 75,000,000 Common Shares authorized, of which 50,646,026 were outstanding at December 31, 2007 and an additional 7,583,977 Common Shares have been reserved for issuance upon the exercise of outstanding options, warrants and warrants to be issued. Although the Board of Directors has no present intention to do so, it has the authority, within parameters set by the Toronto Stock Exchange (the “TSX”), without action by the shareholders, to issue authorized and unissued Common Shares. Any series of Preferred Stock, if and when established and issued, could also have rights superior to the Company’s Common Shares, particularly in regard to voting, the payment of dividends and upon liquidation of Norsat. Convertible debt, if issued to raise additional working capital for the Company could also have dilutive effect on the shareholders.

The Company’s operations are heavily exposed to fluctuations in foreign currencies. Most of the Company’s international sales are denominated primarily in US dollars and UK pounds. While the Company expects its international revenues and expenses will continue to be denominated primarily in US dollars, a portion of its international revenues and expenses may be denominated in other foreign currencies in the future. As the reporting currency is the Canadian dollar, the Company could experience and has experienced the risks of fluctuating currencies. Such exposure is partially hedged by inventory purchases which are dominated in US dollars as well. From time to time the Company may choose to engage in currency hedging activities, which may be unsuccessful and expensive.

The Company is exposed to foreign exchange fluctuations in the U.S. dollar. A stronger Canadian dollar reduces U.S. dollar-denominated revenues and expenses. Net income is also reduced because a higher percentage of revenues than expenses are generated in U.S. dollars. Although majority of the Company’s sales are in U.S. dollars, it has a natural hedge in that it also purchases majority of its inventory in US dollars. The Company engages in hedging transactions to mitigate foreign exchange risks for large sale transactions.

The Company was incorporated in British Columbia, Canada on October 15, 1982 pursuant to the Company Act (British Columbia). Effective September 27, 1989, the Company changed its name to NII Norsat International, Inc. At the Company’s Annual General Meeting held on June 9, 1999, shareholders passed a special resolution to change the Company’s name back to Norsat International Inc. Since July 2, 1999, the Company has operated under the name Norsat International Inc (herein “Norsat” or the “Company”).

Norsat was incorporated under and continues to operate under the laws of the Province of British Columbia, Canada. The Company is administered from British Columbia. The corporate laws pertinent to Norsat are those of the Province of British Columbia, although it is also subject to the securities legislation of British Columbia, Ontario and the United States.

The principal business events in Norsat’s 25 year history are (in chronological order):

In March 1983, the Company, based in Surrey, British Columbia, completed its initial public offering on the Vancouver Stock Exchange.

The Company broke with industry norm and introduced a gallium arsenide low noise amplifier (LNA) instead of a silicon based LNA.

The Company developed a new series of low noise blocker (LNB) compatible satellite receivers featuring synthesized video, stereo audio, and infrared remote control.

The Company introduced synthesized receivers (JR Series) that enable internal melding of phase and frequency for a very high degree of accuracy; these receivers gain significant traction with private networks.

The Company became a leading provider of Ku band private networks for business television and won a landmark deal to supply GTE Spacenet.

The Company also introduced the Microsat, an IBM PC compatible satellite communications expansion card for broadcast data networks, with optional audio/video capability. The Company later applied for a patent on key elements of this technology; the patent was eventually awarded in 1991.

The Company introduced external reference receivers that provide a stable reference source, by minimizing temperature drift, for very low data rate applications. It also introduced a broadcast satellite data multiplexing network control system and a satellite delivered personal computer bulletin board service.

In September 1989, the Company changed its name to NII Norsat International, Inc.

The Company was issued United States Patent No. 5,019,910 entitled “Apparatus for Adapting Computer for Satellite Communications.”

The Company introduces C-band and Ku-band receivers with noise figures of less than 1.5 dB.

The Company introduced the first digital LNB optimized for low data rate applications.

The Company introduced the Microsat 150 Multimedia PC receiver that enables a personal computer or laptop to capture real time satellite video, listen to and edit directly from the computer keyboard selections of audio programs, and monitor real time data broadcasts.

The European Space Agency extends a grant to the Company to develop portable terminals.

The Company introduced video scrambling technology (N-Code II) for cable distribution networks so authorized cable subscribers may receive telecasts.

The Federal Court of Appeal rules that the use of U.S. based DTH systems in Canada contravened the Radiocommunication Act. Aurora Distributing, a division of Diamond Pacific Inc., the Company’s consumer products subsidiary, withdrew from the U.S. based DTH receiving market after Norsat settled a lawsuit in which it was a distributor for those systems.

The Company acquired IMT Comsys, a private company and originally the Satellite Communications Division of MPR Teltech. IMT Comsys’ products included Ka-band VSATs, solid state power amplifiers and low noise block downconverters (LNBs). The acquiree also had development contracts with the European and Canadian Space Agencies for Ka-band subscriber terminals.

The Company’s US Subsidiary, Diamond Pacific, was named the Master Systems Operator by the US Satellite Broadcasting Company, a major supplier of premium movie channels, to support its Multiple Dwelling Unit (MDU) market.

Norsat introduced a line of C-band and Ku-band TNBs (Two-way Norsat block converters), a critical component for the proliferation of wireless broadband media.

Norsat released the NCS-300 Subscriber Management System to enable cable system operators to easily deliver pay-per-view television.

In April, Norsat acquired Winnipeg-based SpectraWorks, a leading developer of systems and software for broadcasting multimedia broadband content across satellite, terrestrial and digital cable networks. Through this acquisition, Norsat added digital video broadcast (DVB) hubs to manage the flow of content into and out of the Internet backbone and between subscriber terminals; and a 100 Mbps IP encapsulator to enable end-to-end multimedia broadcast solutions.

In August, the Company formally exited the consumer satellite DBS. The Company discontinued the operations of Norsat America, a distribution business geared towards consumer-oriented, Direct Broadcasting Systems.

Norsat also became a leading provider of Ka-band satellite terminals for various consumer Internet applications through its relationship with SES Astra and Koreasat.

In October 2000, the Company began trading on NASDAQ. It was later de-listed in 2003.

In June 2001, the Company received a $9.4 million Technology Partnerships Canada investment for the development of satellite interactive terminals.

In December 2001, the Company signed a contract for its pico-terminals with an Asian military. This was completed in October 2002.

The Company introduced a compact IP encapsulator that enables the transport of Internet content at very high speeds (i.e 200 Mbps) for both the satellite and cable markets.

The Company built on its portable terminal experience by introducing a commercial grade flyaway terminal for news gathering organizations. It sold its first NewsLink system to CBS News.

In May 2003, Norsat appointed SEG a master reseller for some if its microwave components.

The OmniLink family of portable satellite terminals which includes the NewsLink and SecureLink systems were launched, providing rapidly deployable broadband satellite data and video connectivity for a wide range of applications.

The Company launched the GLOBETrekker, a backpackable satellite terminal initially capable of transmitting and receiving IP-based video and data content.

The Company was issued United States Patent No. 6,931,245 entitled “Downconverter for the Combined Reception of Linear and Circular Polarization Signal from Collocated Satellites.”

In May 2006, the Company was awarded a GSA schedule, facilitating the purchase of its systems by various government agencies. In September 2006, the Company relocated its international headquarters to Richmond, British Columbia.

The Company launched a line of Low Noise Amplifiers, the GlobeTrekker X-band and the Rapid Application Development Environment variant of the GlobeTrekker, which includes an environmentally-controlled baseband enclosure that is compatible with most commercial and specialized modems.

In addition, the Company introduced the Extended Ku-Band Transmitter and unveiled the Norsat Rover, a single backpack portable satellite terminal.

The Company received a United States patent for the GLOBETrekker ^TM design and a European patent for its frequency selective surface waveguide filter design.

During 2007, the Company made net purchases of property and equipment in the amounts of $123,495 primarily relating to the purchase of an upgraded ERP system and test equipment. There are currently no major capital projects or divestitures in progress.

Norsat designs, develops and markets satellite ground equipment, which enables high speed transmission of data, audio and video over commercial and military satellites. The Company’s equipment is located on earth and thus falls under the broad category of “satellite ground

equipment.” Norsat concentrates on ground equipment that is central to the transmission and reception of content for commercial and military applications, as opposed to consumer applications such as direct-to-home broadcasting.

While Norsat’s products have traditionally addressed the US government and broadcast television markets, there is growing interest from other NATO militaries; high-end commercial enterprise customers benefiting from the growth in commodity prices and the transportation companies who serve them; and commercial enterprise and government customers seeking to implement business continuity programs. Currently, approximately 75% of sales continues to be earned from the US military sector. As a result, sales can have significant swings from quarter to quarter due to the timing of orders from the US government.

The Company generated revenues from external customers located in the following geographic locations:

The Company’s portfolio of satellite ground equipment comprises primarily of microwave components and portable satellite systems. These components and systems are designed to interoperate with geostationary satellites orbiting the earth.

Norsat operates two strategic business segments: Microwave Products and Satellite Systems. While both business segments provide core elements of the satellite ground infrastructure, the characteristics and dynamics of the markets in which the two business segments operate are unique.

Microwave components enable the transmission, reception and amplification of signals to and from satellites. The Company’s product portfolio of microwave components includes a comprehensive range of satellite receivers (LNBs), transmitters (BUCs), solid-state power amplifiers (SSPAs) and other customized products.

Low Noise Block down converters (“LNBs”), are required by every satellite antenna (or “dish”) irrespective of aperture or location. The LNB is mounted at the focal point of the dish to convert incoming microwave signals into electrical signals that are routed to the remote receiver or indoor unit. Reliability is critical for these products as they are used in remote areas around the world.

Satellite transmitters or Block Up Converters (“BUCs”) convert electrical signals into microwave signals that can be transmitted to an orbiting satellite.

The Company’s primary customers include resellers, system integrators, antenna manufacturers and service providers located in North America, Europe and Asia. These customers integrate Norsat’s components into a complete satellite solution for end user customers located all over the world. On the microwave components side of the business, the Company will be focusing on the solid-state amplifier line and on military satellite components.

The primary competition for this business unit comes from New Japan Radio Corporation and to a lesser extent from the Company’s own suppliers.

Portable satellite systems provide rapidly deployable broadband connectivity over satellite where traditional communications infrastructure is insufficient, unreliable, damaged or non-existent. The Company’s product portfolio of portable satellite systems includes the Norsat GLOBETrekker and OmniLink satellite systems.

The GLOBETrekker ^TM is an intelligent, ultra-portable satellite system that enables users to establish a reliable broadband connection on short notice. It is designed to be carried in a backpack, is airline checkable, and fits in small vehicles. The GLOBETrekker ^TM is ideal for users who are highly mobile. Examples of such users include Special Forces, first responders, business continuity managers, Search and Rescue personnel and journalists.

The Norsat Rover is a complete satellite terminal that fits into a single extended-mission backpack. The Norsat Rover offers a complete terminal that is capable of data transfer rates of approximately 1.0 Mbps and is still compact enough to fit into a single backpack.

The OmniLink™ product family also addresses the demanding needs of users seeking to establish broadband connectivity on a temporary basis but for longer periods of time. This product line is ideal for use by government and peacekeeping agencies, broadcasters, resource exploration companies, distance education institutions, financial institutions, and large corporations.

The market for portable satellite communications comprises users that need to establish broadband connectivity on short notice or redeploy their telecommunications infrastructure following an engagement. The primary markets for portable satellite systems are defense, emergency services (first responders, homeland security), and broadcasters. There has been growing interest from Fortune 1000 companies to employ such systems as part of a business

continuity program wherein such systems would be used as a “backup measure” should their primary means of communications fail in the event of a natural disaster, an outage or a terrorist attack.

The overall market is going through a significant transformation due to the growth in the government sector. This change in demand is attributable to measures being taken by governments and corporations to counter the threat of terrorism.

The improved demand for portable satellite communications equipment stems from an initiative to “transform” the armed forces. With the onset of Operation Iraqi Freedom in 2003, the need to accelerate the “transformation” has become a top priority. Under this initiative, field units are being equipped with communications gear that will give them real-time access to the same information available at command and control centers.

Most programs within the government and broadcast sectors tend follow a formal competitive tendering process. From time to time, the government may indicate a preference for certain classes of vendors in the interest of social policy or national security objectives. As a result, it is critical that a vendor such as Norsat align themselves with such pre-qualified contractors.

The formality of the procurement process in the commercial sector tends to vary with the size of the company’s operations; larger companies tend to involve a lengthier sales cycle.

The competitive pressures in the United States Government market for portable satellite systems are markedly different from the broadcast and commercial markets. While there are some pricing pressures, they are less pronounced; system reliability, performance records and relationships with program offices are significantly more important. In this sector, the Company faces competition from GSC, a subsidiary of L3 (NYSE: LLL), TCS (NASDAQ: TSYS), Globecomm Systems (NASDAQ: GCOM) and privately held Gigasat. From time to time, the Company also faces competition from Swe-Dish, a subsidiary of Datapath, a privately held company. At times, the Company also faces competition from systems integrators who construct systems on a custom basis for the military including Thales, Finmecchanica, EADS, Lockheed Martin and Raytheon.

In the broadcast and commercial markets, the Company faces competition from terrestrial alternatives such as microwave radio vendors and the traditional providers of portable satellite systems including: Swe-Dish, VisLink PLC’s Advent business unit, Gigasat and Holkirk Communications. The Company also faces competition from service providers such as Caprock (www.caprock.com) and Spacenet, a subsidiary of Gilat.

The Company sells most of its microwave components and portable satellite system, other than those bound for the US Government, through resellers. Almost all of the portable satellite systems sold to the US Government have been through the Company’s direct sales force.

The Company’s primary value proposition is rooted in its longevity and reputation for quality. Customers with critical applications tend to place significant value in the quality of Norsat products and the after-sales support infrastructure.

The Company continues to evolve its business model by (i) adding a recurring component through a

range of services, to its revenue stream, (ii) undertaking the turnkey responsibility to deliver a comprehensive solution instead of selling point products, and (iii) diversifying its base of customers to include non-defence customers.

Research and development activities and projects were focused on completing the GLOBETrekker family of products, modifying microwave components for various applications and submitting a number of patent applications. The Company spent approximately 4.5% of its annual revenues and allocated 20% of its staff towards research and development activities.

The Company relies on patent, trademark, trade secret and copyright laws to protect our proprietary technology and to protect us against claims from others. The Company believes it has direct intellectual property rights covering substantially all of our material technologies. However, there can be no assurance that claims of infringement will not be asserted against the Company or against its customers in connection with their use of our systems and products, nor can there be any assurance as to the outcome of any such claims, given the technological complexity of our systems and products.

The Company has renewed interest in employing patent protection due to competition in its markets. The Company has a patent portfolio of 4 patents. Five patent applications were filed in 2007, three are pending. The Company does not believe that any single patent is material to our business as a whole.

As of December 31, 2007, the Company has two wholly-owned and active subsidiaries. These include Norsat International (UK) Ltd. incorporated and located in England and Norsat International (America) Inc. incorporated and located in the United States of America

The mandate of Norsat International (UK) Ltd. is to market and support microwave component products sold into the Europe Middle East and Africa region.

The mandate of Norsat International (America) Inc. is to market and support satellite systems into certain government markets.

On January 17, 2008 Norsat Korea Ltd. was granted incorporation status in the Republic of South Korea. The mandate of Norsat Korea Ltd. is to perform research and development work and leverage lower cost production technologies for the microwave segment of the business.

Our Company's head office and principal place of business has been located in Richmond, British Columbia, Canada since September 2006. The Company leases its head office premises.

The lease is for approximately 23,400 square feet of space. This location houses the Company's corporate office, engineering and production department and includes warehouse space. Most of the products are produced and shipped out of this location.

The monthly rent for this space is approximately $35,000 and is for a term of five years. The Company has the option for a further five-year term at the end of this lease, with a new rate to be negotiated.

In addition to the minimum rent, the Company is responsible to pay maintenance, utilities and taxes.

Norsat also operates out of leased premises in Lincoln, England, and Maryland, USA.

There are no known environmental issues that may affect the Company’s utilization of its assets at any of the above locations.

The following information should be read in conjunction with the Company’s 2007 consolidated financial statements and related notes included therein, which are prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). These principles differ in certain respects from United States generally accepted accounting principles (U.S. GAAP). The differences as they affect the financial statements of the Company are described in Note 23 (restated) to the Company’s audited consolidated financial statements. All amounts following are expressed in Canadian Dollars unless otherwise indicated.

The Company generates revenue from two business segments, Microwave Products and Satellite Systems as described herein. The Company’s annual and quarterly operating results are primarily affected by the level of its sales and costs of operations over these two business segments. Economic factors such as foreign exchange fluctuations, market prices of similar products and worldwide political environment may also play an important roll to affect the Company’s operating performance and volatility of its share price. To management’s knowledge, there are no known economic, political, foreign exchange fluctuations and inflation that have materially affected, directly or indirectly the Company’s operations.


*Quarterly Financial Data (unaudited)* *(Expressed in thousands of dollars, except per share amounts)*
	Three Months Ended (unaudited)
	Mar 31	Jun 30	Sep 30	Dec 31
*2007*	$	$	$	$
Sales	4,408	4,527	3,954	4,692
Earnings from operations before income taxes	541	580	175	227
Net earnings	541	578	175	227
Earnings per share from operations – basic and diluted	0.01	0.01	0.00	0.00
Earnings per share – basic and diluted	0.01	0.01	0.00	0.00
Weighted average common shares outstanding	#	#	#	#
Basic	50,628	50,558	50,584	50,599
Diluted	53,855	55,371	55,769	55,806

*2006*	$	$	$	$
Sales	2,919	3,764	3,149	5,424
(Loss) earnings from continuing operations	(1,782)	(1,068)	(2,030)	481
Net (loss) earnings	(1,782)	(1,068)	(2,030)	532
(Loss) earnings per share from continuing operations	-	-	-	-
Basic and diluted	(0.04)	(0.02)	(0.04)	0.01
(Loss) earnings per share – Basic and diluted	(0.04)	(0.02)	(0.04)	0.01
Weighted average common shares outstanding	#	#	#	#
Basic and diluted	44,003	47,063	47,063	48,557

Total sales for 2007 were $17.6 million, up from the $15.3 million earned in 2006. Sales from Microwave Products were $9.8 million, up 9% from the $9.0 million in sales recorded in 2006. Sales of Satellite Systems were $7.8 million, up 24%, compared to $6.3 million in 2006. The improvement was primarily a result of Norsat’s increased penetration of the market and higher sales from the Company’s reseller channels. Norsat will continue to grow the reseller sales channel to improve market reach.

Due to the nature of the Company’s business, management expects sequential sales will be uneven. Norsat has a relatively small base of customers who often place orders that represent a significant share of sales for a given quarter, and the timing of these orders is unpredictable.

The overall gross margin for 2007 was 52% compared to 41% in 2006. The gross margin for Microwave Products was 48% compared to 43%. This increase was partially due to new product introductions at higher margins in 2007. The gross profit margin for the Satellite Systems increased to 58% in 2007 compared to 38% in 2006. Gross margins improved in 2007 as a result of increased sales of higher margin services and ancillary products. Margin improvements were due to a conscious effort to become a total solutions provider for customers.

For the year ended December 31, 2007, total operating expenses decreased by 32% to $6.8 million from $10 million in 2006. Throughout the year, the Company’s management team, appointed by the Board of Directors in September 2006, continued to focus on meeting customers’ needs and developing strong partnerships with resellers in key markets, while maintaining tight cost controls.

Selling, general and administrative (SG&A) expenses decreased to $5.7 million in 2007 from $7.7 million in 2006. This was mainly due to the success of the cost restructuring initiatives the Company implemented in the fourth quarter of 2006. The savings achieved included a $0.6 million decrease in rent expenses, a $0.8 million reduction in salaries and consulting fees and $0.6 million decrease from other administration expenses including insurance premiums, supplies and materials costs.

Product development expenses decreased to $0.8 million in 2007 from $1.8 million in 2006. The reduction in product development expenses was a result of the Company’s strategy to offload development expenses to strategic suppliers and partners. The Company continues to take responsibility for its core R&D activities, and plans to continue to lead the market with introductions of innovative new products.

Amortization expense in 2007 was $0.4 million, down from the $0.5 million for the year ended December 31, 2006.

Earnings from operations before taxes and other expenses were $2.3 million in 2007, compared to a loss of $3.8 million in 2006. The improvement was mainly due to increased sales in both business segments, accompanied by reduced administrative costs such as rent, staff, and insurance premiums.

Other expenses for the year ended December 31, 2007 were $0.8 million compared to $0.6 million during 2006. Although interest expense was reduced, the primary factor contributing to the year-over-year increase was a larger loss in foreign exchange compared to the same period last year, as a result of the strengthening Canadian dollar against the US dollar.

The combined effect of the above was net earnings of $1.5 million or $0.03 per share in 2007, compared to a net loss of $4.4 million or ($0.09) per share in 2006.

The Company prepares its consolidated financial statements in accordance with Canadian and United States generally accepted accounting principles and makes estimates and assumptions that affect its reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable in the circumstances. Actual results may differ from these estimates.

Management has discussed the development and selection of the Company’s critical accounting estimates with the Audit Committee of the Company’s Board of Directors, and the Audit Committee has reviewed the following disclosures.

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

The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any of its customers are unable to make required payments. Management specifically analyzes the age of outstanding customer balances, historical bad debt experience, customer credit-worthiness and changes in customer payment terms when making estimates of collectability of the Company’s accounts receivable balance. If the Company determines that the financial condition of any of its customers has deteriorated, increases in the allowance may be made. At December 31, 2007 the Company has

recorded an allowance for doubtful accounts in the amount of $0.04 million (2006 – $0.2 million) as a reduction to accounts receivable.

The Company values its finished goods and work-in-process inventories at the lower of weighted average cost and net realizable value. Net realizable value reflects the current estimated net selling price or value in use of the item in inventory in a non-forced sale. The Company assesses the need for inventory write-downs based on its assessment of estimated net realizable value using assumptions about future demand and market conditions. When the results of these assumptions differ from the Company’s projections, an additional inventory write-down may be required. In addition, changes in the underlying factors used in the Company’s projections may necessitate additional write-downs in the future. Market factors are generally outside of the Company’s control. At December 31, 2007 the Company has recorded an estimate for obsolescence provision in the amount of $1.3 million (2006 - $1.9 million) as a reduction to inventory.

Revenues consist of sales of hardware, software, consulting, implementation, training and post-contract services. These services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary as a result of the inclusion or exclusion of services. For those contracts where the services are not essential to the functionality of any other element of the transaction, the Company determines vendor-specific objective evidence (“VSOE”) of fair value for these services based upon normal pricing and discounting practices for these services when sold separately.

The Company’s multiple-element sales arrangements include arrangements where software licenses and the associated post contract customer support (PCS”) are sold together. The company has established VSOE of the fair value of the undelivered PCS element based on the contracted price for renewal PCS included in the original multiple-element sales arrangement, as substantiated by contractual terms. The Company’s multiple-element sales arrangements generally include rights for the customer to renew PCS after the bundled term ends. These rights are irrevocable to the customer’s benefit, are for specified prices, are consistent with the initial price in the original multiple-element sales arrangement, and the customer is not subject to any economic or other penalty for failure to renew. Further, the renewal PCS options are for services comparable to the bundled PCS and cover similar terms.

PCS revenue associated with software licenses is recognized ratably over the term of the PCS period, which typically is one year. PCS revenue includes different support levels that provide customers with access to telephone support for trouble-shooting, diagnosis and extends to on-site repair of products.

Effective January 1, 2005, the Company adopted the new provision of the CICA Handbook Section 3870, “Stock-Based Compensation and Other Stock-Based Payments’, which requires companies to adopt the fair value based method for all stock-based awards. In accordance with the provisions of this section, the Company has accounted for all director, officer and employee (“employee”) stock options granted, settled, or modified since September 1, 2002 using the fair value method. The fair value method requires the Company to expense the fair value of the employee options granted and vested, or modified during the period. The Black-Scholes Option Pricing Model was used to determine fair value.

Prior to the adoption of the new standard, no compensation expense was recognized

when stock options were issued to employees at the market value of the shares at the date of the grant. Consideration paid by employees on the purchase of shares under the employee share purchase plan and exercise of stock options was recorded as share capital.

The Company follows the liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases. The resulting changes in the net future income tax asset or liability are included in income. Future income tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the year in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is included in income when a change in tax rates is substantively enacted. Future income tax assets are evaluated periodically and if realization is not considered “more likely than not” a valuation allowance is provided.

On March 28, 2007 the Company received a bridge loan of Cdn$150,000 from an officer of the Company subjected to certain terms and conditions as follows:

Interest at the rate of 8% per annum over the balance of the loan, payable at the end of the term, or on the day of loan retirement,

Payment in full May 31, 2007, or partial payments within the 60 day term at discretion of the Company.

On April 24, and June 12, 2007 the Company received bridge loans of Cdn$250,000, and Cdn$200,000 respectively from the same officer of the Company subjected to certain terms and conditions as follows:

Interest at the rate of 8% per annum over the balance of the loan, payable at the end of the term, or on the day of loan retirement,

Payment in full on or partial payments within the 9 day term at discretion of the Company.

On November 14, 2007 the Company received a bridge loan of Cdn$450,000 from the same officer of the Company subjected to certain terms and conditions as follows:

Interest at the rate of 8% per annum over the balance of the loan, payable at the end of the term, or on the day of loan retirement,

Payment in full on or partial payments within the 9 day term at discretion of the Company.

On November 22, 2007 the Company renewed this bridge loan with the same interest rate, but maturing on November 27, 2007.

CICA Handbook Section 1535 – “Capital Disclosures” (“Section 1535”) and Sections 3862 and 3863 – “Financial Instruments – Presentation” (“Sections 3862 and 3863”). Section 1535 requires a company to disclose information that enables users of its financial statements to evaluate the Company’s objectives, policies and processes for managing capital, including disclosures of any externally imposed capital requirements and the consequences of non-compliance. Sections 3862 and 3863 require an increased emphasis on disclosures about the nature and extent of risk arising from financial instruments and how a company manages these risks.

CICA Handbook Section 3031 “Inventories”, which replaces Section 3030, of the same name. The new section provides guidance on the basis and method of measurement of inventories and allows for reversal of previous write-downs. The section also establishes new standards on disclosure of accounting policies used, carrying amounts, amounts recognized as an expense, write-downs and the amount of any reversal of any write-downs.

The accounting Standards Board of the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced with International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. Early conversion to IFRS for fiscal years beginning on or after January 1, 2009 will also be permitted.

In 2007, the Company has adopted Section 1530, “Comprehensive Income”, Section 3251, “Equity”, Section 3855, “Financial Instruments – Recognition and Measurement”, Section 3861, “Financial Instrument – Disclosure and Presentation”, and Section 3865, “Hedges” and Section 1530, “Comprehensive Income”.

The Company has also adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48”) for US GAAP purposes.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-based Payment (“SFAS 123(R)”), which replaces SFAS No. 123 and supersedes APB Option 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on the grant date fair value. Pro forma disclosure is no longer an alternative. This Statement is effective for public companies in their first fiscal year beginning after June 15, 2005. The Company adopted SFAS 123 (R) effective on January 1, 2006 for US GAAP purposes using the modified-prospective transition.

Gross revenue for 2006 was $15.3 million, down from the $18.1 million earned in 2005. Sales from Microwave Products were $9.0 million, down by 11%, compared to $10.1 million in 2005, mainly due to continued market price erosion. Sales of Satellite Systems were $6.3 million, down by 22%, compared to $8.1 million in 2005. This was largely due to lower sales to the US military.

The overall gross margins in 2006 were 41% compared to 45% in the prior year. The gross profit margin for Microwave Products was 43% in line with the prior year of 45% due to continuing initiatives to achieve significant reductions in the cost of products. The gross profit margin for the Satellite Systems reduced to 38% in 2006 from 44% in 2005 mainly due to physical count variance and a large obsolescence provision reflecting slower inventory turns resulting from over purchase at the end of 2005 and the beginning of 2006 based on the unrealistic forecasts of 2006 sales.

Selling, general and administrative (SG&A) expenses decreased by 20% to $7.7 million in 2006 from $9.6 million in 2005. Selling and marketing efforts continue to be focused on our customers needs, and on developing strong partnerships with resellers in key markets. In 2006 the Company also focused on improving efficiency by reducing administrative costs. The decreases were comprised of travel-related expense of $0.3 million, salaries and consulting fees of $1.7 million. The salary reductions were a result of staff reductions, which were partially off set by severance packages totaling $0.3 million. Other administrative expenses reduced were rent and insurance in the fourth quarter. Administrative expenses included a charge for stock based

compensation of $0.06 million in 2006 compared with a charge of $0.8 million in 2005. This decline is due to forfeitures caused by a change of the executive team, partially offset by new grants in 2006.

Product development activities decreased by 22% to $1.8 million in 2006 from $2.3 million in 2005. The significant decrease reflects the capitalization of parts and supplies expensed in the prior year.

Amortization expenses reduced to $0.5 million compared to $0.6 million in 2005. The Company purchased an ERP system in 2006. However, amortization did not commence until implementation.

On-going development activities are focused on projects generating near-term revenue from our line of portable terminals and modifications to the existing line of microwave products.

Loss from continuing operations before other expenses was $3.8 million compared to a loss of $4.4 million in 2005. In order to improve the bottom line, operating costs were significantly reduced in the fourth quarter by a reduction in administrative expenses such as rent, staff, insurance.

Other expenses for 2006 were $0.6 million compared to $1.5 million during 2005. The decrease was due to the write off of goodwill of $0.4 million in 2005 related to a business (IMT Communications) acquired in 1998. Other expenses in 2005 also included a $0.4 million charge from a reduction in the convertible price of long term debt.

The combined effect of the above resulted in a net loss from continuing operations for 2006 of $4.4 million or ($0.09) per share compared to net loss of $ 5.9 million or ($0.14) in 2005.

The Company’s consolidated financial statements have been prepared on a going concern basis, which presumes the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern basis is dependent upon the Company having sufficient available cash resources and achieving profitable operations to generate sufficient cash flows to fund continued operations. Should the Company fail to generate sufficient cash flows from operations, it will require additional financing to remain a going concern.

The Company’s principal cash requirements are for working capital, capital expenditures, and interest payments on the Company’s debt.

Norsat’s cash balance as at December 31, 2007 was $0.7 million, a decrease of $1.1 million from $1.8 million as at December 31, 2006. This decrease was a result of the $2.0 million debt payment in the second quarter of 2007. During the three months ended December 31, 2007, cash from operations totaled $0.5 million.

The Company’s working capital requirements are mainly for production materials, selling, operations and general administrative expenses.

As at December 31, 2007, the Company had working capital totaling $4.8 million, compared to $2.3 million as at December 31, 2006. Working capital increased by $2.5 million, mainly due to the reduction of convertible debt obligations which had been classified as current liabilities coupled with an increase in accounts receivable.

Warrants that were set to expire on March 3, 2008 were exercised prior to the expiry date. There were 3,065,232 warrants outstanding, of which 2,915,235 were redeemed. At the strike price of US$0.475. Proceeds of the warrant exercise was Cdn$1,358,139 (US$1,384,737). These funds combined with the working capital levels as at December 31, 2007 is sufficient to meet the current requirements of the Company.

Accounts receivable, which was $3.4 million as at December 31, 2007, increased $0.6 million as compared to $2.8 million as at December 31, 2006. This increase was a result of a large satellite contract delivered to the Irish Department of Defense at the end of December 2007.

Accounts payable and accrued liabilities were $2.8 million, a decrease of $0.7 million, compared to $3.5 million as at December 31, 2006, reflecting a shorter accounts payable cycle.

Inventory as at December 31, 2007 was $4.2 million, an increase of $0.7 million, compared to $3.5 million as at December 31, 2006. The Company’s inventory level for Microwave Products is replenished on a just-in-time basis. The inventory turns for Satellite Systems are regularly slower than microwave products due to a longer lead time for certain parts. In order to achieve improved efficiency in its inventory control and cash management, the Company continues to focus on reducing its satellite system inventory level, which had built up due to over purchasing in the previous year.

Shareholders’ equity increased to $5.7 million compared to $3.6 million at December 31, 2006 reflecting the result of profitability achieved in each quarter of 2007.

During 2005 Norsat introduced the first commercially produced phase locked loop low noiseblock downconverters (PLL LNB’s) operating at X and Ka frequency bands and released its new line of solid state power amplifiers. Norsat expanded its portfolio of microwave products to include Block-up Converters in the extended Ku-band, Ka and X-band low noise block down-converters, and custom block down-converters.

During 2006, Norsat started shipping the new GLOBETrekker line of products. GLOBETrekker is an intelligent ultraportable satellite system that enables users to establish a reliable broadband connection on short notice. GLOBETrekker is designed to be carried in a backpack, is airline checkable, and fits in small vehicles.

These strategic product development activities resulted in the following research and development expenditures: 2007 - $0.8 million, 2006 - $1.8 million, 2005 - $2.3 million. The Company was focused on development of the new GLOBETrekker product line in 2005 and 2006. There were no major research and development costs incurred during 2007.

The overall market for broadband satellite communications has gone through a significant transformation due to the growth in the government sector. While the U.S. comprises more than 70% of the worldwide government market, there is healthy demand for satellite broadband equipment in many other countries throughout Europe and Asia. This demand is attributable to measures being taken by governments and corporations to counter the threat of terrorism and to the increasingly multilateral composition of combat and peacekeeping missions around the world.

Another favourable trend enabling these opportunities is the growing acceptance of COTS (“Commercial-Off-The-Shelf”) equipment among militaries. Both of Norsat‘s business segments are benefiting from this change in policy.

Customers are increasingly price sensitive for microwave components. The Company continues to face aggressive new competitors and is attempting to find ways to further reduce product costs without sacrificing quality. Certain competitors have decided to merge and others have decided to focus on certain niches. We expect consolidation to continue among our competitors.

There is an emerging need to provide broadband connectivity to users in military and broadcast markets who are “on-the-move.” For example, broadcasters are seeking satellite terminals mounted on vehicles so that they can cover news stories, special and sports events on a local, regional and global basis.

The following table presents the aggregate amount of future cash outflows for contractual obligations as of December 31, 2007 under various purchasing commitments, loan commitments and operating lease agreements for each of the next five years:

Rent expense for the Company was approximately $441,000 (2006 - $828,000; 2005 - $960,000).

In the normal course of operations the Company enters into purchase commitments. The Company has accrued for estimated losses, if any, when determinable, including losses on disputed purchase commitments with suppliers. Included in 2007 commitments are inventory and material purchases of $2.6 million.

Statements in this report relating to matters that are not historical fact are forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, general economic

conditions, changes in technology, reliance on third party manufacturing, managing rapid growth, global sales risks, limited intellectual property protection and other risks and uncertainties described in Norsat’s public filings with securities regulatory authorities.

Mr. Ugo A. Doninelli became a director of Norsat in May 1988. He is the General Manager and President and CEO of Prismafin S.A., an international investment organization with offices in Chiasso and Zurich, Switzerland. He exercises direction over the 2,135,903 Norsat common shares held by Prismafin S.A. He also serves as a Director and Chairman of the Board for Lifeware SA Lugano, Chiasso, Zurich/Switzerland and Frankfurt A.M. in Germany as third Party Administrator for Life Insurance Companies.

Mr. Sharpe became a director of Norsat in May 2005. James Sharpe has over twenty-five years of senior-level management experience in the public and private sectors as a chief executive officer and as a chief financial officer for small to large complex organizations. He is currently the President of Sharpe Associates, a Washington State firm that provides a wide spectrum of financial management services to small and medium-sized private firms, and public entities. Mr. Sharpe holds a BA in accounting from the University of Washington, an MBA from Pepperdine University and a MS in International Business from the University of Strathclyde, Scotland.

Mr. Caprio became a director of Norsat on April 30, 2005. Mr. Caprio is a former Dean at Colgate University, Hamilton, NY and has served as a management consultant and as an operating officer of several businesses. Mr. Caprio holds a BS degree in management from the University of Rhode Island, and a MA degree from Colgate University, Hamilton, NY.

Mr. Hoyle became a director of Norsat in May 2005. Chris Hoyle has over twenty years experience of practising as a telecommunications and IT lawyer including service as an in-house legal counsel for IBM (UK) and as a partner at KLegal, the then legal arm of KPMG. He is currently a partner at Beachcroft LLP in the UK. Mr. Hoyle holds a Masters degree in Law from Cambridge University, a LLB (Hons) degree from the University of Canterbury, New Zealand and a Diploma in Intellectual Property Law from the University of London.

Dr. Amiee Chan was appointed as the President and CEO, on September 8, 2006. Amiee Chan was Product Manager at CREO from October 2002 to March 2004 and Director of Research and Development at Norsat from April 1998 to May 2002. Dr. Chan has been with the Company for twelve years. She rejoined the Company in April 2004 as VP of Operations. Dr. Chan holds an MBA, PhD in Electrical Engineering and a BASc in Electrical Engineering. Dr. Chan is an innovator and leading authority in her field with a number of credited publications and patents. She also has extensive experience in strategic planning and budgeting, product development, technology commercialization and product portfolio management.

Mr. Witten was appointed as Vice President, Sales on September 8, 2006,. Mr. Witten’s mandate includes global sales management for the Company and the overseeing the Company’s Virginia subsidiary, Norsat International (America). Mr. Witten has held progressively senior positions with AT&T, MCI, Loral Skynet, Newpoint Technologies and Telecommunications Systems Inc. Mr. Witten joined Norsat as Director of Sales in 2004. Mr. Witten holds a Bachelor of Computer Science degree from American University. Mr. Witten has over thirty years of telecommunications and satellite communications experience. His experience spans tactical deployable systems, distance learning, wireless broadband, voice over IP and microwave systems. Mr. Witten reports to Dr. Chan.

Mr. Siddiqui was appointed as Vice President, Marketing September 8, 2006. Prior to joining Norsat, Mr. Siddiqui worked in the international marketing department of the Microwave Communications Division at Harris Corporation (NYSE: HRS); and in general management at Inzigo, Inc., a New York-based speech recognition company and at Succeed Corporation, a software company focused on consumer applications. Mr. Siddiqui was previously the Director, Marketing at Norsat and is responsible for product management, channel management, marketing communications and investor relations. Mr. Siddiqui holds a Bachelor of Commerce degree from McGill University, and serves on the Board of Directors of the Canadian Mental Health Association (Vancouver/Burnaby). Mr. Siddiqui reports to Dr. Chan.

Mr. Schefter was promoted to this role in August 2006, having been with the Company and its predecessors IMT Comsys and MPR Teltech for seventeen years. Mr. Schefter has held a number of engineering positions including Systems Engineer, Manager, Systems Engineering Group, Project Manager and Manager, Mechanical Engineering Group. He has spearheaded a number of advanced SATCOM projects for the Canadian Space Agency and the European Space Agency and has served as the project manager for the Ka/Ku band terminal development for SES-Astra, development of the Norsat Omnilink and the GLOBETrekker line of portable satellite terminals. Mr. Schefter also volunteered his services with Medecins Sans Frontiers in Cambodia as a project logistician for a full year. Michael Schefter holds a Bachelor of Science in Mathematics and Engineering from Queen’s University.

Ms. Zhai was appointed as the interim CFO on September 19, 2006, and subsequently was appointed as the CFO and Corporate Secretary on January 2, 2007. She resigned as CFO and Corporate Secretary on June 27, 2007.

Mr. James Sharpe, Chairman of the Audit Committee served as the Acting CFO for the balance of 2007, while the Company was in the process of recruiting for a replacement for Ms. Zhai.

Mr. Syho was appointed as Chief Financial Officer on January 21, 2008. Prior to joining Norsat, Mr. Syho was the Director of Finance and CFO of Stylus Limited Partnership, one of six businesses included in TSX-listed Terravest Income Fund’s portfolio of companies; and in controllership roles at Specialty Building Products, a subsidiary of Masonite,Inc. and at International Forest Products Mr. Syho has a Certified Management Accountant designation, holds an Executive Masters in Business Administration and a Bachelor of Science. Mr. Syho reports to Dr. Chan.

The following table is the directors’ fee structure for the fiscal year ended December 31, 2007:

An additional fee of $500 is paid to each director for each directors meeting attended.

During the Company’s fiscal year ended December 31, 2007, the aggregate cash compensation paid or payable by the Company or its subsidiaries to its directors, all of whose financial statements are consolidated with those of the Company, was $67,000.

The following table sets forth all annual and long-term compensation earned from the Company and its subsidiaries for the year ended December 31, 2007 by each director:

During the Company’s fiscal year ended December 31, 2007, the aggregate cash compensation paid or payable by the Company or its subsidiaries to its top five named executive and non-executive officers, all of whose financial statements are consolidated with those of the Company, was $732,643.

The following table sets forth all annual and long term compensation granted by the Company and its subsidiaries for the year ended December 31, 2007, 2006 and 2005 to each member of senior management:


		Annual Compensation			Long Term Compensation
					Awards		Payouts
Name and Principal Position (a)	Year (b)	Salary ($) (c)	Bonus ($) (d)	Other Annual Compensation ($) (1) (e)	Securities Under Options/ SARs Granted (#) (f)	Restricted Shares or Restricted Share Units ($) (g)	LTIP Payouts ($) (h)	All Other Compensation ($) (i)
Dr. Amiee Chan President and Chief Executive Officer (Former Chief Operating Officer)	2007	160,000	N/A	6,000	N/A	N/A	N/A	8,000
	2006	152,500	26,063	6,100	200,000	N/A	N/A	9,055
	2005	141,453	39,695	4,500	15,000	N/A	N/A	9,213
Cathy Zhai (6) Former Chief Financial Officer and Corporate Secretary	2007 2006	61,385 37,500	N/A 6,300	3,095 N/A	100,000 25,000	N/A N/A	N/A N/A	3.092 2,184
William R. Witten (2) Vice President, Sales	2007 2006	166,889 154,375	N/A N/A	6,460 N/A	N/A 75,000	N/A N/A	N/A N/A	62,730 146,309
Pervez Siddiqui Vice President, Marketing	2007 2006	110,000 106,667	N/A 6,621	6,000 1,500	N/A 75,000	N/A N/A	NA N/A	5,500 6,764
Michael Schefter (NEO) Director, Engineering	2007 2006	115,000 105,000	13,892 5,550	N/A N/A	N/A N/A	N/A N/A	N/A N/A	4,600 5,454
William Coyne III (3) Former President and Chief Executive Officer	2006	91,817	12,759	4,782		N/A	N/A	145,043
	2005	132,045	53,747	8,640	100,000 / Nil	N/A	N/A	Nil
George Dorin (4) Former Chief Financial Officer and Corporate Secretary	2006	109,984	27,267	5,700	N/A	N/A	N/A	62,139
	2005	42,087	9,267	Nil	Nil / Nil	N/A	N/A	2,087
William Comerford (5) Former Vice President, Global Sales	2006	101,752	NA	Nil	N/A	N/A	N/A	60,958
William Comerford (5) Former Vice President, Global Sales	2005	56,639	14,696	Nil	70,000 / Nil	N/A	N/A	Nil

Mr. William Witten was a contractor. Included in his salary were contractor fees. Included in his other compensation was commission paid out through the year. He became a full –time employee commencing January 1, 2007.

Mr. Bill Coyne was terminated on September 8, 2006. His other compensation included $142,094 (US$125,293) severance pay.

Mr. Dorin resigned on September 18, 2006. His other compensation included $51,100 severance pay.

Mr. Comerford was terminated on September 8, 2006. His other compensation included $49,617 (US$43,750) severance pay and $11,341(US$10,000) commissions.

The bonus amounts were paid pursuant to the Company’s Employee Compensation Plan. The plan remunerates employees based on successful completion of both personal and corporate objectives and each employee is tiered to a level to match their responsibilities within the Company.

Reference is also made to item C immediately below – specifically “Board practices - Change in Responsibilities and Employment Contracts”.

The Board of Directors is responsible for the stewardship of the Company and endorses a system of corporate governance designed to effectively manage and supervise the management of the business and the affairs of the Company. The Board also provides considerable guidance to Management in pursuit of the Company’s objectives.

The Board acknowledges that good corporate governance is important to the effective performance of the Company and plays a key role in protecting the interests of shareholders.

The Board continues to review the existing or proposed amendments to governance guidelines and practices in order to implement the most effective corporate governance policies and practices for the Company. The Board has adopted, and will continue to adopt changes to their governance guidelines and practices as necessary to comply with the United States Sarbanes-Oxley Act of 2002 and any new rules issued by the United States Securities and Exchange Commission, the Ontario Securities Commission, the Toronto Stock Exchange, and other applicable securities regulatory authorities.

In general, the Company’s management operates the business on a day-to-day basis. The Board approves the annual budget and strategic plans and reviews the performance of senior management against those standards. In addition, the Board approves all major acquisitions, dispositions, financings, both debt and equity, and changes in the structure of the Company. The Board also determines the responsibility and compensation of the Chief Executive Officer based on the recommendations of the Compensation Committee. The Board appoints the officers of the Company. The Directors also determine the directors’ compensation and consider the declaration of dividends.

The Board is currently composed of four directors, all four of whom are considered “independent” to the Company. An “independent” director is a director who is independent of management and is free from any interest and any business or other relationship which could, or could reasonably be perceived to materially interfere with the director’s ability to act with a view to the best interests of the Company, other than interests and relationships arising from shareholdings.

If vacancies occur on the Board, the Board as a group considers replacements and reviews the qualifications of prospective members and determines their relevance, taking into consideration the current Board composition and the skills required to round out the capabilities of the Board and makes recommendation to the board for approval. One position became vacant due to a resignation in September 2006.

The Board meets at least quarterly to carry out its duties and meets on an informal basis throughout the year to discuss the Company’s progress and management.

Management has been asked to make the Board aware on an ongoing basis of any significant shareholder concerns communicated to management. Currently the CEO & CFO respond to shareholder inquiries and direct appropriate matters to senior management. Senior management will meet with shareholders to discuss their concerns where appropriate.

The Board expects management to operate the Company in accordance with good, prudent business practices. Management is expected to report to the Board on financial and operating matters and to make the Board aware of all important issues and major business developments. The Board also expects management to find new business opportunities for business acquisitions and expansion and to make the appropriate reports to the Board regarding those opportunities.

Directors’ and Officers’ liability insurance coverage in 2006 was $5,000,000 which was reduced to $3,000,000 effective on May 1, 2007. Total premium amounted to $58,580 (2006 – 153,500, 2005 – $175,000).

The term of office for each of the present directors expires at the Annual General Meeting. The current directors have served as such as follows: Mr. Doninelli since May 1988; Messrs. Sharpe, Caprio and Hoyle since May 2005.

The Company’s Audit Committee is comprised of four directors: Messrs. Sharpe (Chair), Hoyle Caprio, and Doninelli, (each of whom is independent and an “unrelated” director). Each member of the Audit Committee considers himself financially literate and capable of reading and understanding financial statements, and Mr. Sharpe has an accounting degree and related financial expertise. The board has adopted a formal written charter for the Audit Committee under which the committee is responsible for, among other things, reviewing the Company’s annual and quarterly financial statements, financial reporting procedures, internal controls and performance and independence of the Company’s external auditors. The Audit Committee is directly responsible for the appointment, compensation and oversight of the auditors including pre-approving all non-audit services provided by the audit firm.

During fiscal 2007, the Audit Committee met four times to carry out its responsibilities. The committee schedules its meetings with a view to ensuring that it devotes appropriate attention to all of its tasks.

As part of its oversight of the Company’s financial statements, the committee reviewed and discussed with both management and the Company’s external auditors the annual financial statements, and with management the quarterly financial statements, prior to their issuance. Management advised the Audit Committee in each case that all financial statements were prepared in accordance with generally accepted accounting principles, and reviewed significant accounting issues with the committee.

On May 25, 2006 at the Annual General Meeting of Norsat Shareholders. Ernst & Young LLP was appointed as the auditor of the Company for the fiscal year ending December 31, 2006. Ernst & Young continued as the Company’s auditor for the fiscal year ended December 31, 2007.

The Audit Committee discussed with the external auditors matters relating to its independence, including a review of audit and non-audit fees and the disclosures made to the Committee pursuant to Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).

The Audit Committee reviewed and approved audit fees, audit related fees, tax fees and other services fees imposed by Ernst & Young LLP.

Taking all of these reviews and discussions into account, the Audit Committee recommended to the Board of Directors that the Board approve the inclusion of the Company’s audited financial statements in the Company’s annual report for the fiscal year ended December 31, 2007.

In January 2004 the Company introduced a “results oriented” compensation plan creating a significant variable component to compensation that is linked to key operating metrics. The Company’s compensation plan is comprised of a combination of base salary and benefits, an annual incentive compensation and long term equity participation through its Stock Option Plan. To ensure competitiveness, the Company participates in annual compensation surveys, conducted by independent consultants, of salaries, benefits and other incentive programs in the high technology industry in Canada.

Base salaries for the executives are targeted, on average at the 75th percentile of the comparator group (see above) and other relevant external market data as well as the individual’s skill performance, and experience. The Company’s benefit package is designed to be competitive with its peer group in the industry in terms of revenues and number of employees.

In recent history the Company has not provided a formal Performance Bonus Plan due to the lack of profitable performance. In January 2004, an annual incentive compensation plan (“2004 Bonus Plan”) was introduced to all employees based on the objectives previously discussed. Payments under this plan are determined based on the Company’s performance and success in achieving specific operating targets together with the performance of the employee relative to key individual performance objectives. The significant considerations in determining bonuses for the executive officers include revenue and income objectives as well as personal achievements that contribute to the Company’s success. Seventy percent of senior management’s bonus is determined by corporate results and thirty percent is based on individual performance.

On October 5, 2006, as a result of the executive compensation review, the Company’s Board of Directors passed a resolution to amend the executives’ bonus evaluation criteria establish in 2004 Bonus Plan. The new plan is designed to measure executives’ bonuses one hundred percent based on the Company’s performance. Furthermore, no bonus shall be paid to executives if the Company is not profitable.

As a result of profits in 2007, corporate bonuses of $298,305 for senior managers that was accrued for in 2007 and were paid out on February 28, 2008

The Board believes that all employees should have a stake in Norsat’s future and that their interests should be aligned with the interests of the shareholders. To this end, the Board determines the overall amount of the stock option grant and allocates such grants to directors, officers and employees, primarily based on whose decisions and actions are expected to have the greatest impact on the Company’s performance.

Options are issued at the market price of the stock at the date of the grant. The options typically have a five year term and vest after 2 years.

On December 6^th, 2006, the Board of Directors of Norsat (“Board”) approved the Amended Employee Share Ownership Plan (“ESOP”), which allows up to 1,998,750 Norsat common shares to be reserved for issuance to eligible employees.

The compensation of the Chief Executive Officer is reviewed annually and approved by the Board of Directors. On October 5, 2006, the Board of Directors reviewed and approved the newly appointed executives’ compensation packages.

The Company continued to focus on improving employee productivity by streamlining internal processes. In 2006, the Company reduced full-time staff by over 33% by outsourcing non-critical operation functions and focusing employees on activities directly related to our core-competency. In addition, the Employee Share Ownership Program (ESOP) was introduced in December 2006 to allow employees to share in the wealth they help create. The Company believes that the ESOP

improves competitiveness in that it increases productivity and that it maximizes human potential by instilling a sense of ownership.

In 2006, a number of employees were terminated as part of a cost reduction initiative. This restructuring was essentially completed at the end of 2006. In 2007, the number of employees increased as a result of five temporary contract employees being hired on permanently. It was important for the company to create stability after the 24% workforce reduction in 2006.

The Company rationalised its work force in each of the quarters through terminations and attrition. The chart below provides a breakdown of the number of employees (including full time equivalents) by function:

The following table shows the number of employees by geographical location at the end of each period:

The Company believes that its work force is reasonably skilled, capable and motivated and that the relations with the Company’s employees are good. The Company’s work force is not unionized or part of any collective labour agreement.

The following table sets forth securities owned or controlled by Directors and Officers of the Company as at December 31, 2007:

The information as to common shares beneficially owned or over which a director or nominee exercises control or direction, not being within the knowledge of the Company, has been furnished by the respective directors or nominees individually.

Mr. Doninelli, by virtue of his position as General Manager and Chief Executive Officer of Prismafin S.A., exercises direction over 1,985,575 common shares of the Company held by Prismafin S.A.

On January 12, 2007, the Company issued 1,065,968 common shares and 532,984 non transferable share purchase warrants to its employees and directors under the ESOP for consideration of $479,686. Of which 618,991 were issued to executive officers and directors included hereto.

The following table sets forth details of all exercises of stock options during the year ended December 31, 2007 by the Directors and Executive Officers of the Company and the fiscal year-end value of unexercised options on an aggregated basis:


Name	Securities Acquired on Exercise (#)⁽¹⁾	Aggregate Value Realized ($)⁽²⁾	Unexercised Options at Fiscal Year-End (#) Exercisable/ Unexercisable	Value of Unexercised In-the-Money Options at Fiscal Year-End ($)⁽³⁾ Exercisable/ Unexercisable
Ugo Doninelli	Nil	Nil	325,000 / Nil	6,000 / Nil
James Sharpe	Nil	Nil	100,000 / Nil	Nil / Nil
Joseph Caprio	Nil	Nil	100,000 / Nil	Nil / Nil
Christopher Hoyle	Nil	Nil	100,000 / Nil	Nil / Nil
Amiee Chan	Nil	Nil	75,000/215,000	Nil / 32,000
William R. Witten	Nil	Nil	20,000/75,000	Nil / 12,000
Pervez Siddiqui	Nil	Nil	20,000 /75,000	Nil / 12,000

Number of common shares of the Company acquired on the exercise of stock options.

Calculated using the closing price of common shares of the Company on the Toronto Stock Exchange

Value of unexercised in-the-money options calculated using the closing price of common shares of the Company on the Toronto Stock Exchange on December 31, 2007, less the exercise price of in-the-money stock options.

The Company's authorized capital consists of 75,000,000 common shares without par value, of which 50,646,026 common shares were issued and outstanding as at December 31, 2007.

To the knowledge of the directors and senior officers of the Company, there are no persons or companies who beneficially own, directly or indirectly, or exercise control or direction over shares carrying 5% or more of the voting rights attached to all outstanding common shares of the Company.

Reference is made under “Item 8 Financial Information”, specifically note 24.

As at December 31, 2007, the independent auditors of the company were Ernst & Young LLP. The report of the auditors on the financial statements for the fiscal year ended December 31, 2008 has been filed on www.sedar.com with the securities regulators. Ernst & Young LLP are independent of the company in accordance with the rules of professional conduct of the Institute of Chartered Accountants of British Columbia..

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

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

The Company’s audit committee is composed of three non-management directors who are appointed by the Board of Directors annually. The committee meets periodically with the Company’s management and independent auditors to review financial reporting matters and internal controls and to review the consolidated financial statements and the independent auditors’ report. The audit committee reported its findings to the Board of Directors who have approved the consolidated financial statements.

The Company’s independent auditors, Ernst & Young LLP, have audited the consolidated financial statements and their report follows.

We have audited the consolidated balance sheets of Norsat International Inc. as at December 31, 2007 and 2006, and the consolidated statements of operations, comprehensive earnings (loss) and deficit and cash flows for each of the years in the three year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2007 in conformity with Canadian generally accepted accounting principles, which differ in certain respects from United States generally accepted accounting principles (see Note 23 (restated) to the consolidated financial statements).

As discussed in Note 3 to the consolidated financial statements, during 2007, the Company changed its accounting for financial instruments and comprehensive income.

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the company’s ability to continue as a going concern, such as those described in Note 1 to the financial statements. Our report to the shareholders dated March 18, 2008 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors’ report when these are adequately disclosed in the financial statements.

Consolidated Statements of Operations, Comprehensive Earnings (Loss) and Deficit

The Company is incorporated under the laws of the Province of British Columbia, Canada and its principal business activities include the marketing, design and sales of microwave products and portable satellite products that provide rapidly deployable broadband satellite data and video continuity in areas where traditional communication infrastructure is insufficient, damaged or non-existent.

The Company has incurred recurring operating losses and has a deficit of $44,649,604 as at December 31, 2007. Consequently, there is significant uncertainty about its ability to continue as a going concern. Management has been able, thus far, to finance the operations through a series of equity and debt financings. In January 2007, the Company received net proceeds of $466,915 in connection with the private placement under the Employee Share Purchase Plan. In March 2007, the Company paid off a convertible debt in the amount of $2,309,200 (US$2,000,000). The convertible debt payment was partially financed through short-term loans of US$900,000 and $150,000 at an interest rate of 8%. Subsequently, the short-term loans were repaid in May 2007, through cash generated from operations. Management implemented a new cost structure in late 2006 aimed to achieve net profits and generate positive cash flows through its operations. The Company has so far generated profits in the last five successive quarters.

In view of these conditions, the ability of the Company to continue as a going concern is dependent upon sustaining profitable operations and on the ability of the Company to obtain additional financing. The outcome of these matters cannot be predicted at this time. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue in business.

These financial statements have been prepared in accordance with Canadian generally accepted accounting principles, which materially conform to those established in the United States, except as explained in note 23.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Norsat International America Inc., and Norsat International (United Kingdom) Limited. All material intercompany balances and transactions have been eliminated.

The preparation of consolidated financial statements requires the Company’s management to make estimates and assumptions that affect amounts reported in the financial statements and notes thereto. Significant areas requiring the use of management estimates relate to the determination of the net recoverable value of assets, including inventory obsolescence provisions, allowance for doubtful accounts, asset impairment, valuation of future income tax assets, useful lives for depreciation and amortization, stock based compensation and

provisions for warranties. Actual amounts may ultimately differ from these estimates.

In 2007, the Company changed its estimate of provisions for warranties on satellite sales from 3% based on standard cost of equipment to 1% based on total consolidated satellite sales of equipment for the year. This change resulted in a decrease in the provision of $101,368 as at December 31, 2007.

The reporting and functional currency of the Company is the Canadian dollar. Foreign currency transactions entered into directly by the Company, and the accounts of the integrated foreign subsidiary operations, are translated using the temporal method. Under this method, monetary assets and liabilities are translated at year-end exchange rates and other balance sheet items are translated at historical exchange rates. Income statement items are translated at the rate in effect at the time of the transaction and for the subsidiaries, are translated using the year to date average exchange rates.

The Company follows the recommendations of the Canadian Institute of Chartered Accountants (“CICA”) section 3870, “Stock-Based Compensation and Other Stock-Based Payments”, for stock options granted to employees, directors and consultants pursuant to a incentive share option plan described in note 13(c).

Under this method, the Company recognizes compensation expense for stock options awarded based on the fair value of the options at the grant date using the Black-Scholes option pricing model. The fair value of the options is amortized over the vesting period and is included in selling, general and administrative expense.

Included in short-term investments are restricted securities with terms to maturity of three months or more when acquired. There are Cdn$37,000 in a 1 year GIC, a Cdn$21,000 (3%) deposit on the three month forward contract and Cdn$10,197 for coverage of the margin on the three month forward contract.

Included in prepaid expenses and other are prepayments related to materials, insurances premium and other deposits required in the normal course of business.

Parts and supplies inventory is stated at the lower of weighted average cost and replacement cost. Finished goods and work-in-process inventory include materials, labour and manufacturing overhead and are stated at the lower of weighted average cost and net realizable value. Inventory is recorded net of any obsolescence provisions.

Property and equipment are stated at cost less applicable tax credits and government assistance. Amortization of property and equipment is recorded on a straight-line basis at the following annual rates, which approximate the useful life of the assets:

Leasehold improvements are amortized over the shorter of the term of the lease or their estimated useful life.

Property and equipment are assessed for future recoverability when events or circumstances indicate that estimating future undiscounted cash flows may impair the asset. When the net carrying amount of a capital asset exceeds its estimated net recoverable amount, the asset is written down with a charge to income.

Revenues consist of sales of hardware, software, consulting, installation, training and post contract services. These services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary as a result of the inclusion or exclusion of services. For those contracts where the services are not essential to the functionality of any other element of the transaction, the Company determines vendor-specific objective evidence (“VSOE”) of fair value for these services based upon normal pricing and discounting practices for these services when sold separately.

The Company’s multiple-element sales arrangements include arrangements where software licenses and the associated post contract customer support (“PCS”) are sold together. The Company has established VSOE of the fair value of the undelivered PCS element based on the contracted price for renewal PCS included in the original multiple-element sales arrangement. The Company’s multiple-element sales arrangements generally include rights for the customer to renew PCS after the bundled term ends. These rights are irrevocable to the customer’s benefit, are for specified prices, are consistent with the initial price in the original multiple-element sales arrangement, and the customer is not subject to any economic or other penalty for failure to renew. Further, the renewal PCS options are for services comparable to the bundled PCS and cover similar terms.

PCS revenue associated with software licenses is recognized ratably over the term of the PCS period, which typically is one year. PCS revenue includes support levels that provide customers with access to telephone support for trouble-shooting, diagnosis and extends to on-site repair of products.

The Company recognizes revenue from the sales of hardware products upon the later of transfer of title or upon shipment of the hardware product to the customer so long as persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is reasonably assured.

Revenue that has been paid but does not yet qualify for recognition under the Company’s policies is reflected as either deferred revenue or long-term deferred revenue. As at December 31, 2007, the Company recorded current and long-term deferred revenue of $383,231 (2006 – $467,731).

Research costs are expensed as incurred. Development costs are deferred if the product or process and its market or usefulness is clearly defined, the product or process has reached technical feasibility, adequate resources exist or are expected to exist to complete the project and management intends to market or use the product or process. If these criteria are not met, the development costs are expensed as incurred. For fiscal 2007, 2006 and 2005, all development costs have been expensed.

Government funding of eligible research and development expenditures are credited when earned against product development expenses or the cost of property and equipment, to which the funding related.

Deferred finance costs represent the unamortized cost of obtaining debt financing. Amortization is provided over the term of the related debt and is included in interest expense for the year.

The Company follows the asset and liability method of accounting for income taxes. Under this method, the Company recognizes and measures, as assets and liabilities, income taxes currently payable or recoverable as well as future taxes, which will arise from the realization of assets or settlement of liabilities at carrying amounts which differ from their tax bases. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. A valuation allowance is recognized to the extent the recoverability of future income tax assets is not considered to be more likely than not. Future tax assets and liabilities are presented net by current and non-current classifications except to the extent that they cannot be offset due to different tax jurisdictions.

Basic net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period.

Diluted net earnings (loss) per share is computed using the treasury stock method, which assumes that all dilutive options and warrants were exercised at the beginning of the period and the proceeds to be received were 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 and when the Company generates income from operations.

The table below is a reconciliation of the denominator used in the calculation of the weighted average number of basic and diluted earnings per common share outstanding from continuing operations. There is no impact on the numerator.

The calculation of assumed exercise of stock options and warrants includes the effect of the dilutive options and warrants. Where their effect was anti-dilutive because their exercise prices are higher than the average market price of the Company’s common share for each of the periods shown in the table, assumed exercise of those particular stock options and warrants were not included.

The calculations also do not include assumed conversion of the convertible debt, as its effect would be anti-dilutive.

The 2005 and 2006 balances do not include any assumed conversions as net losses were reported for these periods and therefore their effect would be anti-dilutive.

On January 1, 2007, the Company adopted CICA Handbook Section 1530, “Comprehensive Income”, which defines and establishes the reporting requirements for comprehensive income. Comprehensive income is the change in shareholders’ equity during a period from transactions and other events and circumstances from non-owner sources. Under this section, the Company is required to present comprehensive income (loss) and its components in a financial statement showing (a) net income for the period; (b) each component of revenue, expense, gain and loss that is recognized in other comprehensive income and (c) the total of (a) and (b). As at the end of December 31, 2007, the Company has no other comprehensive income.

The Company has also adopted the Section 3251, “Equity” which establishes standards for the presentation of equity and changes in equity during the reporting period; Section 3855, “Financial Instruments – Recognition and Measurement” (note 3(b)) which prescribes when to recognize a financial instrument on the balance sheet and at what amount; sometimes using fair value, other times using cost-based measures; Section 3861,“Financial Instrument – Disclosure and Presentation, which provides treatments for the recognition, measurement and disclosure of the cost of employee future benefits. Under this section, the entity is required to recognize the cost of the retirement benefits and certain post-employment benefits over the periods in which the employees render services to the entity in return for the benefits and other post-

employment benefits are recognized when the event that obligates the entity occurs; and Section 3865, “Hedges” which establishes standards for when and how hedge accounting may be applied. This section provides alternative treatments to section 3855 when entities choose to designate qualifying transactions as hedges for accounting purposes. The adoption of these accounting policy changes has not had a material impact on the Company’s financial positions as at December 31, 2007.

Under Section 3855, all financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are measured in the balance sheet either at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and changes in fair value will depend on their initial classification, as follows: held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or compared.

The Company has classified its cash and short-term investments as held-for-trading. Accounts receivable are classified as loans and receivables. Operating line of credit, accounts payable, certain accrued liabilities, long-term debt and convertible debentures are classified as other liabilities, all of which are measured at amortized cost.

Section 3855 also provides guidance on accounting for transaction costs incurred upon the issuance of debt instruments or modification of a financial liability. Transaction costs are now deducted from the financial liability and are amortized using the effective interest method over the expected life of the related liability. The adoption of these new standards had no impact on the Company’s deficit position as at January 1, 2007.

The carrying value and fair value of financial assets and liabilities as at December 31, 2007 are summarized as follows:

The Company is exposed to foreign currency exchange risk as a result of its sales and cost of sales being predominately denominated in United States dollars. To manage its exchange risk, the Company holds cash denominated in United States dollars and has entered into financing in United States dollars. On November 16, 2007, the Company entered into a forward contract to deliver EUR 487,036 at the rate of Cdn$1.4227 = €1. As at December 31, 2007, this contract was still outstanding and was marked to market at Cdn$1.4436362 = €1. As a result of this fair market valuation, an unrealized loss of $10,197 was recorded.

At December 31, 2007, cash (USD, GBP and Euro) has been translated to the Canadian dollar at respective rates in effect at that date.

As at December 31, 2007, included in short-term investments is a 1 year Cdn$37,000 GIC maturing on February 10, 2008 used as collateral for a customs bond. In addition, Cdn$21,000 and Cdn$41,635 (US$42,000) in cash are held as security for a forward contract. The forward contract was entered into on November 16, 2007 and expires on February 19, 2008 (note 19).

As at December 31, 2006 included in short-term investments are a 1 year Cdn$37,000 GIC maturing on February 10, 2007 used as collateral for a customs bond and a Cdn$32,500 GIC held as collateral for the Company’s corporate visa.

Accounts receivable are disclosed net of allowance for doubtful accounts (“allowance”). Changes in the allowance for each of the periods presented are as follows:

Inventory is disclosed net of obsolescence provision. Changes in the obsolescence provision of the periods presented are as follows:

On October 17, 2000, the Company entered into an agreement with Technology Partnerships Canada (“TPC”) which was subsequently amended on February 8, 2001 and September 28, 2004 (“TPC Agreements”). Under the TPC Agreements, the Company received funding of one third of eligible spending related to the research and development of a communications Satellite Interactive Terminal (“SIT”) technology development project totaling $9,999,700 up to the end of 2004, including additional funding of $620,000 obtained in 2004.

In return for funding, the Company was obligated to issue TPC $1,000,000 in value of share purchase warrants prior to March 31, 2004. The warrants were to have a life of five years and were to be priced at the market price on the date of issue with the number of warrants issued to be determined using the Black-Scholes pricing model.

In addition, the Company is also obligated to accrue royalty payments to TPC based on the following terms:

1.28% before and 1.03% after issuance of warrants on sales of new SIT technology products

The royalty payment period was amended to commence on January 1, 2004 and end on the earliest of the following dates;

(a) the date before December 31, 2007, for which cumulative royalties accrued reach $15 million;

(b) on December 31, 2007, or the date after, if by that date the cumulative royalties accrued equal or exceed $13,171,300; and otherwise on December 31, 2011.

On April 28, 2004, the Company issued 1,206,811 share purchase warrants to TPC under the terms described above with an exercise price of $1.09 per share. The Black-Scholes valuation model was applied using assumptions of an average option life of five years, no dividends, expected annual volatility of 100%, and risk-free interest rates of 3.8%.

As at December 31, 2007, the Company has accrued for royalty payments in the amount of $158,400 (2006 - $166,900, 2005 - $202,963). The royalties are recorded and expensed as the related sales occurred. The royalty is payable annually within 60 days of the year end. The total amount of royalties accrued and paid to date are $750,900.

The Company entered into a US$900,000 Bridge loan agreement (“the Bridge Loan Agreement”) on March 22, 2007 with a financial institution, which in turn holds 5% of the Company’s shares. Under the Bridge Loan Agreement, the lender agreed to loan US$900,000 to the Company no later than March 27, 2007 subject to certain terms and conditions as follows:

Interest at the rate of 8% per annum over the balance of the loan, payable at the end of the term, or on the day of loan retirement,

Payment in full May 31, 2007, or partial payments within the 60 day term at discretion of the Company.

On May 31, 2007 the Company acquired a US$500,000 unsecured operating line of credit with a financial institution that holds less than 10% of the Company’s shares.

Interest payable quarterly on the last day of the quarter as calculated on that day on the basis of a calendar year for the actual number of days elapsed

Lender has the right at any time to demand immediate payment of the loan, or any part thereof, with interest, fees, charges and costs outstanding

As at December 31, 2007, the amount owing on the operating line of credit was US$500,000 (Cdn$495,650).

On March 28, 2002, the Company completed a financing agreement (US$2,000,000) with net cash proceeds of $2,953,188. The financing consisted of 8% per annum unsecured convertible notes maturing March 31, 2007. The notes were originally convertible into common shares of the Company at a price of US$1.70 per share at the holder’s option at any time. At March 28, 2002, the market price of the Company’s common shares was US$1.64 per share.

The Company was permitted to force the conversion of the notes into common shares of the Company if the shares traded above US$3.40 for two consecutive days over the term to maturity of the notes. The cost of the financing totaled $307,966 and included 50,000-share purchase warrants with a fair value of $72,751 calculated using a Black-Scholes valuation model. The share purchase warrants entitled the holder to purchase one common share of the company for US$1.70 and expired after three years. On March 28, 2005 the 50,000-share purchase warrants expired. The Company’s effective interest rate under this financing was approximately 16%.

Financing costs of $93,509 were recorded as deferred finance costs on the balance sheet, with the balance of $214,457 recorded as a charge against the equity component of long-term debt. The proceeds of the financing allocated to the estimated fair value of the conversion option of $2,123,584 was recorded as the equity component of convertible debt on the consolidated balance sheet at $1,909,127, being net of financing costs of $214,457. The carrying amount of the debt was reduced on issuance by the value assigned to the conversion option and was being accreted to its face value over the term to maturity through charges to non-cash interest expense.

In March 2007, the Company repaid the convertible debt in the amount of $2,309,200 (US$2,000,000). The convertible debt payment was partially financed through short-term loans of US$900,000 and $150,000 at an interest rate of 8%. Subsequently, the short-term loans were repaid in May 2007, through cash generated from operations. Upon payment of the convertible debt, the equity component was transferred to contributed surplus.

On June 24, 2005, the Company announced a reduction in the conversion price from US$1.70 per common share to US$1.25 per common share as an inducement for early conversion of the notes.

As such, the Company revalued the convertible debenture based on the amended terms of the debenture agreement. Accordingly, $374,818 was allocated to debt and $281,652 was allocated to the equity component of the debenture. This difference between the revised book value and original carrying value of the debenture of $374,818 was charged to other expenses (note 21) and the difference between the value of the revised conversion feature and original carrying value of the conversion feature of $281,652 was charged to the contributed surplus of the Company (Note 13(e)).

(i) On January 12, 2007, the Company issued 1,065,968 common shares at Cdn$0.45 per share and 532,984 non transferable share purchase warrants to its employees under the Amended Employee Share Ownership Plan for gross proceeds of $479,685. Each share purchase warrant entitles the holder to purchase one common share at a price of US$0.48 for two years from the closing date. The Company paid share issuances costs of $12,770. The net proceeds of the employee stock purchase plan were $466,915. The TSX approved amount for common share purchase was CDN$0.525. The difference, $79,948, was credited to contributed surplus and expensed to stock based compensation.

Under Canadian GAAP, the Company has bifurcated the proceeds between the shares and the warrants based on their relative fair values. The assigned fair value of the common shares ($735,518) was calculated by using the TSX share price on the date of issuance ($0.69), and the fair value of the warrants ($188,197) was determined using the Black-Scholes valuation model. Net proceeds of $466,915 were then allocated based on the percentage of these relative fair values. The amount allocated to common shares ($371,786) is accounted for as common shares and the amount allocated to the warrants ($95,128) is accounted for as contributed surplus.

All of the common shares and warrants were subject to a four-month hold period which ended on May 13, 2007. During that period, these securities could not be traded nor were they freely transferable.

Of the securities issued, 145,644 common shares are being held in escrow under an escrow agent between the Company and a trust company selected by the BC government until January 12, 2010. The escrow requirement applies to employee shareholders resident in British Columbia, who have elected to receive tax credits under the Employee Investment Act (British Columbia). Employee share holders may seek government approval for an early release from escrow upon the repayment of any tax credits received.

(ii) On March 6, 2006 the Company closed a private placement for the sale of 1,021,744 units at US$3.00 per unit for gross proceeds of US$3,065,232. Each unit consisted of 4 common shares and 3 common share purchase warrants (the “March Warrants”) each exercisable into one common share at an exercise price of US$0.75 and a term to maturity of two years. The Company paid a placement fee of 10% of the gross proceeds. The net proceeds of the private placement were $2,953,810.

Under Canadian GAAP, the Company has bifurcated the proceeds between the shares and the warrants based on their relative fair values. The assigned fair value of the common shares ($3,719,148) was calculated by using the TSX share price on the date of issuance ($0.91), and the fair value of the warrants ($1,248,469) was determined using the Black-Scholes valuation model. Net proceeds of $2,953,810 were then allocated based on the percentage of these relative fair values. The amount allocated to common shares ($2,205,892) is accounted for as common shares and the amount allocated to the warrants ($747,918) is accounted for as contributed surplus.

The March Warrants agreement requires that the Company’s management to use its best efforts, in a manner consistent with the requirements of the Toronto Stock Exchange and

other applicable law and regulation, to amend its exercise price to be equal to the future placement price if issued during the term of March Warrants to arm’s length investors at the exercise price less than March Warrants price.

On November 6, 2006, the Company applied to the TSX for approval to amend the exercise price of each of the 3,065,232 common share purchase warrants issued in March 2006 from US$0.75 to US$0.475. The latter price is the US dollar equivalent of the volume weighted average trading price of Norsat’s common shares for the 5 trading days ended November 3, 2006. The amendment application was made: 1) in connection with the terms of the September Warrants (note 13(b)(iii)) set forth in the Convertible Debenture Agreement at a price of $0.45 per common share and 2) as a consequence of an anti-dilution clause in the March Warrants Agreement. The amendment took effect November 22, 2006. All other terms of the March warrants remain intact.

On September 26, 2006, the Company received US$1,000,000 (Cdn$1,117,693) for the issuance of 1,000 units Series “A” Convertible Debentures, bearing interest at a floating rate of prime (as posted by the Bank of America) plus 1%, secured and expiring on January 24, 2007. Interest was payable in cash or, at the option of the holder, in common shares on maturity or the date the Debentures were converted, whichever was earlier.

The debentures were convertible into common shares, on a per unit basis, at any time during the term of the Debentures by the holder at a conversion price of US$0.40 per share. Each of the 1,000 units was comprised of US$1,000 aggregate principal amount of secured convertible debentures and 1,250 common share purchase warrants (the “September Warrants”). Each warrant entitled the holder to acquire one common share of the Company for a period of two years from the conversion date, at a price of US$0.45 per share.

Of the total debt proceeds, $437,500 was estimated as a fair value of the conversion option and was recorded as a charge against the equity component of the convertible debentures on the consolidated balance sheet. The carrying amount of the debt of $680,193 was recorded as convertible debt and was to be accreted to its face value over the term to maturity through charges to non-cash interest expense.

Up to the date of conversion, $110,815 was accreted to convertible debentures which brought the total convertible debt portion to $791,008. The Company incurred total accretion of $122,263, of which $11,448 was cash interest due to the investor.

On November 6, 2006, the Series “A” Convertible Debentures of US$1,000,000 were converted in full to 2,500,000 Norsat common shares and 1,250,000 share purchase warrants. Total book value of convertible debentures of $1,228,508 was bifurcated between common shares and share purchase warrants using the Black-Scholes valuation model. As a result, $1,009,201 was credited against common shares and $219,307 was credited against contributed surplus (note 13 (e)).

The Company has reserved 6,306,505 common shares under its 1999 (amended) incentive share option plan of which 1,855,505 common shares have previously been issued. The plan provides for the granting of stock options at the fair market value of the Company’s shares at the grant date, with terms to a maximum of ten years and vesting provisions to be determined by the board of directors.

The following table summarizes information pertaining to the Company’s share purchase options

The exercise price of all share purchase options granted during the period are equal to the closing market price at the grant date. Using an option pricing model with assumptions noted below, the estimate fair value of all options granted during 2007 and 2006 have been reflected in the statements of operations as follows:

The weighted average assumptions used to estimate the fair value of options were:

272,000 stock purchase options were granted with a weighted average fair market value of $0.43 for the year ended December 31, 2007.

549,000 stock purchase options were granted with a weighted average fair market value of $0.38 for the year ended December 31, 2006.

Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models may not necessarily provide a reliable measure of the fair value of the Company’s share purchase options.

For each of the periods presented, the following warrants for the purchase of one common share per warrant at the following prices per common share and expiry dates were outstanding:

During 2002, management made decisions to restructure its operations including reducing its workforce. The workforce reduction charge primarily relates to severance and related benefits for termination of approximately 40 employees. The Company also incurred lease costs, net of estimated subleasing recoveries.

During 2003, management continued to reduce its cost of operations by terminating a further 30 employees. The workforce reduction charge relates to severance and related benefits.

During 2006, the workforce was further reduced by 13 employees. All restructuring costs were expensed during the year.

The income tax expense differs from the expected expense if the Canadian federal and provincial statutory income tax rates were applied to earnings (loss) from continuing operations before income taxes. The principal factors causing these differences are shown below:

The tax effect of the temporary differences that give rise to future tax assets are presented below:

Management believes that it is not more likely than not that it will create taxable income to realize its future tax assets.

At December 31, 2007, the Company has approximately $21,992,000 of non-capital loss carry forwards available until 2026 to reduce future years' income for income tax purposes. Also, the Company has investment tax credits of approximately $1,141,060 (federal) and $534,881 (provincial) available to reduce Canadian federal and provincial taxes payable. The amounts expire as follows:

The Company also has available $11,290,000 (2006 - $ 11,290,000, 2005 – $11,290,000) of net capital losses to be applied against future capital gains. The tax effect of these carry forwards has not been recorded in the financial statements. In addition, the Company has accumulated a Scientific Research and Development Expenditures pool that is available for an indefinite carry forward period with discretionary deductions of approximately $8,535,027 (2006 - $8,281,407, 2005 – $8,020,787 ).

Not included in the above tables are net operating losses of US$225,000 (2006 - US$101,000), as at December 31, 2007 related to Norsat International America Inc.

Not included in the above tables are net operating losses of US$0 (2006 - US$0; 2005 -US$3,478,000), as at December 31, 2006 related to Norsat America Inc. No income was earned from discontinued operations during 2006. Management believes it is more likely that it will not have any taxable income to realize these future tax assets.

On August 23, 2000, the Company adopted a formal plan to discontinue the business operations of its Norsat America Inc. distribution business.

For 2004, the Company recorded a recovery from discontinued operations totaling $724,116, which arose substantially from a settlement of a liability with a supplier.

At December 31, 2005, the Company had a remaining liability of $52,112 representing additional liabilities from closure of the Norsat America Inc.

During 2006, no claims were filed against the Company regarding discontinued business, the entire liability of $52,112 was written off to recovery from discontinued operations.

Microwave components enable the transmission, reception and amplification of signals to and from satellites. Satellite systems provide rapidly deployable broadband connectivity over satellite where traditional communications infrastructure is insufficient, unreliable, damaged or non-existent.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The key operating decision maker evaluates performance based on the following:

Total assets and property and equipment are calculated based on the total sales to external customers of each segment (Microwave and Satellite systems) over total consolidated sales.

The Company generated revenues from external customers located in the following geographic locations:

Future minimum payments at December 31, 2007 under various purchasing commitments, loan commitments and operating lease agreements for each of the next four years are approximately as follows:

Rent expense for the Company for the year ended December 31, 2007 was approximately $441,000 (2006 - $828,000).

In the normal course of operations the Company enters into purchase commitments. Included in the commitments are inventory and materials purchase obligations to be received in 2008 of $2,578,761.

The Company's financial instruments include cash, short-term investments, accounts receivable, operating line of credit, accounts payable and accrued liabilities. The carrying value of these instruments approximates their fair value due to their immediate or short-term to maturity or their ability for liquidation at comparable amounts.

The Company’s convertible debt outstanding as of December 31, 2006 was also a financial instrument. The carrying value of this instrument approximated its fair value. Fair value was determined based on estimated future cash flows discounted using the current market rate for debt under similar circumstances with similar terms and remaining maturities.

The Company entered into a three month forward contract to trade EUR487,036 for CAD at a rate of Cdn$1.4227 = €1 on November 16, 2007 expiring on February 19, 2008. As of December 31, 2007 the market rate was Cdn$1.4436362 = €1. As a result of this fair market valuation, an unrealized loss of $10,197 was recorded.

The Company is exposed to currency exchange risk as a result of its “sales” and “cost of sales” being predominately denominated in United States dollars.

The Company purchases substantially all of its microwave products from four suppliers.

During 2007, the Satellite Systems segment generated approximately 52% of its sales from the United States government. This represents approximately 23% of total sales. No other customer exceeds 10% of total sales.

During 2006, the Satellite Systems segment generated approximately 53% of its sales from the United States government. This represents approximately 22% of total sales. No other customer exceeds 10% of total sales.

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) which differ in certain respects from those principles and practices that the Company would have followed had its consolidated financial statements been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”).

During the preparation of the December 31, 2007 US GAAP reconciliation, the Company identified that GAAP differences relating to the recording of foreign exchange on the US$2 million convertible debt was inappropriately recorded at the year ended December 31, 2006 and 2005 and consequently, this note contains a restatement (see (d)). This restatement has no impact on the consolidated financial statements under Canadian GAAP.

The amounts in the consolidated balance sheets that differ significantly from those reported under Canadian GAAP are as follows:

The following are the material measurement variations in accounting principles, practices and methods used in preparing these financial statements from those generally accepted in the United States (US):

The valuation of the shares relating to the acquisition of IMT Communications Inc. in 1998 was adjusted by a 25% discount in recognition of the shares held in escrow under Canadian GAAP. For US GAAP purposes, the share value was recorded at market value. This resulted in an increase in goodwill of $540,000 all of which relate to the microwave products operating segment. In 2005, unamortized goodwill related to this acquisition was written off to reflect the full impairment of its value.

Under Canadian GAAP, future tax assets and liabilities are recorded at substantially enacted tax rates. Under US GAAP, deferred tax assets and liabilities are recorded at enacted tax rates. Recording Canadian future tax assets and liabilities at enacted tax rates would not change recorded net assets or shareholders’ equity under US GAAP.

The Company has granted stock options to certain directors and employees for services provided to the Company. For US GAAP purpose, the Company previously elected under Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” to continue to measure compensation cost by the intrinsic value method set out in APB Opinion No. 25 and related interpretations. On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-based Payment” (“SFAS 123(R)”), which replaces SFAS No. 123 and supersedes APB Option 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on the grant date fair value. Pro forma disclosure is no longer an alternative. This Statement is effective for public companies in their first fiscal year beginning after June 15, 2005. The Company adopted SFAS 123 (R) effective on January 1, 2006 for US GAAP purposes using the modified-prospective transition.

Pro-forma information with respect to impact of the fair value of stock options at the date of grant on reported loss for 2005 presented is as follows:

Under Canadian GAAP, when options are forfeited before vesting, all the previous period charges are to be reversed in the period that the options are cancelled using either actual method. The Company has chosen to reverse such forfeited options at their actual fair value. However, US GAAP requires those forfeited options to be reversed using an estimation method based on estimated forfeitures. As a result, $21,164 (2006 - $51,596, 2005 – $621,681) was credited to operations under US GAAP and contributed surplus was reduced by the same amount.

Under Canadian GAAP, the proceeds of the financing allocated to the estimated fair value of the conversion feature of the debt are recorded as an equity component of the debt (note 12). Under US GAAP, a value is assigned to the conversion feature only if the conversion rate is less than the market price of the common stock at the date of issuance. Accordingly, no value would be assigned under US GAAP to the conversion feature on the promissory note issued in 2002. In addition, under Canadian GAAP a portion of the deferred finance costs has been allocated to equity and not amortized, while under US GAAP all costs would be identified as deferred finance costs and amortized over the term of the debt. Furthermore, under Canadian GAAP, interest on long-term debt required to be paid through the issuance of common shares is recorded at fair value as an equity component and accreted as a charge to retained earnings. For US GAAP purposes, all interest is expensed as accrued.

In applying US GAAP, convertible debt outstanding at December 31, 2006 would be recorded at its face value of $2,255,252 (US $2,000,000) and no value would be assigned to an equity component of long-term debt before the accounting for the reduction in conversion price as disclosed in note 12(b).

The reduction in the conversion price of the debt during 2005 resulted in extinguishment accounting under both Canadian and US GAAP. The incremental value of the conversion feature was determined to be $656,470 (see note 12(b)). Under Canadian GAAP the incremental fair value was allocated between debt and equity, with the debt portion of the increase recorded as a charge to income and an increase to contributed surplus for the equity portion. Because the entire convertible debenture is recorded as debt under US GAAP, the $281,652 increase to the equity component of long-term debt under Canadian GAAP,

was added back under US GAAP. In addition, as a result of the modification, the Company recorded a beneficial conversion feature of $74,432 under US GAAP. Under Canadian GAAP no such amount has been recorded.

As at December 31, 2005, of the convertible debt on the income statement in the amount of $622,719 consisted of adding back the accretion of $621,757 recorded as interest expense under Canadian GAAP, the reduction foreign exchange gain of $81,409 recorded as foreign exchange gain under Canadian GAAP, the reduction of the conversion price of debt of $281,652 recorded as interest income under Canadian GAAP and an addition of foreign exchange gain of $364,023 under US GAAP.

As at December 31, 2006, the convertible debt on the income statement in the amount of $238,139 consisted of adding back the accretion of $235,906 recorded as interest expense under Canadian GAAP, and an addition of foreign exchange gain of $2,233 under US GAAP.

As at December 31, 2007, the convertible debt on the income statement in the amount of $75,548 consisted of adding back the accretion of $75,656 recorded as interest expense under Canadian GAAP, the reduction foreign exchange gain of $21,708 recorded as foreign exchange gain under Canadian GAAP and an addition of foreign exchange gain of $21,600 under US GAAP.

Due to the modification, the remaining deferred financing cost of $113,560 was realized during 2005 under US GAAP, therefore, no finance costs would be recorded in 2007 on amortization of amounts reclassified to deferred finance costs. As a result a $3,417 (2006 - $13,637) finance cost amortized under Canadian GAAP would be added back under US GAAP.

In March, 2007, the debt was repaid and under Canadian GAAP the equity portion of the convertible debt of $2,190,799 was credited to contributed surplus.

Under US GAAP, the US$2 million convertible debt should be revalued at the year end exchange rate and any foreign gains or losses should be added back or subtracted from income. The exchange rates used for year ended December 31, 2006 and 2005 are Cdn$1.1654 = US$1 and Cdn$1.160815 = US$1 respectively. Also, at December 31, 2005 the deferred financing costs were reclassified from convertible debt in the income statement.

The US GAAP difference on the balance sheet restatement for December 31, 2006 for the foreign exchange gain on the convertible debt resulted in a reduction to the amount recorded to convertible debt and deficit are as follows:

The US GAAP difference on the balance sheet restatement for year ended December 31, 2005 on the foreign exchange gain on the convertible debt resulted in a reduction to the amount recorded to convertible debt and deficit are as follows:

The US GAAP difference on the income statement restatement for December 31, 2005 for the foreign exchange gain on the convertible debt and deferred financing costs are as follows:

Under Canadian GAAP, the proceeds $1,117,693 (US $1,000,000) of the September 26, 2006 financing (see Note 13(b)(iii)) allocated to the estimated fair value of the conversion feature of the debt recorded as an equity component of the debt. Under US GAAP, a value is assigned to the conversion feature only if the conversion rate is less than the market price of the common stock at the date of issuance. As a result of the debenture being issued for less than market, the Company recorded a beneficial conversion feature of $336,200 under US GAAP. The conversion feature is charged to Additional Paid-In Capital (“APIC”) and is amortized to the income statement over the life of the debenture. Under Canadian GAAP no such amount would be recorded. As at the date of conversion a total of $114,868 of amortization had been credited to the income statement. The remaining $781,493 of the initial proceeds was allocated to debt.

Upon conversion (November 6, 2006) of the financing under Canadian GAAP, the value of the debt, accretion, and the equity component of the conversion feature is charged to share capital. This charge is then bifurcated based on the relative fair values of the share capital and share purchase warrants (note 13) issued and allocated to share capital and contributed surplus respectively. Under US GAAP, the value of the debt and the remaining value in APIC is transferred to share capital. This charge is then bifurcated based on the relative fair values of the share capital and share purchase warrants. The remaining unamortized value of the conversion feature ($235,385) is charged to the income statement as an additional interest charge. This resulted in a credit of $19,729 and $90,788 to share capital and contributed surplus respectively.

In prior years, the Company reduced its paid-up capital by $66,332,136 to eliminate the deficit from preceding years. In order to effect these reductions under Canadian GAAP, it was not necessary to revalue the assets of the Company. As a consequence, all conditions necessary under the US GAAP quasi-reorganization rules were not met and the recapitalization of the deficit is not recorded.

Under US GAAP, the fiscal year 1999 release of shares from escrow representing compensation relating to the achievement by management of securing specific contracts results in the settlement of a contingency and therefore the shares should be valued at the date the contingency was resolved. This results in a charge to earnings and credit to share capital of $4,132,079.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements Liabilities –an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As the Company’s subsidiary is wholly owned the adoption of this statement is not expected to have a material effect on the Company's financial statements.

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, “Business Combinations”. This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions

of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair

value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

The Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement 109, "Accounting for Income Taxes", and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting and interim periods, disclosure and transition. The Company and its subsidiaries are subject to U.S. federal income tax, Canadian income tax, as well as income tax of multiple state and local jurisdictions. Based on the Company's evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements. The Company's evaluation was performed for the tax years ended December 31, 2001 to 2007 inclusive. The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company's financial results. In the event the Company receives an assessment for interest and/or penalties, it will be classified in the financial statements as selling, general and administrative expenses.

(a) On March 28, 2007 the Company received a bridge loan of Cdn$150,000 from an officer of the Company subjected to certain terms and conditions as follows:

Interest at the rate of 8% per annum over the balance of the loan, payable at the end of the term, or on the day of loan retirement,

Payment in full May 31, 2007, or partial payments within the 60 day term at discretion of the Company.

(b) On April 24, and June 12, 2007 the Company received bridge loans of Cdn$250,000, and Cdn$200,000 respectively from the same officer of the Company subjected to certain terms and conditions as follows:

Interest at the rate of 8% per annum over the balance of the loan, payable at the end of the term, or on the day of loan retirement,

Payment in full on or partial payments within the 9 day term at discretion of the Company.

(c) On November 14, 2007 the Company received a bridge loan of Cdn$450,000 from the same officer of the Company subjected to certain terms and conditions as follows:

Interest at the rate of 8% per annum over the balance of the loan, payable at the end of the term, or on the day of loan retirement,

Payment in full on or partial payments within the 9 day term at discretion of the Company.

On November 22, 2007 the Company renewed this bridge loan with the same interest rate, but maturing on November 27, 2007.

In October 2007, Norsat was awarded a non-repayable Cdn$200,000 government contribution through Canada’s National Research Council– Industrial Research Assistance Program (NRC-IRAP). The program provides non-repayable contributions to Canadian small to medium sized businesses that are interested in using technology to commercialize services, products and processes to grow their presence in Canadian and international markets. Norsat intends to use the proceeds for research and development initiatives targeted at expanding its portable satellite systems suite of offerings. As at December 31, 2007 no contributions have been paid to the Company.

Certain comparative figures have also been reclassified to conform to the financial statement presentation adopted in 2006.

On January 17, 2008 Norsat Korea Ltd. was granted incorporation status in the Republic of South Korea. Norsat Korea Ltd. is a wholly owned subsidiary of Norsat International, Inc. and will perform research and development work to leverage lower cost production technologies for the microwave segment of the business.

On January 28, 2008 the Company obtained a Cdn$500,000 or US$400,000 secured operating line of credit from HSBC under Export Development Canada’s (EDC) Master Receivable Guarantee program.

On January 31, and February 29, 2008 the Company repaid Cdn$301,140 (US$300,000) and Cdn$196,880 (US$200,000) respectively of the operating line of credit.

Warrants that were set to expire March 3, 2008 were exercised prior to the expiry date. There were 3,065,232 warrants outstanding, of which 2,915,235 were redeemed. At the strike price of US$0.475. Proceeds of the warrant exercise was Cdn$1,358,139 (US$1,384,737).

On February 27, 2008 the outstanding foreign exchange contract for EUR487,036 was closed by the delivery of Euros in exchange for Cdn$696,218.

Significant changes since year-end to March 19, 2008 are included in note 27 of the audited consolidated financial statements under Section 8 A.

Our common shares trade on the TSX under the symbol NII and on the OTC Bulletin Board under the symbol NSATF.

The high and low sales prices (in Canadian dollars) for the Company’s common shares on the Toronto Stock Exchange, the Nasdaq Exchange and the OTC Bulletin Board for a) the five most recent full financial years. b) the two most recent financial years by quarter and any subsequent full quarter, c) the most recent six months are listed below:


			TSX		NASDAQ		OTC BB
			(CDN. Dollars)		(U.S. Dollars)		(U.S. Dollars)
			High	Low	High	Low	High	Low

a)	2007		1.09	0.59	N/A	N/A	0.98	0.49
	2006		0.99	0.36	N/A	N/A	0.86	0.32
	2005		1.90	0.50	N/A	N/A	1.51	0.43
	2004		1.26	0.56	N/A	N/A	0.95	0.40
	2003		1.59	0.50	1.05	0.61	0.70	0.38

b)	2007
	Fourth quarter		0.81	0.61			0.80	0.60
	Third quarter		0.90	0.67			0.82	0.67
	Second quarter		1.09	0.81			0.98	0.75
	First Quarter		0.98	0.59			0.86	0.49
	2006
	Fourth quarter		0.67	0.47			0.57	0.41
	Third quarter		0.76	0.36			0.68	0.32
	Second quarter		0.93	0.68			0.80	0.60
	First Quarter		0.99	0.81			0.86	0.71
c)	2008
	February	2008	0.91	0.76			0.92	0.75
	January	2008	0.80	0.70			0.78	0.69
	December	2007	0.81	0.61			0.80	0.60
	November	2007	0.70	0.63			0.75	0.63
	October	2007	0.78	0.67			0.79	0.68
	September	2007	0.83	0.67			0.78	0.68

Reference is made to Item 8: Financial Information and specifically A. Consolidated Financial Statements, Note 13. Share Capital.

The Company was incorporated on October 15, 1982 under the Company Act (the “Act”) of the Province of British Columbia under the name Norsat International Inc. Effective September 27, 1989, the name of the Company was changed to NII Norsat International Inc., and on July 2, 1999 was further amended to its present name, Norsat International Inc. Our incorporation number is 255727. Our memorandum of incorporation (the “Memorandum”) and our articles (the “Articles”) were included as exhibits in Item 3.1 and 3.2 with our Annual Report filed in June 2000. Effective March 28, 2006, Norsat was registered under the BC Business Corporation Act.

Our Articles state that it is the duty of any of our directors who are directly or indirectly interested in a contract or proposed contract with us to declare the nature of their interest in accordance with the provisions of the Act. Our Articles also state that a director shall not vote in respect of the approval of any contract or transaction with our Company in which he is interested and if he shall do so his vote shall not be counted, but shall be counted in the quorum present at the meeting at which the vote is taken.

Subject to the Act, our Articles provide that the directors may determine to be paid out of our funds or capital as remuneration for their service. The directors may also determine the proportions and manner that the remuneration will be divided among them.

borrow money in any manner or amounts, on any security from any source and upon any terms and conditions;

issue bonds, debentures and other debt obligations as security for any liability or obligation of the Company or any other persons; and

mortgage, charge, whether by way of specific or floating charge, or give other security on the whole or any part of the assets of the Company

Our Articles do not provide for a requirement of shares for a director’s qualification.

The authorized share capital of our Company consists of 75,000,000 Common Shares.

The Holders of our Common Shares are entitled to dividends if, as and when declared by the Board of Directors, to one vote per Common Share and, upon dissolution of the Company, to receive the remaining property and the assets of the Company available for distribution.

Our Company has not paid any dividends during the past eight years. The Company has no fixed dividend policy. Payment of dividends in the future will depend upon, among other factors, the Company’s earnings, capital requirements and financial condition. The Company does not anticipate that dividends will be paid in the foreseeable future.

A special resolution is required to effect a change in the rights of shareholders. A special resolution is a resolution passed by a three-quarters majority of the vote cast by shareholders of the Company who being entitled to do so, vote in person or by proxy at a meeting of the shareholders of the Company, or a resolution in writing signed by every shareholder of the Company who would have been entitled to vote at a meeting of the shareholders of the Company.

The annual general meeting of our shareholders is held at such time and on such day in each year as the directors of the Company may, from time to time, determine for the purpose of receiving the reports and statements required by the Act to be presented to the annual meeting, electing directors, appointing auditors and for the transaction of such other business as may properly be brought before the meeting. Annual general meetings are required to be held once in every calendar year at a time, not being more than 13 months after the holding of the last preceding annual general meeting.

The directors of the Company may, at any time, call a general or extraordinary meeting of the shareholders of the Company, for the transaction of any business, which may properly be brought before such a meeting of shareholders.

Meetings of shareholders of the Company are to be held at such place within Canada as the directors of the Company, from time to time, determine.

Notice of the time and place of each meeting of shareholders of the Company is required to be sent to our shareholders not less than 21 days before the date of the meeting.

A shareholder of the Company and any other person entitled to attend a meeting of shareholders of the Company may, in any manner and at any time, waive notice of or otherwise consent to a meeting of shareholders of the Company.

No business will be transacted at any general meeting unless the requisite quorum is present at the commencement of the business. Subject to the Act, if we have two or more shareholders, a quorum for the transaction of business at a general meeting shall be two persons present in person, or by proxy, and holding or representing by proxy, not less than five percent (5%) of the shares entitled to vote at the general meeting.

Neither the Act nor the incorporation documents of the Company impose limitations on the rights, including the right of non-resident or foreign shareholders, to hold or exercise voting rights attached to the Common Shares.

No provisions of the Company’s Articles exist that would have the effect of delaying, deferring or preventing a change in control of the Company or that would operate with respect to any proposed merger, acquisition or corporate restructuring of the Company.

No provision of the Company’s Articles imposes any requirements on shareholders requiring share ownership to be disclosed. The securities laws of the Company’s home jurisdiction require disclosure of shareholdings by: (a) persons who are directors or senior officers of the Company; and (b) a person who has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control over securities of the Company carrying more than 10% of the voting rights attached to all of the Company’s outstanding voting securities.

Securities legislation in Canada requires that shareholder ownership must be disclosed once a person owns beneficially or has control or direction over greater than 10% of the issued shares of the Company. This threshold is higher than the 5% threshold under U.S. securities legislation at which shareholders must report their share ownership.

The only material contracts entered into by the Corporation, other than contracts entered into in the normal course of business, are as follows:

On October 1, 2006, employment contracts were entered into between Norsat International and senior management: as follows .(contracts appended as exhibits).:

On January 2, 2007, an employment contract was entered into between Norsat International and Cathy Zhai as the Company’s Chief Financial Officer.(contract appended as exhibit).

On January 21, 2008, an employment contract was entered into between Norsat International and Eugene Syho, the Company’s newly appointed Chief Financial Officer.(contract appended as exhibit).

On January 12, 2007, the Company issued 1,065,968 common shares at Cdn$0.45 per share and 532,984 non transferable share purchase warrants to its employees under the Amended Employee Share Ownership Plan for gross proceeds of $479,685. Each share purchase warrant entitles the holder to purchase one common share at a price of US$0.48 for two years from the closing date. The Company paid share issuances costs of $12,770. The net proceeds of the employee stock purchase plan were $466,915. The TSX approved amount for common share purchase was CDN$0.525. The difference, $79,948, was credited to contributed surplus and expensed to stock based compensation. (contract appended as exhibit).

To the best of the Company's knowledge, there are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of the Company’s Common Shares. Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (10% if the shareholder is a corporation owning at least 10% of the outstanding common shares of the Company) pursuant to Article X of the reciprocal tax treaty between Canada and the United States.

Except as provided in the Investment Canada Act, there are no limitations under the laws of Canada, the Province of British Columbia or in the charter or any other constituent documents of the Company on the right of foreigners to hold or vote the Common Shares of the Company.

The following summary describes certain of the material U.S. federal income tax consequences to U.S. Holders (as defined below) arising from the purchase, ownership and disposition of Common Shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and proposed U.S. Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect.

This summary does not deal with all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders in light of their particular circumstances, or to U.S. Holders subject to special rules, including, without limitation, certain retirement plans, insurance companies, U.S. Holders of securities held as part of a "straddle," "synthetic security," "hedge," "conversion transaction" or other integrated investment, persons that enter into "constructive sales" involving Common Shares or substantially identical property with other investments, U.S. Holders whose functional currency is not the United States dollar, certain expatriates or former long-term residents of the United States, financial institutions, broker-dealers, tax-exempt organizations and U.S. Holders who own (directly,

indirectly or through attribution) 10% or more of the Company's outstanding voting stock. The following discussion does not address the effect of any applicable state, local or foreign tax laws. This summary does not consider the tax treatment of persons who own Common Shares through a partnership or other pass-through entity, and deals only with Common Shares held as "capital assets" as defined in Section 1221 of the Code.

This discussion is addressed only to "U.S. Holders." A U.S. Holder is a holder of Common Shares that is a U.S. citizen, an individual resident in the United States for U.S. federal income tax purposes, a domestic corporation, an estate the income of which is includible in its gross income for U.S. federal income tax purposes without regard to its source, or a trust if either: (i) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all the substantial decisions of the trust or (ii) the trust was in existence on August 20, 1996 and, in general, would have been treated as a U.S. Holder under rules applicable prior to such time, provided the trust elects to continue such treatment thereafter.

U.S. holders of Common Shares are advised to consult with their own Tax advisors with respect to the U.S federal, state and local tax consequences, as well as the tax consequences in other jurisdictions, of the purchase, ownership and sale of Common Shares applicable in their particular Tax situations.

A U.S. Holder's sale or exchange of Common Shares generally will result in the recognition of capital gain or loss by such U.S. Holder in an amount equal to the difference between the amount realized and the U.S. Holder's tax basis in the Common Shares sold. If a U.S. Holder's holding period on the date of the sale or exchange is more than one year, such gain or loss will be long-term capital gain or loss. Long-term capital gains realized on the sale of Common Shares by non-corporate U.S. Holders will be subject to a maximum 15% federal income tax rate if the Common Shares sold have been held for more than one year at the time of the sale or exchange. U.S. Holders who are corporations would be subject to a maximum federal income tax rate of 35% regardless of their holding period. If the U.S. Holder's holding period on the date of the sale or exchange was one year or less, such gain or loss will be short-term capital gain (generally subject to the same effective federal income tax rates as ordinary income) or loss. See "Certain Canadian Federal Income Tax Considerations-Taxation of Capital Gains on Sale of Common Shares" for a discussion of taxation by Canada of capital gains realized on the sale or exchange of Common Shares. In general, any capital gain recognized by a U.S. Holder upon the sale or exchange of Common Shares will be treated as U.S. source income for U.S. foreign tax credit purposes. Capital losses realized upon the sale, exchange or other disposition of Common Shares generally are deductible only against capital gains and not against ordinary income, except that in the case of non-corporate taxpayers, a capital loss is deductible only to the extent of capital gains plus ordinary income of up to $3,000 ($1,500 if married and filing separately).

A U.S. Holder's tax basis in his, her or its Common Shares generally will be the purchase price paid therefore by such U.S. Holder. The holding period of each Common Share owned by a U.S. Holder will commence on the day following the date of the U.S. Holder's purchase of such Common Share and will include the day on which such U.S. Holder sells the Common Share.

For U.S. federal income tax purposes, the gross amount of any distribution made with respect to, or in some cases a partial purchase or redemption of, Common Shares (including the amount of any Canadian taxes withheld therefrom) will be included in a U.S. Holder's income as ordinary dividend income to the extent that the dividends are paid out of current or accumulated earnings and profits of the Company, as determined based on U.S. tax principles. Such dividends will not be eligible for the dividends received deduction allowed to U.S. corporations under Section 243 of the Code.

Dividend distributions in excess of the Company's current and accumulated earnings and profits will be treated first as a non-taxable return of the U.S. Holder's tax basis in his, her or its Common Shares to the extent thereof and then as a gain from the sale of Common Shares. Dividends paid in Canadian dollars will be includible in income in a U.S. dollar amount based on the exchange rate at the time of their receipt. Any gain or loss resulting from currency fluctuations during the period from the date a dividend is paid to the date such payment is converted into U.S. dollars generally will be treated as ordinary income or loss.

Dividends paid to a U.S. Holder with respect to Common Shares will be treated as foreign source dividend income for U.S. foreign tax credit limitation purposes. Subject to certain conditions and limitations, any Canadian withholding tax imposed on such dividends generally will be eligible for credit against such U.S. Holder's U.S. federal income tax liability or, at the U.S. Holder's election, may be claimed as a deduction against income in determining such tax liability. The limitations on claiming a foreign tax credit include computation rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. Dividends with respect to the Common Shares generally will be classified as "passive income" for purposes of computing the foreign tax credit limitation. Foreign income taxes exceeding the credit limitation for the year of payment or accrual may be carried back for two taxable years and forward for five taxable years in order to reduce U.S. federal income taxes, subject to the credit limitation applicable in each of such years. Other restrictions on the foreign tax credit include a prohibition on the use of the credit to reduce liability for the U.S. individual and corporation alternative minimum taxes by more than 90%.

In addition, a U.S. Holder generally will not be entitled to claim a credit for Canadian tax withheld unless the U.S. Holder has held the Common Shares for at least 16 days within the 30 day period beginning 15 days before the applicable ex-dividend date. The calculation of allowable foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability of deductions for foreign taxes paid involve the application of rules that depend on a U.S. Holder's particular circumstances. Accordingly, U.S. Holders should consult their own tax advisors regarding their eligibility for foreign tax credits or deductions.

Any dividends paid on the Common Shares to U.S. Holders may be subject to U.S. information reporting requirements and the 28% U.S. backup withholding tax. In addition, the proceeds of a U.S. Holder's sale of Common Shares may be subject to information reporting and the 30% U.S. backup withholding tax. Backup withholding will not apply if the holder (i) is a corporation or other exempt recipient or (ii) the holder provides a U.S. taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with any applicable backup withholding requirements. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder's U.S. federal income tax, provided the required information is furnished to the U.S. Internal Revenue Service.

The following discussion summarizes the material Canadian Federal income tax considerations relevant to an investment in the Common Shares by a holder who, for income tax purposes, is resident in the United States and not in Canada, holds the Common Shares as capital property, deals at arm's length with the Company, does not use or hold the Common Shares in carrying on a business through a permanent establishment or in connection with a fixed base in Canada and, in the case of an individual investor, is also a United States citizen. The tax consequences of an investment in the Common Shares by an investor who is not as described above may be expected to differ from the tax consequences discussed herein.

This discussion is based upon the provisions of the Income Tax Act (Canada) (the "Tax Act"), regulations under the Tax Act, specific proposals to amend the Tax Act publicly announced prior to the date hereof, the Canada-United States Income Tax Convention (1980), as amended (the "Convention"), and administrative practices published by Canada Custom and Revenue Agency, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to a holder as otherwise described herein. The discussion does not take in account the tax laws of the various provinces or territories of Canada.

Dividends paid or credited on the Common Shares to U.S. residents will be subject to a Canadian withholding tax. Under the Convention, the rate of withholding tax generally applicable is 15% of the gross amount of the dividends, including stock dividends and payments deemed to be dividends upon the repurchase of Common Shares by the Company, as described below. The rate of withholding tax is reduced if the beneficial owner of the dividend is a company, which owns at least 10% of the voting stock of the Company at the time the dividend, is paid. In this case, the rate is 5% of the gross amount of the dividends.

If Common Shares are purchased by the Company a holder will be deemed to have received a dividend to the extent that the amount paid on the repurchase exceeds the paid-up capital, as defined in the Tax Act, of the Common Shares acquired. The portion, if any, of the acquisition proceeds that are deemed to be a dividend will be subject to Canadian withholding tax on dividends, as described above. Further, the holder will be deemed to have disposed of the Common Shares for the amount paid by the Company for the Common Shares less the amount deemed to have been received as a dividend. If this results in a capital gain to a holder, the tax consequences will be as described below.

Under the Tax Act, a holder will not be subject to Canadian tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition at death, provided that he did not hold the Common Share as capital property used in carrying on a business in Canada, or that neither he nor persons with whom he did not deal at arm's length alone or together owned 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.

A holder who otherwise would be liable for Canadian tax in respect of a capital gain realized on an actual or deemed disposition of a Common Share will be relieved under the Convention from such liability unless:

the Common Share formed part of the business property of a permanent establishment in Canada that the Holder had within the twelve-month period preceding the disposition; or

is an individual and was resident in Canada for 120 months during any 20-year period preceding the disposition,

was resident in Canada at any time during the 10 years immediately preceding the disposition; and owned the Common Share when he ceased to be a resident of Canada

Copies of the most recent annual report, financial statements for the year ended December 31, 2007 and subsequent interim financial statements of the Company may be obtained, upon request, from the Secretary of the Company. The Company may require the payment of a reasonable fee in respect of a request therefore made by a person who is not a security holder of the Company.

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at certain of the SEC’s regional offices at 7 World Trade Center, Suite 1300, New York, NY 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. In addition, the SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We are required to file reports and other information with the securities commissions in British Columbia and Ontario. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with those provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent of the SEC’s electronic document gathering and retrieval system. We ‘‘incorporate by reference’’ information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this report and more recent information automatically updates and supersedes more dated information contained or incorporated by reference in this report. Our SEC file number is 0-12600. As a foreign private issuer, we are exempt from the rules under the Securities Exchange act of 1934, as amended, prescribing the furnishing and content of proxy statements to shareholders. We have included in this report certain information disclosed in our Proxy Statement (Information Circular) prepared under Canadian securities rules. We will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: Norsat International Inc., 110 – 4020 Viking Way, Richmond, British Columbia, Canada V6V 2N2 Attention Corporate Secretary.

The Company is exposed to foreign exchange fluctuations in the U.S. dollar. A stronger Canadian dollar reduces U.S. dollar-denominated revenues and expenses. Net income is also reduced because a higher percentage of revenues than expenses are generated in U.S. dollars. The Company has arranged its long-term debt in U.S. dollars to partially hedge against a stronger Canadian dollar. The Company does not engage in any formal hedging transaction.

Foreign Exchange Effect on Income Statement. The Company’s “Sales” and “Cost of Sales” are predominately denominated in U.S. dollars and the Company’s “Operating Expenses” are predominately denominated in Canadian dollars. Foreign currency revenues and expenses are translated at the exchange rate in effect on the dates of the related transactions, with the impact being reflected immediately in Net Income.

Foreign Exchange Effect on Balance Sheet. U.S. dollar denominated balance sheet accounts are translated into Canadian dollars at the year-end exchange rate for monetary items such as accounts receivable, accounts payable, long-term debt and cash, and at historical exchange rates for non-monetary items. Unrealized gains and losses arising from the translation of the monetary items are included in income immediately as foreign exchange gains/(losses) in the consolidated statement of operations.

Material Modifications to the Rights of Security Holders and Use of Proceeds

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) on a timely basis so that appropriate decisions can be made regarding public disclosure.

An evaluation of the effectiveness of the design and operation of disclosure controls and procedures was conducted as of December 31, 2007, by and under the supervision of the CEO and CFO. Based on this evaluation, the CEO and CFO have concluded that the disclosure controls and procedures, as defined in by Rule 13a-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”) are effective to ensure that (i) information required to be disclosed in reports that are filed or submitted under Canadian securities legislation and the Exchange Act is recorded, processed, summarized and reported within the time periods specified in those rules and forms;

and (ii) material information relating to the Company is accumulated and communicated to the Company’s management, including the CEO and CFO, or persons performing similar functions.

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP and the requirements of the Securities and Exchange Commission in the United States, as applicable. Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company.

The Company’s Chief Executive Office and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures ( as defined in Rule 13a – 5(e) under the United States Securities Exchange Act of 1934, as amended) for the Company. The Chief Executive Officer and Chief Financial Officer have assessed the effectiveness of the Company’s internal control over financial reporting as at Dec. 31, 2007. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based upon their assessment, the CEO and CFO concluded that as of December 31, 2008, the Company’s internal control over financial reporting was effective.

The Company’s management redesigned internal controls following the change in executive management on September 8, 2006. As a result of this review it was determined that there are a number of areas of weakness including segregation of duties and process-level controls at the Company’s UK subsidiary. The Company believes that there are mitigating entity-level controls. Other than the changes noted above in relation to change In personnel and the subsequent review of internal controls there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

While the Company’s CEO and CFO believe that the Company’s internal controls over financial reporting provide a reasonable level of assurance that they are effective, they do not expect that the Company’s disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

Reference is made to “Item 6-C – Board Practices”. Norsat’s Board of Directors has determined that it has at least one audit committee financial expert serving on its Audit Committee. Mr. James Sharpe has been determined to be such audit committee financial expert. The Commission has indicated that the designation of Mr. Sharpe as an audit committee financial expert does not make Mr. Sharpe an “expert” for any other purpose, impose any duties, obligations or liability on Mr. Sharpe that are greater than those imposed on members of the Audit Committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the Audit Committee. Mr. Sharpe is “independent” as that term is defined in the listing standards of the NASDAQ Stock Market.

Mr. Sharpe serves as the chairman of the audit committee of Norsat. Mr. James Sharpe has over twenty-five years of senior-level management experience in the public and private sectors as a

chief executive officer and as a chief financial officer for small to large complex organizations. Mr. Sharpe holds a BA in accounting from the University of Washington, an MBA from Pepperdine University and a MS in International Business from the University of Strathclyde, Scotland.

Norsat’s Code of Ethics, which provides guidelines for the behaviour of all directors, officers and employees, including Norsat’s principal executive officer, principal financial officer and principal accounting officer, in carrying out their responsibilities is posted on the Company web site at www.norsat.com under the heading Investor Information, Corporate Governance, Charters and Policies.

The following table sets forth fees paid by the Company to Ernst &Young LLP for all services in 2007 and 2006:

Audit fees are for the audit of the annual consolidated financial statements. Audit related fees are primarily for services related to review of other statutory filings. Tax fees are primarily for the preparation of Canadian and U.S. corporate tax returns and assistance with tax planning.

From time to time, management of the Company recommends to and requests approval from the audit committee for non-audit services to be provided by the Company’s auditors. The auditor committee routinely considers such requests at committee meetings, and if acceptable to a majority of the audit committee members, pre-approves such non-audit services by a resolution authorizing management to engage the Company’s auditors for such non-audit services, with set maximum dollar amounts for each itemized services. The Audit Committee during their pre-approval process, assess, among other factors, whether the services requested would be considered “prohibited services” as contemplated by the US Securities and Exchange Commission and whether the services requested and the fees related to such services could impair the independence of the auditors.

The Company is providing this share offering document to its employees on a confidential basis. By accepting and retaining a copy of this document, the recipient agrees to keep and hold the information it contains in confidence. Employees may, however, discuss its contents with other employees, their professional advisors and members of their immediate family. Employees should carefully review the information contained in this document before making an investment decision. No Securities Commission or similar regulatory authority has passed on the merits of the securities offered nor has it reviewed this offering document and any representation to the contrary is an offence.

⁽¹⁾ No commission or other fees are being paid in connection with this Offering.

⁽²⁾ As part of this Offering, the Company is also granting to Eligible Employees who purchase Shares under the Offering, one-half of one non-transferable share purchase warrant for each Share purchased. Each whole share purchase warrant (a “Warrant”) entitles the holder to purchase one common share of the Company for 2 years from the closing date of the Offering at a price of $0.48 USD per common share, or such other lower price as may be permitted by the rules and policies of the Toronto Stock Exchange on the closing date of this Offering.

The Company initially adopted its employee share ownership plan (the “Plan”) on June 1, 1991 and amended it on December 5, 2006. The purpose of the Plan is to:

give the Company’s employees an opportunity to participate in the ownership of their employer;

The Plan was registered under the Employee Investment Act (British Columbia) (the "Act") so that Tax Credit Eligible Employees could receive a 20% employee investment tax credit on share purchases under the Plan. See the section headed "Summary of Tax Assistance" for details.

Eligible Employees who want to subscribe for Shares in this Offering must complete the Purchase Form accompanying this Share Offering Document and return it to Aubrey Lam by 2:00 p.m. on January 5, 2007. The Purchase Form must be accompanied by payment (by way of cheque, bank draft or money order made payable to “Norsat International Inc.”) for the number of Shares subscribed for. This Offering is priced in US dollars, but you can pay for the Shares you purchase in either US dollars or the Canadian dollar equivalent. If you want to pay for your Shares in Canadian dollars, you should use the following exchange rate: $1USD = $1.125CDN.

Employees of the Company or its affiliates who fall into one of the following two groups and have been employed by the Company (or a predecessor or an affiliate of the Company) for a period of ONE month are eligible to purchase Shares under the Plan

“Tax Credit Eligible Employees” are those employees who, at the time of purchasing Shares under the Plan, are:

employed by the Company, or by the predecessor or an affiliate of the Company on a continuing basis for an average of at least 20 hours each week or is a Dedicated Contractor Employee or a Seasonal Part Time Employee, and

(Note: employment on a "continuing basis" includes part time employment for not less than 3 months each year for 2 or more consecutive years);

(A "major shareholder" includes a person who, together with their relatives, trusts or companies, holds 10% or more of the Shares of the Company. Employees who may be a "major shareholder" should check the definition in section 1 of the Act).

“Other Eligible Employees” are employees or persons who do not qualify as Tax Credit Eligible Employees but have been defined by the Company’s Board of Directors as Eligible Employees for the purpose of participating under the Plan.

An employee who is either a Tax Credit Eligible Employee or is an Other Eligible Employee is referred to in this Share Offering Document as an “Eligible Employee”.

The Plan allows share offerings to be made to Eligible Employees from time to time. The size, price and period of the current share offering to Eligible Employees are shown on the face page.

The Plan provides that each Eligible Employee has an equal right to purchase Shares.

There are 47 Eligible Employees, of which 39 are Tax Credit Eligible Employees, and 8 are Other Eligible Employees. Each Eligible Employee can purchase up to 28,351 Shares under the Offering.

If the total number of Shares purchased by Eligible Employees in the Offering is less than the total number of Shares offered to Eligible Employees in the Offering (an “Under Subscription”), those Shares not initially purchased (the “Remaining Shares”) will be automatically offered to those Eligible Employees, on the same entitlement basis as in the first round, who have purchased the maximum number of shares allocated to them.

The Plan allows Eligible Employees to purchase shares through a self-directed registered retirement savings plan ("RRSP") if they wish.

The shares under the Plan will qualify as an investment for a RRSP so long as the transferor of such shares is not a “designated shareholder” of the Company for the purposes of the Income Tax Act (Canada).

The transfer of a share of the Company to an RRSP will result in a disposition of such share for an amount equal to its fair market value as at the date of transfer. Assuming the subject shares are capital property of an Eligible Employee, the disposition of such shares will result in a capital gain equal to the excess of the fair market value of the shares over the adjusted cost base of the shares.

The benefits of an RRSP purchase apply to all Canadian resident Eligible Employees.

The comments above are general in nature. Eligible Employees should consult with their own tax advisors regarding the above before making a decision to purchase, or transfer, Shares.

The Plan is registered under the Act. The Province of British Columbia enacted the Act to encourage employee investment for the purposes of job creation, job protection and employee participation in corporate ownership. The Act encourages employee investment by providing for employee investment tax credits to be issued to Tax Credit Eligible Employees who purchase shares under registered employee share ownership plans.

the credit is equal to 20% of the share purchase price (not including the warrant exercise price payable on exercise of the Warrants) paid by the Tax Credit Eligible Employee.

the maximum credit is $2,000 for a calendar year (per person) (= $10,000 of investment/yr.)

if a share purchase under the Plan is made during the first 60 days of a calendar year, the Tax Credit Eligible Employee may claim the tax credit for that calendar year or the previous calendar year.

the value of the tax credit will not be included in the Tax Credit Eligible Employee's income for tax purposes or reduce the adjusted cost base of the shares acquired.

By law only persons who are Tax Credit Eligible Employees (see the section headed "Eligible Employees" for the definition of a "Tax Credit Eligible Employee") can claim a B.C. tax credit on their share purchases under the Plan. Other persons cannot claim a B.C. tax credit even though they may be eligible to buy shares under the Plan as an "Other Eligible Employee".

The Company will apply to the Province for tax credit certificates on behalf of Tax Credit Eligible Employees. The tax credit certificate is then claimed on and filed with the Tax Credit Eligible Employee's income tax return.

A tax credit must be repaid to the Province if a Tax Credit Eligible Employee sells shares purchased under the Plan within 3 years of buying them. The Act seeks to encourage longer term, committed investment. Therefore, tax assistance is withdrawn in the case of investments, which prove to be short term. After expiry of the 3-year period, the shares may be sold in accordance with the Plan without repayment of the tax credit.

To enable monitoring of share transactions, the Act requires that the certificates representing shares purchased by Tax Credit Eligible Employees under the Plan be held in the custody of an authorized depository during the 3-year hold period. RBC Dexia Investor Services Trust is currently the authorized depository. The authorized depository will release the share certificates after expiry of the 3-year period.

All purchasers will receive an investment confirmation from the Company within 30 days of paying for shares purchased under the Plan.

The extent of the Province's involvement in the Plan has been to register it under the Act to allow Tax Credit Eligible Employees to receive the tax assistance described above. The Province has not reviewed the investment merit of the shares being offered by the Company and in no way guarantees an investment in the shares. Assessment of investment merit, adequacy of the Plan, and due diligence review is entirely the responsibility of the investor.

If the legislation governing the Employee Share Ownership Program is amended or repealed, any approval provided by the Ministry in connection with the Company’s Plan, including any approval relating to payment of tax credits to Tax Credit Eligible Employees who purchased shares under the Plan, could be subject to variation or cancellation by the Administrator of the Act.

The Share Valuation Formula is used to determine the price for the Shares offered to Eligible Employees.

Share Value = market price (as defined in the rules and policies of the Toronto Stock Exchange at the time of an Offering) less any discounts permitted by the Toronto Stock Exchange, with the Share Value more particularly identified in the Share Offering Document for any particular Offering

The Share Value Calculation for this offering was made in accordance with the Share Valuation Formula noted above. The Company “reserved”, with the Exchange, the market price of $0.48 USD, and the price of $0.40 USD for the price of the Shares under the Offering is within the Exchange's permitted discount to market price. This price was based on the market price and trading volume of the Company’s shares on the Exchange over the trading days of November 21, 22, 23, 24 and 27, 2006.

A copy of the Company’s most recent audited restated annual financial statements for the year ended December 31, 2005 accompanies this Share Offering Document.

Alterations to the Share Valuation Formula may only be made by the Company with the prior approval of the Administrator of the Act and a majority of the Employee Shareholders.

The issuance of the shares to Eligible Employees by the Company is subject to the Securities Act, RSBC 1996 (British Columbia) and the respective rules and regulations thereunder, which normally requires a prospectus to be prepared and delivered to the purchaser, and any trade in securities be conducted through a registered representative. Because of the time and expense associated with providing a prospectus and obtaining registration, the Company intends to rely upon exemptions from the prospectus and registration requirements contained in Sections 45(2)(10) and 74(2)(9) of the Securities Act (British Columbia) and National Instrument 45-106 Prospectus and Registration Exemptions.

The Company advises you of the resale restrictions which will apply in respect of the Shares and common shares issuable on exercise of your Warrants.

These securities will be subject to a number of resale restrictions, including a restriction on trading under securities legislation. Until the restriction on trading expires, you will not be able to trade the securities unless you comply with an exemption from the prospectus and registration requirements under securities legislation. Unless permitted under securities legislation, you cannot trade the securities before the date that is 4 months and one day after the distribution date (being the date that the Shares are issued under this Offering).

The shares must also be held for 3 years in order to be eligible for Provincial tax credit. Resale within three years of purchase could result in a requirement to repay the Province of British Columbia’s tax credit. See the heading “Summary of Tax Assistance” above for more information about the British Columbia tax credits.

The authorized capital of the Company consists of 75,000,000 common shares of which as of November 30, 2006, 49,562,558 common shares were issued and outstanding. The shares being offered to Eligible Employees under the Plan are common shares.

The holders of common shares are entitled to one vote for each share held at all meetings of shareholders of the Company (other than special class meetings at which only holders of another class of shares are entitled to vote) and, subject to the rights attached to the preferred shares, are entitled to receive, pro rata with all other holders of common shares, such dividends as may be declared by the directors of the Company on the common shares and the remaining assets of the Company in the event of its liquidation, dissolution or winding-up. This is the class of share being offered to Eligible Employees under the Plan.

As at November 8, 2006, the Company has granted the following rights to acquire common shares to the following groups of persons:

If all of the foregoing convertible securities were exercised into common shares of the Company, the Company would have issued and outstanding 58,567,251 common shares.

The Company will use the net proceeds of the Offering for general working capital purposes.

The Company will not use any funds received from the issue of Shares under the Plan for any purpose prohibited by the Act or the Regulations.

The Company may use funds received from the issue of Shares under the Plan for one or more of the uses specified in section 6 (a) of the Act, as described in Appendix “A” of the Plan.

The Plan itself is a detailed legal document. Any Eligible Employee who wishes to examine the Plan, may review the Plan upon request. An Eligible Employee should contact Aubrey Lam to obtain a copy of the Plan.

Under the Plan, the Company has committed to provide the following information to each employee shareholder within 120 days of December 31st in each year

disclosure with respect to major decisions made by the Company during the prior year which materially affect the Share Value;

a summary (including price information) of all new shares issued and options, warrants or conversion rights granted by the Corporation since the last report; and

Since the Company is a reporting issuer, the Company is subject to disclosure requirements of the securities regulatory authorities. Accordingly, all of the Company’s public disclosure, including annual and interim financial statements and related management discussion and analysis, is available on the SEDAR website at www. sedar.com.

After an Eligible Employee purchases Shares and becomes a shareholder of the Company, the Eligible Employee will also be entitled to attend the Company’s annual general meeting, held once a year. The Eligible Employee, as a shareholder of the Company, will receive notice of, and be entitled to vote at, the annual general meeting of the Company, in accordance with the provisions of the Business Corporations Act (British Columbia) and applicable securities legislation.

The Company's constitution provides that the Board of Directors of the Company has authority over management of the Company. The Board of Directors is elected each year by the shareholders at the Company's annual general meeting. There are 4 positions on the Board presently filled by the following persons and there are currently two un-filled vacancies. Between annual general meetings any casual vacancies on the Board of Directors (i.e. due to resignation) may be filled by the remaining directors without the approval of the Company’s shareholders. The following is a list of the Company’s directors and officers, their principal occupations for the past 5 years and their position with the Company:

As a group, the Company’s directors and officers hold, directly and indirectly, 4% of the Company’s outstanding voting shares.

There have been no adverse material changes in the business of the Company since the date of the financial statements included with this Share Offering Document.

The Company is listed on the Toronto Stock Exchange. Copies of press releases, material change reports and financial statements recently filed on public record can be viewed on the Company’s website, www.norsat.com, Investors Relations, Press Release Archive. Eligible Employees who wish to examine the whole of the Company’s public file may do so by visiting the SEDAR website at www.sedar.com.

Eligible Employees should carefully consider the risks and uncertainties described below before making an investment decision to purchase Shares. If any of the following risks actually occur, our business, financial condition or operating results could be materially harmed. This could cause the trading price of our common shares to decline, and you may lose all or part of your investment.

Our inability to generate sufficient cash flows may result in us not being a going concern. Our consolidated financial statements have been prepared on the going concern basis, which presumes the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern basis is dependent upon the Company having sufficient available cash resources and achieving profitable operations to generate sufficient cash flows to fund continued operations, or, in the absence of adequate cash flows from operations, obtaining additional financing. For the year ended December 31, 2005, the Company was not profitable. The Company has previously reported losses and negative cash flows from operations in four of the last five fiscal years. While management believes the Company has sufficient cash flows to continue operations for the next 12 months, the Company may need to rely on additional funding to sustain operations after that point.

Our inability to accurately forecast our results from quarter to quarter may affect our cash resources and result in wide fluctuations in the market price of our stock. Our operating results have varied on a quarterly basis in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are described below. Due to these and other factors, most of which are outside of our control, our quarterly revenues and operating results are difficult to forecast. As a result, we may not be able to accurately predict our necessary cash expenditures during each quarter or obtain financing in a timely manner to cover any shortfalls. We also believe that period-to-period

comparisons of our operating results may not be meaningful and one should not rely on any such comparisons as an indication of our future performance.

We cannot be sure we will be able to identify emerging technology and market trends, enhance our existing technologies or develop new technologies in order to effectively compete in the satellite communications industry. The satellite communications industry is characterized by rapid technological changes, short technology and product life cycles, pressure to provide improved solutions at increasingly lower prices and frequent introduction of new technologies and products. To succeed, we must be able to identify emerging trends and enhance our existing technologies and develop new technologies and products to meet market requirements. To drive sales, our satellite products must meet the needs of our customers and potential customers and must be competitively priced. Additionally, there must be sufficient interest in and demand for our products. If we do not develop these new technologies and products in a timely and cost effective manner, or if others develop new technologies before us, we will not achieve profitability in the satellite communications industry and we may not be able to participate in selling these new technologies or products.

We have customer and supplier concentration. A significant portion of our revenues has been recognized from a limited number of customers. For example, during 2005, the Satellite Systems business unit generated approximately 74% (2004: 87%) of its sales from the United States government. We expect that a majority of our Satellite Systems revenues will continue to depend on sales of products to a small number of customers. We also expect that customers will vary from period-to-period. If we fail to successfully sell our products to one or more targeted customers in any particular period, or are unable to diversify our number of customers and segments, our revenues and profits will be adversely affected. The Company purchases substantially all of its microwave products from four suppliers, and certain critical components for its Omnilink product from sole source suppliers. If any of these suppliers is unable or unwilling to supply to us and at prices that we deem fair, and we are unable to diversify our number and range of suppliers to mitigate this risk, our revenues and profits will be adversely affected.

We cannot be sure that we will be able to compete effectively with our current competitors. The satellite communications industry is intensely competitive. Our competitors have technologies, products and resources that may be more advantageous and they compete directly with us. Some of these competitors are large, established companies which have significantly greater resources than we have. Our ability to compete effectively will depend on our ability to increase sales and attract new customers in a timely and cost effective manner and market and sell these products at competitive prices. We are dependent on others for the supply and manufacture of components and products we sell. We have outsourced substantially all of the manufacturing of the microwave products we sell and, with the progression of the portable satellite systems from development to production, we rely on our suppliers to provide components for the production of these satellite systems. If either the manufacturers or suppliers cannot deliver products to us on time, and at competitive pricing, our revenues and profits will be adversely affected.

We have limited intellectual property protection. Our success and ability to compete are dependent, in part, upon proprietary technology. Due to the rapid technological changes in our markets and since our technology is, in part, proprietary, we rely primarily on trade secrets and we do not have adequate patent applications to protect our technology. We are however continuing to apply for new patent protection as it relates to GLOBETrekker products. We also enter into confidentiality, and non-compete agreements with our employees and limit the access to and distribution of our product design documentation and other proprietary information. We cannot be sure that these efforts will deter misappropriation or prevent an unauthorized third party from obtaining or using information, which we deem to be proprietary. Although we believe that our technology does not currently infringe upon patents held by others, we cannot be sure that such infringements do not exist or will not exist in the future, particularly as the number of products and competitors in our industry segment grows.

If we experience rapid growth and do not manage it effectively, this may impact our profitability. If our technologies and products achieve wide acceptance we may experience rapid growth. We may have to hire more employees, including additional management, improve our financial control systems, and expand and manage our technical, sales and support service operations. We would need increased revenues and additional funding to operate these increased activities. If we do not manage our growth effectively, profitability may be impacted.

We depend on our key employees and we cannot be sure that we will be able to keep these employees or hire and train replacements. Our success depends on the skills, experience and performance of our senior management and other key personnel. While we offer competitive compensation packages and stock options to attract key employees, we do not carry key person insurance on these employees. Highly skilled technical employees and management in the satellite communications industry are in demand and the market for such persons is highly competitive. We cannot be sure that we will be able to retain these employees or hire replacements. If we do not successfully retain our key personnel or hire and train replacements we will be unable to develop the new products and technologies necessary to compete in our markets or to effectively manage our business.

We may be subject to product liability claims, which are not fully covered by insurance. The manufacture sale and marketing of our satellite products expose us to the risk of product liability claims. Given the complex nature of our products, they may contain undetected errors or performance problems, particularly when new products are introduced. Although our products undergo testing prior to introduction to the market, it is typical in the satellite communications industry for such products to contain errors and performance problems, which are discovered after commercial introduction. If these defects and errors are discovered after shipment, they could result in a loss of sales revenues, delay in market acceptance, product returns, warranty claims and the loss of a potential market. In addition, components and other products manufactured and distributed by others, which are incorporated into our products, may also contain such defects and errors, which could substantially reduce the performance of our products. We are also at risk of exposure to potential product liability claims from distributors and end-users for damages resulting from defects in products that we distribute. Although product defects have not been a significant factor, we maintain product liability insurance. We cannot be sure that this insurance will be adequate to cover all claims brought against us or that this insurance will continue to be available to us on acceptable terms. If these claims are not fully covered by our product liability insurance, they could severely and negatively impact our business liability insurance coverage and our available cash resources. A product liability claim, even one without merit or for which we have substantial coverage, could result in significant legal defense costs, thereby increasing our expenses, lowering our earnings and, depending on revenues, potentially resulting in additional losses.

Since we sell our products around the world, we face financial risks associated with currency fluctuations and other risks relating to our international operations, which may adversely impact our business and results of operations. To be successful, we believe we must expand our international operations. Therefore, we expect to commit significant resources in order to expand our international sales and marketing activities, including the hiring of an international sales force and agents. If we do not maintain or increase international market demand for our products, our business will be negatively impacted. We are increasingly subject to a number of risks associated with international business activities, which may increase our costs, lengthen our sales cycle and require significant management attention. These risks include:

Unexpected changes in regulatory requirements resulting in unanticipated costs and delays;

Longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and

Potentially adverse tax consequences, including restrictions on the repatriation of earnings.

While we expect our international revenues and expenses to be denominated primarily in US dollars, a portion of our international revenues and expenses may be denominated in other foreign currencies in the future. Accordingly, as our reporting currency is the Canadian dollar, we could experience the risks of fluctuating currencies and could choose to engage in currency hedging activities, which may be unsuccessful and expensive.

Federal and provincial tax treatment of dividends and of capital gains has an impact on the attractiveness of an investment in the Shares. The return on the investment is subject to changes in tax laws and the administrative

interpretation of tax laws. There can be no assurances that tax laws will not change in the manner that will alter the consequences to an investor holding or disposing of the Shares. No advance income tax ruling has been applied for or received with respect to the income tax consequences set out in this Share Offering Document. Before making an investment, each investor should obtain his or her own independent tax advice.

The Act allows for Provincial cost sharing assistance to employee groups that obtain independent professional advice relating to the negotiation, evaluation and implementation of a registered employee share ownership plan. Reimbursement of 50% of eligible costs up to $2,500 may be applied for in any calendar year. For more information about cost sharing for employee groups, contact the Investment Capital Branch of the Ministry of Economic Development at 1-800-665-6597.

This document contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made.

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

In connection with the Annual Report of Norsat International Inc. (the “Company”) on Form 20F for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Amiee Chan, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

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

In connection with the Annual Report of Norsat International Inc. (the “Company”) on Form 20F for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eugene Syho, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

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

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

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the period covered by this report;

Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the end of the period covered by this report;

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the period covered by this report;

Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the end of the period covered by this report;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.


☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
X	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31^st, 2007
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________
	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report


TABLE I	Last Six Months Ended
	2008		2007
	Feb.	Jan.	Dec.	Nov.	Oct.	Sep.
High for period	0.9854	1.0088	0.9914	1.0020	0.9545	0.9986
Low for period	0.9755	0.9982	0.9801	0.9937	0.9440	0.9913


TABLE II	Year Ended December 31
	2007	2006	2005	2004	2003
Average for period	1.0767	1.1344	1.2116	1.3015	1.4015

		2007		2006		2005
Canada	$	582,901	$	935,400	$	448,521
United States		11,643,016		9,192,540		15,596,375
Europe and other		5,355,555		5,128,256		2,071,574
	$	17,581,472	$	15,256,196	$	18,116,470


Sales ($000’s)	Three Months Ended (2007) (unaudited)				Year Ended (audited)
Sales ($000’s)	Mar 31	Jun 30	Sep 30	Dec 31	2007	2006
Microwave	$2,683	$2,497	$2,504	$2,110	$ 9,794	$ 8,995
Satellite Systems	1,725	2,030	1,450	2,582	7,787	6,261
	$4,408	$4,527	$3,954	$4,692	$17,581	$15,256


Title of each class		Name of each exchange on which registered
N/A		N/A


Gross Margin	Three Months Ended (2007) (unaudited)				Year Ended (audited)
Gross Margin	Mar 31	Jun 30	Sep 30	Dec 31	2007	2006
Microwave	46%	53%	49%	42%	48%	43%
Satellite systems	63%	66%	51%	51%	58%	38%
Combined	53%	59%	50%	47%	52%	41%


Operating Costs ($000’s)	Three Months Ended (2007) (unaudited)				Year Ended (audited)
Operating Costs ($000’s)	Mar 31	Jun 30	Sep 30	Dec 31	2007	2006
S G & A	$1,312	$1,532	$1,238	$1,598	$ 5,680	$ 7,743
Product development	261	186	237	106	790	1,768
Amortization	75	85	95	98	353	505
	$1,648	$1,803	$1,570	$1,802	$6,823	$10,016


Earnings (loss) (in 000’s) except earnings per share	Three Months Ended (2007) (unaudited)				Year Ended (audited)
Earnings (loss) (in 000’s) except earnings per share	Mar 31	Jun 30	Sep 30	Dec 31	2007	2006
Earnings from operations before other expenses and taxes	$681	$872	$390	$399	$2,342	($3,791)
Other expenses	140	292	215	173	820	607
Earnings from operations before taxes	$541	$580	$175	$226	$1,522	($4,397)
Net earnings per share, basic and diluted before income taxes	$0.01	$0.01	$0.003	$0.004	$0.03	($0.09)


Sales ($000’s)	Three Months Ended (2006) (unaudited)				Year Ended (audited)
Sales ($000’s)	Mar 31	Jun 30	Sep 30	Dec 31	2006	2005
Microwave	$1,913	$2,317	$2,468	$2,297	$ 8,995	$10,052
Satellite Systems	1,006	1,447	681	3,127	6,261	8,064
	$2,919	$3,764	$3,149	$5,424	$15,256	$18,116


CONTRACTUAL OBLIGATIONS	Less than 1 year	1 to 3 years	3 to 5 years	Over 5 years
	$	$	$	$
Forward Exchange Contract	10,197			
Inventory purchase obligation	2,578,761			
Operating lease obligations	540,406	1,375,328		
Total	3,129,364	1,375,328		


		2007
Chairman of Board of Directors		$20,000
Chairman of Audit Committee		$15,000
Other Board Members		$10,000


Name	Total Compensation ($)	Directors Fees ($)	Benefits	Securities under Options Granted
Ugo Doninelli	23,000	23,000	Nil	325,000
Joseph Caprio ¹	13,000	13,000	Nil	100,000
James Sharpe ²	18,000	18,000	Nil	100,000
Christopher Hoyle ²	13,000	13,000	Nil	100,000


	December 31, 2007	December 31, 2006	December 31, 2005
Senior Management	3	4	4
Research and Development	`	10	14
Sales and Marketing	9	6	10
Finance	5	3	3
Other Administration	4	7	9
Production and Logistics	15	10	13
Total	45	40	53


	Canada	United States	Other	Total
2007	40	3	2	45
2006	35	2	3	40
2005	48	2	3	53


Name, Position, Country of residence	Number of common shares owned ^{(1) and (3)}	As a % of outstanding common shares	Number of common share purchase warrants owned
Ugo A. Doninelli⁽²⁾ (Chairman) Switzerland	2,135,903 ⁽²⁾	4.20%	75,164
James Sharpe (Vice Chairman) USA	36,663	0.10%	18,331


Joseph Caprio (Director) USA	50,000	0.10%	25,000
Christopher Hoyle (Director) UK	Nil	Nil	Nil
Amiee Chan (President and CEO) Canada	235,000	0.05%	112,500
William R. Witten (VP, Sales) USA	125,000	0.25%	62,500
Pervez R. Siddiqui (VP, Marketing) Canada	11,000	0.02%	5,500
Michael Schefter (Director, Engineering) Canada	10,000	0.02%	5,000



Amiee Chan	Eugene G. Syho
President and Chief Executive Officer	Chief Financial Officer

		2007			2006
Assets
Current assets:
Cash (note 4)	$	680,519		$	1,793,187
Short-term investments – restricted (note 5)		99,635			69,500
Accounts receivable (note 6)		3,402,111			2,799,554
Inventory (note 7)		4,153,680			3,456,988
Prepaid expenses and other		115,275			372,982
		8,451,220			8,492,211
Long-term prepaid expenses and other		10,000			-
Property and equipment (note 8)		983,332			1,314,986
Deferred finance costs		-			13,561
	$	9,444,552		$	9,820,758
Liabilities and Shareholders' Equity
Current liabilities:
Operating Line of Credit (note 11)	$	495,650		$	-
Accounts payable		1,270,010			1,666,250
Accrued liabilities		1,549,061			1,848,632
Deferred revenue		327,090			467,731
Convertible debt (note 12)		-			2,255,252
		3,641,811			6,237,865
Long–term liabilities:
Long-term deferred revenue		56,141			-
Shareholders' equity:
Share capital (note 13(b))		45,242,762			44,854,902
Contributed surplus (note 13(e))		5,153,442			2,708,991
Equity component of convertible debt (note 12(a))		-			2,190,779
Deficit		(44,649,604	)		(46,171,779	)
		5,746,600			3,582,893
	$	9,444,552		$	9,820,758

Asset	Period
Equipment	3 to 5 years
Software	3 years
Furniture and fixtures	10 years


Classification	Carrying Value	Fair Value
	$000’s	$000’s
Held-for-trading	780	780
Loans and receivables	3,402	3,402
Held-to-maturity	-	-
Other liabilities	3,315	3,315

		2007		2006
Gross accounts receivable balance, beginning of year	$	2,997,724	$	3,209,579
Increase (decrease) in accounts receivable		448,684		(211,855	)
Gross accounts receivable balance, end of year (a)	$	3,446,408	$	2,997,724

		2007			2006
Allowance balance, beginning of year	$	198,170		$	254,794
Allowance (recovery)		(153,873	)		(56,624	)
Allowance balance, end of year (b)	$	44,297		$	198,170
Net accounts receivable balance, end of year (a-b)	$	3,402,111		$	2,799,554

		2007		2006
Parts and supplies	$	2,063,332	$	2,403,788
Work-in-process		180,695		148,394
Finished goods		3,167,552		2,824,687
Gross inventory balance, end of year (a)	$	5,411,579	$	5,376,869

		2007			2006
Obsolescence balance, beginning of year	$	1,919,881		$	1,050,343
Allowance (recovery)		(661,982	)		869,538
Obsolescence balance, end of year (b)	$	1,257,899		$	1,919,881
Net inventory balance, end of year (a-b)	$	4,153,680		$	3,456,988

				Accumulated		Net book
2007		Cost		amortization		value
Equipment	$	6,600,292	$	6,475,862	$	124,430
Software		736,189		387,488		348,701
Furniture and fixtures		47,909		20,661		27,248
Leasehold improvements		643,108		160,155		482,953
	$	8,027,498	$	7,044,166	$	983,332
				Accumulated		Net book
2006		Cost		amortization		value
Equipment	$	6,678,862	$	6,521,844	$	157,018
Software		757,331		327,336		429,995
Furniture and fixtures		214,616		98,217		116,399
Leasehold improvements		643,108		31,534		611,574
	$	8,293,917	$	6,978,931	$	1,314,986

		2007			2006
Balance, beginning of year	$	2,255,252		$	2,255,252
Interest Accretion		75,656			-
Foreign exchange		(21,708	)		-
Payment		(2,309,200	)		-
Balance, end of year	$	-		$	2,255,252

	Number		Amount
Share capital	of shares		$
Balance, December 31, 2005	42,708,082		41,415,794
Upon issue for private placement (ii)	4,086,976		2,205,892
Upon exercise of share purchase options (note 13(c))	267,500		132,062
Upon conversion of convertible debentures (iii)	2,500,000		1,009,201
Reclassification of contributed surplus upon exercise of options (note 13(e))			91,953
Balance, December 31, 2006	49,562,558		44,854,902
Upon issue for private placement (i)	1,065,968		371,786
Upon exercise of share purchase options (note 13(c))	12,000		7,200
Reclassification of contributed surplus upon exercise of options (note 13(e))		-	5,079
Upon exercise of warrants (note 13(e))		5,500	2,813
Reclassification of contributed surplus upon exercise of warrants (note 13(e)) -			982
Balance, December 31, 2007	50,646,026		45,242,762

			Weighted average
Share purchase options outstanding	Number of options		xercise price
Balance, December 31, 2005	2,530,150		$	1.59
Granted	549,000			0.89
Exercised	(267,500	)		0.49
Forfeited	(863,500	)		1.44
Balance, December 31, 2006	1,948,150		$	1.57
Granted	272,000			0.74
Exercised	(12,000	)		0.60
Expired	(175,000	)		2.63
Cancelled	(295,700	)		1.38
Forfeited	(203,000	)		0.70
Balance, December 31, 2007	1,534,450		$	1.24


	Options outstanding			Options exercisable
Range of exercise prices	Number of options outstanding	Weighted average remaining contractual life(years)	Weighted average exercise price	Number of options exercisable	Weighted average exercise price
$0.50 to $2.39	1,345,950	2.83	$0.83	868,950	$0.97
$2.40 to $4.29	94,250	3.76	2.95	94,250	2.95
$4.30 to $6.19	94,250	3.76	5.32	94,250	5.32
$0.50 to $6.19	1,534,450	2.95	$1.24	1.057,450	$1.54

	2007	2006
Total stock-based compensation recognized in
operations and credited to contributed surplus	84,656	62,246


	2007	2006
Risk free interest rate	4.066%	3.909%
Expected remaining life (years)	3.500	3.7574
Vesting period	2 years	2 years
Expected volatility	80.65%	86.22%
Expected dividends	nil	nil

Balance, December 31, 2005	2,536,811
Issued (note 13(b)(ii)(iii))	4,315,232
Expired	(1,330,000	)
Balance, December 31, 2006	5,522,043
Issued (note 13(b)(i))	532,984
Exercised	(5,500	)
Balance, December 31, 2007	6,049,527


Expiry date	8-Apr-09	3-Mar-08	6-Nov-08	12-Jan-09	Total
Exercise price	Cdn$1.09	US$0.475	US$0.45	US$0.48	Number of warrants outstanding
Balance, December 31, 2006	1,206,811	3,065,232	1,250,000	-	5,522,043
Upon issue for private placement Warrants Exercised	- -	- -	- -	532,984 (5,500)	532,984 (5,500)
Balance, December 31, 2007	1,206,811	3,065,232	1,250,000	527,484	6,049,527

Balance, December 31, 2005	$	1,771,473
Stock-based compensation		62,246
Credit to share capital due to options exercised		(91,953	)
Proceeds from private placement to warrants (note 13(b)(ii))		747,918
Proceeds from conversion of debenture to warrants (note 13(b)(iii))		219,307
Balance, December 31, 2006	$	2,708,991
Stock-based compensation		84,656
Options exercised		(5,078	)
Proceeds from private placement to warrants (note 13(b)(i)))		95,128
Proceeds from ESPP to January 2007 warrants (note 13(b)(i))		79,948
Warrants exercised from January 2007 warrants		(982	)
Equity component of long term debt (note 12(a)(b))		2,190,779
Balance, December 31, 2007	$	5,153,442

	Workforce reduction		Premises		Total
Liability balance, December 31, 2005	16,004		94,275		110,279
Costs paid or settled and adjustments	(16,004	)	(94,275	)	(110,279	)
Liability balance, December 31, 2006	-		-		-

				Provincial		Federal
Year of		Non-capital loss		investment		investment
Expiry		carry forwards		tax credits		tax credits
2008		5,238,000		-		-
2009		3,845,000		-		-
2010		7,416,000		-		-
2011		-		55,841		192,000
2012		-		194,411		350,000
2013		-		127,713		300,000
2014		-		14,216		26,000
2015		3,710,000		-		-
2026		1,783,000		75,850		136,530
2027		-		75,850		136,530
	$	21,992,000	$	543,881	$	1,141,060

	December 31, 2007				December 31, 2006
	Canadian		US		Canadian		US
	GAAP		GAAP		GAAP		GAAP
`							(restated – (d))
Deferred finance costs (d)	-		-		13,561		10,143
Convertible debt (d)	-		-		2,255,252		2,330,800
Share capital (d - f)	45,242,762		119,786,229		44,854,902		119,398,369
Contributed surplus (b - f)	5,153,442		2,467,517		2,708,991		2,235,009
Equity component of
long-term debt (d)	-		-		2,190,779		-
Deficit (a - f)	(44,649,604	)	(116,507,145	)	(46,171,779	)	(118,129,449	)

		2005
		(restated – (d))
Net earnings (loss), US GAAP	$	(5,169,890	)
Additional stock compensation
recovery (expense)		(621,681	)
Pro-forma net (loss) earning, US GAAP	$	(5,791,571	)
Pro-forma basic and fully diluted net
(loss) earnings per share, US GAAP	$	(0.14	)