OMB Number: 3235-0288

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F/A

Amendment No .2

NORSAT INTERNATIONAL INC.

British Columbia, Canada

(Mark One)

[   ]	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 31st, 2005
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

Commission file number:  0-12600

Norsat International Inc.

(Exact name of Registrant as specified in its charter)

British Columbia, Canada

(Jurisdiction of incorporation or organization)

110 – 4020 Viking Way, Richmond, BC, Canada V6V 2N2

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

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

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

N/A

Title of Class

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

Common Shares

Title of Class

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. 42,708,082 common shares.

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

Yes___

No_X_

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.

Yes___

No_X_

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.

[X]   Yes [   ]  No

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

[X]   Item 17  [   ] Item 18

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.

Large accelerated filer___

Accelerated filer___

Non-accelerated filer_X_

(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   

2

EXPLANATORY NOTE

This Amendment No. 2 on Form 20-F/A (the “Amendment”) is being filed solely to restate the consolidated financial statements for the fiscal year ended December 31, 2005 which was filed on April 6, 2006 and as a result we are updating the Item 8 “Financial Information”, Part I. The restatement has no impact on the consolidated financial statements under Canadian GAAP other than note 22 “Reconciliation to United States accounting principles” (note 22 and 24 under Item 8) and note 1 “Nature of Business and Basis of Presentation”.

The amendment does not revise any other information presented in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2005 as originally filed. In connection with this Amendment No. 2, the Company is including the certifications required by Rule 13a-14(a) of the Security and Exchange Act of 1934, as amended.

This Amendment does not reflect events occurring after the filing of the original Form 20-F and does not modify or update the disclosure therein in any way, other than as required to reflect the amendments discussed above. As a result, this Amendment continues to speak as of December 31, 2005.  

3

PART I

8.     Financial Information

A.    Consolidated Financial Statements (Restated)

NORSAT INTERNATIONAL INC.

Consolidated Financial Statements (Restated)

(Years ended December 31, 2005, 2004 and 2003)

STATEMENT OF MANAGEMENT’S RESPONSIBILITY

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 restated consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada 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 restated consolidated financial statements and their report follows.

Amiee Chan	Cathy Zhai
President and Chief Executive Officer	Chief Financial Officer

AUDITORS’ REPORT

To the Shareholders of

Norsat International Inc.

We have audited the consolidated balance sheet of Norsat International Inc. as at December 31, 2005 and the consolidated statement of operations and deficit and cash flows for the year ended December 31, 2005. These restated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these restated financial statements based on our audits.

We conducted our audit 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 financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting.  An audit includes 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 in 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 audit provides a reasonable basis for our opinion.

In our opinion, these restated consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2005 and the results of its operations and its cash flows for the year ended December 31, 2005 in conformity with Canadian generally accepted accounting principles.

The comparative figures for the preceding years ended December 31, 2004 and 2003 were audited by other auditors who expressed an opinion without reservation on those statements in their report dated February 11, 2005.  

As described in Note 22 and Note 24, the accompanying financial statements of the Company as at December 31, 2005 and for the year then ended have been restated. We therefore withdraw our previous report dated March 6, 2006.

Vancouver, Canada

March 6, 2006 (except as to Notes 1, 22 and 24

Chartered Accountants

which is as of November 10, 2006)

1

COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE

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 6, 2005 (except as to Notes 1, 22 and 24 which are as of November 10, 2005) 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.

Vancouver, Canada,

Ernst & Young LLP

November 10, 2006

Chartered Accountants

2

NORSAT INTERNATIONAL INC.

Consolidated Balance Sheets

(See Note 1 - Nature of Business and Basis of Presentation)

(Expressed in Canadian dollars)

December 31, 2005 and 2004

		2005				2004
Assets
Current assets:
Cash and cash equivalents (note 3(b))	$	1,789,857			$	4,978,210
Cash Held in Trust (note 3(a))		668,281				-
Short-term investments - restricted (note 2(h))		37,000				72,000
Accounts receivable (note 4)		2,954,784				1,966,298
Inventory (note 5)		3,973,806				3,433,155
Prepaid expenses and other		369,789				228,178
		9,793,518				10,677,841
Property and equipment (note 6)		713,500				1,049,267
Goodwill (note 7)		-				440,095
Deferred finance costs		17,054				31,727
	$	10,524,072			$	12,198,930
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	2,641,129		$		729,661
Accrued liabilities (note 11)		1,870,211				1,780,970
Liabilities from discontinued operations (note 13)		52,112				51,648
Deferred revenue (note 2(e))		398,337				73,271
		4,961,789				2,635,550
Long-term debt (note 9)		2,007,942				1,467,594
Shareholders' equity:
Share capital (note 10)		41,415,794				40,901,057
Contributed surplus (note 10)		1,771,473				1,220,009
Equity component of long-term debt (note 9)		2,190,779				1,909,127
Deficit		(41,823,705	)			(35,934,407	)
		3,554,341				8,095,786
	$	10,524,072			$	12,198,930

Commitments (note 15)

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

“ Ugo A. Doninelli”

“James Sharpe”

Ugo A. Doninelli

James Sharpe

3

NORSAT INTERNATIONAL INC.

Consolidated Statements of Operations and Deficit

(See Note 1 - Nature of Business and Basis of Presentation)

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

		2005			2004			2003
Sales	$	18,116,470		$	17,520,675		$	12,980,269
Cost of sales		9,992,401			9,595,855			9,292,628
		8,124,069			7,924,820			3,687,641
Expenses:
Selling, general and administrative		9,621,993			5,251,451			5,744,876
Product development		2,275,766			1,494,756			3,313,171
Technology Partnerships Canada funding (note 8)		-			(620,000	)		(667,467	)
Amortization		625,814			621,220			1,101,998
Restructuring charge (note 11)		-			-			1,232,680
		12,523,573			6,747,427			10,725,258
Earnings (loss) from continuing operations before
Other expenses and income taxes		(4,399,504	)		1,177,393			(7,037,617	)
Other expenses (note 19)		1,488,003			753,515			1,077,871
Earnings (loss) from continuing operations before
income taxes		(5,887,507	)		423,878			(8,115,488	)
Income tax expense (recovery) (note 12)		1,791			(5,344	)		53,241
Earnings (loss) from continuing operations		(5,889,298	)		429,222			(8,168,729	)
Recovery (loss) from discontinued
operations (note 13)		-			724,116			(76,295	)
Net earnings (loss)		(5,889,298	)		1,153,338			(8,245,024	)
Deficit, beginning of year		(35,934,407	)		(37,087,745	)		(28,842,721	)
Deficit, end of year	$	(41,823,705	)	$	(35,934,407	)	$	(37,087,745	)
Earnings (loss) per share – basic and diluted
(note 2(i)):
Continuing operations	$	(0.14	)	$	0.01		$	(0.23	)
Discontinued operations	$	-		$	0.02		$	-
Net earnings (loss)	$	(0.14	)	$	0.03		$	(0.23	)

See accompanying notes to consolidated financial statements.

4

NORSAT INTERNATIONAL INC.

Consolidated Statements of Cash Flows

(See Note 1 - Nature of Business and Basis of Presentation)

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

		2005			2004			2003
Cash provided by (used in):
Operations:
Earnings (loss) from continuing operations	$	(5,889,298	)	$	429,222		$	(8,168,729	)
Items not involving cash:
Amortization		625,814			621,220			1,101,998
Loss (gain) on disposal of property and
equipment		-			(2,411	)		281,450
Interest accreted on long-term debt and
deferred finance cost amortization (note 19)		261,100			330,046			299,785
Write off of goodwill (note 7)		440,095			-			-
Change in conversion price of Note (note 9(b))		374,818			-			-
Foreign exchange (gain) loss		25,570			(22,213	)		141,268
Stock-based compensation		833,116			135,890			11,367
Changes in non-cash operating working
capital (note 18)		655,027			(509,131	)		2,153,422
Cash provided (used in) continuing operations		(2,673,758	)		982,623			(4,179,439	)
Recovery (loss) from discontinued operations		-			724,116			(76,295	)
Items not involving cash:
Changes in non-cash working capital and other		464			(840,174	)		158,685
Cash provided by (used in) discontinued operations		464			(116,058	)		82,390
		(2,673,294	)		866,565			(4,097,049	)
Investments:
Net purchase of property and equipment		(290,048	)		(185,332	)		(98,497	)
Redemption (purchase) of short-term investments		35,000			178,000			(178,035	)
		(255,048	)		(7,332	)		(276,532	)
Financing:
Proceeds on exercise of warrants		514,737			1,631,569			17,416
Issue of common shares and units		-			-			4,420,715
Receipt of restricted cash for private placement		(668,281	)		-			-
		(153,544	)		1,631,569			4,438,131
Effect of change in exchange rates on cash		(106,467	)		(93,733	)		(391,220	)
Increase (decrease) in cash and cash equivalents		(3,188,353	)		2,397,069			(326,670	)
Cash and cash equivalents, beginning of year		4,978,210			2,581,141			2,907,811
Cash and cash equivalents, end of year	$	1,789,857		$	4,978,210		$	2,581,141

Supplemental cash flow disclosure (note 18)

See accompanying notes to consolidated financial statements.

5

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

1.

Nature of Business and Basis of Presentation:

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 $41,823,705 as at 31 December, 2005. Consequently, there is substantial doubt about its ability to continue as a going concern. Management has been able, thus far, to finance the operations through a series of convertible debt and equity financings. However, there are no assurances that any additional equity or debt financing can be obtained on favorable terms, if at all. Management plans to keep its operating costs to a minimum until cash is available through financing or operating activities.  There is no assurance that the Company will be successful in achieving these goals.

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.

2.

Significant accounting policies:

These financial statements have been prepared in accordance with generally accepted accounting principles in Canada, which materially conform with those established in the United States, except as explained in note 22.

(a)

Principles of consolidation:

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

(b)

Stock-based compensation:

Effective January 1, 2002 the Company adopted the fair value based method of accounting prescribed by the Canadian Institute of Chartered Accountants (“CICA”) section 3870, “Stock-Based Compensation and Other Stock-Based Payments”, for stock-based payments to non-employees.  

In 2003, CICA section 3870 was amended to require the fair value method to be applied to all employee stock-based compensation awards for fiscal years beginning on or after January 1, 2004.  During the fourth quarter of 2003, the Company elected to early adopt the fair value method to their employee awards, effective January 1, 2003.  Under the prospective method of adoption selected by the Company, the fair value method is applied to all employee awards granted on or after January 1, 2003.  During 2004 and 2003, the Company granted stock options to employees having weighted average fair values of $0.42 and $0.24 per option, respectively.  The fair values were

6

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

determined using the Black-Scholes option pricing model and the following weighted average assumptions:  option life of three years (2003 - three years), no dividends (2003 - no dividends), expected annual volatility of 78% (2003 - 89%), and risk free interest rate of 3.3% (2003 - 3.0%).  The total compensation expensed in 2004 was $135,890 (2003 - $11,367) and is included in selling, general and administrative expense.  The total compensation expensed in 2005 was $833,116 (2004 - $135,890) and is included in selling, general and administrative expense.

If compensation cost for the Company's employee awards issued during the year ended December 31, 2002 had been determined based on the fair value method at the applicable grant dates, the Company’s pro forma net loss for the year ended December 31, 2005 would have increased by $48,875 to $5,938,173 and net earnings per common share would remain unchanged. Comparatively If compensation cost for the Company's employee awards issued during the year ended December 31, 2002 had been determined based on the fair value method at the applicable grant dates, the Company’s pro forma net earnings for the year ended December 31, 2004 would have decreased by $48,875 to $1,104,463 and net earnings per common share would remain unchanged.  

The weighted average fair value of options granted during 2002 was $0.90.  The fair value of options was determined using the Black-Scholes option pricing model assuming an average option life of three years, no dividends, expected annual volatility of 93%, and risk-free interest rates of 3%.

The Company’s stock-based compensation plan is described in note 10(d).

(c)

Cash and cash equivalents:

Cash equivalents include short-term deposits, which are all liquid securities with terms to maturity of three months or less when acquired.

(d)

Inventory:

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.  

(e)

Revenue recognition:

The Company generates revenue from the sale of microwave products and portable terminal hardware and services.

Hardware sales are recognized when goods are shipped and the title passes, there is persuasive evidence of an arrangement, collection is probable and the fee is fixed or determinable.  Provisions

7

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

are established for product returns and warranty costs at the time revenue is recognized.  If there is a requirement for customer acceptance of any products shipped, revenue is only recognized after customer acceptance has been received.  For multiple element sales arrangements, revenue is allocated by the residual value method whereby the fair value of undelivered elements is determined by reference to objective evidence at the inception of the arrangement from comparable arrangements with the balance of the fees assigned to the delivered elements.  Revenue is recognized for each element when all of the criteria for revenue recognition have been met.  When fair value cannot be determined, revenue is deferred until objective evidence exists or recognized as the final elements are delivered.  Elements included in multiple element arrangements may consist of some hardware, training and installation services, and post contract support services.

For long-term contracts, revenue is recognized on a percentage-of-completion basis based upon achievement of specifically identifiable milestones as set out in the contractual arrangement.

Revenue that has been paid but does not yet qualify for recognition under the Company’s policies are reflected as deferred revenue.  As at December 31, 2005, the Company has $398,337 (2004 - $73,271) of deferred revenue.

(f)

Property and equipment:

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:

Asset	Period
Equipment and software	3 to 10 years
Furniture and fixtures	10 years

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 on an annual basis or 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.

(g)

Goodwill and other intangible assets:

Goodwill represents the excess of the purchase price paid over the fair value of the identifiable assets acquired and liabilities assumed.  Goodwill is no longer amortized, but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

8

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

(h)

Short-term investments:

Included in short-term investments are securities with terms to maturity of in excess of three months when acquired.  The investments are restricted and secure issued letters of guarantee.

(i)

Net earnings (loss) per share:

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 continuing 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.

	2005	2004	2003
Weighted-average number of common
shares outstanding - basic	42,517,878	40,282,436	36,100,784
Assumed exercise of stock options	-	21,903	-
Assumed exercise of warrants	-	416,275	-
Weighted-average number of common
shares outstanding - diluted	42,517,878	40,720,614	36,100,784

The calculation of assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive options.   Where its effect was anti-dilutive, assumed exercise of those particular stock options were not included.  The calculation of assumed exercise of stock options and warrants exclude all anti-dilutive options and warrants.  These are options and warrants that would not be recognized because their exercise price is higher than the average market price of the Company’s common share for each of the periods shown in the table.  

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

The 2003 & 2005 balances do not include any assumed conversions as net losses were reported for this period and therefore their effect would be anti-dilutive.

9

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

 (j)

Use of estimates:

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, the valuation of future income tax assets, useful lives for depreciation and amortization, and provisions for warranties and contingencies.  Actual amounts may ultimately differ from these estimates.

(k)

Research and development costs:

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 2005, 2004 and 2003, 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.

(l)

Deferred finance costs:

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

(m)

Income taxes:

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.

10

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

(n)

Foreign currency translation:

The reporting and functional currency of the Company is the Canadian dollar. Foreign currency transactions entered into directly by the Company, as well as 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.

3.

Cash and Cash Equivalents:

(a)

Cash Held in Trust:

Cash held in trust represents share subscription proceeds received in advance of the private placement financing completed subsequent to December 31, 2005, as disclosed in note 23, Subsequent event.  The funds were segregated and held in trust until the receipt of final regulatory approval. The balance of $668,281 is also included in Accounts Payable at December 31, 2005.  

(b)

Credit Facility:

The Company has a credit facility with a major Canadian financial institution.   The facility includes a line of credit in the amount of $700,000 available through cash or letters of credit or letters of guarantee.  The facility bears interest at prime plus 1.75% per annum.  The security under this facility consists of a first security interest over all of the Company’s assets.  The lender may cancel the credit facility at any time.  The Company is currently unable to access this facility, as it is not in compliance with one of the three required covenants. As at December 31, 2005 no amounts have been drawn under this facility. (December 31, 2004 –nil)

4.

Allowance for doubtful accounts:

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

		2005		2004			2003
Balance, beginning of year	$	28,329	$	63,704		$	263,663
Allowance (Recovery)		226,465		(35,375	)		(199,959	)
Balance, end of year	$	254,794	$	28,329		$	63,704

11

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

5.

Inventory:

		2005		2004
Parts and supplies	$	1,881,962	$	1,093,876
Work-in-process		255,069		78,026
Finished goods		1,836,775		2,261,253
Balance, end of year	$	3,973,806	$	3,433,155

6.

Property and equipment:

				Accumulated		Net book
2005		Cost		amortization		value
Equipment and software	$	8,513,655	$	8,122,185	$	391,469
Furniture and fixtures		1,054,030		875,863		178,167
Leasehold improvements		682,041		538,178		143,864
	$	10,249,726	$	9,536,226	$	713,500
				Accumulated		Net book
2004		Cost		amortization		value
Equipment and software	$	8,273,534	$	7,665,354	$	608,180
Furniture and fixtures		1,010,747		801,265		209,482
Leasehold improvements		682,041		450,436		231,605
	$	9,966,322	$	8,917,055	$	1,049,267

7.

Goodwill:

Goodwill relating to the Company’s microwave products operating segment was written off during the year, (2004 - $440,095). The goodwill relates to a business line no longer being serviced.  

8.

Technology Partnerships Canada funding:

On October 17, 2000, the Company entered into an agreement with Technology Partnerships Canada (“TPC”) whereby TPC would provide funding of 33 1/3% of eligible spending related to the research and development of a communications Satellite Interactive Terminal (“SIT”) technology development project to a maximum cumulative funding amount of $9,379,700.

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

12

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

at the market price on the date of issue with the number of warrants issued to be determined using the Black-Scholes pricing model.  The Company recorded the fair value of the required obligation to issue warrants as a $1,000,000 deferred royalty payment in other assets and as an addition to contributed surplus.  The deferred royalty was amortized pro-rata as funding was receivable under the contract.

Beginning January 1, 2003, the Company was to accrue royalty obligations in the amount of 1.88% of revenue on legacy products up to a maximum of $4,689,850, and a royalty of 1.28% of new SIT technology products.  The royalty period began on January 1, 2003 and ends on the earliest of the following dates:

·

the date before December 31, 2006, for which cumulative royalties accrued reach $15 million

·

on December 31, 2006, or the date after, if by that date the cumulative royalties accrued equal or exceed $13,171,300

·

otherwise on December 31, 2009.

8.

Technology Partnerships Canada funding (continued):

In the event and at the time that the warrants are issued as required above, the SIT royalty will be reduced from 1.28% to 1.03%.  As the warrants were issued on April 28, 2004 the royalty was reduced effective the same date.

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%.

On September 28, 2004 the Company amended this agreement with TPC.  Under the amended agreement the cumulative funding amount was increased to $9,999,700 representing additional funding of $620,000.  In addition, the royalty payment period was amended to commence on January 1, 2004 and end on the earliest of the following dates:

·

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

·

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.

During 2004 the Company recognized TPC funding in the amount of $620,000 (2003 - 667,467) representing the final funding under the Company’s amended agreement.  Cumulative funding as at December 31, 2004 was $9,999,700 (2003 - $9,379,700) of which $102,527 was included in accounts receivable.

As at December 31, 2005, the Company has expensed and accrued for royalty payments in the amount of $202,963 (2004 - $218,224).  This amount is included in accrued liabilities.  The royalties are

13

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

recorded and expensed as the related sales occurred.  During 2004, as a result of the amendment, the 2003 accrued royalty payable of $220,390 was recovered to income.  

9.

 Long-term debt:

 (a)

  Long-term debt:

		2005		2004
Face value of long-term debt	$	2,326,052	$	2,404,000
Less: unamortized discount from conversion option		318,110		936,406
Carrying value, December 31	$	2,007,942	$	1,467,594

On march 28, 2002, the company completed a financing agreement (us$2,000,000) for net cash proceeds of $2,953,188.  The financing consisted of 8% per annum unsecured convertible notes

maturing March 31, 2007.  The notes are 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 is allowed to force the conversion of the notes into common shares of the Company if the shares trade above US$3.40 for two consecutive days over the term to maturity of the notes.  The cost of the financing totalled $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 expire after three years, and entitle the holder to purchase one common share of the company for US$1.70.  At December 31, 2005 the share purchase warrants remain unexercised (note 10(e)).  The Company’s effective interest rate under this financing is 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 have been recorded as the equity component of long-term debt on the consolidated balance sheet at $1,909,127, being net of financing costs of $214,457.  The carrying amount of the debt has been reduced on issuance by the value assigned to the conversion option and is being accreted to its face value over the term to maturity through charges to non-cash interest expense.

(b) Reduction in the conversion price of Long-term debt:

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 has revalued the convertible debenture based on the amended terms of the debenture agreement. According, $374,818 was allocated to debt and $281,652 was allocated to the

14

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

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 19) 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 10).

10.

Share capital and contributed surplus:

The Company is authorized to issue 75,000,000 (2004 - 75,000,000; 2003 - 75,000,000) common shares without par value.

Common shares issued and fully paid:

	Number
Share capital	of shares		Amount
Balance at December 31, 2002	34,177,164	$	34,715,367
For cash:
Upon issue for private placements	4,792,000		4,420,715
Upon exercise of share purchase warrants	31,667		17,416
Balance at December 31, 2003	39,000,831		39,153,498
For cash:
Upon exercise of share purchase warrants (note 10(e))	3,051,001		1,631,569
For non-cash:
Reclassification of contributed surplus upon
exercise of warrants	-		115,990
Balance at December 31, 2004	42,051,832		40,901,057
For cash:
Upon exercise of share purchase options (note 10(d))	656,250		514,737
Balance at December 31, 2005	42,708,082	$	41,415,794

15

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

Contributed surplus		Amount
Balance, December 31, 2002	$	1,188,742
Stock-based compensation (note 2(b))		11,367
Balance, December 31, 2003		1,200,109
Stock-based compensation (note 2(b))		135,890
Less: reclassification to share capital upon exercise of warrants		(115,990	)
Balance, December 31, 2004		1,220,009
Stock-based compensation (note 2(b))		833,116
Less: change in conversion price (note 9(b))		(281,652	)
Balance, December 31, 2005	$	1,771,473

(a)

On April 8, 2003, the Company entered into private placement agreements totaling 2,000,000 units at US$1.00 per unit, for cash proceeds of US$1,981,033 (CDN$2,919,290) net of share issue costs of US$18,967 (CDN$27,881).  Each unit consists of one common share of the Company and one share purchase warrant.  The warrants expire after three years, and entitle the holder to purchase one additional common share of the Company for US$1.00.  During 2003, the existing agreements for 670,000 of these warrants were amended to reduce the exercise price and shorten the expiry date (note 10(e)).

(b)

On October 31, 2003, the Company entered into private placement agreements totaling 2,792,000 units at $0.55 per unit, for cash proceeds of $1,501,425 net of share issue costs of $34,175.  The financing included participation by certain senior management of the Company of 332,000 units.  Each unit consists of one common share of the Company and one share purchase warrant.  The warrants expire after one year and entitle the holder to purchase one additional common share of the Company for $0.55 (US$0.42).  During 2004 2,262,000 warrants were exercised for cash proceeds of $1,197,618 and the balance of 530,000 expired unexercised (note 10(e)).

(c)

Stock option plan:

The Company has reserved 6,306,505 common shares under its 1999 (amended) incentive share option plan of which 1,306,505 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.

16

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

For each of the periods presented, the following stock options were outstanding:

2005	2004	2003	Exercise price
	Number of shares		per share	Expiry date
-	75,000	75,000	15.00	2005
135,250	669,500	896,500	0.55	2008
-	5,000	5,000	0.57	2008
33,000	41,000	-	0.60	2009
31,000	81,000	-	0.82	2009
75,000	75,000	-	0.83	2009
19,750	20,000	-	1.25	2009
16,000	-	-	0.50	2010
250,000	-	-	0.52	2010
103,000	-	-	0.55	2010
50,000	-	-	0.65	2010
300,000	-	-	0.82	2010
100,000	-	-	0.87	2010
3,000	-	-	1.12	2010
100,000	-	-	1.14	2010
265,000	-	-	1.16	2010
10,000	-	-	1.31	2010
1,000	-	-	1.35	2010
5,000	-	-	1.39	2010
10,000	-	-	1.46	2010
5,000	-	-	1.47	2010
70,000	-	-	1.48	2010
50,000	-	-	1.55	2010
60,000	-	-	1.60	2010
5,000	-	-	1.61	2010
60,000	-	-	1.62	2010
20,000	-	-	1.63	2010
10,500	-	-	1.71	2010
1,000	-	-	1.74	2010
50,000	-	-	1.76	2010
87,750	115,000	229,750	2.50	2011
87,500	115,000	229,750	3.40	2011
87,500	115,000	229,750	4.50	2011
87,750	115,000	170,000	6.15	2011
193,650	569,150	1,062,350	1.50	2012
5,000	5,000	5,000	1.19	2013
-	3,500	3,500	1.28	2013
-	-	10,000	1.25	2013
-	100,000	100,000	1.45	2013
142,500	169,200	169,200	1.50	2013
2,530,150	2,273,350	3,185,800

17

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

A summary of changes to issued stock options is as follows:

	Number of			Weighted-average
	shares			exercise price
Balance, December 31, 2003	3,185,800			2.22
Granted	327,000			0.82
Expired/cancelled	(1,239,450	)		2.02
Balance, December 31, 2004	2,273,350			2.13
Granted	1,877,500			0.99
Exercised	(656,250	)		0.78
Expired/cancelled	(964,450	)		2.24
Balance, December 31, 2005	2,530,150		$	1.59

Options outstanding and exercisable at December 31, 2005 totaled 2,209,233 (2004 - 1,829,300; 2003 – 1,543,017) and have a weighted average exercise price of $1.96 (2004 - $2.36; 2003 - $2.83).

(d)

Share purchase warrants:

During 2003, the Company made an offer to all existing warrant holders, with the exception of senior management and board members, and came to an agreement with 820,668 common share purchase warrant holders to amend their existing warrant agreements to reduce the exercise price to US$0.42 (CDN$0.55) and shorten the expiry date to January 15, 2004.  None of these warrants had been issued pursuant to employment arrangements.  During 2004, 789,001 (2003 - 31,667), of these amended warrants were exercised for cash proceeds of $433,951 (2003 - $17,416).

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:

2005	2004	2003		Exercise price
	Number of warrants			per share	Expiry date
-	-	3,581,001	US$	0.42	2004
-	50,000	50,000	US$	1.70	2005
-	560,000	560,000	$	1.50	2005
1,330,000	1,330,000	1,330,000	US$	1.00	2006
1,206,811	1,206,811	-	$	1.09	2009
2,536,811	3,146,811	5,521,001

18

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

A summary of changes to number of issued warrants is as follows:

Balance, December 31, 2003	5,521,001
Issued	1,206,811
Exercised	(3,051,001	)
Expired	(530,000	)
Balance, December 31, 2004	3,146,811
Expired	(610,000	)
Balance, December 31, 2005	2,536,811

11.

Restructuring charge:

	Workforce reduction		Premises		Total
Liability balance, December 31, 2002	449,921		399,300		849,221
Incurred and expensed	1,232,680		-		1,232,680
Costs paid or settled and adjustments	(1,409,855	)	(108,920	)	(1,518,775	)
Liability balance, December 31, 2003	272,746		290,380		563,126
Costs paid or settled and adjustments	(158,798	)	(91,990	)	(250,788	)
Liability balance, December 31, 2004	113,948		198,390		312,338
Costs paid or settled and adjustments	(97,944	)	(104,115	)	(202,059	)
Liability balance, December 31, 2005	16,004		94,275		110,279

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 2004 and 2005 no restructuring actions were undertaken.

At December 31, 2005, $110,279 (2004 - $312,338) of these costs is included in accrued liabilities.

19

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

12.

Income taxes:

(a)

Future income tax assets:

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

		2005			2004
Future tax assets:
Non-capital loss carry forwards	$	11,393,692		$	10,457,580
Scientific Research and Development Expenditure Pool		2,763,488			2,884,977
Tax value of capital asset expenditure in excess
of book value		3,097,844			2,941,689
Net capital loss carry forwards		1,884,330			1,967,170
Temporary differences in working capital		825,846			1,097,740
Total gross future tax assets		19,965,200			19,349,156
Valuation allowance		(19,965,200	)		(19,349,156	)
Total future tax assets	$	-		$	-

Management believes that it is not more likely than not that it will create sufficient taxable income to realize its future tax assets.  As a result, a full valuation allowance has been recognized.

(b)

Loss carry forwards and investment tax credits:

At December 31, 2005, the Company has approximately $33,393,000 of non-capital loss carry forwards available until 2015 to reduce future years' income for income tax purposes.  Also, the Company has investment tax credits of approximately $980,000 available to reduce Canadian federal taxes payable.  The amounts expire as follows:

Year of		Non-capital		Investment
Expiry		loss carry forwards		tax credits
2006	$	2,988,000	$	19,000
2007		9,872,000		18,000
2008		5,238,000		-
2009		3,845,000		138,000
2010		7,416,000		-
2011		-		192,000
2012		-		313,000
2013		-		300,000
2015		4,034,000		-
	$	33,393,000	$	980,000

The Company also has available $11,290,000 (2004 - $ 11,290,000) net capital losses to be applied against future capital gains.  The tax effect of these carry forwards has not been recorded in

20

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

the financial statements.  In addition, the Company has accumulated Scientific Research and Development Expenditures pool that are available for indefinite carry forward as discretionary deductions of approximately $8,099,000 (2004 - $8,099,000; 2003 - $8,640,000).

Not included in the above tables are non-capital losses of US $3,478,000 (2004 - $3,478,000), as at December 31, 2005 related to Norsat America Inc. The Company utilized approximately US $650,000 in 2004 to offset taxes otherwise owing on income earned from discontinued operations. No income was earned from discontinued operations during 2005. Management believes that it is more likely than not that it will not create sufficient taxable income to realize these future tax assets.  A full valuation allowance has been recognized.

(c)

Income tax expense:

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

		2005			2004			2003
Income tax expense (recovery) at expected rate of
34.9% (2004 - 35.6%, 2003-37.6%)
	$	(2,052,000	)	$	151,000		$	(3,051,400	)
Non-allowable (non-taxable) expenses or income		591,000			7,400			11,100
Temporary differences, including amortization,
research and development costs and other		42,000			191,700			453,500
Unrecognized (Utilization of) non-capital loss carry
forwards		1,414,000			(381,600	)		2,624,900
Rate difference between Canadian rate and rates
applicable to subsidiaries		6,791			26,200			-
Other		-			(44	)		15,141
Income tax expense	$	1,791		$	(5,344	)	$	53,241

13.

Discontinued operations:

On August 23, 2000, the Company adopted a formal plan to discontinue the business operations of its Norsat America Inc. distribution business.  The Company incurred a loss of $76,295 and $88,684 in 2003 and 2002, respectively, resulting primarily from changes in estimates or the settlement of liabilities or recovery of assets at amounts different from original estimates.

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 recorded a liability of $52,112 (2004 - $51,648) representing additional liabilities from the closure of the Norsat America Inc. distribution business.

21

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

14.

Segmented and other information:

The Company’s two business segments are:  Microwave and Satellite Systems.

The Microwave segment supplies satellite signal receivers, transmitters and other ground station products.  During 2002, the Open Networks segment expanded from delivering open standard Digital Video Broadcasting (“DVB”) Data Hub Systems to also include portable satellite terminals.  The segment was renamed to Satellite Systems.

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:

2005		Microwave		Satellite Systems		Consolidated
Sales to external customers	$	10,052,278	$	8,064,192	$	18,116,470
Gross profit	$	4,556,458	$	3,567,611	$	8,124,069
Total assets related to continuing operations	$	3,050,147	$	7,473,925	$	10,524,072
Property and equipment	$	61,195	$	652,305	$	713,500
2004		Microwave		Satellite Systems		Consolidated
Sales to external customers	$	9,492,846	$	8,027,829	$	17,520,675
Gross profit	$	3,378,782	$	4,546,038	$	7,924,820
Total assets related to continuing operations	$	5,268,524	$	6,930,406	$	12,198,930
Property and equipment	$	207,030	$	842,237	$	1,049,267
Goodwill	$	440,095	$	-	$	440,095
2003		Microwave		Satellite Systems		Consolidated
Sales to external customers	$	9,541,803	$	3,438,466	$	12,980,269
Gross profit	$	2,342,639	$	1,345,002	$	3,687,641
Total assets related to continuing operations	$	4,737,202	$	4,735,853	$	9,473,055
Property and equipment	$	392,750	$	1,089,994	$	1,482,744
Goodwill	$	440,095	$	-	$	440,095

22

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

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

		2005		2004		2003
Canada	$	448,521	$	647,954	$	1,172,224
United States		15,596,375		13,132,986		6,150,610
Europe and other		2,071,574		3,739,735		5,657,435
	$	18,116,470	$	17,520,675	$	12,980,269

Substantially all property and equipment are located in Canada.

15.

Commitments:

Future minimum payments at December 31, 2005 under various purchasing commitments and operating lease agreements for each of the next five fiscal years are approximately as follows:

2006

$

3,769,644

2007

450,373

2008

442,892

2009

420,692

2010

420,692

Rent expense for the Company was approximately $960,000 (2004 - $893,000; 2003 - $945,000).

In the normal course of operations the Company is subject to actual or alleged claims and enters into purchase commitments.  The Company has accrued for estimated losses, if any, when determinable, including losses on disputed purchase commitments with suppliers.  Substantially, all commitments for 2006 and 2007 relate to purchase commitments.

23

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

16.

Financial instruments:

(a)

Fair value:

The Company's financial instruments include cash and cash equivalents, short-term investments, accounts receivable, and 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 long-term debt is also a financial instrument.  The carrying value of this instrument approximates 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.

Interest on the Company’s long-term debt is based on a fixed rate.  This exposes the Company to market value risk.  The Company has not entered into any derivative agreements to mitigate this risk.

(b)

Concentration of credit risk:

The Company revenues are dependent on customers in the satellite communication industry. As these sales are geographically dispersed and among a large number of customers, concentration of credit risk is considered to be limited.

(c)

Exchange risk:

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.  To manage its exchange risk, the Company has entered into financing in United States dollars.  The Company has not entered into any derivative agreements to further mitigate this risk.

17.

Related party transactions:

During the year ended December 31, 2005, the Company entered into an joint strategic marketing agreement with a US New York based private company involved in the business of selling, financing and leasing medical equipment technologies and telemedicine services to hospitals, medical facilities on a worldwide basis. Two of the directors of the Company at the time of entering into the agreement were partners in a firm that has a controlling equity interest in the New York Company. In accordance with the agreement Norsat International Inc. was to pay monthly amount of $35,000 USD to this company retroactively from June 15^th, till November 1, 2007. Subsequently, cancellation notice was given and the agreement was terminated September 1^st, 2005. A total of $87,000 USD was paid for the period of June 15^th to September 1^st, 2005.

24

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

During 2005, Norsat International Inc. paid $22,637 GBP ($45,842 CDN Equivalent) to a legal firm based in London, England for corporate legal services specific to the Company’s UK Subsidiary. A director of the Company is a partner in the UK firm.

18.

Supplemental cash flow and other disclosures:

		2005			2004			2003
Changes in non-cash operating working capital:
Accounts receivable	$	(988,486	)	$	(129,572	)	$	2,477,693
Inventory		(540,651	)		(776,506	)		2,832,164
Prepaid and other expenses		(141,611	)		(51,909	)		243,658
Accounts payable and accrued liabilities		2,000,709			375,585			(3,066,251	)
Deferred revenue		325,066			73,271			(333,842	)
	$	655,027		$	(509,131	)	$	2,153,422
Supplementary information:
Interest paid	$	190,768		$	206,400		$	227,200
Income taxes paid		1,791			15,124			14,205
Non-cash transactions:
Value assigned to common shares and
warrants issued, net of cash acquired:
Issue of common shares for
settlement of debt		-			-			-
Issue of common shares and
warrants for financing services		-			-			-
Reclassification of exercised warrants
from contributed surplus to share capital		-			115,990			-

19.

Other expenses:

		2005			2004			2003
Net interest and bank charges	$	204,029		$	314,890		$	264,813
Interest - non-cash		261,100			330,046			299,785
Foreign currency loss (gain)		249,181			110,990			231,823
Loss (gain) on disposal of property and equipment		-			(2,411	)		281,450
Write off of goodwill (note 7)		440,095			-			-
Change in conversion price (note 9(b))		374,818			-			-
Other		(41,220	)		-			-
	$	1,488,003		$	753,515		$	1,077,871

25

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

20.

Economic dependence:

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

During 2005, the Satellite Systems segment generated approximately 74% of its sales from the United States government. This represents approximately 33% of total sales.  No other customer exceeds 10% of total sales.

21.

Comparative figures:

Certain comparative figures have also been reclassified to conform to the financial statement presentation adopted in 2004.

22. Reconciliation to United States accounting principles (Restated):

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (“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”).

26

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

		2005			2004		2003
		(Restated)
Earnings (loss) from continuing
operations under Canadian GAAP	$	(5,889,298	)	$	429,222	$	(8,168,729	)
Write-down of property and equipment (b)		-			-		270,091
Beneficial conversion feature (e)		(74,432	)		-		-
Goodwill (a)		(337,000	)		-		-
Deferred Financing Costs (e)		(70,669	)		-		-
Long-term debt (e)		(39,086	)		342,505		538,424
Employee stock-based compensation (d)		621,681			125,693		11,367
Earnings (loss) from continuing
operations according to US GAAP		(5,788,804	)		897,420		(7,348,847	)
Recovery (loss) from discontinued operations		-			724,116		(76,295	)
Total comprehensive earnings (loss)
according to US GAAP	$	(5,788,804	)	$	1,621,536	$	(7,425,142	)
Basic and diluted net earnings (loss)
per share from continuing operations
according to US GAAP	$	(0.14	)	$	0.02	$	(0.21	)
Basic and diluted net earnings
per share from discontinued operations
according to US GAAP	$	-		$	0.02	$	-
Basic and diluted net earnings (loss)
per share according to US GAAP	$	(0.14	)	$	0.04	$	(0.21	)

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

		December 31, 2005						December 31, 2004
		Canadian			US			Canadian		US
		GAAP			GAAP			GAAP		GAAP
					(Restated)
Property and equipment (b)	$	713,500		$	713,500		$	1,049,267	$	1,049,267
Goodwill (a)		-			-			440,095		777,095
Deferred finance costs (e)		17,054			-			31,727		128,233
Long-term debt (e)		2,007,942			2,940,543			1,467,594		2,404,000
Share capital (e), (f) and (g)		41,415,794			116,050,048			40,901,057		115,535,312
Contributed surplus (e)		1,771,473			1,368,816			1,220,009		1,082,949
Equity component of
long-term debt (e)		2,190,779			-			1,909,127		-
Deficit (a) - (f)		(41,823,705	)		(114,814,178	)		(35,934,407	)	(109,025,374	)

27

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

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):

(a)

IMT Communications Inc. acquisition:

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 is recorded at market value.  This results in an increase in goodwill of $540,000 all of which relate to the microwave products operating segment.  Cumulative amortization relating to this additional goodwill was $203,000 at December 31, 2001.  For fiscal 2002 to 2004, no reconciling differences to the statement of operations arise as under both Canadian and US GAAP, goodwill is no longer amortized but is instead now subject to an annual impairment test.  In 2005, goodwill related to this acquisition was written off during the year.

(b)

SpectraWorks acquisition:

For Canadian GAAP purposes, the valuation of the shares relating to the acquisition of SpectraWorks Inc. on April 4, 2000 was adjusted by a 10% discount relating to a one year hold period on escrowed shares and a general market discount.  For US GAAP purposes, the share value would not reflect these discounts.  This results in an increase in goodwill recorded at acquisition of $3,630,040, which, in 2000, would have been written off.  

For US GAAP purposes, the acquired in-process research and development pursuant to the SpectraWorks Inc. acquisition would have been expensed on acquisition.  Under Canadian GAAP acquired in-process research and development is amortized over a period of five years.  As a result, under US GAAP additional amortization would be recognized.

During 2001, the Company recorded an impairment charge under Canadian GAAP relating to goodwill and other intangible assets acquired pursuant to the SpectraWorks Inc. acquisition.  The impairment charge under US GAAP in 2001 would also include an additional write-down of property and equipment of $452,699.  Amortization and impairment charge relating to goodwill and other intangible assets related to the SpectaWorks Inc. acquisition would be lower under US GAAP by $3,287,250 due to the expense of in-process research and development costs on acquisition and additional impairment charge related to goodwill under US GAAP prior to 2001.

For 2003 and 2002, as a result of the additional US GAAP write-down of property and equipment of $452,699 in 2001, amortization and write-down under US GAAP would be reduced by $270,071 and $182,608, respectively.

 (c)

Income taxes:

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

28

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

recorded net assets or shareholders’ equity under US GAAP.

(d)

Stock-based compensation:

The Company has granted stock options to certain directors and employees for services provided to the Company.  The Company, for US GAAP purposes, has elected under Statement of Financial Accounting Standards No. 123 (“SFAS No. 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.  As fixed options are granted at exercise prices based on the market value of the Company’s share at the date of grant, no adjustment for compensation expense is required.  Awards granted where vesting is contingent on the Company’s share price are treated as variable awards.  The measurement date is the date the contingency is met.  Compensation expense is recognized when it is probable that the performance criteria will be met and is re-measured at each reporting date until the measurement date, with the amount equal to be the excess of the then fair value of the underlying common stock over the exercise price with changes in value recognized in the determination of income.

As described in note 2(b), the Company adopted the CICA section 3870, "Stock-Based Compensation and Other Stock-Based Payments" and effective January 1, 2003, elected to apply the fair value method.  Under US GAAP there is no compensation cost for stock options issued by the Company issued to employees prior to January 1, 2003. Options issued by the Company to consultants are also fair valued consistent with both SFAS 123 and CICA section 3870. Consequently, there is no adjustment from Canadian GAAP to US GAAP required for the related stock based compensation expense on options issued to consultants.

As required under SFAS 123, supplementary pro-forma information is provided below as if the fair value method was applied.  The pro-forma stock compensation expense has been determined by reference to an option-pricing model using the following weighted average assumptions:

	2005		2004		2003
Volatility percentage	78	%	78	%	89	%
Risk-free interest rate	3.3	%	3.3	%	3.0	%
Dividend yield	-		-		-
Expected life of options	3.0 years		3.0 years		3.0 years

The weighted average grant date fair value of options granted during the year was $0.95 (2004 - $0.42; 2003 - $0.24).

29

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

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

		2005			2004			2003
		(Restated)
Net earnings (loss), US GAAP	$	(5,788,804	)	$	1,621,536		$	(7,425,142	)
Additional stock compensation
recovery (expense)		(621,681	)		(327,916	)		(942,428	)
Pro-forma net loss, US GAAP	$	(6,410,485	)	$	1,293,620		$	(8,367,570	)
Pro-forma basic and fully diluted net
earnings (loss) per share, US GAAP	$	(0.15	)	$	0.03		$	(0.23	)

(e)

Long-term debt:

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 9(b)).  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.

Applying US GAAP, long-term debt at December 31, 2005 would be recorded at its face value of $2,326,000 (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 9(b). The reduction in the conversion price of the debt 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 9(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, has been added back under US GAAP. In addition, accretion on the debt discount on the promissory note and the long-term debt under Canadian GAAP aggregating $246,939 (2004 - $312,342) for the year ended December 31, 2005 would not have been recorded, reducing interest expense by an equivalent amount.  Additional interest expense of $42,891 (2004

30

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

–$42,891) would be recorded in 2005 on amortization of amounts reclassified to deferred finance costs, and as a result of the modification, the remaining deferred financing cost of $70,669 would be realized during the year under US GAAP, and a foreign exchange gain on the long-term debt of $38,518 (2004 - $73,054) would have been realized.  In addition, as a result of the modification, the Company has recorded a beneficial conversion feature of $74,432 under US GAAP. Under Canadian GAAP no such amount has been recorded.

(f)

Elimination of deficit:

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.

(g)

Release of escrow shares:

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.

(h)

Pronouncements:

FASB issued a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123(R)”).  SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award.  The compensation cost is to be recognized over the service period, which is determined by the vesting period.  This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005.

23.

Subsequent event:

On February 16, 2006, the Company’s Board of Directors approved the terms of a private placement financing for gross proceeds of approximately US$3 million. The private placement was subject to regulatory approval and the Company closed the private placement on March 6th 2006. The private placement called for the sale of 1,021,744 units at US$3.00 per unit. Each unit consists of four common shares and three common share purchase warrants each convertible into one common share at an exercise price of US$0.75 and a term to maturity of two years.

31

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

24.

Restatement

The restatement has no impact on the consolidated financial statements under Canadian GAAP other than note 22 “Reconciliation to United States accounting principles”.

The disclosure of the income statement reconciliation from Canadian GAAP to US GAAP (note 22) did not appropriately reflect the modification of the convertible debt terms under US GAAP. The fair value increment of the debt that related to the equity portion of convertible debt under Canadian GAAP was not appropriately recorded as a charge to income under US GAAP. Accordingly, these financial statements have been restated to decrease income by $281,652 under US GAAP and to increase contributed surplus under US GAAP by the same amount.  

The employee stock-based compensation under US GAAP was overstated by $350,648 in respect of the stock based compensation expense for non-employee directors. The Company had originally concluded that certain of the options were provided to directors for services outside of their role as directors. Accordingly, the Company had included the fair value of such options as an expense under US GAAP.  After reconsidering the nature of the option grants, the Company has concluded that such options were, in fact, granted to directors for services provided in their role as directors. As such these options have been treated in the same manner as the employee stock-based compensation expense, resulting in an increase to income under US GAAP of $350,648.

In addition, a clerical of $351,025 resulted in the share capital at December 31, 2005 being overstated.

All of the above errors have been retroactively restated in these financial statements.

The amount in the consolidated balance sheet that were restated under US GAAP:

	As previously reported	Adjustments	As restated
	$	$	$
Share capital (e), (f) and (g)	116,401,073	(351,024)	116,050,048
Contributed surplus (e)	1,437,812	(68,996)	1,368,816
Deficit (a) – (f)	(114,883,174)	280,431	(114,602,743)

32

NORSAT INTERNATIONAL INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

Years ended December 31, 2005, 2004 and 2003

The amount in the consolidated statements of operations and deficit that were restated under US GAAP:

	As previously reported	Adjustments	As restated
Employee stock-based compensation (d)	271,033	350,648	621,681
Equity component of long-term debt (e)	-	(281,652)	(281,652)

33

Exhibits

1.

Consent of Ernst & Yong LLP.

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act     of 2002

31.2

Certification of Acting Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Amiee Chan

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Cathy Zhai

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No.2 to Form 20-F on its behalf.
		Norsat International Inc.
		(Registrant)
		“Cathy Zhai”
Date:	November 14, 2006	Cathy Zhai, Chief Financial Officer

34

Exhibit 1.

AUDITORS’ CONSENT

To: Norsat International Inc.

We consent to the use of our audit report dated March 6, 2006 and November 14, 2006 to the shareholders of Norsat International Inc. (the “Company”) on the version of the restated consolidated financial statements of the Company comprising the consolidated balance sheet of the Company as at December 31, 2005 and the consolidated statement of operations and deficit and cash flows for the year ended December 31, 2005, to be filed with securities regulatory authorities on EDGAR and SEDAR on November 14, 2006.

We have performed only limited procedures, including enquiries of the Company’s management with respect to events occurring between the date of our audit report and the date of this consent. We have not performed any procedures subsequent to the date of this consent.

This consent is provided to the Company for use solely in connection with the filing of these financial statements pursuant to the continuous disclosure provisions of securities legislation of Ontario; accordingly, we do not consent to the use of our audit report for any other purpose.

Vancouver, Canada

Ernst & Young LLP

November 14, 2006

CHARTERED ACCOUNTANT

35

Exhibit 31.1 to 20-F Submission for Norsat International Inc.

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, 2005 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.

Date:	November 14, 2006	“Amiee Chan”
		Amiee Chan
		President & Chief Executive Officer

36

Exhibit 31.2 to 20-F Submission for Norsat International Inc.

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, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cathy Zhai, 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.

Date:	November 14, 2006	“Cathy Zhai”
		Cathy Zhai
		Chief Financial Officer

37

Exhibit 32.1 to 20-F submission for Norsat International Inc.

I, Amiee Chan, certify that:

1.

I have reviewed this annual report on Form 20-F of Norsat International Inc.;

2.

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;

3.

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

4.

The registrant's other certifying 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:

a)

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;

b)

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

c)

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;

d)

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

5.

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):

a)

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

b)

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.

Date:	November 14, 2006	“Amiee Chan”
		Amiee Chan
		President & Chief Executive Officer

38

Exhibit 32.2 to 20-F submission for Norsat International Inc.

I, Cathy Zhai, certify that:

1.

I have reviewed this annual report on Form 20-F of Norsat International Inc.;

2.

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;

3.

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

4.

The registrant's other certifying 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:

a)

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;

b)

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

c)

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;

d)

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

5.

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):

c)

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

d)

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.

Date:	November 14, 2006	“Cathy Zhai”
		Cathy Zhai
		Chief Financial Officer

39