<PAGE>


     As filed with the Securities and Exchange Commission on July 18, 2001


               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 20-F

[_]       REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
          SECURITIES EXCHANGE ACT OF 1934

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2001

[_]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the transition period from _____ to _____

          Commission file number:     0-31943
                                    ----------------------------------
                                 ImagicTv Inc.
            ------------------------------------------------------
            (Exact name of Registrant as specified in its charter)

                                Not applicable
            ------------------------------------------------------
                (Translation of Registrant's name into English)

                                    Canada
            ------------------------------------------------------
                (Jurisdiction of incorporation or organization)

                    One Brunswick Square, 14th Floor, Saint John,
                          New Brunswick, Canada E2L 3Y2
            ------------------------------------------------------
                   (Address of principal executive offices)

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

                                     None
            ------------------------------------------------------
        Securities registered or to be registered pursuant to Section 12(g)
        of the Act.
                          Common shares, no par value
            ------------------------------------------------------
        Securities for which there is a reporting obligation pursuant to
        Section 15(d) of the Act.

                                     None
            ------------------------------------------------------

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

               24,592,624 Common Shares as of February 28, 2001
            ------------------------------------------------------

            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.

                             Yes   [X]     No  [_]

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

                         Item 17  [_]    Item 18   [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 Section 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  [_]
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                     <C>
Part I..............................................................................................      1
     ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..............................      1
     ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE............................................      1
     ITEM 3.     KEY INFORMATION....................................................................      1
                 A.     Selected Financial Data.....................................................      1
                 B.     Capitalization and Indebtedness.............................................      2
                 C.     Reasons for the Offer and Use of Proceeds...................................      2
                 D.     Risk Factors................................................................      3
     ITEM 4.     INFORMATION ON THE COMPANY.........................................................     12
                 A.     History and Development of the Company......................................     12
                 B.     Business Overview...........................................................     12
                 C.     Organizational Structure....................................................     29
                 D.     Property, Plants and Equipment..............................................     29
     ITEM 5.     OPERATING AND FINANCIAL REVIEWS AND PROSPECTS......................................     29
                 A. and B. Operating Results and Liquidity and Capital Resources....................     29
                 C.     Research and Development, Patents and Licenses, etc.........................     37
                 D.     Trend Information...........................................................     38
     ITEM 6.     DIRECTORS AND EXECUTIVE OFFICERS...................................................     38
                 A.     Directors and Management....................................................     38
                 B.     Compensation................................................................     41
                 C.     Board Practices.............................................................     45
                 D.     Employees...................................................................     46
                 E.     Share Ownership.............................................................     47
     ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................................     49
                 A.     Major Shareholders..........................................................     49
                 B.     Related Party Transactions..................................................     50
                 C.     Interests of Experts and Counsel............................................     52
     ITEM 8.     FINANCIAL INFORMATION..............................................................     52
                 A.     Consolidated Statements and Other Financial Information.....................     52
                 B.     Significant Changes.........................................................     52
     ITEM 9.     THE OFFER AND LISTING..............................................................     52
                 A.     Offer and Listing Details...................................................     52
                 B.     Plan of Distribution........................................................     53
                 C.     Markets.....................................................................     53
                 D.     Selling Shareholders........................................................     53
                 E.     Dilution....................................................................     53
                 F.     Expenses of the Issue.......................................................     53
     ITEM 10.    ADDITIONAL INFORMATION.............................................................     54
                 A.     Share Capital...............................................................     54
                 B.     Memorandum and Articles of Association......................................     54
                 C.     Material Contracts..........................................................     55
                 D.     Exchange Controls...........................................................     55
                 E.     Taxation....................................................................     55
                 F.     Dividends and Paying Agents.................................................     60
                 G.     Statement by Experts........................................................     60
                 H.     Documents on Display........................................................     60
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                     <C>
                 I.     Subsidiary Information......................................................     61
     ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................     61
     ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............................     61

Part II.............................................................................................     61
     ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................................     61
     ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.......     61
                 A.     Use of Proceeds.............................................................     61
     ITEM 15.    [RESERVED].........................................................................     62
     ITEM 16.    [RESERVED].........................................................................     62

Part III............................................................................................     62
     ITEM 17.    FINANCIAL STATEMENTS...............................................................     62
     ITEM 18.    FINANCIAL STATEMENTS...............................................................     63
     ITEM 19.    EXHIBITS...........................................................................     86
     INDEX TO EXHIBITS..............................................................................      i
</TABLE>

                                      ii
<PAGE>

                                    PART I

     In this annual report, "ImagicTV," "the Company," "we," "us" and "our"
refer to ImagicTV Inc. and its subsidiaries.


     All financial information presented in this annual report is expressed in
U.S. dollars, except where indicated to the contrary. References to "$" or
"U.S.$" are to U.S. dollars and references to "C$" are to Canadian dollars.

     Unless we indicate otherwise, all information in this annual report is
stated as of July 12, 2001.

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This annual report contains forward-looking statements.  These statements
include statements under the headings "Risk Factors" in "Item 3. Key
Information", "Business Overview" in "Item 4. Information on the Company",
"Management's Discussion and Analysis" in "Item 5. Operating and Financial
Review and Prospects" and "Use of Proceeds" in "Item 14. Material Modification
to the Rights of Security Holders and Use of Proceeds" and elsewhere in this
annual report regarding conditions in the telecommunications industry, our
goals, our business model and plans, our efforts to develop and enhance our
products, our expected sources of revenue, our future costs and losses, our
capital requirements and the outlook for our business.  When used in this
document, the words "will," "plan," "anticipate," "expect," "intend," "believe"
and similar expressions are intended to identify forward-looking statements.
Such statements reflect our current views with respect to future events, are
based on information currently available to us and are subject to certain risks,
uncertainties and assumptions, including those discussed in "Risk Factors" in
"Item 3. Key Information."  These and other factors could cause our actual
results, performance or achievements to differ materially from any future
results, performance or achievements that may be expressed or implied by such
forward-looking statements.  These factors should be considered carefully, and
readers should not place undue reliance on the forward-looking statements.  We
do not undertake any obligation to update this forward-looking information.

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3.    KEY INFORMATION

A.   Selected Financial Data

     You should read the following selected consolidated financial data together
with the financial information set forth below under the heading "Management's
Discussion and Analysis" in "Item 5.  Operating and Financial Review and
Prospects" and our consolidated financial statements and the related notes
included in "Item 18.  Financial Statements."

     The consolidated statement of operations data for the fiscal years ended
February 28, 1999, February 29, 2000 and February 28, 2001 and the consolidated
balance sheet data as of February 29, 2000 and February 28, 2001 are derived
from, and are qualified by reference to, our consolidated financial

                                       1
<PAGE>

statements which have been audited by KPMG LLP, Chartered Accountants, and are
included elsewhere in this annual report. The consolidated financial statements
are reported in U.S. dollars and are prepared in accordance with Canadian GAAP.
Differences between Canadian GAAP and U.S. GAAP are described in note 11 to the
consolidated financial statements. The consolidated statement of operations data
for the period from December 24, 1997 (inception) to February 28, 1998 and the
consolidated balance sheet data as of February 28, 1998 and February 28, 1999 is
derived from audited financial statements not included in this annual report.
The historical results below are not necessarily indicative of the results to be
expected for any future period.

<TABLE>
<CAPTION>
                                                                       Period from
                                                                    December 24, 1997            Year Ended
                                                                                              ----------------
                                                                     (inception) to      February 28,   February 29,   February 28,
                                                                    February 28, 1998        1999           2000           2001
                                                                    -----------------    ------------   ------------   ------------
                                                                          (in thousands of U.S. dollars, except per share amounts)
          <S>                                                       <C>                  <C>            <C>            <C>
          Consolidated Statement of Operations Data:
          Revenues:
            License fees......................................         $           --    $         --   $      1,384   $      4,770
            Royalty fees......................................                     --              --             --          1,288
            Services..........................................                     --              14            393          1,791
            Equipment.........................................                     --             465            321          1,150
                                                                       --------------    ------------   ------------   ------------
          Total revenues......................................                     --             479          2,098          8,999
          Cost of revenues:
            Services..........................................                     --              --            657          2,379
            Equipment.........................................                     --             604            331          1,068
                                                                       --------------    ------------   ------------   ------------
          Total cost of revenues..............................                     --             604            988          3,447
                                                                       --------------    ------------   ------------   ------------
          Gross profit (loss).................................                     --            (125)         1,110          5,552
          Operating expenses:
            Sales and marketing...............................                     18             543          2,325          7,763
            Research and development..........................                     66           2,014          4,084          7,967
            General and administrative........................                     26             344            827          2,815
                                                                       --------------    ------------   ------------   ------------
          Total operating expenses............................                    110           2,901          7,236         18,545
                                                                       --------------    ------------   ------------   ------------
          Loss from operations................................                   (110)         (3,026)        (6,126)       (12,993)
          Other income (expense), net.........................                     --             (25)           524          1,559
                                                                       --------------    ------------   ------------   ------------
          Loss before provision for income taxes..............                   (110)         (3,051)        (5,602)       (11,434)
          Provision for income taxes..........................                     --             (17)           (44)           (24)
                                                                       --------------    ------------   ------------   ------------
          Net loss--in accordance with Canadian and U.S.
           GAAP...............................................         $         (110)   $     (3,068)  $     (5,646)  $    (11,458)
                                                                       ==============    ============   ============   ============
          Basic and diluted net loss per share--in accordance
           with Canadian and U.S. GAAP........................         $        (0.05)   $      (0.57)  $      (0.40)  $      (0.58)
                                                                       ==============    ============   ============   ============
          Weighted average number of shares used in
           computing basic and diluted net loss per share
           (000's)............................................                  2,331           5,336         13,968         19,796
                                                                       ==============    ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                    February 28,        February 28,   February 29,   February 28,
                                                                       1998                1999           2000           2001
                                                                   --------------      -------------   ------------   ------------
                                                                                   (in thousands of U.S. dollars)
          <S>                                                       <C>                <C>             <C>            <C>
          Consolidated Balance Sheet Data:
          Cash and cash equivalents...........................      $         245        $       603   $      6,396   $      1,332
          Short-term investments..............................                 --                 --             --         59,428
          Working capital.....................................               (139)             1,852          6,154         62,807
          Total assets........................................                289              3,153          9,859         71,846
          Long-term debt......................................                 --                 --          1,737          1,577
          Total shareholder's equity..........................               (109)             2,493          5,706         64,200
</TABLE>

B.   Capitalization and Indebtedness

     Not applicable.

C.   Reasons for the Offer and Use of Proceeds

     Not applicable.

                                       2
<PAGE>

D.   Risk Factors

     An investment in our common shares involves a high degree of risk and
should be considered speculative. If any of the following risks occur, our
business, operating results and financial condition could be seriously harmed
and you could lose all or part of your investment. Further, if we fail to meet
the expectations of the public market in any given period, the market price of
our common shares could decline.

Risks Related to Our Financial Condition

We began operations in January 1998. This limited operating history and the fact
that our business is essentially dependent on one product, our DTV Manager
software, makes our business and prospects difficult to evaluate.

     We have a limited operating history on which to base your evaluation of our
business and prospects. We began our operations in January 1998 and did not
release a product until December 1998. Our present operations consist of
licensing our DTV Manager software, as well as our pcVu software and Movie
Manager software which work in conjunction with DTV Manager, to telephone
companies and other service providers, providing related services and further
developing our software products. As such, our business is essentially dependent
on our success in developing DTV Manager software and licensing it to service
providers. There is no significant historical basis to assess how we, as a
company in an early stage of development and whose business involves new and
rapidly developing technologies, will respond to competitive, economic and
technological challenges. If we fail to meet any of these challenges, our
operating results could suffer, and you could lose all or part of your
investment.

We incurred net losses of $11.5 million for the fiscal year ended February 28,
2001, we expect to continue to incur losses for the foreseeable future, and we
may never achieve or sustain profitability.

     Since our inception, we have not had a profitable quarter. We incurred net
losses of approximately $110,000 for the period from our inception on December
24, 1997 to February 28, 1998, $3.1 million for the fiscal year ended February
28, 1999, $5.6 million for the fiscal year ended February 29, 2000 and $11.5
million for fiscal year ended February 28, 2001. As of February 28, 2001, we had
an accumulated deficit of approximately $20.3 million. We expect to incur
significant operating expenses over the next several years. As a result of these
expenditures, we expect to incur further losses for the foreseeable future, and
we may never become profitable.

     To achieve profitability, we must generate and sustain substantially
increased revenues and control future expense levels. We forecast our future
expense levels based on our operating plans and on estimates of future revenues.
We may find it necessary to accelerate expenditures relating to our sales and
marketing efforts or otherwise increase our financial commitment to the
development of our products and services. If our revenues grow at a slower rate
than we anticipate, or if our spending levels exceed our expectations or cannot
be adjusted to reflect slower revenue growth, we may not achieve or sustain
profitability. If we fail to become profitable, the value of your investment in
our common shares could be significantly reduced.

                                       3
<PAGE>

The time required to complete a license on a commercial basis can be
significant.  As a result, there may be significant fluctuations in our
quarterly operating results that could cause our share price to decline.

     We believe that the purchase of our DTV Manager, pcVu and Movie Manager
software and our related services involves a significant commitment of capital
and other resources by a telephone company or other service provider. In many
cases, the service provider's decision to offer services based on our software
products may require a service provider to change its established business
practices, to conduct its business in new ways and potentially to make
substantial upgrades to its infrastructure. As a result, we must educate service
providers on the use and benefits of our software products, which can require us
to commit significant time and resources without necessarily resulting in
revenues. In addition, service providers generally must consider a wide range of
other issues before committing to purchase our software products. Many potential
customers enter into trial license agreements with us in order to use our
software products on a trial basis. The success of these trials often determines
whether or not the potential customer licenses our software on a commercial
basis. Further, the telecommunications industry is experiencing a significant
reduction in capital spending which will likely result in a delay in the
substantial capital commitments associated with the commercial deployment of our
software. Potential customers may also need to obtain approval at a number of
management levels and one or more regulatory approvals, which may delay a
decision to purchase our software products.

     As a result of the foregoing, the time from an initial product
demonstration to a customer to the entering into of a commercial license with
the customer, may be significant.  In the past, our sales cycle has ranged from
six to 12 months and, in some instances, has been significantly longer. This
lengthy sales cycle limits our ability to forecast the timing and amount of
specific sales in a particular quarter and will likely continue to cause
significant fluctuations in our quarterly operating results. Because of these
fluctuations, we believe that neither our past performance nor period-to-period
comparisons of our operating results are, or will be, a good indication of our
future performance. If our operating results for a particular period fail to
meet analyst and investor expectations that are based on our past performance or
on period-to-period comparisons of our operating results, our share price could
decline.

If we cannot raise needed additional capital in the future, our business could
suffer.

     We expect that our cash position, as of May 31, 2001 will be sufficient to
meet our working capital requirements for approximately the next 24 months. In
the longer term, we may need to raise additional capital, which may not be
available on terms acceptable to us, if at all. If we cannot raise necessary
additional capital on acceptable terms, we may not be able to increase sales,
develop or enhance our products and services, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
any of which could cause our business to suffer.

Risks Related to Our Business and Industry

If service providers do not successfully deploy broadband technologies and
services, a market for our software products will not develop.

     Our software products can only be implemented over a broadband network.
Telephone companies and other service providers have only recently begun
offering broadband services such as xDSL. If a significant number of service
providers decides not to enter the broadband services market, the market for our
software products will not grow in the way we anticipate. Sales of our software
products largely depend on the increased use and widespread adoption of
broadband services and the ability of service providers to market and sell
broadband services, such as high-speed Internet access and multi-channel digital
television services, to residential subscribers.

                                       4
<PAGE>

     The telecommunications industry has suffered a significant slowdown in
recent months, and one can anticipate that there may be a reduction in the
number of our potential customers due to industry consolidation, financial
difficulties or other factors.  Even if service providers decide to deploy
broadband services, this deployment may not be successful. Service providers
have delayed deployments in the past and may delay deployments in the future.
Factors that could cause a service provider not to deploy, to delay deployment
of or to fail to successfully deploy the broadband services for which our
software products are designed include the following:

     .    the financial difficulty suffered by many service providers,
          particularly competitive local exchange carriers, in recent times;

     .    regulatory prohibitions, restrictions, uncertainties and delays;

     .    reduction in capital spending within the telecommunications industry;

     .    the quality of the service provider's network infrastructure and cost
          of infrastructure upgrades and maintenance;

     .    the inexperience of the service provider in providing broadband
          services and the lack of sufficient technical expertise and personnel
          to install products and implement services effectively; and

     .    the inability of the service provider to predict return on its
          investment in broadband-capable infrastructure and equipment.

     Unless service providers successfully deploy the infrastructure required to
provide broadband services to their subscribers, who are the ultimate consumers
of services based upon our software products, their networks will not be capable
of supporting our software products. If that deployment does not occur, a market
for our software products will not develop, and we will not be able to achieve
our business objectives and increase our revenues.

If service providers fail to deploy services based upon our software throughout
their service areas, our business will not grow.

     We generate revenues from initial license fees charged to our customers
based on the size of the geographic area under license, and from ongoing royalty
fees charged to customers on a per subscriber basis. As a result, our growth and
future success depend substantially on our ability to attract new customers and
to convince these customers to deploy services based upon our software products
to their subscribers throughout their service areas. We believe that many
service providers will be unwilling to commit to broad deployment of services
based on our products until they have completed trials of our products as well
as those of our competitors. Our ability to sell our software products will
depend principally on how successfully we can demonstrate to service providers
that:

     .    our software is reliable and capable of delivering service to a large
          number of subscribers without degradation of quality;

     .    subscribers will purchase multi-channel digital television and
          interactive media services based on our software at prices and in
          quantities that will justify the service provider's investment in our
          products and related services and in any necessary infrastructure
          upgrades;

                                       5
<PAGE>

     .    our software will remain compatible with industry standards and
          technology as they evolve; and

     .    our software will enable the service provider to sell new services to
          existing and new subscribers.

     We have licensed our software products to 10 customers in North America,
Europe and Asia. Of these customers, two telephone companies have launched
commercial services to subscribers, an additional three telephone companies and
one multiple dwelling unit service providers have licensed DTV Manager for
commercial deployment, and four other telephone companies have entered into a
trial license agreement. In addition, we have installed DTV Manager for limited
testing purposes on networks of 12 other service providers in North America,
Europe and Asia. None of our customers is contractually obligated to deploy,
market or promote services based on our software, nor is any of our customers
contractually required to achieve any specific introduction schedule.
Accordingly, even if a service provider initiates a consumer trial of services
based on our products, the service provider is under no obligation to continue
its relationship with us or to launch a full-scale deployment of services based
on our products in the geographic area under license or more broadly through its
service territories. If service providers determine that services based on our
products are not viable as a business proposition or if they determine that the
services do not meet their business or operational strategies, they may stop
using our software products to provide those services. If we are unable to sell
our products and services to a substantial number of additional service
providers or if our existing and any new customers fail to broadly deploy
services based on our software products, our growth prospects and revenues will
suffer.

If our customers are unable to attract and retain subscribers, our revenues will
suffer.

     Our customers' subscribers are the ultimate consumers of multi-channel
digital television and interactive media services based upon our software
products. We expect to derive a substantial portion of our future revenues from
royalties charged to our customers on a per subscriber basis. Accordingly, our
revenues will depend to a significant extent upon the number of subscribers to
whom our customers deliver multi-channel digital television and interactive
media services based upon our software products. The extent to which our
customers attract and retain subscribers will depend on, among other things,
their ability to effectively configure and package, competitively price and
effectively market their service offerings.

     Also, many of our customers will face competition from companies that offer
multi-channel digital television and interactive media services through
alternative technologies that are incompatible with our software products. These
alternative technologies include coaxial cable, some fixed wireless and
satellite technologies. Cable operators, in particular, are currently deploying
products that are capable of delivering voice, Internet and television services
over cable.

     We cannot assure you that our customers will succeed in attracting and
retaining a meaningful subscriber base that purchases services delivered through
our software products. If our customers are unable to attract and retain a
significant number of subscribers, our revenues will suffer, and we may never
become profitable.

Competitive products may reduce demand for our products and thus reduce the
value of your investment in our company.

     We compete directly with Next Level Communications, Inc., mPhase
Technologies, Inc., Myrio Corporation, Minerva Networks, Inc. and thirdspace,
which provide products and services that are competitive with all or part of our
products and related services. In addition, Liberate Technologies, an

                                       6
<PAGE>

indirect competitor, provides technology and services relating to interactive
television. Competition in the market for software solutions for the delivery of
multi-channel digital television or interactive media services is significant
and will likely persist and intensify over time. We cannot predict that we will
obtain or maintain the market share or pricing levels that we need to become and
remain profitable. By using the same standards upon which our software products
are based, a competitor with sufficient resources could design and market a
similar product that competes directly with our software products. Some of our
competitors may develop some or all of the interactive media services that we
intend to develop and may sell these services to service providers for
deployment separately or in conjunction with our software products. This could
have a significant effect on our ability to expand the range of our product
offerings over time.

     Many of our existing and potential competitors have longer operating
histories, larger customer bases, greater brand name recognition and
significantly greater financial, technical, sales, marketing and other resources
than we have. If we are unable to continuously improve our software products and
if we cannot generate effective responses to our competitors' products, pricing
strategies, advertising campaigns, strategic partnerships and other initiatives,
sales of our products and our profit margins may suffer, and we may never become
profitable.

Three customers generated 56% of our revenues in fiscal 2001, and we expect to
continue to rely on a limited number of customers for a significant portion of
our revenues for the foreseeable future.

     In our first two years of operation, we derived a significant portion of
our revenues from only three customers. Since our target customer base is
primarily telephone companies and other service providers, excluding cable and
satellite network operators, we expect to continue to derive a significant
portion of our revenues from a limited customer base. In fiscal 1999, NBTel, a
subsidiary of Aliant, our largest shareholder, accounted for 97% of our
revenues. For fiscal 2000, NBTel, Kingston Vision and SaskTel, the incumbent
local exchange carrier in the Province of Saskatchewan, each accounted for more
than 10% of our revenues and together accounted for 85% of our revenues. For
fiscal 2001, NBTel, CenturyTel, a provider of integrated communication services
in 20 U.S. states, and Boardwalk Equities, an operator of multiple dwelling
units in Canada, each accounted for more than 10% of our revenues and together
accounted for 56% of our revenues. In particular, for fiscal 2001, NBTel
accounted for 28% of our total revenues and 19% of our revenues excluding
equipment sales, an activity from which we do not anticipate substantial future
revenues. For further information on our sources of revenue, see "Management's
Discussion and Analysis--Overview'' in "Item 5. Operating and Financial Review
and Prospects."  If new customers from our limited base of potential customers
do not license our software or if our existing and any new customers are not
successful in selling services based upon our software products to a significant
number of subscribers, we may never become profitable.

The failure of interactive television to gain broad market acceptance could
limit our potential growth and revenues.

     Our DTV Manager software enables service providers to deliver interactive
media services in addition to multi-channel digital television services. Some of
our anticipated growth depends, among other things, on the broad acceptance of
interactive television by industry participants, including broadcast and pay-
television networks and manufacturers of televisions and set-top boxes, and
their ability to successfully market interactive television to viewers and
advertisers. Interactive television is a relatively new and emerging business,
and we cannot guarantee that it will attract widespread demand or acceptance in
any of our markets. There have been several well-financed, high-profile attempts
in the United States to develop and deploy systems in the broad category of
interactive television. None of these attempts has resulted in large scale
deployment, and many key industry participants have avoided

                                       7
<PAGE>

participating in interactive television. If interactive television fails to gain
market acceptance, subscriber growth may be adversely affected, and our ability
to generate revenues may be restricted.

If we fail to introduce new functionality in our products or if our new products
are unsuccessful, our growth prospects will be limited. We also may not recover
in revenues amounts we expend for research and development.

     We generate revenues from one-time license fees, royalties payable by
service providers on a per subscriber basis and fees for maintenance and
professional services. In order to generate long-term revenue growth and become
profitable, we believe we must continue to add new functionality to our
products. In many instances, this new functionality may require use of new
technologies and/or new industry standards. To meet this challenge, we must
obtain key contributions from programmers, product planners, technical
architects and other internal staff. We must also obtain proper information from
the marketplace, including our customers and industry analysts. Our failure to
meet this challenge in any way could limit our growth prospects. For example, we
have agreed to provide $500,000 of research and development services to America
Online with a view to developing custom applications relating to the
interoperability of our software with America Online's services. In addition, we
have agreed to provide an additional $2,500,000 of continued research and
development services if America Online licenses our DTV Manager software on a
trial basis or for commercial deployment. At the date of this annual report we
have not entered into any license agreement in this regard with America Online.
We cannot assure you, however, that any of these costs or any other costs that
we expend for research and development will result in the generation of any
revenues by us.

If we fail to develop and maintain relationships with industry participants, our
business could suffer.

     We rely and expect to continue to rely upon non-exclusive relationships
with a number of major participants in the telecommunications, computer and
software industries to ensure the interoperability of our software with their
hardware and software, such as network and encoder equipment, set-top boxes and
database software systems, and to market and jointly promote the sale of our
products with their products. Generally, our arrangements and formal agreements
with these industry participants are short-term or terminable on short notice.
Further, other industry relationships remain informal. We typically do not
receive any monetary compensation, in the form of revenues, referral fees or
otherwise, under these arrangements, and we typically do not directly generate
revenues from these arrangements. If the nature of these relationships changed
significantly, or if these relationships failed to evolve in ways consistent
with our business plan, our software would still operate with their third-party
hardware and software, but our ability to market and sell our software products
could suffer.

If we fail to properly manage our growth, our business will suffer.

     Our development activities and operations have expanded rapidly since our
operations began in January 1998. In fiscal 2001, the number of our employees
increased from approximately 110 to 216.  To manage our growth, we must
successfully implement, constantly improve and effectively utilize our
operational and financial systems. Our existing or planned operational and
financial systems may not be sufficient to support our potential growth, and our
management may not be able to effectively identify, manage and exploit existing
and emerging market opportunities. If our growth is not adequately managed, our
business will suffer.

                                       8
<PAGE>

If we fail to hire and retain needed personnel, the implementation of our
business plan could slow or our future growth could halt.

     Competition for highly skilled technical, sales, marketing and support
personnel is intense because there are a limited number of people available with
the necessary technical skills, knowledge of the telecommunications industry and
understanding of the market. As our business grows, we plan to hire additional
technical support, sales and marketing personnel. Any failure to attract,
assimilate, train or retain qualified personnel to fulfil our current or future
needs could slow implementation of our business plan or halt our future growth.

     Our future success depends upon the continued services of our executive
officers who have critical industry experience and relationships that we rely on
to implement our business plan. Our executive officers are Marcel LeBrun,
President and Chief Executive Officer, Allan Cameron, Vice President of
Technology, Gerry Verner, Vice President of Marketing and Business Development
and Marjean Henderson, Vice President and Chief Financial Officer. The loss of
the services of any of these individuals could delay the development and
introduction of, and negatively impact our ability to sell, our products.

Currency exchange rate fluctuations could adversely affect our financial
results.

     Fluctuations in foreign exchange rates may affect our results of
operations, which in turn may adversely affect reported earnings and the
comparability of period-to-period results of operations. As our operations are
currently based in Canada, a significant portion of our expenses are in Canadian
dollars. However, a substantial part of our revenues is currently generated in
U.S. dollars, and we expect that a majority of our revenues for the foreseeable
future will be generated in U.S. dollars. If the Canadian dollar appreciates
against the U.S. dollar, our results of operations could be materially adversely
affected. Also, changes in foreign exchange rates may affect the relative prices
at which we and foreign competitors sell products in the same market.

Risks Related to Our Technology

If our software cannot support and manage a substantial number of users, demand
for our products and services will decline significantly.

     Our software relies on the large-scale use of Internet Protocol and, more
specifically, Internet Protocol multicast technology. Our customers' commercial
deployments to date have shown that our software can support the concurrent
delivery of multi-channel digital television and interactive media services to
approximately 10,000 subscribers. While we believe that our software, through
the use of Internet Protocol multicast technology, can support delivery of
multi-channel digital television and interactive media services to a
significantly larger number of customers without significant redesign or
expense, there is currently no large scale customer deployment of our software
products to support our belief. If our software's reliance on Internet Protocol
multicast technology significantly limits the ability of our customers to serve
their desired subscriber base, demand for our products and services will
decline, our ability to generate revenues will suffer, and we may incur
significant costs.

If suppliers do not continue to manufacture and make available products that
support our software, we may be unable to meet the demands of service providers.

     Although we have designed our software so that it can be adapted to work on
a number of different hardware and software platforms, we must modify our
software each time we adapt it to a new

                                       9
<PAGE>

platform. At this time, our software operates only on the following server,
database and set-top box platforms:

     .    a Sun Microsystems server platform;

     .    an Oracle Corporation database platform; and

     .    a Pace Micro Technology plc or a Motorola set-top box platform.

     If the availability of these products becomes limited, or if the cost of
these products increases, we may be unable to meet, in a timely and cost-
effective manner, demand for software that runs on alternative servers,
databases and set-top boxes. Our current agreement with Sun Microsystems expired
in June 2001. We are negotiating a new agreement and continue to operate under
the terms of the original agreement. Moreover, although we believe that we can
adapt our software to operate on other server, database and set-top box
platforms, we would incur additional costs to do so, and we cannot assure you
that our products would operate successfully in actual deployment on any of
these other platforms. If we fail to satisfy our customers' demands, they may
cease doing business with us, and our revenues would suffer.

Rapid technological advances or the adoption of new standards could impair our
ability to deliver our products to service providers in a timely manner, and as
a result, our revenues would suffer.

     Our success depends in large part on our ability to keep our software
current and compatible with evolving technologies and standards. Unexpected
changes in technology or standards could disrupt the development of our software
products and prevent us from meeting deadlines for the delivery of our software
products. If we are unable to keep pace with technological advancements and
adapt our software to new standards in a timely manner, we may lose customers,
and our revenues would suffer.

The occurrence of any defects, errors or failures in our software could result
in delays in installation and loss of customers.

     Our software is complex and may contain undetected defects, errors or
failures. These problems have occurred in our software in the past. Additional
problems may occur in our software in the future, which could result in the loss
of, or delay in, market acceptance of our software products. In addition, we
have limited experience with commercial deployment, and we expect additional
defects, errors and failures as our business expands from trials to commercial
deployment with customers. These problems could result in a loss of sales and
additional costs and liabilities to us, including loss of our customers.

If our technology were responsible for the failure of service providers to
deliver services to subscribers, our reputation and viability could be seriously
damaged.

     We expect that most service providers that purchase our software products
will deliver multi-channel digital television and interactive media services in
conjunction with voice and Internet services. If our software is responsible, or
appears to be responsible, for a failure to deliver voice, Internet or
television, a likely result would be severe customer service or public relations
problems that could seriously damage our reputation and viability.

Risks Related to Legal Uncertainties

Because much of our potential success and value lies in our ownership and use of
intellectual property, our failure to protect our intellectual property could
negatively affect us.

                                       10
<PAGE>

     Our ability to compete effectively is dependent in large part upon the
maintenance and protection of our intellectual property. We currently do not
have patents or trademark registrations protecting our products and other
intellectual property other than a Canadian trademark registration for
"iMagic.'' To date, we have relied on trade secret and copyright law, as well as
confidentiality procedures and licensing arrangements, to establish and protect
our rights to our technology. We typically enter into confidentiality or license
agreements with our employees, consultants, customers, strategic partners and
vendors in an effort to control access to and distribution of our software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
proprietary technology without authorization. Policing unauthorized use of our
intellectual property is difficult. The steps we take may not prevent
misappropriation of our intellectual property, and the agreements we enter into
may not be enforceable. In addition, effective intellectual property protection
may be unavailable or limited in some jurisdictions outside Canada and the
United States. Litigation may be necessary in the future to enforce or protect
our intellectual property rights or to determine the validity and scope of the
proprietary rights of others. That litigation could cause us to incur
substantial costs and divert resources away from our daily business, which in
turn could materially adversely affect our business.

We may be subject to damaging and disruptive intellectual property litigation.

     The software development and the interactive television businesses are very
litigious. We may be subject to intellectual property litigation that could:

     .    be time-consuming and expensive;

     .    divert attention and resources away from our daily business;

     .    impede or prevent delivery of our products and services; and

     .    require us to pay significant royalties, licensing fees and damages.

     Although we are not aware that our products or services infringe any
published patents or registered trademarks, and although we have not been served
notice of any potential infringement, we may be subject to infringement claims
in the future. Because patent applications are kept confidential for a period of
time after filing, applications may have been filed that, if issued as patents,
could relate to our products or services.

     Parties making claims of infringement may be able to obtain injunctive or
other equitable relief that could effectively block our ability to provide our
products and services in Canada, the United States and other jurisdictions and
could cause us to pay substantial damages. In the event of a successful claim of
infringement, we and our customers may need to obtain one or more licenses from
third parties, which may not be available at a reasonable cost, if at all. The
defense of any lawsuit could result in time-consuming and expensive litigation,
regardless of the merits of such claims, as well as resulting damages, license
fees, royalty payments and restrictions on our ability to provide our products
or services, any of which could harm our business.

Laws and government regulation and policies in various jurisdictions may
restrict the willingness or ability of service providers to purchase our
software and deliver multi-channel digital television and interactive media
services to subscribers.

     Service providers in jurisdictions where we currently do business and where
we intend to do business in the future operate in heavily regulated industries.
Although we, in providing our products and

                                       11
<PAGE>

services, are not now directly subject to significant regulation, our existing
and potential customers are subject to laws, regulations and policies, including
licensing and permit requirements, zoning restrictions, laws regulating the
provisioning of television services, copyright laws which may be interpreted or
amended to restrict the capture and "time shifting" of television programming
and foreign share ownership restrictions, that could adversely affect their
willingness or ability to:

     .    invest in technology necessary for our software to operate; or

     .    offer multi-channel digital television and interactive media services
          to subscribers.

     As a result, these laws, regulations and policies may impede sales of our
products and services. For a more thorough discussion of the regulatory issues
that may affect our business, see Business Overview - Regulation of Service
Providers in "Item 4. Information on the Company."

If we are treated as a passive foreign investment company for U.S. federal
income tax purposes, our U.S. shareholders may be subject to an unfavorable tax
regime.

     While we believe, based on our income, assets and activities, that we
should not be a passive foreign investment company for our taxable year ended
February 28, 2001, it is possible that we will nonetheless be treated as a
passive foreign investment company for U.S. federal income tax purposes for such
taxable year or for later taxable years. If we are classified as such, a special
tax regime would apply to "excess distributions" with respect to shares held by
a U.S. shareholder and to any gain realized on the sale or other disposition by
a U.S. shareholder of shares held for more than one taxable year, unless the
U.S. shareholder timely makes an election available under applicable law. For a
more thorough discussion of the passive foreign investment company rules, see
"Certain Canadian and United States Income Tax Considerations--United States
Federal Income Tax Considerations--Passive Foreign Investment Company
Considerations" in "Item 10. Additional Information."

     You should rely only on the information contained in this annual report. We
have not authorized any other person to provide different information. You
should assume that the information appearing in this annual report is accurate
only as of July 12, 2001. Our business, financial condition, results of
operations and prospects may have changed since that date.

ITEM 4.   INFORMATION ON THE COMPANY

A.   History and Development of the Company

     See "Management's Discussion and Analysis - Overview" in "Item 5.
Operating and Financial Review and Prospects."

     Our principal executive officers are located at One Brunswick Square,
14/th/ Floor, Saint John, New Brunswick E2L 3Y2, Canada. Our agent for service
in the United States is CT Corporation System, located at 111 Eighth Avenue,
13/th/ Floor, New York, New York 10019, whose telephone number is (212) 590-
9200.

B.   Business Overview

     We develop and license infrastructure software products and provide related
services that enable telephone companies and other service providers to deliver
multi-channel digital television and interactive media services to their
subscribers' televisions and personal computers over a broadband or high-speed
communications network. Our software is based on open, Internet-based standards
for software and networking and is designed to work in conjunction with industry
standard, third-party hardware and software. Service providers can implement our
software in conjunction with industry standard third-party hardware and software
over existing copper phone lines using xDSL technology, including ADSL and
various broadband access technologies such as fiber to the home and broadband
wireless technologies.

     Our customers include incumbent local exchange carriers, competitive local
exchange carriers which compete with incumbent local exchange carriers in local
telephone markets, and multiple dwelling unit service providers. We also offer
our products and services to providers of broadband transmission services such
as power and utility companies and Internet service providers.

     We believe telephone companies and other service providers are seeking
solutions that will allow them to deliver multi-channel digital television
services bundled with their existing voice and Internet service offerings and
thus to compete with cable and satellite television operators in the emerging
market for integrated voice, Internet and television services. By implementing
our primary software product,

                                       12
<PAGE>

DTV Manager, over existing broadband networks and by acquiring and installing
additional equipment as subscribers activate service, we believe that service
providers can cost effectively offer their subscribers the following services
through televisions and personal computers:

     .    digital television with unlimited channel capacity and

     .    interactive media services, such as:

          .    Internet-on-television, including e-mail and Web access;

          .    video-on-demand;

          .    self-service pay-per-view;

          .    an interactive program guide; and

          .    a customizable television portal that provides access to various
               available services, including television stations, websites,
               digital music channels and e-commerce sites.

Our DTV Manager software also enables service providers to manage subscriber
accounts through service provisioning, customized package offerings and
integrated voice, Internet and television billing.

The ImagicTV Solution

     Our software enables telephone companies and other service providers to
deploy multi-channel digital television and interactive media services over a
broadband network. It is standards-based and is designed to work in conjunction
with industry standard, third-party hardware and software and to integrate with
the service provider's existing network and systems. Our software takes
advantage of advancements in communications transmission technology, Internet
Protocol networking standards and video and audio compression technologies. To
implement our software, the service provider's network must comply with various
Internet-based standards for software and networking.

     Third-party hardware and software are required to utilize our software
products. At this time, our software operates on a Sun Microsystems server
platform, an Oracle database platform and a Pace or Motorola set-top box
platform. Required video encoder equipment is available from Harmonics Software
Inc. We are currently upgrading the set-top box components of DTV Manager to
operate on a Thomson set-top box platform. We anticipate further modification of
our software in the future so that it will operate on other server, database and
set-top box platforms. Furthermore, our software products are designed to
operate over standard network equipment deployed by our customers, which
consists of hardware products from a variety of vendors, including Alcatel,
Cisco Systems, Innovia Telecom, Lucent Technologies Inc. and Nortel Networks
Corp.

     Our software products are designed to support multiple televisions and
personal computers in the home. The number of televisions and personal computers
in a home that our software can support will depend upon the capacity of the
broadband network and the type of video compression employed by the service
provider. For example, using current ADSL technology at transmission rates of
six megabits per second and with data compression allowing video transmission at
a rate of 3.5 megabits per second, our software can support one television and
one personal computer over a single line to the home.  By further compressing
data to allow video transmission at a rate of 2.5 megabits per second, the
service provider can simultaneously support service to two televisions and a
personal computer over the same line. With

                                       13
<PAGE>

faster technologies such as VDSL and fiber to the home, where and when
available, the service provider can use our software to support additional
devices in the home. In each case, a subscriber can also use the telephone and
access high-speed Internet services while using the television.

Products and Services

     Our software products currently consist of DTV Manager, pcVu and Movie
Manager which are offered together with our professional services and
maintenance and technical support services.

DTV Manager

     DTV Manager, our primary product, is a suite of software that integrates,
supports and manages the hardware and software components of the service
provider's network to enable the service provider to deliver multi-channel
digital television and interactive media services from its head office to its
subscribers' homes. DTV Manager software falls into three broad categories:
viewer component software, administration system software and operations system
software.

     Viewer Component Software.  The viewer component software supports set-top
boxes in a subscriber's home and allows the subscriber, through the use of a
standard television remote control, a wireless keyboard or other device, to
browse through a television portal or an interactive program guide, to make on-
screen selections of video-on-demand programming and television, pay-per-view
and Web channels, and to view information banners that appear at the top of the
television screen when new channels are selected. The interactive program guide
and the television portal are features of the viewer component software that a
service provider can customize to brand its service offering and incorporate
local content. The interactive program guide includes up to seven days of
information on channel content which a service provider may update on a regular
basis. The television portal also provides access to interactive channels which,
for example, may offer online shopping, online banking, Web browsing, video-on-
demand and other services. The viewer component software is stored in memory on
the set-top box. Without any action required by the subscriber, a service
provider can make changes to the viewer component software by remotely
distributing software updates over the service provider's network to the
subscriber's set-top box.

     Administration System Software.  The administration system software allows
service providers to maintain information about subscribers, including the
subscriber's profile, class of service, passwords and usage. It supports
workstations at a service provider's head office, where the service provider's
administrative personnel can use subscriber information to define and configure
subscriber accounts and programming packages. Administration system software
also allows a service provider's administrative personnel to manage individual
subscriber accounts, for example, by blocking particular television channels
pursuant to a subscriber's requests.

     Operations System Software.  The operations system software facilitates
the service provider's management of the content delivered to subscribers. The
operations system software consists of a variety of components resident on
servers at the service provider's head office and at the subscriber's premises
on a set-top box or PC. These components allow the service provider to track and
collect subscriber usage data, to deliver television programming information to
set-top boxes, to initialize and support the set-top boxes and to run a business
support system and a network management system. Through the operations system, a
service provider can also customize programming packages.

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<PAGE>

pcVu

     pcVu works in conjunction with DTV Manager and allows a subscriber to
receive multi-channel digital television services on a personal computer. It
includes a software-based tuner resident on the personal computer and does not
require additional hardware in the personal computer. pcVu is designed to
deliver high quality digital broadcast television signals so that, to the
subscriber, there is no visible distinction between a broadcast delivered over a
television and a broadcast delivered over a personal computer. The software is
designed to allow a subscriber to watch television while simultaneously using
his or her Web browser and other standard software packages.

Movie Manager

     Movie Manager works in conjunction with DTV Manager to allow subscribers to
access DVD quality video content on demand.  It provides VCR style control to
the subscriber through the use of the set-top box remote control. With Movie
Manager the service provider can manage the delivery of the content and
customize its business application for video rentals by the subscriber.

Services

     Professional Services.  We provide professional services that a service
provider may need in conjunction with the introduction of a DTV Manager service
offering. For example, we offer project management services, which assist the
service provider in defining its subscribers' needs and creating an
implementation plan. We also offer ongoing program management services, which
include operational planning, marketing strategy and portal design and
customization. In addition, we assist service providers in identifying and
negotiating agreements with potential hardware, software and content providers.

     Maintenance and Technical Support Services.  We provide comprehensive
services that include training, installation, configuration, maintenance and
support services. We assist customers in the design of their networks, the
selection of hardware and software components and the integration of our
software with their existing systems. We also offer a training course for all
new customers prior to receiving and installing a system. In addition, we
provide direct on-site or telephone support. To monitor service activities, we
maintain a customer call tracking system. We also maintain an Internet-based
management interface to our equipment to assist with diagnostics.

Benefits of Our Software

     Our products and related services provide numerous potential benefits to
service providers and enable service providers to deliver various benefits to
their subscribers.

Benefits to the Service Provider

     Our software provides the following potential benefits to service
providers:

     .    Integrated Bundled Services to Subscribers. Service providers can
          offer subscribers multi-channel digital television and interactive
          media services, through the television and the personal computer, in
          conjunction with voice and high-speed Internet services. This offers a
          service provider the opportunity potentially to increase its revenue
          stream from existing subscribers and to increase its subscriber base.

     .    Uses Existing Infrastructure. Service providers can take advantage of
          existing broadband networks, including xDSL, fiber optic and wireless
          broadband access

                                       15
<PAGE>

          technologies, to implement DTV Manager. As a result, we believe that
          service providers can quickly and cost-effectively design and
          implement our software products. Subsequent investments in technology
          are variable and directly related to the number of subscribers the
          service provider activates or anticipates activating.

     .    Flexible Technology Architecture. Our software products are based on
          open, Internet-based standards and are designed to work in conjunction
          with industry standard, third-party hardware and software. Our
          software can simultaneously support xDSL, fiber optic and wireless
          broadband technologies on a single network so that a service provider
          can continue to use our software throughout its network upgrade
          process.

     .    Scalability. Our software products take advantage of Internet Protocol
          multicast technology and are designed to enable a service provider to
          simultaneously serve a large number of subscribers from a single
          server without degradation of service and without any changes to our
          software.

     .    Ability to Fully Manage Network Remotely. Using features of DTV
          Manager, a service provider can remotely perform diagnostics and
          reboot set-top boxes in subscribers' homes. DTV Manager keeps track of
          a variety of information related to subscriber usage and maintains
          error-log files so that the service provider can troubleshoot problems
          from its premises.

     .    Ability to Deliver Integrated Television Portal. An important element
          of DTV Manager is its ability to enable our customers to integrate a
          Web-based portal page with the services they offer. A service provider
          can customize its portal with local content and seek to generate
          additional revenue by selling space to advertisers, such as e-commerce
          companies and local subscriber area merchants.

     .    Customized Services and Pricing. Service providers can brand their
          service offerings and customize them to particular subscribers or
          groups of subscribers by offering a variety of program packages.
          Service providers can also structure a variety of subscriber payment
          packages based on subscription, pay-per-view and other pricing models.

     .    Unlimited Channel Capacity and Enhanced Media Services. Our software
          can support an unlimited number of channels and allows for the
          delivery of video-on-demand, digital music, Internet content and
          websites as separate channels in addition to broadcast television
          channels.

     .    Integration with Existing Systems. DTV Manager is designed to
          integrate with a service provider's existing accounting, marketing and
          network management software systems. For example, DTV Manager's
          integration with existing billing systems allows, subject to
          regulatory restrictions, a service provider to deliver one bill to a
          subscriber for voice, Internet and television services.

Benefits to the Subscriber

     With our software, service providers can deliver the following benefits to
their subscribers:

     .    Multi-channel Digital Television. Subscribers can access multi-channel
          digital television through standard televisions and personal
          computers.

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<PAGE>

     .    Feature-Rich Interactive Program Guide. An interactive program guide
          allows subscribers to view present and future programming information
          and to make on-screen selections of television shows, pay-per-view
          programs, websites and other content. Subscribers can also use the
          interactive program guide to access a parental control feature that
          enables them to select and block access to channels.

     .    Always on Internet-on-Television. Our software allows for "always on"
          Internet access through the television. With browser software resident
          in set-top boxes and "always on" Internet access, subscribers can be
          one click away from the Internet at all times. Subscribers can browse
          the Web and can send and receive e-mail using the set-top's remote
          control or wireless keyboard.

     .    New Programming and Entertainment Options. The subscriber may access a
          host of enhanced services, including video-on-demand, e-commerce,
          digital music, Web channels and self-serve pay-per-view, without
          requiring equipment changes or service calls.

     .    Convenient Service Offering Package. Subscribers can receive voice,
          Internet and television services through one service provider and can
          pay for these services on a single bill, if offered.

Strategy

     Our goal is to be the leading developer and provider of software products
and related services that enable telephone companies and other service providers
to cost-effectively deliver and manage multi-channel digital television and
interactive media services. Our strategy includes the following key objectives:

     .    Expand Our Sales and Marketing Efforts. We intend to establish market
          leadership by continuing to focus on the successful and wide scale
          deployment of our software with our current customers and by expanding
          our customer base to include a broad range of service providers,
          particularly those with large subscriber bases.

     .    Build Our Global Presence. Currently we have sales offices in Canada,
          the United States, the United Kingdom and Singapore. We plan to expand
          our presence in North America, Western Europe and in select countries
          in Asia, where we intend to establish sales and service centers. In
          other geographic areas, we intend to take advantage of opportunities
          as they arise with a long-term goal of establishing a worldwide
          presence.

     .    Develop and Expand Our Industry Relationships. We currently have
          sales, marketing and development relationships with several vendors.
          We believe that forging and expanding relationships with key vendors
          is critical to a broad deployment of our products and services and for
          the further development of our software products.

     .    Continue to Enhance Our Products and Develop New Applications. We
          intend to continue investing in research and development, focusing our
          spending on product enhancements and new applications that are
          designed to enable service providers to reduce costs or generate
          additional revenue. Further, it is our goal to continue to develop
          software that is based on open systems.

                                       17
<PAGE>

     .    Adhere to Industry Standards. We believe that adherence to industry
          standards and development principles strengthens our market position.
          Accordingly, we support these standards and development principles
          throughout our product line. This approach is designed to enable
          service providers to integrate our software products with their
          existing infrastructure on a cost-effective basis.

Technology

Implementation Architecture

     Our software products work with network, head-end and set-top box
components and operate on network architecture that is based on Internet
Protocol and other standard protocols. Head-end equipment is located at the
service provider's premises and consists of digital video equipment and a server
suite. Digital video equipment gathers, processes and distributes video, and
typically includes satellite dishes and receiver units, encoders and Internet
Protocol gateways. The server suite stores and powers DTV Manager software,
standard Web server software and standard database software. Set-top boxes run
DTV Manager client software, provide support for the MPEG and Internet Protocol
multicast technology used in our software, and include a Web browser for
integrated Internet capability.

     Three key technologies support our implementation architecture: MPEG,
Internet Protocol multicast and broadband transmission.

     .    MPEG is our main data standard and supports the delivery of high
          quality video and audio over an Internet Protocol network;

     .    Internet Protocol multicast, our data transmission standard, supports
          the efficient delivery of generic data such as video and audio, as
          well as software and set-top configuration data throughout the
          network; it delivers large amounts of data over a network efficiently
          because the server can broadcast one message to many recipients
          simultaneously; and

     .    Broadband communications technology provides the speed and capacity
          necessary to deliver multiple data streams, including video channels,
          over a single medium such as twisted pair copper wire or fiber optic
          cable.

     To enhance the capabilities of existing twisted pair copper wire, service
providers can deploy an xDSL-based architecture, including DSL access
multiplexers and xDSL modems. Generally, DSL access multiplexers connect
broadband lines in the service provider's transport network, or backbone, to
xDSL lines in the service provider's access network. In addition, DSL access
multiplexers separate high-speed data from voice data, putting high-speed data
on the network and low-speed voice data on the conventional phone system. DSL
access multiplexers are located in the service provider's central office or
remote switching center. xDSL modems connect a set-top box or personal computer
in the home to the xDSL lines in the access network. When MPEG video is
delivered to the set-top box through the xDSL modem, the set-top box decodes the
MPEG video and sends it to the television. In some cases, the xDSL modem is
built into the set-top box.

How Video is Delivered Over an Internet Protocol Network

     Typically, video is distributed from the service provider's head-end to
subscribers in three steps.

     .    Video Capture. Satellite dishes and receiver units capture digital
          television signals in the form of MPEG streams.

                                       18
<PAGE>

     .    Video Conversion. Video encoders or other similar devices convert the
          MPEG streams into Internet Protocol-compliant video streams.

     .    Video Multicasting. Video encoders and network components transmit
          Internet Protocol-compliant video streams over the network to the
          home.

     At the home, when subscribers use a remote control or wireless keyboard,
this action triggers the set-top box to issue a request to join the
corresponding Internet Protocol multicast address where the corresponding
channel can be found. In response to the request, the server adds the subscriber
to the Internet Protocol multicast address and sends the related channel data to
the set-top box.

Research and Development

     Our research and development efforts focus on the continued development and
enhancement of our existing products and services as well as the development of
new applications and services. These efforts are based on input both from our
customers and from our research and development staff.

     We are engaged in the development of the following new products which we
expect to offer as enhancements or "add ons" to DTV Manager:

     .    Virtual VCR. This service would enable subscribers to store and replay
          digital broadcast television and other video content on an "on-
          demand" basis without a video cassette recorder.

     .    Rich Media Applications. This service would enable service providers
          to deliver a pre-packaged bundle of interactive broadband channels to
          subscribers with imbedded interactive e-commerce applications linked
          to third parties. One example is a channel offering a movie and pizza
          package that subscribers can order through their television. We expect
          that two-way channel services would often be co-branded with retail
          and consumer brands.

     .    Independent Software Vendor Program. These software development tools,
          documentation and training materials would enable service providers to
          customize and enhance their service offerings by building custom
          applications that interact with DTV Manager.

     Other on-going research and development efforts include:

     .    developing the next release of DTV Manager to provide additional
          enhancements and features based upon input we have received from
          service providers; and

     .    upgrading the viewer component of DTV Manager to enable it to operate
          on the next generations of set-top boxes from Pace, Motorola and
          Thomson.

     In October 2000, we entered into a memorandum of understanding with America
Online to develop custom applications related to the interoperability of our
software with America Online's services. Under the terms of the memorandum of
understanding, we agreed to work with America Online on investigative research
and development, particularly in the delivery of advertising to selected
subscriber groups, and obligated ourselves to provide $500,000 of research and
development services in this regard. We further agreed that, if America Online
licenses our DTV Manager software on a trial basis or for commercial deployment,
we will be contractually obligated to provide an additional $2.5 million of

                                       19
<PAGE>

continued research and development services relating to these and other custom
applications. As of July 3, 2001 we have not commenced this activity and as such
have not incurred any of these costs.

Customers

     Currently, we have licensed our software products to 10 customers in North
America, Europe and Asia and currently generate revenues from all of these
customers.  Of these customers, five telephone companies and one multiple
dwelling unit service provider has licensed DTV Manager for commercial
deployment and four other telephone companies have entered into trial license
agreements.  In addition, we have installed DTV Manager for limited testing
purposes on the networks of 12 other service providers in North America, Europe
and Asia. Our license agreements with those customers who have licensed for
commercial deployment generally grant a long-term or perpetual license to use
our software products within a specified territory, sometimes on an exclusive
basis. While our license agreements generally give limited termination rights to
the customer, some of the early license agreements we entered into, which are
applicable to two of our customers, are terminable by the customer at its option
by advance notice to us. None of our customers, however, is contractually
obligated to deploy, market or promote services based on our software, nor is
any customer of ours contractually required to achieve any specific introduction
schedule. For further information with regard to the risk that our customers
will not deploy services based upon our software to their subscribers, see "Risk
Factors - If service providers fail to deploy services based upon our software
throughout their service area, our business will not grow" in "Item 3. Key
Information."

     These license agreements also generally provide for the payment of an
initial license fee, fixed per subscriber royalty fees, typically calculated on
a monthly basis, and fees for maintenance and technical support services.
Because we negotiate our license agreements on an individual basis, the type of
agreement, the amount, timing and other payment terms of initial license fees,
royalty fees and annual fees for maintenance and technical support services
typically differ from one customer to another.  In addition, we plan to charge
separate initial license fees and ongoing royalty fees for any new products that
we may introduce.

     Our existing revenue generating customers are located in Canada, the United
States, Europe and Asia. The following table identifies, as of May 31, 2001 our
current licensed customers.

     Customer Name            Description and Geographic Area
     -------------            -------------------------------

     Kingston Vision          A subsidiary of Kingston Communications (Hull)
                              plc, the incumbent local exchange carrier in East
                              Yorkshire, England

     NBTel                    The incumbent local exchange carrier in the
                              Province of New Brunswick

     Boardwalk Equities       An operator of several multiple dwelling units in
                              the Provinces of Alberta, Saskatchewan and Ontario

     Century Tel              A provider of integrated communications services
                              in 20 U.S. states

     MTT                      The incumbent local exchange carrier in the
                              Province of Nova Scotia and a subsidiary of Aliant

     KPN Telecom              An incumbent local exchange carrier in the
                              Netherlands

                                       20
<PAGE>

     Customer Name            Description and Geographic Area
     -------------            -------------------------------

     Ringold                  An incumbent local exchange carrier in the State
                              of Georgia

     SaskTel                  The incumbent local exchange carrier in the
                              Province of Saskatchewan

     SingTel                  The incumbent local exchange carrier in Singapore

     Telenor                  The incumbent local exchange carrier in the Norway


Industry Relationships

     We believe that our success depends, among other things, on our ability to:

     .    market our software products and services to a substantial number of
          customers, and thereby build a large potential royalty base;

     .    ensure the interoperability of our software with hardware and software
          from third-party vendors; and

     .    develop new products and services to enhance our software products.

In order to better achieve these goals, we have entered into non-exclusive
agreements or understandings with a number of participants in the
telecommunications, computer, software and interactive media industries,
including:

     .    network and encoder equipment providers, such as Advanced Fibre
          Communications, Inc., Alcatel, Cisco Systems Inc., Harmonic Software
          Inc., Nortel Networks, Viagate Technologies Inc. and Optibase Ltd.;

     .    server hardware and software providers, such as Oracle and Sun
          Microsystems;

     .    set-top box manufacturers, such as Motorola, Pace and Thomson Consumer
          Electronics Inc.; and

     .    content and interactive media service providers and broadcasters, such
          as America Online, Federal Hill Communications Inc. and Atom
          Shockwave.

     Generally, our agreements and understandings with these industry
participants are short-term or terminable on short notice, and neither generate
revenues from the participant nor require us to pay any fee to the participant
other than out-of-pocket expenses. In addition, in the case of joint marketing
arrangements, we generally do not pay or receive referral fees, and our
obligations are generally limited to marketing and promotional related
activities. We also have and may continue to pursue informal industry
relationships with other third parties.

                                       21
<PAGE>

Sales and Marketing

     We currently sell our software products and services through a direct sales
force. As of May 31, 2001, our sales force consisted of 12 employees supported
by a staff of 22 systems integrators, sales engineers and technical support
specialists. Sales representatives are paid a competitive salary plus incentive
bonuses based on sales. Direct sales professionals are located in Saint John,
New Brunswick; Halifax, Nova Scotia; Atlanta, Georgia; Denver, Colorado;
Cambridge, England; Paris, France and Singapore. We use our direct sales force
to target service providers we believe provide the highest potential for service
deployment.

     To complement our direct sales efforts, we participate in trade shows in
North America, Europe and Asia and engage in joint marketing with vendors and
other market participants with whom we have relationships. We belong to related
industry associations, and our representatives also speak at telecommunications,
e-commerce and multimedia events. We also encourage our potential customers to
visit our facilities. In addition, we have installed our DTV Manager software in
customer demonstration centers of various strategic equipment and software
vendors, including Cisco Systems, Sun Microsystems, Nortel and Alcatel, which
are accessible to our potential customers.

Competition

     We face competition from a number of companies in the market for multi-
channel digital television and interactive media services. Our direct
competitors, Next Level Communications Inc., mPhase Technologies, Inc., Myrio
Corporation, Minerva Networks, Inc. and thirdspace, provide products that are
sold to telephone companies and other service providers and are competitive with
all or part of our products. An indirect competitor, Liberate Technologies,
provides technology and services related to interactive television. We also
expect additional competition from other established and emerging companies.
Many of our existing and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, technical, sales, marketing and other resources than we have. We
expect competition to persist and intensify as the market for digital
interactive television over broadband further develops.

     We believe that the success of companies seeking to develop software that
provides telephone companies and other service providers with the ability to
deliver multi-channel digital television and interactive media services will
depend on the following factors:

     .    the ability to provide a complete solution for the delivery and
          management of digital interactive television;

     .    technology that is standards-based and non-proprietary, and is
          designed to work in conjunction with industry standard, third-party
          hardware and software;

     .    the quality and reliability of product offerings;

     .    the price and value of product offerings; and

     .    customer service.

     We anticipate that a significant part of our future revenues will be
derived from subscriber-based royalties. These royalties will be wholly
dependent on our customers' success in attracting and retaining subscribers. Our
existing and potential customers compete for subscribers with many different
companies that offer video, audio, programming, entertainment, Internet and
voice services, such as cable television

                                       22
<PAGE>

companies and direct broadcast satellite service providers. Cable companies such
as Cox Communications, AT&T and AOL Time Warner Inc. in the United States and
Rogers Communications and Shaw Communications in Canada offer digital television
and, in some cases, limited interactive media services to their subscribers.
Direct-to-home satellite television services such as DIRECTV, Inc. in the United
States, Bell Expressvu Inc. in Canada and British Sky Broadcasting Group plc in
the United Kingdom also offer digital television and, in a limited number of
cases, interactive media services. If existing and potential customers offer
personal television services using our Virtual VCR product currently under
development, their services will compete for subscribers with products and
services provided by TiVo, Inc. and ReplayTV. Many of these competitors have
greater brand recognition, a larger subscriber base and more significant
financial, technical and other resources than those of our customers. These
competitors may also undertake more extensive marketing campaigns than our
customers and may adopt more aggressive pricing policies.

     Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. We cannot predict the effect that ongoing or future developments
might have on the video programming distribution industry generally, on our
customers or on our company.

Regulation of Service Providers

Overview

     Although, in providing our products and services, we are not now subject to
significant regulation, our existing and potential customers operate in heavily
regulated industries. Our existing customers are located in the United States,
various member countries of the European Union and Canada. The paragraphs below
summarize various regulatory matters within these jurisdictions.

United States

     In the United States, the telecommunications and multi-channel video
programming distribution industries are subject to extensive regulation at the
federal, state and local levels. At the federal level, the Federal
Communications Commission, or FCC, regulates the interstate, mixed
intrastate/interstate and international aspects of the telecommunications
industries pursuant to its authority under the Communications Act of 1934, as
amended. Under the Communications Act, state authorities retain jurisdiction to
regulate intrastate telecommunications. Local authorities, pursuant to their
general zoning and police powers, regulate the distinctly local aspects of
telecommunications services, such as tower siting and infrastructure placement.
Federal, state and local authorities also share responsibility for regulating
the provision of multi-channel video programming distribution services.

     Federal Regulation.  Several FCC regulatory policies may affect the way in
which our customers can or choose to offer integrated voice, data and video
services. For example, federal law requires incumbent local exchange carriers to
offer their competitors cost-based access to certain network elements, which
elements comprise many of the significant facilities, features and capabilities
of their networks, in order to enable their competitors to provide competing
services. Although at this time incumbent local exchange carriers in most cases
are not required to provide unbundled access to high-speed data switching
equipment, they are required to offer high-speed data services to their
competitors for resale. Further, the FCC has required the unbundling of the
"high-frequency" portion of local transmission facilities, which makes it
easier and less expensive for competing carriers to offer advanced services.

                                       23
<PAGE>

     These network access regulations are currently the subject of further FCC
rule making proposals and therefore, potentially subject to revisions, petitions
for reconsideration at the FCC and appeals in federal courts. The uncertainties
caused by these proceedings may cause potential customers to delay purchasing
our products and services. In addition, the outcomes of related regulatory
proceedings may cause potential customers to deploy less than all of the high-
speed data and broadband services for which our software is designed, or to
delay the widespread introduction of these services. For example, these
regulations and other developing laws, regulations and policies may cause
carriers to elect to provide high-speed data and broadband services through a
structurally separate affiliate, which could negatively affect demand for our
products and services.

     Legislation also has been proposed in Congress that could affect the
regulation of carriers providing high-speed data and broadband services. One
bill before Congress would, if it became law, grant incumbent local exchange
carriers substantially more flexibility in offering broadband services. Other
bills have been introduced that would provide incentives for carriers to provide
broadband services. We cannot predict whether these bills will become law, or if
any other communications-related legislation will be introduced that might
impact our business.

     In addition, FCC rules prohibit incumbent local exchange carriers from
providing voice or data services along with customer premises equipment as a
packaged offering at a single price. Further, FCC rules prohibit incumbent local
exchange carriers from offering enhanced information or data processing
services, including Internet access services, bundled with local exchange
services. Accordingly, these rules may limit the ability of our customers to use
our software and related services in the offering of a packaged service to their
subscribers. The FCC is considering amending or repealing these bundling
restrictions, but we cannot assure you that it will do so.

     Finally, to the extent that they are used for multi-channel video
programming distribution, our customers' networks may, for regulatory purposes,
be deemed to be "cable systems." Under the Communications Act, all cable
systems are required to:

     .    obtain a local franchise;

     .    comply with certain customer service standards;

     .    retransmit certain broadcast television programming;

     .    conform subscriber service and equipment rates to applicable federal
          regulations;

     .    comply with FCC equal employment opportunity rules and policies;

     .    make channel capacity available for public, educational and government
          programming; and

     .    comply with rules concerning the technical operation of cable systems.

     We cannot assure you that the burdens associated with federal cable system
regulation will not prevent or discourage potential customers from purchasing or
using our software and related services. For example, the FCC is considering
whether to adopt rules to ensure that interactive television services develop in
a competitive fashion.

     State and Local Regulation.  State and local authorities also have a role
in regulating the telecommunications and multi-channel video programming
distribution industries. Among other things,

                                       24
<PAGE>

state regulatory authorities are charged with developing and implementing cost-
based prices for access to network elements, and they may, consistent with
federal law and policy, establish additional network elements that must be made
available by incumbent local exchange carriers. At the local level, carriers
seeking to install additional transmission facilities may be required to obtain
any of the following:

     .    street opening and construction permits;

     .    permission to use rights-of-way;

     .    zoning variances; and

     .    other approvals from municipal authorities.

     Further, some state authorities have adopted cable television franchising
rules, and local jurisdictions throughout the United States regulate cable
television systems pursuant to their franchising authority. We cannot assure you
that regulatory developments at the state or local level will not prevent or
discourage our customers from developing or deploying networks capable of
supporting our software.

European Union

     In the European Union, which currently comprises 15 European countries,
including the United Kingdom and the Netherlands, the telecommunications and
multi-channel video programming industries are subject to detailed sector-
specific regulation. Various laws, regulations and policies may require our
customers to obtain and be subject to approvals or authorizations in order to
make use of our software and related services within the European Union. For
example, in the United Kingdom, operators of telecommunication systems and
providers of television programming services are required to obtain licenses
under the Telecommunications Act of 1984 and the Broadcasting Act of 1990,
respectively. In addition, the United Kingdom's Office of Telecommunications,
also known as Oftel, has issued two general authorizations, known as class
licenses, which set out the rules which may apply to our existing and potential
customers that control the supply of multi-channel digital television and other
digital services to end users.

     The European Union regulation on Unbundled Access to the Local Loop came
into force on December 18, 2000.  Under this regulation, all fixed public
telephone network operators that have been designated by their national
regulatory authority as having significant market power were required to provide
unbundled access to their local loop network by December 31, 2000.  For example,
a new condition in the license granted to British Telecommunications plc under
the Telecommunications Act of 1984 requires it to provide access to its local
loops.

     The European Union Commission and the various national regulatory
authorities of the member countries frequently review the regulatory environment
relating to telecommunications, broadcasting, media and e-commerce industries.
We understand that the general thrust of this review is to make changes to the
regulatory environment with the objective of creating an open and competitive
communications industry. We cannot assure you that these changes will not result
in our, or our customers, being subject to direct regulation or that future
regulation of our existing and potential customers will not slow sales of our
products and services or impede our ability to compete effectively.

Canada

     Telecommunications and broadcasting services are subject to regulation
under several federal communications statutes, the most important of which are
the 1993 Telecommunications Act (Canada)

                                       25
<PAGE>

and the 1991 Broadcasting Act (Canada). These statutes permit the Canadian
Radio-television and Telecommunications Commission, or CRTC, to regulate certain
aspects of the provision of telecommunications and broadcasting services in
Canada.

     The Broadcasting Act.  Depending on how they use our products and services,
service providers may be required to obtain a license issued by the CRTC under
the Broadcasting Act if they transmit programs for reception by the public
through devices capable of receiving broadcasting signals. Such devices include
television sets, and in some cases computers and other terminal equipment. The
most common type of broadcasting license required by service providers that use
our products and services is a Broadcasting Distribution Undertaking license.

     To be eligible to hold a broadcasting license, a service provider must
comply with rules that require certain levels of ownership and control by
Canadians. These constraints should not limit the number of Canadian incumbent
local exchange carriers or competitive local exchange carriers that may wish to
buy our software and related services, since they must already meet similar
Canadian ownership and control rules. However, these constraints may limit the
ability of other service providers to use our software and related services, in
that some may not be able to qualify for a broadcasting license under the
Canadian ownership and control rules under the Broadcasting Act.

     The CRTC now licenses competing service providers to operate within the
service areas of incumbent cable television systems. There are two CRTC licensed
Direct-to-Home satellite-based distribution services operating on a national
basis. The CRTC has also licensed, on a regional basis, wireless digital multi-
point multi-channel distribution services. On a local basis, through June 29,
2001, the CRTC has licensed competitive cable television systems in rural Nova
Scotia, Vancouver and Montreal. In addition, the CRTC has granted a Broadcasting
Distribution Undertaking license to NBTel to provide services using our software
and related services throughout the Province of New Brunswick and similar
licenses to MTT to service the Halifax Regional Municipality in Nova Scotia and
to SaskTel to service various communities throughout the Province of
Saskatchewan.

     The Telecommunications Act.  Incumbent local exchange carriers, competitive
local exchange carriers and other providers of non-programming telecommunication
services are subject to regulation by the CRTC under the Telecommunications Act.
However, the CRTC has gradually been forebearing from regulating many of the
services offered by these carriers.

     The CRTC has also taken steps to promote competition in local
telecommunications service markets by issuing a number of decisions and orders
aimed at breaking down barriers to competition in these markets. We believe that
these decisions and orders will have a variety of impacts on service providers.
For example, CRTC regulation requires incumbent local exchange carriers to offer
their competitors cost-based access to some network elements, to enable their
competitors to provide competing services. We cannot predict what effect these
decisions and orders will have on our business.

Intellectual Property

     Our ability to compete is dependent in part upon our ability to protect our
intellectual property. We currently do not have patents or trademark
registrations protecting our products and other intellectual property, other
than a Canadian trademark registration for "iMagic." To date, we have relied on
trade secret and copyright law, as well as confidentiality and licensing
agreements, to establish and protect our rights in our technology. Our current
policy requires our officers, employees and consultants to execute
confidentiality agreements upon the commencement of an employment or other
relationship with us. These agreements typically provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not

                                       26
<PAGE>

disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all technology that is conceived by the
individual during the course of employment with us is our exclusive property. In
spite of these efforts, it may be possible for a third party to obtain or use
our technology without our authorization or to develop similar technology
through reverse engineering or other means.

     In June 1998, we filed a provisional patent application in the United
States in respect of aspects of our software products, which we formalized in an
application made under the Patent Co-Operation Treaty in June 1999. On September
19, 2000, we filed a continuation-in-part application in the United States with
respect to the event capturing component of the administration system software
within DTV Manager. Our event capturing software enables a telephone company or
other service provider to define, capture, store and process all activities on
its service network in real time. On September 28, 2000, we filed a
continuation-in-part application in the United States with respect to our pcVu
software product. On September 29, 2000, we filed a continuation-in-part
application in the United States with respect to aspects of the functionality of
the proposed Virtual VCR enhancement to our DTV Manager software. We cannot
assure you that we will receive any of the patents for which we have applied to
date or will apply in the future.

     We have several pending trademark applications in the United States, the
European Union and Canada covering some of our important trademarks, logos and
slogans, including:

          IMAGICTV            "Eye" Design
          Movie Manager       PCVU
          DTV Manager         DVR Manager

     See "Risk Factors--Because much of our success and value lies in our
ownership and use of intellectual property, our failure to protect our
intellectual property may negatively affect us" in "Item 3. Key Information."

Developments in Fiscal 2001

     In July 2000, our board of directors authorized a private placement of up
to $25 million, of which $10 million was reserved for specified existing
shareholders. On September 19, 2000, we issued warrants to purchase common
shares to five existing shareholders for a total cash consideration of $10
million. In October 2000, in connection with the additional private placements
described below, the share purchase warrants were converted into 909,061 common
shares.

     Pursuant to share subscription agreements, in October 2000 we issued
272,719 common shares to America Online for aggregate proceeds of $3.0 million
and 1,090,875 common shares to Cisco Systems for aggregate proceeds of $12.0
million. On completion of these share issuances, America Online owned 1.3% and
Cisco Systems owned 5.5% of our issued and outstanding common shares. We have
agreed, subject to specified exceptions, that if we grant to any of the current
holders of our common shares rights to register those common shares under the
U.S. Securities Act of 1933, we would grant comparable rights to America Online.

     In October 2000, we also entered into a memorandum of understanding with
America Online to develop custom applications for them. Specifically, we agreed
to provide America Online with up to $3.0 million in research and development
services, calculated at our commercial rates for consulting and development
services and based on pricing and other terms no less favorable than those
received by any third party.

                                       27
<PAGE>

     Of the potential $3.0 million commitment, we are contractually obligated to
provide $500,000 in services to conduct investigative research and development
to be agreed upon between America Online and us. The memorandum of understanding
does not set forth the specific terms and conditions that will govern how these
services are to be utilized by America Online, but it does suggest potential
uses of these services such as the delivery of advertising to selected
subscriber groups. The memorandum of understanding provides that America Online
and we are to negotiate in good faith the ownership and licensing rights of the
intellectual property resulting from this research and development prior to the
commencement of development activities. At the date of this annual report, we
have not entered into any agreements in this regard with America Online.

     The obligation to perform the remaining $2.5 million in services for
continued research and development is contingent upon America Online entering
into a trial or commercial license with us for our software. While we have not
entered into any licensing arrangements or agreements with America Online and
the memorandum of understanding does not contain any contractual commitment that
would require us to license our software to America Online, it is in our
commercial interest to do so. We cannot, however, assure you that we will enter
into a license agreement with America Online, nor can we predict the extent or
nature of any future licensing or other revenues or other funding for services
from America Online. As with the commitment to provide $500,000 in research and
development services, America Online and we are to negotiate in good faith the
ownership and licensing rights of the intellectual property resulting from the
future research and development related to this contingent obligation prior to
the commencement of the development activities. At the date of this annual
report, we have not entered into any agreements in this regard with America
Online.

     The common shares issued to America Online do not contain any terms or
conditions, including any put or redemption rights, that would cause us to repay
or refund any of the proceeds received for the common shares sold to America
Online. There also are no contractual or other agreements that provide America
Online with a right to sell the shares back to us or to cause us to repay or
refund any of the $3.0 million received for the shares for any reason, including
our failure to perform under the memorandum of understanding. Moreover, there
are no contractual commitments that would require us to pay or refund America
Online any cash or other consideration if America Online fails to take advantage
of our commitment to provide services under the memorandum of understanding.

     In connection with our private placement to Cisco Systems, we granted Cisco
Systems a right of first negotiation. Pursuant to this right of first
negotiation, if our board of directors receives a bona fide offer to acquire us
or all or substantially all of our assets from any of three specified entities,
or if our board of directors votes to initiate a sale to any of these three
specified entities of 25% or more of our total voting equity or all or
substantially all of our assets, we must, within 24 hours, give Cisco Systems
notice of the terms of the sale proposal. After we deliver this notice, Cisco
Systems will have ten days to submit a proposal to our board of directors to
acquire us at a price to be set out in the proposal. In effect, under the
limited circumstances described above, Cisco Systems has been granted an option
to make an offer to acquire us. If our board of directors decides to pursue
Cisco Systems' proposal, we have agreed to negotiate in good faith exclusively
with Cisco Systems for a period of ten days. However, (a) if Cisco Systems does
not submit a proposal within ten days of receipt of our notice, (b) if Cisco
Systems' proposal is not pursued by our board of directors or (c) if Cisco
Systems and we fail to mutually agree on the terms of a transaction, then the
right of first negotiation expires as to that proposal, and we can negotiate and
enter into a definitive agreement with the entity that made the initial
proposal. Further, this right of first negotiation terminates (1) in the event
that Cisco Systems owns less than 50% of the common shares it purchased on
October 6, 2000 or (2) upon the date of the closing of the acquisition of all or
substantially all of our assets or an acquisition of us by another entity in
which the holders of our outstanding voting equity immediately prior to the
transaction own, immediately after the transaction, securities representing less
than 50% of the voting equity of the surviving entity. The current financing

                                       28
<PAGE>

arrangements with Cisco Systems do not include any research and development,
marketing, licensing, future financing or similar arrangements.

     In November 2000 we completed our initial public offering of 4,750,000
common shares. The managing underwriters of the syndicate were Merrill Lynch &
Co., Chase H&Q and CIBC World Markets.  The aggregate price of these shares was
$52.3 million. We incurred expenses of approximately $2.9 million in connection
with the offering, together with underwriting commissions of $3.7 million. Our
expenses in the offering consisted of payments to parties other than our
directors, officers, their associates or holders of 10% of our common shares.

C.   Organizational Structure

     ImagicTV was incorporated under the laws of Canada on December 24, 1997
under the name iMagicTV Inc. On June 30, 1998 we amended our articles to change
our name to ImagicTV Inc. and to make certain revisions to the terms of our
share capital.  Our articles were further amended on November 27, 2000 to
convert each of our outstanding Class A Common, Class B and Class C Common
Shares into a single new class of common shares, to create a class of preferred
shares, issuable in series and, after giving effect to the reclassification,
split each new common share on a 1.1636-for-1 basis.

     ImagicTV (US), Inc. is a wholly-owned subsidiary of ImagicTV and was
incorporated under the laws of the State of Delaware on November 17, 1999.
ImagicTV (UK) Limited is a wholly-owned subsidiary of ImagicTV and was
incorporated under the laws of England on January 5, 2000 under the name "Sinord
140 Limited".  Its articles were subsequently amended to change its name to its
present name.

D.   Property, Plants and Equipment

     Our corporate headquarters and executive offices are located in Saint John,
New Brunswick, Canada, where we occupy approximately 33,000 square feet of
space, of which we sublease approximately 22,000 square feet from NBTel for
approximately $338,000 per year. The leases on this facility expire in December
2002 and April 2005.  We also lease sales and marketing offices in Cambridge,
England, Denver, Colorado, Raleigh, North Carolina and Dallas, Texas.

ITEM 5.   OPERATING AND FINANCIAL REVIEWS AND PROSPECTS

A. and B. Operating Results and Liquidity and Capital Resources


                     MANAGEMENT'S DISCUSSION AND ANALYSIS

     You should read the following discussion and analysis in conjunction with
our consolidated financial statements and related notes appearing elsewhere in
this annual report. See Item 18.

Overview

     We develop and license infrastructure software products and provide related
services that enable telephone companies and other service providers to deliver
multi-channel digital television and interactive media services to their
subscribers' televisions and personal computers over a broadband network. Our
customers include incumbent local exchange carriers, competitive local exchange
carriers and multiple dwelling unit service providers.

                                       29
<PAGE>

     We were incorporated under the laws of Canada in December 1997 upon the
initiative of NBTel Inc., the incumbent local exchange carrier in New Brunswick,
Canada, and a subsidiary of Aliant Inc., our largest shareholder. We began
operations in January 1998 by acquiring technology relating to digital
broadcasting from NBTel and entering into a research and development arrangement
funded by NBTel and a subsidiary of Celtic House International, another of our
largest shareholders, pursuant to which we further enhanced the acquired
technology. We delivered the initial version of our primary software product,
DTV Manager, to NBTel in December 1998 for technical trials. In the fall of
1999, after further development, we delivered the current generation of DTV
Manager to NBTel and Kingston Vision, an affiliate of the incumbent local
exchange carrier in East Yorkshire, England, and shortly thereafter each of them
deployed multi-channel digital television services to its subscribers. We
presently have 10 customers in North America, Europe and Asia and currently
generate revenues from nine of these customers. Of these customers, five
telephone companies and one multiple dwelling unit service provider have
licensed DTV Manager for commercial deployment and four other telephone
companies have entered into trial license agreements. In addition, we have
installed DTV Manager for limited testing purposes on networks of 12 other
service providers in North America, Europe and Asia. We have not generated any
revenues from these test installations. We also generate revenues in limited
circumstances from demonstration license and services agreements with certain
industry participants.

     The following discussion and analysis relate to our consolidated financial
statements which are stated in U.S. dollars and have been prepared in accordance
with Canadian GAAP. As applied to our current consolidated financial statements,
these principles conform in all material respects with U.S. GAAP, except as
disclosed in note 11 to our consolidated financial statements, included
elsewhere in this annual report. See Item 18.

Sources of Revenues and Revenue Recognition Policy

     In the past, our license agreements provided for an initial license fee and
a one-time subscriber-based royalty fee. We currently have two customers under
this type of arrangement. In early 2000, we began structuring our license
agreements to include both an initial license fee, based on the number of
households located in the geographic area under the license, and an on-going
monthly subscriber-based royalty fee. We expect future license agreements to be
negotiated on this basis.

     Services revenues comprise of professional services and annual maintenance
and technical support services related to the implementation and integration of
our software products. Annual maintenance and technical support revenues are
typically equal to a percentage of our customers' initial license fees. Services
revenue from professional services to licensees can be based on a time-and-
materials framework or a fixed contract for a complete project or installation.

     Equipment revenues comprise of sales of digital set-top boxes resold by us
to our customers at little or no mark-up above our cost. Historically, we
purchased set-top boxes for resale in order to have a source of supply available
to our customers. Except in limited circumstances, we ceased that practice in
the fiscal year ended February 28, 2001, and we expect our customers will
purchase set-top boxes directly from suppliers. As a result, we anticipate our
revenues from this activity will be substantially reduced.

     In the fiscal year ended February 28, 2001, our software licensing
revenues, royalty fee revenues, services revenues and equipment revenues
represented approximately 53%, 14%, 20% and 13%, respectively, of our total
revenues. In the same period, we earned approximately 42% of our total revenues
in Canada, approximately 41% in the United States and approximately 17% in
Europe. In this period, NBTel, CenturyTel and Boardwalk Equities accounted for
approximately 28%, 18% and 10%, respectively, of our total revenues. Excluding
equipment sales, the comparable percentages are NBTel 19%, CenturyTel 20% and
Boardwalk Equities 10%. An additional 10% of our total revenues (12%

                                       30
<PAGE>

excluding equipment sales) came from non-recurring license fees received under
our demonstration license agreement with Nortel Networks.

     In the fiscal year ended February 29, 2000, our software licensing
revenues, services revenues and equipment revenues represented approximately
66%, 19% and 15%, respectively, of our total revenues. In the same period, we
earned approximately 65% of our total revenues in Canada and approximately 35%
in Europe. In this period, NBTel, Kingston Vision and SaskTel accounted for 38%,
31% and 16%, respectively, of our total revenues. Excluding equipment sales, the
comparable percentages are NBTel 35%, Kingston Vision 36% and SaskTel 15%.

     Historically, we have generated revenues from NBTel principally from
initial licensing fees, royalty fees, fees for maintenance and technical support
services and equipment sales. Since August 31, 2000, we have not sold any set-
top boxes to NBTel, and we understand that NBTel has placed an order for
additional set-top boxes directly from the supplier. Thus, we anticipate that,
in the future, our revenues from NBTel will not include any significant amount
of equipment sales, but rather will be principally from subscriber-based
royalties and maintenance and technical support services. On that basis, we
expect that, at least for the next several years, the percentage of our total
revenues generated from NBTel will be significantly less than in the past.

     We recognize software licensing revenues in accordance with all applicable
accounting regulations, including the American Institute of Certified Public
Accountants Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," and SOP 98-9, "Modification of SOP 97-2 with respect to Certain
Transactions." Following the requirements of SOP 97-2, we recognize license
revenues when all of the following conditions are met:

     .    we have signed a license agreement with the customer;

     .    we have delivered the software product to the customer;

     .    the amount of the fees to be paid by the customer is fixed or
          determinable; and

     .    we believe that collection of these fees is probable.

     We generally negotiate formal license agreements with our customers. Each
of our license agreements includes provisions for us to receive both an up-front
license fee and royalties. Generally, service providers pay these royalty fees
either in the form of a one-time payment or as an on-going monthly fee. On-going
royalties are recognized monthly based on the number of subscribers at month
end. One-time royalties are recognized quarterly based on the number of new
subscribers at the end of each quarter.

     We often negotiate license agreements that allow for the payment of the
initial license fee to be made in future instalments over a period of less than
a year. Revenues recognized in advance of the instalments being due are recorded
as instalments receivable in the balance sheet.

     Maintenance and technical support revenues are recognized evenly over the
applicable service period, which is usually one year. Revenues derived from
professional services are recognized upon performance of the related services.

     Revenues derived from license agreements containing multiple deliverables,
such as product licenses, maintenance and technical support and other services,
are allocated among the various deliverables based on the fair value of each
deliverable.

                                       31
<PAGE>

     In the fiscal year ended February 28, 2001, we generated over 57% of our
revenues in U.S. dollars and incurred approximately 75% of our expenses in
Canadian dollars, with the balance in U.S. dollars and other currencies. We
expect that a majority of our revenues will be generated in U.S. dollars for the
foreseeable future and that most of our expenses, including labor costs as well
as capital and operating expenditures, will continue to be denominated in
Canadian dollars. If the Canadian dollar appreciates against the U.S. dollar,
our results of operations could be materially adversely affected.

Costs and Expenses

     Cost of services revenues includes compensation, travel and other related
expenses for our maintenance and technical support services and professional
services departments, along with allocated facilities expenses. To date, the
cost of license fee revenues has been insignificant. Cost of license fee
revenues includes royalties paid to third-party software providers whose
products are embedded in our software products. Oracle Corporation and Sun
Microsystems have been our principal suppliers of third-party software. Sun
granted us a non-exclusive license to incorporate into and distribute with DTV
Manager certain of its Java-based system software until November 2000. While the
parties are negotiating a new agreement, the parties continue to operate under
the terms of the original license. Pursuant to the original license, we pay
variable royalties to Sun on a per subscriber basis, depending on the total
number of our customers' subscribers, and on a per network server basis,
depending on the total number of servers operating DTV Manager. As Oracle
software is no longer embedded in our DTV Manager software and is now licensed
by our customers directly from Oracle, cost of license fees revenues will no
longer include royalties payable to Oracle.

     Cost of equipment revenues includes the cost of set-top boxes purchased for
resale.

     Sales and marketing expenses consist primarily of personnel and related
costs for our direct sales force, technical sales support staff and marketing
staff, costs associated with marketing programs, including tradeshows, public
relations and marketing materials, and allocated facilities costs.

     Research and development expenses consist primarily of salary and other
related costs for personnel, training, independent consultants and facilities
and technology expenses. Technology expenses include license and support fees
for development software, the cost of tools and supplies and third party support
fees. We believe that continued investment in research and development is
critical to assist our customers in achieving successful commercial deployments.

     General and administrative expenses include compensation for corporate
personnel and other expenses, including professional fees, travel and
facilities, net of allocations to our customer service, research and development
and sales and marketing departments. Our general and administration department
includes a portion of our executive office, as well as finance, human resources
and corporate operations staff.

Net Losses

     We have incurred substantial operating losses since our inception. As of
February 28, 2001, we had an accumulated deficit of approximately $20.3 million.
We expect to incur additional losses for at least the next few years.

                                       32
<PAGE>

Results of Operations

Fiscal year ended February 28, 2001 compared with the fiscal year ended February
29, 2000

Revenues

     Total revenues increased to $9.0 million for the fiscal year ended February
28, 2001 from $2.1 million for the fiscal year ended February 29, 2000. NBTel,
CenturyTel, Nortel and Boardwalk Equities accounted for approximately 28%, 18%,
10% and 10%, respectively, of our total revenues for the fiscal year ended
February 28, 2001. NBTel, Kingston Vision and SaskTel accounted for 38%, 31% and
16%, respectively, of our total revenues for the fiscal year ended February 29,
2000. Excluding equipment sales, the comparable percentages for the fiscal year
ended February 28, 2001 are NBTel 19%, CenturyTel 20%, Nortel 12% and Boardwalk
Equities 10% and the comparable percentages for the fiscal year ended February
29, 2000 are NBTel 35%, Kingston Vision 36% and SaskTel 15%.

     License and Royalty Fees.  License and royalty fee revenues increased to
$6.1 million for the fiscal year ended February 28, 2001 from $1.4 million for
the fiscal year ended February 29, 2000. This increase is due to the recognition
of license fee revenues of $4.8 million from eleven customers and royalty fee
revenues of $1.3 million consisting of $1.2 million in one-time subscriber based
royalties from NBTel and $48,000 in on-going monthly subscriber based royalties
from Kingston Vision.

     Services.  Services revenues increased to $1.8 million for the fiscal year
ended February 28, 2001 from $393,000 for the fiscal year ended February 29,
2000. During the year we recognized approximately $900,000 of the services
revenues for consulting and implementation services provided to one of our
customers, CenturyTel. The remainder of these services revenues came from
maintenance and technical support services that we provide to our customers
under the terms of their license agreements with us.

     Equipment.  Equipment revenues increased to $1.1 million for the fiscal
year ended February 28, 2001 from $321,000 for the fiscal year ended February
29, 2000. This increase is due to the recognition of $1.0 million of equipment
revenues from sales of set-top boxes to NBTel under a set-top box supply
agreement.

Cost of Revenues

     Cost of revenues increased to $3.5 million for the fiscal year ended
February 28, 2001 from $988,000 for the fiscal year ended February 29, 2000.
This increase, excluding $1.0 million related to equipment costs, primarily
reflects an increase in personnel in our customer service department to support
our increased customer base from nine employees as of February 29, 2000 to 21 as
at February 28, 2001.

Operating Expenses

     Our total operating expenses increased to $18.6 million for the fiscal year
ended February 28, 2001 from $7.2 million for the fiscal year ended February 29,
2000.

     Sales and Marketing.  Sales and marketing expenses increased to $7.8
million for the fiscal year ended February 28, 2001 from $2.3 million for the
fiscal year ended February 29, 2000. This increase is primarily due to the
addition of sales and marketing personnel, as well as increased travel and
related expenses. Our marketing department increased to 41 employees as of
February 28, 2001 from 20 as of February 29, 2000. Our sales department
increased to 16 employees as of February 28, 2001 from six as of February 29,
2000. These increases in staffing levels were the result of our efforts to
expand our direct sales force coverage area and increase our marketing
activities.

                                       33
<PAGE>

     Research and Development.  Research and development expenses increased to
$8.0 million for the fiscal year ended February 28, 2001 from $4.1 million for
the fiscal year ended February 29, 2000. This increase reflects an increase in
personnel in our research and development department to 113 employees as of
February 28, 2001 from 60 as of February 29, 2000 as we accelerated our efforts
to develop new products and services.

     General and Administrative.  General and administrative expenses increased
to $2.9 million for the fiscal year ended February 28, 2001 from $827,000 for
the fiscal year ended February 29, 2000. Our corporate staffing increased to 25
employees as of February 28, 2001 from 15 as of February 29, 2000, principally
to support our increased corporate activities related to becoming a public
company. We also incurred additional expenses to support our international
expansion.

     Stock-based compensation.  Stock-based compensation expenses have been
allocated to the operating expense items based on the nature of the work
performed by the employee to whom the options were granted. Stock-based
compensation expenses were $550,000 for the fiscal year ended February 28, 2001.
We did not record any stock-based compensation expense for the fiscal year ended
February 29, 2000. Stock based-compensation expense represents the difference
between the exercise price of options granted and the deemed fair value, for
financial reporting purposes, of our common shares on the date of their
respective granting. This stock-based compensation expense is being amortized on
a straight-line basis over the vesting period of the options which is generally
four years. The expense is largely attributable to amortization of deferred
stock-based compensation related to options granted between May 2000 and August
2000.

Other Income (Expense), Net

     Other income increased to $1.6 million for the fiscal year ended February
28, 2001 from $524,000 for the fiscal year ended February 29, 2000. Interest
income made up $1.1 million of other income for the fiscal year ended February
28, 2001 as compared to $121,000 for the fiscal year ended February 29, 2000.
This increase in interest income is primarily due to the investment of excess
funds received from our private placements in December 1999 and September and
October 2000 and our November 2000 initial public offering. Other income for the
fiscal year ended February 29, 2000 also included income of $431,000 for
forgiveness of debt.

Fiscal year ended February 29, 2000 compared with the fiscal year ended February
28, 1999

Revenues

     Total revenues increased to $2.1 million for the fiscal year ended February
29, 2000 from $479,000 for the fiscal year ended February 28, 1999. NBTel,
Kingston Vision and SaskTel accounted for 38%, 31% and 16%, respectively, of our
total revenues in the fiscal year ended February 29, 2000. NBTel accounted for
97% of our total revenues in the fiscal year ended February 28, 1999.

     License Fees.  License fee revenues increased to $1.4 million for the
fiscal year ended February 29, 2000 from nil in the fiscal year ended February
28, 1999. This increase is due to the recognition of license fee revenues on
three of our customer license agreements.

     Services.  Services revenues increased to $393,000 for the fiscal year
ended February 29, 2000 from $14,000 for the fiscal year ended February 28,
1999. The increase is primarily due to the provision of maintenance and
technical support and training services to our customers under the terms of
their license agreements.

                                       34
<PAGE>

     Equipment.  Equipment revenues decreased to $321,000 for the fiscal year
ended February 29, 2000 from $465,000 for the fiscal year ended February 28,
1999. The equipment revenues during both periods resulted from our sales of set-
top boxes to NBTel for its roll out of multi-channel digital television service
in the Province of New Brunswick.

Cost of Revenues

     Cost of revenues increased to $988,000 for the fiscal year ended February
29, 2000 from $604,000 for the fiscal year ended February 28, 1999. The increase
in the cost of services revenues in fiscal 2000 is attributable to the hiring of
nine employees in our customer services department to support our licensed
customers. The 45% decrease in cost of equipment revenues to $331,000 in fiscal
2000 from $604,000 in fiscal 1999 is due to the one-time charge of $383,000
recorded in fiscal 1999 related to the write-off of a non-refundable deposit
pursuant to a contract to purchase digital set-top boxes.

Operating Expenses

     Our total operating expenses increased to $7.2 million for the fiscal year
ended February 29, 2000 from $2.9 million for the fiscal year ended February 28,
1999.

     Sales and Marketing.  Sales and marketing expenses increased to $2.3
million for the fiscal year ended February 29, 2000 from $543,000 for the fiscal
year ended February 28, 1999. This $1.8 million increase is primarily due to the
addition of sales and marketing personnel, as well as increased travel and
related expenses. Our sales and marketing department increased to 28 employees
as of February 29, 2000 from nine as of February 28, 1999.

     Research and Development.  Research and development expenses increased to
$4.1 million for the fiscal year ended February 29, 2000 from $2.0 million for
the fiscal year ended February 28, 1999. This $2.1 million increase reflects an
increase in our research and development staff to 60 employees as of February
29, 2000 from 24 as of February 28, 1999 as a result of increased research and
development activity surrounding our release of the current version of DTV
Manager.

     General and Administrative.  General and administrative expenses increased
to $827,000 for the fiscal year ended February 29, 2000 from $344,000 for the
fiscal year ended February 28, 1999. The increase largely resulted from an
increase in our corporate staffing to 12 employees as of February 29, 2000 from
four as of February 28, 1999.

Other Income (Expense), Net

     Other income (expense) increased to income of $524,000 in the fiscal year
ended February 29, 2000 from an expense of $25,000 in the fiscal year ended
February 28, 1999. The increase is primarily due to the forgivable government
assistance obtained from the Province of New Brunswick, through Newbridge
Networks, in the amount of $434,000. Interest income of $121,000 for fiscal 2000
related to the short-term investments of surplus funds.

Quarterly Results of Operations

     The following table sets forth certain unaudited consolidated statements of
operations data for each of the eight most recent quarters ended February 28,
2001. This information has been derived from our unaudited consolidated
financial statements that, in the opinion of our management, have been prepared
on a basis consistent with the audited consolidated financial statements
contained elsewhere in this annual report and, in the opinion of our management,
include all adjustments, consisting only of

                                       35
<PAGE>

normal recurring adjustments, necessary for fair presentation of our financial
position and results of operations for those periods. These operating results
are not necessarily indicative of results for any future period. You should not
rely on them to predict our future performance.

(In thousands of U.S. dollars, except per share amounts)

<TABLE>
<CAPTION>
Quarter Ended                    May 31,   Aug. 31,     Nov. 30,     Feb. 29,     May 31,      Aug. 31,     Nov. 30,     Feb. 28,
                                  1999      1999         1999         2000         2000         2000         2000         2001
==================================================================================================================================
<S>                              <C>       <C>          <C>          <C>          <C>          <C>          <C>          <C>
Consolidated Statement of
 Operations Data

Revenues:
 License fees                    $     -   $     -      $   720      $   664      $   512      $ 1,543      $ 1,662      $ 1,053
 Royalty fees                          -         -            -            -           23           47          142        1,076
 Services                            110       100           82          101          137          200          357        1,097
 Equipment                             -         6          226           89           59        1,048            4           39
----------------------------------------------------------------------------------------------------------------------------------
Total revenues                        110      106        1,028          854          731        2,838        2,165        3,265
Cost of revenues:
 Services                              81      156          231          189          318          360          624        1,077
 Equipment                              -        4          225          102           58          972            4           34
----------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues                 81      160          456          291          376        1,332          628        1,111
----------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss)                    29      (54)         572          563          355        1,506        1,537        2,154
Operating expenses:
 Sales and marketing                  318      505          677          825        1,242        1,510        2,066        2,945
 Research and development             690      916        1,269        1,209        1,537        1,653        2,444        2,333
 General and administrative           167      180          214          266          349          606          842        1,018
----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses            1,175    1,601        2,160        2,300        3,128        3,769        5,352        6,296
----------------------------------------------------------------------------------------------------------------------------------
Loss from operations               (1,146)  (1,655)      (1,588)      (1,737)      (2,773)      (2,263)      (3,815)      (4,142)
Other income (expense), net            (2)     472           19           35           99           17          605          838
----------------------------------------------------------------------------------------------------------------------------------

Loss before provision for
 income taxes                      (1,148)  (1,183)      (1,569)      (1,702)      (2,674)      (2,246)      (3,210)      (3,304)
Provision for income taxes            (20)      (4)          (8)         (12)         (11)         (19)          (7)         (13)
----------------------------------------------------------------------------------------------------------------------------------

Net loss-in accordance with
 Canadian and U.S. GAAP           $(1,168) $(1,187)     $(1,577)     $(1,714)     $(2,685)     $(2,265)     $(3,217)     $(3,291)
==================================================================================================================================

Basic and diluted net loss per
share - in accordance with
Canadian and U.S. GAAP            $ (0.10) $ (0.09)     $ (0.12)     $ (0.10)     $ (0.15)     $ (0.13)     $ (0.16)     $ (0.13)
==================================================================================================================================

Weighted average number of
shares used in computing
basic and diluted net loss
per share (000s)                   12,040   12,949       13,336       17,548       17,552       17,556       19,586       24,593
</TABLE>

Liquidity and Capital Resources

     From our inception, we have financed our operations primarily through the
issuance of common equity, long-term debt and revenues from our operations. In
September and October 2000 we completed private placements for net proceeds of
$25.0 million resulting in the issuance of aggregate of 2,272,655 common shares.
In November 2000, we completed our initial public offering of an aggregate of
4,750,000 common shares for net proceeds of $46.2 million. Through February 28,
2001, we had received aggregate proceeds of $87.7 million from the issuance of
common equity, and as of that date, we had cash equivalents of $1.3 million and
short- term investments of $59.5 million. As of February 28, 2001, we had an
accumulated deficit of approximately $20.3 million.

                                       36
<PAGE>

     Our operating activities used cash in the amount of $12.1 million for the
fiscal year ended February 28, 2001, $3.8 million in fiscal 2000 and $4.5
million in fiscal 1999. The cash utilized during these periods was primarily to
fund our research and development and sales and marketing efforts.

     Our cash used in investing activities, before the purchase of temporary
investments, was $3.0 million for the fiscal year ended February 28, 2001,
$992,000 for the fiscal year ended February 29, 2000 and $780,000 for the fiscal
year ended February 28, 1999. Cash used in investing activities reflects
purchases of computer equipment, office furniture and equipment and leasehold
improvements. We anticipate that our expenditures will continue to increase in
the future.

     Our cash from financing activities was $70.0 million for the fiscal year
ended February 28, 2001. Our cash from financing activities was $10.6 million,
consisting of $8.8 million from the issuance of common shares and proceeds from
long-term debt of $1.8 million, for fiscal year ended February 29, 2000 and $5.7
million from the issuance of common shares for fiscal year ended February 28,
1999.

     We expect that our cash position as at February 28, 2001 will be sufficient
to cover our working capital requirements for approximately the next 24 months.
In the longer term, we may require additional equity financing or borrowing to
fund our business.

Outlook

     At the present time, the telecommunications industry is experiencing a
significant reduction in capital spending. As a result, we anticipate a
lengthening of our sales cycle as our customers extend market trials and delay
the significant capital commitments associated with commercial deployment. This
will delay licensing revenues generated by us from the commercial deployment of
DTV Manager. We expect, however, that we will generate some revenues from
professional services provided to customers during market trials.

     While expenses for the fiscal year ending February 28, 2002 will increase
when compared to the fiscal year ended February 28, 2001, we intend to hold
expenses at present levels and conserve cash so as to maintain our operations as
presently constituted.

Impact of Foreign Exchange Rate Exposure

     We expect that in the future a majority of our revenues will be earned in
U.S. dollars, and that most of our operating expenses and capital asset
purchases will continue to be in Canadian dollars. Changes in the value of the
Canadian dollar relative to the U.S. dollar may result in currency translation
gains or losses, which could have a material impact on our operating results. We
also deal in other foreign currencies; however, we anticipate changes in the
exchange rates of these currencies will not have a material impact. While we do
not hedge our foreign exchange rate exposure with financial derivative
instruments, we do maintain a portion of our short term investment portfolio in
Canadian dollar denominated instruments.

C.   Research and Development, Patents and Licenses, etc.

     See "Business Overview-Technology and Research and Development" in "Item 4.
Information on the Company."

                                       37
<PAGE>

D.   Trend Information

     See "Management's Discussion and Analysis - Outlook" in "Item 5. Operating
and Financial Reviews and Prospects."

ITEM 6.   DIRECTORS AND EXECUTIVE OFFICERS

A.   Directors and Management

     Each of our directors is elected by the shareholders to serve until the
next annual meeting of shareholders or until a successor is elected or
appointed. Our executive officers are appointed annually to serve at the
discretion of the board of directors. The following table sets forth certain
information about our directors and executive officers, as of June 19, 2001.

Name                             Age   Position
----                             ---   --------
Marcel LeBrun..................  31    President, Chief Executive Officer and
                                       Director
Peter G. Jollymore/(2)//(3)/...  61    Chairman of the Board of Directors
Allan Cameron..................  47    Vice President of Technology
Gerry Verner...................  36    Vice President of Marketing and Business
                                       Development
Marjean Henderson..............  50    Vice President and Chief Financial
                                       Officer
Nigel Bealing..................  38    Vice President of Sales, Europe, Middle
                                       East and Africa
Norman Bier....................  40    Vice President of Sales, North and South
                                       America
Pierre-Jean Chalon.............  40    Vice President of Sales, Asia Pacific
Dany DeGrace...................  34    Vice President of Customer Solutions
Gregory Allemann...............  54    Director
Joe C. Culp/(1)//(2)/..........  67    Director
Carey Diamond/(1)//(3)/........  45    Director
Dr. Terence H. Matthews........  57    Director
Michael J. McCloskey...........  45    Director
Robert E. Neal/(1)/............  45    Director
Gerald L. Pond/(2)//(3)/.......  56    Director
Paul Spruyt....................  38    Director

Notes:

/(1)/  Member of audit committee
/(2)/  Member of human resources committee
/(3)/  Member of governance committee

     The following is a summary of the background of each director and
executive officer.

     Marcel Lebrun. Mr. LeBrun co-founded ImagicTV and has served as President
and Chief Executive Officer and is a director since January 1998. From June 1992
to December 1997, Mr. LeBrun held various positions at NBTel, including Managing
Director of E-Business Services and other senior technical, marketing and
strategic business planning positions.  Mr. LeBrun has a Bachelor of Science in
Electrical and Computer Engineering from the University of New Brunswick. Mr.
LeBrun resides in Fredericton, New Brunswick.

                                       38
<PAGE>

     Peter G. Jollymore. Mr. Jollymore has served as Chairman of the Board and a
director of ImagicTV since January 1998.  He is also currently the Acting Dean
of the Faculty of Business at the University of New Brunswick in Saint John, New
Brunswick. From 1967 until his retirement in December 1998, Mr. Jollymore served
in various positions at NBTel from design engineer to Vice President of NBTel
and its affiliate Bruncor Inc.  He serves on the Board of Directors of the
Business Development Bank of Canada and of Callistro Multimedia Inc., a computer
software company producing video-on-demand applications.  He has a Bachelor of
Science in Engineering from Mount Allison University and a Bachelor of
Engineering from the Technical University of Nova Scotia. Mr. Jollymore resides
in Saint John, New Brunswick.

     Allan Cameron. Mr. Cameron co-founded ImagicTV and has served as Vice
President of Technology since January 1998. From May 1978 to December 1997, Mr.
Cameron held various positions, including strategic and technical planning
positions, at BNTel, where, among other things, he worked on the creation of
NBTel's Beacon/VideoActive initiative, a deployment of broadband access
capabilities using coaxial cable.  Mr. Cameron has a Bachelor of Science in
Engineering and a Master of Science in BioEngineering from the University of New
Brunswick. Mr. Cameron resides in Saint John, New Brunswick. Mr. Cameron resides
in Saint John, New Brunswick.

     Gerry Verner. Mr. Verner has served as Vice President of Marketing and
Business Development of ImagicTV since July 2000 and served as Vice President,
Marketing and Chief Financial Officer of ImagicTV from November 1998 to July
2000. From May 1986 to November 1998, Mr. Verner held various technical,
marketing and management positions in NBTel, including Strategic Planning
Manager. He has a Bachelor of Science in Electrical Engineering and a Masters in
Business Administration from the University of New Brunswick. Mr. Verner resides
in Quispamsis, New Brunswick.

     Marjean Henderson. Ms. Henderson has served as Vice President and Chief
Financial Officer of ImagicTV since July 31, 2000. From August 1997 until July
2000, Ms. Henderson was Senior Vice President and Chief Financial Officer of
Nucentrix Broadband Network, Inc., a provider of wireless broadband Internet and
wireless cable services. From April 1996 to May 1997, she was Senior Vice
President and Chief Financial Officer of Panda Energy Corporation, a global
energy company. From December 1993 to June 1995, Ms. Henderson served as Senior
Vice President and Chief Financial Officer of Nest Entertainment, Inc., a
company which produces and markets home videos and feature length movies. From
October 1987 to December 1993, Ms. Henderson was Chief Financial Officer of RCL
Enterprises, Inc. and its affiliate, Lyrick Studios, which owns the character
"Barney the Purple Dinosaur" and owns and produces the series "Barney and
Friends." She has a Bachelor of Business Administration from the University of
Texas. Ms. Henderson is a Certified Public Accountant. She resides in Dallas,
Texas.

     Nigel Bealing. Mr. Bealing has served as Vice President of Sales for
Europe, Middle East and Africa of ImagicTV since April 2001 and was European
Sales Manager of ImagicTV from October 2000 to April 2001. From October 1996 to
October 2000, Mr. Bealing held various senior positions, including Director -
Northern Europe and European Sales Manager, at Optibase Europe Ltd., a company
which provides broadband digital video-networking solutions and MPEG-based
digital video content. He resides in Berkshire, England.

     Norman Bier. Mr. Bier has served as Vice President of Sales for North and
South America of ImagicTV since April 2001 and served as Assistant Vice
President of Sales - US of ImagicTV from October 2000 to April 2001 and as
General Manager - East US of ImagicTV from December 1999 to October 2000. From
January 1999 to December 1999, Mr. Bier was Vice President and General Manager
of Tel-Link LLC, a competitive local exchange carrier. From November 1994 to
January 1998, he served

                                       39
<PAGE>

as Vice President of an outsourcing billing services unit at BellSouth
Telecommunications. Mr. Bier resides in Cumming, Georgia.

     Pierre-Jean Chalon. Mr. Chalon has served as Vice President of Sales for
Asia Pacific of ImagicTV since April 2001. From December 1996 to January 2001,
Mr. Chalon  was Managing Director of Asia Pacific at CS Telecom, a manufacturer
of corporate networks and carrier access networks. He has a Master of Science
from the Institut National des Telecommunications in Evry, France. Mr. Chalon
resides in Singapore.

     Dany Degrace. Ms. DeGrace has served as Vice President of Customer
Solutions of ImagicTV since February 2001 and was Senior Director of Engineering
of ImagicTV from June 1998 to February 2001. From April 1995 to June 1998, Ms.
DeGrace was a technical architect at Datacor/ISM, an IT outsourcing company. She
has a Bachelor of Scientific Computer Anaylsis from the University of Moncton.
Ms. DeGrace resides in Saint John, New Brunswick.

     Gregory Allemann. Mr. Allemann was appointed as a director of ImagicTV in
April 2001. Since March 2001, he has served as Vice President of Marketing and
Sales for WebOffice, Inc., a privately held communications infrastructure
company. Mr. Allemann is also President of Allemann Associates, a consulting
firm for the communications industry.  In 2000, Mr. Allemann retired from SBC
Communications after a 30-year career in which he held a variety of positions in
technology research, network planning, network operations, product development,
market planning, and procurement. During his last eight years with SBC, Mr.
Allemann was Vice President and Executive Director of Broadband Infrastructure
and Services for SBC's R&D subsidiary (SBC Technology Resources, Inc.). He has
served and chaired in Texas Telecommunications Engineering Consortium and the
Advisory Board of the University of Texas Electrical Engineering Department. Mr.
Allemann resides in Austin, Texas.

     Joe C. Culp. Mr. Culp was elected as a director of ImagicTV in August 1999.
Since 1990, he has served as President of Culp Communications Associates, a
management consulting firm for the telecommunications industry. Mr. Culp has
served as President of Lightnet, a fibre optic telecommunications carrier that
Southern New England Telephone Company (now SBC Corporation) and CSX Corporation
owned. He has also served as President of the Telecom Group of Rockwell
International, a provider of electronic controls and telecommunications
equipment. Mr. Culp currently serves on the Board of Directors of two privately-
held telecommunications companies. He has served on the Advisory Board of the
telecommunications group of the University of Texas, Arlington and the
University of Arkansas. Mr. Culp resides in Austin, Texas.

     Carey Diamond. Mr. Diamond was elected as a director of ImagicTV in August
1999. Since 1996, he has served as President and Chief Executive Officer of
Whitecastle Investments Limited, a private investment company in Canada and as
managing director of its venture capital division Whitecap Venture Partners.
From 1989 to 1996, Mr. Diamond served as Executive Vice President of
Whitecastle. He currently serves on the Board of Directors of Alterna
Technologies Group Inc., Photonami Inc. and Texar Corporation, all privately
held Canadian high technology companies. Mr. Diamond resides in Toronto,
Ontario.

     Dr. Terence H. Matthews. Dr. Mathews was elected as a director in January
1998. Dr. Matthews founded Newbridge Networks Corporation, a company that
designs, manufactures, markets and services wide area network solutions, in
March 1986 and served as Chairman of the Board and Chief Executive Officer of
Newbridge from its inception to May 2000. Dr. Matthews was a co-founder of Mitel
Corporation, a designer and manufacturer of telecommunications integrated
circuit devices. He is also the principal of Celtic House International. Since
June 2000, he has been Chairman and Chief Executive

                                       40
<PAGE>

Officer of March Networks Corp., a networked video applications company. Dr.
Matthews resides in Kanata, Ontario.

     Michael J. McCloskey. Mr. McCloskey was appointed a director of ImagicTV in
July 2000. Since June 1999, Mr. McCloskey has served as Chief Executive Officer
and a director of Kana Communications Inc., a publicly traded company which is a
provider of customer communication and commerce tools for e-businesses. Prior to
joining Kana, from September 1996 to December 1998, Mr. McCloskey served in
various senior management positions with Genesys Telecommunications
Laboratories, Inc., a provider of enterprise interaction management software,
including President, Chief Operating Officer, Vice President-Finance and
International, Chief Financial Officer and Secretary. From May 1995 to September
1996, he served as Vice President, Finance, Chief Financial Officer and Vice
President, Operations at Network Appliance, Inc., a network data storage device
company. Mr. McCloskey resides in Pleasanton, California.

     Robert E. Neal. Mr. Neal was elected as a director of ImagicTV in June
1999. Since June 2000, he has served as President of Innovatia Inc., a company
within the Aliant emerging business group that focuses on the development and
sale of Internet-based technology. Mr. Neal joined NBTel in 1979 and since that
time has held various positions with NBTel and its affiliates, including Vice
President from September 1998 to February 2000. Mr. Neal resides in Quispamsis,
New Brunswick.

     Gerald L. Pond. Mr. Pond was elected as a director of ImagicTV in January
1998. From November 1994 to March 1999, Mr. Pond served as President and Chief
Executive Officer of Bruncor. Since March 1999, Mr. Pond has served as Executive
Vice President of Aliant.  Mr. Pond is also the President of Aliant Telecom and
Emerging Business. He is currently serving on the Board of Directors of
Innovatia and Prexar Inc., both Aliant affiliates. Mr. Pond resides in Rothesay,
New Brunswick.

     Paul Spruyt. Mr. Spruyt was elected as a director of ImagicTV in July 2000.
Since September 1999, he has served as General Manager of VDSL Virtual Company
of Alcatel, a corporation which builds next generation networks, delivering
integrated end-to-end voice and data communications solutions. From November
1997 to August 1999, he was Project Manager of Metallic Access Systems for
Alcatel and from August 1995 to October 1997, he was Project Manager of Twisted
Pair Access Systems for Alcatel. Mr. Spruyt resides in Heverlee, Belgium.

B.   Compensation

Compensation of Named Executive Officers

     The following table sets forth the compensation paid to Marcel LeBrun,
Norman Bier, Doug Harrington, Marjean Henderson, Gerry Verner and Allan Cameron
(the "Named Executive Officers") for each of our three most recently completed
fiscal years.  The Named Executive Officers are the only persons for whom
executive compensation disclosure is required under applicable Canadian
securities laws.  We have not adopted any long-term incentive plans.

                                       41
<PAGE>

     Summary Compensation Table for the Fiscal Year Ended February 28, 2001

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                      Annual Compensation                Long-Term
                                                                                        Compensation
                                             --------------------------------------     ------------
                                                                                           Awards
                                                                                        ------------
                                                                   Other Annual        Securities Under        All Other
                                               Salary    Bonus   Compensation/(2)/         Options          Compensation/(3)/
   Name and Principal Position   Year/(1)/      ($)       ($)          ($)                   (#)                  ($)
------------------------------------------------------------------------------------------------------------------------------
   <S>                           <C>          <C>        <C>     <C>                   <C>                  <C>
   Marcel LeBrun, President and     2001      163,400    50,200       21,600                     -                   -
   Chief Executive Officer          2000       81,300         -        7,050               186,176                   -
                                    1999       68,700         -        4,400                     -                   -

------------------------------------------------------------------------------------------------------------------------------

   Norman Bier,                     2001      105,800         -            -                11,636              99,300
   Vice President of Sales for      2000       26,800         -            -                29,090              12,000
   North and South America/(4)/     1999            -         -            -                     -                   -
------------------------------------------------------------------------------------------------------------------------------

   Doug Harrington, Vice            2001      119,800    20,100       18,900                     -                   -
   President of Sales/(5)/          2000       69,600         -        6,250                69,816                   -
                                    1999       60,000         -        2,600               104,724                   -
------------------------------------------------------------------------------------------------------------------------------

   Marjean Henderson, Vice          2001      117,100         -        7,630               197,812                   -
   President and Chief              2000            -         -            -                     -                   -
   Financial Officer/(6)/           1999            -         -            -                     -                   -
------------------------------------------------------------------------------------------------------------------------------

   Gerry Verner,                    2001       94,000    13,400       19,000                     -                   -
   Vice President of Marketing      2000       63,700         -        6,150               104,724                   -
   and Business Development         1999       15,200         -            -                69,816                   -
------------------------------------------------------------------------------------------------------------------------------

   Allan Cameron,                   2001       94,700         -       19,000                     -                   -
   Vice President of Technology     2000       73,100         -        6,550               162,904                   -
                                    1999       67,500         -        3,700                     -                   -
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Notes:

/(1)/  The amounts are determined for the applicable fiscal year ended on the
       last day of February.
/(2)/  Amounts include payments made by us as matching registered retirement
       savings and pension plan contributions to those made by our executive
       officers and an automobile allowance.
/(3)/  Amounts include commissions paid to the executive officers.
/(4)/  Mr. Bier joined ImagicTV in December 1999 and has served as an executive
       officer since April 30, 2001
/(5)/  Mr. Harrington's employment with ImagicTV ceased on March 19, 2001.
/(6)/  Ms. Henderson joined ImagicTV in July 2001.

                                       42
<PAGE>

     The following table sets forth individual grants of stock options during
the fiscal year ended February 28, 2001 to the Named Executive Officers:

         Option Grants during the Fiscal Year ended February 28, 2001

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                             % of Total                               Market Value
                                              Options                                   of Shares
                             Shares          Granted to                                Underlying
                             Under           Employees           Exercise or           Options at
                            Options          in Fiscal           Base Price           Date of Grant
        Name                Granted            Year             ($ per Share)         ($ per Share)          Expiration Date
-------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>              <C>                <C>                   <C>                    <C>
Marcel LeBrun                     -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
Norman Bier                  11,636              0.73%                 11.17              11.17/(1)/            2007/09/13
-------------------------------------------------------------------------------------------------------------------------------
Doug Harrington                   -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
Marjean Henderson           197,812             12.45%                  1.54               1.54/(1)/            2007/07/31
-------------------------------------------------------------------------------------------------------------------------------
Gerry Verner                      -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
Allan Cameron                     -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Note:

/(1)/  There was no public market for the common shares on the dates of the
       option grants. Therefore, the amounts set forth in this column represent
       the fair market value of the common shares as of the dates, as determined
       by our Board of Directors.


 Aggregate Option Exercises in Last Fiscal Year and Fiscal Year Option Values

     The officers named in the summary compensation table did not exercise any
options during the fiscal year ended February 28, 2001. The following table sets
forth the estimated fair market value as of February 28, 2001 of the exercisable
and unexercisable options held by these officers.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                               Number of Common
                                              Shares Underlying                    Value of Unexercised
                                             Unexercised Options                 In-The-Money Options at
                                            at Fiscal Year End (#)               Fiscal Year End ($)/(1)/
-----------------------------------------------------------------------------------------------------------
 Name                                     Exercisable      Unexercisable      Exercisable     Unexercisable
-----------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>                <C>             <C>
 Marcel LeBrun                                133,814            168,722         $313,648         $335, 873
-----------------------------------------------------------------------------------------------------------
 Norman Bier                                    7,273             33,453           14,982            44,943
-----------------------------------------------------------------------------------------------------------
 Doug Harrington                               69,817            104,723          171,037           240,820
-----------------------------------------------------------------------------------------------------------
 Marjean Henderson                                  -            197,812                -           320,455
-----------------------------------------------------------------------------------------------------------
 Gerry Verner                                  61,089            113,451          121,654           206,481
-----------------------------------------------------------------------------------------------------------
 Allan Cameron                                123,633            149,813          289,098           292,470
-----------------------------------------------------------------------------------------------------------
</TABLE>

Note:

/(1)/  The value of an "in-the-money" option represents the difference between
       the aggregate estimated fair market value of the common shares issuable
       upon exercise of the option and the aggregate exercise price of the
       option. The fair market value of the common shares on February 28, 2001
       was $3.16 as quoted on the Nasdaq National Market.

                                       43
<PAGE>

Compensation of Directors

     During the fiscal year ended February 28, 2001, no director received
monetary compensation for serving as a director of ImagicTV other than
reimbursement for expenses incurred in attending meetings. The following
directors received options to purchase common shares pursuant to our stock
option plan in the fiscal year ended February 28, 2001 as compensation for
acting as directors:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                          Common Shares
  Name of Director        Under Options       Exercise Price      Date of Grant       Expiration Date
                             Granted          ($ per share)
--------------------------------------------------------------------------------------------------------
<S>                       <C>                 <C>                 <C>                 <C>
Joe C. Culp                  11,636               $1.54             2000/03/23           2007/03/23
                             11,636               $1.54             2000/08/10           2007/08/10
--------------------------------------------------------------------------------------------------------
Michael McCloskey            23,272               $1.54             2000/08/10           2007/08/10
--------------------------------------------------------------------------------------------------------
Peter Jollymore              29,090               $1.54             2000/08/10           2007/08/10
--------------------------------------------------------------------------------------------------------
</TABLE>

     Effective May 30, 2001, we adopted a new compensation structure for
directors.  On such date, Greg Allemann was granted options to purchase 25,000
common shares at an exercise price of C$1.95 to vest over three years at a rate
of 1/36 per month from date of grant with an expiration date of seven years from
date of grant.  Annually, each of Peter Jollymore, Joe Culp and Greg Allemann,
on confirmation of their appointment for the following year at the annual
meeting of shareholders, will be granted options to purchase 10,000 common
shares at an exercise price equal to the closing price of common shares on the
Toronto Stock Exchange, or the TSE, on the day immediately prior to the date of
grant; these options, which are to be granted 72 hours after the annual meeting
of shareholders, will vest 12 months from the date of grant and will have an the
expiration date of seven years from date of grant.  Annually, 72 hours after the
annual meeting of shareholders, each director who is a chairman of a committee
of the Board of Directors and not a member of management will receive options to
purchase an additional 5,000 common shares at an exercise price equal to the
closing price of common shares on the TSE on the day immediately prior to the
date of grant; such options to vest in 12 months from the date of grant and to
an expiration date of seven years from date of grant. Joe Culp and Greg Allemann
each receive a payment of $1,000 per day, per meeting attended in person,
including travel time.

Directors' and Officers' Liability Insurance

     We provide liability insurance for our directors and officers.  The policy
does not distinguish between the liability insurance for directors and officers,
the coverage being the same for both groups.  The premium for the twelve-month
period ending November 21, 2001 is $363,000, all of which is borne by us.  The
policy limit is $20,000,000 with a $200,000 retention for securities claims and
a $100,000 retention for non-securities claims.  Our directors and officers are
insured against losses arising from claims against them for certain of their
acts, errors or omissions in such capacity.  We are insured against losses
arising out of any liability to indemnify a director or officer.

Employment Agreements

     Each of the Named Executive Officers, except Mr. Bier, entered into an
employment agreement with us dated July 17, 2000.  We are in the process of
settling the terms of Mr. Bier's employment agreement.

     Pursuant to these agreements, the annual base salary for each officer is as
follows: Mr. LeBrun, $220,000; Mr. Verner, $110,000; Ms. Henderson, $210,000;
and Mr. Cameron, $110,000.

                                       44
<PAGE>

Mr. Harrington's employment was terminated on March 19, 2001. These base
salaries are subject to review by our Board of Directors in its discretion.
Further, the officers (other than Mr. Bier) are entitled to an annual bonus, up
to a maximum of 50% of his or her annual base salary, as determined by our Board
of Directors in its discretion based upon target profit and revenue performance
levels and upon individual performance. In addition, pursuant to the terms of
the employment agreements with each of the Named Executive Officers (other than
Mr. Bier), he or she is subject to non-competition provisions during his or her
employment and for 12 months thereafter and to confidentiality restrictions.

     With respect to each of the Named Executive Officers (other than Mr. Bier)
the employment agreement provides that in the event of termination without cause
the executive officer is entitled to monthly severance payments equal to his or
her respective base salary for one year, continued benefits coverage for one
year, and a pro rata portion of any earned bonus and to exercise vested options
and any unvested options that otherwise would have vested in the 12 month period
following the date of termination.  In the event of termination for cause, the
Named Executive Officer (other than Mr. Bier) is entitled to receive his or her
respective salary and bonus through the date of termination and to exercise
vested options for which the executive officer had provided notice of exercise
prior to the date of termination.

     In the event of a change of control of ImagicTV, which is defined as the
acquisition by a person of 51% or more of our outstanding voting shares, the
employment agreements which the Named Executive Officers (other than Mr. Bier),
provided that we may terminate the employment of the Executive Officer. Each
Named Executive Officer (other than Mr. Bier) also has the right to terminate
his or her employment in the event of a change of control. The Named Executive
Officers (other than Mr. Bier) are each entitled to a severance payment equal to
his or her respective accrued base salary and the pro-rated portion of any
earned bonus.  In addition, each Named Executive Officer (other than Mr. Bier)
has the right, on termination, to exercise, within 90 days, any options granted
to that executive officer, regardless of vesting date.

C.   Board Practices

     Our board of directors is currently comprised of ten persons. At the annual
meeting of shareholders to be held on July 31, 2001 the shareholders will be
asked to elect nine directors. All of the nominees to be elected at the meeting
are currently directors. In accordance with the provisions of the Canada
Business Corporations Act, our directors are authorized from time to time to
increase the size of the board of directors, and to fix the number of directors,
up to a maximum of 12 persons as currently provided under our articles, without
the prior consent of the shareholders.

Board Committees

     Our board of directors has established an audit committee, a human
resources committee and a governance committee. All of the committees of our
board of directors were appointed on February 3, 2000.

                                       45
<PAGE>

Audit Committee

     We are is required by applicable law to have an audit committee consisting
of at least three directors, a majority of whom must be independent, non-
executive directors. The audit committee currently has three members: Joe Culp,
Chairman, Carey Diamond and Robert Neal. The audit committee is responsible for,
among other things: (i) recommending the annual appointment of our auditors;
(ii) reviewing the independence of our auditors; (iii) reviewing and approving
interim and annual financial statements with management and our auditors; (iv)
assessing accounting principles used by our financial reporting; and (v)
reviewing the adequacy of our internal control procedures.

Corporate Governance Committee

     The Corporate Governance Committee consists of Carey Diamond, Chairman,
Peter Jollymore and Gerald Pond. The committee's mandate is to develop and
monitor our approach to corporate governance issues, establish procedures for
the identification of new nominees to our board, develop and implement
orientation procedures for new directors and assess the effectiveness of our
board and its committees.

Human Resources Committee

     Pursuant to the 2000 Share Option Plan, the Human Resources Committee must
be comprised of at least two non-employee directors. The committee currently
consists of Peter Jollymore, Chairman, Gerald Pond and Joe Culp. The committee's
mandate is to establish salaries, incentives, and other forms of compensation
for our directors, executive officers, employees, and consultants. The committee
also administers our other benefit plans.

D.   Employees

     As of February 28, 2001, we employed approximately 216 full-time employees,
excluding temporary personnel and consultants. We are not subject to any
collective bargaining agreements and believe our relationship with our employees
is good.

                                       46
<PAGE>

E.   Share Ownership

     The following table sets forth certain information concerning the ownership
of common shares and options to purchase common shares of Imagic TV at July 3,
2001 by each director and each of the Named Executive Officers.  Each of the
directors and Named Executive Officers listed on the following table directly
holds less than one percent of our common shares and the directors and executive
officers, as a group directly, hold less than one percent of the common shares.
See "Major Shareholders" in "Item 7. Major Shareholders and Related Party
Transactions" for information as to the share ownership of our major
shareholders with whom some of our directors are affiliated.

<TABLE>
<CAPTION>
                                                                                  Options
                                                 --------------------------------------------------------
Name                                Common            Number             Exercise                Expiry
                                    Shares            Granted             Price                   Date
------------------------------   --------------  --------------      -----------------  -----------------
<S>                                 <C>               <C>                <C>                <C>
Marcel LeBrun.................       14,545             116,360              $ 0.56         January 5, 2005
                                                         69,816              $ 0.89         April 13, 2006
                                                        116,360              $ 1.54         December 17, 2006

Peter G. Jollymore............       27,702              29,090              $ 1.54         August 10, 2007
Allan Cameron.................       31,999             110,542              $ 0.56         January 5, 2005
                                                         46,544              $ 0.89         April 13, 2006
                                                        116,360              $ 1.54         December 17, 2006

Gerry Verner..................       31,389              69,816              $ 0.89         November 30, 2005
                                                        104,724              $ 1.54         February 3, 2007

Marjean Henderson.............          250             197,812              $ 1.54         July 31, 2007

Norman Bier...................          500              29,090              $ 1.10         December 1, 2006
                                                         11,636              $11.17         September 13, 2007
                                                         25,000              $ 1.20         April 30, 2008

Gregory Allemann..............          Nil              25,000              $ 1.26         May 30, 2008

Joe C. Culp...................       22,273              11,636              $ 1.54         March 23, 2007
                                                         11,636              $ 1.54         August 10, 2007
Carey Diamond.................          Nil/(1)/              -                   -         -

Dr. Terence H. Matthews.......          Nil/(2)/              -                   -         -

Michael J. McCloskey..........          Nil              23,272              $ 1.54         August 10, 2007

Robert E. Neal................        7,819/(3)/              -                   -         -

Gerald L. Pond................       43,338/(3)/              -                   -         -

Paul Spruyt...................          Nil/(4)/              -                   -         -
</TABLE>

Notes:

(1) Whitecastle beneficially owns 2,464,927 Common Shares.  Mr. Diamond is the
    President of Whitecastle.
(2) Celtic House beneficially owns 2,454,676 Common Shares. Dr. Matthews is the
    principal of Celtic House.
(3) This excludes 7,209,751 Common Shares beneficially owned by Aliant. Messrs.
    Neal and Pond are officers of Aliant or subsidiaries of Aliant.
(4) Alcatel beneficially owns 3,986,857 Common Shares.  Mr. Spruyt is the
    General Manager of the VDSL Virtual Company of Alcatel.

                                       47
<PAGE>

Option Plans

     We currently maintain two share option plans.  Each is intended to attract,
retain and motivate employees, officers and directors of, and consultants to,
our company.  The Human Resources Committee of our board of directors
administers the option plans. The Human Resources Committee determines, among
other things, the term, vesting periods and the price of options granted under
the plan. As of May 31, 2001, 2001, options to purchase 3,587,962 common shares
at a weighted average exercise price of $1.88 per share have been granted under
the plans.

Employee Share Option Plan

     We adopted our initial share option plan in February 1998 and amended it on
December 17, 1999.  It provides for the grant of options to employees, officers
and directors of, and consultants to, our company.  Options granted to employees
generally have the following terms. All options granted under the plan have a
maximum term of seven years. In the past, the exercise price per share for each
option has been determined by the Human Resources Committee with reference to
the value of our company, as determined by our board of directors, and to the
number of our shares that are outstanding. If we terminate an option holder's
employment without cause, the vested portion of any grant will remain
exercisable for the lesser of 60 days or the balance of the option term. In the
event we terminate an option holder's employment for cause, any option held by
such option holder shall thereupon immediately terminate, whether exercisable or
not. If the option holder dies, the vested options may be exercised for a period
of one year or the balance of the term, whichever is shorter. In the event the
option holder retires, the option holder may exercise vested options for 60 days
or the balance of the option term, whichever is shorter. In the event of
disability, the option holder has six months or the balance of the option term,
whichever is shorter, to exercise vested options. Unvested options will expire
upon termination of employment for any reason. The terms of the options granted
to the officers referred to under the "Employment Contracts" are described in
that section.

2000 Share Option Plan

     Our board of directors approved our 2000 share option plan on November 9,
2000, and our shareholders approved it thereafter.  This new plan does not
affect options granted under the initial plan. The compensation committee of our
board of directors administers the new plan and determines, among other things,
the eligibility of persons to participate in the plan, vesting periods and other
attributes of individual options. The new plan provides for the grant of options
to employees, officers and directors of, and consultants to, ImagicTV and its
affiliates. Both incentive share options and non-qualified share options are
available to U.S. residents.

     Options held by any person under the new plan together with any other
options granted to that person may not at any time exceed 5% of the aggregate
number of our common shares outstanding from time to time.  The maximum number
of shares issuable under the new plan is 1,879,185, subject to necessary
approvals. The options granted under the new plan have a maximum term of 10
years and an exercise price no less than the fair market value of our common
shares on the date of the grant, or 110% of fair market value in the case of an
incentive stock option granted to an employee who owns common shares having more
than 10% of the votes outstanding.  Under the new plan, if a change of control
of our company should occur, our board of directors will be permitted, without
any action or consent required on the part of any option holder to, among other
things accelerate the vesting of all options so that they become immediately
exercisable.

                                       48
<PAGE>

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.   Major Shareholders

     The following table provides information regarding the beneficial ownership
of our common shares as of February 28, 2001 for each person or entity who is
known to us to own beneficially more than 5% of our outstanding common shares.
As used in the table, "beneficial ownership'' means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date of this annual report. Common shares
subject to options, warrants or rights that are currently exercisable or
exercisable within 60 days are deemed outstanding for computing the ownership
percentage of the person holding these options, warrants or rights, but are not
deemed outstanding for computing the ownership percentage of any other person.
The amounts and percentages are based upon 24,592,624 common shares outstanding
as of February 28, 2001.

<TABLE>
<CAPTION>

                                                         Number of Shares           Percentage of Shares
Name of Beneficial Owner                                 Beneficially Owned         Beneficially Owned
------------------------                                 ------------------         --------------------
<S>                                                      <C>                        <C>
Aliant Inc.
(held through Aliant Horizons Inc.)...................        7,209,751                      29.31%
   One Brunswick Square, 19/th/ Floor
   Saint John, New Brunswick  E2L 4R5

Compagnie Financiere Alcatel
(held through its subsidiary, Alcatel Canada Inc.)....        3,986,857                      16.21%
   600 March Road
   Kanata, Ontario K2K 2E6

Whitecastle Investments Limited.......................
   22 St. Clair Avenue East, Suite 1010                       2,464,927                      10.02%
   Toronto, Ontario M4T 2S3

Celtic House International
(held through 506048 N B Ltd.)........................        2,454,676                       9.98%
   555 Legget Drive, Suite 211
   Kanata, Ontario K2K 3X3

Centara Investments Inc...............................
   2620 - 1 Lombard Place,                                    1,338,245                       5.44%
   Winnipeg, Manitoba R3B 0X5
</TABLE>

     As of the close of business on June 19, 2001, CDS & Co. as nominee on
behalf of The Canadian Depository for Securities Limited, or CDS, was the
registered holder of 7,127,467 common shares representing approximately 28.97%
of the outstanding common shares and Cede & Co as nominee on behalf of The
Depository Trust Company, or DTC, was the registered holder of 3,055,138 common
shares representing approximately 12.42% of the outstanding common shares. It
is, however, management's understanding that the common shares registered in the
name of CDS or DTC are held by various brokers and other parties on behalf of
clients and others (including certain of the principal holders named above).

     Except as disclosed above, as at June 20, 2001, our current directors and
officers as a group owns directly or indirectly or exercised control or
direction over a total of 191,451 common shares representing approximately 0.78%
of the issued and outstanding common shares.

                                       49
<PAGE>

     The voting rights of our major shareholders do not differ from the voting
rights of holders of our shares who are not major shareholders.

     As of the close of business on June 20, 2001, our registrar and transfer
agent reported that there were 24,598,442 common shares issued and outstanding.
Of those common shares issued and outstanding, 21,243,899 common shares were
registered to Canadian residents (79 holders of record) and the remaining
3,354,543 common shares were registered to United States residents (6 holders of
record). No common shares were registered to residents of other foreign
countries.

     To the best of our knowledge, our company is not directly or indirectly
owned or controlled by another corporation, by any foreign government or by any
other natural or legal person.

     There are no arrangements known to us, the operation of which may at a
subsequent date result in a change of control of our company.

B.   Related Party Transactions

     The following describes the significant transactions entered into between
us and our directors, executive officers, shareholders, and affiliates of the
shareholders in the fiscal year ended February 28, 2001. All future transactions
between us and any of those parties will be subject to approval by a majority of
the disinterested members of the board.

Technology Agreements

     On April 19, 1999, we entered into a licensing agreement with NBTel.
Pursuant to this agreement, NBTel received a perpetual, non-exclusive license to
use DTV Manager in the Province of New Brunswick for cash consideration of
C$500,000 and future one-time per subscriber payments decreasing from C$150 to
C$80 based on the number of active NBTel subscribers to DTV Manager in New
Brunswick. In addition, the license agreement provides for the annual payment of
fees for maintenance and technical support services in an amount equal to 20% of
the total license fees, including the initial fee and cumulative subscriber
royalties. If requested by NBTel we have agreed to provide consulting and
training services at then current rates.

     On December 16, 1999, NBTel assigned the license agreement to Aliant, and
the license agreement was amended to include a license for our pcVu software
product and to expand the geographic territory of the license to the provinces
of Nova Scotia, Prince Edward Island and Newfoundland on an exclusive basis.  In
connection with the assignment and amendment, Aliant agreed to pay us cash
consideration amounting to C$900,000, of which C$500,000 was paid on January 31,
2000, C$200,000 was paid on January 31, 2001 and C$200,000 is due on January 31,
2002.  Under the amended agreement, the future one-time per subscriber payments
based on the number of subscribers also applies to subscribers in Nova Scotia,
Prince Edward Island and Newfoundland. In accordance with the amended agreement,
MTT, the incumbent local exchange carrier in the Province of Nova Scotia and a
subsidiary of Aliant, has licensed and has commercially deployed DTV Manager.

     On January 16, 2001, the license agreement was further amended to include a
sale of 40,000 subscriber-based licenses for C$3,200,000, payable in non-
refundable instalments of C$1,600,000 paid to us on January 16, 2001 and
C$1,600,000 due on February 28, 2002.

     Through February 28, 2001, we recorded revenues from NBTel totalling
C$1,866,100 in one-time per subscriber royalty payments. In the fiscal year
ended February 28, 2001, NBTel made payments to us for maintenance and technical
support services of C$100,000.

                                       50
<PAGE>

     In addition, we have supplied NBTel and Aliant with set-top boxes at little
or no mark-up above our cost. We received revenues of  $462,000 in fiscal 1999,
$180,000 in fiscal 2000 and $1.0 million in fiscal 2001 from the sales of set-
top boxes to NBTel and Aliant.

     In November 1999, we entered into a license agreement with Newbridge
Networks Corporation, which was then one of our principal shareholders and is
now part of Alcatel.  Pursuant to this agreement, Newbridge received a license
to use DTV Manager for internal testing purposes at six technical laboratories.
The license also permitted Newbridge to use DTV Manager in sales and marketing
demonstrations of its hardware products.  In exchange for the license, we
received switching equipment from Newbridge that enables the prioritized
transmission of voice, Internet and television data in high-speed, networked
environments.  We have used this equipment for research and development
purposes.  The transaction was recorded at the fair value of the equipment,
which amounted to $103,000.  In connection with the transaction, we recorded
license fee revenues for the same amount.  In February 2000, we amended the
license agreement to provide Newbridge with the opportunity to purchase
additional twelve-month site licenses for demonstration purposes.  As of
February 28, 2001 we had received aggregate cash consideration of C$40,000 for
these additional licenses and $17,000 for a 90-day trial license. We also
currently supply Newbridge with set-top boxes for laboratory test installations
at little or no mark-up above our cost.  We received $23,000 in fiscal 2000 and
$17,000 in fiscal 2001 from the sales of set-top boxes to Newbridge.

Financings, Loans and Inter-company Arrangements

     During the year ended February 28, 2000, the Minister of Economic
Development, Tourism and Culture for the Province of New Brunswick, through an
application filed by Newbridge, indirectly granted us a repayable government
assistance loan in the amount of C$2,560,000 and a forgivable loan in the amount
of C$640,000, to assist us in creating research and development employment in
the Province of New Brunswick. The forgivable loan was fully forgiven and
recognized in the statement of operations as forgiveness of debt. The repayable
loan is repayable in annual installments equal to 1.5% of the license fee
revenues of the immediately preceding year, and the balance, if any, is due on
February 25, 2006. The repayable loan is interest-free until February 25, 2006
and, if not paid at that date, thereafter will bear interest at 6.3% per annum.
As of February 28, 2001, we have repaid C$34,395 of the principal of the
repayable loan.

     In addition, we may be required to accelerate repayment of the repayable
loan if the total number of our full-time employees employed in the Province of
New Brunswick falls below 92 at any time during the fiscal year ending February
28, 2002. As of February 28, 2001, we employed approximately 180 full-time
employees in the Province of New Brunswick.

     In September 2000, we issued warrants to purchase Common Shares to four of
our principal shareholders at the time and one other shareholder for an
aggregate purchase price of $10,000,000. These warrants were automatically
exercised in October 2000. In accordance with the terms of the warrants, each
warrantholder was entitled to receive upon completion of a sale of Common Shares
to outside investors, for no additional consideration, a number of shares per
warrant which reflected the price paid per Common Share by outside investors. As
a result of the October 2000 sale of Common Shares to America Online, Inc. and
Cisco Systems, Inc. at $11.00 per share, 1.11 Common Shares per warrant were
issued upon exercise of the warrants. This resulted in the issuance of the
following numbers of Common Shares to these four principal shareholders: 205,157
to Alcatel, 371,001 to Aliant, 126,312 to Celtic House, and 137,727 to
Whitecastle.

                                       51
<PAGE>

Leases

     We sublease a portion of our principal executive offices from NBTel.  Of
the approximately 33,000 square feet that we occupy at our principal executive
offices, we sublease approximately 23,000 square feet from NBTel at a cost of
approximately $338,000 per year. The lease on such facility expires in December
2002, subject to a renewal option of one additional year.

C.   Interests of Experts and Counsel

     Not applicable.

ITEM 8.    FINANCIAL INFORMATION

A.   Consolidated Statements and Other Financial Information

     For our consolidated financial statements, see "Item 18.  Financial
Statements."

     Export sales constitute a significant portion of our total sales volume.
The total volume of export sales from Canada for the fiscal year ended February
28, 2001 was $5.2 million representing 58.3% of our total sales.

     There are currently no outstanding material legal proceedings to which we
are a party or any of our properties is subject, nor do we know of any material
threatened or contemplated proceedings against us.

     We have never declared or paid any cash dividends on our common shares.  At
present, we expect to retain future earnings, if any, for use in the operation
and expansion of our business.  We do not anticipate that we will pay cash
dividends in the foreseeable future.  Any future determination to pay dividends
will be at the discretion of our board of directors and will depend upon our
results of operations, capital requirements and other factors as our board of
directors considers relevant.

B.   Significant Changes

     Since February 28, 2001, there have been no significant changes in our
financial condition or results of operations.

ITEM 9.    THE OFFER AND LISTING

A.   Offer and Listing Details

     The common shares are registered shares.  CIBC Mellon Trust Company acts as
transfer agent in Canada and ChaseMellon Shareholder Services, L.L.C. acts as
transfer agent in the U.S.  We first offered our shares through an initial
public offering conducted in November 2000.  The following tables show for the
periods indicated the high and low closing market prices since November 20,
2000, the date our common shares first traded on the Nasdaq National Market
("Nasdaq") and the Toronto Stock Exchange ("TSE").

                                       52
<PAGE>

<TABLE>
<CAPTION>
                                               Nasdaq                              TSE50
                                             Year Ended                         Year Ended
                                         February 28, 2001                   February 28, 2001
                              -----------------------------------------------------------------------
                                          in U.S. dollars                   in Canadian dollars
<S>                                      <C>                                <C>
Share Market Prices
 High.......................                   $ 9.00                             $ 14.00
 Low........................                     2.00                                3.05

                                               Nasdaq                               TSE
                                           Quarter Ended                       Quarter Ended
                                         February 28, 2001                   February 28, 2001
                              -----------------------------------------------------------------------
                                          in U.S. dollars                   in Canadian dollars
Share Market Prices
 High.......................                   $ 7.56                             $ 11.30
 Low........................                     2.00                                3.05
</TABLE>

<TABLE>
<CAPTION>
                                                                             Nasdaq
                                                                          Month Ended
                                  Nov. 30,      Dec. 31,      Jan. 31,      Feb. 28,      Mar. 31,      Apr. 30,      May 31,
                                   2000          2000          2001          2001          2001          2001          2001
                              --------------------------------------------------------------------------------------------------
(in U.S. dollars)
<S>                               <C>           <C>           <C>           <C>          <C>            <C>           <C>
Share Market Prices
 High.......................       $ 9.00        $ 7.56        $ 7.00        $ 6.75        $ 2.88        $ 1.61        $ 1.61
 Low........................         6.75          4.75          5.00          2.00          1.50          1.19          1.19
</TABLE>

<TABLE>
<CAPTION>
                                                                              TSE
                                                                          Month Ended
                                  Nov. 30,      Dec. 31,      Jan. 31,      Feb. 28,      Mar. 31,      Apr. 30,      May 31,
                                   2000          2000          2001          2001          2001          2001          2001
                              --------------------------------------------------------------------------------------------------
(in Canadian dollars)
<S>                               <C>           <C>           <C>           <C>           <C>           <C>           <C>
Share Market Prices
 High.......................       $ 14.00       $ 11.30       $ 10.55       $ 10.00       $ 4.49         $ 2.50        $ 2.10
 Low........................         10.15          7.50          7.60          3.05         2.50           1.85          1.85
</TABLE>

B.   Plan of Distribution

     Not applicable.

C.   Markets

     Our common shares are listed on the Nasdaq National Market under the symbol
"IMTV" and on the Toronto Stock Exchange under the symbol "IMT."

D.   Selling Shareholders

     Not applicable.

E.   Dilution

     Not applicable.

F.   Expenses of the Issue

     Not applicable.

                                       53
<PAGE>

ITEM 10.    ADDITIONAL INFORMATION

A.   Share Capital

     Not applicable.

B.   Memorandum and Articles of Association

     (a)    Directors

     There are currently no provisions in the bylaws or articles of
incorporation with respect to the voting power, borrowing ability, mandatory
retirement age, or share ownership requirement for directors.  See "Item 6.
Directors and Executive Officers" for further information about the board of
directors powers.

     (b)    Share Classes

     Holders of common shares are entitled to receive dividends if, as and when
declared by the board of directors.  The board of directors may declare
dividends on the common shares to the exclusion of any other class of shares.
Holders of common shares are entitled to receive notice of and attend all annual
and special meetings of shareholders and to one vote for each share held.

     Holders of preferred shares will receive the rights and privileges and be
subject to the restrictions and conditions as determined by the board of
directors at the time of issuance.

     (c)    Change in Shareholder Rights

     Under the Canada Business Corporations Act, a special resolution passed by
the holders of a majority of not less than two-thirds of the common shares
represented in person or by proxy at a duly called meeting of shareholders or
signed by all shareholders is necessary to change the rights attributable to the
common shares.

     (d)    Meetings

     Annual general meetings will be called no later than 15 months after the
holding of the preceding annual meeting.  The board of directors may call a
special meeting of shareholders at any time.

     (e)    Limitations on Ownership

     There are no provisions in the bylaws or articles of incorporation
regarding limitations on the right to own securities.

     (f)    Change of Control

     There are no provisions in the bylaws or articles of incorporation that
would have the effect of delaying, deferring or preventing a change of control
of ImagicTV.

                                       54
<PAGE>

     (g)   Ownership Threshold

     There are no provisions in the bylaws or articles of incorporation
regarding limitations on the right to own securities.

C.   Material Contracts

     See "Related Party Transactions" in "Item 7. Major Shareholders and Related
Party Transactions."

D.   Exchange Controls

     There are currently no exchange controls that have a material effect on the
import or export of capital or the remittance of dividends, interest or other
payments to non-resident holders of our securities.

E.   Taxation

Certain Canadian and United States Income Tax Considerations

United States Holders

     The following summary discusses the material Canadian federal income tax
and U.S. federal income consequences generally applicable to the acquisition,
ownership and disposition of shares by a U.S. Holder (as defined below):

     .     that is resident in the United States and is not resident in Canada
           for the purpose of the Canada-United States Income Tax Convention
           (the "Treaty");

     .     that otherwise qualifies for full benefits under the Treaty; and

     .     whose shares are not, for purposes of the Treaty, effectively
           connected with a permanent establishment or fixed base in Canada.

     As used herein, a "U.S. Holder" means a beneficial owner of shares that
is, for U.S. federal income tax purposes:

     .     a citizen or individual resident of the United States;

     .     a corporation, partnership or other entity organized in or under the
           laws of the United States or any state thereof (including the
           District of Columbia);

     .     an estate the income of which is subject to U.S. federal income
           taxation regardless of its source; or

     .     a trust if, in general, the trust is subject to the primary
           supervision of a court within the United States and the control of
           one or more United States persons as described in section 7701(a)(30)
           of the U.S. Internal Revenue Code of 1986, as amended (the "U.S.
           Internal Revenue Code").

                                       55
<PAGE>

     This summary is based on U.S. and Canadian federal income tax law,
regulations, administrative pronouncements and court decisions, all as of the
date of this annual report and all of which are subject to change or differing
interpretation, possibly with retroactive effect as more fully described below.

     This summary does not purport to address all aspects of Canadian federal
income and U.S. federal income taxation that may be relevant to a U.S. Holder,
and does not take into account the U.S. federal income tax consequences to U.S.
Holders that may be subject to special rules (including, but not limited to,
tax-exempt entities, U.S. expatriates, financial institutions, insurance
companies, broker-dealers, traders in securities, investors liable for
alternative minimum tax, investors that own (directly, indirectly or by
attribution) 2% or more of our voting shares, investors that hold shares as part
of a straddle, hedging, conversion or integrated transaction, or investors whose
functional currency is not the U.S. dollar). Furthermore, this summary does not
address U.S. state, local or other (such as U.S. estate or gift) or Canadian
provincial or territorial tax consequences of the acquisition, ownership and
disposition of shares. Holders of shares should consult their own tax advisers
as to the particular Canadian federal, provincial and territorial tax and U.S.
federal, state and local income and other tax consequences to them of the
acquisition, ownership and disposition of shares. The summary which follows is
generally limited to U.S. Holders that hold the shares as capital assets for
U.S. and Canadian federal income tax purposes. A share will generally be
considered to be a capital asset to a U.S. Holder (for Canadian tax purposes)
unless the holder holds it as inventory in the course of carrying on a business
or acquired it in a transaction or transactions considered to be an adventure in
the nature of a trade.

     In addition, the following summary of Canadian federal income tax
considerations applies only to a U.S. Holder who, for purposes of the Income Tax
Act (Canada) (the "Canadian Act") and at all relevant times, is not resident or
deemed to be resident in Canada, deals at arm's length with ImagicTV, does not
use or hold, and is not deemed to use or hold, the shares in, or in the course
of carrying on, a business or providing independent personal services in Canada,
does not carry on an insurance business in Canada and elsewhere, and who, for
purposes of the Treaty and at all relevant times, does not own (or is not
treated as owning) 10% or more of the outstanding voting shares of ImagicTV.

Canadian Federal Income Tax Considerations

     This portion of the summary is based upon the current provisions of the
Canadian Act, and the regulations thereunder and an understanding of the current
published administrative practices and policies of the Canada Customs and
Revenue Agency. The summary also takes into account all specific proposals to
amend the Canadian Act and the regulations publicly announced prior to the date
of this annual report (the "Proposed Amendments"), and, while we cannot assure
you that the Proposed Amendments will be enacted as announced, or at all, this
summary assumes that the Proposed Amendments will be enacted substantially as
proposed. This summary does not otherwise take into account or anticipate any
changes in law, whether by way of legislative, judicial or governmental
decision, action or interpretation.

Canadian Federal Taxation of Dividends on Shares

     Dividends, including deemed dividends and stock dividends, paid or credited
on shares owned by a U.S. Holder will be subject to Canadian withholding tax
under the Canadian Act at a rate of 25% on the gross amount of the dividends.
The rate of withholding tax generally is reduced under the Treaty to 15% where
the U.S. Holder is the beneficial owner of the dividends. Under the Treaty,
dividends paid or credited to a U.S. Holder that is a United States tax-exempt
organization as described in Article XXI of the Treaty, other than such
dividends that constitute income from carrying on a trade or business, will
generally not be subject to Canadian withholding tax, although such entities may
be subject to administrative procedures to confirm their eligibility to such
exemption.

                                       56
<PAGE>

     Under the Canadian Act, dividends may be deemed to be paid in certain
circumstances. For example, when a corporation redeems or purchases for
cancellation shares of its capital stock, a dividend will be deemed to be paid
in an amount equal to the amount by which the amount paid exceeds the "paid-up
capital" (as defined in the Canadian Act) of the shares so redeemed or
purchased for cancellation. The "paid-up capital" of the shares owned by a U.S.
Holder may be less than the holder's cost of such shares by reason of, for
example, the averaging of the paid-up capital with that of shares of such class
already issued and outstanding. The paid-up capital attributable to each share
will be relevant to the holder of that share in connection with a purchase for
cancellation of that share or upon the winding-up of ImagicTV.

Canadian Federal Taxation on Sale or Other Disposition of Shares

     A gain realized by a U.S. Holder on a disposition or deemed disposition of
shares generally will not be subject to tax under the Canadian Act unless the
shares constitute taxable Canadian property within the meaning of the Canadian
Act. Shares generally will not be taxable Canadian property to a U.S. Holder if
the shares are listed on a prescribed stock exchange at the time of disposition
unless, at any time within the 60-month period immediately preceding the
disposition, the U.S. Holder, persons with whom the U.S. Holder did not deal at
arm's length or the U.S. Holder together with persons with whom the U.S. Holder
did not deal at arm's length owned or had an interest in or option to acquire
25% or more of the issued shares of any class or series of ImagicTV's shares.
The shares will constitute taxable Canadian property to a U.S. Holder if at the
time of their disposition the shares are not listed on The Toronto Stock
Exchange or another prescribed stock exchange (in this event, a U.S. Holder
would have to comply with notification requirements under the Canadian Act in
respect of the disposition of the shares).

     Even if the shares constitute or are deemed to constitute taxable Canadian
property to a particular U.S. Holder, an exemption from tax under the Canadian
Act may be available under the terms of the Treaty.

United States Federal Income Tax Considerations

Taxation of Dividends

     Subject to the discussion below under "Passive Foreign Investment Company
Considerations," for U.S. federal income tax purposes, a U.S. Holder will
generally include in gross income the amount of a distribution paid by us,
unreduced by the applicable Canadian withholding tax, to the extent paid out of
our current or accumulated earnings and profits (as determined for U.S. federal
income tax purposes), as ordinary dividend income when the distribution is
actually or constructively received by the U.S. Holder. The dividend will not be
eligible for the dividends-received deduction generally allowed to U.S.
corporations in respect of dividends received from other U.S. corporations. If
the dividend distribution is paid in Canadian dollars, the amount of the
dividend includible in the income of a U.S. Holder will be the U.S. dollar value
of the dividend, determined at the spot Canadian dollar/U.S. dollar rate on the
date the dividend is includible in the income of the U.S. Holder, regardless of
whether the payment is in fact converted into U.S. dollars. A U.S. Holder will
have a basis in any Canadian dollar distributed by us equal to the U.S. dollar
value of the Canadian dollar on the date it is actually or constructively
received by the U.S. Holder. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the dividend payment is
includible in income to the date the payment is converted into U.S. dollars will
be treated as ordinary income or loss. Such gain or loss will generally be
income from sources within the United States for foreign tax credit limitation
purposes. Distributions in excess of our current and accumulated earnings and
profits, as determined for U.S. federal income tax purposes, will be treated as
a non-taxable return of capital to the extent of the U.S. Holder's tax basis in
the shares and thereafter as capital gain.

                                       57
<PAGE>

     A U.S. Holder may, subject to certain limitations, be eligible to claim as
a credit or deduction, for purposes of computing its U.S. federal income tax
liability, the Canadian withholding tax paid in respect of dividends from us.
Dividends from us will generally constitute foreign-source income and will
generally be classified as "passive income" or, in the case of certain U.S.
Holders, "financial services income" for purposes of determining the U.S.
foreign tax credit limitation. The calculation of foreign tax credits and, in
the case of a U.S. Holder that elects to deduct foreign taxes, the availability
of deductions, involves the application of complex rules that depend on a U.S.
Holder's particular circumstances. U.S. Holders should consult their own tax
advisers regarding the availability of foreign tax credits and deductions for
such Canadian withholding tax.

     Under rules enacted by the U.S. Congress in 1997 and other guidance
recently released by the U.S. Department of the Treasury, foreign tax credits
will not be allowed for withholding taxes imposed in respect of certain short-
term or hedged positions in stock or in respect of arrangements in which a U.S.
Holder's expected economic profit, after non-U.S. taxes, is insubstantial. U.S.
Holders should consult their own tax advisers concerning the implications of
these rules in light of their particular circumstances.

Taxation of Capital Gains

     A U.S. Holder will, upon the sale, exchange or other taxable disposition of
a share, recognize a gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the U.S. dollar value of the amount
realized and the U.S. Holder's tax basis, determined in U.S. dollars, in the
share. In general, such gain or loss will be treated as arising from sources
within the United States for U.S. federal income tax purposes, unless it is
attributable to an office or other fixed place of business maintained by the
U.S. Holder outside the United States and certain other conditions are
satisfied.

     Subject to the discussion below, under "Passive Foreign Investment Company
Considerations," the gain or loss recognized upon the sale of a share will be a
capital gain or loss. The maximum non-corporate U.S. federal income tax rate on
net capital gains is currently 20% for capital assets held for more than one
year. Net capital gains on the sale of capital assets held for one year or less
are subject to U.S. federal income tax at ordinary income tax rates. For a
corporate U.S. Holder, all capital gains are currently taxed at the same rate as
ordinary income. The deductibility of capital losses is subject to limitations.

     Any tax imposed by Canada directly on the gain from such a sale or other
disposition would generally be eligible for the U.S. foreign tax credit;
however, if such gain were not treated as arising from sources outside the
United States, the U.S. Holder might not be able to use the credit otherwise
available because of the U.S. foreign tax credit limitation rules. The rules
relating to the determination of the U.S. foreign tax credit are complex and
U.S. Holders should consult their own tax advisers with respect to these rules.

     A U.S. Holder that purchases shares with previously owned foreign currency
generally will recognize ordinary income or loss in an amount equal to any
difference between the U.S. Holder's tax basis in the foreign currency and the
U.S. dollar value of the foreign currency at the spot rate on the date the
shares are purchased. The U.S. Holder's basis in the shares generally will be
equal to the U.S. dollar value of the foreign currency at the spot rate on the
date of the purchase (or, if the shares are traded on an established securities
market, in the case of cash basis and electing accrual basis taxpayers, the
settlement date). A U.S. Holder that receives foreign currency upon sale or
other disposition of the shares will realize an amount equal to the U.S. dollar
value of the foreign currency on the date of the sale or other disposition (or,
if the shares are traded on an established securities market, in the case of
cash basis and electing accrual basis taxpayers, the settlement date). A U.S.
Holder will have a tax basis in the foreign currency received equal to the U.S.
dollar amount realized. Any gain or loss realized by a U.S. Holder

                                       58
<PAGE>

upon a subsequent disposition of foreign currency (including upon an exchange
for U.S. dollars) will be ordinary income or loss.

Passive Foreign Investment Company Considerations

     We believe, based on our income, assets and activities, that we should not
be treated as a passive foreign investment company for US federal income tax
purposes for our taxable year ended February 28, 2001. However, an actual
determination of passive foreign investment company status is fundamentally
factual in nature and it is possible that we will nonetheless be treated as a
passive investment company for U.S. federal income tax purposes for such taxable
year. Further, there can be no assurance that we will not be or become a passive
foreign investment company in the future.

     In general terms, we will be a passive foreign investment company with
respect to a taxable year if either:

     .    75% or more of our gross income in such taxable year is passive
          income; or

     .    the average quarterly percentage of the value of our assets that
          produce or are held for the production of passive income is at least
          50%.

     For this purpose, if we own (directly or indirectly) at least 25% (by
value) of the stock of another corporation, we will be treated as if we had
directly received our proportionate share of the gross income of the other
corporation and as if we directly owned our proportionate share of the assets of
the other corporation. In addition, the IRS has indicated that cash balances,
even if held as working capital, are considered to be assets that produce
passive income.

     If we were classified as a passive foreign investment company, unless a
U.S. Holder timely made one of specific available elections, a special tax
regime would apply to both:

     .    any "excess distribution," which would be such U.S. Holder's share of
          distributions on the shares in any year that are greater than 125% of
          the average annual distributions on the shares received by the U.S.
          Holder in the three preceding years or the U.S. Holder's holding
          period for the shares, if shorter; and

     .    any gain realized on the sale or other disposition of the shares held
          by the U.S. Holder for more than one taxable year.

     Under this regime, any excess distribution and any gain so realized would
be treated as ordinary income and would be subject to tax as if:

     .    the excess distribution or gain had been realized ratably over the
          U.S. Holder's holding period;

     .    the amount deemed realized had been subject to tax in each year of
          that holding period at the highest applicable tax rate; and

     .    the interest charge generally applicable to underpayment of tax had
          been imposed on the taxes deemed to have been payable in each of those
          years in which we were classified as a passive foreign investment
          company.

                                       59
<PAGE>

     In addition, the estate of an individual U.S. Holder who dies while owning
shares may not be eligible to step up the tax basis of the shares.

     The foregoing rules with respect to distributions and dispositions may be
avoided if a U.S. Holder is eligible for and timely makes a valid "mark-to-
market" election. If a mark-to-market election is made, the U.S. Holder will,
in general, include as ordinary income each year the excess, if any, of the fair
market value of its shares for that year (measured at the close of the U.S.
Holder's taxable year) over its adjusted tax basis in the shares. The U.S.
Holder will also be allowed an ordinary loss each year of the excess, if any, of
its adjusted tax basis over the fair market value of its shares, but only to the
extent of the net amount of previously included mark-to-market income as a
result of the mark-to-market election. The U.S. Holder's tax basis in the shares
will be adjusted to reflect these income or loss amounts. The mark-to-market
election is made on a shareholder-by-shareholder basis and, once made, can only
be revoked with the consent of the Internal Revenue Service. Assuming the shares
are regularly traded, the mark-to-market election would be available with
respect to the shares.

     Each U.S. Holder is urged to consult its own tax adviser concerning the
potential application of the passive foreign investment company rules to the
U.S. Holder's ownership and disposition of shares.

U.S. Backup Withholding and Information Reporting

     In general, information reporting requirements will apply to dividends in
respect of the shares and the proceeds received on the sale or disposition of
the shares paid within the United States, and in certain cases outside of the
United States, to a U.S. Holder unless the U.S. Holder is an exempt recipient,
such as a corporation, and backup withholding may apply to such amounts if the
U.S. Holder fails to provide an accurate taxpayer identification number or to
report interest and dividends required to be shown on its federal income tax
returns. The amount of any backup withholding from a payment to a U.S. Holder
will be allowed as a credit against the U.S. Holder's U.S. federal income tax
liability.

F.   Dividends and Paying Agents

     As noted in "Consolidated Statements and Other Financial Information" in
"Item 8. Financial Information", we have never declared or paid dividends and do
not anticipate paying cash dividends in the foreseeable future.

G.   Statement by Experts

     Not applicable.

H.   Documents on Display

     We are a reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Since we are a "foreign private issuer" as defined
in the Exchange Act, we are exempt from the provisions of the Exchange Act which
prescribe the furnishing and content of proxy statements to shareholders and
relating to short swing profits reporting and liability.

     You may review a copy of this annual report, including exhibits and
schedules filed with it, at the SEC's public reference facilities in Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may also obtain copies of such materials from
the Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

                                       60
<PAGE>

You may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.

     You may read and copy any reports, statements or other information that we
file with the SEC at the addresses indicated above, and you may also access them
electronically at the website set forth above. These SEC filings are also
available to the public from commercial document retrieval services.

     We are required to file reports and other information with the securities
commission in all provinces of Canada. You are invited to read and copy any
reports, statements or other information, other than confidential filings, that
we file with the provincial securities commissions at their public reference
rooms. 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 (EDGAR).

     Copies of any documents referred to in this annual report and filed with
the SEC can be obtained without charge by contacting our Corporate Secretary,
c/o ImagicTV Inc., One Brunswick Square, 14th Floor, Saint John, New Brunswick,
Canada, telephone number:  (506) 631-3000.  In order to obtain timely delivery
of these documents, you must request this information no later than five
business days before the date on which you would like to receive the documents

I.   Subsidiary Information

     Not applicable.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     With respect to quantitative information about market risk, we currently do
not use derivative instruments.  With respect to qualitative information, see
the Management's Discussion and Analysis--Impact of Foreign Exchange Rate
Exposure in "Item 5. Operating and Financial Review and Prospects."

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     Not applicable.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

A.   Use of Proceeds

     We completed our initial public offering pursuant to a registration
statement on Form F-1 (File No. 333-48452) which was declared effective by the
SEC on November 20, 2000.  The managing underwriters of the syndicate were
Merrill Lynch & Co., Chase H & Q and CIBC World Markets.  We had $68.6 million
in cash and cash equivalents on hand following our initial public offering and
our

                                       61
<PAGE>

September and October private placements.  As of May 31, 2001 we had used
approximately $12.3 million of these proceeds for sales and marketing
activities, research and development and for working capital and general
corporate purposes.  We expect to continue to use the proceeds in this way in
the future.  Pending this use, the proceeds invested in short-term, interest-
bearing, investment-grade securities, certificates of deposit or direct or
guaranteed obligations of Canada or the United States.  See "Developments in
Fiscal 2001" in "Item 4. Information on the Company" for further details.

ITEM 15.  [RESERVED]

ITEM 16.  [RESERVED]

                                   PART III


ITEM 17.  FINANCIAL STATEMENTS

     We have responded to Item 18 in lieu of responding to this Item.

                                       62
<PAGE>

ITEM 18.  FINANCIAL STATEMENTS

     AUDITOR'S REPORT TO SHAREHOLDERS

     We have audited the consolidated balance sheets of ImagicTV Inc. as at
February 28, 2001 and February 29, 2000, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended February 28,
2001, February 29, 2000 and February 28, 1999. These 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.

     With respect to the consolidated financial statements for the year ended
February 28, 2001, we conducted our audit in accordance with Canadian generally
accepted auditing standards and United States generally accepted auditing
standards. With respect to the consolidated financial statements for the years
ended February 29, 2000 and February 28, 1999, we conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

     In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at February 28,
2001 and February 29, 2000 and the results of its operations and its cash flows
for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
in accordance with Canadian generally accepted accounting principles.

     Canadian generally accepted accounting principles differ in some respects
from accounting principles generally accepted in the United States. Application
of accounting principles generally accepted in the United States would have
affected reported results of operations for the years ended February 28, 2001,
February 29, 2000 and February 28, 1999 to the extent summarized in note 11 to
the consolidated financial statements.

     KPMG LLP Chartered Accountants
     Toronto, Canada
     March 21, 2001

                                       63
<PAGE>

                                 ImagicTV Inc.

                          CONSOLIDATED BALANCE SHEETS
            (in thousands of U.S. dollars, except number of shares)


<TABLE>
<CAPTION>
                                                                       FEBRUARY 29,                       FEBRUARY 28,
                                                                          2000                                2001
======================================================================================================================
<S>                                                                    <C>                                <C>
ASSETS
Current assets:
 Cash and cash equivalents (note 2)                                         $ 6,396                           $  1,332
 Short-term investments (note 2)                                                  -                             59,428
 Accounts receivable, trade                                                   1,230                              4,240
 Accounts receivable, trade-related parties                                     749                              1,440
 Instalment receivables                                                           -                                705
 Inventory                                                                        -                                295
 Prepaid expenses, deposits and other receivables                               195                              1,436
----------------------------------------------------------------------------------------------------------------------
Total current assets                                                          8,570                             68,876

Capital assets (note 3)                                                       1,289                              2,970
----------------------------------------------------------------------------------------------------------------------
Total assets                                                                $ 9,859                           $ 71,846
======================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
 Accounts payable                                                           $   240                           $  1,055
 Accrued liabilities                                                            396                              2,973
 Payable to related parties                                                     324                                850
 Deferred revenue and customer deposits                                       1,430                              1,119
 Current portion of long-term debt (note 4)                                      26                                 72
----------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                     2,416                              6,069
Long-term debt (note 4)                                                       1,737                              1,577
Shareholders' equity (note 5):
 Authorized:
 Unlimited common shares, no par value
 Unlimited preferred shares, no par value
Issued and outstanding:
 24,592,624 Common Shares at February 28, 2001
 (February 29, 2000 - 17,548,653)                                            14,489                             87,678
 Nil preferred                                                                   --                                 --
 Deferred stock-based compensation (note 5(c))                                   --                             (2,670)
 Accumulated deficit                                                         (8,824)                           (20,282)
 Reporting currency translation adjustments                                      41                               (526)
----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                    5,706                             64,200
----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                  $ 9,859                           $ 71,846
======================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements

                  Signed on behalf of the Board of Directors

      Signed                                                     Signed

Peter G. Jollymore                                            Robert E. Neal
     Chairman                                                    Director

                                       64
<PAGE>

                                 ImagicTV Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
            (in thousands of U.S. dollars, except per share amounts)


<TABLE>
<CAPTION>
                                                                YEAR ENDED             YEAR ENDED             YEAR ENDED
                                                                FEBRUARY 29,           FEBRUARY 29,           FEBRUARY 28,
                                                                   1999                   2000                   2001
=============================================================================================================================
<S>                                                             <C>                    <C>                   <C>
  Revenues:
   License fees                                                 $     -                $ 1,384               $  4,770
   Royalty fees                                                       -                      -                  1,288
   Services                                                          14                    393                  1,791
   Equipment                                                        465                    321                  1,150
-----------------------------------------------------------------------------------------------------------------------------
  Total revenues                                                    479                  2,098                  8,999
  Cost of revenues:
   Services                                                           -                    657                  2,379
   Equipment                                                        604                    331                  1,068
-----------------------------------------------------------------------------------------------------------------------------
  Total cost of revenues                                            604                    988                  3,447
-----------------------------------------------------------------------------------------------------------------------------
  Gross profit (loss)                                              (125)                 1,110                  5,552
  Operating expenses:
   Sales and marketing                                              543                  2,325                  7,763
   Research and development                                       2,014                  4,084                  7,967
   General and administrative                                       344                    827                  2,815
-----------------------------------------------------------------------------------------------------------------------------
  Total operating expenses                                        2,901                  7,236                 18,545
-----------------------------------------------------------------------------------------------------------------------------
  Loss from operations                                           (3,026)                (6,126)               (12,993)
  Interest income (expense), net                                     (1)                   121                  1,133
  Forgivable government assistance (note 4)                           -                    434                      -
  Foreign exchange gain (loss)                                      (24)                   (31)                   426
-----------------------------------------------------------------------------------------------------------------------------
  Loss before provision for income taxes                         (3,051)                (5,602)               (11,434)
  Provision for income taxes (note 6)                               (17)                   (44)                   (24)
-----------------------------------------------------------------------------------------------------------------------------
  Net loss                                                      $(3,068)               $(5,646)              $(11,458)
=============================================================================================================================
  Basic and diluted net loss per share                          $ (0.57)               $ (0.40)              $  (0.58)
=============================================================================================================================
  Weighted average number of shares used in computing
   basis and diluted net loss per share (000s)                    5,336                 13,968                 19,796
</TABLE>

See accompanying notes to the consolidated financial statements

                                       65
<PAGE>

                                 ImagicTV Inc.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                          DEFERRED
                                                        STOCK-BASED                           REPORTING CURRENCY
                                  COMMON SHARES       COMPENSATION ON                            TRANSLATION      TOTAL SHAREHOLDERS
                                NUMBER      AMOUNT     STOCK OPTIONS    ACCUMULATED DEFICIT      ADJUSTMENTS            EQUITY
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>       <C>               <C>                   <C>                 <C>
Balances, February 28, 1998        2,331    $     2     $        -         $   (110)             $     (1)            $     (109)
Net loss                               -          -                          (3,068)                    -                 (3,068)
Reporting currency translation
    adjustments                        -          -              -                -                    14                     14
Issuance of shares for cash        8,800      5,656              -                -                     -                  5,656
------------------------------------------------------------------------------------------------------------------------------------

Balances, February 28, 1999       11,131      5,658              -           (3,178)                   13                  2,493
Net loss                               -          -              -           (5,646)                    -                 (5,646)
Reporting currency translation
   adjustments                         -          -              -                -                    28                     28
Issuance of shares for cash        6,418      8,831              -                -                     -                  8,831
------------------------------------------------------------------------------------------------------------------------------------

Balances, February 29, 2000       17,549     14,489              -           (8,824)                   41                  5,706
Net loss                               -          -              -          (11,458)                    -                (11,458)
Amortization of deferred
   stock-based compensation            -          -            550                -                     -                    550
Deferred stock-based
   compensation                        -      3,220         (3,220)               -                     -                      -
Reporting currency translation
   adjustments                         -          -              -                -                  (567)                  (567)
Issuance of shares for cash        7,044     69,969              -                -                     -                 69,969
------------------------------------------------------------------------------------------------------------------------------------

Balances, February 28, 2001       24,593    $87,678     $   (2,670)        $(20,282)             $   (526)            $   64,200
====================================================================================================================================
</TABLE>

See accompanying notes to the consolidated financial statements

                                       66
<PAGE>

                                 ImagicTV Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                       YEAR ENDED             YEAR ENDED             YEAR ENDED
                                                                      FEBRUARY 29,           FEBRUARY 29,           FEBRUARY 28,
                                                                          1999                   2000                    2001
===============================================================================================================================
<S>                                                                   <C>                    <C>                    <C>
Cash flows from operating activities:
 Net loss                                                               $(3,068)               $(5,646)               $(11,458)
 Items not involving cash:
  Depreciation and amortization                                             163                    483                   1,169
  Non-monetary transaction (note 8(b))                                        -                   (102)                      -
  Stock-based compensation                                                    -                      -                     550
Change in operating assets and liabilities:
  Accounts receivable, trade                                                (33)                (1,160)                 (2,893)
  Accounts receivable, trade-related parties                               (419)                  (312)                   (748)
  Instalment receivables                                                      -                      -                    (979)
  Inventory                                                                (231)                   234                    (302)
  Prepaid expenses, deposits, and other
     receivables                                                         (1,228)                 1,052                  (1,281)
  Accounts payable and accrued liabilities                                  280                    289                   3,510
  Payable to related parties                                                 32                    286                     556
  Deferred revenue and customer deposits                                    301                  1,099                    (238)
  Advances from shareholders                                               (328)                     -                       -
-------------------------------------------------------------------------------------------------------------------------------

  Cash used in operating activities                                      (4,531)                (3,777)                (12,114)
 Cash flows from investing activities:
  Purchases of capital assets                                              (780)                  (992)                 (2,964)
  Purchases of short-term investments                                         -                      -                 (59,428)
-------------------------------------------------------------------------------------------------------------------------------

  Cash used in investing activities                                        (780)                  (992)                (62,392)
 Cash flows from financing activities:
  Issuance of common shares                                               5,656                  8,831                  69,969
  Proceeds from long-term debt                                                -                  1,763                       -
  Principal repayment of long-term debt                                       -                      -                     (20)
-------------------------------------------------------------------------------------------------------------------------------

  Cash from financing activities                                          5,656                 10,594                  69,949
 Effect of foreign currency exchange
  adjustments                                                                13                    (32)                   (507)
-------------------------------------------------------------------------------------------------------------------------------
 Increase (decrease) in cash and cash equivalents                           358                  5,793                  (5,064)
 Cash and cash equivalents, beginning period                                245                    603                   6,396
-------------------------------------------------------------------------------------------------------------------------------
 Cash and cash equivalents, end of period                               $   603                $ 6,396                $  1,332
===============================================================================================================================

 Supplemental cash flow information:
  Cash paid for taxes                                                   $    17                $    44                $     37
</TABLE>

See accompanying notes to the consolidated financial statements

                                       67
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (in thousands of U.S. dollars)


ImagicTV Inc. was incorporated on December 24, 1997 and commenced operations on
January 5, 1998. ImagicTV develops and licenses infrastructure software products
and provides related services that enable telephone companies and other service
providers to deliver multi-channel digital television and interactive media
services to their subscribers' televisions and personal computers over a
broadband network.

1. SIGNIFICANT ACCOUNTING POLICIES:

These financial statements are stated in U.S. dollars, except as otherwise
noted. They have been prepared in accordance with accounting principles
generally accepted in Canada which, except as disclosed in note 11, conform, in
all material respects, with accounting principles generally accepted in the U.S.

(a) Consolidation:

These consolidated financial statements include the accounts of ImagicTV Inc.
and its wholly owned subsidiaries, iMagicTV (US), Inc., and ImagicTV (UK)
Limited. All intercompany transactions and balances are eliminated on
consolidation.

(b) Currency translation:

Effective December 1, 2000, the U.S. dollar became the functional currency of
ImagicTV. This change resulted from the increased significance of U.S. dollar
denominated revenues and expenditures in relation to the ImagicTV's Canadian
dollar denominated transactions. In addition, ImagicTV's recent issuances of
common shares have been primarily denominated in U.S. dollars. Exchange gains
and losses resulting from transactions denominated in currencies other than U.S.
dollars are included in the results of operations in the period from December 1,
2000 to February 28, 2001. Prior to December 1, 2000, the functional currency of
ImagicTV was the Canadian dollar. Accordingly, prior to this date, exchange
gains and losses resulting from the translation of transactions denominated in
currencies other than the Canadian dollar were included in the results of
operations in the period in which they occurred.

(c) Use of estimates:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingencies at the date of the financial statements and the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.

(d) Cash and cash equivalents and short-term investments:

All highly liquid investments, with an original term to maturity of three months
or less at the time of purchase, are classified as cash equivalents. Investments
with a term to maturity of more than three months but one year or less are
classified as short-term investments.

(e) Inventory:

Inventory is recorded at the lower of cost, determined on an average basis, and
net realizable value.

                                       68
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


(f) Capital assets:

Capital assets are stated at cost, net of accumulated depreciation and
amortization, and are amortized over their estimated useful lives. Leasehold
improvements are recorded at cost and are amortized over the lesser of their
useful lives or the term of the related lease. Expenditures for maintenance and
repairs have been charged to the statement of operations as incurred.

Depreciation and amortization are computed using the straight-line method as
follows:

     Computer hardware                        2 years

     Office furniture and equipment           5 years

     Leasehold improvements                   Term of lease

     Software licenses                        2 years

ImagicTV regularly reviews the carrying values of its capital assets by
comparing the carrying amount of the asset to the expected undiscounted future
cash flows to be generated by the asset. If the carrying value exceeds the
undiscounted future cash flows, a write-down is charged to the statement of
operations for the excess. No capital asset write-downs have been recorded by
ImagicTV.

(g) Revenue recognition:

ImagicTV's revenue recognition policies are in accordance with the guidance
provided in Section 3400  "Revenue" of the Canadian Institute of Chartered
Accountants Handbook, Statement of Position ("SOP") 97-2 "Software Revenue
Recognition" and SOP 98-9 "Modification of SOP 97-2 Software Revenue Recognition
with Respect to Certain Transactions" of the American Institute of Certified
Public Accountants.

ImagicTV's revenues are derived primarily from license fees (which include
installation), royalty fees and service elements. Service elements, which
include maintenance and technical support, training, consulting and other
services, are not essential to the functionality of ImagicTV's licensed
products. ImagicTV does not deliver any product or service over the Internet or
through some other hosting arrangement.

In cases where ImagicTV sells a multi-element arrangement, the fees are
allocated to the elements based on ImagicTV-specific objective evidence of each
element's fair value. Vendor-specific objective evidence used in determining the
fair value of license revenues is based on the price charged by ImagicTV when
the same element is sold separately to a customer of a similar size and nature.
Vendor-specific objective evidence used in determining the fair value of
training, consulting and other services is based on the standard hourly rates
per diem for the type of service being provided multiplied by the estimated time
to complete the task. Vendor-specific objective evidence used in determining the
fair value of maintenance and technical support is based on a percentage of the
license fee revenues. Fees related to the delivery of multi-element arrangements
are non-refundable.

Revenues from product elements consist primarily of license and royalty fees. Up
front licence fees are recognized when a contract with a customer has been
executed, delivery and acceptance of the software have occurred, the license fee
is fixed and determinable, and collection of the related receivable is deemed
probable by management. Royalty fees are either in the form of a one-time per
subscriber activation royalty payment or a monthly royalty fee based upon the
number of active subscribers at the end of each

                                       69
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


month. One-time royalties are recognized quarterly based on the net increase in
the number of subscribers at the end of each quarter. Monthly royalty fees are
recognized monthly based on the number of active subscribers at the end of each
month.

Service revenues from training, consulting and other services are recognized
when the services are performed. Losses on professional services contracts, if
any, are recognized at the time such losses are identified. To date, ImagicTV
has not incurred any significant losses on professional service contracts.

Maintenance and technical support revenues paid in advance are non-refundable
and are recognized ratably over the terms of the agreements, which are typically
12 months.

Product, service and equipment revenues that have been prepaid but do not yet
qualify for recognition as revenue under ImagicTV's revenue recognition policy
are reflected as deferred revenues on ImagicTV's balance sheet.

Product revenues that have been recognized as revenues under ImagicTV's revenue
recognition policy but for which the cash proceeds are not yet due are reflected
as instalment receivables. Instalment receivables primarily represents future
instalment payments on license fee revenue which are due within 12 months from
the balance sheet date.

(h) Research and development expenses:

Costs related to research, design and development of software products are
charged to research and development expenses as incurred. Software development
costs are capitalized beginning when a product's technological feasibility has
been established, which generally occurs upon completion of a working model, and
ending when a product is available for general release to customers. To date,
completing a working model of ImagicTV's product and the general release of the
product have substantially coincided. As a result, ImagicTV has not capitalized
any software development costs since such costs have not been significant.

Research and development arrangements funded by third parties are accounted for
either as an obligation to perform contractual services or as an obligation to
repay the funding party, depending upon the specific nature of the funding
arrangement, including whether ImagicTV has an intent or obligation to repay and
the nature of the relationship between ImagicTV and the funding party. If the
contract is determined to be a contract to perform contractual services, the
funding is recorded as either revenue over the period in which the development
activity is conducted, if ImagicTV is at risk for the research and development
costs incurred, or an offset to the expenses incurred. If the contract is
determined to be an obligation to repay the funding party, the funding received
is recorded as a liability as the funds are advanced.

(i) Investment tax credits:

ImagicTV is entitled to Canadian federal and provincial investment tax credits
which are earned as a percentage of eligible research and development
expenditures incurred in each taxation year. Investment tax credits are
available to be applied against future tax liabilities, subject to a 10-year
carry-forward period. Investment tax credits are accounted for as a reduction of
the related expenditure for items of a current nature and a reduction of the
related asset cost for items of a long-term nature, provided that ImagicTV has
reasonable assurance that the tax credits will be realized. To date, no
investment tax credits have been recognized.

                                       70
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


(j) Income taxes:

Income taxes are accounted for under the asset and liability method of
accounting for income taxes. Under the asset and liability method, future tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carryforwards. Future tax assets and liabilities are
measured using enacted or substantively enacted tax rates expected to apply when
the asset is realized or the liability is settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in income in the
period that substantive enactment or enactment occurs. A substantive enacted
rate is only used when the proposed tax rate change is specified in sufficient
detail to be understood and applied in practice and has been drafted and tabled
in legislative or regulatory form with the appropriate governing bodies.

(k) Stock-based compensation:

ImagicTV uses the intrinsic value method to account for its stock-based employee
compensation plan. As such, deferred stock-based compensation is recorded if it
is determined that on the date of grant the fair market value of each underlying
common share exceeded the exercise price per share. Deferred stock-based
compensation is recognized as an expense over the vesting period of the option.

(l) Fair value:

Financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable trade, accounts receivable trade-related
parties, instalment receivables, accounts payable, payable to related parties
and accrued liabilities. The carrying values for these financial instruments
approximate their fair values due to the relatively short periods to maturity of
the instruments. In addition, the carrying value of long-term debt obligation
approximates its fair values. ImagicTV determines the fair value of its
financial instruments based on quoted market values or discounted cash flow
analyses for instruments having similar terms and financing characteristics.

(m) Concentration of credit risk:

Financial instruments that potentially expose ImagicTV to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments, accounts receivable trade and instalment receivables. Cash and cash
equivalents consist primarily of deposits with major commercial banks and highly
liquid investments, the maturities of which are three months or less from the
date of purchase. ImagicTV performs periodic credit evaluations of the financial
condition of its customers.

Short-term investments consist primarily of high-grade fixed income securities
with maturities of more than three months but less than one year.

At February 28, 2001, 77% of the accounts receivable were concentrated with five
customers. At February 29, 2000, 77% of the accounts receivable were
concentrated with three customers. Allowances are maintained for potential
credit losses consistent with the credit risk of specific customers.

                                       71
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

All short-term debt securities are classified as held to maturity because
ImagicTV has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion discounts to maturity. ImagicTV owns no
short-term investments that are considered to be trading securities nor
available for sale securities.

The components of cash and cash equivalents and short-term investments are
summarized as follows (in thousands):

                                                     FEBRUARY 29,  FEBRUARY 28,
                                                        2000           2001
===============================================================================
 Cash and cash equivalents:
  Cash                                                $  6,396      $   1,332
===============================================================================

 Short-term investments:
  Corporate commercial paper                                 -         14,116
  Term deposit                                               -            230
  Short-term debt securities                                 -         45,082
-------------------------------------------------------------------------------

 Net book value                                       $      -      $  59,428
===============================================================================


3. CAPITAL ASSETS (IN THOUSANDS):

                                                    FEBRUARY 29,   FEBRUARY 28,
                                                         2000          2001
===============================================================================
 Computer hardware                                    $  1,142      $   2,156
 Office furniture and equipment                            478          1,419
 Leasehold improvements                                    165            300
 Software licenses                                         165            427
-------------------------------------------------------------------------------
                                                         1,950          4,302
 Less; accumulated depreciation and amortization           661          1,332
-------------------------------------------------------------------------------
 Net book value                                       $  1,289      $   2,970
===============================================================================

4. LONG-TERM DEBT:


During the year ended February 29, 2000, ImagicTV, through an application filed
by Newbridge Networks Corporation (an ImagicTV shareholder), was granted a
government assistance loan ("Repayable Loan") in the amount of $1,766,000 and
a forgivable loan ("Forgivable Loan") in the amount of $434,000 by the
Government of the Province of New Brunswick, Canada, to assist ImagicTV in
creating research and development employment in New Brunswick. The Forgivable
Loan was fully forgiven as advanced and recognized in the statement of
operations as forgivable government assistance. The Repayable Loan is unsecured
and repayable in annual instalments equal to 1.5% of the license fee revenues of
the immediately preceding year, and the balance, if any, is due on February 25,
2006. The Repayable Loan is interest-free until February 25, 2006 and, if not
paid at that date, thereafter will bear interest at 6.3% per annum. In addition,
the Repayable Loan is subject to accelerated repayment if the

                                       72
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


total number of full-time employees employed in the Province of New Brunswick
falls below 60 at any time during the year ended February 28, 2001 or below 92
at any time during the year ended February 28, 2002. As at February 28, 2001,
the number of full-time employees employed in the Province of New Brunswick,
being approximately 180, exceeded the prescribed amounts.

5. SHAREHOLDERS' EQUITY:

(a) Description of shares:

Common Shares

Each outstanding common share is entitled to one vote at shareholder meetings
and is entitled to receive dividends if, as, and when declared by the board of
directors. Subject to the rights of holders of shares of any class ranking
senior to the common shares, holders of common shares are entitled to receive
the remaining property or assets of ImagicTV in the event of liquidation,
dissolution or winding-up. The common shares have no preemptive, redemption or
conversion rights.

Preferred Shares

The board of directors has the authority, without further action by the
shareholders, to issue an unlimited number of preferred shares in one or more
series. These preferred shares may be entitled to dividend and liquidation
preferences over the common shares. The board will be able to fix the
designations, powers, preferences, privileges and relative, participating,
optional or special rights of any preferred shares issued, including any
qualifications, limitations or restrictions. Special rights which may be granted
to a series of preferred shares may include dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences, any of which may
be superior to the rights of the common shares.

b) Common share issuances:

(i)   ImagicTV was incorporated on December 24, 1997 to facilitate the transfer
of certain intellectual property related to a software solution enabling video
transfer over high speed Internet Protocol networks (the "Intellectual
Property"), from NBTel Inc. to ImagicTV where the Intellectual Property would be
further developed and commercialized.

(ii)  On January 1, 1998, ImagicTV entered into a technology transfer agreement
with NBTel, whereby NBTel transferred the Intellectual Property to ImagicTV in
exchange for 2,327,200 common shares. At January 1, 1998, NBTel owned 100% of
ImagicTV's outstanding shares and NBTel was owned by Bruncor Inc., a public
company in Canada. As the transaction occurred between companies under common
control, the asset transfer has been accounted for at the carrying value of nil.

(iii) On January 21, 1998, ImagicTV entered into a share subscription agreement
providing for the issuance of 2,327 common shares to NBTel and 1,164 common
shares to 506048 N.B. Ltd., a subsidiary of Celtic House International
("506NB"), for total proceeds of $2,000. Celtic House International is a
private venture capital company otherwise operating at arm's length with
ImagicTV and NBTel.

(iv)  On January 5, 1998, ImagicTV entered into a Development Agreement with
NBTel and 506NB, whereby NBTel and 506NB jointly engaged the services of
ImagicTV to carry out research and development on the Intellectual Property (the
"Research Project"). Under the terms of the Development

                                       73
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


Agreement, all of the technology developed under the Research Project remained
the property of NBTel and 506NB. In consideration for the services rendered
under the Development Agreement, ImagicTV could have received a contract payment
of up to C$4,000,000. On the same date, ImagicTV entered into a Technology
Transfer Option Agreement, whereby ImagicTV was granted an option to acquire the
technology developed under the Research Project from NBTel and 506NB in exchange
for the issuance of common shares of ImagicTV. On January 5, 1998, the inception
of the arrangement, it was ImagicTV's intent and NBTel's understanding that upon
the completion of the development agreement ImagicTV would exercise the option
to acquire the technology developed under the Research Project. The Development
Agreement has been accounted for as a funded research and development
arrangement rather than as an agreement to perform research and development for
NBTel and 506NB with an option to purchase the resulting technology, as there
existed a presumption that ImagicTV would repay the funds provided regardless of
the outcome of the research and development arrangement and based on the
significant related party relationship between ImagicTV and NBTel and 506NB. As
a funded research and development agreement, the proceeds received from NBTel
and 506NB were recorded as a liability as received; the funds expended on the
Research Project were expensed as incurred; and upon the exercise of the option,
the liability was extinguished through the issuance of shares with a paid-in-
capital amount equal to the funds advanced.

During the year ended February 28, 1999, ImagicTV received C$2,800,000
($1,857,000) under the Development Agreement. On January 5, 1999, ImagicTV
repaid the funds provided by issuing a total of 3,781,700 common shares to NBTel
(1,890,850 common shares) and 506NB (1,890,850 common shares). Upon repayment of
the funds provided, the Development Agreement terminated. The cash received
under the Development Agreement was initially recorded as a liability when
received and was subsequently recorded as the paid-up capital for the 3,781,700
common shares issued pursuant to the repayment of the funds provided.
Immediately prior to the repayment of the funds provided and completion of the
arrangement, ImagicTV's common shares were owned 50.01% by NBTel, 7.91% by
506NB, and 42.08% by Newbridge. Upon the issuance of the 3,781,700 shares, NBTel
owned approximately 47% and 506NB owned approximately 24% of the outstanding
shares of ImagicTV.

(v)    On June 22, 1998, ImagicTV issued 2,327,200 common shares to Newbridge
Networks Corporation for cash consideration of $1,359,000.

(vi)   During the year ended February 28, 1999, pursuant to the Preemptive
Rights granted to the shareholders of ImagicTV in the Shareholders' Agreement,
allowing for the voting shareholders to be granted a right to subscribe for a
portion of any new issuance equal to their percentage ownership of the voting
shares (the "Preemptive Rights"), ImagicTV issued an aggregate of 2,690,961
common shares for total cash consideration of $2,440,000.

(vii)  On December 17, 1999, ImagicTV issued 3,808,146 common shares to a group
of investors for cash consideration, net of costs, of $6,144,000.

(viii) During the year ended February 29, 2000, ImagicTV issued an aggregate of
791,694 common shares to employees for total cash consideration, net of costs,
of $1,011,000.

(ix)   During the year ended February 29, 2000, pursuant to the Preemptive
Rights granted to the shareholders of ImagicTV in the Shareholders' Agreement,
the Company issued 1,818,261 common shares for cash consideration of $1,676,000.

                                       74
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


(x)    In July 2000, ImagicTV's board of directors authorized a private
placement of up to $25,000,000, of which $10,000,000 was reserved for specified
existing shareholders. On September 19, 2000, ImagicTV issued warrants to
purchase common shares to five existing shareholders for a total cash
consideration of $10,000,000. In October 2000, in connection with the additional
private placements described below, the share purchase warrants were converted
into 909,061 common shares.

(xi)   Pursuant to share subscription agreements, in October 2000 ImagicTV
issued 272,719 common shares to America Online, Inc. for aggregate proceeds of
$3,000,000 and 1,090,875 common shares to Cisco Systems, Inc. for aggregate
proceeds of $12,000,000. Upon completion of these share issuances, America
Online owned 1.3% and Cisco Systems owned 5.5% of ImagicTV's issued and
outstanding common shares.

(xii)  On November 21, 2000, ImagicTV completed its initial public offering with
regulatory authorities in Canada and the United States. ImagicTV sold 4,750,000
common shares for net proceeds of $46,200,000. In connection with the initial
public offering, all of ImagicTV's outstanding Class A common shares, Class B
common shares and Class C common shares were converted into a single new class
of common shares on a one-for-one basis. In addition, ImagicTV effected a share
split on a 1.1636-for-1 basis. ImagicTV also created a class of preferred shares
issuable in series, none of which have been issued. ImagicTV's share capital and
earnings (loss) per share have been restated on a retroactive basis to give
effect to the conversion of the shares to a single new class of common shares
and the share split.

(xiii) During the year ended February 29, 2001 ImagicTV issued 21,382 common
shares to employees on the exercise of options for cash consideration of
$17,537.

(c) Stock option plan:

In February 1998, ImagicTV established a Key Employee Stock Option Plan (the
"1998 Plan"). Options granted under the 1998 Plan had a maximum term of six
years and an exercise price per share of no less than the fair market value of
the common shares on the date of the option grant as determined by the board of
directors. The options vested as to 50% after the third anniversary date and 50%
after the fourth anniversary date.

On December 17, 1999, ImagicTV adopted a new stock option plan, the Share Option
Plan (the "1999 Plan"). The 1999 Plan allows for the granting of options to
acquire common shares to employees, consultants and directors of ImagicTV and
its affiliates. Options granted under the 1999 Plan have a maximum term of seven
years and an exercise price per share of no less than the fair market value of
the common shares as determined by the board of directors on the date of the
option grant. The options vest annually over four years. ImagicTV has reserved
3,511,825 common shares, for issuance under the 1999 Plan, provided that the
board of directors has the right to increase the number of shares reserved. The
stock options granted under the 1998 Plan are now administered under the 1999
Plan, retaining the number and exercise price of options originally issued but
adopting the term and vesting attributes of the new plan.

ImagicTV's board of directors adopted a new share option plan on November 9,
2000 (the "2000 Plan"). The 2000 Plan does not affect options granted under
its 1998 or 1999 Plans. No new options will be granted under the 1998 or 1999
Plans. The compensation committee of ImagicTV's board of directors administers
the 2000 Plan and determines, among other things, the persons eligible to
participate in the 2000 Plan and the vesting periods and other attributes of
individual options. The 2000 Plan provides for

                                       75
<PAGE>

                                 ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


the grant of options to employees, officers and directors of, and consultants
to, ImagicTV and its affiliates. ImagicTV may issue non-qualified stock options
or incentive stock options to U.S. residents under the 2000 Plan.

Options held by any person under the 2000 Plan, together with any new options
granted to that person, may not at any time exceed 5% of the aggregate number of
our common shares outstanding from time to time. The maximum number of shares
issuable under the 2000 Plan is 1,879,185. The options granted under the 2000
Plan will have a maximum term of 10 years and an exercise price no less than the
fair market value of ImagicTV's common shares on the date of the grant, or 110%
of fair market value in the case of an incentive stock option granted to an
employee who owns common shares having more than 10% of the combined voting
power of the shares outstanding.

Under the 2000 Plan, if a change of control of ImagicTV should occur, ImagicTV's
board of directors is permitted, without any action or consent required on the
part of any option holder, to, among other things, accelerate the vesting of all
options so that they become immediately exercisable.

A summary of the status of ImagicTV's options as of February 28, 2001 is as
follows:

<TABLE>
<CAPTION>
                                                                 WEIGHTED AVERAGE
                                                            REMAINING CONTRACTUAL LIFE          NUMBER OF OPTINS
      EXERCISE PRICES             NUMBER OF OPTIONS                   (YEARS)                      EXERCISABLE
=================================================================================================================
<S>                               <C>                       <C>                                 <C>
          $ 0.56                        671,979                       4.02                            429,084
            0.89                        796,049                       5.17                            226,924
            1.10                        104,728                       5.65                             26,185
            1.54                      1,207,225                       6.08                            122,476
            2.94                        368,276                       6.95                                291
            7.38                        279,195                       6.79                                  -
           11.17                        137,887                       6.47                                  -
-----------------------------------------------------------------------------------------------------------------

                                      3,565,339                       5.64                            804,960
=================================================================================================================
</TABLE>

The following table summarizes options issued:

<TABLE>
<CAPTION>
                                  FEBRUARY 28, 1999                     FEBRUARY 29, 2000                 FEBRUARY 28, 2001
====================================================================================================================================
                                               WEIGHTED                          WEIGHTED                             WEIGHTED
                            NUMBER OF           AVERAGE        NUMBER OF          AVERAGE           NUMBER OF          AVERAGE
                             OPTIONS       EXERCISE PRICE       OPTIONS        EXERCISE PRICE        OPTIONS       EXERCISE PRICE
====================================================================================================================================
<S>                         <C>            <C>                 <C>             <C>                  <C>            <C>
 Outstanding, beginning
  of period                  378,170            $0.60            849,428          $  0.64            2,188,155          $0.96
 Granted                     471,258             0.69          1,399,234             1.21            1,588,903           3.51
 Cancelled                         -                -            (60,507)            0.91             (190,337)          2.30
 Exercised                         -                -                                                  (21,382)          0.80
 Outstanding, end            849,428            $0.64          2,188,155          $  0.96            3,565,339          $2.02
    of period
====================================================================================================================================
 Options exercisable,         94,543            $0.57            295,205          $  0.63            804,960            $0.82
    end of period
</TABLE>

                                       76
<PAGE>


                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


To February 28, 2001, all stock options have been granted to employees, officers
and directors of ImagicTV. ImagicTV recorded deferred stock-based compensation
relating to options issued under ImagicTV's option plan amounting to $3,220,000
for the year ended February 28, 2001. Amortization of deferred stock-based
compensation amounted to $550,000 for the same period and has been recorded as
an operating expense during this period.

6. INCOME TAXES:

The provision for income taxes differs from the amount computed by applying the
statutory income tax rate to loss before provision for income taxes.  The
sources and tax effects of the differences are as follows (in thousands):

<TABLE>

                                                             YEAR ENDED                 YEAR ENDED                YEAR ENDED
                                                            FEBRUARY 29,                FEBRUARY 29,              FEBRUARY 28,
                                                                1999                       2000                      2001
==============================================================================================================================
<S>                                                         <C>                         <C>                       <C>
Statutory rate applied to loss before
    provision for income taxes                                $(1,414)                  $ (2,583)                   $(5,157)
Adjustments resulting from:
Taxable portion related to capital
    transaction                                                   856                          -                          -
Stock-based compensation not deducted
   for tax                                                          -                          -                        249
Large Corporation Tax                                              17                         44                         24
Other                                                             134                         62                         62
------------------------------------------------------------------------------------------------------------------------------
                                                                 (407)                    (2,477)                    (4,822)
Unrecognized benefit of net operating losses
   carried forward and timing differences                         424                      2,521                      4,846
------------------------------------------------------------------------------------------------------------------------------
Income taxes                                                  $    17                   $     44                   $     24
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Significant components of ImagicTV's deferred tax assets are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                       AS OF                     AS OF
                                                                                    FEBRUARY 29,              FEBRUARY 28,
                                                                                        2000                      2001
============================================================================================================================
<S>                                                                                 <C>                       <C>
Research and development expenses
   deferred for income tax purposes                                                  $  1,354                  $   3,911
Net operating losses carried forward                                                    1,674                      4,674
----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets                                                                     3,028                      8,585
Less valuation allowance                                                               (2,964)                    (7,825)
----------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset                                                                     64                        760
Deferred tax liability                                                                    (64)                      (760)
----------------------------------------------------------------------------------------------------------------------------
                                                                                     $      -                  $       -
============================================================================================================================
</TABLE>

                                       77
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


In addition to the above, to the extent that ImagicTV is able to utilize the
research and development expenses that have been deferred for income tax
purposes to reduce taxable income, ImagicTV will have available investment tax
credits of approximately $345,000 as at February 29, 2000 and $2,251,000 as at
February 28, 2001 that would be available to reduce income taxes otherwise
payable and which begin expiring in 2010.

Except as indicated in the table and paragraph above, at each of the financial
reporting dates, ImagicTV had no available taxable or deductible temporary
differences due to differences between carrying value for accounting purposes
and basis for tax purposes.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income, uncertainties related to the industry in which
ImagicTV operates, and tax planning strategies in making this assessment. In
order to fully realize the deferred tax assets, ImagicTV will need to generate
future taxable income of approximately $19,000,000 prior to the expiration of
the net operating losses carried forward. Due to the uncertainties related to
the industry in which ImagicTV operates and the uncertainty of generating
taxable income prior to the expiration of losses carried forward, the tax
benefit of the above carryforward amounts have been completely offset by a
valuation allowance.

In accordance with income tax law in Canada, research and development expenses
may be deducted in periods subsequent to the period incurred. The amounts set
out in the table above represent research and development expenses in the
consolidated statement of operations that will be deductible in future years for
income tax purposes. The amounts do not represent taxation benefits renounced to
NBTel and 506NB as part of the funding arrangement discussed in note 5(b)(iv).

Under the terms of the research and development arrangement between ImagicTV and
NBTel and 506NB described in note 5(b)(iv), investment tax credits that would,
subject to certain restrictions, have become available to ImagicTV were
renounced by ImagicTV and became available to NBTel and 506NB. The renounced
investment tax credits aggregated approximately $374,000. If ImagicTV had not
renounced its rights to these investment tax credits, the dollar value of
benefits available as deferred tax assets would have increased, and this
increase would have been offset by a corresponding increase in the allowance
provision.

As of February 28, 2001, ImagicTV had approximately $10,364,000 of operating
losses carried forward available to reduce future years' taxable income in
Canada. These losses and deductions expire as follows: 2005- $40,000; 2006-
$898,000; 2007-$2,619,000; 2008-$6,807,000.

7. SEGMENTED INFORMATION:

ImagicTV operates in a single reportable operating segment, that is, to provide
software products to telecommunications companies and other service providers
that enable the delivery of digital broadcast television services to residential
subscribers over high-speed Internet Protocol networks. The single reportable
operating segment derives its revenues from the sale of software and related
services. As of February 28, 2001, substantially all assets related to
ImagicTV's operations were located in Canada.

                                       78
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


Revenues are attributable to geographic location based on the location of the
customer, as follows (in thousands):

<TABLE>
<CAPTION>
                                               YEAR ENDED                 YEAR ENDED                YEAR ENDED
                                              FEBRUARY 29,               FEBRUARY 29,              FEBRUARY 28,
                                                 1999                       2000                      2001
===============================================================================================================
<S>                                           <C>                        <C>                       <C>
Revenue by geographic location:

 Canada                                          $ 479                      $1,362                   $ 3,757
  United States                                      -                           -                     3,699
  Europe                                             -                         736                     1,543
---------------------------------------------------------------------------------------------------------------
                                                 $ 479                      $2,098                   $ 8,999
===============================================================================================================
</TABLE>

For the year ended February 28, 2001, Aliant Inc. accounted for approximately
27.9% of total revenues. In addition, two other customers accounted for 17.5%
and 10.2% of total revenues. In the year ended February 29, 2000, NBTel
accounted for 38% of total revenues. In addition, two other customers accounted
for 31% and 16% of total revenues. NBTel accounted for 97% of total revenues in
the year ended February 28, 1999.

8. RELATED-PARTY TRANSACTIONS:

The nature of the related-party transactions is summarized below:

(a) NBTel and Aliant Inc.:

On April 16, 1999, ImagicTV entered into a licensing agreement with NBTel,
whereby NBTel received a perpetual, non-exclusive license to use ImagicTV's
product in the Province of New Brunswick for cash consideration of C$500,000
($334,000), and future one-time royalty payments based on the number of NBTel
subscribers to the service. On December 16, 1999, the NBTel license agreement
was assigned to Aliant Inc. (the parent company of NBTel) and was amended to
include a license for the pcVu product and to expand the geographic territory of
the license to include the provinces of Nova Scotia, Prince Edward Island and
Newfoundland on an exclusive basis in these provinces. ImagicTV received
consideration amounting to C$900,000 ($610,000) payable as to C$500,000 on
January 31, 2000 and C$200,000 payable on each of January 31, 2001 and 2002. On
January 16, 2001, the license agreement was further amended to include a sale of
40,000 subscriber-based license fees for C$3,200,000, payable in non-refundable
instalments of C$1,600,000 on January 16, 2001 and C$1,600,000 on February 28,
2002.

The initial license agreement dated April 16, 1999 included multiple elements
including the delivery of DTV Manager version 1.0 and DTV Manager version 2.0,
installation and maintenance and support. For accounting purposes, the entire
non-refundable cash consideration was allocated to the various elements based on
the specific evidence of their values. DTV Manager version 1.0 was delivered
shortly after the execution of the agreement. DTV Manager version 2.0 was not
available for delivery at that time. The license fee revenue was deferred until
November 1999, the date at which ImagicTV delivered and installed DTV Manager
version 2.0. The maintenance fee is being recognized on a straight line basis
over the term of the maintenance contract. The future one-time royalty payments
based on net new subscribers are recognized as earned.

                                       79
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


Of the additional C$900,000 in consideration to be received in connection with
the Aliant Inc. amendment, C$500,000 was recognized as revenue upon the delivery
of pcVu in February 2000, C$200,000 was recognized as revenue when it became due
on January 16, 2001 and the remaining C$200,000 will only be recognized as
revenue when the amount becomes due.

Of the C$3,200,000 for the sale of 40,000 subscriber based licence fees,
C$1,600,000 was recognized in February 2001 as it became due and the C$1,600,000
due on February 28, 2002 will only be recognized as revenue when the amount
becomes due.

ImagicTV also sells set-top boxes, at little or no mark-up, to NBTel and Aliant
for distribution to their subscribers. Revenue related to the sale of set-top
boxes to NBTel amounted to $1,039,000 for the year ended February 28, 2001, and
$180,000 for the year ended February 29, 2000 and $462,000 for the year ended
February 28, 1999.

ImagicTV reimburses NBTel for certain operating expenses incurred on its behalf,
including premises rent, communications, and corporate services.

(b) Newbridge Networks Corporation:

In November 1999, ImagicTV entered into an agreement with a shareholder,
Newbridge Networks Corporation ("Newbridge"), whereby Newbridge received a
license to use ImagicTV's product for demonstration purposes in exchange for
equipment supplied by Newbridge. The transaction was recorded at the fair value
of the equipment received from Newbridge amounting to $103,000. In connection
with this transaction, ImagicTV recorded license revenues in the same amount.

In February 2000, ImagicTV entered into an amendment to the above agreement
which provides Newbridge with additional licenses to use ImagicTV's product for
demonstration purposes. The term of the additional site licenses was one year,
expiring on February 7, 2001. As of February 28, 2001, ImagicTV has sold
additional licenses to Newbridge for aggregate cash consideration of $40,000 of
which $40,000 has been recognized.

In June 2000, ImagicTV provided Newbridge with a 90-day trial license for
$17,000 which was used for demonstration purposes. As of February 28, 2001, the
$17,000 has been recognized.

ImagicTV has also supplied Newbridge with set-top boxes at little or no mark-up
above cost.

(c) America Online, Inc. and Cisco Systems, Inc.:

In October 2000, ImagicTV entered into a memorandum of understanding with
America Online to develop custom applications for them. Specifically, ImagicTV
agreed to provide America Online with up to $3,000,000 in research and
development services, calculated at ImagicTV's commercial rates for consulting
and development services and based on pricing and other terms no less favorable
than that received by any third party. Of this amount, ImagicTV is obligated to
expend $500,000 to conduct investigative research and development to be
specified by the parties.

The obligation to perform the remaining $2,500,000 in services for continued
research and development is contingent upon America Online entering into a trial
or commercial license with ImagicTV for its software. While, at the date of the
memorandum of understanding, ImagicTV had not entered into any

                                       80
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


licensing arrangements or agreements with America Online and the memorandum of
understanding does not contain any contractual commitment that would require
ImagicTV to license its software to America Online, it would be in ImagicTV's
commercial interest to do so. ImagicTV cannot, however, assure that it will
enter into a license agreement with America Online, nor can it predict the
extent or nature of any future licensing or other revenues or other funding for
services from America Online. As with the commitment to provide $500,000 in
research and development services, America Online and ImagicTV are to negotiate
in good faith the ownership and licensing rights of the intellectual property
resulting from the future research and development related to this contingent
obligation prior to the commencement of the development activities. At the date
of the memorandum of understanding, and as at the date of the financial
statements, ImagicTV had not entered into any agreements in this regard with
America Online.

The common shares issued to America Online note 5(b)(xi) do not contain any
terms or conditions, including any put or redemption rights, that would cause
ImagicTV to repay or refund any of the proceeds received for the common shares
sold to America Online. There also are no contractual or other agreements that
provide America Online with a right to sell the shares back to ImagicTV or to
cause ImagicTV to repay or refund any of the $3,000,000 received for the shares
for any reason, including ImagicTV's failure to perform under the memorandum of
understanding. Moreover, there are no contractual commitments that would require
ImagicTV to pay or refund any of the $3,000,000 received for the shares for any
reason, including ImagicTV's failure to perform under the memorandum of
understanding. Moreover, there are no contractual commitments that would require
ImagicTV to pay or refund America Online any cash or other consideration if
America Online fails to take advantage of ImagicTV's commitment to provide
services under the memorandum of understanding.

In connection with ImagicTV's private placement to Cisco Systems, it granted
Cisco Systems a right of first negotiation. Pursuant to this right of first
negotiation, if ImagicTV's board of directors receives a bona fide offer to
acquire ImagicTV or all or substantially all of ImagicTV's assets from any of
three specified entities, or if ImagicTV's board of directors votes to initiate
a sale to any of these three specified entities of 25% or more of ImagicTV's
total voting equity or all or substantially all of ImagicTV's assets, ImagicTV
must, within 24 hours, give Cisco Systems notice of the terms of the sale
proposal. After ImagicTV delivers this notice, Cisco Systems will have ten days
to submit a proposal to ImagicTV's board of directors to acquire ImagicTV at a
price to be set out in the proposal. In effect, under the limited circumstances
described above, Cisco Systems has been granted an option to make an offer to
acquire ImagicTV. If ImagicTV's board of directors decides to pursue Cisco
Systems' proposal, ImagicTV has agreed to negotiate in good faith exclusively
with Cisco Systems for a period of ten days. However, (a) if Cisco Systems does
not submit a proposal within ten days of receipt of ImagicTV's notice, (b) if
Cisco Systems' proposal is not pursued by ImagicTV's board of directors or (c)
if Cisco Systems and ImagicTV fail to mutually agree on the terms of a
transaction, then the right of first negotiation expires as to that proposal,
and ImagicTV can negotiate and enter into a definitive agreement with the entity
that made the initial proposal. Further, this right of first negotiation
terminates (1) in the event that Cisco Systems owns less than 50% of the common
shares it purchased on October 6, 2000 or (2) upon the date of the closing of
the acquisition of all or substantially all of ImagicTV's assets or an
acquisition of ImagicTV by another entity in which the holders of ImagicTV's
outstanding voting equity immediately prior to the transaction own, immediately
after the transaction, securities representing less than 50% of the voting
equity of the surviving entity. The current financing arrangements with Cisco
Systems do not include any research and development, marketing, licensing,
future financing or similar arrangements.

                                       81
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)



(d) Innovatia Inc.:

In December 2000, ImagicTV entered into an agreement with Innovatia Inc., a
wholly owned subsidiary of Aliant Inc. According to this agreement, Innovatia is
to provide ImagicTV with consulting services by utilizing Innovatia's Living Lab
environment to assist in the development, marketing and sale of ImagicTV
products and create an environment in the Living Lab for ImagicTV to test new
services in a production environment. ImagicTV's commitment is to pay C$50,000
per month from the date of this agreement to May 31, 2001 with the option to
renew for a further 6 months.  For the year ended February 28, 2001, ImagicTV
has recorded an expense of C$150,000 in relation to this agreement.

The following table summarizes the related party transactions and balances (in
thousands):

<TABLE>
<CAPTION>
                                                         YEAR ENDED              YEAR ENDED                 YEAR ENDED
                                                        FEBRUARY 29,            FEBRUARY 29,               FEBRUARY 28,
                                                            1999                    2000                       2001
=======================================================================================================================
<S>                                                     <C>                     <C>                        <C>
Related party transactions:
 Revenues
  License fees                                        $        -                  $ 671                     $  116
  Services                                                     -                    110                        168
  Royalty fees                                                 -                      -                      1,249
  Equipment                                                  462                    205                      1,052
Operating Expenses                                           165                    469                        805
Interest income                                                -                     87                          -
</TABLE>


<TABLE>
<CAPTION>
                                                                                   AS OF                     AS OF
                                                                                FEBRUARY 29,               FEBRUARY 28,
                                                                                    2000                      2001
=======================================================================================================================
<S>                                                                             <C>                        <C>
Related party balances:

 Accounts receivable trade                                                      $   749                     $1,440
  Deferred revenues                                                                 705                         27
  Accounts payable                                                                  324                        850
</TABLE>

9. EARNINGS PER SHARE:


Earnings per share has been calculated based on the weighted average number of
common shares outstanding. Due to the net loss for all periods presented, all
potential common shares outstanding are considered anti-dilutive and are
excluded from the calculation of diluted loss per share. Common shares that
could potentially dilute basic loss per share in the future, not included in the
computation of diluted loss per share because to do so would have been anti-
dilutive, amounted to 3,565,339 for the period ended February 28, 2001.

                                       82
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


10. COMMITMENTS:

Future minimum lease payments under non-cancellable operating leases for
premises are as follows (in thousands):


                                                          AS OF
                                                       February 28
                                                           2001
 ==============================================================
     2002                                                 $ 751
     2003                                                   264
     2004                                                   273
     2005                                                   278
     2006                                                   189
     2007 and thereafter                                     14


Included in the lease commitments above are amounts related to an operating
lease with a shareholder, NBTel, for office premises. The lease expired on
February 28, 2001 and the company exercised its renewal option of one year.
Rental expense under this lease amounted to $250,000 for the year ended February
28, 2001, $270,000 for the year ended February 29, 2000, and $92,000 for the
year ended February 28, 1999.

On January 31, 2001 ImagicTV signed an agreement with Atom Corporation which
specifies that Atom will develop a one-time package of demo films for a 12 month
period from the effective date of the agreement and a monthly package of service
films for a 12 month period beginning March 1, 2001. ImagicTV's commitment
consists of non-refundable payments of $50,000 and $25,000 per month for a 12
month period.

11. CANADIAN AND U.S. ACCOUNTING POLICY DIFFERENCES:

The consolidated financial statements of ImagicTV have been prepared in
accordance with generally accepted accounting principles ("GAAP") as applied
in Canada. There are no material measurement differences between Canadian GAAP
and U.S. GAAP that apply to the consolidated financial statements. Additional
disclosures required under U.S. GAAP include the following:

(a) Accrued liabilities:

U.S. GAAP requires the disclosure of accrued liabilities that exceed 5% of
current liabilities.

Included in accrued liabilities at February 28, 2001 are accrued vacation pay
expenses of $302,000 and accrued initial public offering costs of $1,401,000. At
February 29, 2000 vacation pay expenses of $129,000 were included in accrued
liabilities.

(b) Impairment in long-lived assets:

As described in note 1(f), under Canadian GAAP the amount of a write down in
capital assets is calculated by reference to undiscounted future cash flows.
Under U.S. GAAP, where the undiscounted future cash flows are less than the
carrying value of capital assets, the write down is measured as the excess of
the carrying value over the fair value of the assets. In this case, fair value
may be calculated by reference to a discounted cash flow model. As to date
ImagicTV has not recorded a write down under

                                       83
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


Canadian GAAP, no difference due to the application of Canadian or U.S.
accounting principles has arisen.

(c) Recent accounting pronouncements:

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. To date, ImagicTV has not entered into derivative instruments.
Management believes the adoption of SFAS No. 133 will not have a material effect
on ImagicTV's financial position or results of operations.

(d) SFAS 123 pro forma information:

SFAS No. 123, "Employee Stock Compensation" encourages, but does not require,
the recording of compensation costs related to stock options granted to
employees to be valued at fair value. For companies choosing not to adopt the
fair value measurement for stock-based compensation, the pronouncement requires
the disclosure of pro forma net income and net income (loss) per share
information as if ImagicTV had accounted for its stock options issued under the
fair value method. ImagicTV has elected not to adopt the recording of
compensation cost for employee stock options at fair value and, accordingly, a
summary of the pro forma impact on the statement of operations is presented in
the table below (in thousands of dollars, except per share amounts):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED                YEAR ENDED            YEAR ENDED
                                                                FEBRUARY 29,              FEBRUARY 29,          FEBRUARY 28,
                                                                   1999                      2000                  2001
================================================================================================================================
<S>                                                             <C>                       <C>                   <C>
Net loss                                                        $ (3,068)                 $ (5,646)               $ (11,458)
Compensation expense related to the fair value
   of stock options                                                  (27)                      (69)                    (160)
--------------------------------------------------------------------------------------------------------------------------------
Pro forma net loss                                              $ (3,095)                 $ (5,715)               $ (11,618)
================================================================================================================================
Pro forma net loss per share                                    $  (0.58)                 $  (0.41)               $   (0.59)
================================================================================================================================
</TABLE>

The fair value of each option granted prior to the Company becoming a publicly
traded company has been estimated at the date of grant using the minimum value
method and by applying the following assumptions: weighted average risk-free
interest rate of 5.18% for the year ended February 28, 1999; 5.76% for the year
ended February 29, 2000; and 5.88% for the year ended February 28, 2001;
dividend yield of 0%; and expected terms equal to the option vesting period.

The fair value of each option granted between the date the Company became a
publicly traded company and February 28, 2001 has been estimated at the date of
grant using the Black-Scholes option pricing model with the following
assumptions used: dividend yield of 0%, expected volatility at 109%, risk-free
rate of return of 5.88% and expected terms equal to the option vesting period.

                                       84
<PAGE>

                                 ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)


ImagicTV has assumed no forfeiture rate, as adjustments for actual forfeitures
are made in the year they occur. The weighted average grant date fair value of
options issued was $0.17, $0.19 and $0.37, for the years ended February 28,
1999, February 29, 2000, and February 28, 2001 respectively.

(e) Comprehensive Income:

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), which establishes standards
for reporting and presentation of comprehensive income. This standard defines
comprehensive income as the changes in equity of an enterprise, except those
resulting from shareholder transactions. For the year ended February 28, 1999,
February 29, 2000 and February 28, 2001 the difference between net loss and
comprehensive loss arises solely from reporting currency translation
adjustments. As a result, total comprehensive loss amounted to $3,054,000 for
the year ended February 28, 1999; $5,618,000 for the year ended February 29,
2000; $12,025,000 for the year ended February 28, 2001.

                                       85
<PAGE>

ITEM 19.    EXHIBITS

     Documents filed as exhibits to this annual report:

     1.1  Articles of Incorporation of ImagicTV Inc. filed December 24, 1997 (as
amended on June 30, 1998 and November 27, 2000) (incorporated by reference to
Exhibit 3.1 to our registration statement on Form F-1 filed on October 23, 2000
(Registration No. 33-48452) (the "Registration Statement")).

     1.2  Bylaws of ImagicTV Inc. (incorporated by reference to Exhibit 3.4 to
the Registration Statement).

     4.1  Employee Share Option Plan (incorporated by reference to Exhibit 10.1
of the Registration Statement).

     4.2  Form of Share Option Agreement with respect to the Employee Share
Option Plan (incorporated by reference to Exhibit 10.2 of the Registration
Statement).

     4.3  Form of 2000 Share Option Plan (incorporated by reference to Exhibit
10.3 of the Registration Statement).

     4.4  Loan between Newbridge Networks Corporation and ImagicTV Inc.
(incorporated by reference to Exhibit 10.4 of the Registration Statement).

     4.5  Technology Transfer Agreement, dated January 1, 1998, between ImagicTV
Inc. and The New Brunswick Telephone Company, Ltd. (incorporated by reference to
Exhibit 10.5 of the Registration Statement).

     4.6  Technology Transfer Option Agreement, dated January 5, 1998, between
ImagicTV Inc., 506048 N.B. Ltd. And The New Brunswick Telephone Company, Ltd.
(incorporated by reference to Exhibit 10.6 of the Registration Statement).

     4.7  Development Agreement, dated January 5, 1998, between ImagicTV Inc.,
506048 N.B. Ltd and the New Brunswick Telephone Company, Ltd. (incorporated by
reference to Exhibit 10.7 of the Registration Statement).

     4.8  Licensing Agreement, dated April 19, 1999, between ImagicTV and The
New Brunswick Telephone Company, Ltd., together with a Novation and Amendment
Agreement to Licensing Agreement and Set-Top Box Supply and Software Licensing
Agreement, dated December 16, 1999, between ImagicTV Inc., NBTel and Aliant
Telecom Inc. (incorporated by reference to Exhibit 10.8 of the Registration
Statement).

     4.9  Executive Employment Agreement, dated July 26, 2000, between iMagicTV
and Marcel LeBrun (incorporated by reference to Exhibit 10.9 of the Registration
Statement).

     4.10 Executive Employment Agreement, dated July 14, 2000, between ImagicTV
and Marjean Henderson (incorporated by reference to Exhibit 10.10 of the
Registration Statement).

     4.11 Executive Employment Agreement, dated July 26, 2000, between ImagicTV
and Allan Cameron (incorporated by reference to Exhibit 10.11 of the
Registration Statement).

                                       86
<PAGE>


     4.12 Executive Employment Agreement, dated July 26, 2000, between ImagicTV
and Gerry Verner (incorporated by reference to Exhibit 10.13 of the Registration
Statement).

     4.13 Form of Management Option Agreement (incorporated by reference to
Exhibit 10.14 of the Registration Statement).

     4.14 Share Subscription Agreement, as amended, made as of September 29,
2000, between ImagicTV Inc. and America Online, Inc. (incorporated by reference
to Exhibit 10.15 of the Registration Statement).

     4.15 Share Subscription Agreement, as amended, made as of September 29,
2000, between ImagicTV Inc. and Cisco Systems, Inc., including separate Board
Observation Rights and Right of First Negotiation Letter, made as of the same
date (incorporated by reference to Exhibit 10.16 of the Registration Statement).

     4.16 Form of Share Purchase Warrant (incorporated by reference to Exhibit
10.17 of the Registration Statement).

     8.0 Subsidiaries of ImagicTV Inc. (incorporated by reference to Exhibit
21.1 to the Registration Statement).

     10.1 Consent of KPMG LLP.

                                   SIGNATURE

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

Dated: July 18, 2001

ImagicTV Inc.

Per: /s/ Marcel LeBrun
     Marcel LeBrun, President and Chief Executive Officer

                                       87
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
NUMBER                                             Description of Document
------                                             -----------------------
<S>        <C>
1.1        Articles of Incorporation of ImagicTV Inc. filed December 24, 1997 (as amended on June 30, 1998 and
           November 27, 2000) (incorporated by reference to Exhibit 3.1 to our registration statement on Form F-1
           filed on October 23, 2000 (Registration No. 33-48452) (the "Registration Statement")).
1.2        Bylaws of ImagicTV Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement).
4.1        Employee Share Option Plan (incorporated by reference to Exhibit 10.1 of the Registration Statement).
4.2        Form of Share Option Agreement with respect to the Employee Share Option Plan (incorporated by
           reference to Exhibit 10.2 of the Registration Statement).
4.3        Form of 2000 Share Option Plan (incorporated by reference to Exhibit 10.3 of the Registration
           Statement).
4.4        Loan between Newbridge Networks Corporation and ImagicTV Inc. (incorporated by reference to Exhibit
           10.4 of the Registration Statement).
4.5        Technology Transfer Agreement, dated January 1, 1998, between ImagicTV Inc. and The New Brunswick
           Telephone Company, Ltd. (incorporated by reference to Exhibit 10.5 of the Registration Statement).
4.6        Technology Transfer Option Agreement, dated January 5, 1998, between ImagicTV Inc., 506048 N.B. Ltd.
           And The New Brunswick Telephone Company, Ltd. (incorporated by reference to Exhibit 10.6 of the
           Registration Statement).
4.7        Development Agreement, dated January 5, 1998, between ImagicTV Inc., 506048 N.B. Ltd and the New
           Brunswick Telephone Company, Ltd. (incorporated by reference to Exhibit 10.7 of the Registration
           Statement).
4.8        Licensing Agreement, dated April 19, 1999, between ImagicTV and The New Brunswick Telephone Company,
           Ltd., together with a Novation and Amendment Agreement to Licensing Agreement and Set-Top Box Supply
           and Software Licensing Agreement, dated December 16, 1999, between ImagicTV Inc., NBTel and Aliant
           Telecom Inc. (incorporated by reference to Exhibit 10.8 of the Registration Statement).
4.9        Executive Employment Agreement, dated July 26, 2000, between iMagicTV and Marcel LeBrun (incorporated
           by reference to Exhibit 10.9 of the Registration Statement).
4.10       Executive Employment Agreement, dated July 14, 2000, between ImagicTV and Marjean Henderson
           (incorporated by reference to Exhibit 10.10 of the Registration Statement).
4.11       Executive Employment Agreement, dated July 26, 2000, between ImagicTV and Allan Cameron (incorporated
           by reference to Exhibit 10.11 of the Registration Statement).
4.12       Executive Employment Agreement, dated July 26, 2000, between ImagicTV and Gerry Verner (incorporated
           by reference to Exhibit 10.13 of the Registration Statement).
4.13       Form of Management Option Agreement (incorporated by reference to Exhibit 10.14 of the Registration
           Statement).
4.14       Share Subscription Agreement, as amended, made as of September 29, 2000, between ImagicTV Inc. and
           America Online, Inc. (incorporated by reference to Exhibit 10.15 of the Registration Statement).
4.15       Share Subscription Agreement, as amended, made as of September 29, 2000, between ImagicTV Inc. and
           Cisco Systems, Inc., including separate Board Observation Rights and Right of First Negotiation
           Letter, made as of the same date (incorporated by reference to Exhibit 10.16 of the Registration
           Statement).
4.16       Form of Share Purchase Warrant (incorporated by reference to Exhibit 10.17 of the Registration
           Statement).
8.0        Subsidiaries of ImagicTV Inc. (incorporated by reference to Exhibit 21.1 to the Registration
           Statement).
10.1       Consent of KPMG LLP.
</TABLE>

                                       i
[{"type": "20-F", "sequence": "1", "filename": "d20f.txt", "description": "ANNUAL INFORMATION FORM", "secsgml_size_bytes": 336918}]
{"company-data": {"conformed-name": "IMAGICTV INC", "cik": "0001123713", "assigned-sic": "7373", "irs-number": "000000000", "fiscal-year-end": "0228"}, "filing-values": {"form-type": "20-F", "act": "34", "file-number": "000-31943", "film-number": "1683829"}, "business-address": {"street1": "ONE BRUNSWICK SQUARE", "street2": "14TH FLOOR, NEW BRUNSWICK, CANADA", "phone": "5066313000"}}
As filed with the Securities and Exchange Commission on July 18, 2001

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 20-F

[_]       REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
          SECURITIES EXCHANGE ACT OF 1934

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2001

[_]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the transition period from _____ to _____

          Commission file number:     0-31943
                                    ----------------------------------
                                 ImagicTv Inc.
            ------------------------------------------------------
            (Exact name of Registrant as specified in its charter)

                                Not applicable
            ------------------------------------------------------
                (Translation of Registrant's name into English)

                                    Canada
            ------------------------------------------------------
                (Jurisdiction of incorporation or organization)

                    One Brunswick Square, 14th Floor, Saint John,
                          New Brunswick, Canada E2L 3Y2
            ------------------------------------------------------
                   (Address of principal executive offices)

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

                                     None
            ------------------------------------------------------
        Securities registered or to be registered pursuant to Section 12(g)
        of the Act.
                          Common shares, no par value
            ------------------------------------------------------
        Securities for which there is a reporting obligation pursuant to
        Section 15(d) of the Act.

                                     None
            ------------------------------------------------------

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

               24,592,624 Common Shares as of February 28, 2001
            ------------------------------------------------------

            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.

                             Yes   [X]     No  [_]

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

                         Item 17  [_]    Item 18   [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 Section 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  [_]
TABLE OF CONTENTS
Part I..............................................................................................      1
     ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..............................      1
     ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE............................................      1
     ITEM 3.     KEY INFORMATION....................................................................      1
                 A.     Selected Financial Data.....................................................      1
                 B.     Capitalization and Indebtedness.............................................      2
                 C.     Reasons for the Offer and Use of Proceeds...................................      2
                 D.     Risk Factors................................................................      3
     ITEM 4.     INFORMATION ON THE COMPANY.........................................................     12
                 A.     History and Development of the Company......................................     12
                 B.     Business Overview...........................................................     12
                 C.     Organizational Structure....................................................     29
                 D.     Property, Plants and Equipment..............................................     29
     ITEM 5.     OPERATING AND FINANCIAL REVIEWS AND PROSPECTS......................................     29
                 A. and B. Operating Results and Liquidity and Capital Resources....................     29
                 C.     Research and Development, Patents and Licenses, etc.........................     37
                 D.     Trend Information...........................................................     38
     ITEM 6.     DIRECTORS AND EXECUTIVE OFFICERS...................................................     38
                 A.     Directors and Management....................................................     38
                 B.     Compensation................................................................     41
                 C.     Board Practices.............................................................     45
                 D.     Employees...................................................................     46
                 E.     Share Ownership.............................................................     47
     ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................................     49
                 A.     Major Shareholders..........................................................     49
                 B.     Related Party Transactions..................................................     50
                 C.     Interests of Experts and Counsel............................................     52
     ITEM 8.     FINANCIAL INFORMATION..............................................................     52
                 A.     Consolidated Statements and Other Financial Information.....................     52
                 B.     Significant Changes.........................................................     52
     ITEM 9.     THE OFFER AND LISTING..............................................................     52
                 A.     Offer and Listing Details...................................................     52
                 B.     Plan of Distribution........................................................     53
                 C.     Markets.....................................................................     53
                 D.     Selling Shareholders........................................................     53
                 E.     Dilution....................................................................     53
                 F.     Expenses of the Issue.......................................................     53
     ITEM 10.    ADDITIONAL INFORMATION.............................................................     54
                 A.     Share Capital...............................................................     54
                 B.     Memorandum and Articles of Association......................................     54
                 C.     Material Contracts..........................................................     55
                 D.     Exchange Controls...........................................................     55
                 E.     Taxation....................................................................     55
                 F.     Dividends and Paying Agents.................................................     60
                 G.     Statement by Experts........................................................     60
                 H.     Documents on Display........................................................     60
i
I.     Subsidiary Information......................................................     61
     ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................     61
     ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............................     61

Part II.............................................................................................     61
     ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................................     61
     ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.......     61
                 A.     Use of Proceeds.............................................................     61
     ITEM 15.    [RESERVED].........................................................................     62
     ITEM 16.    [RESERVED].........................................................................     62

Part III............................................................................................     62
     ITEM 17.    FINANCIAL STATEMENTS...............................................................     62
     ITEM 18.    FINANCIAL STATEMENTS...............................................................     63
     ITEM 19.    EXHIBITS...........................................................................     86
     INDEX TO EXHIBITS..............................................................................      i
ii
PART I

     In this annual report, "ImagicTV," "the Company," "we," "us" and "our"
refer to ImagicTV Inc. and its subsidiaries.

     All financial information presented in this annual report is expressed in
U.S. dollars, except where indicated to the contrary. References to "$" or
"U.S.$" are to U.S. dollars and references to "C$" are to Canadian dollars.

     Unless we indicate otherwise, all information in this annual report is
stated as of July 12, 2001.

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This annual report contains forward-looking statements.  These statements
include statements under the headings "Risk Factors" in "Item 3. Key
Information", "Business Overview" in "Item 4. Information on the Company",
"Management's Discussion and Analysis" in "Item 5. Operating and Financial
Review and Prospects" and "Use of Proceeds" in "Item 14. Material Modification
to the Rights of Security Holders and Use of Proceeds" and elsewhere in this
annual report regarding conditions in the telecommunications industry, our
goals, our business model and plans, our efforts to develop and enhance our
products, our expected sources of revenue, our future costs and losses, our
capital requirements and the outlook for our business.  When used in this
document, the words "will," "plan," "anticipate," "expect," "intend," "believe"
and similar expressions are intended to identify forward-looking statements.
Such statements reflect our current views with respect to future events, are
based on information currently available to us and are subject to certain risks,
uncertainties and assumptions, including those discussed in "Risk Factors" in
"Item 3. Key Information."  These and other factors could cause our actual
results, performance or achievements to differ materially from any future
results, performance or achievements that may be expressed or implied by such
forward-looking statements.  These factors should be considered carefully, and
readers should not place undue reliance on the forward-looking statements.  We
do not undertake any obligation to update this forward-looking information.

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3.    KEY INFORMATION

A.   Selected Financial Data

     You should read the following selected consolidated financial data together
with the financial information set forth below under the heading "Management's
Discussion and Analysis" in "Item 5.  Operating and Financial Review and
Prospects" and our consolidated financial statements and the related notes
included in "Item 18.  Financial Statements."

     The consolidated statement of operations data for the fiscal years ended
February 28, 1999, February 29, 2000 and February 28, 2001 and the consolidated
balance sheet data as of February 29, 2000 and February 28, 2001 are derived
from, and are qualified by reference to, our consolidated financial

                                       1
statements which have been audited by KPMG LLP, Chartered Accountants, and are
included elsewhere in this annual report. The consolidated financial statements
are reported in U.S. dollars and are prepared in accordance with Canadian GAAP.
Differences between Canadian GAAP and U.S. GAAP are described in note 11 to the
consolidated financial statements. The consolidated statement of operations data
for the period from December 24, 1997 (inception) to February 28, 1998 and the
consolidated balance sheet data as of February 28, 1998 and February 28, 1999 is
derived from audited financial statements not included in this annual report.
The historical results below are not necessarily indicative of the results to be
expected for any future period.
Period from
                                                                    December 24, 1997            Year Ended
                                                                                              ----------------
                                                                     (inception) to      February 28,   February 29,   February 28,
                                                                    February 28, 1998        1999           2000           2001
                                                                    -----------------    ------------   ------------   ------------
                                                                          (in thousands of U.S. dollars, except per share amounts)
Consolidated Statement of Operations Data:
          Revenues:
            License fees......................................         $           --    $         --   $      1,384   $      4,770
            Royalty fees......................................                     --              --             --          1,288
            Services..........................................                     --              14            393          1,791
            Equipment.........................................                     --             465            321          1,150
                                                                       --------------    ------------   ------------   ------------
          Total revenues......................................                     --             479          2,098          8,999
          Cost of revenues:
            Services..........................................                     --              --            657          2,379
            Equipment.........................................                     --             604            331          1,068
                                                                       --------------    ------------   ------------   ------------
          Total cost of revenues..............................                     --             604            988          3,447
                                                                       --------------    ------------   ------------   ------------
          Gross profit (loss).................................                     --            (125)         1,110          5,552
          Operating expenses:
            Sales and marketing...............................                     18             543          2,325          7,763
            Research and development..........................                     66           2,014          4,084          7,967
            General and administrative........................                     26             344            827          2,815
                                                                       --------------    ------------   ------------   ------------
          Total operating expenses............................                    110           2,901          7,236         18,545
                                                                       --------------    ------------   ------------   ------------
          Loss from operations................................                   (110)         (3,026)        (6,126)       (12,993)
          Other income (expense), net.........................                     --             (25)           524          1,559
                                                                       --------------    ------------   ------------   ------------
          Loss before provision for income taxes..............                   (110)         (3,051)        (5,602)       (11,434)
          Provision for income taxes..........................                     --             (17)           (44)           (24)
                                                                       --------------    ------------   ------------   ------------
          Net loss--in accordance with Canadian and U.S.
           GAAP...............................................         $         (110)   $     (3,068)  $     (5,646)  $    (11,458)
                                                                       ==============    ============   ============   ============
          Basic and diluted net loss per share--in accordance
           with Canadian and U.S. GAAP........................         $        (0.05)   $      (0.57)  $      (0.40)  $      (0.58)
                                                                       ==============    ============   ============   ============
          Weighted average number of shares used in
           computing basic and diluted net loss per share
           (000's)............................................                  2,331           5,336         13,968         19,796
                                                                       ==============    ============   ============   ============
February 28,        February 28,   February 29,   February 28,
                                                                       1998                1999           2000           2001
                                                                   --------------      -------------   ------------   ------------
                                                                                   (in thousands of U.S. dollars)
Consolidated Balance Sheet Data:
          Cash and cash equivalents...........................      $         245        $       603   $      6,396   $      1,332
          Short-term investments..............................                 --                 --             --         59,428
          Working capital.....................................               (139)             1,852          6,154         62,807
          Total assets........................................                289              3,153          9,859         71,846
          Long-term debt......................................                 --                 --          1,737          1,577
          Total shareholder's equity..........................               (109)             2,493          5,706         64,200
B.   Capitalization and Indebtedness

     Not applicable.

C.   Reasons for the Offer and Use of Proceeds

     Not applicable.

                                       2
D.   Risk Factors

     An investment in our common shares involves a high degree of risk and
should be considered speculative. If any of the following risks occur, our
business, operating results and financial condition could be seriously harmed
and you could lose all or part of your investment. Further, if we fail to meet
the expectations of the public market in any given period, the market price of
our common shares could decline.

Risks Related to Our Financial Condition

We began operations in January 1998. This limited operating history and the fact
that our business is essentially dependent on one product, our DTV Manager
software, makes our business and prospects difficult to evaluate.

     We have a limited operating history on which to base your evaluation of our
business and prospects. We began our operations in January 1998 and did not
release a product until December 1998. Our present operations consist of
licensing our DTV Manager software, as well as our pcVu software and Movie
Manager software which work in conjunction with DTV Manager, to telephone
companies and other service providers, providing related services and further
developing our software products. As such, our business is essentially dependent
on our success in developing DTV Manager software and licensing it to service
providers. There is no significant historical basis to assess how we, as a
company in an early stage of development and whose business involves new and
rapidly developing technologies, will respond to competitive, economic and
technological challenges. If we fail to meet any of these challenges, our
operating results could suffer, and you could lose all or part of your
investment.

We incurred net losses of $11.5 million for the fiscal year ended February 28,
2001, we expect to continue to incur losses for the foreseeable future, and we
may never achieve or sustain profitability.

     Since our inception, we have not had a profitable quarter. We incurred net
losses of approximately $110,000 for the period from our inception on December
24, 1997 to February 28, 1998, $3.1 million for the fiscal year ended February
28, 1999, $5.6 million for the fiscal year ended February 29, 2000 and $11.5
million for fiscal year ended February 28, 2001. As of February 28, 2001, we had
an accumulated deficit of approximately $20.3 million. We expect to incur
significant operating expenses over the next several years. As a result of these
expenditures, we expect to incur further losses for the foreseeable future, and
we may never become profitable.

     To achieve profitability, we must generate and sustain substantially
increased revenues and control future expense levels. We forecast our future
expense levels based on our operating plans and on estimates of future revenues.
We may find it necessary to accelerate expenditures relating to our sales and
marketing efforts or otherwise increase our financial commitment to the
development of our products and services. If our revenues grow at a slower rate
than we anticipate, or if our spending levels exceed our expectations or cannot
be adjusted to reflect slower revenue growth, we may not achieve or sustain
profitability. If we fail to become profitable, the value of your investment in
our common shares could be significantly reduced.

                                       3
The time required to complete a license on a commercial basis can be
significant.  As a result, there may be significant fluctuations in our
quarterly operating results that could cause our share price to decline.

     We believe that the purchase of our DTV Manager, pcVu and Movie Manager
software and our related services involves a significant commitment of capital
and other resources by a telephone company or other service provider. In many
cases, the service provider's decision to offer services based on our software
products may require a service provider to change its established business
practices, to conduct its business in new ways and potentially to make
substantial upgrades to its infrastructure. As a result, we must educate service
providers on the use and benefits of our software products, which can require us
to commit significant time and resources without necessarily resulting in
revenues. In addition, service providers generally must consider a wide range of
other issues before committing to purchase our software products. Many potential
customers enter into trial license agreements with us in order to use our
software products on a trial basis. The success of these trials often determines
whether or not the potential customer licenses our software on a commercial
basis. Further, the telecommunications industry is experiencing a significant
reduction in capital spending which will likely result in a delay in the
substantial capital commitments associated with the commercial deployment of our
software. Potential customers may also need to obtain approval at a number of
management levels and one or more regulatory approvals, which may delay a
decision to purchase our software products.

     As a result of the foregoing, the time from an initial product
demonstration to a customer to the entering into of a commercial license with
the customer, may be significant.  In the past, our sales cycle has ranged from
six to 12 months and, in some instances, has been significantly longer. This
lengthy sales cycle limits our ability to forecast the timing and amount of
specific sales in a particular quarter and will likely continue to cause
significant fluctuations in our quarterly operating results. Because of these
fluctuations, we believe that neither our past performance nor period-to-period
comparisons of our operating results are, or will be, a good indication of our
future performance. If our operating results for a particular period fail to
meet analyst and investor expectations that are based on our past performance or
on period-to-period comparisons of our operating results, our share price could
decline.

If we cannot raise needed additional capital in the future, our business could
suffer.

     We expect that our cash position, as of May 31, 2001 will be sufficient to
meet our working capital requirements for approximately the next 24 months. In
the longer term, we may need to raise additional capital, which may not be
available on terms acceptable to us, if at all. If we cannot raise necessary
additional capital on acceptable terms, we may not be able to increase sales,
develop or enhance our products and services, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
any of which could cause our business to suffer.

Risks Related to Our Business and Industry

If service providers do not successfully deploy broadband technologies and
services, a market for our software products will not develop.

     Our software products can only be implemented over a broadband network.
Telephone companies and other service providers have only recently begun
offering broadband services such as xDSL. If a significant number of service
providers decides not to enter the broadband services market, the market for our
software products will not grow in the way we anticipate. Sales of our software
products largely depend on the increased use and widespread adoption of
broadband services and the ability of service providers to market and sell
broadband services, such as high-speed Internet access and multi-channel digital
television services, to residential subscribers.

                                       4
The telecommunications industry has suffered a significant slowdown in
recent months, and one can anticipate that there may be a reduction in the
number of our potential customers due to industry consolidation, financial
difficulties or other factors.  Even if service providers decide to deploy
broadband services, this deployment may not be successful. Service providers
have delayed deployments in the past and may delay deployments in the future.
Factors that could cause a service provider not to deploy, to delay deployment
of or to fail to successfully deploy the broadband services for which our
software products are designed include the following:

     .    the financial difficulty suffered by many service providers,
          particularly competitive local exchange carriers, in recent times;

     .    regulatory prohibitions, restrictions, uncertainties and delays;

     .    reduction in capital spending within the telecommunications industry;

     .    the quality of the service provider's network infrastructure and cost
          of infrastructure upgrades and maintenance;

     .    the inexperience of the service provider in providing broadband
          services and the lack of sufficient technical expertise and personnel
          to install products and implement services effectively; and

     .    the inability of the service provider to predict return on its
          investment in broadband-capable infrastructure and equipment.

     Unless service providers successfully deploy the infrastructure required to
provide broadband services to their subscribers, who are the ultimate consumers
of services based upon our software products, their networks will not be capable
of supporting our software products. If that deployment does not occur, a market
for our software products will not develop, and we will not be able to achieve
our business objectives and increase our revenues.

If service providers fail to deploy services based upon our software throughout
their service areas, our business will not grow.

     We generate revenues from initial license fees charged to our customers
based on the size of the geographic area under license, and from ongoing royalty
fees charged to customers on a per subscriber basis. As a result, our growth and
future success depend substantially on our ability to attract new customers and
to convince these customers to deploy services based upon our software products
to their subscribers throughout their service areas. We believe that many
service providers will be unwilling to commit to broad deployment of services
based on our products until they have completed trials of our products as well
as those of our competitors. Our ability to sell our software products will
depend principally on how successfully we can demonstrate to service providers
that:

     .    our software is reliable and capable of delivering service to a large
          number of subscribers without degradation of quality;

     .    subscribers will purchase multi-channel digital television and
          interactive media services based on our software at prices and in
          quantities that will justify the service provider's investment in our
          products and related services and in any necessary infrastructure
          upgrades;

                                       5
.    our software will remain compatible with industry standards and
          technology as they evolve; and

     .    our software will enable the service provider to sell new services to
          existing and new subscribers.

     We have licensed our software products to 10 customers in North America,
Europe and Asia. Of these customers, two telephone companies have launched
commercial services to subscribers, an additional three telephone companies and
one multiple dwelling unit service providers have licensed DTV Manager for
commercial deployment, and four other telephone companies have entered into a
trial license agreement. In addition, we have installed DTV Manager for limited
testing purposes on networks of 12 other service providers in North America,
Europe and Asia. None of our customers is contractually obligated to deploy,
market or promote services based on our software, nor is any of our customers
contractually required to achieve any specific introduction schedule.
Accordingly, even if a service provider initiates a consumer trial of services
based on our products, the service provider is under no obligation to continue
its relationship with us or to launch a full-scale deployment of services based
on our products in the geographic area under license or more broadly through its
service territories. If service providers determine that services based on our
products are not viable as a business proposition or if they determine that the
services do not meet their business or operational strategies, they may stop
using our software products to provide those services. If we are unable to sell
our products and services to a substantial number of additional service
providers or if our existing and any new customers fail to broadly deploy
services based on our software products, our growth prospects and revenues will
suffer.

If our customers are unable to attract and retain subscribers, our revenues will
suffer.

     Our customers' subscribers are the ultimate consumers of multi-channel
digital television and interactive media services based upon our software
products. We expect to derive a substantial portion of our future revenues from
royalties charged to our customers on a per subscriber basis. Accordingly, our
revenues will depend to a significant extent upon the number of subscribers to
whom our customers deliver multi-channel digital television and interactive
media services based upon our software products. The extent to which our
customers attract and retain subscribers will depend on, among other things,
their ability to effectively configure and package, competitively price and
effectively market their service offerings.

     Also, many of our customers will face competition from companies that offer
multi-channel digital television and interactive media services through
alternative technologies that are incompatible with our software products. These
alternative technologies include coaxial cable, some fixed wireless and
satellite technologies. Cable operators, in particular, are currently deploying
products that are capable of delivering voice, Internet and television services
over cable.

     We cannot assure you that our customers will succeed in attracting and
retaining a meaningful subscriber base that purchases services delivered through
our software products. If our customers are unable to attract and retain a
significant number of subscribers, our revenues will suffer, and we may never
become profitable.

Competitive products may reduce demand for our products and thus reduce the
value of your investment in our company.

     We compete directly with Next Level Communications, Inc., mPhase
Technologies, Inc., Myrio Corporation, Minerva Networks, Inc. and thirdspace,
which provide products and services that are competitive with all or part of our
products and related services. In addition, Liberate Technologies, an

                                       6
indirect competitor, provides technology and services relating to interactive
television. Competition in the market for software solutions for the delivery of
multi-channel digital television or interactive media services is significant
and will likely persist and intensify over time. We cannot predict that we will
obtain or maintain the market share or pricing levels that we need to become and
remain profitable. By using the same standards upon which our software products
are based, a competitor with sufficient resources could design and market a
similar product that competes directly with our software products. Some of our
competitors may develop some or all of the interactive media services that we
intend to develop and may sell these services to service providers for
deployment separately or in conjunction with our software products. This could
have a significant effect on our ability to expand the range of our product
offerings over time.

     Many of our existing and potential competitors have longer operating
histories, larger customer bases, greater brand name recognition and
significantly greater financial, technical, sales, marketing and other resources
than we have. If we are unable to continuously improve our software products and
if we cannot generate effective responses to our competitors' products, pricing
strategies, advertising campaigns, strategic partnerships and other initiatives,
sales of our products and our profit margins may suffer, and we may never become
profitable.

Three customers generated 56% of our revenues in fiscal 2001, and we expect to
continue to rely on a limited number of customers for a significant portion of
our revenues for the foreseeable future.

     In our first two years of operation, we derived a significant portion of
our revenues from only three customers. Since our target customer base is
primarily telephone companies and other service providers, excluding cable and
satellite network operators, we expect to continue to derive a significant
portion of our revenues from a limited customer base. In fiscal 1999, NBTel, a
subsidiary of Aliant, our largest shareholder, accounted for 97% of our
revenues. For fiscal 2000, NBTel, Kingston Vision and SaskTel, the incumbent
local exchange carrier in the Province of Saskatchewan, each accounted for more
than 10% of our revenues and together accounted for 85% of our revenues. For
fiscal 2001, NBTel, CenturyTel, a provider of integrated communication services
in 20 U.S. states, and Boardwalk Equities, an operator of multiple dwelling
units in Canada, each accounted for more than 10% of our revenues and together
accounted for 56% of our revenues. In particular, for fiscal 2001, NBTel
accounted for 28% of our total revenues and 19% of our revenues excluding
equipment sales, an activity from which we do not anticipate substantial future
revenues. For further information on our sources of revenue, see "Management's
Discussion and Analysis--Overview'' in "Item 5. Operating and Financial Review
and Prospects."  If new customers from our limited base of potential customers
do not license our software or if our existing and any new customers are not
successful in selling services based upon our software products to a significant
number of subscribers, we may never become profitable.

The failure of interactive television to gain broad market acceptance could
limit our potential growth and revenues.

     Our DTV Manager software enables service providers to deliver interactive
media services in addition to multi-channel digital television services. Some of
our anticipated growth depends, among other things, on the broad acceptance of
interactive television by industry participants, including broadcast and pay-
television networks and manufacturers of televisions and set-top boxes, and
their ability to successfully market interactive television to viewers and
advertisers. Interactive television is a relatively new and emerging business,
and we cannot guarantee that it will attract widespread demand or acceptance in
any of our markets. There have been several well-financed, high-profile attempts
in the United States to develop and deploy systems in the broad category of
interactive television. None of these attempts has resulted in large scale
deployment, and many key industry participants have avoided

                                       7
participating in interactive television. If interactive television fails to gain
market acceptance, subscriber growth may be adversely affected, and our ability
to generate revenues may be restricted.

If we fail to introduce new functionality in our products or if our new products
are unsuccessful, our growth prospects will be limited. We also may not recover
in revenues amounts we expend for research and development.

     We generate revenues from one-time license fees, royalties payable by
service providers on a per subscriber basis and fees for maintenance and
professional services. In order to generate long-term revenue growth and become
profitable, we believe we must continue to add new functionality to our
products. In many instances, this new functionality may require use of new
technologies and/or new industry standards. To meet this challenge, we must
obtain key contributions from programmers, product planners, technical
architects and other internal staff. We must also obtain proper information from
the marketplace, including our customers and industry analysts. Our failure to
meet this challenge in any way could limit our growth prospects. For example, we
have agreed to provide $500,000 of research and development services to America
Online with a view to developing custom applications relating to the
interoperability of our software with America Online's services. In addition, we
have agreed to provide an additional $2,500,000 of continued research and
development services if America Online licenses our DTV Manager software on a
trial basis or for commercial deployment. At the date of this annual report we
have not entered into any license agreement in this regard with America Online.
We cannot assure you, however, that any of these costs or any other costs that
we expend for research and development will result in the generation of any
revenues by us.

If we fail to develop and maintain relationships with industry participants, our
business could suffer.

     We rely and expect to continue to rely upon non-exclusive relationships
with a number of major participants in the telecommunications, computer and
software industries to ensure the interoperability of our software with their
hardware and software, such as network and encoder equipment, set-top boxes and
database software systems, and to market and jointly promote the sale of our
products with their products. Generally, our arrangements and formal agreements
with these industry participants are short-term or terminable on short notice.
Further, other industry relationships remain informal. We typically do not
receive any monetary compensation, in the form of revenues, referral fees or
otherwise, under these arrangements, and we typically do not directly generate
revenues from these arrangements. If the nature of these relationships changed
significantly, or if these relationships failed to evolve in ways consistent
with our business plan, our software would still operate with their third-party
hardware and software, but our ability to market and sell our software products
could suffer.

If we fail to properly manage our growth, our business will suffer.

     Our development activities and operations have expanded rapidly since our
operations began in January 1998. In fiscal 2001, the number of our employees
increased from approximately 110 to 216.  To manage our growth, we must
successfully implement, constantly improve and effectively utilize our
operational and financial systems. Our existing or planned operational and
financial systems may not be sufficient to support our potential growth, and our
management may not be able to effectively identify, manage and exploit existing
and emerging market opportunities. If our growth is not adequately managed, our
business will suffer.

                                       8
If we fail to hire and retain needed personnel, the implementation of our
business plan could slow or our future growth could halt.

     Competition for highly skilled technical, sales, marketing and support
personnel is intense because there are a limited number of people available with
the necessary technical skills, knowledge of the telecommunications industry and
understanding of the market. As our business grows, we plan to hire additional
technical support, sales and marketing personnel. Any failure to attract,
assimilate, train or retain qualified personnel to fulfil our current or future
needs could slow implementation of our business plan or halt our future growth.

     Our future success depends upon the continued services of our executive
officers who have critical industry experience and relationships that we rely on
to implement our business plan. Our executive officers are Marcel LeBrun,
President and Chief Executive Officer, Allan Cameron, Vice President of
Technology, Gerry Verner, Vice President of Marketing and Business Development
and Marjean Henderson, Vice President and Chief Financial Officer. The loss of
the services of any of these individuals could delay the development and
introduction of, and negatively impact our ability to sell, our products.

Currency exchange rate fluctuations could adversely affect our financial
results.

     Fluctuations in foreign exchange rates may affect our results of
operations, which in turn may adversely affect reported earnings and the
comparability of period-to-period results of operations. As our operations are
currently based in Canada, a significant portion of our expenses are in Canadian
dollars. However, a substantial part of our revenues is currently generated in
U.S. dollars, and we expect that a majority of our revenues for the foreseeable
future will be generated in U.S. dollars. If the Canadian dollar appreciates
against the U.S. dollar, our results of operations could be materially adversely
affected. Also, changes in foreign exchange rates may affect the relative prices
at which we and foreign competitors sell products in the same market.

Risks Related to Our Technology

If our software cannot support and manage a substantial number of users, demand
for our products and services will decline significantly.

     Our software relies on the large-scale use of Internet Protocol and, more
specifically, Internet Protocol multicast technology. Our customers' commercial
deployments to date have shown that our software can support the concurrent
delivery of multi-channel digital television and interactive media services to
approximately 10,000 subscribers. While we believe that our software, through
the use of Internet Protocol multicast technology, can support delivery of
multi-channel digital television and interactive media services to a
significantly larger number of customers without significant redesign or
expense, there is currently no large scale customer deployment of our software
products to support our belief. If our software's reliance on Internet Protocol
multicast technology significantly limits the ability of our customers to serve
their desired subscriber base, demand for our products and services will
decline, our ability to generate revenues will suffer, and we may incur
significant costs.

If suppliers do not continue to manufacture and make available products that
support our software, we may be unable to meet the demands of service providers.

     Although we have designed our software so that it can be adapted to work on
a number of different hardware and software platforms, we must modify our
software each time we adapt it to a new

                                       9
platform. At this time, our software operates only on the following server,
database and set-top box platforms:

     .    a Sun Microsystems server platform;

     .    an Oracle Corporation database platform; and

     .    a Pace Micro Technology plc or a Motorola set-top box platform.

     If the availability of these products becomes limited, or if the cost of
these products increases, we may be unable to meet, in a timely and cost-
effective manner, demand for software that runs on alternative servers,
databases and set-top boxes. Our current agreement with Sun Microsystems expired
in June 2001. We are negotiating a new agreement and continue to operate under
the terms of the original agreement. Moreover, although we believe that we can
adapt our software to operate on other server, database and set-top box
platforms, we would incur additional costs to do so, and we cannot assure you
that our products would operate successfully in actual deployment on any of
these other platforms. If we fail to satisfy our customers' demands, they may
cease doing business with us, and our revenues would suffer.

Rapid technological advances or the adoption of new standards could impair our
ability to deliver our products to service providers in a timely manner, and as
a result, our revenues would suffer.

     Our success depends in large part on our ability to keep our software
current and compatible with evolving technologies and standards. Unexpected
changes in technology or standards could disrupt the development of our software
products and prevent us from meeting deadlines for the delivery of our software
products. If we are unable to keep pace with technological advancements and
adapt our software to new standards in a timely manner, we may lose customers,
and our revenues would suffer.

The occurrence of any defects, errors or failures in our software could result
in delays in installation and loss of customers.

     Our software is complex and may contain undetected defects, errors or
failures. These problems have occurred in our software in the past. Additional
problems may occur in our software in the future, which could result in the loss
of, or delay in, market acceptance of our software products. In addition, we
have limited experience with commercial deployment, and we expect additional
defects, errors and failures as our business expands from trials to commercial
deployment with customers. These problems could result in a loss of sales and
additional costs and liabilities to us, including loss of our customers.

If our technology were responsible for the failure of service providers to
deliver services to subscribers, our reputation and viability could be seriously
damaged.

     We expect that most service providers that purchase our software products
will deliver multi-channel digital television and interactive media services in
conjunction with voice and Internet services. If our software is responsible, or
appears to be responsible, for a failure to deliver voice, Internet or
television, a likely result would be severe customer service or public relations
problems that could seriously damage our reputation and viability.

Risks Related to Legal Uncertainties

Because much of our potential success and value lies in our ownership and use of
intellectual property, our failure to protect our intellectual property could
negatively affect us.

                                       10
Our ability to compete effectively is dependent in large part upon the
maintenance and protection of our intellectual property. We currently do not
have patents or trademark registrations protecting our products and other
intellectual property other than a Canadian trademark registration for
"iMagic.'' To date, we have relied on trade secret and copyright law, as well as
confidentiality procedures and licensing arrangements, to establish and protect
our rights to our technology. We typically enter into confidentiality or license
agreements with our employees, consultants, customers, strategic partners and
vendors in an effort to control access to and distribution of our software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
proprietary technology without authorization. Policing unauthorized use of our
intellectual property is difficult. The steps we take may not prevent
misappropriation of our intellectual property, and the agreements we enter into
may not be enforceable. In addition, effective intellectual property protection
may be unavailable or limited in some jurisdictions outside Canada and the
United States. Litigation may be necessary in the future to enforce or protect
our intellectual property rights or to determine the validity and scope of the
proprietary rights of others. That litigation could cause us to incur
substantial costs and divert resources away from our daily business, which in
turn could materially adversely affect our business.

We may be subject to damaging and disruptive intellectual property litigation.

     The software development and the interactive television businesses are very
litigious. We may be subject to intellectual property litigation that could:

     .    be time-consuming and expensive;

     .    divert attention and resources away from our daily business;

     .    impede or prevent delivery of our products and services; and

     .    require us to pay significant royalties, licensing fees and damages.

     Although we are not aware that our products or services infringe any
published patents or registered trademarks, and although we have not been served
notice of any potential infringement, we may be subject to infringement claims
in the future. Because patent applications are kept confidential for a period of
time after filing, applications may have been filed that, if issued as patents,
could relate to our products or services.

     Parties making claims of infringement may be able to obtain injunctive or
other equitable relief that could effectively block our ability to provide our
products and services in Canada, the United States and other jurisdictions and
could cause us to pay substantial damages. In the event of a successful claim of
infringement, we and our customers may need to obtain one or more licenses from
third parties, which may not be available at a reasonable cost, if at all. The
defense of any lawsuit could result in time-consuming and expensive litigation,
regardless of the merits of such claims, as well as resulting damages, license
fees, royalty payments and restrictions on our ability to provide our products
or services, any of which could harm our business.

Laws and government regulation and policies in various jurisdictions may
restrict the willingness or ability of service providers to purchase our
software and deliver multi-channel digital television and interactive media
services to subscribers.

     Service providers in jurisdictions where we currently do business and where
we intend to do business in the future operate in heavily regulated industries.
Although we, in providing our products and

                                       11
services, are not now directly subject to significant regulation, our existing
and potential customers are subject to laws, regulations and policies, including
licensing and permit requirements, zoning restrictions, laws regulating the
provisioning of television services, copyright laws which may be interpreted or
amended to restrict the capture and "time shifting" of television programming
and foreign share ownership restrictions, that could adversely affect their
willingness or ability to:

     .    invest in technology necessary for our software to operate; or

     .    offer multi-channel digital television and interactive media services
          to subscribers.

     As a result, these laws, regulations and policies may impede sales of our
products and services. For a more thorough discussion of the regulatory issues
that may affect our business, see Business Overview - Regulation of Service
Providers in "Item 4. Information on the Company."

If we are treated as a passive foreign investment company for U.S. federal
income tax purposes, our U.S. shareholders may be subject to an unfavorable tax
regime.

     While we believe, based on our income, assets and activities, that we
should not be a passive foreign investment company for our taxable year ended
February 28, 2001, it is possible that we will nonetheless be treated as a
passive foreign investment company for U.S. federal income tax purposes for such
taxable year or for later taxable years. If we are classified as such, a special
tax regime would apply to "excess distributions" with respect to shares held by
a U.S. shareholder and to any gain realized on the sale or other disposition by
a U.S. shareholder of shares held for more than one taxable year, unless the
U.S. shareholder timely makes an election available under applicable law. For a
more thorough discussion of the passive foreign investment company rules, see
"Certain Canadian and United States Income Tax Considerations--United States
Federal Income Tax Considerations--Passive Foreign Investment Company
Considerations" in "Item 10. Additional Information."

     You should rely only on the information contained in this annual report. We
have not authorized any other person to provide different information. You
should assume that the information appearing in this annual report is accurate
only as of July 12, 2001. Our business, financial condition, results of
operations and prospects may have changed since that date.

ITEM 4.   INFORMATION ON THE COMPANY

A.   History and Development of the Company

     See "Management's Discussion and Analysis - Overview" in "Item 5.
Operating and Financial Review and Prospects."

     Our principal executive officers are located at One Brunswick Square,
14/th/ Floor, Saint John, New Brunswick E2L 3Y2, Canada. Our agent for service
in the United States is CT Corporation System, located at 111 Eighth Avenue,
13/th/ Floor, New York, New York 10019, whose telephone number is (212) 590-
9200.

B.   Business Overview

     We develop and license infrastructure software products and provide related
services that enable telephone companies and other service providers to deliver
multi-channel digital television and interactive media services to their
subscribers' televisions and personal computers over a broadband or high-speed
communications network. Our software is based on open, Internet-based standards
for software and networking and is designed to work in conjunction with industry
standard, third-party hardware and software. Service providers can implement our
software in conjunction with industry standard third-party hardware and software
over existing copper phone lines using xDSL technology, including ADSL and
various broadband access technologies such as fiber to the home and broadband
wireless technologies.

     Our customers include incumbent local exchange carriers, competitive local
exchange carriers which compete with incumbent local exchange carriers in local
telephone markets, and multiple dwelling unit service providers. We also offer
our products and services to providers of broadband transmission services such
as power and utility companies and Internet service providers.

     We believe telephone companies and other service providers are seeking
solutions that will allow them to deliver multi-channel digital television
services bundled with their existing voice and Internet service offerings and
thus to compete with cable and satellite television operators in the emerging
market for integrated voice, Internet and television services. By implementing
our primary software product,

                                       12
DTV Manager, over existing broadband networks and by acquiring and installing
additional equipment as subscribers activate service, we believe that service
providers can cost effectively offer their subscribers the following services
through televisions and personal computers:

     .    digital television with unlimited channel capacity and

     .    interactive media services, such as:

          .    Internet-on-television, including e-mail and Web access;

          .    video-on-demand;

          .    self-service pay-per-view;

          .    an interactive program guide; and

          .    a customizable television portal that provides access to various
               available services, including television stations, websites,
               digital music channels and e-commerce sites.

Our DTV Manager software also enables service providers to manage subscriber
accounts through service provisioning, customized package offerings and
integrated voice, Internet and television billing.

The ImagicTV Solution

     Our software enables telephone companies and other service providers to
deploy multi-channel digital television and interactive media services over a
broadband network. It is standards-based and is designed to work in conjunction
with industry standard, third-party hardware and software and to integrate with
the service provider's existing network and systems. Our software takes
advantage of advancements in communications transmission technology, Internet
Protocol networking standards and video and audio compression technologies. To
implement our software, the service provider's network must comply with various
Internet-based standards for software and networking.

     Third-party hardware and software are required to utilize our software
products. At this time, our software operates on a Sun Microsystems server
platform, an Oracle database platform and a Pace or Motorola set-top box
platform. Required video encoder equipment is available from Harmonics Software
Inc. We are currently upgrading the set-top box components of DTV Manager to
operate on a Thomson set-top box platform. We anticipate further modification of
our software in the future so that it will operate on other server, database and
set-top box platforms. Furthermore, our software products are designed to
operate over standard network equipment deployed by our customers, which
consists of hardware products from a variety of vendors, including Alcatel,
Cisco Systems, Innovia Telecom, Lucent Technologies Inc. and Nortel Networks
Corp.

     Our software products are designed to support multiple televisions and
personal computers in the home. The number of televisions and personal computers
in a home that our software can support will depend upon the capacity of the
broadband network and the type of video compression employed by the service
provider. For example, using current ADSL technology at transmission rates of
six megabits per second and with data compression allowing video transmission at
a rate of 3.5 megabits per second, our software can support one television and
one personal computer over a single line to the home.  By further compressing
data to allow video transmission at a rate of 2.5 megabits per second, the
service provider can simultaneously support service to two televisions and a
personal computer over the same line. With

                                       13
faster technologies such as VDSL and fiber to the home, where and when
available, the service provider can use our software to support additional
devices in the home. In each case, a subscriber can also use the telephone and
access high-speed Internet services while using the television.

Products and Services

     Our software products currently consist of DTV Manager, pcVu and Movie
Manager which are offered together with our professional services and
maintenance and technical support services.

DTV Manager

     DTV Manager, our primary product, is a suite of software that integrates,
supports and manages the hardware and software components of the service
provider's network to enable the service provider to deliver multi-channel
digital television and interactive media services from its head office to its
subscribers' homes. DTV Manager software falls into three broad categories:
viewer component software, administration system software and operations system
software.

     Viewer Component Software.  The viewer component software supports set-top
boxes in a subscriber's home and allows the subscriber, through the use of a
standard television remote control, a wireless keyboard or other device, to
browse through a television portal or an interactive program guide, to make on-
screen selections of video-on-demand programming and television, pay-per-view
and Web channels, and to view information banners that appear at the top of the
television screen when new channels are selected. The interactive program guide
and the television portal are features of the viewer component software that a
service provider can customize to brand its service offering and incorporate
local content. The interactive program guide includes up to seven days of
information on channel content which a service provider may update on a regular
basis. The television portal also provides access to interactive channels which,
for example, may offer online shopping, online banking, Web browsing, video-on-
demand and other services. The viewer component software is stored in memory on
the set-top box. Without any action required by the subscriber, a service
provider can make changes to the viewer component software by remotely
distributing software updates over the service provider's network to the
subscriber's set-top box.

     Administration System Software.  The administration system software allows
service providers to maintain information about subscribers, including the
subscriber's profile, class of service, passwords and usage. It supports
workstations at a service provider's head office, where the service provider's
administrative personnel can use subscriber information to define and configure
subscriber accounts and programming packages. Administration system software
also allows a service provider's administrative personnel to manage individual
subscriber accounts, for example, by blocking particular television channels
pursuant to a subscriber's requests.

     Operations System Software.  The operations system software facilitates
the service provider's management of the content delivered to subscribers. The
operations system software consists of a variety of components resident on
servers at the service provider's head office and at the subscriber's premises
on a set-top box or PC. These components allow the service provider to track and
collect subscriber usage data, to deliver television programming information to
set-top boxes, to initialize and support the set-top boxes and to run a business
support system and a network management system. Through the operations system, a
service provider can also customize programming packages.

                                       14
pcVu

     pcVu works in conjunction with DTV Manager and allows a subscriber to
receive multi-channel digital television services on a personal computer. It
includes a software-based tuner resident on the personal computer and does not
require additional hardware in the personal computer. pcVu is designed to
deliver high quality digital broadcast television signals so that, to the
subscriber, there is no visible distinction between a broadcast delivered over a
television and a broadcast delivered over a personal computer. The software is
designed to allow a subscriber to watch television while simultaneously using
his or her Web browser and other standard software packages.

Movie Manager

     Movie Manager works in conjunction with DTV Manager to allow subscribers to
access DVD quality video content on demand.  It provides VCR style control to
the subscriber through the use of the set-top box remote control. With Movie
Manager the service provider can manage the delivery of the content and
customize its business application for video rentals by the subscriber.

Services

     Professional Services.  We provide professional services that a service
provider may need in conjunction with the introduction of a DTV Manager service
offering. For example, we offer project management services, which assist the
service provider in defining its subscribers' needs and creating an
implementation plan. We also offer ongoing program management services, which
include operational planning, marketing strategy and portal design and
customization. In addition, we assist service providers in identifying and
negotiating agreements with potential hardware, software and content providers.

     Maintenance and Technical Support Services.  We provide comprehensive
services that include training, installation, configuration, maintenance and
support services. We assist customers in the design of their networks, the
selection of hardware and software components and the integration of our
software with their existing systems. We also offer a training course for all
new customers prior to receiving and installing a system. In addition, we
provide direct on-site or telephone support. To monitor service activities, we
maintain a customer call tracking system. We also maintain an Internet-based
management interface to our equipment to assist with diagnostics.

Benefits of Our Software

     Our products and related services provide numerous potential benefits to
service providers and enable service providers to deliver various benefits to
their subscribers.

Benefits to the Service Provider

     Our software provides the following potential benefits to service
providers:

     .    Integrated Bundled Services to Subscribers. Service providers can
          offer subscribers multi-channel digital television and interactive
          media services, through the television and the personal computer, in
          conjunction with voice and high-speed Internet services. This offers a
          service provider the opportunity potentially to increase its revenue
          stream from existing subscribers and to increase its subscriber base.

     .    Uses Existing Infrastructure. Service providers can take advantage of
          existing broadband networks, including xDSL, fiber optic and wireless
          broadband access

                                       15
technologies, to implement DTV Manager. As a result, we believe that
          service providers can quickly and cost-effectively design and
          implement our software products. Subsequent investments in technology
          are variable and directly related to the number of subscribers the
          service provider activates or anticipates activating.

     .    Flexible Technology Architecture. Our software products are based on
          open, Internet-based standards and are designed to work in conjunction
          with industry standard, third-party hardware and software. Our
          software can simultaneously support xDSL, fiber optic and wireless
          broadband technologies on a single network so that a service provider
          can continue to use our software throughout its network upgrade
          process.

     .    Scalability. Our software products take advantage of Internet Protocol
          multicast technology and are designed to enable a service provider to
          simultaneously serve a large number of subscribers from a single
          server without degradation of service and without any changes to our
          software.

     .    Ability to Fully Manage Network Remotely. Using features of DTV
          Manager, a service provider can remotely perform diagnostics and
          reboot set-top boxes in subscribers' homes. DTV Manager keeps track of
          a variety of information related to subscriber usage and maintains
          error-log files so that the service provider can troubleshoot problems
          from its premises.

     .    Ability to Deliver Integrated Television Portal. An important element
          of DTV Manager is its ability to enable our customers to integrate a
          Web-based portal page with the services they offer. A service provider
          can customize its portal with local content and seek to generate
          additional revenue by selling space to advertisers, such as e-commerce
          companies and local subscriber area merchants.

     .    Customized Services and Pricing. Service providers can brand their
          service offerings and customize them to particular subscribers or
          groups of subscribers by offering a variety of program packages.
          Service providers can also structure a variety of subscriber payment
          packages based on subscription, pay-per-view and other pricing models.

     .    Unlimited Channel Capacity and Enhanced Media Services. Our software
          can support an unlimited number of channels and allows for the
          delivery of video-on-demand, digital music, Internet content and
          websites as separate channels in addition to broadcast television
          channels.

     .    Integration with Existing Systems. DTV Manager is designed to
          integrate with a service provider's existing accounting, marketing and
          network management software systems. For example, DTV Manager's
          integration with existing billing systems allows, subject to
          regulatory restrictions, a service provider to deliver one bill to a
          subscriber for voice, Internet and television services.

Benefits to the Subscriber

     With our software, service providers can deliver the following benefits to
their subscribers:

     .    Multi-channel Digital Television. Subscribers can access multi-channel
          digital television through standard televisions and personal
          computers.

                                       16
.    Feature-Rich Interactive Program Guide. An interactive program guide
          allows subscribers to view present and future programming information
          and to make on-screen selections of television shows, pay-per-view
          programs, websites and other content. Subscribers can also use the
          interactive program guide to access a parental control feature that
          enables them to select and block access to channels.

     .    Always on Internet-on-Television. Our software allows for "always on"
          Internet access through the television. With browser software resident
          in set-top boxes and "always on" Internet access, subscribers can be
          one click away from the Internet at all times. Subscribers can browse
          the Web and can send and receive e-mail using the set-top's remote
          control or wireless keyboard.

     .    New Programming and Entertainment Options. The subscriber may access a
          host of enhanced services, including video-on-demand, e-commerce,
          digital music, Web channels and self-serve pay-per-view, without
          requiring equipment changes or service calls.

     .    Convenient Service Offering Package. Subscribers can receive voice,
          Internet and television services through one service provider and can
          pay for these services on a single bill, if offered.

Strategy

     Our goal is to be the leading developer and provider of software products
and related services that enable telephone companies and other service providers
to cost-effectively deliver and manage multi-channel digital television and
interactive media services. Our strategy includes the following key objectives:

     .    Expand Our Sales and Marketing Efforts. We intend to establish market
          leadership by continuing to focus on the successful and wide scale
          deployment of our software with our current customers and by expanding
          our customer base to include a broad range of service providers,
          particularly those with large subscriber bases.

     .    Build Our Global Presence. Currently we have sales offices in Canada,
          the United States, the United Kingdom and Singapore. We plan to expand
          our presence in North America, Western Europe and in select countries
          in Asia, where we intend to establish sales and service centers. In
          other geographic areas, we intend to take advantage of opportunities
          as they arise with a long-term goal of establishing a worldwide
          presence.

     .    Develop and Expand Our Industry Relationships. We currently have
          sales, marketing and development relationships with several vendors.
          We believe that forging and expanding relationships with key vendors
          is critical to a broad deployment of our products and services and for
          the further development of our software products.

     .    Continue to Enhance Our Products and Develop New Applications. We
          intend to continue investing in research and development, focusing our
          spending on product enhancements and new applications that are
          designed to enable service providers to reduce costs or generate
          additional revenue. Further, it is our goal to continue to develop
          software that is based on open systems.

                                       17
.    Adhere to Industry Standards. We believe that adherence to industry
          standards and development principles strengthens our market position.
          Accordingly, we support these standards and development principles
          throughout our product line. This approach is designed to enable
          service providers to integrate our software products with their
          existing infrastructure on a cost-effective basis.

Technology

Implementation Architecture

     Our software products work with network, head-end and set-top box
components and operate on network architecture that is based on Internet
Protocol and other standard protocols. Head-end equipment is located at the
service provider's premises and consists of digital video equipment and a server
suite. Digital video equipment gathers, processes and distributes video, and
typically includes satellite dishes and receiver units, encoders and Internet
Protocol gateways. The server suite stores and powers DTV Manager software,
standard Web server software and standard database software. Set-top boxes run
DTV Manager client software, provide support for the MPEG and Internet Protocol
multicast technology used in our software, and include a Web browser for
integrated Internet capability.

     Three key technologies support our implementation architecture: MPEG,
Internet Protocol multicast and broadband transmission.

     .    MPEG is our main data standard and supports the delivery of high
          quality video and audio over an Internet Protocol network;

     .    Internet Protocol multicast, our data transmission standard, supports
          the efficient delivery of generic data such as video and audio, as
          well as software and set-top configuration data throughout the
          network; it delivers large amounts of data over a network efficiently
          because the server can broadcast one message to many recipients
          simultaneously; and

     .    Broadband communications technology provides the speed and capacity
          necessary to deliver multiple data streams, including video channels,
          over a single medium such as twisted pair copper wire or fiber optic
          cable.

     To enhance the capabilities of existing twisted pair copper wire, service
providers can deploy an xDSL-based architecture, including DSL access
multiplexers and xDSL modems. Generally, DSL access multiplexers connect
broadband lines in the service provider's transport network, or backbone, to
xDSL lines in the service provider's access network. In addition, DSL access
multiplexers separate high-speed data from voice data, putting high-speed data
on the network and low-speed voice data on the conventional phone system. DSL
access multiplexers are located in the service provider's central office or
remote switching center. xDSL modems connect a set-top box or personal computer
in the home to the xDSL lines in the access network. When MPEG video is
delivered to the set-top box through the xDSL modem, the set-top box decodes the
MPEG video and sends it to the television. In some cases, the xDSL modem is
built into the set-top box.

How Video is Delivered Over an Internet Protocol Network

     Typically, video is distributed from the service provider's head-end to
subscribers in three steps.

     .    Video Capture. Satellite dishes and receiver units capture digital
          television signals in the form of MPEG streams.

                                       18
.    Video Conversion. Video encoders or other similar devices convert the
          MPEG streams into Internet Protocol-compliant video streams.

     .    Video Multicasting. Video encoders and network components transmit
          Internet Protocol-compliant video streams over the network to the
          home.

     At the home, when subscribers use a remote control or wireless keyboard,
this action triggers the set-top box to issue a request to join the
corresponding Internet Protocol multicast address where the corresponding
channel can be found. In response to the request, the server adds the subscriber
to the Internet Protocol multicast address and sends the related channel data to
the set-top box.

Research and Development

     Our research and development efforts focus on the continued development and
enhancement of our existing products and services as well as the development of
new applications and services. These efforts are based on input both from our
customers and from our research and development staff.

     We are engaged in the development of the following new products which we
expect to offer as enhancements or "add ons" to DTV Manager:

     .    Virtual VCR. This service would enable subscribers to store and replay
          digital broadcast television and other video content on an "on-
          demand" basis without a video cassette recorder.

     .    Rich Media Applications. This service would enable service providers
          to deliver a pre-packaged bundle of interactive broadband channels to
          subscribers with imbedded interactive e-commerce applications linked
          to third parties. One example is a channel offering a movie and pizza
          package that subscribers can order through their television. We expect
          that two-way channel services would often be co-branded with retail
          and consumer brands.

     .    Independent Software Vendor Program. These software development tools,
          documentation and training materials would enable service providers to
          customize and enhance their service offerings by building custom
          applications that interact with DTV Manager.

     Other on-going research and development efforts include:

     .    developing the next release of DTV Manager to provide additional
          enhancements and features based upon input we have received from
          service providers; and

     .    upgrading the viewer component of DTV Manager to enable it to operate
          on the next generations of set-top boxes from Pace, Motorola and
          Thomson.

     In October 2000, we entered into a memorandum of understanding with America
Online to develop custom applications related to the interoperability of our
software with America Online's services. Under the terms of the memorandum of
understanding, we agreed to work with America Online on investigative research
and development, particularly in the delivery of advertising to selected
subscriber groups, and obligated ourselves to provide $500,000 of research and
development services in this regard. We further agreed that, if America Online
licenses our DTV Manager software on a trial basis or for commercial deployment,
we will be contractually obligated to provide an additional $2.5 million of

                                       19
continued research and development services relating to these and other custom
applications. As of July 3, 2001 we have not commenced this activity and as such
have not incurred any of these costs.

Customers

     Currently, we have licensed our software products to 10 customers in North
America, Europe and Asia and currently generate revenues from all of these
customers.  Of these customers, five telephone companies and one multiple
dwelling unit service provider has licensed DTV Manager for commercial
deployment and four other telephone companies have entered into trial license
agreements.  In addition, we have installed DTV Manager for limited testing
purposes on the networks of 12 other service providers in North America, Europe
and Asia. Our license agreements with those customers who have licensed for
commercial deployment generally grant a long-term or perpetual license to use
our software products within a specified territory, sometimes on an exclusive
basis. While our license agreements generally give limited termination rights to
the customer, some of the early license agreements we entered into, which are
applicable to two of our customers, are terminable by the customer at its option
by advance notice to us. None of our customers, however, is contractually
obligated to deploy, market or promote services based on our software, nor is
any customer of ours contractually required to achieve any specific introduction
schedule. For further information with regard to the risk that our customers
will not deploy services based upon our software to their subscribers, see "Risk
Factors - If service providers fail to deploy services based upon our software
throughout their service area, our business will not grow" in "Item 3. Key
Information."

     These license agreements also generally provide for the payment of an
initial license fee, fixed per subscriber royalty fees, typically calculated on
a monthly basis, and fees for maintenance and technical support services.
Because we negotiate our license agreements on an individual basis, the type of
agreement, the amount, timing and other payment terms of initial license fees,
royalty fees and annual fees for maintenance and technical support services
typically differ from one customer to another.  In addition, we plan to charge
separate initial license fees and ongoing royalty fees for any new products that
we may introduce.

     Our existing revenue generating customers are located in Canada, the United
States, Europe and Asia. The following table identifies, as of May 31, 2001 our
current licensed customers.

     Customer Name            Description and Geographic Area
     -------------            -------------------------------

     Kingston Vision          A subsidiary of Kingston Communications (Hull)
                              plc, the incumbent local exchange carrier in East
                              Yorkshire, England

     NBTel                    The incumbent local exchange carrier in the
                              Province of New Brunswick

     Boardwalk Equities       An operator of several multiple dwelling units in
                              the Provinces of Alberta, Saskatchewan and Ontario

     Century Tel              A provider of integrated communications services
                              in 20 U.S. states

     MTT                      The incumbent local exchange carrier in the
                              Province of Nova Scotia and a subsidiary of Aliant

     KPN Telecom              An incumbent local exchange carrier in the
                              Netherlands

                                       20
Customer Name            Description and Geographic Area
     -------------            -------------------------------

     Ringold                  An incumbent local exchange carrier in the State
                              of Georgia

     SaskTel                  The incumbent local exchange carrier in the
                              Province of Saskatchewan

     SingTel                  The incumbent local exchange carrier in Singapore

     Telenor                  The incumbent local exchange carrier in the Norway

Industry Relationships

     We believe that our success depends, among other things, on our ability to:

     .    market our software products and services to a substantial number of
          customers, and thereby build a large potential royalty base;

     .    ensure the interoperability of our software with hardware and software
          from third-party vendors; and

     .    develop new products and services to enhance our software products.

In order to better achieve these goals, we have entered into non-exclusive
agreements or understandings with a number of participants in the
telecommunications, computer, software and interactive media industries,
including:

     .    network and encoder equipment providers, such as Advanced Fibre
          Communications, Inc., Alcatel, Cisco Systems Inc., Harmonic Software
          Inc., Nortel Networks, Viagate Technologies Inc. and Optibase Ltd.;

     .    server hardware and software providers, such as Oracle and Sun
          Microsystems;

     .    set-top box manufacturers, such as Motorola, Pace and Thomson Consumer
          Electronics Inc.; and

     .    content and interactive media service providers and broadcasters, such
          as America Online, Federal Hill Communications Inc. and Atom
          Shockwave.

     Generally, our agreements and understandings with these industry
participants are short-term or terminable on short notice, and neither generate
revenues from the participant nor require us to pay any fee to the participant
other than out-of-pocket expenses. In addition, in the case of joint marketing
arrangements, we generally do not pay or receive referral fees, and our
obligations are generally limited to marketing and promotional related
activities. We also have and may continue to pursue informal industry
relationships with other third parties.

                                       21
Sales and Marketing

     We currently sell our software products and services through a direct sales
force. As of May 31, 2001, our sales force consisted of 12 employees supported
by a staff of 22 systems integrators, sales engineers and technical support
specialists. Sales representatives are paid a competitive salary plus incentive
bonuses based on sales. Direct sales professionals are located in Saint John,
New Brunswick; Halifax, Nova Scotia; Atlanta, Georgia; Denver, Colorado;
Cambridge, England; Paris, France and Singapore. We use our direct sales force
to target service providers we believe provide the highest potential for service
deployment.

     To complement our direct sales efforts, we participate in trade shows in
North America, Europe and Asia and engage in joint marketing with vendors and
other market participants with whom we have relationships. We belong to related
industry associations, and our representatives also speak at telecommunications,
e-commerce and multimedia events. We also encourage our potential customers to
visit our facilities. In addition, we have installed our DTV Manager software in
customer demonstration centers of various strategic equipment and software
vendors, including Cisco Systems, Sun Microsystems, Nortel and Alcatel, which
are accessible to our potential customers.

Competition

     We face competition from a number of companies in the market for multi-
channel digital television and interactive media services. Our direct
competitors, Next Level Communications Inc., mPhase Technologies, Inc., Myrio
Corporation, Minerva Networks, Inc. and thirdspace, provide products that are
sold to telephone companies and other service providers and are competitive with
all or part of our products. An indirect competitor, Liberate Technologies,
provides technology and services related to interactive television. We also
expect additional competition from other established and emerging companies.
Many of our existing and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, technical, sales, marketing and other resources than we have. We
expect competition to persist and intensify as the market for digital
interactive television over broadband further develops.

     We believe that the success of companies seeking to develop software that
provides telephone companies and other service providers with the ability to
deliver multi-channel digital television and interactive media services will
depend on the following factors:

     .    the ability to provide a complete solution for the delivery and
          management of digital interactive television;

     .    technology that is standards-based and non-proprietary, and is
          designed to work in conjunction with industry standard, third-party
          hardware and software;

     .    the quality and reliability of product offerings;

     .    the price and value of product offerings; and

     .    customer service.

     We anticipate that a significant part of our future revenues will be
derived from subscriber-based royalties. These royalties will be wholly
dependent on our customers' success in attracting and retaining subscribers. Our
existing and potential customers compete for subscribers with many different
companies that offer video, audio, programming, entertainment, Internet and
voice services, such as cable television

                                       22
companies and direct broadcast satellite service providers. Cable companies such
as Cox Communications, AT&T and AOL Time Warner Inc. in the United States and
Rogers Communications and Shaw Communications in Canada offer digital television
and, in some cases, limited interactive media services to their subscribers.
Direct-to-home satellite television services such as DIRECTV, Inc. in the United
States, Bell Expressvu Inc. in Canada and British Sky Broadcasting Group plc in
the United Kingdom also offer digital television and, in a limited number of
cases, interactive media services. If existing and potential customers offer
personal television services using our Virtual VCR product currently under
development, their services will compete for subscribers with products and
services provided by TiVo, Inc. and ReplayTV. Many of these competitors have
greater brand recognition, a larger subscriber base and more significant
financial, technical and other resources than those of our customers. These
competitors may also undertake more extensive marketing campaigns than our
customers and may adopt more aggressive pricing policies.

     Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. We cannot predict the effect that ongoing or future developments
might have on the video programming distribution industry generally, on our
customers or on our company.

Regulation of Service Providers

Overview

     Although, in providing our products and services, we are not now subject to
significant regulation, our existing and potential customers operate in heavily
regulated industries. Our existing customers are located in the United States,
various member countries of the European Union and Canada. The paragraphs below
summarize various regulatory matters within these jurisdictions.

United States

     In the United States, the telecommunications and multi-channel video
programming distribution industries are subject to extensive regulation at the
federal, state and local levels. At the federal level, the Federal
Communications Commission, or FCC, regulates the interstate, mixed
intrastate/interstate and international aspects of the telecommunications
industries pursuant to its authority under the Communications Act of 1934, as
amended. Under the Communications Act, state authorities retain jurisdiction to
regulate intrastate telecommunications. Local authorities, pursuant to their
general zoning and police powers, regulate the distinctly local aspects of
telecommunications services, such as tower siting and infrastructure placement.
Federal, state and local authorities also share responsibility for regulating
the provision of multi-channel video programming distribution services.

     Federal Regulation.  Several FCC regulatory policies may affect the way in
which our customers can or choose to offer integrated voice, data and video
services. For example, federal law requires incumbent local exchange carriers to
offer their competitors cost-based access to certain network elements, which
elements comprise many of the significant facilities, features and capabilities
of their networks, in order to enable their competitors to provide competing
services. Although at this time incumbent local exchange carriers in most cases
are not required to provide unbundled access to high-speed data switching
equipment, they are required to offer high-speed data services to their
competitors for resale. Further, the FCC has required the unbundling of the
"high-frequency" portion of local transmission facilities, which makes it
easier and less expensive for competing carriers to offer advanced services.

                                       23
These network access regulations are currently the subject of further FCC
rule making proposals and therefore, potentially subject to revisions, petitions
for reconsideration at the FCC and appeals in federal courts. The uncertainties
caused by these proceedings may cause potential customers to delay purchasing
our products and services. In addition, the outcomes of related regulatory
proceedings may cause potential customers to deploy less than all of the high-
speed data and broadband services for which our software is designed, or to
delay the widespread introduction of these services. For example, these
regulations and other developing laws, regulations and policies may cause
carriers to elect to provide high-speed data and broadband services through a
structurally separate affiliate, which could negatively affect demand for our
products and services.

     Legislation also has been proposed in Congress that could affect the
regulation of carriers providing high-speed data and broadband services. One
bill before Congress would, if it became law, grant incumbent local exchange
carriers substantially more flexibility in offering broadband services. Other
bills have been introduced that would provide incentives for carriers to provide
broadband services. We cannot predict whether these bills will become law, or if
any other communications-related legislation will be introduced that might
impact our business.

     In addition, FCC rules prohibit incumbent local exchange carriers from
providing voice or data services along with customer premises equipment as a
packaged offering at a single price. Further, FCC rules prohibit incumbent local
exchange carriers from offering enhanced information or data processing
services, including Internet access services, bundled with local exchange
services. Accordingly, these rules may limit the ability of our customers to use
our software and related services in the offering of a packaged service to their
subscribers. The FCC is considering amending or repealing these bundling
restrictions, but we cannot assure you that it will do so.

     Finally, to the extent that they are used for multi-channel video
programming distribution, our customers' networks may, for regulatory purposes,
be deemed to be "cable systems." Under the Communications Act, all cable
systems are required to:

     .    obtain a local franchise;

     .    comply with certain customer service standards;

     .    retransmit certain broadcast television programming;

     .    conform subscriber service and equipment rates to applicable federal
          regulations;

     .    comply with FCC equal employment opportunity rules and policies;

     .    make channel capacity available for public, educational and government
          programming; and

     .    comply with rules concerning the technical operation of cable systems.

     We cannot assure you that the burdens associated with federal cable system
regulation will not prevent or discourage potential customers from purchasing or
using our software and related services. For example, the FCC is considering
whether to adopt rules to ensure that interactive television services develop in
a competitive fashion.

     State and Local Regulation.  State and local authorities also have a role
in regulating the telecommunications and multi-channel video programming
distribution industries. Among other things,

                                       24
state regulatory authorities are charged with developing and implementing cost-
based prices for access to network elements, and they may, consistent with
federal law and policy, establish additional network elements that must be made
available by incumbent local exchange carriers. At the local level, carriers
seeking to install additional transmission facilities may be required to obtain
any of the following:

     .    street opening and construction permits;

     .    permission to use rights-of-way;

     .    zoning variances; and

     .    other approvals from municipal authorities.

     Further, some state authorities have adopted cable television franchising
rules, and local jurisdictions throughout the United States regulate cable
television systems pursuant to their franchising authority. We cannot assure you
that regulatory developments at the state or local level will not prevent or
discourage our customers from developing or deploying networks capable of
supporting our software.

European Union

     In the European Union, which currently comprises 15 European countries,
including the United Kingdom and the Netherlands, the telecommunications and
multi-channel video programming industries are subject to detailed sector-
specific regulation. Various laws, regulations and policies may require our
customers to obtain and be subject to approvals or authorizations in order to
make use of our software and related services within the European Union. For
example, in the United Kingdom, operators of telecommunication systems and
providers of television programming services are required to obtain licenses
under the Telecommunications Act of 1984 and the Broadcasting Act of 1990,
respectively. In addition, the United Kingdom's Office of Telecommunications,
also known as Oftel, has issued two general authorizations, known as class
licenses, which set out the rules which may apply to our existing and potential
customers that control the supply of multi-channel digital television and other
digital services to end users.

     The European Union regulation on Unbundled Access to the Local Loop came
into force on December 18, 2000.  Under this regulation, all fixed public
telephone network operators that have been designated by their national
regulatory authority as having significant market power were required to provide
unbundled access to their local loop network by December 31, 2000.  For example,
a new condition in the license granted to British Telecommunications plc under
the Telecommunications Act of 1984 requires it to provide access to its local
loops.

     The European Union Commission and the various national regulatory
authorities of the member countries frequently review the regulatory environment
relating to telecommunications, broadcasting, media and e-commerce industries.
We understand that the general thrust of this review is to make changes to the
regulatory environment with the objective of creating an open and competitive
communications industry. We cannot assure you that these changes will not result
in our, or our customers, being subject to direct regulation or that future
regulation of our existing and potential customers will not slow sales of our
products and services or impede our ability to compete effectively.

Canada

     Telecommunications and broadcasting services are subject to regulation
under several federal communications statutes, the most important of which are
the 1993 Telecommunications Act (Canada)

                                       25
and the 1991 Broadcasting Act (Canada). These statutes permit the Canadian
Radio-television and Telecommunications Commission, or CRTC, to regulate certain
aspects of the provision of telecommunications and broadcasting services in
Canada.

     The Broadcasting Act.  Depending on how they use our products and services,
service providers may be required to obtain a license issued by the CRTC under
the Broadcasting Act if they transmit programs for reception by the public
through devices capable of receiving broadcasting signals. Such devices include
television sets, and in some cases computers and other terminal equipment. The
most common type of broadcasting license required by service providers that use
our products and services is a Broadcasting Distribution Undertaking license.

     To be eligible to hold a broadcasting license, a service provider must
comply with rules that require certain levels of ownership and control by
Canadians. These constraints should not limit the number of Canadian incumbent
local exchange carriers or competitive local exchange carriers that may wish to
buy our software and related services, since they must already meet similar
Canadian ownership and control rules. However, these constraints may limit the
ability of other service providers to use our software and related services, in
that some may not be able to qualify for a broadcasting license under the
Canadian ownership and control rules under the Broadcasting Act.

     The CRTC now licenses competing service providers to operate within the
service areas of incumbent cable television systems. There are two CRTC licensed
Direct-to-Home satellite-based distribution services operating on a national
basis. The CRTC has also licensed, on a regional basis, wireless digital multi-
point multi-channel distribution services. On a local basis, through June 29,
2001, the CRTC has licensed competitive cable television systems in rural Nova
Scotia, Vancouver and Montreal. In addition, the CRTC has granted a Broadcasting
Distribution Undertaking license to NBTel to provide services using our software
and related services throughout the Province of New Brunswick and similar
licenses to MTT to service the Halifax Regional Municipality in Nova Scotia and
to SaskTel to service various communities throughout the Province of
Saskatchewan.

     The Telecommunications Act.  Incumbent local exchange carriers, competitive
local exchange carriers and other providers of non-programming telecommunication
services are subject to regulation by the CRTC under the Telecommunications Act.
However, the CRTC has gradually been forebearing from regulating many of the
services offered by these carriers.

     The CRTC has also taken steps to promote competition in local
telecommunications service markets by issuing a number of decisions and orders
aimed at breaking down barriers to competition in these markets. We believe that
these decisions and orders will have a variety of impacts on service providers.
For example, CRTC regulation requires incumbent local exchange carriers to offer
their competitors cost-based access to some network elements, to enable their
competitors to provide competing services. We cannot predict what effect these
decisions and orders will have on our business.

Intellectual Property

     Our ability to compete is dependent in part upon our ability to protect our
intellectual property. We currently do not have patents or trademark
registrations protecting our products and other intellectual property, other
than a Canadian trademark registration for "iMagic." To date, we have relied on
trade secret and copyright law, as well as confidentiality and licensing
agreements, to establish and protect our rights in our technology. Our current
policy requires our officers, employees and consultants to execute
confidentiality agreements upon the commencement of an employment or other
relationship with us. These agreements typically provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not

                                       26
disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all technology that is conceived by the
individual during the course of employment with us is our exclusive property. In
spite of these efforts, it may be possible for a third party to obtain or use
our technology without our authorization or to develop similar technology
through reverse engineering or other means.

     In June 1998, we filed a provisional patent application in the United
States in respect of aspects of our software products, which we formalized in an
application made under the Patent Co-Operation Treaty in June 1999. On September
19, 2000, we filed a continuation-in-part application in the United States with
respect to the event capturing component of the administration system software
within DTV Manager. Our event capturing software enables a telephone company or
other service provider to define, capture, store and process all activities on
its service network in real time. On September 28, 2000, we filed a
continuation-in-part application in the United States with respect to our pcVu
software product. On September 29, 2000, we filed a continuation-in-part
application in the United States with respect to aspects of the functionality of
the proposed Virtual VCR enhancement to our DTV Manager software. We cannot
assure you that we will receive any of the patents for which we have applied to
date or will apply in the future.

     We have several pending trademark applications in the United States, the
European Union and Canada covering some of our important trademarks, logos and
slogans, including:

          IMAGICTV            "Eye" Design
          Movie Manager       PCVU
          DTV Manager         DVR Manager

     See "Risk Factors--Because much of our success and value lies in our
ownership and use of intellectual property, our failure to protect our
intellectual property may negatively affect us" in "Item 3. Key Information."

Developments in Fiscal 2001

     In July 2000, our board of directors authorized a private placement of up
to $25 million, of which $10 million was reserved for specified existing
shareholders. On September 19, 2000, we issued warrants to purchase common
shares to five existing shareholders for a total cash consideration of $10
million. In October 2000, in connection with the additional private placements
described below, the share purchase warrants were converted into 909,061 common
shares.

     Pursuant to share subscription agreements, in October 2000 we issued
272,719 common shares to America Online for aggregate proceeds of $3.0 million
and 1,090,875 common shares to Cisco Systems for aggregate proceeds of $12.0
million. On completion of these share issuances, America Online owned 1.3% and
Cisco Systems owned 5.5% of our issued and outstanding common shares. We have
agreed, subject to specified exceptions, that if we grant to any of the current
holders of our common shares rights to register those common shares under the
U.S. Securities Act of 1933, we would grant comparable rights to America Online.

     In October 2000, we also entered into a memorandum of understanding with
America Online to develop custom applications for them. Specifically, we agreed
to provide America Online with up to $3.0 million in research and development
services, calculated at our commercial rates for consulting and development
services and based on pricing and other terms no less favorable than those
received by any third party.

                                       27
Of the potential $3.0 million commitment, we are contractually obligated to
provide $500,000 in services to conduct investigative research and development
to be agreed upon between America Online and us. The memorandum of understanding
does not set forth the specific terms and conditions that will govern how these
services are to be utilized by America Online, but it does suggest potential
uses of these services such as the delivery of advertising to selected
subscriber groups. The memorandum of understanding provides that America Online
and we are to negotiate in good faith the ownership and licensing rights of the
intellectual property resulting from this research and development prior to the
commencement of development activities. At the date of this annual report, we
have not entered into any agreements in this regard with America Online.

     The obligation to perform the remaining $2.5 million in services for
continued research and development is contingent upon America Online entering
into a trial or commercial license with us for our software. While we have not
entered into any licensing arrangements or agreements with America Online and
the memorandum of understanding does not contain any contractual commitment that
would require us to license our software to America Online, it is in our
commercial interest to do so. We cannot, however, assure you that we will enter
into a license agreement with America Online, nor can we predict the extent or
nature of any future licensing or other revenues or other funding for services
from America Online. As with the commitment to provide $500,000 in research and
development services, America Online and we are to negotiate in good faith the
ownership and licensing rights of the intellectual property resulting from the
future research and development related to this contingent obligation prior to
the commencement of the development activities. At the date of this annual
report, we have not entered into any agreements in this regard with America
Online.

     The common shares issued to America Online do not contain any terms or
conditions, including any put or redemption rights, that would cause us to repay
or refund any of the proceeds received for the common shares sold to America
Online. There also are no contractual or other agreements that provide America
Online with a right to sell the shares back to us or to cause us to repay or
refund any of the $3.0 million received for the shares for any reason, including
our failure to perform under the memorandum of understanding. Moreover, there
are no contractual commitments that would require us to pay or refund America
Online any cash or other consideration if America Online fails to take advantage
of our commitment to provide services under the memorandum of understanding.

     In connection with our private placement to Cisco Systems, we granted Cisco
Systems a right of first negotiation. Pursuant to this right of first
negotiation, if our board of directors receives a bona fide offer to acquire us
or all or substantially all of our assets from any of three specified entities,
or if our board of directors votes to initiate a sale to any of these three
specified entities of 25% or more of our total voting equity or all or
substantially all of our assets, we must, within 24 hours, give Cisco Systems
notice of the terms of the sale proposal. After we deliver this notice, Cisco
Systems will have ten days to submit a proposal to our board of directors to
acquire us at a price to be set out in the proposal. In effect, under the
limited circumstances described above, Cisco Systems has been granted an option
to make an offer to acquire us. If our board of directors decides to pursue
Cisco Systems' proposal, we have agreed to negotiate in good faith exclusively
with Cisco Systems for a period of ten days. However, (a) if Cisco Systems does
not submit a proposal within ten days of receipt of our notice, (b) if Cisco
Systems' proposal is not pursued by our board of directors or (c) if Cisco
Systems and we fail to mutually agree on the terms of a transaction, then the
right of first negotiation expires as to that proposal, and we can negotiate and
enter into a definitive agreement with the entity that made the initial
proposal. Further, this right of first negotiation terminates (1) in the event
that Cisco Systems owns less than 50% of the common shares it purchased on
October 6, 2000 or (2) upon the date of the closing of the acquisition of all or
substantially all of our assets or an acquisition of us by another entity in
which the holders of our outstanding voting equity immediately prior to the
transaction own, immediately after the transaction, securities representing less
than 50% of the voting equity of the surviving entity. The current financing

                                       28
arrangements with Cisco Systems do not include any research and development,
marketing, licensing, future financing or similar arrangements.

     In November 2000 we completed our initial public offering of 4,750,000
common shares. The managing underwriters of the syndicate were Merrill Lynch &
Co., Chase H&Q and CIBC World Markets.  The aggregate price of these shares was
$52.3 million. We incurred expenses of approximately $2.9 million in connection
with the offering, together with underwriting commissions of $3.7 million. Our
expenses in the offering consisted of payments to parties other than our
directors, officers, their associates or holders of 10% of our common shares.

C.   Organizational Structure

     ImagicTV was incorporated under the laws of Canada on December 24, 1997
under the name iMagicTV Inc. On June 30, 1998 we amended our articles to change
our name to ImagicTV Inc. and to make certain revisions to the terms of our
share capital.  Our articles were further amended on November 27, 2000 to
convert each of our outstanding Class A Common, Class B and Class C Common
Shares into a single new class of common shares, to create a class of preferred
shares, issuable in series and, after giving effect to the reclassification,
split each new common share on a 1.1636-for-1 basis.

     ImagicTV (US), Inc. is a wholly-owned subsidiary of ImagicTV and was
incorporated under the laws of the State of Delaware on November 17, 1999.
ImagicTV (UK) Limited is a wholly-owned subsidiary of ImagicTV and was
incorporated under the laws of England on January 5, 2000 under the name "Sinord
140 Limited".  Its articles were subsequently amended to change its name to its
present name.

D.   Property, Plants and Equipment

     Our corporate headquarters and executive offices are located in Saint John,
New Brunswick, Canada, where we occupy approximately 33,000 square feet of
space, of which we sublease approximately 22,000 square feet from NBTel for
approximately $338,000 per year. The leases on this facility expire in December
2002 and April 2005.  We also lease sales and marketing offices in Cambridge,
England, Denver, Colorado, Raleigh, North Carolina and Dallas, Texas.

ITEM 5.   OPERATING AND FINANCIAL REVIEWS AND PROSPECTS

A. and B. Operating Results and Liquidity and Capital Resources

                     MANAGEMENT'S DISCUSSION AND ANALYSIS

     You should read the following discussion and analysis in conjunction with
our consolidated financial statements and related notes appearing elsewhere in
this annual report. See Item 18.

Overview

     We develop and license infrastructure software products and provide related
services that enable telephone companies and other service providers to deliver
multi-channel digital television and interactive media services to their
subscribers' televisions and personal computers over a broadband network. Our
customers include incumbent local exchange carriers, competitive local exchange
carriers and multiple dwelling unit service providers.

                                       29
We were incorporated under the laws of Canada in December 1997 upon the
initiative of NBTel Inc., the incumbent local exchange carrier in New Brunswick,
Canada, and a subsidiary of Aliant Inc., our largest shareholder. We began
operations in January 1998 by acquiring technology relating to digital
broadcasting from NBTel and entering into a research and development arrangement
funded by NBTel and a subsidiary of Celtic House International, another of our
largest shareholders, pursuant to which we further enhanced the acquired
technology. We delivered the initial version of our primary software product,
DTV Manager, to NBTel in December 1998 for technical trials. In the fall of
1999, after further development, we delivered the current generation of DTV
Manager to NBTel and Kingston Vision, an affiliate of the incumbent local
exchange carrier in East Yorkshire, England, and shortly thereafter each of them
deployed multi-channel digital television services to its subscribers. We
presently have 10 customers in North America, Europe and Asia and currently
generate revenues from nine of these customers. Of these customers, five
telephone companies and one multiple dwelling unit service provider have
licensed DTV Manager for commercial deployment and four other telephone
companies have entered into trial license agreements. In addition, we have
installed DTV Manager for limited testing purposes on networks of 12 other
service providers in North America, Europe and Asia. We have not generated any
revenues from these test installations. We also generate revenues in limited
circumstances from demonstration license and services agreements with certain
industry participants.

     The following discussion and analysis relate to our consolidated financial
statements which are stated in U.S. dollars and have been prepared in accordance
with Canadian GAAP. As applied to our current consolidated financial statements,
these principles conform in all material respects with U.S. GAAP, except as
disclosed in note 11 to our consolidated financial statements, included
elsewhere in this annual report. See Item 18.

Sources of Revenues and Revenue Recognition Policy

     In the past, our license agreements provided for an initial license fee and
a one-time subscriber-based royalty fee. We currently have two customers under
this type of arrangement. In early 2000, we began structuring our license
agreements to include both an initial license fee, based on the number of
households located in the geographic area under the license, and an on-going
monthly subscriber-based royalty fee. We expect future license agreements to be
negotiated on this basis.

     Services revenues comprise of professional services and annual maintenance
and technical support services related to the implementation and integration of
our software products. Annual maintenance and technical support revenues are
typically equal to a percentage of our customers' initial license fees. Services
revenue from professional services to licensees can be based on a time-and-
materials framework or a fixed contract for a complete project or installation.

     Equipment revenues comprise of sales of digital set-top boxes resold by us
to our customers at little or no mark-up above our cost. Historically, we
purchased set-top boxes for resale in order to have a source of supply available
to our customers. Except in limited circumstances, we ceased that practice in
the fiscal year ended February 28, 2001, and we expect our customers will
purchase set-top boxes directly from suppliers. As a result, we anticipate our
revenues from this activity will be substantially reduced.

     In the fiscal year ended February 28, 2001, our software licensing
revenues, royalty fee revenues, services revenues and equipment revenues
represented approximately 53%, 14%, 20% and 13%, respectively, of our total
revenues. In the same period, we earned approximately 42% of our total revenues
in Canada, approximately 41% in the United States and approximately 17% in
Europe. In this period, NBTel, CenturyTel and Boardwalk Equities accounted for
approximately 28%, 18% and 10%, respectively, of our total revenues. Excluding
equipment sales, the comparable percentages are NBTel 19%, CenturyTel 20% and
Boardwalk Equities 10%. An additional 10% of our total revenues (12%

                                       30
excluding equipment sales) came from non-recurring license fees received under
our demonstration license agreement with Nortel Networks.

     In the fiscal year ended February 29, 2000, our software licensing
revenues, services revenues and equipment revenues represented approximately
66%, 19% and 15%, respectively, of our total revenues. In the same period, we
earned approximately 65% of our total revenues in Canada and approximately 35%
in Europe. In this period, NBTel, Kingston Vision and SaskTel accounted for 38%,
31% and 16%, respectively, of our total revenues. Excluding equipment sales, the
comparable percentages are NBTel 35%, Kingston Vision 36% and SaskTel 15%.

     Historically, we have generated revenues from NBTel principally from
initial licensing fees, royalty fees, fees for maintenance and technical support
services and equipment sales. Since August 31, 2000, we have not sold any set-
top boxes to NBTel, and we understand that NBTel has placed an order for
additional set-top boxes directly from the supplier. Thus, we anticipate that,
in the future, our revenues from NBTel will not include any significant amount
of equipment sales, but rather will be principally from subscriber-based
royalties and maintenance and technical support services. On that basis, we
expect that, at least for the next several years, the percentage of our total
revenues generated from NBTel will be significantly less than in the past.

     We recognize software licensing revenues in accordance with all applicable
accounting regulations, including the American Institute of Certified Public
Accountants Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," and SOP 98-9, "Modification of SOP 97-2 with respect to Certain
Transactions." Following the requirements of SOP 97-2, we recognize license
revenues when all of the following conditions are met:

     .    we have signed a license agreement with the customer;

     .    we have delivered the software product to the customer;

     .    the amount of the fees to be paid by the customer is fixed or
          determinable; and

     .    we believe that collection of these fees is probable.

     We generally negotiate formal license agreements with our customers. Each
of our license agreements includes provisions for us to receive both an up-front
license fee and royalties. Generally, service providers pay these royalty fees
either in the form of a one-time payment or as an on-going monthly fee. On-going
royalties are recognized monthly based on the number of subscribers at month
end. One-time royalties are recognized quarterly based on the number of new
subscribers at the end of each quarter.

     We often negotiate license agreements that allow for the payment of the
initial license fee to be made in future instalments over a period of less than
a year. Revenues recognized in advance of the instalments being due are recorded
as instalments receivable in the balance sheet.

     Maintenance and technical support revenues are recognized evenly over the
applicable service period, which is usually one year. Revenues derived from
professional services are recognized upon performance of the related services.

     Revenues derived from license agreements containing multiple deliverables,
such as product licenses, maintenance and technical support and other services,
are allocated among the various deliverables based on the fair value of each
deliverable.

                                       31
In the fiscal year ended February 28, 2001, we generated over 57% of our
revenues in U.S. dollars and incurred approximately 75% of our expenses in
Canadian dollars, with the balance in U.S. dollars and other currencies. We
expect that a majority of our revenues will be generated in U.S. dollars for the
foreseeable future and that most of our expenses, including labor costs as well
as capital and operating expenditures, will continue to be denominated in
Canadian dollars. If the Canadian dollar appreciates against the U.S. dollar,
our results of operations could be materially adversely affected.

Costs and Expenses

     Cost of services revenues includes compensation, travel and other related
expenses for our maintenance and technical support services and professional
services departments, along with allocated facilities expenses. To date, the
cost of license fee revenues has been insignificant. Cost of license fee
revenues includes royalties paid to third-party software providers whose
products are embedded in our software products. Oracle Corporation and Sun
Microsystems have been our principal suppliers of third-party software. Sun
granted us a non-exclusive license to incorporate into and distribute with DTV
Manager certain of its Java-based system software until November 2000. While the
parties are negotiating a new agreement, the parties continue to operate under
the terms of the original license. Pursuant to the original license, we pay
variable royalties to Sun on a per subscriber basis, depending on the total
number of our customers' subscribers, and on a per network server basis,
depending on the total number of servers operating DTV Manager. As Oracle
software is no longer embedded in our DTV Manager software and is now licensed
by our customers directly from Oracle, cost of license fees revenues will no
longer include royalties payable to Oracle.

     Cost of equipment revenues includes the cost of set-top boxes purchased for
resale.

     Sales and marketing expenses consist primarily of personnel and related
costs for our direct sales force, technical sales support staff and marketing
staff, costs associated with marketing programs, including tradeshows, public
relations and marketing materials, and allocated facilities costs.

     Research and development expenses consist primarily of salary and other
related costs for personnel, training, independent consultants and facilities
and technology expenses. Technology expenses include license and support fees
for development software, the cost of tools and supplies and third party support
fees. We believe that continued investment in research and development is
critical to assist our customers in achieving successful commercial deployments.

     General and administrative expenses include compensation for corporate
personnel and other expenses, including professional fees, travel and
facilities, net of allocations to our customer service, research and development
and sales and marketing departments. Our general and administration department
includes a portion of our executive office, as well as finance, human resources
and corporate operations staff.

Net Losses

     We have incurred substantial operating losses since our inception. As of
February 28, 2001, we had an accumulated deficit of approximately $20.3 million.
We expect to incur additional losses for at least the next few years.

                                       32
Results of Operations

Fiscal year ended February 28, 2001 compared with the fiscal year ended February
29, 2000

Revenues

     Total revenues increased to $9.0 million for the fiscal year ended February
28, 2001 from $2.1 million for the fiscal year ended February 29, 2000. NBTel,
CenturyTel, Nortel and Boardwalk Equities accounted for approximately 28%, 18%,
10% and 10%, respectively, of our total revenues for the fiscal year ended
February 28, 2001. NBTel, Kingston Vision and SaskTel accounted for 38%, 31% and
16%, respectively, of our total revenues for the fiscal year ended February 29,
2000. Excluding equipment sales, the comparable percentages for the fiscal year
ended February 28, 2001 are NBTel 19%, CenturyTel 20%, Nortel 12% and Boardwalk
Equities 10% and the comparable percentages for the fiscal year ended February
29, 2000 are NBTel 35%, Kingston Vision 36% and SaskTel 15%.

     License and Royalty Fees.  License and royalty fee revenues increased to
$6.1 million for the fiscal year ended February 28, 2001 from $1.4 million for
the fiscal year ended February 29, 2000. This increase is due to the recognition
of license fee revenues of $4.8 million from eleven customers and royalty fee
revenues of $1.3 million consisting of $1.2 million in one-time subscriber based
royalties from NBTel and $48,000 in on-going monthly subscriber based royalties
from Kingston Vision.

     Services.  Services revenues increased to $1.8 million for the fiscal year
ended February 28, 2001 from $393,000 for the fiscal year ended February 29,
2000. During the year we recognized approximately $900,000 of the services
revenues for consulting and implementation services provided to one of our
customers, CenturyTel. The remainder of these services revenues came from
maintenance and technical support services that we provide to our customers
under the terms of their license agreements with us.

     Equipment.  Equipment revenues increased to $1.1 million for the fiscal
year ended February 28, 2001 from $321,000 for the fiscal year ended February
29, 2000. This increase is due to the recognition of $1.0 million of equipment
revenues from sales of set-top boxes to NBTel under a set-top box supply
agreement.

Cost of Revenues

     Cost of revenues increased to $3.5 million for the fiscal year ended
February 28, 2001 from $988,000 for the fiscal year ended February 29, 2000.
This increase, excluding $1.0 million related to equipment costs, primarily
reflects an increase in personnel in our customer service department to support
our increased customer base from nine employees as of February 29, 2000 to 21 as
at February 28, 2001.

Operating Expenses

     Our total operating expenses increased to $18.6 million for the fiscal year
ended February 28, 2001 from $7.2 million for the fiscal year ended February 29,
2000.

     Sales and Marketing.  Sales and marketing expenses increased to $7.8
million for the fiscal year ended February 28, 2001 from $2.3 million for the
fiscal year ended February 29, 2000. This increase is primarily due to the
addition of sales and marketing personnel, as well as increased travel and
related expenses. Our marketing department increased to 41 employees as of
February 28, 2001 from 20 as of February 29, 2000. Our sales department
increased to 16 employees as of February 28, 2001 from six as of February 29,
2000. These increases in staffing levels were the result of our efforts to
expand our direct sales force coverage area and increase our marketing
activities.

                                       33
Research and Development.  Research and development expenses increased to
$8.0 million for the fiscal year ended February 28, 2001 from $4.1 million for
the fiscal year ended February 29, 2000. This increase reflects an increase in
personnel in our research and development department to 113 employees as of
February 28, 2001 from 60 as of February 29, 2000 as we accelerated our efforts
to develop new products and services.

     General and Administrative.  General and administrative expenses increased
to $2.9 million for the fiscal year ended February 28, 2001 from $827,000 for
the fiscal year ended February 29, 2000. Our corporate staffing increased to 25
employees as of February 28, 2001 from 15 as of February 29, 2000, principally
to support our increased corporate activities related to becoming a public
company. We also incurred additional expenses to support our international
expansion.

     Stock-based compensation.  Stock-based compensation expenses have been
allocated to the operating expense items based on the nature of the work
performed by the employee to whom the options were granted. Stock-based
compensation expenses were $550,000 for the fiscal year ended February 28, 2001.
We did not record any stock-based compensation expense for the fiscal year ended
February 29, 2000. Stock based-compensation expense represents the difference
between the exercise price of options granted and the deemed fair value, for
financial reporting purposes, of our common shares on the date of their
respective granting. This stock-based compensation expense is being amortized on
a straight-line basis over the vesting period of the options which is generally
four years. The expense is largely attributable to amortization of deferred
stock-based compensation related to options granted between May 2000 and August
2000.

Other Income (Expense), Net

     Other income increased to $1.6 million for the fiscal year ended February
28, 2001 from $524,000 for the fiscal year ended February 29, 2000. Interest
income made up $1.1 million of other income for the fiscal year ended February
28, 2001 as compared to $121,000 for the fiscal year ended February 29, 2000.
This increase in interest income is primarily due to the investment of excess
funds received from our private placements in December 1999 and September and
October 2000 and our November 2000 initial public offering. Other income for the
fiscal year ended February 29, 2000 also included income of $431,000 for
forgiveness of debt.

Fiscal year ended February 29, 2000 compared with the fiscal year ended February
28, 1999

Revenues

     Total revenues increased to $2.1 million for the fiscal year ended February
29, 2000 from $479,000 for the fiscal year ended February 28, 1999. NBTel,
Kingston Vision and SaskTel accounted for 38%, 31% and 16%, respectively, of our
total revenues in the fiscal year ended February 29, 2000. NBTel accounted for
97% of our total revenues in the fiscal year ended February 28, 1999.

     License Fees.  License fee revenues increased to $1.4 million for the
fiscal year ended February 29, 2000 from nil in the fiscal year ended February
28, 1999. This increase is due to the recognition of license fee revenues on
three of our customer license agreements.

     Services.  Services revenues increased to $393,000 for the fiscal year
ended February 29, 2000 from $14,000 for the fiscal year ended February 28,
1999. The increase is primarily due to the provision of maintenance and
technical support and training services to our customers under the terms of
their license agreements.

                                       34
Equipment.  Equipment revenues decreased to $321,000 for the fiscal year
ended February 29, 2000 from $465,000 for the fiscal year ended February 28,
1999. The equipment revenues during both periods resulted from our sales of set-
top boxes to NBTel for its roll out of multi-channel digital television service
in the Province of New Brunswick.

Cost of Revenues

     Cost of revenues increased to $988,000 for the fiscal year ended February
29, 2000 from $604,000 for the fiscal year ended February 28, 1999. The increase
in the cost of services revenues in fiscal 2000 is attributable to the hiring of
nine employees in our customer services department to support our licensed
customers. The 45% decrease in cost of equipment revenues to $331,000 in fiscal
2000 from $604,000 in fiscal 1999 is due to the one-time charge of $383,000
recorded in fiscal 1999 related to the write-off of a non-refundable deposit
pursuant to a contract to purchase digital set-top boxes.

Operating Expenses

     Our total operating expenses increased to $7.2 million for the fiscal year
ended February 29, 2000 from $2.9 million for the fiscal year ended February 28,
1999.

     Sales and Marketing.  Sales and marketing expenses increased to $2.3
million for the fiscal year ended February 29, 2000 from $543,000 for the fiscal
year ended February 28, 1999. This $1.8 million increase is primarily due to the
addition of sales and marketing personnel, as well as increased travel and
related expenses. Our sales and marketing department increased to 28 employees
as of February 29, 2000 from nine as of February 28, 1999.

     Research and Development.  Research and development expenses increased to
$4.1 million for the fiscal year ended February 29, 2000 from $2.0 million for
the fiscal year ended February 28, 1999. This $2.1 million increase reflects an
increase in our research and development staff to 60 employees as of February
29, 2000 from 24 as of February 28, 1999 as a result of increased research and
development activity surrounding our release of the current version of DTV
Manager.

     General and Administrative.  General and administrative expenses increased
to $827,000 for the fiscal year ended February 29, 2000 from $344,000 for the
fiscal year ended February 28, 1999. The increase largely resulted from an
increase in our corporate staffing to 12 employees as of February 29, 2000 from
four as of February 28, 1999.

Other Income (Expense), Net

     Other income (expense) increased to income of $524,000 in the fiscal year
ended February 29, 2000 from an expense of $25,000 in the fiscal year ended
February 28, 1999. The increase is primarily due to the forgivable government
assistance obtained from the Province of New Brunswick, through Newbridge
Networks, in the amount of $434,000. Interest income of $121,000 for fiscal 2000
related to the short-term investments of surplus funds.

Quarterly Results of Operations

     The following table sets forth certain unaudited consolidated statements of
operations data for each of the eight most recent quarters ended February 28,
2001. This information has been derived from our unaudited consolidated
financial statements that, in the opinion of our management, have been prepared
on a basis consistent with the audited consolidated financial statements
contained elsewhere in this annual report and, in the opinion of our management,
include all adjustments, consisting only of

                                       35
normal recurring adjustments, necessary for fair presentation of our financial
position and results of operations for those periods. These operating results
are not necessarily indicative of results for any future period. You should not
rely on them to predict our future performance.

(In thousands of U.S. dollars, except per share amounts)
Quarter Ended                    May 31,   Aug. 31,     Nov. 30,     Feb. 29,     May 31,      Aug. 31,     Nov. 30,     Feb. 28,
                                  1999      1999         1999         2000         2000         2000         2000         2001
==================================================================================================================================
Consolidated Statement of
 Operations Data

Revenues:
 License fees                    $     -   $     -      $   720      $   664      $   512      $ 1,543      $ 1,662      $ 1,053
 Royalty fees                          -         -            -            -           23           47          142        1,076
 Services                            110       100           82          101          137          200          357        1,097
 Equipment                             -         6          226           89           59        1,048            4           39
----------------------------------------------------------------------------------------------------------------------------------
Total revenues                        110      106        1,028          854          731        2,838        2,165        3,265
Cost of revenues:
 Services                              81      156          231          189          318          360          624        1,077
 Equipment                              -        4          225          102           58          972            4           34
----------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues                 81      160          456          291          376        1,332          628        1,111
----------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss)                    29      (54)         572          563          355        1,506        1,537        2,154
Operating expenses:
 Sales and marketing                  318      505          677          825        1,242        1,510        2,066        2,945
 Research and development             690      916        1,269        1,209        1,537        1,653        2,444        2,333
 General and administrative           167      180          214          266          349          606          842        1,018
----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses            1,175    1,601        2,160        2,300        3,128        3,769        5,352        6,296
----------------------------------------------------------------------------------------------------------------------------------
Loss from operations               (1,146)  (1,655)      (1,588)      (1,737)      (2,773)      (2,263)      (3,815)      (4,142)
Other income (expense), net            (2)     472           19           35           99           17          605          838
----------------------------------------------------------------------------------------------------------------------------------

Loss before provision for
 income taxes                      (1,148)  (1,183)      (1,569)      (1,702)      (2,674)      (2,246)      (3,210)      (3,304)
Provision for income taxes            (20)      (4)          (8)         (12)         (11)         (19)          (7)         (13)
----------------------------------------------------------------------------------------------------------------------------------

Net loss-in accordance with
 Canadian and U.S. GAAP           $(1,168) $(1,187)     $(1,577)     $(1,714)     $(2,685)     $(2,265)     $(3,217)     $(3,291)
==================================================================================================================================

Basic and diluted net loss per
share - in accordance with
Canadian and U.S. GAAP            $ (0.10) $ (0.09)     $ (0.12)     $ (0.10)     $ (0.15)     $ (0.13)     $ (0.16)     $ (0.13)
==================================================================================================================================

Weighted average number of
shares used in computing
basic and diluted net loss
per share (000s)                   12,040   12,949       13,336       17,548       17,552       17,556       19,586       24,593
Liquidity and Capital Resources

     From our inception, we have financed our operations primarily through the
issuance of common equity, long-term debt and revenues from our operations. In
September and October 2000 we completed private placements for net proceeds of
$25.0 million resulting in the issuance of aggregate of 2,272,655 common shares.
In November 2000, we completed our initial public offering of an aggregate of
4,750,000 common shares for net proceeds of $46.2 million. Through February 28,
2001, we had received aggregate proceeds of $87.7 million from the issuance of
common equity, and as of that date, we had cash equivalents of $1.3 million and
short- term investments of $59.5 million. As of February 28, 2001, we had an
accumulated deficit of approximately $20.3 million.

                                       36
Our operating activities used cash in the amount of $12.1 million for the
fiscal year ended February 28, 2001, $3.8 million in fiscal 2000 and $4.5
million in fiscal 1999. The cash utilized during these periods was primarily to
fund our research and development and sales and marketing efforts.

     Our cash used in investing activities, before the purchase of temporary
investments, was $3.0 million for the fiscal year ended February 28, 2001,
$992,000 for the fiscal year ended February 29, 2000 and $780,000 for the fiscal
year ended February 28, 1999. Cash used in investing activities reflects
purchases of computer equipment, office furniture and equipment and leasehold
improvements. We anticipate that our expenditures will continue to increase in
the future.

     Our cash from financing activities was $70.0 million for the fiscal year
ended February 28, 2001. Our cash from financing activities was $10.6 million,
consisting of $8.8 million from the issuance of common shares and proceeds from
long-term debt of $1.8 million, for fiscal year ended February 29, 2000 and $5.7
million from the issuance of common shares for fiscal year ended February 28,
1999.

     We expect that our cash position as at February 28, 2001 will be sufficient
to cover our working capital requirements for approximately the next 24 months.
In the longer term, we may require additional equity financing or borrowing to
fund our business.

Outlook

     At the present time, the telecommunications industry is experiencing a
significant reduction in capital spending. As a result, we anticipate a
lengthening of our sales cycle as our customers extend market trials and delay
the significant capital commitments associated with commercial deployment. This
will delay licensing revenues generated by us from the commercial deployment of
DTV Manager. We expect, however, that we will generate some revenues from
professional services provided to customers during market trials.

     While expenses for the fiscal year ending February 28, 2002 will increase
when compared to the fiscal year ended February 28, 2001, we intend to hold
expenses at present levels and conserve cash so as to maintain our operations as
presently constituted.

Impact of Foreign Exchange Rate Exposure

     We expect that in the future a majority of our revenues will be earned in
U.S. dollars, and that most of our operating expenses and capital asset
purchases will continue to be in Canadian dollars. Changes in the value of the
Canadian dollar relative to the U.S. dollar may result in currency translation
gains or losses, which could have a material impact on our operating results. We
also deal in other foreign currencies; however, we anticipate changes in the
exchange rates of these currencies will not have a material impact. While we do
not hedge our foreign exchange rate exposure with financial derivative
instruments, we do maintain a portion of our short term investment portfolio in
Canadian dollar denominated instruments.

C.   Research and Development, Patents and Licenses, etc.

     See "Business Overview-Technology and Research and Development" in "Item 4.
Information on the Company."

                                       37
D.   Trend Information

     See "Management's Discussion and Analysis - Outlook" in "Item 5. Operating
and Financial Reviews and Prospects."

ITEM 6.   DIRECTORS AND EXECUTIVE OFFICERS

A.   Directors and Management

     Each of our directors is elected by the shareholders to serve until the
next annual meeting of shareholders or until a successor is elected or
appointed. Our executive officers are appointed annually to serve at the
discretion of the board of directors. The following table sets forth certain
information about our directors and executive officers, as of June 19, 2001.

Name                             Age   Position
----                             ---   --------
Marcel LeBrun..................  31    President, Chief Executive Officer and
                                       Director
Peter G. Jollymore/(2)//(3)/...  61    Chairman of the Board of Directors
Allan Cameron..................  47    Vice President of Technology
Gerry Verner...................  36    Vice President of Marketing and Business
                                       Development
Marjean Henderson..............  50    Vice President and Chief Financial
                                       Officer
Nigel Bealing..................  38    Vice President of Sales, Europe, Middle
                                       East and Africa
Norman Bier....................  40    Vice President of Sales, North and South
                                       America
Pierre-Jean Chalon.............  40    Vice President of Sales, Asia Pacific
Dany DeGrace...................  34    Vice President of Customer Solutions
Gregory Allemann...............  54    Director
Joe C. Culp/(1)//(2)/..........  67    Director
Carey Diamond/(1)//(3)/........  45    Director
Dr. Terence H. Matthews........  57    Director
Michael J. McCloskey...........  45    Director
Robert E. Neal/(1)/............  45    Director
Gerald L. Pond/(2)//(3)/.......  56    Director
Paul Spruyt....................  38    Director

Notes:

/(1)/  Member of audit committee
/(2)/  Member of human resources committee
/(3)/  Member of governance committee

     The following is a summary of the background of each director and
executive officer.

     Marcel Lebrun. Mr. LeBrun co-founded ImagicTV and has served as President
and Chief Executive Officer and is a director since January 1998. From June 1992
to December 1997, Mr. LeBrun held various positions at NBTel, including Managing
Director of E-Business Services and other senior technical, marketing and
strategic business planning positions.  Mr. LeBrun has a Bachelor of Science in
Electrical and Computer Engineering from the University of New Brunswick. Mr.
LeBrun resides in Fredericton, New Brunswick.

                                       38
Peter G. Jollymore. Mr. Jollymore has served as Chairman of the Board and a
director of ImagicTV since January 1998.  He is also currently the Acting Dean
of the Faculty of Business at the University of New Brunswick in Saint John, New
Brunswick. From 1967 until his retirement in December 1998, Mr. Jollymore served
in various positions at NBTel from design engineer to Vice President of NBTel
and its affiliate Bruncor Inc.  He serves on the Board of Directors of the
Business Development Bank of Canada and of Callistro Multimedia Inc., a computer
software company producing video-on-demand applications.  He has a Bachelor of
Science in Engineering from Mount Allison University and a Bachelor of
Engineering from the Technical University of Nova Scotia. Mr. Jollymore resides
in Saint John, New Brunswick.

     Allan Cameron. Mr. Cameron co-founded ImagicTV and has served as Vice
President of Technology since January 1998. From May 1978 to December 1997, Mr.
Cameron held various positions, including strategic and technical planning
positions, at BNTel, where, among other things, he worked on the creation of
NBTel's Beacon/VideoActive initiative, a deployment of broadband access
capabilities using coaxial cable.  Mr. Cameron has a Bachelor of Science in
Engineering and a Master of Science in BioEngineering from the University of New
Brunswick. Mr. Cameron resides in Saint John, New Brunswick. Mr. Cameron resides
in Saint John, New Brunswick.

     Gerry Verner. Mr. Verner has served as Vice President of Marketing and
Business Development of ImagicTV since July 2000 and served as Vice President,
Marketing and Chief Financial Officer of ImagicTV from November 1998 to July
2000. From May 1986 to November 1998, Mr. Verner held various technical,
marketing and management positions in NBTel, including Strategic Planning
Manager. He has a Bachelor of Science in Electrical Engineering and a Masters in
Business Administration from the University of New Brunswick. Mr. Verner resides
in Quispamsis, New Brunswick.

     Marjean Henderson. Ms. Henderson has served as Vice President and Chief
Financial Officer of ImagicTV since July 31, 2000. From August 1997 until July
2000, Ms. Henderson was Senior Vice President and Chief Financial Officer of
Nucentrix Broadband Network, Inc., a provider of wireless broadband Internet and
wireless cable services. From April 1996 to May 1997, she was Senior Vice
President and Chief Financial Officer of Panda Energy Corporation, a global
energy company. From December 1993 to June 1995, Ms. Henderson served as Senior
Vice President and Chief Financial Officer of Nest Entertainment, Inc., a
company which produces and markets home videos and feature length movies. From
October 1987 to December 1993, Ms. Henderson was Chief Financial Officer of RCL
Enterprises, Inc. and its affiliate, Lyrick Studios, which owns the character
"Barney the Purple Dinosaur" and owns and produces the series "Barney and
Friends." She has a Bachelor of Business Administration from the University of
Texas. Ms. Henderson is a Certified Public Accountant. She resides in Dallas,
Texas.

     Nigel Bealing. Mr. Bealing has served as Vice President of Sales for
Europe, Middle East and Africa of ImagicTV since April 2001 and was European
Sales Manager of ImagicTV from October 2000 to April 2001. From October 1996 to
October 2000, Mr. Bealing held various senior positions, including Director -
Northern Europe and European Sales Manager, at Optibase Europe Ltd., a company
which provides broadband digital video-networking solutions and MPEG-based
digital video content. He resides in Berkshire, England.

     Norman Bier. Mr. Bier has served as Vice President of Sales for North and
South America of ImagicTV since April 2001 and served as Assistant Vice
President of Sales - US of ImagicTV from October 2000 to April 2001 and as
General Manager - East US of ImagicTV from December 1999 to October 2000. From
January 1999 to December 1999, Mr. Bier was Vice President and General Manager
of Tel-Link LLC, a competitive local exchange carrier. From November 1994 to
January 1998, he served

                                       39
as Vice President of an outsourcing billing services unit at BellSouth
Telecommunications. Mr. Bier resides in Cumming, Georgia.

     Pierre-Jean Chalon. Mr. Chalon has served as Vice President of Sales for
Asia Pacific of ImagicTV since April 2001. From December 1996 to January 2001,
Mr. Chalon  was Managing Director of Asia Pacific at CS Telecom, a manufacturer
of corporate networks and carrier access networks. He has a Master of Science
from the Institut National des Telecommunications in Evry, France. Mr. Chalon
resides in Singapore.

     Dany Degrace. Ms. DeGrace has served as Vice President of Customer
Solutions of ImagicTV since February 2001 and was Senior Director of Engineering
of ImagicTV from June 1998 to February 2001. From April 1995 to June 1998, Ms.
DeGrace was a technical architect at Datacor/ISM, an IT outsourcing company. She
has a Bachelor of Scientific Computer Anaylsis from the University of Moncton.
Ms. DeGrace resides in Saint John, New Brunswick.

     Gregory Allemann. Mr. Allemann was appointed as a director of ImagicTV in
April 2001. Since March 2001, he has served as Vice President of Marketing and
Sales for WebOffice, Inc., a privately held communications infrastructure
company. Mr. Allemann is also President of Allemann Associates, a consulting
firm for the communications industry.  In 2000, Mr. Allemann retired from SBC
Communications after a 30-year career in which he held a variety of positions in
technology research, network planning, network operations, product development,
market planning, and procurement. During his last eight years with SBC, Mr.
Allemann was Vice President and Executive Director of Broadband Infrastructure
and Services for SBC's R&D subsidiary (SBC Technology Resources, Inc.). He has
served and chaired in Texas Telecommunications Engineering Consortium and the
Advisory Board of the University of Texas Electrical Engineering Department. Mr.
Allemann resides in Austin, Texas.

     Joe C. Culp. Mr. Culp was elected as a director of ImagicTV in August 1999.
Since 1990, he has served as President of Culp Communications Associates, a
management consulting firm for the telecommunications industry. Mr. Culp has
served as President of Lightnet, a fibre optic telecommunications carrier that
Southern New England Telephone Company (now SBC Corporation) and CSX Corporation
owned. He has also served as President of the Telecom Group of Rockwell
International, a provider of electronic controls and telecommunications
equipment. Mr. Culp currently serves on the Board of Directors of two privately-
held telecommunications companies. He has served on the Advisory Board of the
telecommunications group of the University of Texas, Arlington and the
University of Arkansas. Mr. Culp resides in Austin, Texas.

     Carey Diamond. Mr. Diamond was elected as a director of ImagicTV in August
1999. Since 1996, he has served as President and Chief Executive Officer of
Whitecastle Investments Limited, a private investment company in Canada and as
managing director of its venture capital division Whitecap Venture Partners.
From 1989 to 1996, Mr. Diamond served as Executive Vice President of
Whitecastle. He currently serves on the Board of Directors of Alterna
Technologies Group Inc., Photonami Inc. and Texar Corporation, all privately
held Canadian high technology companies. Mr. Diamond resides in Toronto,
Ontario.

     Dr. Terence H. Matthews. Dr. Mathews was elected as a director in January
1998. Dr. Matthews founded Newbridge Networks Corporation, a company that
designs, manufactures, markets and services wide area network solutions, in
March 1986 and served as Chairman of the Board and Chief Executive Officer of
Newbridge from its inception to May 2000. Dr. Matthews was a co-founder of Mitel
Corporation, a designer and manufacturer of telecommunications integrated
circuit devices. He is also the principal of Celtic House International. Since
June 2000, he has been Chairman and Chief Executive

                                       40
Officer of March Networks Corp., a networked video applications company. Dr.
Matthews resides in Kanata, Ontario.

     Michael J. McCloskey. Mr. McCloskey was appointed a director of ImagicTV in
July 2000. Since June 1999, Mr. McCloskey has served as Chief Executive Officer
and a director of Kana Communications Inc., a publicly traded company which is a
provider of customer communication and commerce tools for e-businesses. Prior to
joining Kana, from September 1996 to December 1998, Mr. McCloskey served in
various senior management positions with Genesys Telecommunications
Laboratories, Inc., a provider of enterprise interaction management software,
including President, Chief Operating Officer, Vice President-Finance and
International, Chief Financial Officer and Secretary. From May 1995 to September
1996, he served as Vice President, Finance, Chief Financial Officer and Vice
President, Operations at Network Appliance, Inc., a network data storage device
company. Mr. McCloskey resides in Pleasanton, California.

     Robert E. Neal. Mr. Neal was elected as a director of ImagicTV in June
1999. Since June 2000, he has served as President of Innovatia Inc., a company
within the Aliant emerging business group that focuses on the development and
sale of Internet-based technology. Mr. Neal joined NBTel in 1979 and since that
time has held various positions with NBTel and its affiliates, including Vice
President from September 1998 to February 2000. Mr. Neal resides in Quispamsis,
New Brunswick.

     Gerald L. Pond. Mr. Pond was elected as a director of ImagicTV in January
1998. From November 1994 to March 1999, Mr. Pond served as President and Chief
Executive Officer of Bruncor. Since March 1999, Mr. Pond has served as Executive
Vice President of Aliant.  Mr. Pond is also the President of Aliant Telecom and
Emerging Business. He is currently serving on the Board of Directors of
Innovatia and Prexar Inc., both Aliant affiliates. Mr. Pond resides in Rothesay,
New Brunswick.

     Paul Spruyt. Mr. Spruyt was elected as a director of ImagicTV in July 2000.
Since September 1999, he has served as General Manager of VDSL Virtual Company
of Alcatel, a corporation which builds next generation networks, delivering
integrated end-to-end voice and data communications solutions. From November
1997 to August 1999, he was Project Manager of Metallic Access Systems for
Alcatel and from August 1995 to October 1997, he was Project Manager of Twisted
Pair Access Systems for Alcatel. Mr. Spruyt resides in Heverlee, Belgium.

B.   Compensation

Compensation of Named Executive Officers

     The following table sets forth the compensation paid to Marcel LeBrun,
Norman Bier, Doug Harrington, Marjean Henderson, Gerry Verner and Allan Cameron
(the "Named Executive Officers") for each of our three most recently completed
fiscal years.  The Named Executive Officers are the only persons for whom
executive compensation disclosure is required under applicable Canadian
securities laws.  We have not adopted any long-term incentive plans.

                                       41
Summary Compensation Table for the Fiscal Year Ended February 28, 2001
------------------------------------------------------------------------------------------------------------------------------
                                                      Annual Compensation                Long-Term
                                                                                        Compensation
                                             --------------------------------------     ------------
                                                                                           Awards
                                                                                        ------------
                                                                   Other Annual        Securities Under        All Other
                                               Salary    Bonus   Compensation/(2)/         Options          Compensation/(3)/
   Name and Principal Position   Year/(1)/      ($)       ($)          ($)                   (#)                  ($)
------------------------------------------------------------------------------------------------------------------------------
Marcel LeBrun, President and     2001      163,400    50,200       21,600                     -                   -
   Chief Executive Officer          2000       81,300         -        7,050               186,176                   -
                                    1999       68,700         -        4,400                     -                   -

------------------------------------------------------------------------------------------------------------------------------

   Norman Bier,                     2001      105,800         -            -                11,636              99,300
   Vice President of Sales for      2000       26,800         -            -                29,090              12,000
   North and South America/(4)/     1999            -         -            -                     -                   -
------------------------------------------------------------------------------------------------------------------------------

   Doug Harrington, Vice            2001      119,800    20,100       18,900                     -                   -
   President of Sales/(5)/          2000       69,600         -        6,250                69,816                   -
                                    1999       60,000         -        2,600               104,724                   -
------------------------------------------------------------------------------------------------------------------------------

   Marjean Henderson, Vice          2001      117,100         -        7,630               197,812                   -
   President and Chief              2000            -         -            -                     -                   -
   Financial Officer/(6)/           1999            -         -            -                     -                   -
------------------------------------------------------------------------------------------------------------------------------

   Gerry Verner,                    2001       94,000    13,400       19,000                     -                   -
   Vice President of Marketing      2000       63,700         -        6,150               104,724                   -
   and Business Development         1999       15,200         -            -                69,816                   -
------------------------------------------------------------------------------------------------------------------------------

   Allan Cameron,                   2001       94,700         -       19,000                     -                   -
   Vice President of Technology     2000       73,100         -        6,550               162,904                   -
                                    1999       67,500         -        3,700                     -                   -
------------------------------------------------------------------------------------------------------------------------------
Notes:

/(1)/  The amounts are determined for the applicable fiscal year ended on the
       last day of February.
/(2)/  Amounts include payments made by us as matching registered retirement
       savings and pension plan contributions to those made by our executive
       officers and an automobile allowance.
/(3)/  Amounts include commissions paid to the executive officers.
/(4)/  Mr. Bier joined ImagicTV in December 1999 and has served as an executive
       officer since April 30, 2001
/(5)/  Mr. Harrington's employment with ImagicTV ceased on March 19, 2001.
/(6)/  Ms. Henderson joined ImagicTV in July 2001.

                                       42
The following table sets forth individual grants of stock options during
the fiscal year ended February 28, 2001 to the Named Executive Officers:

         Option Grants during the Fiscal Year ended February 28, 2001
-------------------------------------------------------------------------------------------------------------------------------
                                             % of Total                               Market Value
                                              Options                                   of Shares
                             Shares          Granted to                                Underlying
                             Under           Employees           Exercise or           Options at
                            Options          in Fiscal           Base Price           Date of Grant
        Name                Granted            Year             ($ per Share)         ($ per Share)          Expiration Date
-------------------------------------------------------------------------------------------------------------------------------
Marcel LeBrun                     -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
Norman Bier                  11,636              0.73%                 11.17              11.17/(1)/            2007/09/13
-------------------------------------------------------------------------------------------------------------------------------
Doug Harrington                   -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
Marjean Henderson           197,812             12.45%                  1.54               1.54/(1)/            2007/07/31
-------------------------------------------------------------------------------------------------------------------------------
Gerry Verner                      -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
Allan Cameron                     -                 -                      -                  -                     -
-------------------------------------------------------------------------------------------------------------------------------
Note:

/(1)/  There was no public market for the common shares on the dates of the
       option grants. Therefore, the amounts set forth in this column represent
       the fair market value of the common shares as of the dates, as determined
       by our Board of Directors.

 Aggregate Option Exercises in Last Fiscal Year and Fiscal Year Option Values

     The officers named in the summary compensation table did not exercise any
options during the fiscal year ended February 28, 2001. The following table sets
forth the estimated fair market value as of February 28, 2001 of the exercisable
and unexercisable options held by these officers.
-----------------------------------------------------------------------------------------------------------
                                               Number of Common
                                              Shares Underlying                    Value of Unexercised
                                             Unexercised Options                 In-The-Money Options at
                                            at Fiscal Year End (#)               Fiscal Year End ($)/(1)/
-----------------------------------------------------------------------------------------------------------
 Name                                     Exercisable      Unexercisable      Exercisable     Unexercisable
-----------------------------------------------------------------------------------------------------------
Marcel LeBrun                                133,814            168,722         $313,648         $335, 873
-----------------------------------------------------------------------------------------------------------
 Norman Bier                                    7,273             33,453           14,982            44,943
-----------------------------------------------------------------------------------------------------------
 Doug Harrington                               69,817            104,723          171,037           240,820
-----------------------------------------------------------------------------------------------------------
 Marjean Henderson                                  -            197,812                -           320,455
-----------------------------------------------------------------------------------------------------------
 Gerry Verner                                  61,089            113,451          121,654           206,481
-----------------------------------------------------------------------------------------------------------
 Allan Cameron                                123,633            149,813          289,098           292,470
-----------------------------------------------------------------------------------------------------------
Note:

/(1)/  The value of an "in-the-money" option represents the difference between
       the aggregate estimated fair market value of the common shares issuable
       upon exercise of the option and the aggregate exercise price of the
       option. The fair market value of the common shares on February 28, 2001
       was $3.16 as quoted on the Nasdaq National Market.

                                       43
Compensation of Directors

     During the fiscal year ended February 28, 2001, no director received
monetary compensation for serving as a director of ImagicTV other than
reimbursement for expenses incurred in attending meetings. The following
directors received options to purchase common shares pursuant to our stock
option plan in the fiscal year ended February 28, 2001 as compensation for
acting as directors:
--------------------------------------------------------------------------------------------------------
                          Common Shares
  Name of Director        Under Options       Exercise Price      Date of Grant       Expiration Date
                             Granted          ($ per share)
--------------------------------------------------------------------------------------------------------
Joe C. Culp                  11,636               $1.54             2000/03/23           2007/03/23
                             11,636               $1.54             2000/08/10           2007/08/10
--------------------------------------------------------------------------------------------------------
Michael McCloskey            23,272               $1.54             2000/08/10           2007/08/10
--------------------------------------------------------------------------------------------------------
Peter Jollymore              29,090               $1.54             2000/08/10           2007/08/10
--------------------------------------------------------------------------------------------------------
Effective May 30, 2001, we adopted a new compensation structure for
directors.  On such date, Greg Allemann was granted options to purchase 25,000
common shares at an exercise price of C$1.95 to vest over three years at a rate
of 1/36 per month from date of grant with an expiration date of seven years from
date of grant.  Annually, each of Peter Jollymore, Joe Culp and Greg Allemann,
on confirmation of their appointment for the following year at the annual
meeting of shareholders, will be granted options to purchase 10,000 common
shares at an exercise price equal to the closing price of common shares on the
Toronto Stock Exchange, or the TSE, on the day immediately prior to the date of
grant; these options, which are to be granted 72 hours after the annual meeting
of shareholders, will vest 12 months from the date of grant and will have an the
expiration date of seven years from date of grant.  Annually, 72 hours after the
annual meeting of shareholders, each director who is a chairman of a committee
of the Board of Directors and not a member of management will receive options to
purchase an additional 5,000 common shares at an exercise price equal to the
closing price of common shares on the TSE on the day immediately prior to the
date of grant; such options to vest in 12 months from the date of grant and to
an expiration date of seven years from date of grant. Joe Culp and Greg Allemann
each receive a payment of $1,000 per day, per meeting attended in person,
including travel time.

Directors' and Officers' Liability Insurance

     We provide liability insurance for our directors and officers.  The policy
does not distinguish between the liability insurance for directors and officers,
the coverage being the same for both groups.  The premium for the twelve-month
period ending November 21, 2001 is $363,000, all of which is borne by us.  The
policy limit is $20,000,000 with a $200,000 retention for securities claims and
a $100,000 retention for non-securities claims.  Our directors and officers are
insured against losses arising from claims against them for certain of their
acts, errors or omissions in such capacity.  We are insured against losses
arising out of any liability to indemnify a director or officer.

Employment Agreements

     Each of the Named Executive Officers, except Mr. Bier, entered into an
employment agreement with us dated July 17, 2000.  We are in the process of
settling the terms of Mr. Bier's employment agreement.

     Pursuant to these agreements, the annual base salary for each officer is as
follows: Mr. LeBrun, $220,000; Mr. Verner, $110,000; Ms. Henderson, $210,000;
and Mr. Cameron, $110,000.

                                       44
Mr. Harrington's employment was terminated on March 19, 2001. These base
salaries are subject to review by our Board of Directors in its discretion.
Further, the officers (other than Mr. Bier) are entitled to an annual bonus, up
to a maximum of 50% of his or her annual base salary, as determined by our Board
of Directors in its discretion based upon target profit and revenue performance
levels and upon individual performance. In addition, pursuant to the terms of
the employment agreements with each of the Named Executive Officers (other than
Mr. Bier), he or she is subject to non-competition provisions during his or her
employment and for 12 months thereafter and to confidentiality restrictions.

     With respect to each of the Named Executive Officers (other than Mr. Bier)
the employment agreement provides that in the event of termination without cause
the executive officer is entitled to monthly severance payments equal to his or
her respective base salary for one year, continued benefits coverage for one
year, and a pro rata portion of any earned bonus and to exercise vested options
and any unvested options that otherwise would have vested in the 12 month period
following the date of termination.  In the event of termination for cause, the
Named Executive Officer (other than Mr. Bier) is entitled to receive his or her
respective salary and bonus through the date of termination and to exercise
vested options for which the executive officer had provided notice of exercise
prior to the date of termination.

     In the event of a change of control of ImagicTV, which is defined as the
acquisition by a person of 51% or more of our outstanding voting shares, the
employment agreements which the Named Executive Officers (other than Mr. Bier),
provided that we may terminate the employment of the Executive Officer. Each
Named Executive Officer (other than Mr. Bier) also has the right to terminate
his or her employment in the event of a change of control. The Named Executive
Officers (other than Mr. Bier) are each entitled to a severance payment equal to
his or her respective accrued base salary and the pro-rated portion of any
earned bonus.  In addition, each Named Executive Officer (other than Mr. Bier)
has the right, on termination, to exercise, within 90 days, any options granted
to that executive officer, regardless of vesting date.

C.   Board Practices

     Our board of directors is currently comprised of ten persons. At the annual
meeting of shareholders to be held on July 31, 2001 the shareholders will be
asked to elect nine directors. All of the nominees to be elected at the meeting
are currently directors. In accordance with the provisions of the Canada
Business Corporations Act, our directors are authorized from time to time to
increase the size of the board of directors, and to fix the number of directors,
up to a maximum of 12 persons as currently provided under our articles, without
the prior consent of the shareholders.

Board Committees

     Our board of directors has established an audit committee, a human
resources committee and a governance committee. All of the committees of our
board of directors were appointed on February 3, 2000.

                                       45
Audit Committee

     We are is required by applicable law to have an audit committee consisting
of at least three directors, a majority of whom must be independent, non-
executive directors. The audit committee currently has three members: Joe Culp,
Chairman, Carey Diamond and Robert Neal. The audit committee is responsible for,
among other things: (i) recommending the annual appointment of our auditors;
(ii) reviewing the independence of our auditors; (iii) reviewing and approving
interim and annual financial statements with management and our auditors; (iv)
assessing accounting principles used by our financial reporting; and (v)
reviewing the adequacy of our internal control procedures.

Corporate Governance Committee

     The Corporate Governance Committee consists of Carey Diamond, Chairman,
Peter Jollymore and Gerald Pond. The committee's mandate is to develop and
monitor our approach to corporate governance issues, establish procedures for
the identification of new nominees to our board, develop and implement
orientation procedures for new directors and assess the effectiveness of our
board and its committees.

Human Resources Committee

     Pursuant to the 2000 Share Option Plan, the Human Resources Committee must
be comprised of at least two non-employee directors. The committee currently
consists of Peter Jollymore, Chairman, Gerald Pond and Joe Culp. The committee's
mandate is to establish salaries, incentives, and other forms of compensation
for our directors, executive officers, employees, and consultants. The committee
also administers our other benefit plans.

D.   Employees

     As of February 28, 2001, we employed approximately 216 full-time employees,
excluding temporary personnel and consultants. We are not subject to any
collective bargaining agreements and believe our relationship with our employees
is good.

                                       46
E.   Share Ownership

     The following table sets forth certain information concerning the ownership
of common shares and options to purchase common shares of Imagic TV at July 3,
2001 by each director and each of the Named Executive Officers.  Each of the
directors and Named Executive Officers listed on the following table directly
holds less than one percent of our common shares and the directors and executive
officers, as a group directly, hold less than one percent of the common shares.
See "Major Shareholders" in "Item 7. Major Shareholders and Related Party
Transactions" for information as to the share ownership of our major
shareholders with whom some of our directors are affiliated.
Options
                                                 --------------------------------------------------------
Name                                Common            Number             Exercise                Expiry
                                    Shares            Granted             Price                   Date
------------------------------   --------------  --------------      -----------------  -----------------
Marcel LeBrun.................       14,545             116,360              $ 0.56         January 5, 2005
                                                         69,816              $ 0.89         April 13, 2006
                                                        116,360              $ 1.54         December 17, 2006

Peter G. Jollymore............       27,702              29,090              $ 1.54         August 10, 2007
Allan Cameron.................       31,999             110,542              $ 0.56         January 5, 2005
                                                         46,544              $ 0.89         April 13, 2006
                                                        116,360              $ 1.54         December 17, 2006

Gerry Verner..................       31,389              69,816              $ 0.89         November 30, 2005
                                                        104,724              $ 1.54         February 3, 2007

Marjean Henderson.............          250             197,812              $ 1.54         July 31, 2007

Norman Bier...................          500              29,090              $ 1.10         December 1, 2006
                                                         11,636              $11.17         September 13, 2007
                                                         25,000              $ 1.20         April 30, 2008

Gregory Allemann..............          Nil              25,000              $ 1.26         May 30, 2008

Joe C. Culp...................       22,273              11,636              $ 1.54         March 23, 2007
                                                         11,636              $ 1.54         August 10, 2007
Carey Diamond.................          Nil/(1)/              -                   -         -

Dr. Terence H. Matthews.......          Nil/(2)/              -                   -         -

Michael J. McCloskey..........          Nil              23,272              $ 1.54         August 10, 2007

Robert E. Neal................        7,819/(3)/              -                   -         -

Gerald L. Pond................       43,338/(3)/              -                   -         -

Paul Spruyt...................          Nil/(4)/              -                   -         -
Notes:

(1) Whitecastle beneficially owns 2,464,927 Common Shares.  Mr. Diamond is the
    President of Whitecastle.
(2) Celtic House beneficially owns 2,454,676 Common Shares. Dr. Matthews is the
    principal of Celtic House.
(3) This excludes 7,209,751 Common Shares beneficially owned by Aliant. Messrs.
    Neal and Pond are officers of Aliant or subsidiaries of Aliant.
(4) Alcatel beneficially owns 3,986,857 Common Shares.  Mr. Spruyt is the
    General Manager of the VDSL Virtual Company of Alcatel.

                                       47
Option Plans

     We currently maintain two share option plans.  Each is intended to attract,
retain and motivate employees, officers and directors of, and consultants to,
our company.  The Human Resources Committee of our board of directors
administers the option plans. The Human Resources Committee determines, among
other things, the term, vesting periods and the price of options granted under
the plan. As of May 31, 2001, 2001, options to purchase 3,587,962 common shares
at a weighted average exercise price of $1.88 per share have been granted under
the plans.

Employee Share Option Plan

     We adopted our initial share option plan in February 1998 and amended it on
December 17, 1999.  It provides for the grant of options to employees, officers
and directors of, and consultants to, our company.  Options granted to employees
generally have the following terms. All options granted under the plan have a
maximum term of seven years. In the past, the exercise price per share for each
option has been determined by the Human Resources Committee with reference to
the value of our company, as determined by our board of directors, and to the
number of our shares that are outstanding. If we terminate an option holder's
employment without cause, the vested portion of any grant will remain
exercisable for the lesser of 60 days or the balance of the option term. In the
event we terminate an option holder's employment for cause, any option held by
such option holder shall thereupon immediately terminate, whether exercisable or
not. If the option holder dies, the vested options may be exercised for a period
of one year or the balance of the term, whichever is shorter. In the event the
option holder retires, the option holder may exercise vested options for 60 days
or the balance of the option term, whichever is shorter. In the event of
disability, the option holder has six months or the balance of the option term,
whichever is shorter, to exercise vested options. Unvested options will expire
upon termination of employment for any reason. The terms of the options granted
to the officers referred to under the "Employment Contracts" are described in
that section.

2000 Share Option Plan

     Our board of directors approved our 2000 share option plan on November 9,
2000, and our shareholders approved it thereafter.  This new plan does not
affect options granted under the initial plan. The compensation committee of our
board of directors administers the new plan and determines, among other things,
the eligibility of persons to participate in the plan, vesting periods and other
attributes of individual options. The new plan provides for the grant of options
to employees, officers and directors of, and consultants to, ImagicTV and its
affiliates. Both incentive share options and non-qualified share options are
available to U.S. residents.

     Options held by any person under the new plan together with any other
options granted to that person may not at any time exceed 5% of the aggregate
number of our common shares outstanding from time to time.  The maximum number
of shares issuable under the new plan is 1,879,185, subject to necessary
approvals. The options granted under the new plan have a maximum term of 10
years and an exercise price no less than the fair market value of our common
shares on the date of the grant, or 110% of fair market value in the case of an
incentive stock option granted to an employee who owns common shares having more
than 10% of the votes outstanding.  Under the new plan, if a change of control
of our company should occur, our board of directors will be permitted, without
any action or consent required on the part of any option holder to, among other
things accelerate the vesting of all options so that they become immediately
exercisable.

                                       48
ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.   Major Shareholders

     The following table provides information regarding the beneficial ownership
of our common shares as of February 28, 2001 for each person or entity who is
known to us to own beneficially more than 5% of our outstanding common shares.
As used in the table, "beneficial ownership'' means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date of this annual report. Common shares
subject to options, warrants or rights that are currently exercisable or
exercisable within 60 days are deemed outstanding for computing the ownership
percentage of the person holding these options, warrants or rights, but are not
deemed outstanding for computing the ownership percentage of any other person.
The amounts and percentages are based upon 24,592,624 common shares outstanding
as of February 28, 2001.
Number of Shares           Percentage of Shares
Name of Beneficial Owner                                 Beneficially Owned         Beneficially Owned
------------------------                                 ------------------         --------------------
Aliant Inc.
(held through Aliant Horizons Inc.)...................        7,209,751                      29.31%
   One Brunswick Square, 19/th/ Floor
   Saint John, New Brunswick  E2L 4R5

Compagnie Financiere Alcatel
(held through its subsidiary, Alcatel Canada Inc.)....        3,986,857                      16.21%
   600 March Road
   Kanata, Ontario K2K 2E6

Whitecastle Investments Limited.......................
   22 St. Clair Avenue East, Suite 1010                       2,464,927                      10.02%
   Toronto, Ontario M4T 2S3

Celtic House International
(held through 506048 N B Ltd.)........................        2,454,676                       9.98%
   555 Legget Drive, Suite 211
   Kanata, Ontario K2K 3X3

Centara Investments Inc...............................
   2620 - 1 Lombard Place,                                    1,338,245                       5.44%
   Winnipeg, Manitoba R3B 0X5
As of the close of business on June 19, 2001, CDS & Co. as nominee on
behalf of The Canadian Depository for Securities Limited, or CDS, was the
registered holder of 7,127,467 common shares representing approximately 28.97%
of the outstanding common shares and Cede & Co as nominee on behalf of The
Depository Trust Company, or DTC, was the registered holder of 3,055,138 common
shares representing approximately 12.42% of the outstanding common shares. It
is, however, management's understanding that the common shares registered in the
name of CDS or DTC are held by various brokers and other parties on behalf of
clients and others (including certain of the principal holders named above).

     Except as disclosed above, as at June 20, 2001, our current directors and
officers as a group owns directly or indirectly or exercised control or
direction over a total of 191,451 common shares representing approximately 0.78%
of the issued and outstanding common shares.

                                       49
The voting rights of our major shareholders do not differ from the voting
rights of holders of our shares who are not major shareholders.

     As of the close of business on June 20, 2001, our registrar and transfer
agent reported that there were 24,598,442 common shares issued and outstanding.
Of those common shares issued and outstanding, 21,243,899 common shares were
registered to Canadian residents (79 holders of record) and the remaining
3,354,543 common shares were registered to United States residents (6 holders of
record). No common shares were registered to residents of other foreign
countries.

     To the best of our knowledge, our company is not directly or indirectly
owned or controlled by another corporation, by any foreign government or by any
other natural or legal person.

     There are no arrangements known to us, the operation of which may at a
subsequent date result in a change of control of our company.

B.   Related Party Transactions

     The following describes the significant transactions entered into between
us and our directors, executive officers, shareholders, and affiliates of the
shareholders in the fiscal year ended February 28, 2001. All future transactions
between us and any of those parties will be subject to approval by a majority of
the disinterested members of the board.

Technology Agreements

     On April 19, 1999, we entered into a licensing agreement with NBTel.
Pursuant to this agreement, NBTel received a perpetual, non-exclusive license to
use DTV Manager in the Province of New Brunswick for cash consideration of
C$500,000 and future one-time per subscriber payments decreasing from C$150 to
C$80 based on the number of active NBTel subscribers to DTV Manager in New
Brunswick. In addition, the license agreement provides for the annual payment of
fees for maintenance and technical support services in an amount equal to 20% of
the total license fees, including the initial fee and cumulative subscriber
royalties. If requested by NBTel we have agreed to provide consulting and
training services at then current rates.

     On December 16, 1999, NBTel assigned the license agreement to Aliant, and
the license agreement was amended to include a license for our pcVu software
product and to expand the geographic territory of the license to the provinces
of Nova Scotia, Prince Edward Island and Newfoundland on an exclusive basis.  In
connection with the assignment and amendment, Aliant agreed to pay us cash
consideration amounting to C$900,000, of which C$500,000 was paid on January 31,
2000, C$200,000 was paid on January 31, 2001 and C$200,000 is due on January 31,
2002.  Under the amended agreement, the future one-time per subscriber payments
based on the number of subscribers also applies to subscribers in Nova Scotia,
Prince Edward Island and Newfoundland. In accordance with the amended agreement,
MTT, the incumbent local exchange carrier in the Province of Nova Scotia and a
subsidiary of Aliant, has licensed and has commercially deployed DTV Manager.

     On January 16, 2001, the license agreement was further amended to include a
sale of 40,000 subscriber-based licenses for C$3,200,000, payable in non-
refundable instalments of C$1,600,000 paid to us on January 16, 2001 and
C$1,600,000 due on February 28, 2002.

     Through February 28, 2001, we recorded revenues from NBTel totalling
C$1,866,100 in one-time per subscriber royalty payments. In the fiscal year
ended February 28, 2001, NBTel made payments to us for maintenance and technical
support services of C$100,000.

                                       50
In addition, we have supplied NBTel and Aliant with set-top boxes at little
or no mark-up above our cost. We received revenues of  $462,000 in fiscal 1999,
$180,000 in fiscal 2000 and $1.0 million in fiscal 2001 from the sales of set-
top boxes to NBTel and Aliant.

     In November 1999, we entered into a license agreement with Newbridge
Networks Corporation, which was then one of our principal shareholders and is
now part of Alcatel.  Pursuant to this agreement, Newbridge received a license
to use DTV Manager for internal testing purposes at six technical laboratories.
The license also permitted Newbridge to use DTV Manager in sales and marketing
demonstrations of its hardware products.  In exchange for the license, we
received switching equipment from Newbridge that enables the prioritized
transmission of voice, Internet and television data in high-speed, networked
environments.  We have used this equipment for research and development
purposes.  The transaction was recorded at the fair value of the equipment,
which amounted to $103,000.  In connection with the transaction, we recorded
license fee revenues for the same amount.  In February 2000, we amended the
license agreement to provide Newbridge with the opportunity to purchase
additional twelve-month site licenses for demonstration purposes.  As of
February 28, 2001 we had received aggregate cash consideration of C$40,000 for
these additional licenses and $17,000 for a 90-day trial license. We also
currently supply Newbridge with set-top boxes for laboratory test installations
at little or no mark-up above our cost.  We received $23,000 in fiscal 2000 and
$17,000 in fiscal 2001 from the sales of set-top boxes to Newbridge.

Financings, Loans and Inter-company Arrangements

     During the year ended February 28, 2000, the Minister of Economic
Development, Tourism and Culture for the Province of New Brunswick, through an
application filed by Newbridge, indirectly granted us a repayable government
assistance loan in the amount of C$2,560,000 and a forgivable loan in the amount
of C$640,000, to assist us in creating research and development employment in
the Province of New Brunswick. The forgivable loan was fully forgiven and
recognized in the statement of operations as forgiveness of debt. The repayable
loan is repayable in annual installments equal to 1.5% of the license fee
revenues of the immediately preceding year, and the balance, if any, is due on
February 25, 2006. The repayable loan is interest-free until February 25, 2006
and, if not paid at that date, thereafter will bear interest at 6.3% per annum.
As of February 28, 2001, we have repaid C$34,395 of the principal of the
repayable loan.

     In addition, we may be required to accelerate repayment of the repayable
loan if the total number of our full-time employees employed in the Province of
New Brunswick falls below 92 at any time during the fiscal year ending February
28, 2002. As of February 28, 2001, we employed approximately 180 full-time
employees in the Province of New Brunswick.

     In September 2000, we issued warrants to purchase Common Shares to four of
our principal shareholders at the time and one other shareholder for an
aggregate purchase price of $10,000,000. These warrants were automatically
exercised in October 2000. In accordance with the terms of the warrants, each
warrantholder was entitled to receive upon completion of a sale of Common Shares
to outside investors, for no additional consideration, a number of shares per
warrant which reflected the price paid per Common Share by outside investors. As
a result of the October 2000 sale of Common Shares to America Online, Inc. and
Cisco Systems, Inc. at $11.00 per share, 1.11 Common Shares per warrant were
issued upon exercise of the warrants. This resulted in the issuance of the
following numbers of Common Shares to these four principal shareholders: 205,157
to Alcatel, 371,001 to Aliant, 126,312 to Celtic House, and 137,727 to
Whitecastle.

                                       51
Leases

     We sublease a portion of our principal executive offices from NBTel.  Of
the approximately 33,000 square feet that we occupy at our principal executive
offices, we sublease approximately 23,000 square feet from NBTel at a cost of
approximately $338,000 per year. The lease on such facility expires in December
2002, subject to a renewal option of one additional year.

C.   Interests of Experts and Counsel

     Not applicable.

ITEM 8.    FINANCIAL INFORMATION

A.   Consolidated Statements and Other Financial Information

     For our consolidated financial statements, see "Item 18.  Financial
Statements."

     Export sales constitute a significant portion of our total sales volume.
The total volume of export sales from Canada for the fiscal year ended February
28, 2001 was $5.2 million representing 58.3% of our total sales.

     There are currently no outstanding material legal proceedings to which we
are a party or any of our properties is subject, nor do we know of any material
threatened or contemplated proceedings against us.

     We have never declared or paid any cash dividends on our common shares.  At
present, we expect to retain future earnings, if any, for use in the operation
and expansion of our business.  We do not anticipate that we will pay cash
dividends in the foreseeable future.  Any future determination to pay dividends
will be at the discretion of our board of directors and will depend upon our
results of operations, capital requirements and other factors as our board of
directors considers relevant.

B.   Significant Changes

     Since February 28, 2001, there have been no significant changes in our
financial condition or results of operations.

ITEM 9.    THE OFFER AND LISTING

A.   Offer and Listing Details

     The common shares are registered shares.  CIBC Mellon Trust Company acts as
transfer agent in Canada and ChaseMellon Shareholder Services, L.L.C. acts as
transfer agent in the U.S.  We first offered our shares through an initial
public offering conducted in November 2000.  The following tables show for the
periods indicated the high and low closing market prices since November 20,
2000, the date our common shares first traded on the Nasdaq National Market
("Nasdaq") and the Toronto Stock Exchange ("TSE").

                                       52
Nasdaq                              TSE50
                                             Year Ended                         Year Ended
                                         February 28, 2001                   February 28, 2001
                              -----------------------------------------------------------------------
                                          in U.S. dollars                   in Canadian dollars
Share Market Prices
 High.......................                   $ 9.00                             $ 14.00
 Low........................                     2.00                                3.05

                                               Nasdaq                               TSE
                                           Quarter Ended                       Quarter Ended
                                         February 28, 2001                   February 28, 2001
                              -----------------------------------------------------------------------
                                          in U.S. dollars                   in Canadian dollars
Share Market Prices
 High.......................                   $ 7.56                             $ 11.30
 Low........................                     2.00                                3.05
Nasdaq
                                                                          Month Ended
                                  Nov. 30,      Dec. 31,      Jan. 31,      Feb. 28,      Mar. 31,      Apr. 30,      May 31,
                                   2000          2000          2001          2001          2001          2001          2001
                              --------------------------------------------------------------------------------------------------
(in U.S. dollars)
Share Market Prices
 High.......................       $ 9.00        $ 7.56        $ 7.00        $ 6.75        $ 2.88        $ 1.61        $ 1.61
 Low........................         6.75          4.75          5.00          2.00          1.50          1.19          1.19
TSE
                                                                          Month Ended
                                  Nov. 30,      Dec. 31,      Jan. 31,      Feb. 28,      Mar. 31,      Apr. 30,      May 31,
                                   2000          2000          2001          2001          2001          2001          2001
                              --------------------------------------------------------------------------------------------------
(in Canadian dollars)
Share Market Prices
 High.......................       $ 14.00       $ 11.30       $ 10.55       $ 10.00       $ 4.49         $ 2.50        $ 2.10
 Low........................         10.15          7.50          7.60          3.05         2.50           1.85          1.85
B.   Plan of Distribution

     Not applicable.

C.   Markets

     Our common shares are listed on the Nasdaq National Market under the symbol
"IMTV" and on the Toronto Stock Exchange under the symbol "IMT."

D.   Selling Shareholders

     Not applicable.

E.   Dilution

     Not applicable.

F.   Expenses of the Issue

     Not applicable.

                                       53
ITEM 10.    ADDITIONAL INFORMATION

A.   Share Capital

     Not applicable.

B.   Memorandum and Articles of Association

     (a)    Directors

     There are currently no provisions in the bylaws or articles of
incorporation with respect to the voting power, borrowing ability, mandatory
retirement age, or share ownership requirement for directors.  See "Item 6.
Directors and Executive Officers" for further information about the board of
directors powers.

     (b)    Share Classes

     Holders of common shares are entitled to receive dividends if, as and when
declared by the board of directors.  The board of directors may declare
dividends on the common shares to the exclusion of any other class of shares.
Holders of common shares are entitled to receive notice of and attend all annual
and special meetings of shareholders and to one vote for each share held.

     Holders of preferred shares will receive the rights and privileges and be
subject to the restrictions and conditions as determined by the board of
directors at the time of issuance.

     (c)    Change in Shareholder Rights

     Under the Canada Business Corporations Act, a special resolution passed by
the holders of a majority of not less than two-thirds of the common shares
represented in person or by proxy at a duly called meeting of shareholders or
signed by all shareholders is necessary to change the rights attributable to the
common shares.

     (d)    Meetings

     Annual general meetings will be called no later than 15 months after the
holding of the preceding annual meeting.  The board of directors may call a
special meeting of shareholders at any time.

     (e)    Limitations on Ownership

     There are no provisions in the bylaws or articles of incorporation
regarding limitations on the right to own securities.

     (f)    Change of Control

     There are no provisions in the bylaws or articles of incorporation that
would have the effect of delaying, deferring or preventing a change of control
of ImagicTV.

                                       54
(g)   Ownership Threshold

     There are no provisions in the bylaws or articles of incorporation
regarding limitations on the right to own securities.

C.   Material Contracts

     See "Related Party Transactions" in "Item 7. Major Shareholders and Related
Party Transactions."

D.   Exchange Controls

     There are currently no exchange controls that have a material effect on the
import or export of capital or the remittance of dividends, interest or other
payments to non-resident holders of our securities.

E.   Taxation

Certain Canadian and United States Income Tax Considerations

United States Holders

     The following summary discusses the material Canadian federal income tax
and U.S. federal income consequences generally applicable to the acquisition,
ownership and disposition of shares by a U.S. Holder (as defined below):

     .     that is resident in the United States and is not resident in Canada
           for the purpose of the Canada-United States Income Tax Convention
           (the "Treaty");

     .     that otherwise qualifies for full benefits under the Treaty; and

     .     whose shares are not, for purposes of the Treaty, effectively
           connected with a permanent establishment or fixed base in Canada.

     As used herein, a "U.S. Holder" means a beneficial owner of shares that
is, for U.S. federal income tax purposes:

     .     a citizen or individual resident of the United States;

     .     a corporation, partnership or other entity organized in or under the
           laws of the United States or any state thereof (including the
           District of Columbia);

     .     an estate the income of which is subject to U.S. federal income
           taxation regardless of its source; or

     .     a trust if, in general, the trust is subject to the primary
           supervision of a court within the United States and the control of
           one or more United States persons as described in section 7701(a)(30)
           of the U.S. Internal Revenue Code of 1986, as amended (the "U.S.
           Internal Revenue Code").

                                       55
This summary is based on U.S. and Canadian federal income tax law,
regulations, administrative pronouncements and court decisions, all as of the
date of this annual report and all of which are subject to change or differing
interpretation, possibly with retroactive effect as more fully described below.

     This summary does not purport to address all aspects of Canadian federal
income and U.S. federal income taxation that may be relevant to a U.S. Holder,
and does not take into account the U.S. federal income tax consequences to U.S.
Holders that may be subject to special rules (including, but not limited to,
tax-exempt entities, U.S. expatriates, financial institutions, insurance
companies, broker-dealers, traders in securities, investors liable for
alternative minimum tax, investors that own (directly, indirectly or by
attribution) 2% or more of our voting shares, investors that hold shares as part
of a straddle, hedging, conversion or integrated transaction, or investors whose
functional currency is not the U.S. dollar). Furthermore, this summary does not
address U.S. state, local or other (such as U.S. estate or gift) or Canadian
provincial or territorial tax consequences of the acquisition, ownership and
disposition of shares. Holders of shares should consult their own tax advisers
as to the particular Canadian federal, provincial and territorial tax and U.S.
federal, state and local income and other tax consequences to them of the
acquisition, ownership and disposition of shares. The summary which follows is
generally limited to U.S. Holders that hold the shares as capital assets for
U.S. and Canadian federal income tax purposes. A share will generally be
considered to be a capital asset to a U.S. Holder (for Canadian tax purposes)
unless the holder holds it as inventory in the course of carrying on a business
or acquired it in a transaction or transactions considered to be an adventure in
the nature of a trade.

     In addition, the following summary of Canadian federal income tax
considerations applies only to a U.S. Holder who, for purposes of the Income Tax
Act (Canada) (the "Canadian Act") and at all relevant times, is not resident or
deemed to be resident in Canada, deals at arm's length with ImagicTV, does not
use or hold, and is not deemed to use or hold, the shares in, or in the course
of carrying on, a business or providing independent personal services in Canada,
does not carry on an insurance business in Canada and elsewhere, and who, for
purposes of the Treaty and at all relevant times, does not own (or is not
treated as owning) 10% or more of the outstanding voting shares of ImagicTV.

Canadian Federal Income Tax Considerations

     This portion of the summary is based upon the current provisions of the
Canadian Act, and the regulations thereunder and an understanding of the current
published administrative practices and policies of the Canada Customs and
Revenue Agency. The summary also takes into account all specific proposals to
amend the Canadian Act and the regulations publicly announced prior to the date
of this annual report (the "Proposed Amendments"), and, while we cannot assure
you that the Proposed Amendments will be enacted as announced, or at all, this
summary assumes that the Proposed Amendments will be enacted substantially as
proposed. This summary does not otherwise take into account or anticipate any
changes in law, whether by way of legislative, judicial or governmental
decision, action or interpretation.

Canadian Federal Taxation of Dividends on Shares

     Dividends, including deemed dividends and stock dividends, paid or credited
on shares owned by a U.S. Holder will be subject to Canadian withholding tax
under the Canadian Act at a rate of 25% on the gross amount of the dividends.
The rate of withholding tax generally is reduced under the Treaty to 15% where
the U.S. Holder is the beneficial owner of the dividends. Under the Treaty,
dividends paid or credited to a U.S. Holder that is a United States tax-exempt
organization as described in Article XXI of the Treaty, other than such
dividends that constitute income from carrying on a trade or business, will
generally not be subject to Canadian withholding tax, although such entities may
be subject to administrative procedures to confirm their eligibility to such
exemption.

                                       56
Under the Canadian Act, dividends may be deemed to be paid in certain
circumstances. For example, when a corporation redeems or purchases for
cancellation shares of its capital stock, a dividend will be deemed to be paid
in an amount equal to the amount by which the amount paid exceeds the "paid-up
capital" (as defined in the Canadian Act) of the shares so redeemed or
purchased for cancellation. The "paid-up capital" of the shares owned by a U.S.
Holder may be less than the holder's cost of such shares by reason of, for
example, the averaging of the paid-up capital with that of shares of such class
already issued and outstanding. The paid-up capital attributable to each share
will be relevant to the holder of that share in connection with a purchase for
cancellation of that share or upon the winding-up of ImagicTV.

Canadian Federal Taxation on Sale or Other Disposition of Shares

     A gain realized by a U.S. Holder on a disposition or deemed disposition of
shares generally will not be subject to tax under the Canadian Act unless the
shares constitute taxable Canadian property within the meaning of the Canadian
Act. Shares generally will not be taxable Canadian property to a U.S. Holder if
the shares are listed on a prescribed stock exchange at the time of disposition
unless, at any time within the 60-month period immediately preceding the
disposition, the U.S. Holder, persons with whom the U.S. Holder did not deal at
arm's length or the U.S. Holder together with persons with whom the U.S. Holder
did not deal at arm's length owned or had an interest in or option to acquire
25% or more of the issued shares of any class or series of ImagicTV's shares.
The shares will constitute taxable Canadian property to a U.S. Holder if at the
time of their disposition the shares are not listed on The Toronto Stock
Exchange or another prescribed stock exchange (in this event, a U.S. Holder
would have to comply with notification requirements under the Canadian Act in
respect of the disposition of the shares).

     Even if the shares constitute or are deemed to constitute taxable Canadian
property to a particular U.S. Holder, an exemption from tax under the Canadian
Act may be available under the terms of the Treaty.

United States Federal Income Tax Considerations

Taxation of Dividends

     Subject to the discussion below under "Passive Foreign Investment Company
Considerations," for U.S. federal income tax purposes, a U.S. Holder will
generally include in gross income the amount of a distribution paid by us,
unreduced by the applicable Canadian withholding tax, to the extent paid out of
our current or accumulated earnings and profits (as determined for U.S. federal
income tax purposes), as ordinary dividend income when the distribution is
actually or constructively received by the U.S. Holder. The dividend will not be
eligible for the dividends-received deduction generally allowed to U.S.
corporations in respect of dividends received from other U.S. corporations. If
the dividend distribution is paid in Canadian dollars, the amount of the
dividend includible in the income of a U.S. Holder will be the U.S. dollar value
of the dividend, determined at the spot Canadian dollar/U.S. dollar rate on the
date the dividend is includible in the income of the U.S. Holder, regardless of
whether the payment is in fact converted into U.S. dollars. A U.S. Holder will
have a basis in any Canadian dollar distributed by us equal to the U.S. dollar
value of the Canadian dollar on the date it is actually or constructively
received by the U.S. Holder. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the dividend payment is
includible in income to the date the payment is converted into U.S. dollars will
be treated as ordinary income or loss. Such gain or loss will generally be
income from sources within the United States for foreign tax credit limitation
purposes. Distributions in excess of our current and accumulated earnings and
profits, as determined for U.S. federal income tax purposes, will be treated as
a non-taxable return of capital to the extent of the U.S. Holder's tax basis in
the shares and thereafter as capital gain.

                                       57
A U.S. Holder may, subject to certain limitations, be eligible to claim as
a credit or deduction, for purposes of computing its U.S. federal income tax
liability, the Canadian withholding tax paid in respect of dividends from us.
Dividends from us will generally constitute foreign-source income and will
generally be classified as "passive income" or, in the case of certain U.S.
Holders, "financial services income" for purposes of determining the U.S.
foreign tax credit limitation. The calculation of foreign tax credits and, in
the case of a U.S. Holder that elects to deduct foreign taxes, the availability
of deductions, involves the application of complex rules that depend on a U.S.
Holder's particular circumstances. U.S. Holders should consult their own tax
advisers regarding the availability of foreign tax credits and deductions for
such Canadian withholding tax.

     Under rules enacted by the U.S. Congress in 1997 and other guidance
recently released by the U.S. Department of the Treasury, foreign tax credits
will not be allowed for withholding taxes imposed in respect of certain short-
term or hedged positions in stock or in respect of arrangements in which a U.S.
Holder's expected economic profit, after non-U.S. taxes, is insubstantial. U.S.
Holders should consult their own tax advisers concerning the implications of
these rules in light of their particular circumstances.

Taxation of Capital Gains

     A U.S. Holder will, upon the sale, exchange or other taxable disposition of
a share, recognize a gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the U.S. dollar value of the amount
realized and the U.S. Holder's tax basis, determined in U.S. dollars, in the
share. In general, such gain or loss will be treated as arising from sources
within the United States for U.S. federal income tax purposes, unless it is
attributable to an office or other fixed place of business maintained by the
U.S. Holder outside the United States and certain other conditions are
satisfied.

     Subject to the discussion below, under "Passive Foreign Investment Company
Considerations," the gain or loss recognized upon the sale of a share will be a
capital gain or loss. The maximum non-corporate U.S. federal income tax rate on
net capital gains is currently 20% for capital assets held for more than one
year. Net capital gains on the sale of capital assets held for one year or less
are subject to U.S. federal income tax at ordinary income tax rates. For a
corporate U.S. Holder, all capital gains are currently taxed at the same rate as
ordinary income. The deductibility of capital losses is subject to limitations.

     Any tax imposed by Canada directly on the gain from such a sale or other
disposition would generally be eligible for the U.S. foreign tax credit;
however, if such gain were not treated as arising from sources outside the
United States, the U.S. Holder might not be able to use the credit otherwise
available because of the U.S. foreign tax credit limitation rules. The rules
relating to the determination of the U.S. foreign tax credit are complex and
U.S. Holders should consult their own tax advisers with respect to these rules.

     A U.S. Holder that purchases shares with previously owned foreign currency
generally will recognize ordinary income or loss in an amount equal to any
difference between the U.S. Holder's tax basis in the foreign currency and the
U.S. dollar value of the foreign currency at the spot rate on the date the
shares are purchased. The U.S. Holder's basis in the shares generally will be
equal to the U.S. dollar value of the foreign currency at the spot rate on the
date of the purchase (or, if the shares are traded on an established securities
market, in the case of cash basis and electing accrual basis taxpayers, the
settlement date). A U.S. Holder that receives foreign currency upon sale or
other disposition of the shares will realize an amount equal to the U.S. dollar
value of the foreign currency on the date of the sale or other disposition (or,
if the shares are traded on an established securities market, in the case of
cash basis and electing accrual basis taxpayers, the settlement date). A U.S.
Holder will have a tax basis in the foreign currency received equal to the U.S.
dollar amount realized. Any gain or loss realized by a U.S. Holder

                                       58
upon a subsequent disposition of foreign currency (including upon an exchange
for U.S. dollars) will be ordinary income or loss.

Passive Foreign Investment Company Considerations

     We believe, based on our income, assets and activities, that we should not
be treated as a passive foreign investment company for US federal income tax
purposes for our taxable year ended February 28, 2001. However, an actual
determination of passive foreign investment company status is fundamentally
factual in nature and it is possible that we will nonetheless be treated as a
passive investment company for U.S. federal income tax purposes for such taxable
year. Further, there can be no assurance that we will not be or become a passive
foreign investment company in the future.

     In general terms, we will be a passive foreign investment company with
respect to a taxable year if either:

     .    75% or more of our gross income in such taxable year is passive
          income; or

     .    the average quarterly percentage of the value of our assets that
          produce or are held for the production of passive income is at least
          50%.

     For this purpose, if we own (directly or indirectly) at least 25% (by
value) of the stock of another corporation, we will be treated as if we had
directly received our proportionate share of the gross income of the other
corporation and as if we directly owned our proportionate share of the assets of
the other corporation. In addition, the IRS has indicated that cash balances,
even if held as working capital, are considered to be assets that produce
passive income.

     If we were classified as a passive foreign investment company, unless a
U.S. Holder timely made one of specific available elections, a special tax
regime would apply to both:

     .    any "excess distribution," which would be such U.S. Holder's share of
          distributions on the shares in any year that are greater than 125% of
          the average annual distributions on the shares received by the U.S.
          Holder in the three preceding years or the U.S. Holder's holding
          period for the shares, if shorter; and

     .    any gain realized on the sale or other disposition of the shares held
          by the U.S. Holder for more than one taxable year.

     Under this regime, any excess distribution and any gain so realized would
be treated as ordinary income and would be subject to tax as if:

     .    the excess distribution or gain had been realized ratably over the
          U.S. Holder's holding period;

     .    the amount deemed realized had been subject to tax in each year of
          that holding period at the highest applicable tax rate; and

     .    the interest charge generally applicable to underpayment of tax had
          been imposed on the taxes deemed to have been payable in each of those
          years in which we were classified as a passive foreign investment
          company.

                                       59
In addition, the estate of an individual U.S. Holder who dies while owning
shares may not be eligible to step up the tax basis of the shares.

     The foregoing rules with respect to distributions and dispositions may be
avoided if a U.S. Holder is eligible for and timely makes a valid "mark-to-
market" election. If a mark-to-market election is made, the U.S. Holder will,
in general, include as ordinary income each year the excess, if any, of the fair
market value of its shares for that year (measured at the close of the U.S.
Holder's taxable year) over its adjusted tax basis in the shares. The U.S.
Holder will also be allowed an ordinary loss each year of the excess, if any, of
its adjusted tax basis over the fair market value of its shares, but only to the
extent of the net amount of previously included mark-to-market income as a
result of the mark-to-market election. The U.S. Holder's tax basis in the shares
will be adjusted to reflect these income or loss amounts. The mark-to-market
election is made on a shareholder-by-shareholder basis and, once made, can only
be revoked with the consent of the Internal Revenue Service. Assuming the shares
are regularly traded, the mark-to-market election would be available with
respect to the shares.

     Each U.S. Holder is urged to consult its own tax adviser concerning the
potential application of the passive foreign investment company rules to the
U.S. Holder's ownership and disposition of shares.

U.S. Backup Withholding and Information Reporting

     In general, information reporting requirements will apply to dividends in
respect of the shares and the proceeds received on the sale or disposition of
the shares paid within the United States, and in certain cases outside of the
United States, to a U.S. Holder unless the U.S. Holder is an exempt recipient,
such as a corporation, and backup withholding may apply to such amounts if the
U.S. Holder fails to provide an accurate taxpayer identification number or to
report interest and dividends required to be shown on its federal income tax
returns. The amount of any backup withholding from a payment to a U.S. Holder
will be allowed as a credit against the U.S. Holder's U.S. federal income tax
liability.

F.   Dividends and Paying Agents

     As noted in "Consolidated Statements and Other Financial Information" in
"Item 8. Financial Information", we have never declared or paid dividends and do
not anticipate paying cash dividends in the foreseeable future.

G.   Statement by Experts

     Not applicable.

H.   Documents on Display

     We are a reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Since we are a "foreign private issuer" as defined
in the Exchange Act, we are exempt from the provisions of the Exchange Act which
prescribe the furnishing and content of proxy statements to shareholders and
relating to short swing profits reporting and liability.

     You may review a copy of this annual report, including exhibits and
schedules filed with it, at the SEC's public reference facilities in Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may also obtain copies of such materials from
the Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

                                       60
You may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.

     You may read and copy any reports, statements or other information that we
file with the SEC at the addresses indicated above, and you may also access them
electronically at the website set forth above. These SEC filings are also
available to the public from commercial document retrieval services.

     We are required to file reports and other information with the securities
commission in all provinces of Canada. You are invited to read and copy any
reports, statements or other information, other than confidential filings, that
we file with the provincial securities commissions at their public reference
rooms. 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 (EDGAR).

     Copies of any documents referred to in this annual report and filed with
the SEC can be obtained without charge by contacting our Corporate Secretary,
c/o ImagicTV Inc., One Brunswick Square, 14th Floor, Saint John, New Brunswick,
Canada, telephone number:  (506) 631-3000.  In order to obtain timely delivery
of these documents, you must request this information no later than five
business days before the date on which you would like to receive the documents

I.   Subsidiary Information

     Not applicable.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     With respect to quantitative information about market risk, we currently do
not use derivative instruments.  With respect to qualitative information, see
the Management's Discussion and Analysis--Impact of Foreign Exchange Rate
Exposure in "Item 5. Operating and Financial Review and Prospects."

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     Not applicable.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

A.   Use of Proceeds

     We completed our initial public offering pursuant to a registration
statement on Form F-1 (File No. 333-48452) which was declared effective by the
SEC on November 20, 2000.  The managing underwriters of the syndicate were
Merrill Lynch & Co., Chase H & Q and CIBC World Markets.  We had $68.6 million
in cash and cash equivalents on hand following our initial public offering and
our

                                       61
September and October private placements.  As of May 31, 2001 we had used
approximately $12.3 million of these proceeds for sales and marketing
activities, research and development and for working capital and general
corporate purposes.  We expect to continue to use the proceeds in this way in
the future.  Pending this use, the proceeds invested in short-term, interest-
bearing, investment-grade securities, certificates of deposit or direct or
guaranteed obligations of Canada or the United States.  See "Developments in
Fiscal 2001" in "Item 4. Information on the Company" for further details.

ITEM 15.  [RESERVED]

ITEM 16.  [RESERVED]

                                   PART III

ITEM 17.  FINANCIAL STATEMENTS

     We have responded to Item 18 in lieu of responding to this Item.

                                       62
ITEM 18.  FINANCIAL STATEMENTS

     AUDITOR'S REPORT TO SHAREHOLDERS

     We have audited the consolidated balance sheets of ImagicTV Inc. as at
February 28, 2001 and February 29, 2000, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended February 28,
2001, February 29, 2000 and February 28, 1999. These 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.

     With respect to the consolidated financial statements for the year ended
February 28, 2001, we conducted our audit in accordance with Canadian generally
accepted auditing standards and United States generally accepted auditing
standards. With respect to the consolidated financial statements for the years
ended February 29, 2000 and February 28, 1999, we conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

     In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at February 28,
2001 and February 29, 2000 and the results of its operations and its cash flows
for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
in accordance with Canadian generally accepted accounting principles.

     Canadian generally accepted accounting principles differ in some respects
from accounting principles generally accepted in the United States. Application
of accounting principles generally accepted in the United States would have
affected reported results of operations for the years ended February 28, 2001,
February 29, 2000 and February 28, 1999 to the extent summarized in note 11 to
the consolidated financial statements.

     KPMG LLP Chartered Accountants
     Toronto, Canada
     March 21, 2001

                                       63
ImagicTV Inc.

                          CONSOLIDATED BALANCE SHEETS
            (in thousands of U.S. dollars, except number of shares)
FEBRUARY 29,                       FEBRUARY 28,
                                                                          2000                                2001
======================================================================================================================
ASSETS
Current assets:
 Cash and cash equivalents (note 2)                                         $ 6,396                           $  1,332
 Short-term investments (note 2)                                                  -                             59,428
 Accounts receivable, trade                                                   1,230                              4,240
 Accounts receivable, trade-related parties                                     749                              1,440
 Instalment receivables                                                           -                                705
 Inventory                                                                        -                                295
 Prepaid expenses, deposits and other receivables                               195                              1,436
----------------------------------------------------------------------------------------------------------------------
Total current assets                                                          8,570                             68,876

Capital assets (note 3)                                                       1,289                              2,970
----------------------------------------------------------------------------------------------------------------------
Total assets                                                                $ 9,859                           $ 71,846
======================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
 Accounts payable                                                           $   240                           $  1,055
 Accrued liabilities                                                            396                              2,973
 Payable to related parties                                                     324                                850
 Deferred revenue and customer deposits                                       1,430                              1,119
 Current portion of long-term debt (note 4)                                      26                                 72
----------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                     2,416                              6,069
Long-term debt (note 4)                                                       1,737                              1,577
Shareholders' equity (note 5):
 Authorized:
 Unlimited common shares, no par value
 Unlimited preferred shares, no par value
Issued and outstanding:
 24,592,624 Common Shares at February 28, 2001
 (February 29, 2000 - 17,548,653)                                            14,489                             87,678
 Nil preferred                                                                   --                                 --
 Deferred stock-based compensation (note 5(c))                                   --                             (2,670)
 Accumulated deficit                                                         (8,824)                           (20,282)
 Reporting currency translation adjustments                                      41                               (526)
----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                    5,706                             64,200
----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                  $ 9,859                           $ 71,846
======================================================================================================================
See accompanying notes to the consolidated financial statements

                  Signed on behalf of the Board of Directors

      Signed                                                     Signed

Peter G. Jollymore                                            Robert E. Neal
     Chairman                                                    Director

                                       64
ImagicTV Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
            (in thousands of U.S. dollars, except per share amounts)
YEAR ENDED             YEAR ENDED             YEAR ENDED
                                                                FEBRUARY 29,           FEBRUARY 29,           FEBRUARY 28,
                                                                   1999                   2000                   2001
=============================================================================================================================
Revenues:
   License fees                                                 $     -                $ 1,384               $  4,770
   Royalty fees                                                       -                      -                  1,288
   Services                                                          14                    393                  1,791
   Equipment                                                        465                    321                  1,150
-----------------------------------------------------------------------------------------------------------------------------
  Total revenues                                                    479                  2,098                  8,999
  Cost of revenues:
   Services                                                           -                    657                  2,379
   Equipment                                                        604                    331                  1,068
-----------------------------------------------------------------------------------------------------------------------------
  Total cost of revenues                                            604                    988                  3,447
-----------------------------------------------------------------------------------------------------------------------------
  Gross profit (loss)                                              (125)                 1,110                  5,552
  Operating expenses:
   Sales and marketing                                              543                  2,325                  7,763
   Research and development                                       2,014                  4,084                  7,967
   General and administrative                                       344                    827                  2,815
-----------------------------------------------------------------------------------------------------------------------------
  Total operating expenses                                        2,901                  7,236                 18,545
-----------------------------------------------------------------------------------------------------------------------------
  Loss from operations                                           (3,026)                (6,126)               (12,993)
  Interest income (expense), net                                     (1)                   121                  1,133
  Forgivable government assistance (note 4)                           -                    434                      -
  Foreign exchange gain (loss)                                      (24)                   (31)                   426
-----------------------------------------------------------------------------------------------------------------------------
  Loss before provision for income taxes                         (3,051)                (5,602)               (11,434)
  Provision for income taxes (note 6)                               (17)                   (44)                   (24)
-----------------------------------------------------------------------------------------------------------------------------
  Net loss                                                      $(3,068)               $(5,646)              $(11,458)
=============================================================================================================================
  Basic and diluted net loss per share                          $ (0.57)               $ (0.40)              $  (0.58)
=============================================================================================================================
  Weighted average number of shares used in computing
   basis and diluted net loss per share (000s)                    5,336                 13,968                 19,796
See accompanying notes to the consolidated financial statements

                                       65
ImagicTV Inc.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         (in thousands of U.S. dollars)
DEFERRED
                                                        STOCK-BASED                           REPORTING CURRENCY
                                  COMMON SHARES       COMPENSATION ON                            TRANSLATION      TOTAL SHAREHOLDERS
                                NUMBER      AMOUNT     STOCK OPTIONS    ACCUMULATED DEFICIT      ADJUSTMENTS            EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Balances, February 28, 1998        2,331    $     2     $        -         $   (110)             $     (1)            $     (109)
Net loss                               -          -                          (3,068)                    -                 (3,068)
Reporting currency translation
    adjustments                        -          -              -                -                    14                     14
Issuance of shares for cash        8,800      5,656              -                -                     -                  5,656
------------------------------------------------------------------------------------------------------------------------------------

Balances, February 28, 1999       11,131      5,658              -           (3,178)                   13                  2,493
Net loss                               -          -              -           (5,646)                    -                 (5,646)
Reporting currency translation
   adjustments                         -          -              -                -                    28                     28
Issuance of shares for cash        6,418      8,831              -                -                     -                  8,831
------------------------------------------------------------------------------------------------------------------------------------

Balances, February 29, 2000       17,549     14,489              -           (8,824)                   41                  5,706
Net loss                               -          -              -          (11,458)                    -                (11,458)
Amortization of deferred
   stock-based compensation            -          -            550                -                     -                    550
Deferred stock-based
   compensation                        -      3,220         (3,220)               -                     -                      -
Reporting currency translation
   adjustments                         -          -              -                -                  (567)                  (567)
Issuance of shares for cash        7,044     69,969              -                -                     -                 69,969
------------------------------------------------------------------------------------------------------------------------------------

Balances, February 28, 2001       24,593    $87,678     $   (2,670)        $(20,282)             $   (526)            $   64,200
====================================================================================================================================
See accompanying notes to the consolidated financial statements

                                       66
ImagicTV Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (in thousands of U.S. dollars)
YEAR ENDED             YEAR ENDED             YEAR ENDED
                                                                      FEBRUARY 29,           FEBRUARY 29,           FEBRUARY 28,
                                                                          1999                   2000                    2001
===============================================================================================================================
Cash flows from operating activities:
 Net loss                                                               $(3,068)               $(5,646)               $(11,458)
 Items not involving cash:
  Depreciation and amortization                                             163                    483                   1,169
  Non-monetary transaction (note 8(b))                                        -                   (102)                      -
  Stock-based compensation                                                    -                      -                     550
Change in operating assets and liabilities:
  Accounts receivable, trade                                                (33)                (1,160)                 (2,893)
  Accounts receivable, trade-related parties                               (419)                  (312)                   (748)
  Instalment receivables                                                      -                      -                    (979)
  Inventory                                                                (231)                   234                    (302)
  Prepaid expenses, deposits, and other
     receivables                                                         (1,228)                 1,052                  (1,281)
  Accounts payable and accrued liabilities                                  280                    289                   3,510
  Payable to related parties                                                 32                    286                     556
  Deferred revenue and customer deposits                                    301                  1,099                    (238)
  Advances from shareholders                                               (328)                     -                       -
-------------------------------------------------------------------------------------------------------------------------------

  Cash used in operating activities                                      (4,531)                (3,777)                (12,114)
 Cash flows from investing activities:
  Purchases of capital assets                                              (780)                  (992)                 (2,964)
  Purchases of short-term investments                                         -                      -                 (59,428)
-------------------------------------------------------------------------------------------------------------------------------

  Cash used in investing activities                                        (780)                  (992)                (62,392)
 Cash flows from financing activities:
  Issuance of common shares                                               5,656                  8,831                  69,969
  Proceeds from long-term debt                                                -                  1,763                       -
  Principal repayment of long-term debt                                       -                      -                     (20)
-------------------------------------------------------------------------------------------------------------------------------

  Cash from financing activities                                          5,656                 10,594                  69,949
 Effect of foreign currency exchange
  adjustments                                                                13                    (32)                   (507)
-------------------------------------------------------------------------------------------------------------------------------
 Increase (decrease) in cash and cash equivalents                           358                  5,793                  (5,064)
 Cash and cash equivalents, beginning period                                245                    603                   6,396
-------------------------------------------------------------------------------------------------------------------------------
 Cash and cash equivalents, end of period                               $   603                $ 6,396                $  1,332
===============================================================================================================================

 Supplemental cash flow information:
  Cash paid for taxes                                                   $    17                $    44                $     37
See accompanying notes to the consolidated financial statements

                                       67
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (in thousands of U.S. dollars)

ImagicTV Inc. was incorporated on December 24, 1997 and commenced operations on
January 5, 1998. ImagicTV develops and licenses infrastructure software products
and provides related services that enable telephone companies and other service
providers to deliver multi-channel digital television and interactive media
services to their subscribers' televisions and personal computers over a
broadband network.

1. SIGNIFICANT ACCOUNTING POLICIES:

These financial statements are stated in U.S. dollars, except as otherwise
noted. They have been prepared in accordance with accounting principles
generally accepted in Canada which, except as disclosed in note 11, conform, in
all material respects, with accounting principles generally accepted in the U.S.

(a) Consolidation:

These consolidated financial statements include the accounts of ImagicTV Inc.
and its wholly owned subsidiaries, iMagicTV (US), Inc., and ImagicTV (UK)
Limited. All intercompany transactions and balances are eliminated on
consolidation.

(b) Currency translation:

Effective December 1, 2000, the U.S. dollar became the functional currency of
ImagicTV. This change resulted from the increased significance of U.S. dollar
denominated revenues and expenditures in relation to the ImagicTV's Canadian
dollar denominated transactions. In addition, ImagicTV's recent issuances of
common shares have been primarily denominated in U.S. dollars. Exchange gains
and losses resulting from transactions denominated in currencies other than U.S.
dollars are included in the results of operations in the period from December 1,
2000 to February 28, 2001. Prior to December 1, 2000, the functional currency of
ImagicTV was the Canadian dollar. Accordingly, prior to this date, exchange
gains and losses resulting from the translation of transactions denominated in
currencies other than the Canadian dollar were included in the results of
operations in the period in which they occurred.

(c) Use of estimates:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingencies at the date of the financial statements and the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.

(d) Cash and cash equivalents and short-term investments:

All highly liquid investments, with an original term to maturity of three months
or less at the time of purchase, are classified as cash equivalents. Investments
with a term to maturity of more than three months but one year or less are
classified as short-term investments.

(e) Inventory:

Inventory is recorded at the lower of cost, determined on an average basis, and
net realizable value.

                                       68
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

(f) Capital assets:

Capital assets are stated at cost, net of accumulated depreciation and
amortization, and are amortized over their estimated useful lives. Leasehold
improvements are recorded at cost and are amortized over the lesser of their
useful lives or the term of the related lease. Expenditures for maintenance and
repairs have been charged to the statement of operations as incurred.

Depreciation and amortization are computed using the straight-line method as
follows:

     Computer hardware                        2 years

     Office furniture and equipment           5 years

     Leasehold improvements                   Term of lease

     Software licenses                        2 years

ImagicTV regularly reviews the carrying values of its capital assets by
comparing the carrying amount of the asset to the expected undiscounted future
cash flows to be generated by the asset. If the carrying value exceeds the
undiscounted future cash flows, a write-down is charged to the statement of
operations for the excess. No capital asset write-downs have been recorded by
ImagicTV.

(g) Revenue recognition:

ImagicTV's revenue recognition policies are in accordance with the guidance
provided in Section 3400  "Revenue" of the Canadian Institute of Chartered
Accountants Handbook, Statement of Position ("SOP") 97-2 "Software Revenue
Recognition" and SOP 98-9 "Modification of SOP 97-2 Software Revenue Recognition
with Respect to Certain Transactions" of the American Institute of Certified
Public Accountants.

ImagicTV's revenues are derived primarily from license fees (which include
installation), royalty fees and service elements. Service elements, which
include maintenance and technical support, training, consulting and other
services, are not essential to the functionality of ImagicTV's licensed
products. ImagicTV does not deliver any product or service over the Internet or
through some other hosting arrangement.

In cases where ImagicTV sells a multi-element arrangement, the fees are
allocated to the elements based on ImagicTV-specific objective evidence of each
element's fair value. Vendor-specific objective evidence used in determining the
fair value of license revenues is based on the price charged by ImagicTV when
the same element is sold separately to a customer of a similar size and nature.
Vendor-specific objective evidence used in determining the fair value of
training, consulting and other services is based on the standard hourly rates
per diem for the type of service being provided multiplied by the estimated time
to complete the task. Vendor-specific objective evidence used in determining the
fair value of maintenance and technical support is based on a percentage of the
license fee revenues. Fees related to the delivery of multi-element arrangements
are non-refundable.

Revenues from product elements consist primarily of license and royalty fees. Up
front licence fees are recognized when a contract with a customer has been
executed, delivery and acceptance of the software have occurred, the license fee
is fixed and determinable, and collection of the related receivable is deemed
probable by management. Royalty fees are either in the form of a one-time per
subscriber activation royalty payment or a monthly royalty fee based upon the
number of active subscribers at the end of each

                                       69
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

month. One-time royalties are recognized quarterly based on the net increase in
the number of subscribers at the end of each quarter. Monthly royalty fees are
recognized monthly based on the number of active subscribers at the end of each
month.

Service revenues from training, consulting and other services are recognized
when the services are performed. Losses on professional services contracts, if
any, are recognized at the time such losses are identified. To date, ImagicTV
has not incurred any significant losses on professional service contracts.

Maintenance and technical support revenues paid in advance are non-refundable
and are recognized ratably over the terms of the agreements, which are typically
12 months.

Product, service and equipment revenues that have been prepaid but do not yet
qualify for recognition as revenue under ImagicTV's revenue recognition policy
are reflected as deferred revenues on ImagicTV's balance sheet.

Product revenues that have been recognized as revenues under ImagicTV's revenue
recognition policy but for which the cash proceeds are not yet due are reflected
as instalment receivables. Instalment receivables primarily represents future
instalment payments on license fee revenue which are due within 12 months from
the balance sheet date.

(h) Research and development expenses:

Costs related to research, design and development of software products are
charged to research and development expenses as incurred. Software development
costs are capitalized beginning when a product's technological feasibility has
been established, which generally occurs upon completion of a working model, and
ending when a product is available for general release to customers. To date,
completing a working model of ImagicTV's product and the general release of the
product have substantially coincided. As a result, ImagicTV has not capitalized
any software development costs since such costs have not been significant.

Research and development arrangements funded by third parties are accounted for
either as an obligation to perform contractual services or as an obligation to
repay the funding party, depending upon the specific nature of the funding
arrangement, including whether ImagicTV has an intent or obligation to repay and
the nature of the relationship between ImagicTV and the funding party. If the
contract is determined to be a contract to perform contractual services, the
funding is recorded as either revenue over the period in which the development
activity is conducted, if ImagicTV is at risk for the research and development
costs incurred, or an offset to the expenses incurred. If the contract is
determined to be an obligation to repay the funding party, the funding received
is recorded as a liability as the funds are advanced.

(i) Investment tax credits:

ImagicTV is entitled to Canadian federal and provincial investment tax credits
which are earned as a percentage of eligible research and development
expenditures incurred in each taxation year. Investment tax credits are
available to be applied against future tax liabilities, subject to a 10-year
carry-forward period. Investment tax credits are accounted for as a reduction of
the related expenditure for items of a current nature and a reduction of the
related asset cost for items of a long-term nature, provided that ImagicTV has
reasonable assurance that the tax credits will be realized. To date, no
investment tax credits have been recognized.

                                       70
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

(j) Income taxes:

Income taxes are accounted for under the asset and liability method of
accounting for income taxes. Under the asset and liability method, future tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carryforwards. Future tax assets and liabilities are
measured using enacted or substantively enacted tax rates expected to apply when
the asset is realized or the liability is settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in income in the
period that substantive enactment or enactment occurs. A substantive enacted
rate is only used when the proposed tax rate change is specified in sufficient
detail to be understood and applied in practice and has been drafted and tabled
in legislative or regulatory form with the appropriate governing bodies.

(k) Stock-based compensation:

ImagicTV uses the intrinsic value method to account for its stock-based employee
compensation plan. As such, deferred stock-based compensation is recorded if it
is determined that on the date of grant the fair market value of each underlying
common share exceeded the exercise price per share. Deferred stock-based
compensation is recognized as an expense over the vesting period of the option.

(l) Fair value:

Financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable trade, accounts receivable trade-related
parties, instalment receivables, accounts payable, payable to related parties
and accrued liabilities. The carrying values for these financial instruments
approximate their fair values due to the relatively short periods to maturity of
the instruments. In addition, the carrying value of long-term debt obligation
approximates its fair values. ImagicTV determines the fair value of its
financial instruments based on quoted market values or discounted cash flow
analyses for instruments having similar terms and financing characteristics.

(m) Concentration of credit risk:

Financial instruments that potentially expose ImagicTV to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments, accounts receivable trade and instalment receivables. Cash and cash
equivalents consist primarily of deposits with major commercial banks and highly
liquid investments, the maturities of which are three months or less from the
date of purchase. ImagicTV performs periodic credit evaluations of the financial
condition of its customers.

Short-term investments consist primarily of high-grade fixed income securities
with maturities of more than three months but less than one year.

At February 28, 2001, 77% of the accounts receivable were concentrated with five
customers. At February 29, 2000, 77% of the accounts receivable were
concentrated with three customers. Allowances are maintained for potential
credit losses consistent with the credit risk of specific customers.

                                       71
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

All short-term debt securities are classified as held to maturity because
ImagicTV has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion discounts to maturity. ImagicTV owns no
short-term investments that are considered to be trading securities nor
available for sale securities.

The components of cash and cash equivalents and short-term investments are
summarized as follows (in thousands):

                                                     FEBRUARY 29,  FEBRUARY 28,
                                                        2000           2001
===============================================================================
 Cash and cash equivalents:
  Cash                                                $  6,396      $   1,332
===============================================================================

 Short-term investments:
  Corporate commercial paper                                 -         14,116
  Term deposit                                               -            230
  Short-term debt securities                                 -         45,082
-------------------------------------------------------------------------------

 Net book value                                       $      -      $  59,428
===============================================================================

3. CAPITAL ASSETS (IN THOUSANDS):

                                                    FEBRUARY 29,   FEBRUARY 28,
                                                         2000          2001
===============================================================================
 Computer hardware                                    $  1,142      $   2,156
 Office furniture and equipment                            478          1,419
 Leasehold improvements                                    165            300
 Software licenses                                         165            427
-------------------------------------------------------------------------------
                                                         1,950          4,302
 Less; accumulated depreciation and amortization           661          1,332
-------------------------------------------------------------------------------
 Net book value                                       $  1,289      $   2,970
===============================================================================

4. LONG-TERM DEBT:

During the year ended February 29, 2000, ImagicTV, through an application filed
by Newbridge Networks Corporation (an ImagicTV shareholder), was granted a
government assistance loan ("Repayable Loan") in the amount of $1,766,000 and
a forgivable loan ("Forgivable Loan") in the amount of $434,000 by the
Government of the Province of New Brunswick, Canada, to assist ImagicTV in
creating research and development employment in New Brunswick. The Forgivable
Loan was fully forgiven as advanced and recognized in the statement of
operations as forgivable government assistance. The Repayable Loan is unsecured
and repayable in annual instalments equal to 1.5% of the license fee revenues of
the immediately preceding year, and the balance, if any, is due on February 25,
2006. The Repayable Loan is interest-free until February 25, 2006 and, if not
paid at that date, thereafter will bear interest at 6.3% per annum. In addition,
the Repayable Loan is subject to accelerated repayment if the

                                       72
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

total number of full-time employees employed in the Province of New Brunswick
falls below 60 at any time during the year ended February 28, 2001 or below 92
at any time during the year ended February 28, 2002. As at February 28, 2001,
the number of full-time employees employed in the Province of New Brunswick,
being approximately 180, exceeded the prescribed amounts.

5. SHAREHOLDERS' EQUITY:

(a) Description of shares:

Common Shares

Each outstanding common share is entitled to one vote at shareholder meetings
and is entitled to receive dividends if, as, and when declared by the board of
directors. Subject to the rights of holders of shares of any class ranking
senior to the common shares, holders of common shares are entitled to receive
the remaining property or assets of ImagicTV in the event of liquidation,
dissolution or winding-up. The common shares have no preemptive, redemption or
conversion rights.

Preferred Shares

The board of directors has the authority, without further action by the
shareholders, to issue an unlimited number of preferred shares in one or more
series. These preferred shares may be entitled to dividend and liquidation
preferences over the common shares. The board will be able to fix the
designations, powers, preferences, privileges and relative, participating,
optional or special rights of any preferred shares issued, including any
qualifications, limitations or restrictions. Special rights which may be granted
to a series of preferred shares may include dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences, any of which may
be superior to the rights of the common shares.

b) Common share issuances:

(i)   ImagicTV was incorporated on December 24, 1997 to facilitate the transfer
of certain intellectual property related to a software solution enabling video
transfer over high speed Internet Protocol networks (the "Intellectual
Property"), from NBTel Inc. to ImagicTV where the Intellectual Property would be
further developed and commercialized.

(ii)  On January 1, 1998, ImagicTV entered into a technology transfer agreement
with NBTel, whereby NBTel transferred the Intellectual Property to ImagicTV in
exchange for 2,327,200 common shares. At January 1, 1998, NBTel owned 100% of
ImagicTV's outstanding shares and NBTel was owned by Bruncor Inc., a public
company in Canada. As the transaction occurred between companies under common
control, the asset transfer has been accounted for at the carrying value of nil.

(iii) On January 21, 1998, ImagicTV entered into a share subscription agreement
providing for the issuance of 2,327 common shares to NBTel and 1,164 common
shares to 506048 N.B. Ltd., a subsidiary of Celtic House International
("506NB"), for total proceeds of $2,000. Celtic House International is a
private venture capital company otherwise operating at arm's length with
ImagicTV and NBTel.

(iv)  On January 5, 1998, ImagicTV entered into a Development Agreement with
NBTel and 506NB, whereby NBTel and 506NB jointly engaged the services of
ImagicTV to carry out research and development on the Intellectual Property (the
"Research Project"). Under the terms of the Development

                                       73
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

Agreement, all of the technology developed under the Research Project remained
the property of NBTel and 506NB. In consideration for the services rendered
under the Development Agreement, ImagicTV could have received a contract payment
of up to C$4,000,000. On the same date, ImagicTV entered into a Technology
Transfer Option Agreement, whereby ImagicTV was granted an option to acquire the
technology developed under the Research Project from NBTel and 506NB in exchange
for the issuance of common shares of ImagicTV. On January 5, 1998, the inception
of the arrangement, it was ImagicTV's intent and NBTel's understanding that upon
the completion of the development agreement ImagicTV would exercise the option
to acquire the technology developed under the Research Project. The Development
Agreement has been accounted for as a funded research and development
arrangement rather than as an agreement to perform research and development for
NBTel and 506NB with an option to purchase the resulting technology, as there
existed a presumption that ImagicTV would repay the funds provided regardless of
the outcome of the research and development arrangement and based on the
significant related party relationship between ImagicTV and NBTel and 506NB. As
a funded research and development agreement, the proceeds received from NBTel
and 506NB were recorded as a liability as received; the funds expended on the
Research Project were expensed as incurred; and upon the exercise of the option,
the liability was extinguished through the issuance of shares with a paid-in-
capital amount equal to the funds advanced.

During the year ended February 28, 1999, ImagicTV received C$2,800,000
($1,857,000) under the Development Agreement. On January 5, 1999, ImagicTV
repaid the funds provided by issuing a total of 3,781,700 common shares to NBTel
(1,890,850 common shares) and 506NB (1,890,850 common shares). Upon repayment of
the funds provided, the Development Agreement terminated. The cash received
under the Development Agreement was initially recorded as a liability when
received and was subsequently recorded as the paid-up capital for the 3,781,700
common shares issued pursuant to the repayment of the funds provided.
Immediately prior to the repayment of the funds provided and completion of the
arrangement, ImagicTV's common shares were owned 50.01% by NBTel, 7.91% by
506NB, and 42.08% by Newbridge. Upon the issuance of the 3,781,700 shares, NBTel
owned approximately 47% and 506NB owned approximately 24% of the outstanding
shares of ImagicTV.

(v)    On June 22, 1998, ImagicTV issued 2,327,200 common shares to Newbridge
Networks Corporation for cash consideration of $1,359,000.

(vi)   During the year ended February 28, 1999, pursuant to the Preemptive
Rights granted to the shareholders of ImagicTV in the Shareholders' Agreement,
allowing for the voting shareholders to be granted a right to subscribe for a
portion of any new issuance equal to their percentage ownership of the voting
shares (the "Preemptive Rights"), ImagicTV issued an aggregate of 2,690,961
common shares for total cash consideration of $2,440,000.

(vii)  On December 17, 1999, ImagicTV issued 3,808,146 common shares to a group
of investors for cash consideration, net of costs, of $6,144,000.

(viii) During the year ended February 29, 2000, ImagicTV issued an aggregate of
791,694 common shares to employees for total cash consideration, net of costs,
of $1,011,000.

(ix)   During the year ended February 29, 2000, pursuant to the Preemptive
Rights granted to the shareholders of ImagicTV in the Shareholders' Agreement,
the Company issued 1,818,261 common shares for cash consideration of $1,676,000.

                                       74
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

(x)    In July 2000, ImagicTV's board of directors authorized a private
placement of up to $25,000,000, of which $10,000,000 was reserved for specified
existing shareholders. On September 19, 2000, ImagicTV issued warrants to
purchase common shares to five existing shareholders for a total cash
consideration of $10,000,000. In October 2000, in connection with the additional
private placements described below, the share purchase warrants were converted
into 909,061 common shares.

(xi)   Pursuant to share subscription agreements, in October 2000 ImagicTV
issued 272,719 common shares to America Online, Inc. for aggregate proceeds of
$3,000,000 and 1,090,875 common shares to Cisco Systems, Inc. for aggregate
proceeds of $12,000,000. Upon completion of these share issuances, America
Online owned 1.3% and Cisco Systems owned 5.5% of ImagicTV's issued and
outstanding common shares.

(xii)  On November 21, 2000, ImagicTV completed its initial public offering with
regulatory authorities in Canada and the United States. ImagicTV sold 4,750,000
common shares for net proceeds of $46,200,000. In connection with the initial
public offering, all of ImagicTV's outstanding Class A common shares, Class B
common shares and Class C common shares were converted into a single new class
of common shares on a one-for-one basis. In addition, ImagicTV effected a share
split on a 1.1636-for-1 basis. ImagicTV also created a class of preferred shares
issuable in series, none of which have been issued. ImagicTV's share capital and
earnings (loss) per share have been restated on a retroactive basis to give
effect to the conversion of the shares to a single new class of common shares
and the share split.

(xiii) During the year ended February 29, 2001 ImagicTV issued 21,382 common
shares to employees on the exercise of options for cash consideration of
$17,537.

(c) Stock option plan:

In February 1998, ImagicTV established a Key Employee Stock Option Plan (the
"1998 Plan"). Options granted under the 1998 Plan had a maximum term of six
years and an exercise price per share of no less than the fair market value of
the common shares on the date of the option grant as determined by the board of
directors. The options vested as to 50% after the third anniversary date and 50%
after the fourth anniversary date.

On December 17, 1999, ImagicTV adopted a new stock option plan, the Share Option
Plan (the "1999 Plan"). The 1999 Plan allows for the granting of options to
acquire common shares to employees, consultants and directors of ImagicTV and
its affiliates. Options granted under the 1999 Plan have a maximum term of seven
years and an exercise price per share of no less than the fair market value of
the common shares as determined by the board of directors on the date of the
option grant. The options vest annually over four years. ImagicTV has reserved
3,511,825 common shares, for issuance under the 1999 Plan, provided that the
board of directors has the right to increase the number of shares reserved. The
stock options granted under the 1998 Plan are now administered under the 1999
Plan, retaining the number and exercise price of options originally issued but
adopting the term and vesting attributes of the new plan.

ImagicTV's board of directors adopted a new share option plan on November 9,
2000 (the "2000 Plan"). The 2000 Plan does not affect options granted under
its 1998 or 1999 Plans. No new options will be granted under the 1998 or 1999
Plans. The compensation committee of ImagicTV's board of directors administers
the 2000 Plan and determines, among other things, the persons eligible to
participate in the 2000 Plan and the vesting periods and other attributes of
individual options. The 2000 Plan provides for

                                       75
ImagicTV Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

the grant of options to employees, officers and directors of, and consultants
to, ImagicTV and its affiliates. ImagicTV may issue non-qualified stock options
or incentive stock options to U.S. residents under the 2000 Plan.

Options held by any person under the 2000 Plan, together with any new options
granted to that person, may not at any time exceed 5% of the aggregate number of
our common shares outstanding from time to time. The maximum number of shares
issuable under the 2000 Plan is 1,879,185. The options granted under the 2000
Plan will have a maximum term of 10 years and an exercise price no less than the
fair market value of ImagicTV's common shares on the date of the grant, or 110%
of fair market value in the case of an incentive stock option granted to an
employee who owns common shares having more than 10% of the combined voting
power of the shares outstanding.

Under the 2000 Plan, if a change of control of ImagicTV should occur, ImagicTV's
board of directors is permitted, without any action or consent required on the
part of any option holder, to, among other things, accelerate the vesting of all
options so that they become immediately exercisable.

A summary of the status of ImagicTV's options as of February 28, 2001 is as
follows:
WEIGHTED AVERAGE
                                                            REMAINING CONTRACTUAL LIFE          NUMBER OF OPTINS
      EXERCISE PRICES             NUMBER OF OPTIONS                   (YEARS)                      EXERCISABLE
=================================================================================================================
$ 0.56                        671,979                       4.02                            429,084
            0.89                        796,049                       5.17                            226,924
            1.10                        104,728                       5.65                             26,185
            1.54                      1,207,225                       6.08                            122,476
            2.94                        368,276                       6.95                                291
            7.38                        279,195                       6.79                                  -
           11.17                        137,887                       6.47                                  -
-----------------------------------------------------------------------------------------------------------------

                                      3,565,339                       5.64                            804,960
=================================================================================================================
The following table summarizes options issued:
FEBRUARY 28, 1999                     FEBRUARY 29, 2000                 FEBRUARY 28, 2001
====================================================================================================================================
                                               WEIGHTED                          WEIGHTED                             WEIGHTED
                            NUMBER OF           AVERAGE        NUMBER OF          AVERAGE           NUMBER OF          AVERAGE
                             OPTIONS       EXERCISE PRICE       OPTIONS        EXERCISE PRICE        OPTIONS       EXERCISE PRICE
====================================================================================================================================
Outstanding, beginning
  of period                  378,170            $0.60            849,428          $  0.64            2,188,155          $0.96
 Granted                     471,258             0.69          1,399,234             1.21            1,588,903           3.51
 Cancelled                         -                -            (60,507)            0.91             (190,337)          2.30
 Exercised                         -                -                                                  (21,382)          0.80
 Outstanding, end            849,428            $0.64          2,188,155          $  0.96            3,565,339          $2.02
    of period
====================================================================================================================================
 Options exercisable,         94,543            $0.57            295,205          $  0.63            804,960            $0.82
    end of period
76
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

To February 28, 2001, all stock options have been granted to employees, officers
and directors of ImagicTV. ImagicTV recorded deferred stock-based compensation
relating to options issued under ImagicTV's option plan amounting to $3,220,000
for the year ended February 28, 2001. Amortization of deferred stock-based
compensation amounted to $550,000 for the same period and has been recorded as
an operating expense during this period.

6. INCOME TAXES:

The provision for income taxes differs from the amount computed by applying the
statutory income tax rate to loss before provision for income taxes.  The
sources and tax effects of the differences are as follows (in thousands):

                                                             YEAR ENDED                 YEAR ENDED                YEAR ENDED
                                                            FEBRUARY 29,                FEBRUARY 29,              FEBRUARY 28,
                                                                1999                       2000                      2001
==============================================================================================================================
Statutory rate applied to loss before
    provision for income taxes                                $(1,414)                  $ (2,583)                   $(5,157)
Adjustments resulting from:
Taxable portion related to capital
    transaction                                                   856                          -                          -
Stock-based compensation not deducted
   for tax                                                          -                          -                        249
Large Corporation Tax                                              17                         44                         24
Other                                                             134                         62                         62
------------------------------------------------------------------------------------------------------------------------------
                                                                 (407)                    (2,477)                    (4,822)
Unrecognized benefit of net operating losses
   carried forward and timing differences                         424                      2,521                      4,846
------------------------------------------------------------------------------------------------------------------------------
Income taxes                                                  $    17                   $     44                   $     24
------------------------------------------------------------------------------------------------------------------------------
Significant components of ImagicTV's deferred tax assets are as follows (in
thousands):
AS OF                     AS OF
                                                                                    FEBRUARY 29,              FEBRUARY 28,
                                                                                        2000                      2001
============================================================================================================================
Research and development expenses
   deferred for income tax purposes                                                  $  1,354                  $   3,911
Net operating losses carried forward                                                    1,674                      4,674
----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets                                                                     3,028                      8,585
Less valuation allowance                                                               (2,964)                    (7,825)
----------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset                                                                     64                        760
Deferred tax liability                                                                    (64)                      (760)
----------------------------------------------------------------------------------------------------------------------------
                                                                                     $      -                  $       -
============================================================================================================================
77
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

In addition to the above, to the extent that ImagicTV is able to utilize the
research and development expenses that have been deferred for income tax
purposes to reduce taxable income, ImagicTV will have available investment tax
credits of approximately $345,000 as at February 29, 2000 and $2,251,000 as at
February 28, 2001 that would be available to reduce income taxes otherwise
payable and which begin expiring in 2010.

Except as indicated in the table and paragraph above, at each of the financial
reporting dates, ImagicTV had no available taxable or deductible temporary
differences due to differences between carrying value for accounting purposes
and basis for tax purposes.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income, uncertainties related to the industry in which
ImagicTV operates, and tax planning strategies in making this assessment. In
order to fully realize the deferred tax assets, ImagicTV will need to generate
future taxable income of approximately $19,000,000 prior to the expiration of
the net operating losses carried forward. Due to the uncertainties related to
the industry in which ImagicTV operates and the uncertainty of generating
taxable income prior to the expiration of losses carried forward, the tax
benefit of the above carryforward amounts have been completely offset by a
valuation allowance.

In accordance with income tax law in Canada, research and development expenses
may be deducted in periods subsequent to the period incurred. The amounts set
out in the table above represent research and development expenses in the
consolidated statement of operations that will be deductible in future years for
income tax purposes. The amounts do not represent taxation benefits renounced to
NBTel and 506NB as part of the funding arrangement discussed in note 5(b)(iv).

Under the terms of the research and development arrangement between ImagicTV and
NBTel and 506NB described in note 5(b)(iv), investment tax credits that would,
subject to certain restrictions, have become available to ImagicTV were
renounced by ImagicTV and became available to NBTel and 506NB. The renounced
investment tax credits aggregated approximately $374,000. If ImagicTV had not
renounced its rights to these investment tax credits, the dollar value of
benefits available as deferred tax assets would have increased, and this
increase would have been offset by a corresponding increase in the allowance
provision.

As of February 28, 2001, ImagicTV had approximately $10,364,000 of operating
losses carried forward available to reduce future years' taxable income in
Canada. These losses and deductions expire as follows: 2005- $40,000; 2006-
$898,000; 2007-$2,619,000; 2008-$6,807,000.

7. SEGMENTED INFORMATION:

ImagicTV operates in a single reportable operating segment, that is, to provide
software products to telecommunications companies and other service providers
that enable the delivery of digital broadcast television services to residential
subscribers over high-speed Internet Protocol networks. The single reportable
operating segment derives its revenues from the sale of software and related
services. As of February 28, 2001, substantially all assets related to
ImagicTV's operations were located in Canada.

                                       78
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

Revenues are attributable to geographic location based on the location of the
customer, as follows (in thousands):
YEAR ENDED                 YEAR ENDED                YEAR ENDED
                                              FEBRUARY 29,               FEBRUARY 29,              FEBRUARY 28,
                                                 1999                       2000                      2001
===============================================================================================================
Revenue by geographic location:

 Canada                                          $ 479                      $1,362                   $ 3,757
  United States                                      -                           -                     3,699
  Europe                                             -                         736                     1,543
---------------------------------------------------------------------------------------------------------------
                                                 $ 479                      $2,098                   $ 8,999
===============================================================================================================
For the year ended February 28, 2001, Aliant Inc. accounted for approximately
27.9% of total revenues. In addition, two other customers accounted for 17.5%
and 10.2% of total revenues. In the year ended February 29, 2000, NBTel
accounted for 38% of total revenues. In addition, two other customers accounted
for 31% and 16% of total revenues. NBTel accounted for 97% of total revenues in
the year ended February 28, 1999.

8. RELATED-PARTY TRANSACTIONS:

The nature of the related-party transactions is summarized below:

(a) NBTel and Aliant Inc.:

On April 16, 1999, ImagicTV entered into a licensing agreement with NBTel,
whereby NBTel received a perpetual, non-exclusive license to use ImagicTV's
product in the Province of New Brunswick for cash consideration of C$500,000
($334,000), and future one-time royalty payments based on the number of NBTel
subscribers to the service. On December 16, 1999, the NBTel license agreement
was assigned to Aliant Inc. (the parent company of NBTel) and was amended to
include a license for the pcVu product and to expand the geographic territory of
the license to include the provinces of Nova Scotia, Prince Edward Island and
Newfoundland on an exclusive basis in these provinces. ImagicTV received
consideration amounting to C$900,000 ($610,000) payable as to C$500,000 on
January 31, 2000 and C$200,000 payable on each of January 31, 2001 and 2002. On
January 16, 2001, the license agreement was further amended to include a sale of
40,000 subscriber-based license fees for C$3,200,000, payable in non-refundable
instalments of C$1,600,000 on January 16, 2001 and C$1,600,000 on February 28,
2002.

The initial license agreement dated April 16, 1999 included multiple elements
including the delivery of DTV Manager version 1.0 and DTV Manager version 2.0,
installation and maintenance and support. For accounting purposes, the entire
non-refundable cash consideration was allocated to the various elements based on
the specific evidence of their values. DTV Manager version 1.0 was delivered
shortly after the execution of the agreement. DTV Manager version 2.0 was not
available for delivery at that time. The license fee revenue was deferred until
November 1999, the date at which ImagicTV delivered and installed DTV Manager
version 2.0. The maintenance fee is being recognized on a straight line basis
over the term of the maintenance contract. The future one-time royalty payments
based on net new subscribers are recognized as earned.

                                       79
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

Of the additional C$900,000 in consideration to be received in connection with
the Aliant Inc. amendment, C$500,000 was recognized as revenue upon the delivery
of pcVu in February 2000, C$200,000 was recognized as revenue when it became due
on January 16, 2001 and the remaining C$200,000 will only be recognized as
revenue when the amount becomes due.

Of the C$3,200,000 for the sale of 40,000 subscriber based licence fees,
C$1,600,000 was recognized in February 2001 as it became due and the C$1,600,000
due on February 28, 2002 will only be recognized as revenue when the amount
becomes due.

ImagicTV also sells set-top boxes, at little or no mark-up, to NBTel and Aliant
for distribution to their subscribers. Revenue related to the sale of set-top
boxes to NBTel amounted to $1,039,000 for the year ended February 28, 2001, and
$180,000 for the year ended February 29, 2000 and $462,000 for the year ended
February 28, 1999.

ImagicTV reimburses NBTel for certain operating expenses incurred on its behalf,
including premises rent, communications, and corporate services.

(b) Newbridge Networks Corporation:

In November 1999, ImagicTV entered into an agreement with a shareholder,
Newbridge Networks Corporation ("Newbridge"), whereby Newbridge received a
license to use ImagicTV's product for demonstration purposes in exchange for
equipment supplied by Newbridge. The transaction was recorded at the fair value
of the equipment received from Newbridge amounting to $103,000. In connection
with this transaction, ImagicTV recorded license revenues in the same amount.

In February 2000, ImagicTV entered into an amendment to the above agreement
which provides Newbridge with additional licenses to use ImagicTV's product for
demonstration purposes. The term of the additional site licenses was one year,
expiring on February 7, 2001. As of February 28, 2001, ImagicTV has sold
additional licenses to Newbridge for aggregate cash consideration of $40,000 of
which $40,000 has been recognized.

In June 2000, ImagicTV provided Newbridge with a 90-day trial license for
$17,000 which was used for demonstration purposes. As of February 28, 2001, the
$17,000 has been recognized.

ImagicTV has also supplied Newbridge with set-top boxes at little or no mark-up
above cost.

(c) America Online, Inc. and Cisco Systems, Inc.:

In October 2000, ImagicTV entered into a memorandum of understanding with
America Online to develop custom applications for them. Specifically, ImagicTV
agreed to provide America Online with up to $3,000,000 in research and
development services, calculated at ImagicTV's commercial rates for consulting
and development services and based on pricing and other terms no less favorable
than that received by any third party. Of this amount, ImagicTV is obligated to
expend $500,000 to conduct investigative research and development to be
specified by the parties.

The obligation to perform the remaining $2,500,000 in services for continued
research and development is contingent upon America Online entering into a trial
or commercial license with ImagicTV for its software. While, at the date of the
memorandum of understanding, ImagicTV had not entered into any

                                       80
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

licensing arrangements or agreements with America Online and the memorandum of
understanding does not contain any contractual commitment that would require
ImagicTV to license its software to America Online, it would be in ImagicTV's
commercial interest to do so. ImagicTV cannot, however, assure that it will
enter into a license agreement with America Online, nor can it predict the
extent or nature of any future licensing or other revenues or other funding for
services from America Online. As with the commitment to provide $500,000 in
research and development services, America Online and ImagicTV are to negotiate
in good faith the ownership and licensing rights of the intellectual property
resulting from the future research and development related to this contingent
obligation prior to the commencement of the development activities. At the date
of the memorandum of understanding, and as at the date of the financial
statements, ImagicTV had not entered into any agreements in this regard with
America Online.

The common shares issued to America Online note 5(b)(xi) do not contain any
terms or conditions, including any put or redemption rights, that would cause
ImagicTV to repay or refund any of the proceeds received for the common shares
sold to America Online. There also are no contractual or other agreements that
provide America Online with a right to sell the shares back to ImagicTV or to
cause ImagicTV to repay or refund any of the $3,000,000 received for the shares
for any reason, including ImagicTV's failure to perform under the memorandum of
understanding. Moreover, there are no contractual commitments that would require
ImagicTV to pay or refund any of the $3,000,000 received for the shares for any
reason, including ImagicTV's failure to perform under the memorandum of
understanding. Moreover, there are no contractual commitments that would require
ImagicTV to pay or refund America Online any cash or other consideration if
America Online fails to take advantage of ImagicTV's commitment to provide
services under the memorandum of understanding.

In connection with ImagicTV's private placement to Cisco Systems, it granted
Cisco Systems a right of first negotiation. Pursuant to this right of first
negotiation, if ImagicTV's board of directors receives a bona fide offer to
acquire ImagicTV or all or substantially all of ImagicTV's assets from any of
three specified entities, or if ImagicTV's board of directors votes to initiate
a sale to any of these three specified entities of 25% or more of ImagicTV's
total voting equity or all or substantially all of ImagicTV's assets, ImagicTV
must, within 24 hours, give Cisco Systems notice of the terms of the sale
proposal. After ImagicTV delivers this notice, Cisco Systems will have ten days
to submit a proposal to ImagicTV's board of directors to acquire ImagicTV at a
price to be set out in the proposal. In effect, under the limited circumstances
described above, Cisco Systems has been granted an option to make an offer to
acquire ImagicTV. If ImagicTV's board of directors decides to pursue Cisco
Systems' proposal, ImagicTV has agreed to negotiate in good faith exclusively
with Cisco Systems for a period of ten days. However, (a) if Cisco Systems does
not submit a proposal within ten days of receipt of ImagicTV's notice, (b) if
Cisco Systems' proposal is not pursued by ImagicTV's board of directors or (c)
if Cisco Systems and ImagicTV fail to mutually agree on the terms of a
transaction, then the right of first negotiation expires as to that proposal,
and ImagicTV can negotiate and enter into a definitive agreement with the entity
that made the initial proposal. Further, this right of first negotiation
terminates (1) in the event that Cisco Systems owns less than 50% of the common
shares it purchased on October 6, 2000 or (2) upon the date of the closing of
the acquisition of all or substantially all of ImagicTV's assets or an
acquisition of ImagicTV by another entity in which the holders of ImagicTV's
outstanding voting equity immediately prior to the transaction own, immediately
after the transaction, securities representing less than 50% of the voting
equity of the surviving entity. The current financing arrangements with Cisco
Systems do not include any research and development, marketing, licensing,
future financing or similar arrangements.

                                       81
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

(d) Innovatia Inc.:

In December 2000, ImagicTV entered into an agreement with Innovatia Inc., a
wholly owned subsidiary of Aliant Inc. According to this agreement, Innovatia is
to provide ImagicTV with consulting services by utilizing Innovatia's Living Lab
environment to assist in the development, marketing and sale of ImagicTV
products and create an environment in the Living Lab for ImagicTV to test new
services in a production environment. ImagicTV's commitment is to pay C$50,000
per month from the date of this agreement to May 31, 2001 with the option to
renew for a further 6 months.  For the year ended February 28, 2001, ImagicTV
has recorded an expense of C$150,000 in relation to this agreement.

The following table summarizes the related party transactions and balances (in
thousands):
YEAR ENDED              YEAR ENDED                 YEAR ENDED
                                                        FEBRUARY 29,            FEBRUARY 29,               FEBRUARY 28,
                                                            1999                    2000                       2001
=======================================================================================================================
Related party transactions:
 Revenues
  License fees                                        $        -                  $ 671                     $  116
  Services                                                     -                    110                        168
  Royalty fees                                                 -                      -                      1,249
  Equipment                                                  462                    205                      1,052
Operating Expenses                                           165                    469                        805
Interest income                                                -                     87                          -
AS OF                     AS OF
                                                                                FEBRUARY 29,               FEBRUARY 28,
                                                                                    2000                      2001
=======================================================================================================================
Related party balances:

 Accounts receivable trade                                                      $   749                     $1,440
  Deferred revenues                                                                 705                         27
  Accounts payable                                                                  324                        850
9. EARNINGS PER SHARE:

Earnings per share has been calculated based on the weighted average number of
common shares outstanding. Due to the net loss for all periods presented, all
potential common shares outstanding are considered anti-dilutive and are
excluded from the calculation of diluted loss per share. Common shares that
could potentially dilute basic loss per share in the future, not included in the
computation of diluted loss per share because to do so would have been anti-
dilutive, amounted to 3,565,339 for the period ended February 28, 2001.

                                       82
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

10. COMMITMENTS:

Future minimum lease payments under non-cancellable operating leases for
premises are as follows (in thousands):

                                                          AS OF
                                                       February 28
                                                           2001
 ==============================================================
     2002                                                 $ 751
     2003                                                   264
     2004                                                   273
     2005                                                   278
     2006                                                   189
     2007 and thereafter                                     14

Included in the lease commitments above are amounts related to an operating
lease with a shareholder, NBTel, for office premises. The lease expired on
February 28, 2001 and the company exercised its renewal option of one year.
Rental expense under this lease amounted to $250,000 for the year ended February
28, 2001, $270,000 for the year ended February 29, 2000, and $92,000 for the
year ended February 28, 1999.

On January 31, 2001 ImagicTV signed an agreement with Atom Corporation which
specifies that Atom will develop a one-time package of demo films for a 12 month
period from the effective date of the agreement and a monthly package of service
films for a 12 month period beginning March 1, 2001. ImagicTV's commitment
consists of non-refundable payments of $50,000 and $25,000 per month for a 12
month period.

11. CANADIAN AND U.S. ACCOUNTING POLICY DIFFERENCES:

The consolidated financial statements of ImagicTV have been prepared in
accordance with generally accepted accounting principles ("GAAP") as applied
in Canada. There are no material measurement differences between Canadian GAAP
and U.S. GAAP that apply to the consolidated financial statements. Additional
disclosures required under U.S. GAAP include the following:

(a) Accrued liabilities:

U.S. GAAP requires the disclosure of accrued liabilities that exceed 5% of
current liabilities.

Included in accrued liabilities at February 28, 2001 are accrued vacation pay
expenses of $302,000 and accrued initial public offering costs of $1,401,000. At
February 29, 2000 vacation pay expenses of $129,000 were included in accrued
liabilities.

(b) Impairment in long-lived assets:

As described in note 1(f), under Canadian GAAP the amount of a write down in
capital assets is calculated by reference to undiscounted future cash flows.
Under U.S. GAAP, where the undiscounted future cash flows are less than the
carrying value of capital assets, the write down is measured as the excess of
the carrying value over the fair value of the assets. In this case, fair value
may be calculated by reference to a discounted cash flow model. As to date
ImagicTV has not recorded a write down under

                                       83
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

Canadian GAAP, no difference due to the application of Canadian or U.S.
accounting principles has arisen.

(c) Recent accounting pronouncements:

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. To date, ImagicTV has not entered into derivative instruments.
Management believes the adoption of SFAS No. 133 will not have a material effect
on ImagicTV's financial position or results of operations.

(d) SFAS 123 pro forma information:

SFAS No. 123, "Employee Stock Compensation" encourages, but does not require,
the recording of compensation costs related to stock options granted to
employees to be valued at fair value. For companies choosing not to adopt the
fair value measurement for stock-based compensation, the pronouncement requires
the disclosure of pro forma net income and net income (loss) per share
information as if ImagicTV had accounted for its stock options issued under the
fair value method. ImagicTV has elected not to adopt the recording of
compensation cost for employee stock options at fair value and, accordingly, a
summary of the pro forma impact on the statement of operations is presented in
the table below (in thousands of dollars, except per share amounts):
YEAR ENDED                YEAR ENDED            YEAR ENDED
                                                                FEBRUARY 29,              FEBRUARY 29,          FEBRUARY 28,
                                                                   1999                      2000                  2001
================================================================================================================================
Net loss                                                        $ (3,068)                 $ (5,646)               $ (11,458)
Compensation expense related to the fair value
   of stock options                                                  (27)                      (69)                    (160)
--------------------------------------------------------------------------------------------------------------------------------
Pro forma net loss                                              $ (3,095)                 $ (5,715)               $ (11,618)
================================================================================================================================
Pro forma net loss per share                                    $  (0.58)                 $  (0.41)               $   (0.59)
================================================================================================================================
The fair value of each option granted prior to the Company becoming a publicly
traded company has been estimated at the date of grant using the minimum value
method and by applying the following assumptions: weighted average risk-free
interest rate of 5.18% for the year ended February 28, 1999; 5.76% for the year
ended February 29, 2000; and 5.88% for the year ended February 28, 2001;
dividend yield of 0%; and expected terms equal to the option vesting period.

The fair value of each option granted between the date the Company became a
publicly traded company and February 28, 2001 has been estimated at the date of
grant using the Black-Scholes option pricing model with the following
assumptions used: dividend yield of 0%, expected volatility at 109%, risk-free
rate of return of 5.88% and expected terms equal to the option vesting period.

                                       84
ImagicTV Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont)
                        (in thousands of U.S. dollars)

ImagicTV has assumed no forfeiture rate, as adjustments for actual forfeitures
are made in the year they occur. The weighted average grant date fair value of
options issued was $0.17, $0.19 and $0.37, for the years ended February 28,
1999, February 29, 2000, and February 28, 2001 respectively.

(e) Comprehensive Income:

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), which establishes standards
for reporting and presentation of comprehensive income. This standard defines
comprehensive income as the changes in equity of an enterprise, except those
resulting from shareholder transactions. For the year ended February 28, 1999,
February 29, 2000 and February 28, 2001 the difference between net loss and
comprehensive loss arises solely from reporting currency translation
adjustments. As a result, total comprehensive loss amounted to $3,054,000 for
the year ended February 28, 1999; $5,618,000 for the year ended February 29,
2000; $12,025,000 for the year ended February 28, 2001.

                                       85
ITEM 19.    EXHIBITS

     Documents filed as exhibits to this annual report:

     1.1  Articles of Incorporation of ImagicTV Inc. filed December 24, 1997 (as
amended on June 30, 1998 and November 27, 2000) (incorporated by reference to
Exhibit 3.1 to our registration statement on Form F-1 filed on October 23, 2000
(Registration No. 33-48452) (the "Registration Statement")).

     1.2  Bylaws of ImagicTV Inc. (incorporated by reference to Exhibit 3.4 to
the Registration Statement).

     4.1  Employee Share Option Plan (incorporated by reference to Exhibit 10.1
of the Registration Statement).

     4.2  Form of Share Option Agreement with respect to the Employee Share
Option Plan (incorporated by reference to Exhibit 10.2 of the Registration
Statement).

     4.3  Form of 2000 Share Option Plan (incorporated by reference to Exhibit
10.3 of the Registration Statement).

     4.4  Loan between Newbridge Networks Corporation and ImagicTV Inc.
(incorporated by reference to Exhibit 10.4 of the Registration Statement).

     4.5  Technology Transfer Agreement, dated January 1, 1998, between ImagicTV
Inc. and The New Brunswick Telephone Company, Ltd. (incorporated by reference to
Exhibit 10.5 of the Registration Statement).

     4.6  Technology Transfer Option Agreement, dated January 5, 1998, between
ImagicTV Inc., 506048 N.B. Ltd. And The New Brunswick Telephone Company, Ltd.
(incorporated by reference to Exhibit 10.6 of the Registration Statement).

     4.7  Development Agreement, dated January 5, 1998, between ImagicTV Inc.,
506048 N.B. Ltd and the New Brunswick Telephone Company, Ltd. (incorporated by
reference to Exhibit 10.7 of the Registration Statement).

     4.8  Licensing Agreement, dated April 19, 1999, between ImagicTV and The
New Brunswick Telephone Company, Ltd., together with a Novation and Amendment
Agreement to Licensing Agreement and Set-Top Box Supply and Software Licensing
Agreement, dated December 16, 1999, between ImagicTV Inc., NBTel and Aliant
Telecom Inc. (incorporated by reference to Exhibit 10.8 of the Registration
Statement).

     4.9  Executive Employment Agreement, dated July 26, 2000, between iMagicTV
and Marcel LeBrun (incorporated by reference to Exhibit 10.9 of the Registration
Statement).

     4.10 Executive Employment Agreement, dated July 14, 2000, between ImagicTV
and Marjean Henderson (incorporated by reference to Exhibit 10.10 of the
Registration Statement).

     4.11 Executive Employment Agreement, dated July 26, 2000, between ImagicTV
and Allan Cameron (incorporated by reference to Exhibit 10.11 of the
Registration Statement).

                                       86
4.12 Executive Employment Agreement, dated July 26, 2000, between ImagicTV
and Gerry Verner (incorporated by reference to Exhibit 10.13 of the Registration
Statement).

     4.13 Form of Management Option Agreement (incorporated by reference to
Exhibit 10.14 of the Registration Statement).

     4.14 Share Subscription Agreement, as amended, made as of September 29,
2000, between ImagicTV Inc. and America Online, Inc. (incorporated by reference
to Exhibit 10.15 of the Registration Statement).

     4.15 Share Subscription Agreement, as amended, made as of September 29,
2000, between ImagicTV Inc. and Cisco Systems, Inc., including separate Board
Observation Rights and Right of First Negotiation Letter, made as of the same
date (incorporated by reference to Exhibit 10.16 of the Registration Statement).

     4.16 Form of Share Purchase Warrant (incorporated by reference to Exhibit
10.17 of the Registration Statement).

     8.0 Subsidiaries of ImagicTV Inc. (incorporated by reference to Exhibit
21.1 to the Registration Statement).

     10.1 Consent of KPMG LLP.

                                   SIGNATURE

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

Dated: July 18, 2001

ImagicTV Inc.

Per: /s/ Marcel LeBrun
     Marcel LeBrun, President and Chief Executive Officer

                                       87
INDEX TO EXHIBITS
NUMBER                                             Description of Document
------                                             -----------------------
1.1        Articles of Incorporation of ImagicTV Inc. filed December 24, 1997 (as amended on June 30, 1998 and
           November 27, 2000) (incorporated by reference to Exhibit 3.1 to our registration statement on Form F-1
           filed on October 23, 2000 (Registration No. 33-48452) (the "Registration Statement")).
1.2        Bylaws of ImagicTV Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement).
4.1        Employee Share Option Plan (incorporated by reference to Exhibit 10.1 of the Registration Statement).
4.2        Form of Share Option Agreement with respect to the Employee Share Option Plan (incorporated by
           reference to Exhibit 10.2 of the Registration Statement).
4.3        Form of 2000 Share Option Plan (incorporated by reference to Exhibit 10.3 of the Registration
           Statement).
4.4        Loan between Newbridge Networks Corporation and ImagicTV Inc. (incorporated by reference to Exhibit
           10.4 of the Registration Statement).
4.5        Technology Transfer Agreement, dated January 1, 1998, between ImagicTV Inc. and The New Brunswick
           Telephone Company, Ltd. (incorporated by reference to Exhibit 10.5 of the Registration Statement).
4.6        Technology Transfer Option Agreement, dated January 5, 1998, between ImagicTV Inc., 506048 N.B. Ltd.
           And The New Brunswick Telephone Company, Ltd. (incorporated by reference to Exhibit 10.6 of the
           Registration Statement).
4.7        Development Agreement, dated January 5, 1998, between ImagicTV Inc., 506048 N.B. Ltd and the New
           Brunswick Telephone Company, Ltd. (incorporated by reference to Exhibit 10.7 of the Registration
           Statement).
4.8        Licensing Agreement, dated April 19, 1999, between ImagicTV and The New Brunswick Telephone Company,
           Ltd., together with a Novation and Amendment Agreement to Licensing Agreement and Set-Top Box Supply
           and Software Licensing Agreement, dated December 16, 1999, between ImagicTV Inc., NBTel and Aliant
           Telecom Inc. (incorporated by reference to Exhibit 10.8 of the Registration Statement).
4.9        Executive Employment Agreement, dated July 26, 2000, between iMagicTV and Marcel LeBrun (incorporated
           by reference to Exhibit 10.9 of the Registration Statement).
4.10       Executive Employment Agreement, dated July 14, 2000, between ImagicTV and Marjean Henderson
           (incorporated by reference to Exhibit 10.10 of the Registration Statement).
4.11       Executive Employment Agreement, dated July 26, 2000, between ImagicTV and Allan Cameron (incorporated
           by reference to Exhibit 10.11 of the Registration Statement).
4.12       Executive Employment Agreement, dated July 26, 2000, between ImagicTV and Gerry Verner (incorporated
           by reference to Exhibit 10.13 of the Registration Statement).
4.13       Form of Management Option Agreement (incorporated by reference to Exhibit 10.14 of the Registration
           Statement).
4.14       Share Subscription Agreement, as amended, made as of September 29, 2000, between ImagicTV Inc. and
           America Online, Inc. (incorporated by reference to Exhibit 10.15 of the Registration Statement).
4.15       Share Subscription Agreement, as amended, made as of September 29, 2000, between ImagicTV Inc. and
           Cisco Systems, Inc., including separate Board Observation Rights and Right of First Negotiation
           Letter, made as of the same date (incorporated by reference to Exhibit 10.16 of the Registration
           Statement).
4.16       Form of Share Purchase Warrant (incorporated by reference to Exhibit 10.17 of the Registration
           Statement).
8.0        Subsidiaries of ImagicTV Inc. (incorporated by reference to Exhibit 21.1 to the Registration
           Statement).
10.1       Consent of KPMG LLP.
i