UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 20-F

|o                                           | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------- | ----------------------------------------------------------------------------------------------
|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|For the fiscal year ended December 31, 2004
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      

Commission file number 0-29004

NOVATEL INC.(Exact name of Registrant as specified in our charter)

N/A(Translation of Registrant's name into English)

Canada(Jurisdiction of incorporation or organization)

1120 - 68th Avenue N.E., Calgary, Alberta, Canada T2E 8S5(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(Title of Class)

SECURITIES
FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d) OF THE ACT:NONE

At
December 31, 2004, Registrant had outstanding 8,260,171 Common Shares, no par value.

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 requirement for the past 90 days.

Yes

ý

No

o


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

Item 17

o

Item 18

ý




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The dollar amounts presented in this Annual Report on Form 20-F are in Canadian currency unless otherwise noted (CDN$1 = U.S.$0.7957 on
April 29, 2005), and are presented in accordance with accounting principles generally accepted in Canada. Historic rates of exchange appear in Part I,
"Item 3  Key Information, Selected Financial Data." The material differences between Canadian and U.S. generally accepted accounting principles
("GAAP") which would bear upon NovAtel Inc.'s, (hereinafter referred to as "NovAtel" or "the Company"), financial statements and, more particularly, income (loss) applicable to shareholders'
equity are disclosed in Note 22 of Notes to Consolidated Financial Statements.

Certain statements in this Annual Report, including those about the Company's future plans and intentions, financial guidance, long-term growth
prospects, levels of activity or other future events, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
not based on historical facts but rather on management's current expectations regarding NovAtel's future growth, results of operations, performance, future capital and other expenditures, competitive
advantages, business prospects and opportunities. Wherever possible, words such as "anticipate", "believe", "expect", "may", "could", "will", "potential", "intend", "estimate", "should", "plan",
"predict" or the negative or other variations of these words, or similar words or phrases, have been used to identify these forward-looking statements. Forward-looking statements involve significant
known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the
forward-looking statements, including operating results of the Company's joint venture Point, Inc. ("Point"), establishing and maintaining effective distribution channels, certification and
market acceptance of NovAtel's new products, impact and timing of large orders, credit risks of customers and the Company's joint venture Point, pricing pressures in the market and other competitive
factors, maintaining technological leadership, timing of revenue recognition in connection with certain contracts, the ability to maintain supply of products from subcontract manufacturers, the
procurement of components to build products, product defects, U.S. dollar to Canadian dollar exchange rate fluctuations, the impact of industry consolidations, vulnerability to general
economic, market and business conditions, competition, environmental and other actions by governmental authorities, reliance on key personnel and other factors described in the Company's
Form 20-F and other SEC filings, many of which are beyond the control of NovAtel. These factors should be considered carefully and undue reliance should not be placed on the
forward-looking statements. These forward-looking statements are made as of the date of this Annual Report, and NovAtel assumes no obligation to update or revise them to reflect new events or
circumstances.

PART I

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



The
following table sets forth selected financial data of the Company for the periods indicated. The selected financial data as at December 31, 2003 and 2004 and for the years
ended December 31, 2002, 2003 and 2004 have been derived from our audited consolidated financial statements, which appear elsewhere in this Annual Report. The selected financial data as at and
for the years ended December 31, 2000 and 2001 and as at December 31, 2002 have been derived from our audited consolidated financial statements, not included in this Annual Report. The
following unaudited summary financial information, in the opinion of management, has been prepared on the same basis as the audited consolidated financial statements and contains all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations for such periods. The table sets forth, in Canadian dollars and
U.S. dollars, the selected financial data as prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The financial data should be read in conjunction
with "Item 5  Operating and Financial Review and Prospects" and the Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Annual Report.

2

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|                                                                 |                                     | Year Ended December 31,     |       
|---------------------------------------------------------------- | ----------------------------------- | --------------------------- | ------
|
|
|Revenues:                                                        |                                     |                             |       
|                                                                 | Product sales                       |                             | $     
|                                                                 | NRE fees                            |                             |       
|                                                                 |                                     |                             |       
|                                                                 |                                     | Total revenues              |       
|                                                                 |                                     |                             |       
|Cost of sales:                                                   |                                     |                             |       
|                                                                 | Cost of product sales               |                             |       
|                                                                 | Cost of NRE fees                    |                             |       
|                                                                 |                                     |                             |       
|                                                                 |                                     | Total cost of sales         |       
|                                                                 |                                     |                             |       
|Gross profit                                                     |                                     |                             | 31,429
|                                                                 |                                     |                             |       
|Operating expenses:                                              |                                     |                             |       
|                                                                 | Research and development            |                             |       
|                                                                 | Selling and marketing               |                             |       
|                                                                 | General and administration          |                             |       
|                                                                 | Share offering costs                |                             |       
|                                                                 |                                     |                             |       
|                                                                 |                                     | Total operating expenses    |       
|                                                                 |                                     |                             |       
|Operating income (loss)                                          |                                     |                             | 10,024
|Interest income, net                                             |                                     |                             | 313   
|Other expense                                                    |                                     |                             | (662  
|Benefit of investment tax credits                                |                                     |                             | 4,356 
|                                                                 |                                     |                             |       
|Income (loss) from continuing operations before
    income taxes |                                     |                             | 14,031
|Income taxes                                                     |                                     |                             |       
|                                                                 | Current provision                   |                             |       
|                                                                 | Future income tax expense (benefit) |                             |       
|                                                                 |                                     |                             |       
|Net income (loss) from continuing operations (3)                 |                                     |                             | 12,794
|Income (loss) from discontinued operations (3)                   |                                     |                             | 21    
|                                                                 |                                     |                             |       
|Net income (loss)                                                |                                     | $                           | 12,815
|                                                                 |                                     |                             |       
|Net income (loss) per share (basic):                             |                                     |                             |       
|                                                                 | Continuing operations               |                             | $     
|                                                                 | Discontinued operations             |                             |       
|                                                                 |                                     |                             |       
|                                                                 |                                     | Net income (loss) per share |       
|                                                                 |                                     |                             |       
|Weighted average shares outstanding (basic)                      |                                     |                             | 8,063 
|                                                                 |                                     |                             |       
|Net income (loss) per share (diluted):                           |                                     |                             |       
|                                                                 | Continuing operations               |                             | $     
|                                                                 | Discontinued operations             |                             |       
|                                                                 |                                     |                             |       
|                                                                 |                                     | Net income (loss) per share |       
|                                                                 |                                     |                             |       
|Weighted average shares outstanding (diluted)                    |                                     |                             | 8,500 
|                                                                 |                                     |                             |       

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Footnotes appear on pages 5-9

3

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|(U.S.$ equivalent)(2)                                 |                                     | Year Ended
December 31, 2004 |       
|----------------------------------------------------- | ----------------------------------- | ---------------------------- | ------
|
|Revenues:                                             |                                     |                              |       
|                                                      | Product sales                       |                              | $     
|                                                      | NRE fees                            |                              |       
|                                                      |                                     |                              |       
|                                                      | Total revenues                      |                              |       
|                                                      |                                     |                              |       
|Cost of sales:                                        |                                     |                              |       
|                                                      | Cost of product sales               |                              |       
|                                                      | Cost of NRE fees                    |                              |       
|                                                      |                                     |                              |       
|                                                      | Total cost of sales                 |                              |       
|                                                      |                                     |                              |       
|Gross profit                                          |                                     |                              | 25,007
|                                                      |                                     |                              |       
|Operating expenses:                                   |                                     |                              |       
|                                                      | Research and development            |                              |       
|                                                      | Selling and marketing               |                              |       
|                                                      | General and administration          |                              |       
|                                                      | Share offering costs                |                              |       
|                                                      |                                     |                              |       
|                                                      | Total operating expenses            |                              |       
|                                                      |                                     |                              |       
|Operating income                                      |                                     |                              | 7,976 
|Interest income, net                                  |                                     |                              | 249   
|Other expense                                         |                                     |                              | (527  
|Benefit of investment tax credits                     |                                     |                              | 3,466 
|                                                      |                                     |                              |       
|Income from continuing operations before income taxes |                                     |                              | 11,164
|Income taxes                                          |                                     |                              |       
|                                                      | Current provision                   |                              |       
|                                                      | Future income tax expense (benefit) |                              |       
|                                                      |                                     |                              |       
|Net income from continuing operations                 |                                     |                              | 10,180
|Income from discontinued operations                   |                                     |                              | 17    
|                                                      |                                     |                              |       
|Net income                                            |                                     | $                            | 10,197
|                                                      |                                     |                              |       
|Net income per share (basic):                         |                                     |                              |       
|                                                      | Continuing operations               |                              | $     
|                                                      | Discontinued operations             |                              |       
|                                                      |                                     |                              |       
|                                                      |                                     | Net income per share         |       
|                                                      |                                     |                              |       
|Weighted average shares outstanding (basic)           |                                     |                              | 8,063 
|                                                      |                                     |                              |       
|Net income per share (diluted):                       |                                     |                              |       
|                                                      | Continuing operations               |                              | $     
|                                                      | Discontinued operations             |                              |       
|                                                      |                                     |                              |       
|                                                      |                                     | Net income per share         |       
|                                                      |                                     |                              |       
|Weighted average shares outstanding (diluted)         |                                     |                              | 8,500 
|                                                      |                                     |                              |       

4

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|
|

|                           |  | December 31, |        | 
|-------------------------- |  | ------------ | ------ | 
|
|
|
|Working capital            |  | $            | 30,322 | 
|Total assets               |  |              | 52,946 | 
|Long-term liabilities      |  |              |       | 
|Total shareholders' equity |  |              | 40,093 | 

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Canadian GAAP to U.S. GAAP Reconciliation ($ thousands)

i)Deferred Development Costs

In
the year ended December 31, 2004, the Company deferred $218 of development costs ($157 in 2003, $125 in 2002, $4 in 2001 and $757 in 2000) in accordance with Canadian GAAP.
Under U.S. GAAP, these costs would be expensed as incurred as research and development costs.

In
the year ended December 31, 2004, the Company amortized $416 of deferred development costs ($196 in 2003, $57 in 2002, $36 in 2001 and $nil in 2000) in accordance with Canadian
GAAP. Under U.S. GAAP, these costs would have been expensed in the periods when the originating expenditures were incurred.

Further,
for U.S. GAAP purposes, the Company would have recharacterized the goodwill acquired on the Mezure, Inc. share acquisition of $231 as development related costs,
and these costs would have been expensed on acquisition in 2001.

ii)Stock-Based Compensation

Under
U.S. GAAP, Statement of Financial Accounting Standard ("SFAS") 123 "Accounting for Stock-Based Compensation" establishes a fair value based method of accounting for
stock-based compensation. Companies have the option of including the effect of this pronouncement in determining their net income, or alternatively, may continue to apply the accounting provisions of
APB Opinion 25, but must comply with the disclosure requirements of SFAS 123. For U.S. GAAP purposes, the Company continues to account for its stock-based compensation in accordance with
APB Opinion 25 (see Note 22 (l) in the consolidated financial statements presented elsewhere in this Annual Report).

Effective
January 1, 2004, under Canadian GAAP the Company adopted the fair value method of accounting for stock options awarded to employees on or after January 1, 2002 as
required by amended CICA Handbook Section 3870Stock-Based Compensation and Other Stock-Based Payments. As permitted by the transitional
provisions of Section 3870, the change was adopted retroactively without restatement. Under Section 3870, the fair value of stock options is recognized over the applicable vesting period
as stock-based compensation expense and a credit to contributed surplus. When options are exercised, the proceeds are

5

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credited
to share capital, and the applicable fair value is reclassified from contributed surplus to share capital. Retroactive application of Section 3870 resulted in the opening balances as
at January 1, 2004 of deficit, contributed surplus and share capital being increased by $456, $390 and $66, respectively, as though the fair value method had been applied since
January 1, 2002. As indicated above, the Company continues to account for its stock-based compensation in accordance with APB 25 and thus these adjustments would not be recorded for
U.S. GAAP purposes.

Under
Canadian GAAP, the Company recorded stock-based compensation expense of $326 in the year ended December 31, 2004. For U.S. GAAP purposes, this expense would not have
been included in the determination of net income.

iii)Derivatives and Hedging Activities

The
Company has historically entered into foreign exchange options and forward contracts to manage its exposure to foreign currency fluctuations. Under U.S. GAAP, the accounting
for derivative instruments and hedging activities is contained in the Statement of Financial Accounting Standard ("SFAS") No. 133, as amended by SFAS 137, SFAS 138 and
SFAS 149 ("SFAS 133"). SFAS 133 establishes accounting and reporting standards requiring that all derivative instruments be recorded in the balance sheet as either an asset or a
liability measured at fair value and requires that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For cash flow hedges, changes in the
fair value of the derivative instrument are recognized in net earnings in the same period as the hedged item and any changes in the fair value prior to that period are recognized in other
comprehensive income. For fair value hedges, both the derivative instrument and the underlying commitment are recognized on the balance sheet at their fair value and any changes in the fair value are
recognized currently in net earnings. The Company's foreign exchange contracts have been accounted for as cash flow hedges.

iv)Investment in Joint Ventures

The
accounts of the Company's 49% joint venture interest in Point and former 48.7% joint venture interest in Mezure, Inc. (prior to the Company acquiring a 74% controlling
interest on July 23, 2001) are proportionately consolidated as required under Canadian GAAP. Under U.S. GAAP, proportionate consolidation is not permitted, and the Company's investment
in these joint ventures would be accounted for using the equity method. As permitted by SEC guidance, the effects of this difference in accounting principles have not been reflected in the
accompanying tables.

In
2002, the Company recognized a gain of $121 related to the reduction of its equity interest in Mezure from approximately 74% to 70%. Under U.S. GAAP, the Company would have
reflected the effects of this transaction as a direct increase in shareholders' equity of $160 after consideration of the impact of previous U.S. GAAP adjustments.

In
addition, in 2003, the Company recognized a gain of $379 related to the liquidation of the remaining assets and liabilities of Mezure. Under U.S. GAAP, this gain would have
been $571, since $192 characterized as goodwill under Canadian GAAP would have been expensed on acquisition in 2001 (see Note (i) above).

v)Intangibles Related to Acquisition of CMC Electronics' OEM GPS Business

On May 14, 2003, the Company acquired CMC Electronics Inc.'s non-aviation Global Positioning System ("GPS") OEM product line. The
purchase price was comprised of $150 at closing and $600 payable over time as a royalty on the revenue generated by this business. The fair value of net assets acquired is as follows:

Capital assets

$
150Intangibles


497Total investment

$
647


6

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The
intangibles are comprised primarily of technology and an established market presence to which the Company has assigned values of $149 and $348, respectively. The Company estimates
that these intangibles will have an expected useful life of 4 years and will be amortized using the straight-line method.

Under
U.S. GAAP, when accounting for transfer of assets between entities under common control, the entity that receives the net assets or the equity interest would initially
recognize the assets and liabilities transferred
at their carrying amounts at the date of transfer. Any excess of consideration given over the controlling shareholders' carrying value would be accounted for as a reduction of equity.

vi)Classification of Employee Relocation and Termination Costs

In the year ended December 31, 2002, the Company included $128 of employee relocation and $84 of employee termination costs within Other expense in the
consolidated statement of operations. Under U.S. GAAP, these costs would be included within operating expenses.

vii)Comprehensive Income

U.S. GAAP
utilizes the concept of comprehensive income, which includes net income and other comprehensive income. Currently, there is no similar concept under Canadian GAAP. Other
comprehensive income represents the change in equity during the period from transactions and other events from non-owner sources and includes such items as changes in the fair value of
cash flow hedges.

viii)Summary of the Differences between Canadian and U.S. GAAP

The effects of the above-noted differences between U.S. and Canadian GAAP produces the following differences on the presented statement of operations data:

|                                                                       |                          | Year Ended December 31,                                           |       
|---------------------------------------------------------------------- | ------------------------ | ----------------------------------------------------------------- | ------
|
|Net income (loss) from continuing
    operations  Canadian GAAP       |                          | $                                                                 | 12,794
|                                                                       | Adjustments to U.S. GAAP |                                                                   |       
|                                                                       |                          | Deferred development costs (i)                                    |       
|                                                                       |                          | Amortization of deferred development costs (i)                    |       
|                                                                       |                          | Stock-based compensation expense (ii)                             |       
|                                                                       |                          | Fair value of financial instruments (iii)                         |       
|                                                                       |                          | Amortization of intangibles acquired from CMC
    Electronics (v) |       
|                                                                       |                          |                                                                   |       
|Net income (loss) from continuing
    operations  U.S. GAAP           |                          |                                                                   | 13,442
|                                                                       |                          |                                                                   |       
|Net income (loss) from discontinued
    operations  Canadian GAAP     |                          |                                                                   | 21    
|                                                                       | Adjustments to U.S. GAAP |                                                                   |       
|                                                                       |                          | Gain on liquidation of Mezure, Inc. (iv)                          |       
|                                                                       |                          | Gain on dilution of equity in Mezure, Inc. (iv)                   |       
|                                                                       |                          | Write-off of Mezure, Inc. development related
    costs (i)       |       
|                                                                       |                          |                                                                   |       
|Income (loss) from discontinued
    operations  U.S. GAAP             |                          |                                                                   | 21    
|                                                                       |                          |                                                                   |       
|Net income (loss)  U.S. GAAP                                          |                          |                                                                   | 13,463
|                                                                       |                          |                                                                   |       
|Net unrealized gain (loss) on foreign exchange
    contracts (iii)     |                          |                                                                   | 179   
|Reclassification to income of gains and losses on cash
    flow hedges |                          |                                                                   |      
|                                                                       |                          |                                                                   |       
|Comprehensive income (loss)                                            |                          | $                                                                 | 13,642
|                                                                       |                          |                                                                   |       

7

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Net income (loss) per share as computed under Canadian and U.S. GAAP is as set forth below for the following periods:

|                        |  | Year Ended December 31, |     
|----------------------- |  | ----------------------- | ----
|
|Canadian GAAP  basic   |  | $                       | 1.59
|U.S. GAAP  basic       |  | $                       | 1.67
|Canadian GAAP  diluted |  | $                       | 1.51
|U.S. GAAP  diluted     |  | $                       | 1.58

|
|

|                        |  | Year Ended December 31, |     
|----------------------- |  | ----------------------- | ----
|
|Canadian GAAP  basic   |  | $                       | 1.59
|U.S. GAAP  basic       |  | $                       | 1.67
|Canadian GAAP  diluted |  | $                       | 1.51
|U.S. GAAP  diluted     |  | $                       | 1.58

The
reconciliation of the selected consolidated financial data between U.S. and Canadian GAAP produces the following differences on the presented balance sheet data:

|                                            |                                                          | Year Ended December 31,                                                          |                                  
|------------------------------------------- | -------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------
|
|Total Assets                                |                                                          |                                                                                  |                                  
|Canadian GAAP                               |                                                          | $                                                                                | 52,946                           
|                                            | Adjustments to U.S. GAAP                                 |                                                                                  |                                  
|                                            |                                                          | Deferred development costs (i)                                                   |                                  
|                                            |                                                          | Fair value of financial instruments (iii)                                        |                                  
|                                            |                                                          | Write off of development related costs on Mezure
    acquisition (i)(iv)         |                                  
|                                            |                                                          | Reduction of intangibles acquired from
    CMC Electronics to carrying value (v) |                                  
|                                            |                                                          |                                                                                  |                                  
|U.S. GAAP                                   |                                                          | $                                                                                | 50,460                           
|                                            |                                                          |                                                                                  |                                  
|Total Shareholders' Equity                  |                                                          |                                                                                  |                                  
|Canadian GAAP                               |                                                          | $                                                                                | 40,093                           
|                                            | Adjustments to U.S. GAAP                                 |                                                                                  |                                  
|                                            |                                                          | Deferred development costs (i)                                                   |                                  
|                                            |                                                          | Fair value of financial instruments (iii)                                        |                                  
|                                            |                                                          | Write off of development related costs on Mezure
    acquisition (i)(iv)         |                                  
|                                            |                                                          | Reduction of intangibles acquired from
    CMC Electronics to carrying value (v) |                                  
|                                            |                                                          | Amortization of intangibles                                                      |                                  
|                                            |                                                          |                                                                                  | acquired from CMC Electronics (v)
|                                            |                                                          |                                                                                  |                                  
|U.S. GAAP before other comprehensive income |                                                          | $                                                                                | 37,428                           
|                                            |                                                          |                                                                                  |                                  
|                                            | Accumulated other comprehensive income (loss)            |                                                                                  |                                  
|                                            |                                                          |                                                                                  |                                  
|                                            | U.S. GAAP including accumulated comprehensive
    income |                                                                                  | $                                
|                                            |                                                          |                                                                                  |                                  

8

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The
following table sets forth, for each period presented, the high and low exchange rates, the average of the exchange rates on the last day of each month during the indicated period
and the exchange rates at the end of the indicated period for one Canadian dollar, expressed in U.S. dollars, based on the noon buying rate in New York City for cable transfers payable
in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York:

|           |  | U.S. Dollars Per Canadian Dollar
Year Ended December 31,
|---------- |  | --------------------------------------------------------
|
|Average    |  | $                                                       
|High       |  |                                                         
|Low        |  |                                                         
|Period end |  |                                                         

|
|

|     |  | Month Ended
|---- |  | -----------
|
|High |  | $          
|Low  |  |            

On
April 29, 2005 the exchange rate was U.S.$0.7957 per CDN$1.00.

The
Company has not paid any cash dividends since its inception. The Board of Directors may pay cash dividends in the foreseeable future, but intends to retain the majority of earnings,
if any, for use in its business operations.

B.    Capitalization and Indebtedness



C.    Reasons for the Offer and Use of Proceeds



D.    Risk Factors

In addition to the other information set forth in this Annual Report, the following risk factors should be considered carefully in
evaluating the Company. This Annual Report contains certain forward-looking statements and intentions. The cautionary statements made in this Annual Report should be read as being applicable to all
related forward-looking statements wherever they appear in this Annual Report. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to
such differences include those discussed below, as well as those discussed elsewhere in this Annual Report.

The Company's operating results are susceptible to fluctuations.

NovAtel's results of operations have fluctuated and can be expected to continue to fluctuate on a periodic basis as a result of a number of factors which affect
revenue, gross margin and operating expenses. Annual and quarterly revenues have fluctuated because of a number of factors, including fluctuations in demand for existing products, the rate of
development of new products, the degree of market acceptance of new products, increased competition, acquisition of new product lines, timing of major contracts, U.S. dollar to Canadian dollar
exchange rates, operating results of subsidiaries and joint ventures, certification and market acceptance of new products, impact and timing of large orders, pricing pressures in the market,
establishing and maintaining effective

9

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distribution
channels, fluctuations in non-recurring engineering ("NRE") fees, seasonality of customer purchase patterns and the timing of industry trade shows.

Gross
margin as a percentage of revenue varies primarily as a result of product sales mix, the proportion of total revenue comprised of NRE revenue, changes in materials and contract
manufacturing costs, liquidation of discontinued inventory, and absorption of fixed manufacturing costs. In May 2003, the Company acquired CMC Electronics' non aviation
L1 GPS OEM product line, which typically have lower gross margins as a percentage of revenue and consequently, the addition of these products to NovAtel's product line has adversely
affected its gross margins as a percentage of revenue.

A
shortfall from anticipated revenue, lower gross margins or higher than expected expenses could adversely affect results of operations. In addition, if NovAtel were to receive a major
contract, the Company's expenditures required to support such a contract would likely increase. If revenue from the contract were delayed for any reason, including cancellation or deferral of the
contract, the Company's results of operations could be adversely affected. See "Item 5  Operating and Financial Review and Prospects, Operating
Results."

If the Company's product innovations and enhancements are not successful, the Company's revenue growth and results of operations may be adversely impacted.

Although NovAtel expects to make significant investments in research and development to continue to enhance existing products, develop new products which
incorporate new and existing technologies and achieve market acceptance for such products, there can be no assurance that such new products or product enhancements will be successfully developed or,
if developed, that any such new products or product enhancements will be developed in time to capture market opportunities or achieve a significant or sustainable level of market acceptance in new and
existing markets. The development of new, technologically advanced products and product enhancements is a complex and uncertain process requiring accurate anticipation of technological and market
trends. Any inability on NovAtel's part to successfully define, develop and introduce new products and product enhancements may materially adversely affect its growth potential and results
of operations.

In
addition, development and manufacturing schedules for technology products are difficult to predict, and there can be no assurance that NovAtel will achieve timely initial customer
shipments of new products. The timely availability of these products in the market place and their acceptance by customers are important to the future success of NovAtel. NovAtel has previously
experienced delays in shipping certain of its products and any future delays, whether due to manufacturing delays, product design and development delays, lack of market acceptance, delays in any
required regulatory approval, or otherwise, could adversely affect customer acceptance of its products and have a material adverse effect on NovAtel's business, financial condition and results of
operations. From time to time, NovAtel or its competitors may announce new products, capabilities or technologies that have the potential to replace or shorten the life cycles of its existing
products. No assurance can be given that announcements of currently planned or other new products will not cause customers to defer or stop purchasing NovAtel products until NovAtel or its
competitors' new products become available. In addition, certain of NovAtel's products must pass governmental and similar certifications before they can be sold. Any inability or delay in obtaining
such certifications could have a material adverse effect on NovAtel's business, financial condition and results of operations. See "Item 4  Information on
the Company, Business Overview  Research and Development."

The Company is subject to exchange rate fluctuations which could have a material effect on the Company's revenues and results of operations.

Over 98% of NovAtel's revenues have been, and are likely to continue to be, realized in currencies other than the Canadian dollar, principally the
U.S. dollar. A significant portion of NovAtel's expenses, however, will be incurred in Canadian dollars. Accordingly, fluctuations in the exchange rates between the U.S. dollar and other
foreign currencies and the Canadian dollar could have a material adverse effect on NovAtel's revenues and its results from operations. If the Canadian dollar increases in value relative to the
U.S. dollar, NovAtel's reported Canadian dollar revenues and net income may be materially and adversely affected. For example, during 2004, the Canadian dollar increased in value relative to
the U.S. dollar from $0.7738 on January 1, 2004

10

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to
$0.8310 on December 31, 2004. Although NovAtel uses forward foreign currency contracts to reduce a portion of its exposure to fluctuations in the U.S. dollar, there can be no
assurance that NovAtel will be successful in such hedging activities.

The Company relies on a limited number of customers for a substantial portion of its revenue and any loss of any key customer could have a material effect on the Company's
business, financial condition or results of operations.

In 2004, the Company derived 48% of its revenues from its top four customers, namely Leica Geosystems A.G. ("Leica Geosystems"), Raytheon Company ("Raytheon"),
Sokkia Co. Ltd. ("Sokkia")/Point and BEELINE Technologies Inc. ("BEELINE"). While the Company believes it maintains good relationships with its key customers, the loss of any key
customer could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, should any of the Company's customers
experience financial difficulties resulting in an inability to pay amounts owing to the Company, the Company may experience a material adverse effect on its financial condition and results of
operations.

The
Company's strategic co-operation agreement with Leica Geosystems provides that in the event of the acquisition of control of NovAtel or a significant portion of its
assets by certain specified competitors of Leica Geosystems, then Leica Geosystems may, among other things, terminate the agreement and any related development or supply agreements. The strategic
co-operation agreement between the Company and CMC Electronics contains a similar right in favour of CMC Electronics which is triggered in circumstances in which control of
NovAtel or a significant portion of its assets are acquired by certain specified competitors of CMC Electronics. The termination of either of such agreements could have a material adverse
effect on NovAtel's business, financial condition and results of operations and could cause the Company's quarterly operating results to fluctuate and cause its stock price to decline.

The Company places binding manufacturing orders based on its forecasts and, if the Company fails to adequately forecast demand for its products, it may incur product shortages
or excess product inventory.

The Company's third-party manufacturers require the Company to place binding manufacturing orders in advance of the Company receiving purchase orders from its
customers. This may result in product shortages or excess product inventory because the Company cannot easily increase or decrease these purchase orders. Obtaining additional supply in the face of
product shortages may be costly or impossible, particularly in the short term, which could prevent the Company from fulfilling orders. If the Company fails to adequately forecast demand for its
products it could cause the Company's operating results to fluctuate and cause its stock price to decline.

The Company relies on suppliers for the components used in its products and interruptions in the supply of such components or a significant increase in the price of one or more
components could adversely affect the Company's business, financial condition and results of operations.

Most of the components used in the Company's products are standard parts readily available from more than one supplier. However, a few components are sourced from
sole suppliers or are custom parts unique to NovAtel, including application specific integrated circuits manufactured to proprietary design, radio frequency filters, microprocessors and
duplexers/filters. While custom parts make the Company's products hard to imitate, they also represent a manufacturing risk due to the lack of alternative suppliers. If these parts became unavailable,
redesign or modification of the Company's products could be required. In addition, suppliers may cease manufacturing common components, replacing them with newer parts, which require requalification.
These risks could cause an interruption in the Company's ability to provide a steady stream of products to its customers, which would adversely impact the Company's revenues and results of operations.

NovAtel
has experienced significant production delays in the past caused by an insufficient supply of certain components. If NovAtel is unable to obtain a sufficient supply of single
source components from its current vendors, NovAtel may be required to obtain such components from alternative sources at higher prices and may experience a delay or interruption in product shipments,
which could adversely affect its business, financial condition and results of operations and damage customer relationships until an alternative source can be obtained. NovAtel has taken steps to
ensure adequate supply of these components and commenced product redesigns, as may be required.

11

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Also,
a significant increase in the price of one or more components could adversely affect NovAtel's business, financial condition and results of operations. Although NovAtel has
instituted vendor audit programs, there can be no assurance that NovAtel will not face problems with the quality of components in the future that could result in delays in supplies, interrupt
shipments and require modification of products already sold by NovAtel, any of which could have a material adverse effect on NovAtel's business, financial condition and results of operations. NovAtel
currently relies on two primary subcontractors to manufacture the majority of its circuit card assembly. There can be no assurance that the circuit card assembly subcontractors will be able to
manufacture NovAtel's products in a timely and reliable manner. The failure by a subcontractor to manufacture products in a timely and reliable manner could have a material adverse effect on NovAtel's
business, financial condition and results of operations.

The Company's success is dependent upon key personnel.

NovAtel's future success depends, in part, on its ability to attract and retain qualified technical staff, such as geomatics engineers, electrical engineers
(including radio frequency engineers, A.S.I.C. engineers and digital signal processing engineers), printed circuit board technologists, marketing, sales and executive management. Competition for such
personnel is intense and the number of persons with relevant experience, particularly in engineering, is limited. Any inability on the part of NovAtel to attract and retain additional key employees or
the loss of one or more of its current key employees could materially adversely affect NovAtel's business, financial condition and results of operations.

The Company may not be able to maintain existing OEM customers and strategic relationships or develop distribution channels for the sale of its products which would affect the
Company's revenues and results of operations.

NovAtel sells its OEM products directly to OEM customers and to strategic relationships. The Company expects to continue to utilize these relationships to sell to
companies that will incorporate NovAtel's products into their products and services. Accordingly, the Company's success will be dependent in large part on its ability to continue existing
relationships and develop new OEM and other third party relationships.

NovAtel
cannot predict nor control the extent to which its distribution network will be successful in marketing products incorporating the Company's technology. A material loss of any
OEM customers or strategic partners, either as a result of competitive products offered by other companies or products developed internally by these OEM customers and strategic partners, or their
inability to penetrate their respective market segments, could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that
NovAtel can continue to attract OEM customers, dealers and strategic partners and any inability to do so could materially adversely affect the Company's business, financial condition and results of
operations.

NovAtel
plans to continue expanding its distribution channels. There can be no assurance that such expansion will be successfully completed, that the cost of such expansion will not
exceed the revenues generated, or that the Company's sales and marketing organization will be able to successfully compete against the more extensive and well-funded sales and marketing
operations of many of NovAtel's current or potential competitors. NovAtel's inability to manage effectively its distribution expansion could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Item 4  Information on the Company, Business Overview  Sales,
Marketing and Distribution."

The price of NovAtel's common shares has fluctuated substantially over the last few years.

Since January 1, 2004, the closing sale price of NovAtel's common shares has ranged from a low of U.S.$8.07 to a high of U.S.$50.35. A number of factors
will continue to influence the market price for the common shares, including:



12

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If
the trading market for NovAtel's stock does not continue to develop, securities analysts may not initiate or maintain research coverage of NovAtel and its shares, and this could
adversely affect the market for NovAtel's shares.

The Company may be adversely affected by trends in the markets for GPS technology and products.

NovAtel currently addresses the following markets for the application of GPS technology: surveying and mapping, aerospace, precision agriculture, precise timing,
marine, unmanned vehicles, mining and machine control. Although NovAtel believes that these markets have growth potential for sales of GPS products, there can be no assurance that such markets will
continue to develop, particularly given that GPS-based systems are still in an early stage of adoption in some of these markets, or that even if they develop, such markets will develop in
a direction beneficial to NovAtel's products or product positioning or in the time frame in which NovAtel expects to launch products for these markets. Any development of these markets away from GPS
technologies or the GPS products offered by NovAtel could have a material adverse effect on NovAtel's growth potential and its business, financial condition and results of operations.

NovAtel
also believes that in certain emerging markets its success will depend on its ability to form and maintain strategic relationships with established system providers and industry
leaders. NovAtel's failure to form and maintain such relationships, or the pre-emption of such relationships by the actions of other GPS competitors, could adversely affect its ability to
penetrate emerging GPS markets. In addition, NovAtel's future growth will depend upon the timely development of the markets in which it currently competes, its ability to continue to identify and
exploit new markets for its products and its ability to open new channels of distribution for existing and future products. NovAtel's inability to effectively and efficiently exploit opportunities in
new or emerging markets through successful product marketing, new and timely product introductions and product enhancements and establishing new distribution channels for its products could have a
material adverse effect on NovAtel's growth, financial condition and results of operations. Further, to the extent NovAtel builds inventory in anticipation of potential sales in a new market, the
failure of that market to develop could have a material adverse effect on NovAtel's business, financial condition and results of operations.

The Company is working towards compliance with new European Union ("EU") restrictions on the use of certain hazardous substances, which may increase the Company's cost or limit
the Company's ability to sell product in Europe.

There are EU directives that restrict the use of certain hazardous substances and also create requirements on waste electrical and electronic equipment. NovAtel
is currently planning to be compliant on both of these directives before the deadlines. However, if the Company's product development is delayed or if the Company is unable to locate suitable
compliant parts and/or compliant manufacturing practices, which deliver the same level of quality as current practices, the Company's sales to Europe may be impacted, starting in 2006. In addition,
the Company may incur increased costs to dispose of obsolete inventory.

The failure of Point to repay existing loans to the Company or continue as a going concern could adversely affect the Company's results of operations.

NovAtel sells GPS receivers and antennas to Point which incorporates these receivers into surveying systems that are in turn sold through Sokkia's distribution
channels and through independent dealers and distributors. NovAtel's consolidated financial statements include its proportionate 49% joint venture interest in the accounts of Point. Point is subject
to similar types of risks as the Company.

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Point
is dependent on the Company and Sokkia for product supply, distribution and financing. As of December 31, 2004, the Company and Sokkia had collectively loaned Point
U.S.$5.3 million, U.S.$2.6 million of which was advanced by the Company. The loans are secured by the assets of Point.

Should
Sokkia and the Company discontinue their support, Point's ability to continue as a going concern would be impaired. If the existing loans were ultimately not repaid by Point to
the Company and Sokkia, and/or if Point were liquidated in an orderly wind-down, the Company believes that its maximum loss exposure in the statement of operations to Point as of
December 31, 2004, after consideration of the effects of the proportionate consolidation of Point, would be approximately $450,000, comprised primarily of working capital related items and the
costs that would be incurred to cease operations. The consolidated financial statements of the Company contained elsewhere in this Annual Report do not reflect any adjustments that would be required
if Point's operations were discontinued. See " Dependence on Key Customers."

The Company's business is dependent on its intellectual property. If the Company's patents or trademarks are declared invalid, the Company's ability to compete may be adversely
affected.

NovAtel currently holds 28 U.S. patents and 33 related foreign patents which expire at various dates no earlier than November 28,
2010. NovAtel also has numerous pending U.S. and foreign patent applications. NovAtel currently licences certain peripheral aspects of its technology from third parties. Although NovAtel believes that
its patents and trademarks have value, there can be no assurance that its patents and trademarks, or any additional patents and trademarks that may be obtained in the future, will provide meaningful
protection from competition. The value of NovAtel's products relies substantially on its technical innovation in fields in which there are many current patent filings. NovAtel recognizes that as new
patents are issued or are brought to its attention by the holders of such patents, it may be necessary for NovAtel to withdraw products from the market, negotiate a license from such patent holders,
redesign its products or pay damages assessed as a result of litigation. Such events could have a material adverse effect on NovAtel's business, financial condition and results of operations. In
addition, the legal costs and engineering time required to safeguard intellectual property or to defend against litigation could become a significant expense of operations.

NovAtel
has received written notices from certain parties alleging patent infringement of their respective patents. Other than one claim by Trimble Navigation Limited ("Trimble") for
which a settlement agreement was reached, to date, no formal claim has been brought by any of the parties. The Company believes it has valid defences to these claims should formal proceedings be
commenced. In protecting its intellectual property rights NovAtel has from time to time sent out letters to third parties regarding potential infringement. While no intellectual property right of the
Company has been invalidated or declared unenforceable, there can be no assurance that such rights will not be invalidated due to the existence of prior art or otherwise held unenforceable. See
"Item 4  Information on the Company, Business Overview  Legal Proceedings."

The Company's acquisition strategy involves a number of risks, including overpayment, failure to adequately integrate an acquired business and distraction of management from
core operations.

In order to assist in the achievement of growth, NovAtel continues to seek acquisition opportunities to complement its existing businesses. NovAtel cannot be
certain that it will be able to identify suitable acquisition candidates available for sale at reasonable prices, to consummate any acquisition, or to integrate any acquired business into its
operations successfully. Acquisitions may involve a number of special risks, circumstances or legal liabilities, some or all of which may have a material adverse effect on NovAtel's business, results
of operations and financial condition. Acquisitions may also result in potentially dilutive issuances of equity securities. When evaluating an acquisition opportunity, NovAtel cannot be certain that
it has correctly identified and managed the risks and costs inherent in the business that it is acquiring.

From
time to time, NovAtel engages in discussions and activities with respect to possible acquisitions. At any given time, discussions and activities can be in process on a number of
initiatives, each at different stages of development. While at the present time NovAtel has no binding agreement or commitment to enter into any such transaction, in normal course, from time to time,
it pursues potential acquisitions. NovAtel can provide no assurance that any potential transaction will be successfully completed, and, if completed, that the business acquired will be successfully
integrated into NovAtel's operations. The failure of NovAtel to manage its

14

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acquisition
strategy successfully could have a material adverse effect on NovAtel's business, results of operations and financial condition.

The products and services provided by the Company could expose the Company to product liability and other claims.

There is a risk that NovAtel's products and services may not perform up to expectations. While NovAtel usually contractually limits its liability for damages
arising from its provision of services, there can be no assurance that they will be enforceable in all circumstances or in all jurisdictions. Furthermore, litigation, regardless of contractual
limitations, could result in substantial cost to NovAtel, divert management's attention and resources from NovAtel's operations and result in negative publicity that may impair its ongoing marketing
efforts. Although NovAtel has general liability insurance, there is no assurance that this insurance will cover the claims or that the claims will not exceed the insurance limit under its current
policies.

The Company's business may be adversely affected by risks associated with international operations.

NovAtel derives a significant portion of its revenues from international sales. NovAtel plans to continue to expand its international sales and marketing efforts.
There are a number of risks inherent in NovAtel's international business activities, including unexpected changes in Canadian, United States or other government policies concerning the import
and export of goods, services and technology and other regulatory requirements, tariffs and other trade barriers, costs and risks of localising products for foreign countries, higher credit risks,
potentially adverse tax consequences, limits on repatriation of earnings and the burdens of complying with a wide variety of foreign laws. Fluctuations in currency exchange rates could materially
adversely affect sales denominated in currencies other than the Canadian dollar and cause a reduction in revenues derived from sales in a particular country. The financial stability of foreign markets
could also affect the Company's international sales. There can be no assurance that such factors will not materially adversely affect the revenues from NovAtel's future international sales and,
consequently, its results of operations. In addition, revenues that NovAtel earns abroad may be subject to taxation by more than one jurisdiction, which could materially adversely affect its earnings.
Furthermore, in certain foreign markets, there may be a reluctance to purchase products based on GPS technology, given the control of GPS by the U.S. Government. Each of these factors could
have an adverse effect on NovAtel's business, financial condition and results of operations. See "Item 4  Information on the Company, Business
Overview  Sales, Marketing and Distribution."

The adoption of new technologies to replace GPS could adversely affect the Company's business.

The Company operates in a highly technical market. Technology is constantly advancing and changing to meet new demands. NovAtel is unable to determine if GPS will
be essential in the future due to unpredictable advances in technology. There is a risk that GPS may be replaced with entirely new technologies and products which are not foreseeable at this time.

Competition and increased industry consolidation could adversely affect the Company's business, financial condition and results of operation.

The GPS industry has been going through a consolidation phase over the past several years. A number of GPS companies have been selecting strategic partners to
merge, acquire or form joint businesses in an effort to remain cost competitive and meet customer requirements. The Company expects that this consolidation phase will continue for the foreseeable
future resulting in fewer, but larger companies. Industry consolidation, by creating stronger and larger potential competitors, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Item 4  Information on the Company, Business
Overview  Competition."

A disruption of the GPS satellite network or governmental regulation of this network or GPS products could impair the viability of the Company's business.

The Company's products rely on signals from GPS satellites and to a lesser extent GLONASS satellites. GPS satellites and their ground support systems are complex
electronic systems subject to electronic and mechanical failures and possible sabotage. As of January 2005, there are 30 usable satellites, six more than the

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design
requirement. The satellites have a limited design life of between seven and 11 years and the satellites are also subject to damage by the hostile space environment in which they operate.
Of the current constellation of satellites, 19 are past their design target and five are past their design life target by six years or more. The repair of damaged or malfunctioning satellites
is nearly impossible. If a significant number of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of
operating satellites would impair the current usefulness of the GPS system or the growth of current and additional market opportunities, which, in either case, would adversely affect the Company's
business, financial condition and the results of operations. Spare satellites have been launched to address these concerns. There can be no assurance that the U.S. Government will remain
committed to the operation and maintenance of GPS satellites over a long period of time, or that the policies of the U.S. Government for the use of GPS without charge will remain unchanged.

Prior
to May 2000, the accuracy of GPS was reduced by the distortion of GPS signals as a result of selective availability ("SA"), which was controlled by the
U.S. Department of Defense. SA was the activated, intentional system-wide degradation of stand alone GPS accuracy from approximately 25 metres to approximately
100 metres. The Department of Defense implemented SA in order to deny hostile forces accurate position, time and velocity information supplied by GPS. In certain military applications,
classified devices are utilized to decode the SA degradation and return accuracies to their original levels. NovAtel has to date been able to design products that will reduce the degradation
that can be caused by SA. Although the U.S. Government discontinued the use of SA effective May 2000, there can be no assurance that the U.S. Government will not
take further actions which would adversely affect the use of GPS. These actions could include various methods of degrading the system, rendering it inoperable or the re-implementation
of SA by the U.S. Department of Defense in times of military action. There can be no assurances that NovAtel would be able to design products to compensate for these further actions. In
addition, to protect national security interests, various U.S. Government agencies have indicated their intention to limit or prohibit the use of techniques which compensate for SA and
such limitations or prohibitions could have a material adverse effect on the Company's business, financial condition and results of operations. Certain European government organizations have expressed
concern regarding the susceptibility of GPS equipment to intentional or inadvertent signal interference. Such concern could translate into reduced demand for GPS products in certain geographic
regions.

The
European Community and European Space Agency have completed plans and are in the process of launching full-scale development of Galileo. NovAtel expects to be involved in
Galileo receiver development activities in the future, through continuing support from the Canadian Space Agency. There can be no assurance that NovAtel will be able to design products compatible with
Galileo or that external funding will be obtained for such work.

The Company derives a substantial portion of its revenue from the aviation industry and factors that adversely affect the aviation industry generally could adversely affect the
Company's financial condition and results of operations.

NovAtel derives revenue from the Aerospace and Defence market sector, a substantial portion of which has been derived from sales to the ground and airborne
aviation industry. In the past three and one half years, the aviation industry has experienced an economic slow down and is only now beginning to recover from activities arising from the events of
September 11, 2001 in the United States. In addition, as of December 31, 2004, NovAtel deferred $2.4 million of costs related to the development of a certified aviation GPS
receiver. A protracted downturn in the aviation industry could result in a material adverse effect on the Company's revenue from this market and NovAtel's ability to recover the deferred development
costs which could adversely affect its financial condition and results of operations.

The Company may be unable to utilize certain tax deductions and investment tax credits, which could adversely affect the Company's results of operations.

The Company has not recorded a provision for income taxes in Canada, other than for Canadian federal large corporations tax, due to previously incurred losses,
credits and costs. As of December 31, 2004, losses, investment tax credits, depreciation and research and development costs are available to reduce future taxable income and taxes payable in
Canada. The Company has determined that the acquisition of a majority of its

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common
shares by CMC Electronics in 1998, BAE SYSTEMS p.l.c.'s acquisition of the majority of the common shares of CMC Electronics in November 1999 and ONCAP's acquisition
of the majority of the common shares of CMC Electronics in April 2001 each constitute an acquisition of control of the Company for Canadian income tax purposes. Accordingly, the
availability of certain of the Company's Canadian income tax losses, research and development costs, depreciation deductible for tax purposes and investment tax credits may be subject to limitation.
The ultimate availability and amount of these losses, credits and costs may be dependent upon future Canada Revenue Agency audits.

NovAtel may incur significant costs to satisfy regulatory requirements relating to internal controls over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires NovAtel to perform an evaluation of its internal controls over financial reporting and have its
auditor attest to such evaluation. Currently, this evaluation will be required in the Company's Form 20-F for the fiscal year ended December 31, 2006. During the next
year, NovAtel will be performing the system and process evaluation and testing (and any necessary remediation) required in an effort to comply with the management certification and auditor attestation
requirements. As a result, the Company expects to incur additional expenses and diversion of management's time. While NovAtel currently anticipates being able to fully implement the requirements
relating to internal controls and all other aspects of Section 404 in a timely fashion, the Company cannot be certain as to the timing of completion of its evaluation, testing and remediation
actions or the impact of the same on its operations.

Sale of NovAtel shares by CMC Electronics will result in increased insurance costs for NovAtel.

From January 2005 to May 11, 2005, CMC Electronics sold approximately 3.7 million common shares of NovAtel through open market
transactions, reducing its ownership of the Company from approximately 55% to approximately 9%. NovAtel does not expect the reduced ownership of the Company by CMC Electronics to have a
material impact on its day-to-day operations and business or its commercial relationship with CMC Electronics. The strategic partnership agreement signed between
CMC Electronics and the Company in 2004 is unaffected by the ownership change. Sales to CMC Electronics, comprised primarily of component sales and royalties, were approximately
CDN$640,000 or 1.2% of
NovAtel's total 2004 revenue. However, the Company expects to incur incremental annual insurance costs of approximately $500,000 to replace coverage previously provided under group policies arranged
by CMC Electronics.

The Company is subject to pending litigation and administrative proceedings.

NovAtel is currently subject to certain legal and administrative proceedings. NovAtel believes that it has meritorious defences and claims with respect to these
matters. There can be no assurance, however, that NovAtel will resolve these proceedings without paying damages or assessments. Any resolution of these legal and administrative proceedings which
involves a judgment or findings against NovAtel could have a material adverse effect on the business, financial condition and results of operations of NovAtel. See
"Item 4  Information on the Company, Business Overview  Legal Proceedings."

The reallocation of radio frequency bands used by GPS technology or other interference with the reception of GPS signals could harm the utility and reliability of the Company's
products.

GPS technology is dependent on the use of the radio frequency spectrum. The assignment of spectrum is controlled by the International Telecommunications Union
("ITU"). The Federal Communications Commission ("FCC") and Industry Canada are responsible for the assignment of spectrum for non-government use in the United States and Canada,
respectively, in accordance with ITU regulations. Any ITU, FCC or Industry Canada reallocation of radio frequency spectrum, including frequency band segmentation or sharing of the spectrum, could
cause interference with the reception of GPS signals and may materially and adversely affect the utility and reliability of NovAtel's products, which would, in turn, have a material adverse effect on
its business, financial condition and results of operations. In addition, emissions from mobile satellite service and other equipment operating in adjacent frequency bands or inband may materially and
adversely affect the utility and reliability of NovAtel's products, which could result in a material adverse effect on the Company's business, financial condition and results of operations.

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On May 11, 2000, the FCC issued a Notice of Proposed Rulemaking that proposed rules for the operation of Ultra Wideband ("UWB") radio devices on an unlicensed basis in the
frequency bands allocated to GPS. A coalition of companies and trade associates, including various airline companies, the Air Transport Association of America and the U.S. GPS Industry Council,
submitted a proposal for the regulation of UWB devices to the FCC in November 2001. On February 14, 2002, the FCC approved the commercial use of UWB technology at conservative power
limits. The current standards of operation set limits on what radio frequencies UWB devices can be operating in, including avoiding those frequencies used by the military and companies that sell
global positioning services. In February 2003, the FCC upheld its ruling to allow the production of UWB devices with "conservative" power limits. This may lead the way for a proliferation of
personal wireless devices that would be manufactured and sold on the open market without licence requirements. No restrictions on the density of these devices will be defined. Therefore, it is
possible that the GPS noise floor could be contaminated and rise by as much as 10 times the current level when operating in an area with a high density of operating UWB devices. This degradation of
the GPS signal-to-noise ratio would adversely affect the performance of the receivers. NovAtel is adding additional digital signal processing algorithms to its next generation
GPS receivers to enable tracking of weak GPS signals or continue to operate in high noise floor environments. If the FCC expands or changes the current UWB standards, UWB devices might cause
interference with the reception of GPS signals. Such interference could reduce demand for GPS products in the future. Any resulting change in market demand for GPS products could have a material
adverse effect on the Company's business, financial condition and results of operations.

The Company may be unable to properly manage the discontinuation of its older products.

As NovAtel develops newer products, many of its older products will reach their end of life. As NovAtel discontinues the manufacturing and sale of these older
products, it must manage the liquidation of inventory, supplier commitments and customer expectations. If NovAtel is unable to properly manage the discontinuation of these older products, it could
have a material adverse effect on its business, financial condition and results of operations.

Item 4.    Information on the Company

A.    History and Development of the Company

The Company was incorporated under theCanada Business Corporations Act("CBCA") on October 17, 1978 as
89006 Canada Ltd. The Company was extra provincially registered in Alberta on November 20, 1979 and remains active in this jurisdiction as of the date of this Annual Report. In
July 1979, the Company's name was changed to Westech Systems Ltd. and in April of 1983 was changed to NovAtel Communications Ltd. In October 1996, the Company changed its
name to NovAtel Inc. and in November 1996, the Company amended its articles to split its then outstanding common shares from 4 million to 5.2 million and amended its
articles to authorize the stated capital of the Company to include an unlimited number of Common Shares and First Preference Shares.

From
the time of the Company's formation until the mid-1990s, NovAtel's business was focused on the development of various communication businesses based on wireless
technology. In 1989, NovAtel acquired Norstar Instruments Ltd., a developer of GPS technology.

Between
1992 and 1996, NovAtel divested its non-GPS businesses in a series of transactions. Since that time, NovAtel's business has been focused primarily on
high-precision GPS technology and products.

In
1997, NovAtel completed an initial public offering of its Common Shares in the United States and was concurrently listed on NASDAQ with the offering under the symbol "NGPS."

On
April 17, 1998, pursuant to requests by its customers to integrate GPS technology into its aviation systems, CMC Electronics acquired 58.3% of the then outstanding
Common Shares.

In
1999, Point was established to develop advanced measurement solutions that incorporate NovAtel's GPS technology, primarily for Sokkia's surveying and mapping markets.

On
April 11, 2001, an investor group led by ONCAP L.P. ("ONCAP") acquired control of the Company through the acquisition of CMC Electronics.

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In
2001, NovAtel acquired a controlling equity interest in Mezure, Inc. ("Mezure"), a company that had been developing a GPS, wireless communication and Internet-based product for
deformation monitoring of man-made and natural structures. The business operations of Mezure were discontinued in
2003. See "Item 5  Operating and Financial Review and Prospects, Operating Results  Overview."

In
2002, NovAtel and Leica Geosystems AG ("Leica Geosystems") formed a strategic partnership, under which NovAtel would develop and supply GPS-based products and technology
to Leica Geosystems. See "Item 4  Information on the Company, Business Overview  Strategic
Partnerships  Leica Geosystems."

In
May 2003, NovAtel acquired CMC Electronics' non-aviation L1 GPS OEM product line to broaden the Company's product line. See
"Item 5  Operating and Financial Review and Prospects, Operating Results  Overview."

In
2004, NovAtel and CMC Electronics formed a strategic partnership, under which NovAtel would develop and supply GPS-based products and technology to
CMC Electronics. See "Item 4  Information on the Company, Business Overview  Strategic
Partnerships  CMC Electronics."

From
January 2005 to May 11, 2005, CMC Electronics sold approximately 3.7 million common shares of NovAtel through open market transactions, reducing its ownership
of the Company from approximately 55% to approximately 9%.

The
Company's principal capital expenditures over the last three years were $2.3 million in 2004, $2.7 million in 2003 and $1.2 million in 2002 and were primarily
for equipment for research and development, computer equipment and software and patents/trademarks. The Company expects the capital expenditures of approximately $3.5 million in 2005 to be
internally financed.

NovAtel's
Common Shares are listed on NASDAQ under the symbol "NGPS." The Company's head and registered offices are located at 1120 - 68th Avenue N.E., Calgary,
Alberta, T2E 8S5, and its website is located at www.novatel.com. The information on the website is not incorporated by reference into this Annual Report.

B.    Business Overview

General

NovAtel designs, markets and sells high-precision GPS and other positioning components and sub-systems used in a wide variety of
commercial applications principally in the aviation, geomatics (surveying and mapping), mining, precision agriculture, marine and defence industries. NovAtel's solutions combine hardware, such as
receivers and antennas, with software to enable its customers to fully integrate the Company's high-precision positioning technology into their respective products and systems. The Company
is focused on supplying core high-precision positioning technology to OEMs and system integrators who build systems for various end market applications.

Management
of the Company believes the primary customer benefits of NovAtel's core technology solutions include:



The
availability of reliable and cost-effective high-precision positioning technology has resulted in an expanding number of commercial applications for the
technology. Examples of applications for this technology include enabling commercial aircraft to use direct point-to-point flight lines resulting in reduced operating cost,
farmers to equip their tractors with machine controlled precision guidance systems, which typically results in lower operating costs and higher crop yields, and surveyors to use GPS-based
instruments to survey sites more rapidly and accurately.

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One
of the most critical elements of the NovAtel solution is the Company's product line of GPS receivers. The receiver is the core technology which receives, processes and resolves the
GPS signals. The majority of NovAtel's proprietary technology is incorporated into NovAtel's receivers and most of the research and development efforts of the Company are directed towards improving
their accuracy, reliability and cost effectiveness. These receivers are highly flexible and configurable with software for specific applications which enables the Company and its customers to leverage
a limited number of hardware platforms into a wide variety of end-market applications.

Industry Overview

Satellite Navigation Systems

Location determination has become a fundamental requirement for many consumer and commercial activities. GPS is the world's most widely used and accepted
technology for precise location determination.

Development
of the GPS system began with the launch of the first GPS satellite in 1978. The GPS system was founded and continues to be funded and controlled by the U.S. Department
of Defense. The purpose of the GPS system is to provide precise location and time determination for military and civilian applications. The GPS system can currently be accessed free of charge and
provides positioning data 24 hours a day worldwide.

The
survey industry was the first commercial market to make widespread use of the GPS system. Adoption began in the late 1980's and grew significantly in the early 1990's as new
technologies emerged to make the applications more cost-effective. Since that time, use of the system has spread to a variety of commercial and consumer applications including navigation,
tracking, mapping and monitoring.

The
GPS system is based on signals presently provided by a constellation of 30 orbiting satellites. The system of satellites currently broadcasts on two frequencies, L1, which is
available for civilian use, and L2 which is encrypted and primarily used for military applications. GPS positioning is based on a triangulation technique that precisely measures the distance from a
GPS receiver to satellites which continuously transmit precisely timed radio signals. GPS receivers calculate the distance by measuring the travel time of the satellite signal. Signals from four
satellites are typically required to compute the three dimensional position of the GPS receiver. Under normal operating conditions, a receiver is able to receive signals from six to eight satellites
at any point in time.

GLONASS
is a similar positioning system established by the former Soviet Union and controlled and operated by the Russian government. The GLONASS system was introduced in 1982 with the
launch of its first satellite and currently consists of 14 active satellites. Industry participants generally view GPS as being superior to GLONASS primarily as a result of the greater number of
active satellites.

A
third system, called Galileo, is currently being developed by the European Space Agency and is scheduled to become operational in or after 2008. According to the report entitled "GPS
World Markets" prepared by Allied Business Intelligence Inc., a leading industry research firm, and published in the fourth quarter of 2003 (the "Allied Report"), the European Union is planning
to spend U.S.$3.6 billion over the next five years to deploy the Galileo system. The development of alternative satellite positioning systems is a benefit to providers of global positioning
technology, such as the Company, since products can be designed to use the signals from multiple systems resulting in greater accuracy and reliability.

GPS Market Overview

The market for positioning technology has experienced significant growth since the original launch of the first GPS satellites. According to the Allied Report,
revenue from global GPS systems was estimated to be approximately U.S.$15.0 billion in 2004. According to the report entitled "North American GPS Equipment Markets (A601-22)"
prepared by Frost & Sullivan, a leading industry research firm, and published in 2004 (the "Frost & Sullivan Report"), revenue from the North American GPS market was approximately
U.S.$4.1 billion in 2004 and is expected to grow to U.S.$6.6 billion in 2007, a 17% compounded annual growth rate.

According
to the Frost & Sullivan Report, total unit sales in the North American market are expected to grow from 2.9 million in 2003 to 11.4 million in 2010 for a
compounded annual growth rate of approximately

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22%.
The following chart estimates total North American GPS units shipped or to be shipped for the periods indicated.

Total GPS Units Shipped
(North America: 2003-2010)

GRAPHIC

Source:
Frost & Sullivan Report (2004).

GPS Market

The overall GPS market can be divided into two primary segments, lower precision consumer markets and higher precision commercial markets. Management of the
Company estimates NovAtel's current total addressable annual market for high-precision positioning component technologies and sub-systems is approximately
U.S.$300 million to U.S.$400 million.

The
following chart illustrates the view of management of the Company in respect of the relative accuracy and reliability needs of the various end-markets. Accuracy refers to
how precise the positioning information is required to be in an application. Reliability refers to how important the continuity of positioning is to an application.

GRAPHIC

Management
of the Company believes that a limited number of highly specialized GPS companies, including NovAtel, have the capability to develop and produce technology that can be used in
higher precision applications, largely as a result of proprietary and patented technology.

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As
a result of the high degree of specialization required, commercial high-precision GPS component technology is typically sold at significantly higher prices, as illustrated
by the following chart, which typically results in higher gross margins than lower precision, consumer focused systems.

Average GPS System Pricing (2004)

GRAPHIC

Source:
Frost & Sullivan Report (2004).

Growth in High-Precision GPS

Management of the Company believes that growth in the high precision segment of the GPS market is the result of an expanding number of applications which are
being driven by technological advancements with respect to accuracy and reliability and a general reduction in the cost of peripheral component technology.

Technological Advancements

Since the introduction of GPS technology, there have been a number of technological innovations that have significantly increased the accuracy and reliability of
GPS products. Differential GPS, one of the first techniques developed to improve performance, can be used to achieve position accuracies down to a few millimetres for certain applications. With this
technique one receiver, typically called a base station, is precisely positioned on a known location and calculates a variety of measurement errors. This differential correction data is then broadcast
via communication links to other receivers, that can be static or in motion, which receive the differential corrections and apply them to provide precise locations. Using this technique, virtually all
significant positioning errors can be eliminated and the resulting differential positions can
achieve superior accuracy. Limitations of early differential GPS technology included the cost, reliability and form factor of the systems.

Differential
GPS was originally developed based on single-frequency receivers which used only the civilian signal. The first commercial dual frequency GPS system, which makes use of both
the L1 frequency and the L2 frequency, was introduced in the mid 1980s. Using both signals allows for significant reductions in the time required to calculate a precise position and an increase in the
working range of GPS devices.

Other
technologies have been developed to address specific issues or applications. For example, in 1993 NovAtel introduced Narrow Correlator tracking technology which
significantly reduced the effects of multipath interference which is caused by the reflection of multiple GPS signals. This innovation has allowed for a significant increase in accuracy. Comparable
versions of this technology have been broadly adopted by the industry.

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Another
innovation was on-the-fly initialization which enabled differential GPS to be applied to receivers in motion while maintaining accuracy to within a few
centimetres. This technology broadened the application of GPS to unmanned and automated vehicles.

NovAtel
has introduced numerous additional technological innovations over the past ten years. See "Item 4  Information on the Company,
Business Overview  Technology." These and other technological innovations have enabled the significant expansion of applications for high precision GPS
positioning solutions.

Continued Reduction in the Cost of Peripheral Component Technology

High-precision GPS component suppliers, including the Company, as well as system integrators have benefited from significant reductions in the cost of
peripheral components such as microprocessors, memory and wireless communications technology. These savings have enabled a significant reduction in the overall cost of GPS solutions and have driven an
expansion in the number of applications using the technology. Management of the Company believes that this trend will continue to promote growth for the high precision segment of the
GPS industry.

Other Industry Trends

In addition to the growth trends set forth above, management of the Company believes that growth of the high precision segment will be driven by the outsourcing
of core GPS technology by OEMs and system integrators and the development of complementary technologies that will enhance the performance and functionality of existing GPS technology.

Outsourcing of Core GPS Technology by OEMs and System Integrators

A number of NovAtel's key competitors and OEM customers have historically developed core GPS technology in-house or have acquired stand alone GPS
component vendors. Management of the Company believes there is currently a trend among OEMs and system integrators to outsource core GPS technology to vendors such as NovAtel. By doing so,
these companies are attempting to re-focus on their core competencies, developing custom systems for end market applications, which may enable them to make better use of their capital and
other resources. Management of the Company also believes it is becoming increasingly difficult for these companies to provide cost effective and technically advanced precision GPS receivers relative
to GPS focused companies, such as NovAtel, that have strong patent positions, substantial continuous GPS development and the ability to leverage their receiver technology across multiple applications.

Development of Complementary Technology

Management of the Company believes that the development of complementary technology that enhances or augments the accuracy and reliability of the core GPS
technology will enable a multitude of new applications for the technology and drive further growth. For example, the integration of inertial technology with GPS enables the combined system to provide
full position and velocity information while the receiver passes through areas of signal blockage. There are a number of other complementary technologies that are expected to cause an acceleration in
the number of applications using the technology.

Barriers to Entry

Management of the Company believes there are significant barriers to entry in the industry, including:



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Mission and Strategy

NovAtel's goal is to become the leading provider of high-precision global positioning component technologies and sub-systems. In order to
achieve this goal, NovAtel is focused on the following growth strategies:



Continue to Invest in High-Precision Global Positioning Technology

The Company is committed to continual improvement of the accuracy, reliability, cost and quality of its technology. To achieve these objectives, the Company
intends to invest in research and development primarily in the following areas: (i) core GPS hardware and software; (ii) technology supporting the modernization of the GPS system;
(iii) technology supporting other satellite based positioning systems; and (iv) technology that augments the Company's global positioning technology.

Partner with and/or Acquire Enabling and Complementary Technologies

NovAtel continually seeks to develop strategic partnerships with industry leaders of enabling and complementary technologies, such as inertial systems, guidance
technology and wireless communications. The Company also expects to continue to pursue selective strategic acquisitions that are complementary to current product offerings, expand its market
opportunity or broaden its customer base.

Continue to Build Market Share with Large OEMs and Emerging System Integrators

The Company plans to continue to build market share and enhance its growth through leveraging its OEM business model. Furthermore, the Company expects to continue
to develop relationships with emerging system integrators through its growing international dealer network. An important element of this strategy is to continue to work with OEMs and system
integrators in a highly collaborative fashion and to provide them with an exceptional level of customer support.

Attract and Retain Key Employees

NovAtel has assembled a talented and experienced team with proven expertise in the GPS industry. As the Company experiences growth, it intends to hire employees
with demonstrated experience and ability, with the objective of increasing the number of highly productive teams. Potential employees are offered the opportunity to work for an industry leader on
challenging assignments in their area of core competency with access to state-of-the-art development resources. The Company also maintains a competitive performance
based compensation program which is designed to attract and retain employees.

Continue to Generate Strong Revenue Growth while Improving Profitability and Capital Efficiency

The Company intends to continue to pursue profitable growth opportunities through its focus on return on investment. Key elements of this strategy include:
(i) maintaining selling prices and gross margins by pursuing value added high-precision global positioning applications; (ii) improving capital efficiency through outsourcing
select business activities, manufacturing services and certain design functions; and (iii) investing in initiatives to improve efficiency and reduce costs while continuing to deliver superior
customer service.

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Products

NovAtel offers a broad range of high-precision GPS and other positioning components and sub-systems. The Company's products combine
specialized hardware with proprietary software to enable its customers to fully integrate the Company's technology into their respective products and systems. NovAtel's products include GPS receivers,
antennas, proprietary software and augmented GPS products.

A
critical component of NovAtel's products are its GPS receivers which process the satellite signals received through the antenna to determine precise positions. A key advantage of
NovAtel's GPS receivers is that they are highly flexible and configurable allowing the same receiver to be used across a broad range of applications. For example, NovAtel can install different
software on the same type of receiver to meet the specific requirements of customers. This benefits NovAtel through reduced unit costs, higher production rates, focused research and development
efforts and a streamlined product line. NovAtel's customers also benefit in that they are able to upgrade their systems on a cost-effective basis by installing new software as opposed to
having to replace the entire receiver. NovAtel's GPS receivers are also capable of storing and running customer applications, enabling NovAtel's customers to realize cost-efficiencies and
accelerated time to market.

NovAtel
offers a range of antennas that are capable of supporting both single frequency and dual-frequency receivers and may be incorporated into a broad range of
applications, including those which operate in dynamic or challenging environments.

NovAtel
has also developed a range of proprietary high-precision GPS positioning software that enables its customers to achieve accuracies to within a few centimetres, in
real-time, while providing a high degree of reliability.

NovAtel
leverages the components described above in its aviation and geomatics product lines as well as in its augmented GPS products, such as the SPAN product family. The SPAN product
family integrates third-party inertial measurement technology with the Company's GPS technology (receiver, antenna and software) to provide the user with continuous positioning data even when a GPS
signal has been temporarily lost.

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The following are the Company's most popular products with a brief explanation of their features and applications.

GRAPHIC

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Markets

Management of the Company believes there are three primary drivers of future growth in the high-precision global positioning industry:



Increased Sales into Existing Applications in Traditional Markets

Management of the Company believes sales of existing applications will continue to increase in markets that have been traditional users of GPS technology.
Generally, these are markets where GPS has either replaced older technology, such as the marine industry, or markets where GPS technology was adopted at an early stage largely because the benefits of
GPS outweighed price sensitivity, such as the survey and mapping market.

The
Company expects these markets to continue to expand for a number of reasons including:



Selected
examples of growth applications in traditional markets include surveying and mapping, aviation and air traffic control ground infrastructure and commercial marine.

Development of New Applications in Non-Traditional Markets

New applications continue to emerge within established markets that to date have not been traditional users of GPS technology. The growth in new applications is
largely being driven by OEMs and system integrators who are developing new products that have become commercially viable as a result of technological improvements, cost reductions and the
development of complementary technology.

Selected
examples of growth applications in non-traditional markets include precision agriculture and mining and construction machine control.

Development of New Applications in Emerging Markets

New applications are also being developed within markets that have been created or transformed as a result of the evolution of low-cost,
high-precision positioning technology. These markets represent a diverse range of significant growth opportunities for the Company.

Selected
examples of applications in emerging markets include unmanned air vehicles, airborne weapons training and precision asset tracking and guidance.

Customers

NovAtel competes in the high-precision global positioning market by selling components and sub-systems to leading OEMs and system
integrators in multiple industries. During the past two years NovAtel has sold its products to over 350 customers worldwide, including some of the leading companies in their respective sectors.

For
the fiscal year ended December 31, 2004, NovAtel's 10 largest customers represented 68% of revenue.

Sales
to key customers, Leica Geosystems, Raytheon Systems and BEELINE Technologies, accounted for 16%, 15% and 6%, respectively, of the Company's total revenues in 2004. In comparison,
sales to Leica Geosystems, Raytheon Systems and BEELINE Technologies accounted for 6%, 5% and 11%, respectively, of the Company's total revenues in 2003. See
"Item 4  Information on the Company, Business Overview 

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Strategic
Partnerships  Leica Geosystems" and "Item 3  Key Information, Risk
Factors  Dependence on Key Customers."

The
Company's proportionate share of sales by Point accounted for 11% of total revenues in 2004 compared to 16% of total revenues in 2003.

In
2004, the Company derived 46% of its revenues in the United States, 19% in Asia/Australia, 26% in Europe, 6% in Canada and 3% in other parts of the world.

The
Company divides its customers into three primary market categories, Special Applications, Geomatics and Aerospace and Defence. The following chart sets out the consolidated revenues
of the Company by the categories indicated for the fiscal years ended December 31, 2002, 2003 and 2004.

NovAtel Revenues by Category
(2002 to 2004)

GRAPHIC

Special Applications

Special Applications is the largest and fastest growing category, contributing $33.0 million or 61% of NovAtel's revenues for the fiscal year ended
December 31, 2004. This category has experienced a 40% compounded annual growth rate from 2002 to 2004. This group's customers are in diverse markets including precision agriculture, marine,
mining and machine control, unmanned vehicles and sports media.

Special
Applications has three main types of customers:



NovAtel's
dealers and distributors are critical in extending the market reach of the Company. In many cases, these organizations make the first sales to small system integrators that
grow to become significant customers through the development of innovative product offerings. This was the case for BEELINE Technologies which is now one of NovAtel's largest customers.

Geomatics

Geomatics (surveying and mapping) was one of the first commercial applications of high-precision GPS technology and is currently a
well-established market. The Geomatics category contributed $9.3 million or 17% of NovAtel's revenues for the fiscal year ended December 31, 2004. NovAtel's Geomatics
category consists primarily of Point, the Company's joint venture with Sokkia. Point provides Sokkia's global marketing organization with advanced measurement solutions for the fields of surveying,
mapping, geographic information systems, construction and construction machine control. Sokkia's distribution system includes more than

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25 subsidiaries
and representatives around the world, each having its own dealer network. NovAtel's sales to Leica Geosystems, although primarily for geomatics applications, are not included in
this category for reporting purposes due to historical classification.

Given
the relative maturity of this market, growth in the sale of traditional GPS products is expected to be moderate. However, management of the Company believes that GPS modernization
and the introduction of the Galileo system represent significant opportunities for future growth as end-users upgrade their equipment in order to realize the enhanced performance and
efficiencies that may be achieved through the utilization of the new signals.

Aerospace and Defence

Aerospace and defence continue to be strong markets for GPS technology and include some of the most technically demanding applications of NovAtel's products. The
Aerospace and Defence category contributed $11.2 million or 21% of NovAtel's revenues for the fiscal year ended December 31, 2004. Customers of the Company in this group utilize
NovAtel's high-precision positioning technology for critical components in such applications as the ground networks of civil air traffic control systems, and in-flight guidance
systems on board aircraft that together enable aircraft to determine their precise position, and certain military applications.

The
Company's WAAS receivers are a key component of revenue in this category. The WAAS receivers are an important part of the existing ground infrastructure that supports the next
generation of air traffic control systems for commercial aviation in North America, Europe, Japan, China and India. Raytheon Company, the Federal Aviation Administration ("FAA") and other leading
companies and national aviation organizations around the world have selected NovAtel as a key supplier for this application primarily because of NovAtel's leading technology in this area.

Management
of the Company believes that opportunities for future growth within the aviation and defence markets will be driven by such developments as the introduction of the Galileo
system and the use of commercial grade receivers in defence applications such as unmanned vehicles.

The
Company is currently working with OEMs and system integrators that have determined precision GPS technology can be utilized in many military applications such as training,
logistics and missile tracking which do not require the use of encrypted military GPS technology.

Sales, Marketing and Distribution

NovAtel sells, markets and distributes its products through both direct and indirect channels in order to maximize market coverage on a cost-effective
basis. The primary focus for NovAtel's sales and marketing efforts is on OEM customers, strategic relationships and supporting a network of dealers and resellers. The Company has developed its sales
and marketing capabilities in anticipation of and in response to customer needs as they arise in its multiple markets. The in-house sales and marketing efforts are focused on market
research, product management, customer service, distribution management, communications and promotions. Each market receives specific attention to the needs of its sales and distribution channels,
which are rapidly changing.

The
Company believes that providing a high level of customer technical support is critical to creating and maintaining strong relationships with their OEM and system integrator
customers. The Company is able to achieve this level of support by employing a sufficient number of qualified engineers and technicians to advise and provide customers with integration and
after-sale support. Due to frequent interaction with customers, these integration engineers and support technicians also act as an important source of customer information, which can drive
product enhancements, new product ideas and new business opportunities.

Technology

NovAtel has invested significant funds and resources to become a leading provider of high-precision positioning technology. Since 1992, NovAtel has
provided several major technological innovations to meet the increasingly demanding needs of the high-precision positioning industry. NovAtel currently holds 28 U.S. patents
and 33 related foreign patents which expire at various dates no earlier than November 28, 2010

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and
has numerous pending U.S. and foreign patent applications. Some of the more significant technology developments by the Company are discussed below.

1992 Narrow Correlator Tracking Technology

NovAtel established itself in the GPS industry through the introduction of its patented Narrow Correlator tracking technology in 1992. Narrow Correlator tracking
allowed NovAtel products to provide positioning accuracy to within one meter with a single-frequency receiver while significantly reducing the effects of multipath interference caused by the
reflection of multiple GPS signals. Relative to other GPS technology available at the time, this innovation resulted in a five-fold improvement in accuracy for GPS devices.

1994 Multipath Elimination Technology ("MET")

NovAtel continued its technology advancements with the introduction of MET in 1994. MET expanded upon the Narrow Correlator tracking technology by refining
software algorithms to more effectively filter the effects of multipath signal interference. This new technology removed 25% to 50% of the residual multipath errors.

1995 Multipath Estimating Delay Lock Loop ("MEDLL")

In 1995, NovAtel introduced MEDLL technology. MEDLL offered a more rigorous approach to the reduction of multipath effects using improved circuitry, software
control and processing. The MEDLL technology further reduced the effects of multipath interference by up to 90%.

1995 Real Time Kinematic ("RTK") Signal Processing Technology

Also in 1995, NovAtel introduced a unique method of applying RTK processing to the carrier frequency signals in order to rapidly increase the accuracy of the
computed position from meters to less than 20 centimeters. This signal processing method is particularly useful for single frequency GPS receivers. Previous attempts at using RTK resulted in
significant delays before reaching precision accuracies.

2000 Pinwheel Aperture Coupled Slot Array Technology

In 2000, NovAtel introduced a new antenna utilizing its patented Pinwheel Aperture Coupled Slot Array technology. Using this technology, the Company
was able to produce a much smaller and lighter antenna than other available antennas on the market without sacrificing either accuracy or reliability.

2000 Pulse Aperture Correlation ("PAC") Technology

Also in 2000, NovAtel introduced its new PAC technology. Available exclusively on the Company's OEM4 product line, PAC technology
implements the latest digital signal processing techniques to provide superior tracking capability in the presence of multipath interference. PAC effectively doubles the accuracy of the Narrow
Correlator tracking technology and reduces interference by up to eight times.

2002 Model Position Aiding and Position Velocity Filter

In 2002, NovAtel developed a method of increasing the reliability of GPS position output in very challenging environments through the use of model position aiding
and position velocity filter techniques. While this technology was initially developed to meet the needs of a specific application, Management of the Company believes that it can be applied to a
broader range of markets, such as precision agriculture.

2003 GPS and Micro-Electro-Mechanical System ("MEMS") Integration

The Company has developed software that enables the integration of its GPS receivers with a MEMS system. This system can maintain an accurate estimate of position
and velocity without the use of GPS satellite signals for short periods of time. In the absence of GPS satellite signals, a GPS receiver cannot provide information about the user's position or
velocity if the direct line-of-sight between the receiver and the satellites

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is
blocked. The integration of GPS and MEMS allows the combined system to provide full position and velocity information while the receiver passes through areas of signal blockage.

2004 GPS Modernization and Integration of Inertial Navigation Systems ("INS")

The Company developed equipment designed to generate and receive the new GPS L5 civil signal. In support of the Company's air traffic control ground
infrastructure business, the new L5 equipment will generate the signal used by WAAS Ground Uplink Stations and will also control and monitor the quality of the signal produced by the WAAS
geostationary satellites.

The
Company continued its technology advancement in the area of integrating GPS and INS technologies, resulting in two patents.

Research and Development

The Company's technology position is supported by a strong commitment to research and development. NovAtel has invested heavily in developing GPS technology,
including the design of proprietary software and integrated circuits for GPS receivers. The Company's research and development expense was $9.6 million, $7.1 million and
$5.3 million in 2004, 2003 and 2002, respectively.

In
addition, the Company also receives significant amounts of funding from its customers through NRE contracts to conduct research and development on their behalf. Typically, NovAtel
retains ownership of the intellectual property developed under these arrangements and is able to exploit such intellectual property for its own purposes. The Company's total engineering expenditures,
comprised of internal research and development programs and customer funded NRE programs, were $12.5 million or 23% of revenue in 2004, $10.7 million or 28% of revenue in 2003 and
$9.4 million or 28% of revenue in 2002.

Often
a new product is initially developed for a customer or strategic partner who is willing to purchase development stage products. The Company has used feedback from such initial
customers as a source of information in designing and refining its products, and in defining, with greater precision, customer needs in emerging market areas.

Competition

NovAtel faces competition primarily from other developers and suppliers of high-precision positioning component technology which is sold to
OEMs and system integrators for commercial applications, as well as from OEMs who choose to develop and produce the component technology in-house.

The
primary competitors supplying component technology to OEMs and system integrators vary by each industry or market served, but generally include Trimble Navigation Limited
(U.S.), Thales Group (France), Topcon Positioning Systems (Japan), Javad Navigation Systems (U.S.), NavComm Technologies (U.S.) and at the single-frequency level, companies such as CSI
Wireless Inc. (Canada) and Furuno Marine Electronics (Japan). While these competitors to NovAtel offer high-precision positioning solutions to OEMs, many also develop, produce and
market products that are sold directly to end-users and are therefore in competition with the OEMs' end-products and solutions.

NovAtel
works with OEMs in a highly collaborative and cooperative process to provide them with the core technology that becomes integrated into their end products and solutions.
Management of the Company believes that the non-competitive nature of its relationships with OEMs is a key differentiator and a competitive advantage for the Company relative to
other suppliers.

Strategic Partnerships

Leica Geosystems

The Company entered into a strategic co-operation agreement with Leica Geosystems on May 1, 2003, to jointly develop new technology for GPS in
the high-precision geomatics market. The initial term of the agreement is seven years. Under the terms of the agreement, NovAtel has agreed to develop a custom version of existing GPS
receivers and other components for Leica Geosystems. In September 2003, pursuant to the

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strategic
co-operation agreement, the Company entered into a supply agreement with Leica Geosystems which sets forth the arrangements under which NovAtel would develop and supply Leica
Geosystems with a custom GPS receiver. In February 2004, Leica Geosystems announced the launch of a new surveying system (System 1200) that incorporates NovAtel's GPS receiver and antenna
technology. In addition, the Company, Leica Geosystems and CMC Electronics entered into a change of control agreement dated April 5, 2004, which provides Leica Geosystems with certain
rights in the event of the acquisition of control of NovAtel by certain competitors of Leica Geosystems. See " Certain Contractual Rights" and
"Item 3  Key Information, Risk Factors  Dependence on Key Customers."

Point, a NovAtel/Sokkia Joint Venture

The Company owns 49% of the common shares in Point, a geomatics joint venture with Sokkia, one of the world's largest suppliers of surveying and mapping
equipment. The Company sells GPS receivers and antennas to Point which incorporates these products into surveying systems that are in turn sold through the Sokkia distribution channels and through
independent dealers and distributors. In addition, the Company provides facilities, computer support and development and logistical support for Point's Calgary operations. See
"Item 3  Key Information, Risk Factors  Dependence on Key Customers."

CMC Electronics

The Company and CMC Electronics entered into a strategic co-operation agreement on April 5, 2004, to cooperate in the development of new
technology for GPS aviation solutions and under which the Company would develop and supply global positioning products and technology to CMC Electronics. CMC Electronics is one of the
world's largest suppliers of certified GPS products into the commercial aviation market. The initial term of the agreement is ten years. Under the terms of the agreement, for so long as the Company is
CMC Electronics' sole and exclusive supplier of global positioning products and technologies for certain specified avionics markets and ground based augmentation systems, NovAtel has agreed not
to sell such products and technology for use in such markets. In consideration for agreeing to such restrictions, the Company is entitled to receive minimum payments of $2.4 million in the
initial four year period of the agreement. NovAtel's revenue with CMC Electronics in 2004 was approximately $640,000, or
1.2% of total revenue. See "Item 3  Key Information, Risk Factors  Dependence on Key Customers."

Certain Contractual Rights

Pursuant to the terms of a strategic co-operation agreement dated April 5, 2004, Leica Geosystems has the unilateral right in the case where a
defined competitor of Leica Geosystems obtains (1) 50% of the voting shares of the Company, (2) the power to elect a majority of the Board of Directors, or (3) obtain a
significant portion of the Company's technology, to cancel the strategic co-operation agreement and any related development and supply agreements signed between the Company and Leica
Geosystems, the right to purchase the intellectual property developed by the Company on behalf of Leica Geostystems (while providing the Company a license to use such intellectual property in its
ongoing business) and in the event of a material disruption in supply to deal directly with the Company's suppliers (subject to appropriate compensation to the Company).

Employees

A key priority of the Company is to attract, train and retain talented employees. NovAtel views its highly skilled and performance-motivated employees as a
competitive advantage and a key part of the strategy for future growth. The Company staff turnover rate was approximately 5% for its fiscal year ending December 31, 2004 (excluding Point
employees and involuntary separations).

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As
at December 31, 2002, 2003 and 2004, the Company (excluding Point) had the following full-time employees:

|                           |  | Full-Time Employees
|-------------------------- |  | -------------------
|
|Research and development   |  | 57                 
|Operations                 |  | 28                 
|Administration and finance |  | 22                 
|Sales and marketing        |  | 13                 
|                           |  |                    
|TOTAL                      |  | 120                
|                           |  |                    

The
Company also retained four part-time, ten temporary employees and one contract personnel as at December 31, 2004. Separately, Point employed 39 permanent employees
and one temporary employee as at December 31, 2004. None of NovAtel's employees are represented by a labour union, and the Company has not experienced any work stoppages.

Operations and Facilities

NovAtel's registered and head office is located in Calgary, Alberta. The Company's office space totals approximately 46,000 square feet and is subject to a
ten-year lease that expires in 2009, with an option for NovAtel to extend the term for a further five-year period. In December 2004, the Company exercised an option
under the lease that requires the owner of the Calgary facility to build an expansion of 20,000 square feet. The expansion is expected to be ready for occupancy in early 2006. At this location, the
Company assembles, tests, packages and ships most of NovAtel's products including GPS receivers and antennas.

The
circuit card assemblies, which are a primary component of NovAtel's GPS receiver, are manufactured by contract suppliers in accordance with NovAtel design, manufacturing and testing
requirements. NovAtel has two primary subcontract suppliers of circuit card assemblies.

Patents, Trademarks and Licenses

NovAtel currently holds 28 U.S. patents and 33 related foreign patents which expire at various dates no earlier than November 28, 2010 and has
numerous pending U.S. and foreign patent applications. The Company also currently has numerous trademarks worldwide, including the NovAtel trademark, which is registered or pending in
31 countries. See "Item 3  Key Information, Risk Factors  Patents and Proprietary Rights;
Patent Litigation."

NovAtel
has copyrights and intellectual property rights to its proprietary software and custom integrated circuit designs. In 1997, the Company purchased a license with respect to its
SoftSurv software, which is a full-featured GPS dual frequency data post-processing package software for surveying applications. In 1999, NovAtel licensed SoftSurv and certain
intellectual property related to end user products to Point. See "Item 4  Information on the Company, Business
Overview  Strategic Partnerships  Sokkia/Point Joint Venture."

Legal Proceedings

In November 1994, the Company commenced an action against Trimble Navigation Limited ("Trimble") seeking relief and damages for an alleged infringement of
the Company's U.S. Patent No. 5,101,416 (the "Narrow Correlator patent"). In March 1995, Trimble commenced an action against the Company seeking relief and damages for an alleged
infringement of Trimble's U.S. Patent No. 5,390,207 (the "207 patent"). In January 1996, Trimble filed a complaint with the International Trade Commission in the
U.S. seeking to ban imports of the Company's products into the U.S. which allegedly infringed upon the 207 patent. All of these claims were resolved on July 16, 1996 when the
Company and Trimble entered into a settlement agreement by cross licensing certain technologies, including a Narrow Correlator license to Trimble. The 1996 settlement agreement with Trimble includes a
provision that Trimble may, at its sole option, terminate the licenses and

33

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rights
granted upon a direct change of control. As of December 31, 2004, intangible assets of the Company included $216,000 related to the settlement agreement with Trimble. On June 26,
2001, NovAtel received notice from Trimble terminating the licenses and rights under the settlement agreement in connection with the share acquisition of the Company by CMC Electronics in
April 1998. The Company has sought legal advice regarding Trimble's termination rights under the 1996 settlement agreement and continues to evaluate the impact, if any, of Trimble's notice of
termination. As of the date hereof, the Company has not provided for any impairment of these intangible assets in its financial statements.

Other
than the foregoing, there are no outstanding legal proceedings material to the Company that the Company is aware of to which the Company, its subsidiaries or any of its properties
are subject, nor are there any such proceedings known to be contemplated.

C.    Organizational Structure

On April 17, 1998, CMC Electronics purchased approximately 58% of the Company's total shares outstanding from the Company's two principal
shareholders. From January 2005 to May 11, 2005, CMC Electronics sold approximately 3.7 million common shares of NovAtel through open market transactions, reducing
its ownership of the Company from approximately 55% to approximately 9%.

The
Company does not have any significant subsidiaries.

D.    Property, Plant and Equipment

See "Item 4  Information on the Company, Business Overview  Operations and
Facilities."

Item 5.    Operating and Financial Review and Prospects

A.    Operating Results

Management's discussion and analysis is a review of the results of operations and the liquidity and capital resources of the Company and
is dated April 29, 2005. It should be read in conjunction with the selected financial data and the consolidated financial statements of the Company and the notes thereto included elsewhere in
this Annual Report. Certain information included herein is forward looking and based upon assumptions and anticipated results that are subject to uncertainties. Should one or more of these
uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. See
"Item 3  Key Information, Risk Factors."

The Company prepares its financial statements in Canadian dollars and in conformity with Canadian generally accepted accounting principles ("Canadian GAAP"). The
Company is required to reconcile the material differences between Canadian GAAP and U.S. generally accepted accounting principles ("U.S. GAAP"). Such reconciliation is set forth in
Note 22 of the consolidated financial statements of the Company included elsewhere in this Annual Report.

Executive Overview

NovAtel designs, markets and sells high-precision GPS and other positioning component technology and sub-systems for a wide variety of
commercial applications principally in the aviation, geomatics (surveying and mapping), mining, precision agriculture, marine and defence industries. NovAtel's solutions combine hardware, such as
receivers and antennas, with software to enable its customers to fully integrate the Company's high-precision GPS technology into their respective products and systems. Unless the context
requires otherwise, references herein to "NovAtel" or the "Company" refer to NovAtel Inc., including its interest in its joint venture, Point.

The
Company's goal is to become the leading provider of high precision GPS component technology and subsystems. In order to achieve this objective, NovAtel's management focuses on
achieving average long-run organic revenue growth of 15% to 20% per year (prior to currency fluctuations). Since the Company's top ten customers generated 68% of revenue in 2004, NovAtel's
ability to achieve its revenue projections and revenue growth will be largely dependent on maintaining successful relationships with its key customers and strategic partners, as well as forming
relationships with new key OEM customers.

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A substantial portion of the Company's operating costs are relatively fixed in the short-term, and consequently, NovAtel's short-term profitability is largely
dependent on achieving projected revenues and forecasted gross margins as a percentage of revenue.

In
order for the Company to maintain its technology position within its market, the Company's management believes that continued significant investment in research and product
development programs is required and expects research and development costs, net of customer funding, will be 15% to 20% of revenue in the near term.

As
part of the Company's growth strategy, the Company also focuses on managing working capital, particularly inventory and trade accounts receivable.

The
Company uses performance based incentive programs for both senior management and employees. Incentive pay under these programs is dependent on the Company achieving certain corporate
objectives, such as operating income targets.

Most
of the Company's revenues (approximately 98% in 2004) are earned in currencies other than the Canadian dollar, principally the U.S. dollar. A substantial portion of the
Company's expenses, however, have been and will continue to be incurred in Canadian dollars. Accordingly, fluctuations in exchange rates between the U.S. dollar and the Canadian dollar could
materially affect results of operations.

The
Company's results of operations have fluctuated and can be expected to continue to fluctuate on a periodic basis as a result of a number of factors which affect revenue, gross margin
and operating expenses. Annual and quarterly revenues have fluctuated because of a number of factors, including acquisition of new product lines, timing of major contracts, U.S. dollar to
Canadian dollar exchange rates, operating results of subsidiary and joint venture entities, certification and market acceptance of the Company's new products, impact and timing of large orders,
pricing pressures in the market, establishing and maintaining effective distribution channels, fluctuations in non-recurring engineering ("NRE") fees, seasonality of customer purchase
patterns and the timing of industry trade shows.

NovAtel's
consolidated financial statements include a 49% proportionate share of Point, a geomatics joint venture with Sokkia, accounts as required under Canadian GAAP. The Company sells
products to Point which incorporates them into surveying systems that are in turn sold through the Sokkia distribution channels
and through independent dealers and distributors. In addition, the Company provides facilities, computer support and development and logistical support for Point's Calgary operations. The Company's
consolidated Statements of Operations include the proportionate share of each of the equivalent line items reflected on Point's Statement of Operations. Similarly, the Company consolidates its
proportionate share of each line item of Point's balance sheet.

On
May 14, 2003, the Company acquired CMC Electronics' non-aviation L1 GPS OEM product line. The new product line extended the Company's current
high-performance, upgradeable L1 and L1/L2 product line into the mid-level L1 market. This increased the Company's total addressable market in core sectors and also created
entry points into new vertical markets, such as timing and marine. The purchase price was comprised of $150,000 at closing and $600,000 payable over time as a royalty on the revenue generated by this
product line. NovAtel expects the $600,000 royalty payment will be paid out in full by the end of 2005. CMC Electronics' non-aviation L1 GPS OEM product line contributed approximately
$4.4 million in revenue in 2004 compared to $2.3 million in 2003.

Revenue and Expenses

Revenues include product sales and NRE fees. NRE fees are received by the Company from its customers under engineering service contracts. Revenues from product
sales consist primarily of sales of OEM receivers, software upgrades, GPS antennas, WAAS type receivers and end user products. The Company classifies its revenues into the following three primary
categories, Geomatics, Aerospace and Defence, and Special Applications.

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The
Geomatics category is made up of surveying and mapping markets. Geomatics revenues are largely comprised of NovAtel's sales to Point, net of intercompany eliminations, and NovAtel's
49% proportionate share of sales by Point.

The
Aerospace and Defence category is made up of aviation and defence markets. These markets utilize the Company's precision positioning technology for critical components in civil air
traffic control, flight management systems, and certain military applications.

The
Special Applications category is made up of marine, precision agriculture, unmanned vehicles, construction/grading, dealers (other than those that can be identified with a particular
market sector) and miscellaneous markets.

The
Company typically maintains control of the technology developed under NRE contracts allowing it to use these technologies to improve its current products and develop new products and
solutions.

Total
revenue has increased year over year since 2001 at a compounded annual growth rate of 24% through sales to new customers as well as through sales of additional products and
services to existing customers.

Cost
of product sales consists primarily of the cost of the raw materials and components, labour and other manufacturing expenses and overhead. Cost of NRE fees consists primarily of
personnel and related costs incurred in providing the engineering services.

Gross
margin as a percentage of revenue varies primarily as a result of product sales mix, changes in materials and contract manufacturing costs, liquidation of discontinued inventory
and absorption of fixed manufacturing costs.

Research
and development expenses consist primarily of compensation of engineering personnel, contracted research and development expenses, amortization of purchased technology,
amortization of equipment costs, and facility and computer support costs. Research and development expenses are reduced to the extent they are funded under customer funded NRE contracts and other
engineering development contracts.

Selling
and marketing expenses consist primarily of compensation of sales and marketing personnel as well as expenses for advertising, promotion and trade shows, dealer and agents
commissions, facilities and other expenses related to the sale of products.

General
and administration expenses consist primarily of compensation of administrative personnel, professional fees such as legal, audit and insurance costs, corporate overhead,
computer support costs and facilities expenses.

Critical Accounting Estimates

The Company applies a number of critical accounting estimates in preparing the consolidated financial statements. A discussion of the Company's critical
accounting estimates follows.

Revenue Recognition

Revenues from product sales are generally recognized at the time of shipment to the customer. Revenues from NRE fees are recognized at the time services are
rendered. On long-term contracts, in which the customer pays established rates for time and materials, revenue is recognized as services are rendered and costs are incurred. On certain
long-term contracts, revenue is recognized using the proportional performance method relative to customer milestones achieved or total costs incurred. Revisions in cost and profit
estimates during the course of work are reflected in the period in which the need for revision becomes known. Losses, if any, are recognized fully when first anticipated. Some contracts contain
penalty provisions based on performance relative to established targets. Such penalties are included in revenue or cost estimates when amounts can be reasonably determined.

In
2004, approximately $5.1 million, or 9.5%, of the Company's revenue was derived from NRE services fees. Approximately 83% of these revenues were recognized from contracts on
which the customer paid established rates for time and materials.

36

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At
the time the Company recognizes revenue, the Company reduces the measurement of revenue by an estimate of the expected product returns and price adjustments. The provision for product
returns and price adjustments is assessed for adequacy at each quarter-end and is based on recent historical experience and known customer claims. The provisions for product returns and
price adjustments was $262,000 as of December 31, 2004 compared to $268,000 at December 31, 2003, with the decrease attributable to reduced known claims.

The
Company generally ships its products FCA (free carrier all) shipping point, and accordingly, recognizes revenue at time of shipment, provided that collection of payment is reasonably
assured and no significant obligations on the Company's part remains.

Effective
with the fourth quarter of 2002, the Company changed its policy of recognizing revenue on shipments of product from the Company to Point from revenue recognition at the time of
shipment to revenue recognition at the time of receiving payment from Point, due to the uncertainty of collecting payment on the associated receivables. As of December 31, 2004, the Company had
deferred revenue related to product shipments to Point of $709,000, net of inter-company eliminations. The Company would revert to its prior policy of recognizing revenue at the time of shipment if
the Company is able to determine that reasonable assurance of collecting payment from Point exists. This determination would be based on Point's ability to demonstrate sustained improved operating
performance and/or Point receiving additional financial support from the Company and Sokkia sufficient to enable Point to meet its financial obligations on an ongoing basis.

Inventories

Raw materials and components, work-in-progress, and finished goods inventories are recorded at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis and includes materials, labour and manufacturing overhead.

The
Company establishes provisions for obsolete or excess inventory. The Company's products have product life cycles that range on average from two to four years. At both the product
introduction and product discontinuation stage, there is a higher degree of risk of inventory obsolescence. In 2004, the provision for obsolete and excess inventory included in the statement of
operations was $450,000 or 0.8% of revenue, compared to $691,000 or 1.8% of revenue in 2003, with the higher provision in 2003 relating to the substantial discontinuation of the first generation WAAS
and older generation GPS receiver products. The provision for obsolete and excess inventory is evaluated for adequacy at each quarter end.

The
estimate of the provision for obsolete and excess inventory is partially based on expected future product sales, which are difficult to forecast for certain products. As of
December 31, 2004, the Company had approximately $1.1 million (gross value before inventory provisions) of first generation WAAS and older generation GPS receiver inventory for which no
firm customer commitments were on hand. Based on the Company's assessment of future market opportunities, the Company expects that the value of this inventory will not be realized through future
sales, and, accordingly, has established provisions to reduce the net value of this inventory to $nil. As at December 31, 2004, the provision for obsolete or excess inventory was
$2.0 million or 28% of the gross value of inventory, compared to $1.7 million or 26% at December 31, 2003.

Allowance for Doubtful Accounts

The Company establishes provisions for doubtful accounts receivable. These provisions are established at the time revenue is recognized and are
re-evaluated at each quarter end for adequacy. In determining the adequacy of the provision, the Company considers known uncollectable or at-risk receivables as well as the
aging profile of other receivables. In 2004, the provision for doubtful accounts included in the statement of operations was $179,000 or 0.3% of revenue, compared to $371,000 or 1.0% of revenue, in
2003, with the lower provision in 2004 attributable to a decrease in the amount of uncollectable receivables from customers.

As
at December 31, 2004, the provision for doubtful accounts was $945,000 or 8.9% of the gross value of the receivables compared to $810,000 or 10.9% at December 31, 2003.
The higher dollar amount of the provision reflects higher revenues in general.

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Provision for Future Warranty Costs

Warranty costs are accrued, to the extent that they are not recoverable from third party manufacturers, for the estimated cost to repair products for the balance
of the warranty periods.

The
Company's products are covered by standard warranty plans that extend normally 15 months to 18 months from the date of product shipment. Certain customers negotiate
warranty terms that range up to three years.

The
Company provides for the costs of expected future warranty claims at the time of product shipment. The adequacy of the provision is assessed at each quarter end and is based on
historical experience of warranty claims and costs. As of December 31, 2004, the Company's provision for future warranty claims was $538,000 compared to $410,000 as of December 31, 2003,
with the increase attributable primarily to increased revenue from product shipments.

Research and Developments Costs and Deferred Development Costs

Research costs are charged to operations as incurred. Development costs, including software development costs, are charged to operations as incurred unless they
meet specific criteria related to technical, market and financial feasibility. In these circumstances, the costs are deferred and amortized on a systematic basis, subject to an estimate of
recoverability.

In
2004, the Company deferred development costs of $218,000 related to the development of a certified aviation GPS receiver, compared to $157,000 in 2003. With the GPS receiver reaching
the commercialization stage, the Company has commenced amortizing these deferred costs, using a method similar to the unit-of-production method of amortization. The Company
amortized $416,000 of these deferred costs in 2004 compared to $196,000 in 2003.

At
December 31, 2004 the Company had deferred $2.4 million of development costs ($2.6 million at December 31, 2003). The continued deferral of these costs is
subject to recoverability based on estimates of future sales of the certified aviation GPS receiver. On April 5, 2004, the Company and CMC Electronics entered into a Strategic Cooperation
Agreement whichinter aliaprovides for certain guaranteed future payments over the next four years. Under the current business programs between
the Company and CMC Electronics, the Company would expect these future payments to substantially recover the $2.4 million of deferred development costs as of December 31, 2004. Should
future actual sales of this receiver be materially lower than the current estimated sales, all or a portion of the deferred development costs would be charged to results of operations. The Company
assesses the recoverability of the deferred development costs at each quarter end.

Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes
payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities as well as for the
benefit of losses available to be carried forward to future years for tax purposes that are more likely than not to be realized.

As
of December 31, 2004, the Company had net unrecognized income tax benefits related to previously incurred income tax losses, research and development costs, depreciation
deductible for tax purposes and investment tax credits totalling approximately $160 million, which are available to reduce future taxable income and taxes payable, primarily for Canadian
purposes.

Historically,
prior to 2004, the Company had established a full valuation allowance against the calculated tax benefits, since it was uncertain that these tax benefits were more likely
than not to be realized. In determining the valuation allowances to establish against these deferred tax benefits, the Company considers many factors, including the specific taxing jurisdiction, the
carry forward period, income tax strategies, limitations due to acquisitions-of-control and forecasted earnings. A valuation allowance is recognized if, based on the weight of
available evidence, the Company concludes that it is more likely than not that some portion or all of the deferred tax benefits will not be realized. In 2004, the Company determined, on the basis of
four

38

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consecutive
years of increasing profitability from 2001 to 2004 and the Company's forecasts of operating results for the foreseeable future, that it was more likely than not that a portion of the
future income tax assets would be realized. As part of this analysis, the Company used a seven year moving average of forecasted profitability for its operations subject to Canadian income tax.

Accordingly,
the Company recognized a future income tax asset of $3.2 million on its balance sheet as of December 31, 2004, and a corresponding $1.1 million future
income tax benefit and $2.1 million benefit of investment tax credits in its statement of operations for the year ended December 31, 2004.

As
of December 31, 2004, the valuation allowance against the calculated future income tax assets was approximately $50.3 million, or 94% of the gross value of the future
income tax assets.

If
the Company's forecasted profitability in the foreseeable future were 20% above or 20% below current estimates, the future income tax benefit and benefit of investment tax credits
included in the statement of operations for the year ended December 31, 2004, would have been approximately $3.6 million and $2.8 million, respectively.

Results of Operations

The following table sets out, as a percentage of revenue, consolidated operations data for the periods indicated.

|                                                      |                                     | Year Ended December 31,  |     
|----------------------------------------------------- | ----------------------------------- | ------------------------ | ----
|
|
|Revenues                                              |                                     | 100.0                    | %   
|Gross profit  product sales                          |                                     | 59.9                     |     
|Gross profit  NRE fees                               |                                     | 43.1                     |     
|                                                      |                                     |                          |     
|                                                      |                                     | Total gross profit       |     
|                                                      |                                     |                          |     
|Operating expenses:                                   |                                     |                          |     
|                                                      | Research and development            |                          | 17.8
|                                                      | Selling and marketing               |                          | 10.7
|                                                      | General and administration          |                          | 9.8 
|                                                      | Share offering costs                |                          | 1.4 
|                                                      |                                     |                          |     
|                                                      |                                     | Total operating expenses |     
|                                                      |                                     |                          |     
|Operating income                                      |                                     | 18.6                     |     
|Interest income, net                                  |                                     | 0.5                      |     
|Other expense                                         |                                     | (1.2                     | )   
|Benefit of investment tax credits                     |                                     | 8.1                      |     
|                                                      |                                     |                          |     
|Income from continuing operations before income taxes |                                     | 26.0                     |     
|Income taxes                                          |                                     |                          |     
|                                                      | Current provision                   |                          | 4.3 
|                                                      | Future income tax expense (benefit) |                          | (2.0
|                                                      |                                     |                          |     
|Net income from continuing operations                 |                                     | 23.7                     |     
|Income (loss) from discontinued operations            |                                     | 0.1                      |     
|                                                      |                                     |                          |     
|Net income                                            |                                     | 23.8                     | %   
|                                                      |                                     |                          |     

2004 Compared to 2003

Revenues

Total revenues in 2004 were $53.9 million, representing a 39% increase over 2003 revenues of $38.7 million, despite the adverse impact of the weaker
U.S. dollar relative to the Canadian dollar. Since the majority of the Company's revenues are denominated in U.S. dollars, a weaker U.S. dollar adversely affects NovAtel's
revenues.

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NovAtel's
U.S. dollar denominated revenue declined to an average of $1.30 Canadian in 2004 from an average of $1.40 Canadian in 2003. If the Company's U.S. dollar denominated revenues
were converted into Canadian dollars at equivalent exchange rates, revenue in 2004 would have been approximately 50% higher than in 2003.

The
following table sets out revenues of the Company by the market categories indicated for the fiscal years ended December 31, 2004 and 2003.

|                      |  | 2004 |        | 2003 |     | Change |  
|--------------------- |  | ---- | ------ | ---- | --- | ------ | -
|
|
|Geomatics             |  | $    | 9,339  |      | 17  | %      | $
|Aerospace and Defence |  |      | 11,248 |      | 21  |        |  
|Special Applications  |  |      | 32,952 |      | 61  |        |  
|Other                 |  |      | 393    |      | 1   |        |  
|                      |  |      |        |      |     |        |  
|TOTAL                 |  | $    | 53,932 |      | 100 | %      | $
|                      |  |      |        |      |     |        |  

Geomatics

In 2004, Geomatics revenues were largely comprised of NovAtel's sales to Point, net of intercompany eliminations and the Company's proportionate share of sales by
Point. Geomatics sales were $9.3 million in 2004, an increase of 11% from $8.4 million in 2003, due primarily to higher sales volumes from the Company to Point, including NRE revenue
associated with new product development.

Point's
operations were restructured in April 2002, with the aim of focusing operating activities on sales, marketing and distribution as opposed to product development. NovAtel
had been disappointed in the operating performance of Point, particularly the lower than expected revenues which the Company anticipated would increase after the April 2002 restructuring. The
Company continues to work with Point's management and Sokkia to improve the operating results of Point. Point's operating performance in the second half of 2003 and in 2004 improved in comparison to
prior periods in certain areas, including higher revenue and customer orders. However, there can be no assurance that Point's operating performance will continue to improve.

Aerospace and Defence

Aerospace and Defence revenues were $11.2 million in 2004 compared to $7.6 million for 2003, an increase of 49%. The Company's Aerospace and Defence
revenues are highly dependent on the timing of large, government-funded programs. The majority of the revenue in 2004 related to three U.S. WAAS aviation programs that contributed
$8.2 million in revenue, including $5.2 million of hardware deliveries, in 2004 compared to $4.7 million in 2003.

In
early 2004, the Company completed a contract awarded by the FAA in 2002 to develop the next generation WAAS receiver. The Company received a letter subcontract from Raytheon Company
for production start-up and 83 initial receiver deliveries, all of which were delivered in 2004. The contract has subsequently been amended to add another 22 WAAS receivers for delivery in
early 2005. At the end of 2004, the contract had a combined NRE and production value of approximately U.S.$3.7 million. The Company's NRE work under the program was substantially complete by
the end of 2004.

NovAtel
is also participating in the new Geostationary Command & Control Segment program to develop Ground Uplink System receivers for the new third Geostationary Satellite for
WAAS. In 2003, NovAtel received a letter subcontract from Raytheon worth up to U.S.$1.64 million NRE plus U.S.$885,000 in hardware deliverables. The Company's NRE work under the program was
substantially complete by the end of 2004 and all hardware deliveries were completed.

In
2003, NovAtel received a letter subcontract from Raytheon Company for the development of an L1/L5 Signal Generator to be used with the new WAAS/GEO Ground Uplink System. This letter
contract is worth up to U.S.$1.0 million NRE plus U.S.$592,000 in hardware deliverables. The Company's NRE work under the program was substantially complete by the end of 2004 and all hardware
deliveries were completed.

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The
certified GPS receiver being jointly developed by the Company and CMC Electronics is intended for use in airborne applications and the local area augmentation system ("LAAS")
program. With the GPS receiver achieving certification, the Company earned royalties of $545,000 in 2004 and expects royalties for 2005 to contribute between $500,000 and $600,000 in revenue.

In
October 2004, the Canadian Space Agency (CSA) awarded a contract to the Company for demonstration and prototype receiver development for the European Galileo system. The value
to NovAtel of CSA's contribution under the contract is $997,000.

Special Applications

Special Applications revenues were $33.0 million in 2004 compared to $22.6 million in 2003, an increase of 46%. The increase was primarily
attributable to higher product shipments to Leica Geosystems of $6.3 million, an increase in revenue from the GPS OEM L1 product line acquired in May 2003 from CMC Electronics of
$2.1 million, and higher shipments of product into China of $2.4 million. The increase in Special Applications revenue was achieved despite the impact of the weaker U.S. dollar on
revenues of the Company.

The
Company entered into a strategic co-operation agreement with Leica Geosystems in May 2003 to jointly develop new technology for GPS in the
high-precision geomatics market. In September 2003, pursuant to the strategic co-operation agreement, NovAtel also entered into a supply agreement with Leica Geosystems
which sets forth the arrangements under which NovAtel would develop and supply a custom GPS receiver for Leica Geosystems. In February 2004, Leica Geosystems announced the launch of a new
survey product that incorporates NovAtel's GPS receiver and antenna technology. The Company expects revenue from product shipments supplied to Leica Geosystems to comprise between 15% and 20% of
NovAtel's total revenue in 2005.

Revenues by Geographic Market

In 2004, the Company derived approximately 48% of its total revenues from the sale of products to countries outside the United States and Canada compared
to 43% in 2003. Revenues from such international sales
increased to $25.8 million in 2004 from $16.5 million in 2003, primarily as a result of higher shipments to Leica Geosystems.

Gross Profit

Gross profit increased to $31.4 million in 2004 from $20.3 million in 2003, mainly as a result of increased revenue. Gross profit as a percentage of
total revenues increased to 58.3% in 2004 from 52.5% in 2003. The increase in gross margin as a percentage of revenue is primarily attributable to favourable product mix, including the benefit of
aviation hardware shipments and a lower proportion of NRE fee revenues relative to product sales, and lower per unit manufacturing costs of the Company's GPS receivers.

Research and Development

Research and development expenses increased 35% to $9.6 million in 2004 from $7.1 million in 2003 but decreased as a percentage of total revenues to
17.8% in 2004 from 18.4% in 2003. The increase in research and development dollars reflects higher employee compensation and benefit costs of $2.2 million, including higher provisions for
employee incentive programs, higher amortization costs of $183,000 relating to equipment and higher non-related party consulting costs of $273,000. In addition, in 2003, the Company
incurred one time costs of $441,000 related to the acquisition of CMC Electronics' non-aviation L1 GPS OEM product line.

Selling and Marketing

Selling and marketing expenses increased 9.1% to $5.8 million in 2004 from $5.3 million in 2003 but decreased as a percentage of total revenues to
10.7% in 2004 from 13.6% in 2003. The increased selling and marketing costs were primarily due to higher employee compensation and benefit costs, including higher provisions for employee incentive
programs of $600,000, higher employee relocation costs of $50,000, higher travel costs of $83,000, partially offset by lower distribution costs in Asia of $160,000, and lower provision for doubtful
accounts of $192,000.

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General and Administration

General and administration expenses increased 24.1% to $5.3 million in 2004 from $4.3 million in 2003 but decreased as a percentage of total
revenues to 9.8% in 2004 from 11.1% in 2003. The increased expenses are attributable to higher employee compensation and benefit costs including higher provisions for employee incentive programs of
$767,000, employee relocation expenses of $42,000 and increased professional fees of $260,000. The Company expects incremental insurance costs in 2005 of approximately $500,000 to replace coverage
previously provided under group policies arranged by CMC Electronics, Inc. due to its recent reduction in the ownership of the Company.

Share Offering Costs

In 2004, the Company incurred $754,000 of expenses related to a proposed public offering in Canada and a private placement in the U.S. of its common
shares. On May 26, 2004, the Company withdrew the offering. As the Company did not proceed with the offering, the Company has expensed the $754,000 within the Consolidated Statements of
Operations for the year ended December 31, 2004.

Interest Income, net

NovAtel earned net interest income of $313,000 in 2004 compared to $174,000 in 2003 as a result of higher cash balances available for investment. The Company's
cash deposits which are not required for operations are invested in short-term interest bearing instruments.

Other Expense

Other expense in 2004 was $662,000 compared to $664,000 in 2003. Other expense in 2004 consisted primarily of $595,000 in foreign exchange losses arising from a
strengthening of the Canadian dollar versus the U.S. dollar and $70,000 in cash discount costs related to early payment on sales to Sokkia by Point. Other expense in 2003 included $527,000 in
foreign exchange losses arising from a strengthening of the Canadian dollar versus the U.S. dollar and $83,000 in cash discount costs related to early payment on sales to Sokkia by Point.

Benefit of Investment Tax Credits

In 2004, the Company recognized a $4.4 million benefit of investment tax credits, of which $2.3 million was related to the use of investment tax
credits to shelter tax otherwise payable in 2004 and $2.1 million was related to the recognized future income tax asset. There was no comparable benefit of investment tax credits in 2003, as
the Company used tax losses to shelter tax otherwise payable and had not had a sufficient record of profitability to recognize the future benefit.

Provision for Current Income Taxes and Future Income Tax Benefit

The provision for current income taxes consists primarily of an expense related to and equal to the benefit of investment tax credits recognized elsewhere on the
statement of operations and Canadian federal large corporations tax. The provision for current income taxes was $2.3 million in 2004, compared to $52,000 in 2003. The increase was mainly
attributable to an expense incurred with the recognition of the benefit of investment tax credits and a higher tax base for Canadian federal large corporations tax.

In
2004, the Company recognized $1.1 million future income tax benefit (see "Critical Accounting Estimates") compared to $nil in 2003. The Company recognized the future income tax
benefit in 2004 on the basis of its improving profitability from 2001 to 2004 and the Company's forecasted profitability in the foreseeable future.

Income (Loss) from Discontinued Operations

In 2004, the Company recognized income from discontinued operations of $21,000 compared to $360,000 in 2003, attributable to the liquidation of the residual
assets and liabilities of its former subsidiary, Mezure, which was discontinued in 2003.

42

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2003 Compared to 2002

Total revenues in 2003 were $38.7 million, representing a 17% increase over 2002 revenues of $33.1 million, despite the adverse impact of the weaker
U.S. dollar relative to the Canadian dollar. Since the majority of the Company's revenues are denominated in U.S. dollars, a weaker U.S. dollar adversely affects NovAtel's
revenues. NovAtel's U.S. dollar denominated revenue declined to an average of $1.40 Canadian in 2003 from an average of $1.57 Canadian in 2002. If the Company's U.S. dollar denominated
revenues were converted into Canadian dollars at equivalent exchange rates, revenue in 2003 would have been approximately 30% higher than in 2002.

The
following table sets out revenues of the Company by the categories indicated for the fiscal years ended December 31, 2003 and 2002.

|                      |  | 2003 |        | 2002 |     | Change |  
|--------------------- |  | ---- | ------ | ---- | --- | ------ | -
|
|
|Geomatics             |  | $    | 8,380  |      | 22  | %      | $
|Aerospace and Defence |  |      | 7,558  |      | 20  |        |  
|Special Applications  |  |      | 22,563 |      | 58  |        |  
|Other                 |  |      | 183    |      | 0   |        |  
|                      |  |      |        |      |     |        |  
|TOTAL                 |  | $    | 38,684 |      | 100 | %      | $
|                      |  |      |        |      |     |        |  

Geomatics

In 2003, Geomatics revenues were largely comprised of NovAtel's sales to Point, net of intercompany eliminations and the Company's proportionate share of sales by
Point. Geomatics sales were $8.4 million in 2003, an increase of 48% from $5.7 million in 2002, due partly to higher sales from the Company to Point and primarily due to higher sales at
Point into the Sokkia distribution system and through independent distribution channels.

Aerospace and Defence

Aerospace and Defence revenues were $7.6 million in 2003 compared to $10.5 million for 2002, a decrease of 28%. The decrease was primarily
attributable to the absence of shipments into the Chinese Satellite Navigation Augmentation Systems ("SNAS") programs and partially attributable to the decline in the U.S. dollar relative to
the Canadian dollar. In 2002, the Company had revenue of $3.8 million from the SNAS program compared to $nil in 2003. In addition, new NRE contracts relating to the WAAS, European Galileo and
Japanese MTSAT Satellite-based Augmentation System programs offset lower revenue from the European Geostationary Overlay System ("EGNOS") program which was largely completed in 2002.

The
Company has completed most of the work with Thales Avionics to supply one section of the EGNOS Remote Integrity Monitoring System. The EGNOS receivers have the same hardware
configuration as the Company's WAAS receivers, with added software qualification and functionality. Delays in system implementation have delayed final hold-back payments of approximately
$568,000 related to completion of final EGNOS milestones.

Special Applications

Special Applications revenues were $22.6 million in 2003 compared to $16.8 million in 2002, an increase of 35%. The major factors leading to higher
revenues in 2003 compared to 2002 were varied and included the acquisition of CMC Electronics' non aviation L1 GPS OEM product line, which contributed approximately $2.3 million in revenue,
higher sales into the U.S. agricultural market and higher shipments through the Company's U.S., European and Chinese dealers. The increase in Special Applications revenue was achieved despite
the impact of the weaker U.S. dollar on revenues of the Company.

43

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Revenues by Geographic Market

In 2003, the Company derived approximately 43% of its total revenues from the sale of products to countries outside the United States and Canada compared
to 50% in 2002. Revenues from international sales decreased marginally to $16.5 million in 2003 from $16.6 million in 2002.

Gross Profit

Gross profit increased to $20.3 million in 2003 from $17.2 million in 2002, mainly as a result of increased revenue. Gross profit as a percentage of
total revenues increased to 52.5% in 2003 from 51.9% in 2002. The increase in gross margin as a percentage of revenue is primarily attributable to favourable product mix and lower per unit
manufacturing costs of the Company's GPS receivers.

Research and Development

Research and development expenses increased 34% to $7.1 million in 2003 from $5.3 million in 2002 and increased as a percentage of total revenues to
18.4% in 2003 from 16.1% in 2002. The increase in research and development dollars reflects higher employee compensation and benefit costs of $951,000, one time costs being incurred in 2003 related to
the acquisition of CMC Electronics' non-aviation L1 GPS OEM product line of $441,000, and lower recoveries from customer funded engineering programs of $578,000, partially offset by lower
amortization costs relating to intellectual property of $399,000.

Selling and Marketing

Selling and marketing expenses decreased 2% to $5.3 million in 2003 from $5.4 million in 2002 and decreased as a percentage of total revenues to
13.6% in 2003 from 16.2% in 2002. The decrease in selling and marketing expenses was primarily due to lower external commissions of $734,000, partially offset by increased employee compensation and
benefit costs of $422,000, higher product promotion costs of $138,000, increased amortization costs of $64,000 and one time costs incurred in 2003 related to the acquisition of CMC Electronics'
non-aviation L1 GPS OEM product line of $63,000.

General and Administration

General and administration expenses increased 6% to $4.3 million in 2003 from $4.0 million in 2002 and decreased as a percentage of total revenues
to 11.1% in 2003 from 12.2% in 2002. The increased expenses are attributable to higher employee compensation and benefit costs of $86,000, increased board of directors' fees of $65,000 and higher
legal, audit and insurance fees of $136,000.

Interest Income

NovAtel earned net interest income of $174,000 in 2003 compared to $84,000 in 2002 as a result of higher cash balances available for investment.

Other Expense

Other expense in 2003 was $664,000 compared to $328,000 in 2002. Other expense in 2003 consisted primarily of $527,000 in foreign exchange losses arising from a
strengthening of the Canadian dollar versus the U.S. dollar and $83,000 in cash discount costs related to early payment on sales to Sokkia by Point. Other expense in 2002 included $84,000
related to the April 2002 restructuring of Point, $128,000 related to executive relocation, $49,000 related to foreign exchange losses and $47,000 related to cash discount costs at Point.

Provision for Income Taxes

The provision for income taxes which consists primarily of Canadian federal large corporations tax and the consolidated proportionate share of income taxes
related to Point, was $52,000 in 2003, compared to $77,000
in 2002. The decrease was mainly attributable to a lower tax base for Canadian federal large corporations tax.

Income (Loss) from Discontinued Operations

In 2003, the Company recognized income from discontinued operations of $360,000 attributable to the liquidation of the residual assets and liabilities of its
former subsidiary, Mezure. In 2002, the Company had a loss from discontinued operations relating to Mezure of $648,000.

44

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Quarterly Results of Operations

The following tables set out certain financial information for each of the eight quarters ended December 31, 2004. In the opinion of management of the
Company, this information has been prepared on the same basis as the audited financial statements appearing elsewhere in this Annual Report, and all necessary adjustments have been included in the
amounts stated below to fairly present the unaudited quarterly results when read in conjunction with the Company's audited financial statements and the notes to those statements. The operating results
for any quarter should not be relied upon as any indication of results for any future period.

|                                                              |                                         | Quarter Ended |       
|------------------------------------------------------------- | --------------------------------------- | ------------- | ------
|
|
|
|Revenues                                                      |                                         | $             | 14,371
|                                                              |                                         |               |       
|Cost of sales                                                 |                                         |               | 6,201 
|                                                              |                                         |               |       
|Gross profit                                                  |                                         |               | 8,170 
|                                                              |                                         |               |       
|Operating expenses:                                           |                                         |               |       
|                                                              | Research and
    development            |               |       
|                                                              | Selling and marketing                   |               |       
|                                                              | General and
    administration          |               |       
|                                                              | Share offering costs                    |               |       
|                                                              |                                         |               |       
|                                                              | Total operating
    expenses            |               |       
|                                                              |                                         |               |       
|Operating income                                              |                                         |               | 2,805 
|Interest income, net                                          |                                         |               | 118   
|Other income (expense)                                        |                                         |               | (335  
|Benefit of investment tax
    credits                         |                                         |               | 4,356 
|                                                              |                                         |               |       
|Income from continuing
    operations before
    income taxes |                                         |               | 6,944 
|Income taxes                                                  |                                         |               |       
|                                                              | Current provision                       |               |       
|                                                              | Future income tax
    expense (benefit) |               |       
|                                                              |                                         |               |       
|Net income from
    continuing operations                     |                                         | $             | 5,759 
|                                                              |                                         |               |       

45

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|
|

|                                                          |                                                  | Quarter Ended |     
|--------------------------------------------------------- | ------------------------------------------------ | ------------- | ----
|
|
|
|Revenues                                                  |                                                  | 100.0         | %   
|Gross profit                                              |                                                  | 56.9          |     
|Operating expenses:                                       |                                                  |               |     
|                                                          | Research and development                         |               | 19.2
|                                                          | Selling and marketing                            |               | 8.5 
|                                                          | General and administration                       |               | 9.6 
|                                                          | Share offering costs                             |               | 0.1 
|                                                          |                                                  |               |     
|                                                          | Total operating expenses                         |               | 37.4
|                                                          |                                                  |               |     
|Operating income                                          |                                                  | 19.5          |     
|Interest income, net                                      |                                                  | 0.8           |     
|Other income (expense)                                    |                                                  | (2.3          | )   
|Benefit of investment tax credits                         |                                                  | 30.3          |     
|                                                          |                                                  |               |     
|Income from continuing operations
    before income taxes |                                                  | 48.3          |     
|Income taxes                                              |                                                  |               |     
|                                                          | Current provision                                |               | 15.8
|                                                          | Future income tax expense (benefit)              |               | (7.6
|                                                          |                                                  |               |     
|                                                          | Net income (loss) from continuing
    operations |               | 40.1
|                                                          |                                                  |               |     

The
following table sets out revenues of the Company by the market categories indicated for the last eight fiscal quarters.

|                      |  | Quarter Ended
|--------------------- |  | -------------
|
|
|
|Geomatics             |  | $            
|Aerospace and Defence |  |              
|Special Applications  |  |              
|Other                 |  |              
|                      |  |              
|TOTAL                 |  | $            
|                      |  |              

The
Company's quarterly results of operations have fluctuated and are expected to continue to fluctuate because of a number of factors which affect revenue, gross margins
and operating expenses, including revenue generated from major contracts, acquisition of new product lines, U.S. dollar to Canadian dollar exchange rates, operating results of joint venture and
subsidiary entities, new product introductions, fluctuations in NRE fees, seasonality of customer purchase patterns and the timing of industry trade shows.

In
addition, revenues can be expected to vary significantly as a result of a lack of a significant order backlog, fluctuations in demand for existing products, the rate of development of
new markets, the degree of market acceptance of new products, increased competition and the general strength of domestic and international economic conditions. Furthermore, if the Company were unable
to deliver sufficient quantities of products in a timely manner, due to factors such as parts supply shortages or customs delays, its revenues could be adversely affected.

46

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In
2004, quarterly operating expenses fluctuated due to the impact of changes in staffing levels, recovery of research and development expenses from NRE fees, share offering costs and
provisions related to the Company's employee incentive programs and senior management bonus program.

Liquidity and Capital Resources

In 2004, cash provided by operations was $12.5 million, compared to $8.0 million in 2003. Cash provided by operations in 2004 consisted primarily of
$12.8 million of net income from continuing operations and $2.4 million in amortization expenses, partially offset by the effect of a non-cash $3.2 million future
income tax benefit and a $530,000 increase in working capital. The increase in working capital was caused by an increase in accounts receivable due to higher sales in the last quarter, partially
offset by an increase in accrued liabilities pertaining to provisions for employee and senior management performance incentive programs.

Cash
provided by financing activities in 2004 was $598,000, related primarily to employee stock option exercises, partially offset by expenses paid relating to the proposed public
offering/private placement of the Company's shares of $807,000 and $100,000 of capital lease payments. In 2003, $1.3 million in cash was provided by financing activities, also related to
employee stock option exercises, partially offset by capital lease payments.

Cash
used in investing activities in 2004 was $6.6 million, consisting of purchases of $17.7 million of short-term investments, partially offset by proceeds
from maturities of short-term investments of $13.9 million, purchases of $2.3 million of capital equipment, capitalized expenditures of $218,000 related to the development of
a certified GPS aviation receiver and $261,000 in royalty payments made to CMC Electronics in connection with the purchase of their former OEM GPS business. In 2003, cash used in investing
activities was $8.6 million, consisting of purchases of $17.0 million of short-term investments, partially offset by proceeds from maturities of short-term
investments of $11.3 million, purchases of $2.7 million of capital equipment, $155,000 for the acquisition of the CMC Electronics OEM GPS business and $82,000 in related royalty
payments.

At
December 31, 2004, NovAtel had cash and short-term investments of $23.4 million. The Company has credit agreements with HSBC Bank Canada and The Toronto
Dominion Bank under which it can borrow up to $1.7 million for day-to-day operating requirements and $1.8 million to support the margin requirement related to the
purchase of up to approximately U.S.$8.5 million of foreign exchange contracts (depending on the maturity date of the contracts). The lines of credit are payable on demand and are secured by
certain of the Company's assets. At December 31, 2004, portions of the lines of credit were utilized to support $60,000 of letters of credit ($65,000 at December 31, 2003), leaving
$1.6 million available for day-to-day operating requirements and the margin capacity necessary to enter into an additional U.S.$1.0 to $1.5 million in forward
foreign exchange contracts (depending on the maturity date of the contracts).

The
Company believes that its existing cash, cash equivalents, short term investments, available lines of credit and anticipated cash generated from operations will be sufficient to
satisfy its currently anticipated cash needs for at least the next twelve months.

Taxes

The Company has not recorded a provision for current income taxes payable in Canada, other than for Canadian federal large corporations tax, due to previously
incurred losses, credits and costs. As of December 31, 2004, losses, investment tax credits, depreciation and research and development costs are available to reduce future taxable income and
taxes payable primarily in Canada. The Company has determined that the acquisition of a majority of its Common Shares by CMC Electronics in 1998, BAE SYSTEMS p.l.c.'s acquisition of the
majority of the common shares of CMC Electronics in November 1999 and ONCAP's acquisition of the majority of the common shares of CMC Electronics in April 2001 each
constitute an acquisition of control of the Company for Canadian income tax purposes. Accordingly, the availability of certain of the Company's Canadian income tax losses, research and development
costs, depreciation deductible for tax purposes and investment tax credit may be subject to limitation. The ultimate availability and amount of these losses, credits and costs may be dependent upon
future Canada Customs and Revenue Agency audits.

Historically,
prior to 2004, the Company had established a full valuation allowance against the calculated tax benefits associated with the approximately $160 million of tax
shields, since it was uncertain that these tax

47

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benefits
were more likely than not to be realized. In determining the valuation allowances to establish against these deferred tax benefits, the Company considers many factors, including the specific
taxing jurisdiction, the carry forward period, income tax strategies, limitations due to acquisitions-of-control and forecasted earnings. A valuation allowance is recognized
if, based on the weight of available evidence, the Company concludes that it is more likely than not that some portion or all of the future tax benefits will not be realized. In 2004, the Company
determined, on the basis of four consecutive years of increasing profitability (2001 - 2004) and the Company's forecasts of operating results for the foreseeable future, that
it was more likely than not that a portion of the future income tax assets would be realized. As part of this analysis, the Company used a seven year moving average to forecast profitability of its
operations subject to Canadian income tax.

Accordingly,
the Company recognized future income tax assets of $3.2 million ($1.3 million current and $1.9 million long term) on its balance sheet as of
December 31, 2004, and a corresponding $1.1 million future income tax benefit and $2.1 million benefit of investment tax credits in its statement of operations for the year ended
December 31, 2004.

Outlook

Management of the Company expects revenues to increase as a result of the addition of new customers, the sale of additional products and services to existing
customers as well as through the implementation of the Company's overall growth strategy. However, the Company does not expect revenue in 2005 to increase at the 39% growth rate experienced in 2004
over 2003 due to such factors as the lower Canadian dollar versus U.S. dollar exchange rate and lower expected revenue from the Company's Aerospace and Defence revenue category.

The
Company's development contracts with Raytheon Company in support of the WAAS program contributed $8.1 million revenue in 2004 and were substantially completed as of
December 31, 2004. The Company's U.S. dollar denominated revenue generated an average of $1.30 Canadian per U.S. dollar in 2004. As of April 29, 2005, the
U.S. dollar was valued at approximately $1.26 per Canadian dollar. In 2005, the Company currently expects that product shipments to Leica Geosystems will represent 15% to 20% of 2005 revenues.
The Company expects gross profit generated on product sales and NRE fees to increase in conjunction with the expected increase in revenue. Research and development expenses are expected to increase to
support evolving technological needs and new product development. Sales and marketing expenses and general and administrative expenses are also expected to increase to support the expected growth in
the Company's business.

In
addition, the Company expects to incur additional general and administrative expenses in 2005 of approximately $600,000 as part of its Sarbanes-Oxley Section 404 program
and approximately $500,000 to replace insurance policies previously provided by its former majority shareholder CMC Electronics.

Off Balance Sheet Arrangements

As of December 31, 2004, the Company had no off balance sheet arrangements other than operating leases.

Contractual Obligations

The following table sets forth the Company's contractual obligations and commitments to make future payments under contracts, excluding trade and related party
trade payables.

|                                                                    |  | Payments Due by Period
|------------------------------------------------------------------- |  | ----------------------
|
|
|Capital lease obligations                                           |  | $                     
|Operating leases                                                    |  |                       
|Purchase obligations for inventory, capital assets and
    services |  |                       
|Notes payable                                                       |  |                       
|                                                                    |  |                       
|TOTAL                                                               |  | $                     
|                                                                    |  |                       

48

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Related Party Transactions

On May 14, 2003, the Company acquired CMC Electronics' non-aviation L1 GPS OEM product line. The purchase price was
comprised of $150,000 at closing and $600,000 payable over time as a royalty on the revenue generated by this product line. To date, the Company has paid $343,000 of royalty payments to
CMC Electronics. The Company expects the remaining $257,000 royalty payment will be paid by the end of 2005. The transaction was reviewed and approved by a committee of independent directors of
the board of directors of the Company.

In
2004, the Company purchased $1.2 million of products, $218,000 of contracted engineering services and $318,000 of miscellaneous services, primarily legal and insurance related,
from CMC Electronics. Also, related to the acquisition of the CMC Electronics' non-aviation L1 GPS OEM product line, the Company paid royalties of $261,000 to
CMC Electronics. The Company paid CMC Electronics $55,000 in share offering costs related to the Company's proposed public share offering/private placement of shares.

During
2004, the Company sold $85,000 of products to CMC Electronics, and charged $545,000 in royalties related to the development of a certified aviation GPS receiver. The
Company charged CMC Electronics $748,000 in share offering costs related to the proposed public share offering/private placement in 2004.

The
Company and CMC Electronics entered into a strategic co-operation agreement on April 5, 2004, to jointly develop new technology for GPS aviation solutions.
The initial term of the agreement is ten years. Under the terms of the agreement, NovAtel has agreed to develop and supply global positioning products and technology to CMC Electronics. In
addition, NovAtel has agreed to restrictions on its ability to sell its global positioning products and technology to certain specified markets, in consideration for the payment of certain minimum
royalty payments. The transaction was reviewed and approved by a committee of independent directors of the board of directors of the Company.

In
2004, the Company sold $4.3 million of products to Point, its joint venture with Sokkia. In addition, the Company provided $269,000 in facilities, computer systems support and
research and development support and charged engineering services of $607,000 to Point. The above financial transactions between the Company and Point are before intercompany eliminations.

As
at December 31, 2004, the Company and Sokkia had collectively loaned Point U.S.$5.3 million, the Company's share being U.S.$2.6 million. The loans are secured by
the assets of Point.

Point
is dependent on the Company and Sokkia for product supply, distribution and financing. Should Sokkia and the Company discontinue their support, Point's ability to continue as a
going concern would be impaired. If Point were not able to continue operations and was liquidated in an orderly wind down, the Company believes that its maximum loss exposure in the statement of
operations to Point as of December 31, 2004, would be approximately $450,000, comprised primarily of working capital related items and costs incurred to cease operations, after consideration of
the effects of the proportionate consolidation of Point. The consolidated financial statements of the Company included elsewhere in this Annual Report do not reflect any adjustments that would be
required if Point's operations were discontinued.

New Accounting Pronouncements

Canadian GAAP Accounting Pronouncements

In January 2005, the Accounting Standards Board ("AcSB") of the Canadian Institute of Chartered Accountants ("CICA") issued Handbook Section 1530, Comprehensive Income.The new accounting standard provides a new location for recognizing certain gains and losses. This provides an ability for certain
gains and losses arising from changes in fair value to be temporarily recorded outside the income statement, but in a transparent manner.

In
January 2005, the AcSB of the CICA issued Handbook Section 3855,Financial Instruments  Recognition and
Measurement. The new accounting standard requires that all financial instruments, including derivatives are to be included on a company's balance sheet and measured, either at
their fair value or, in limited circumstances when fair value may not be considered most relevant, at cost or amortized cost. The standards

49

---



also
specify when gains and losses as a result of changes in fair values are to be recognized in the income statement.

In
January 2005, the AcSB of the CICA issued Handbook Section 3865,Hedges. The new accounting standard extends existing
requirements for hedge accounting and comprehensively specifies how hedge accounting should be performed.

The
mandatory effective date for the new Sections 3855, 1530 and 3865 is for interim and annual financial statements relating to fiscal years beginning on or after
October 1, 2006. Earlier adoption is permitted only as of the beginning of a fiscal year ending on or after December 31, 2004. The Company is in the process of evaluating the impact of
these recently issued standards, but does not expect that the new standards will have a material impact on its financial position or results of operations.

In
September 2001, the AcSB amended Accounting Guideline AcG-15, Consolidation of Variable Interest Entities. The amendments harmonize the Guideline with the
corresponding FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), as revised in December 2003. The AcSB believes that, in general, the proposed
amendments clarify the application of the basic requirements in the Guideline and reduce the number of circumstances in which the holder of a variable interest is required to consolidate a variable
interest entity (VIE). The proposed amendments are expected to result in a more consistent application of consolidation principles to VIEs in accordance with the objective of requiring an enterprise
to consolidate entities in which it has a controlling financial interest. The amended Guideline, issued September 1, 2004, remains effective for annual and interim periods beginning on or after
November 1, 2004. The Company does expect this standard to have a material impact on its financial position or results of operations.

U.S. GAAP Accounting Pronouncements

The Company is a reporting issuer in the United States and accordingly is required to reconcile the material differences between Canadian GAAP and
U.S. GAAP.

In
December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R),Share-Based Payment,
which establishes accounting standards for all transactions in which an entity exchanges its equity instruments for goods and services. SFAS No. 123(R) focuses primarily on
accounting for transactions with employees.

SFAS No. 123(R)
eliminates the intrinsic value measurement objective in APB Opinion 25 and generally requires the Company to measure the cost of employee services
received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The standard requires grant date fair value to be estimated using either an
option-pricing model which is consistent with the terms of the award or a market observed price, if such a price exists. Such cost must be recognized over the period during which an employee is
required to provide service in exchange for the award in the requisite service period (which is usually the vesting period). The standard also requires the Company to estimate the number of
instruments that will ultimately be issued, rather than accounting for forfeitures as they occur.

The
Company is required to apply SFAS No. 123(R) beginning with its fiscal year beginning January 1, 2006. SFAS 123(R) allows for either the "modified
prospective method" or the "modified retrospective method" of recognizing compensation expense.

Under
the modified retrospective method, the Company must restate its previously issued financial statements to recognize the amounts the Company previously calculated and reported on a
pro forma basis, as if the prior standard had been adopted.

Under
both methods, the Company is permitted to use either a straight line or an accelerated method to amortize the costs as an expense for awards with graded vesting. The standard
permits and encourages early adoption.

The
Company has commenced its analysis of the impact of SFAS 123(R), but has not yet decided: (1) whether to elect to adopt early, (2) whether to use the modified
prospective method or elect to use the modified retrospective method, and (3) whether to use straight line amortization or an accelerated method.

50

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Accordingly,
the Company cannot currently quantify with precision the effect that this standard would have on the Company's financial position or results of operations in the future,
except that the Company probably will recognize a greater expense for any awards granted in the future than would have been recognized using the current guidance. If the Company were to adopt
SFAS No. 123(R) using the modified retrospective method, the Company's net income under U.S. GAAP would have been $408,000 less than reported in the year ended December 31,
2004.

In
November 2004, the FASB issued SFAS No. 151, Inventory Costs an amendment of ARB No. 43, Chapter 4, which amends Chapter 4 of ARB
No. 43 that deals with inventory pricing. The Statement clarifies the accounting for abnormal amounts of idle facility expenses, freight, handling costs, and spoilage. Under previous guidance,
paragraph 5 of ARB No. 43, chapter 4, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs might be considered to be so abnormal, under
certain circumstances, as to require treatment as current period charges. This Statement eliminates the criterion of "so abnormal" and requires that those items be recognized as current period
charges. Also, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is
effective for inventory costs incurred during fiscal years beginning after June 15, 2005, although earlier application is permitted for fiscal years beginning after the date of issuance of this
Statement. Retroactive application is not permitted. Management is analyzing the requirements of this new Statement and believes that its adoption will not have any significant impact on the Company's
financial position, results of operations or cash flows.

In
December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an amendment of APB No. 29. This Statement amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The Statement specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date this Statement is issued.
Retroactive application is not permitted. The Company is analyzing the requirements of this new Statement and believes that its adoption will not have any significant impact on the Company's financial
position, results of operations or cash flows.

In
December 2003, the FASB revised FIN No. 46, "Consolidation of Variable Interest Entities", which clarifies the application of Accounting Research Bulletin
No. 51 "Consolidated Financial Statements" to those entities (defined as VIEs) in which either the equity at risk is not sufficient to permit that entity to finance its activities without
additional subordinated financial support from other parties, or equity investors lack voting control, an obligation to absorb expected losses or the right to receive expected residual returns.
FIN No. 46(R) requires consolidation by a business of VIEs in which it is the primary beneficiary. The primary beneficiary is defined as the party that has exposure to the majority of
the expected losses and/or expected residual returns of the VIE. FIN No. 46(R) was effective for the company in the first quarter, and there was no material impact on its financial
position, results of operations or cash flows from adoption.

In
March 2004, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments" ("EITF 03-1"). EITF 03-1 provides guidance on determining when an investment is considered impaired,
whether that impairment is other than temporary and the measurement of an impairment loss. EITF 03-1 is applicable to marketable debt and equity securities within the scope of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), and SFAS No. 124, "Accounting
for Certain Investments Held by Not-for-Profit Organizations", and equity securities that are not subject to the scope of SFAS 115 and not accounted for under the equity
method of accounting. In September 2004, the FASB issued FSP EITF 03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue
No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments"', which delays the effective date for the measurement
and recognition criteria contained in EITF 03-1 until final application guidance is issued. The delay does not suspend the requirement to recognize
other-than-temporary

51

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impairments
as required by existing authoritative literature. The Company does not expect the adoption of this consensus or FSP to have a material impact on its consolidated financial statements.

In
June 2004, the FASB issued an exposure draft of a proposed Statement, "Fair Value Measurements" to provide guidance on how to measure the fair value of financial and
non-financial assets and liabilities when required by other authoritative accounting pronouncements. The proposed statement attempts to address concerns about the ability to develop
reliable estimates of fair value and inconsistencies in fair value guidance provided by current U.S. GAAP, by creating a framework that clarifies the fair value objective and its application in
GAAP. In addition, the proposal expands disclosures required about the use of fair value to remeasure assets and liabilities. The standard would be effective for financial statements issued for fiscal
years beginning after June 15, 2005.

The
Emerging Issues Task Force issued EITF Abstract 03-13 (EITF 03-13) to provide guidance on applying SFAS 144, "Determining Whether to Report
Discontinued Operations." SFAS 144 discusses when an entity should disclose a 'component' as discontinued operations. Under SFAS 144, a component should be disclosed as discontinued
operations when continuing cash flows are eliminated and when there is no significant continuing involvement with the component. EITF 03-13 provides additional guidance on factors
to consider in evaluating what constitutes continuing cash flows and continuing significant influence. This Statement is effective for fiscal periods beginning after December 15, 2004. The
Company does not expect there to be any material impact on the consolidated financial statements upon adoption of the guidance.

Financial Instruments

Most of the Company's revenues (approximately 98% in 2004) are earned in currencies other than the Canadian dollar, principally the U.S. dollar. A
substantial portion of the Company's expenses, however, have been and will continue to be incurred in Canadian dollars. Accordingly, fluctuations in exchange rates between the U.S. dollar and
the Canadian dollar could materially affect results of operations. In the normal course of business, the Company uses foreign currency options and forward foreign currency contracts to reduce exposure
to fluctuations in the U.S. dollar to Canadian dollar exchange rates. At December 31, 2004, the Company had forward foreign currency contracts on hand to sell U.S.$7.5 million
between January 31 and September 30, 2005 at an average rate of U.S.$0.804 per Canadian dollar. Derivative financial instruments are not used for speculative purposes. There can be no
assurance that the Company will be successful in such hedging activities.

The
Company's operating budget for 2005 is based on an exchange rate of U.S.$0.810 per Canadian dollar. The Company estimates that each $0.01 change in the U.S. dollar to Canadian
dollar exchange rate would impact the Company's 2005 budgeted net income by approximately $345,000, prior to taking into consideration the Company's 2005 hedging program. The following table sets
forth the potential impact of various hypothetical U.S. dollar to Canadian dollar exchange rates on the Company's 2005 budgeted net income, prior to taking into consideration the Company's 2005
hedging program.

|U.S.$ per Canadian $ |  | Impact on 2005 Budgeted Net Income |           
|-------------------- |  | ---------------------------------- | ----------
|
|$0.77                |  | $                                  | 1,449,000 
|$0.78                |  | $                                  | 1,073,000 
|$0.79                |  | $                                  | 706,000   
|$0.80                |  | $                                  | 349,000   
|$0.81                |  |                                    |          
|$0.82                |  | $                                  | (340,000  
|$0.83                |  | $                                  | (672,000  
|$0.84                |  | $                                  | (996,000  
|$0.85                |  | $                                  | (1,313,000

52

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The Company is not subject to significant interest rate risk due to the short-term maturities of the Company's outstanding loans and short term investments.

Inflation

While the Company believes that inflation has not had a material effect on its results of operations, there can be no assurance that inflation will not have such
an effect in the future.

B.    Liquidity and Capital Resources

See "Item 5  Operating and Financial Review and Prospects, Liquidity and Capital Resources."

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

See "Item 4  Information on the Company, Business Overview  Research and
Development" and " Patents, Trademarks and Licenses."

D.    Trend Information

See "Item 5  Operating and Financial Review and Prospects, Operating Results."

E.    Off Balance Sheet Arrangements

See "Item 5  Operating and Financial Review and Prospects, Operating
Results  Off Balance Sheet Arrangements."

F.     Tabular Disclosure of Contractual Obligations

See "Item 5  Operating and Financial Review and Prospects, Operating
Results  Contractual Obligations."

Item 6.    Directors, Senior Management and Employees

A.    Directors and Senior Management

The following table sets forth certain information, as of April 29, 2005, regarding the executive officers, directors and certain key employees of the
Company:

|Name                             |  | Age |  | Position                                             |  | Director Since |  | Executive Officer Since
|-------------------------------- |  | --- |  | ---------------------------------------------------- |  | -------------- |  | -----------------------
|Directors and Executive Officers |  |     |  |                                                      |  |                |  |                        
|Jonathan W. Ladd                 |  | 49  |  | President and Chief Executive Officer                |  | 2002           |  | 2002                   
|Werner Gartner                   |  | 48  |  | Executive Vice President and Chief Financial Officer |  | 2001           |  | 1995                   
|Patrick C. Fenton                |  | 47  |  | Vice President and Chief Technology Officer          |  | 2005           |  | 2003                   
|Farlin A. Halsey, Jr.            |  | 39  |  | Vice President, Marketing                            |  |               |  | 2003                   
|Anthony J. Murfin                |  | 57  |  | Vice President, Business Development                 |  |               |  | 2003                   
|Graham C. Purves                 |  | 42  |  | Vice President, Sales                                |  |               |  | 2003                   
|Robert J. Iverach                |  | 57  |  | Director                                             |  | 2005           |  |                       
|Richard D. Orman                 |  | 56  |  | Vice Chairman of the Board                           |  | 1994           |  |                       
|Joel A. Schleicher               |  | 53  |  | Director                                             |  | 1997           |  |                       
|Charles R. Trimble               |  | 63  |  | Director                                             |  | 2002           |  |                       
|David E. Vaughn                  |  | 59  |  | Chairman of the Board                                |  | 2001           |  |                       

The
following is a brief biography of each of the directors and officers of the Company, which includes a description of their present occupation and their principal occupations during
at least the past five years.

53

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Jonathan W. Ladd.Mr. Ladd was appointed President and Chief Executive Officer of the Company in February 2002
and has served as a director of the Company from July 2002. From July 2001 to November 2001, Mr. Ladd served as Senior Vice President, Engineering at Thales
Navigation Inc., a satellite positioning product company, and President of Thales' Russian subsidiary, Ashtech A/O. From January 1998 to July 2001, Mr. Ladd served in
several other management positions at Magellan Corporation, a satellite positioning product company, including Senior Vice President, Advanced Technology Group and Vice President and General Manager
of Ashtech Precision Products Business Unit.

Werner Gartner.Mr. Gartner was appointed Executive Vice President and Chief Financial Officer of the Company in
October 1996 and has served as a director of the Company from July 2001. Mr. Gartner also served as a director of the Company from November 1995 until May 1998. From
November 2000 to February 2001, Mr. Gartner, in addition to his regular duties, served as Acting Interim President and Chief Executive Officer of the Company. From
August 1990 to October 1996, Mr. Gartner served in a variety of financial positions at the Company including Vice President, Finance and Corporate Controller.

Patrick C. Fenton.Mr. Fenton was appointed Chief Technology Officer in January 2002 and became an executive
officer of the Company in April 2003. Mr. Fenton previously served as Vice President, Technology of the Company from October 1998 and as Vice President, Research and Development
of the Company from March 1997 until October 1998. Mr. Fenton previously served as Director, Research and Development for NovAtel's GPS business unit from February 1995
until March 1997 and was Chief Engineer for the GPS business unit from November 1993 to February 1995. Mr. Fenton was appointed to the board of directors in
March 2005.

Farlin A. Halsey, Jr.Mr. Halsey was appointed Vice President, Marketing of the Company in July 2002. From
August 2000 to January 2002, Mr. Halsey served as Vice President of Marketing for JP Mobile, a mobile server company. From August 1999 to August 2000,
Mr. Halsey served as Director of Marketing-Personal Navigation with Navigation Technologies Company, a provider of digital mapping databases. From March 1993 to August 1999,
Mr. Halsey served in various sales and marketing positions for Topcon America Company.

Anthony J. Murfin.Mr. Murfin was appointed Vice President, Business Development of the Company in April 2002.
Mr. Murfin has also served as Director, Aviation Group of the Company from April 1998 until April 2002. Mr. Murfin previously served as Director, Corporate Accounts of the
Company from April 1995 to April 1998 and as Director of Product and Marketing of the Company from April 1994 to April 1995. From January 1980 to April 1994,
Mr. Murfin served in various capacities including Business Development Manager and Product Manager (Flight Systems) in the Avionics Division of CMC Electronics. From September 1977 until
January 1980, Mr. Murfin was employed by CAE Electronics, a provider of advanced simulation technologies.

Graham C. Purves.Mr. Purves was appointed Vice President, Sales of the Company in January 2002.
Mr. Purves previously served as Vice President, Sales and Marketing of the Company from October 1998 to January 2002. Mr. Purves assumed additional responsibility for
product development in July 1999. Mr. Purves previously served as Director, Custom Products Group for the Company from January 1998 until October 1998, and as Director,
Business Operations for the Company's GPS business unit from September 1994 until October 1998. From August 1988 to September 1990, Mr. Purves served in various
capacities at the Company including Manager, VLSI Design Group.

Robert J. Iverach.Mr. Iverach was appointed as a director of the Company in March 2005. Mr. Iverach
currently serves as a Counsel (Associate) with the law firm of Felesky Flynn LLP. From May 1978 to December 2004, Mr. Iverach served as a Partner with Felesky
Flynn LLP. Since December 2004, Mr. Iverach has also served as a Director and Assistant Secretary to Win Energy Corporation.

Richard D. Orman.Mr. Orman has served as Vice Chairman of the board of directors of the Company since
March 1997 and as a director of the Company since January 1994. Mr. Orman currently serves as Executive Vice-Chairman of Exceed Energy Inc. From
June 1999 to April 2003, Mr. Orman served as Chairman and Chief Executive Officer of Hemisphere International Inc. and currently serves as Chairman. From March 1996
to October 1998, Mr. Orman served as Chairman and Chief Executive Officer of Kappa Energy Company Inc. and as a director until January 2000. From May 1986 to
December 1992, Mr. Orman served as a member of the

54

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Alberta
legislature and as Minister of Employment from May 1986 to September 1988, Minister of Labour from September 1988 to April 1989 and Minister of Energy from
April 1989 to December 1992. Mr. Orman has also served as a director of a number of public companies.

Joel A. Schleicher.Mr. Schleicher has served as a director of the Company since March 1997.
Mr. Schleicher currently serves as Chairman and Chief Executive Officer for Integrated Solutions, Inc. From June 2000 to July 2002, Mr. Schleicher served as Chairman
and Chief Executive Officer of Interpath Communications Inc. (prior to their acquisition of USinternetworking, Inc.) and continues to serve on its board. Mr. Schleicher served as
Chairman and Chief Executive Officer of Expanets, Inc. from June 1998 to January 2000. Mr. Schleicher served as a business consultant, advisor and investor with and to
private equity firms from July 1997 to June 1998. From June 1996 to June 1997, Mr. Schleicher served as President and Chief Executive Officer of
ProCommunications, Inc. From July 1995 to June 1996, Mr. Schleicher was a private investor. From 1989 to July 1995, Mr. Schleicher served as Chief Operating
Officer of and a board member for Nextel Communications, Inc. Mr. Schleicher also serves as a Director of TechTronic Industries Co. Ltd.

Charles R. Trimble.Mr. Trimble has served as a director of the Company since January 2002. Mr. Trimble
currently serves as Chairman of the United States GPS Industry Council. Mr. Trimble also serves as a Director of KVH Industries, Inc. Mr. Trimble was one of the founders of
Trimble Navigation Limited, a provider of GPS and other positioning technologies and products, in 1978 and served as President, Chief Executive Officer and a director of such company from 1981 to
1998.

David E. Vaughn.Mr. Vaughn has served as a director of the Company since July 2001 and was elected Chairman of
the board of directors in March 2004. Mr. Vaughn also served as President and Chief Executive Officer of the Company from February 2001 to February 2002. Mr. Vaughn
currently serves as President of Foursome Technologies, a consulting firm. From January 1999 to December 2000, Mr. Vaughn served as Senior Vice President and Chief Operations
Officer with Magellan Corporation. Also with Magellan Corporation, Mr. Vaughn served as Senior Vice President, Strategic Business Alliances from August 1998 to January 1999. From
June 1991 to July 1998, Mr. Vaughn served with Trimble Navigation Limited, a provider of GPS and other positioning technologies and products, in a variety of positions including
Executive Vice President, Tracking and Communications Products Division and, most recently, as Executive Vice President, Corporate Business Development.

There
is no family relationship between any of the directors and the executive officers. There are no arrangements or understandings between any director or executive officer and any
other person pursuant to which any director and executive officer was selected.

B.    Compensation

Summary of Executive Compensation

The following table provides a summary of the compensation paid during each of the three most recently completed fiscal years to each of the Chief Executive
Officer and the four next most highly compensated executive officers of the Company who are currently serving as executive officers of NovAtel and whose total

55

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salary
and other compensation during the fiscal year ended December 31, 2004 exceeded $100,000 (the "Named Executive Officers").

|                                                                                                                         |  |                |  |                             |     |                           |  |                     |           | Long Term Compensation |     |                   | 
|------------------------------------------------------------------------------------------------------------------------ |  | -------------- |  | --------------------------- | --- | ------------------------- |  | ------------------- | --------- | ---------------------- | --- | ----------------- | 
|
|
|Jonathan W. Ladd
CEO and President                                                                                       |  | 2004
2003
2002 |  | 294,595
282,383
239,038     | (1) | 329,754
176,148
119,418   |  | 14,198
14,674
     | (3)(3)    | 71,500

             | (5) | 
50,000
30,000   | 
|Werner Gartner
Executive Vice President and CFO                                                                          |  | 2004
2003
2002 |  | 185,567
177,902
169,837     |     | 161,992
79,176
69,300     |  | 9,266
9,129
8,359   | (3)(3)(3) | 36,036

             | (5) | 
15,000
15,000   | 
|Patrick C. Fenton
Chief Technology Officer                                                                               |  | 2004
2003
2002 |  | 160,696
154,027
149,589     |     | 140,290
68,551
60,000     |  | 8,025
8,004
7,772   | (3)(3)(3) | 31,200

             | (5) | 
12,500
10,000   | 
|Farlin A. Halsey
Vice President, Marketing                                                                               |  | 2004
2003
2002 |  | 158,744
153,524
72,329      | (4) | 134,068
62,100
32,548     |  | 7,930
7,967
       | (3)(3)    | 23,288

             | (5) | 
9,000
20,000    | 
|Graham C. Purves
Vice President, Sales                                                                                   |  | 2004
2003
2002 |  | 149,432
143,759
136,877     |     | 134,068
72,800
56,000     |  | 7,371
7,344
6,998   | (3)(3)(3) | 21,840

             | (5) | 
10,500
7,500    | 
|All directors and executive officers as a group (twelve persons in 2004, twelve persons in 2003 and ten persons in 2002) |  | 2004
2003
2002 |  | 1,283,333
1,172,999
550,662 |     | 1,034,240
517,900
188,718 |  | 53,821
54,022
8,359 |           | 205,219

            |     | 
107,500
118,500 | 

---

Options Granted During the Year Ended December 31, 2004

No options to purchase Common Shares were granted to the Named Executive Officers during the fiscal year ended December 31, 2004.

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Options Exercised During the Year Ended December 31, 2004

The following table sets forth details of: (i) options exercised, and the value thereof, by the Named Executive Officers during the fiscal year end
December 31, 2004, (ii) the number of unexercised options as at December 31, 2004 (exercisable and unexercisable) held by the Named Executive Officers and (iii) the value
of unexercised "in-the-money" options as at the fiscal year ended December 31, 2004, (exercisable and unexercisable) held by the Named Executive Officers. The closing
price of the Company's common shares on the last trading day of the fiscal year was U.S.$44.39 per share.

|Name                                            |  | Securities Acquired on Exercise |  | Aggregate Value Realized
(U.S.$) |         | Unexercised Options December 31, 2004
(Exercisable/Unexercisable) |               | Value of Unexercised In-the-Money Options at December 31, 2004
(Exercisable/Unexercisable)
(U.S.$)
|----------------------------------------------- |  | ------------------------------- |  | -------------------------------- | ------- | ----------------------------------------------------------------- | ------------- | --------------------------------------------------------------------------------------------------
|Jonathan W. Ladd
CEO and President              |  | 27,500                          |  | $                                | 364,700 |                                                                   | 0/52,500      |                                                                                                   
|Werner Gartner
Executive Vice President and CFO |  | 16,500                          |  | $                                | 209,452 |                                                                   | 90,750/21,750 |                                                                                                   
|Patrick C. Fenton
Chief Technology Officer      |  | 17,625                          |  | $                                | 260,912 |                                                                   | 67,000/16,875 |                                                                                                   
|Farlin A. Halsey
Vice President, Marketing      |  | 5,000                           |  | $                                | 113,400 |                                                                   | 3,750/16,750  |                                                                                                   
|Graham C. Purves
Vice President, Sales          |  | 40,875                          |  | $                                | 676,511 |                                                                   | 24,923/14,125 |                                                                                                   

NovAtel's
Employee Stock Option Plan and Directors Stock Option Plan (collectively, the "Plans") authorize the grant of options to purchase Common Shares to employees or directors of
NovAtel or employees of a related company and non-employee directors of NovAtel, respectively.

Each
of the Plans may be administered by either NovAtel's board of directors or by a committee established by the board of directors. A committee established by the board of directors to
administer the Employee Stock Option Plan must include at least one director of the Company.

The
board of directors or the committee, as the case may be, has all discretion and authority necessary or appropriate to administer each of the Plans including the authority to
determine which employees or directors, as the case may be, will be granted options, the number of Common Shares subject to each option and the terms and conditions of such options. The price at which
options may be granted under each of the Plans must be fixed by the board of directors or the committee, as the case may be, at any price that such board of directors or committee, as the case may be,
may determine in the exercise of its sole discretion in good faith. The Employee Stock Option Plan imposes certain restrictions on the option price applicable to incentive stock options granted
thereunder. The Directors Stock Option Plan provides that the per share exercise price for an option may not be less than the fair market value per Common Share at the date of grant. Under each of the
Plans, options issued thereunder must be exercised no later than 10 years from the date granted subject to certain restrictions applicable to options granted to a shareholder who holds more
than 10% of the Common Shares, in the case of the Employee Stock Option Plan, and restrictions providing that the maximum number of shares that may be granted to any one individual will not exceed 5%
of the outstanding Common Shares, in the case of the Directors Stock Option Plan.

The
vesting schedule for each option granted pursuant to the Plans is specified by the board of directors or the committee, as the case may be, at the time of the grant. The vesting of
outstanding options may be accelerated by the board of directors or the committee, as the case may be, at such times and in such amounts as the board of directors or the committee, as the case may be,
determines in its sole discretion. Options that have been outstanding for at least six months immediately vest upon a change of control and are fully exercisable for a specified number of days
depending on the nature of the event resulting in a change of control.

57

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Options
granted under the Plans are non-transferable. Vested options granted under each of the Plans terminate on the earlier of: (i) the expiry of the option (as
discussed above); (ii) the expiry of 90 days from the date that an optionee ceases to be employed by or a member of the board of directors of the Company, as the case may be, for reasons
other than death or disability; and (iii) the expiry of one year from the date of death of an optionee or the date that an optionee ceases to be employed by or a member of the board of
directors of the Company, as the case may be, by reason of disability. The Company did not issue stock options to senior management and employees in 2004.

2004 Employee Long-term Incentive Plan

In February 2005, the board of directors approved the 2004 Employee Long-term Incentive Plan ("LTI Plan") which authorizes the grant of phantom
shares to management and employees of the Company. The board of directors is ultimately responsible for the LTI Plan and has designated overall
responsibility for the LTI Plan to the Compensation Committee. The number of phantom shares available for issuance is approximately 44,000.

All
grants made under the LTI Plan will have a three-year term ending on December 31, 2006. Grants will be subject to performance vesting conditions. Vesting will
occur on December 31, 2006, if pre-set performance objectives for revenue and operating income are satisfied. Payments with respect to each grant under the LTI Plan will be made in
cash, on or about March 31, 2007, subject to approval of the December 31, 2006 year end audited financial results. The value of a phantom share at the time of payment will be
based on a 20-day average of the closing price of NovAtel common shares.

The
LTI Plan will be liquidated and amounts payable to participants will be paid out in the event of a change of control of NovAtel. The amount payable will be pro rated based on months
of completed service within the LTI Plan term and relative success in achieving the performance targets to the most recently completed quarter.

Management Employment Contracts

Jonathan W. Ladd, Werner Gartner and Patrick C. Fenton have employment-related contracts which provide for, among other things, industry standard covenants in the
Company's favour, including non-competition covenants for one year following termination. The contracts also provide that the Company can terminate an officer without cause upon which
event the officer is entitled to one times his annual salary plus accelerated vesting of certain options, depending on the agreement. In addition, the contracts contain provisions relating to payments
and accelerated vesting of stock options upon a termination within a certain amount of time of a change of control of the Company, with payments ranging from one and one-half to two times
salary, depending on the contract.

Summary of Directors' Compensation

Directors do not have service contracts with the Company. NovAtel compensates its directors who are not employees of the Company a base amount of $20,000 per
year. The Chairman of the Board receives an additional $20,000 per year. Additional payments of $10,000 annually are paid to both the chairman and all members of the Audit Committee. The chairman of
the Audit Committee receives an additional $10,000. In addition, directors are paid $1,000 for attendance at meetings of the board of directors, the Compensation Committee and the Audit Committee,
with an additional $200 per hour payable for attendance at all supplemental meetings.

The
directors of the Company have not received stock options of NovAtel as compensation for their services since January 2002.

Directors' and Officers' Liability Insurance

The Company maintains a comprehensive directors and officers liability policy for events arising prior to CMC Electronics acquiring majority control of the
Company on April 17, 1998. This policy was purchased for $42,000 for the policy period from December 1, 2000 to December 1, 2005. The policy covers limits of liability for each
loss and for each policy period of $10 million with a $250,000 deductible for any claims.

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CMC
Electronics maintains a comprehensive directors and officers liability policy for events arising subsequent to April 17, 1998 and prior to April 12, 2001. This policy
was purchased for the period April 1, 2001 to April 1, 2007. Directors and officers of the Company are covered by this policy which cover limits of liability for each loss and for the
policy period of $35 million with a $250,000 deductible for U.S. securities related claims and $100,000 deductible for other claims. The Company's share of the premium for this policy
was $31,200.

Onex
Corporation, which controls, directly or indirectly, a majority of the common shares of CMC Electronics, maintains a comprehensive directors and officers liability policy which
applies to the Company's directors and officers for events arising subsequent to April 12, 2001. The Onex Corporation policy, in place until November 29, 2005 for events that occurred
prior to February 3, 2005, covers limits of liability for each loss and for each policy period of U.S.$75 million to be shared with other Onex companies, with U.S.$2.5 million
deductible for securities related claims and for U.S. claims and U.S.$1 million deductible for other claims. The Company's share of the premium for this policy is estimated to be
$32,000.

The
Company maintains comprehensive directors and officers liability policies for events arising subsequent to January 27, 2005. These policies, in place until January 28,
2006, cover limits of liability for each loss and for each policy period of U.S.$10 million primary coverage with a U.S.$250,000 deductible for any claims and U.S.$10 million excess
coverage. The annual premium for these policies is U.S.$212,000.

Indebtedness of Directors and Executive Officers

No executive officers or directors of NovAtel, or any of their associates or affiliates, are or have been indebted to NovAtel since the commencement of the last
completed financial year of the Company, nor have any of the foregoing been the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by
NovAtel or any of its subsidiaries since the commencement of the last completed financial year.

C.    Board Practices

All directors hold office until the next annual meeting of the Company's shareholders, which has been in July for the past several years, or until their
respective successors are duly appointed by the Board of Directors or their positions are earlier vacated by resignation or otherwise.

Executive
officers are appointed by the board of directors on an annual basis and serve until the next annual meeting of the board of directors or until their respective successors are
duly appointed or their positions are earlier vacated by resignation or otherwise.

Committees of the Board of Directors

The Company has an Audit Committee and a Compensation Committee.

Audit Committee

The Audit Committee assists the board of directors of the Company in fulfilling its responsibilities for oversight and supervision of financial and accounting
matters. The Audit Committee responsibilities include the engagement or discharge of independent auditors, review with the independent auditors the plan and results of the auditing engagement, review
NovAtel's internal auditing procedures, system of internal accounting controls and financial management and to make inquiries into matters within the scope of this Committee's functions. The members
of the Audit Committee are Richard D. Orman, Joel A. Schleicher and Charles R. Trimble. The Board of Directors has determined that all members of the Audit Committee are "independent directors" as
determined in accordance with applicable securities laws and rules of the National Association of Securities Dealers (NASD). The board of directors and the Audit Committee have adopted a written
charter of the Audit Committee. The Audit Committee reviews and assesses the adequacy of the charter on an annual basis.

Compensation Committee

The function of the Compensation Committee is to ensure that the Company has a high calibre executive management in place and a total compensation plan that is
competitive, motivating and rewarding for

59

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participants.
The Compensation Committee reviews and makes recommendations to the board of directors of the Company concerning the compensation of the key management employees of the Company and the
administration of the Plans. The members of the Compensation Committee are Richard D. Orman and David E. Vaughn. The Board of Directors has determined that Mr. Orman is an "independent
director" as determined in accordance with applicable securities laws and NASD rules.

D.    Employees

See "Item 4  Information on the Company, Business Overview  Employees."

E.    Share Ownership

The following table sets forth as of April 29, 2005, the ownership of the Company's Common Shares by each director and Named Executive Officer, listed in
the compensation table above, and all directors and executive officers as a group:

Shares Beneficially OwnedName

Shares

PercentPatrick C. Fenton(1)

75,125

*Werner Gartner(2)

119,250

1.4
%Farlin A. Halsey(3)

6,000

*Robert J. Iverach



*Jonathan W. Ladd(4)(5)

40,000

*Richard D. Orman(6)

3,500

*Graham C. Purves(7)

31,923

*Joel A. Schleicher(8)

5,250

*Charles R. Trimble(9)

5,250

*David E. Vaughn



*All directors and executive officers as a group (ten persons)(10)

304,923

3.6
%


---

60

---



Item 7.    Major Shareholders and Related Party Transactions

A.    Major Shareholders

The following table sets forth as of May 11, 2005 those persons known to the Company to be owners of more than 5% of the Common Shares:

Shares Beneficially OwnedName

Shares

PercentFMR Corp(1)

1,025,000

12.4
%CMC Electronics Inc.(2)

754,500

9.1
%


---





B.    Related Party Transactions

See "Item 5  Operating and Financial Review and Prospects, Operating
Results  Related Party Transactions" and "Item 4  Information on the Company, Business
Overview  Strategic Partnerships  CMC Electronics" and " Certain Contractual Rights."

C.    Interests of Experts and Counsel

Not applicable.

Item 8.    Financial Information

A.    Consolidated Statements and Other Financial Information

Consolidated Financial Statements

See Item 18 "Financial Statements" for a full list of financial statements included as part of this Annual Report.

Legal Proceedings

See "Item 4  Information on the Company, Business Overview  Legal
Proceedings."

Dividend Policy

The Company has not declared or paid any dividends on the Common Shares to date. The payment of dividends in the future will be dependent on the earnings and
financial condition of the Company and on such other factors as the board of directors of NovAtel considers appropriate.

B.    Significant Changes

Not applicable.

61

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Item 9.    The Offer and Listing

A.    Offer and Listing Details

The Company's Common Shares have been listed on The Nasdaq Stock Market since February 7, 1997. The following are the price ranges as reported by The
Nasdaq Stock Market for the periods indicated.

|          |               | U.S.$
|--------- | ------------- | -----
|
|Annual    |               |      
|          | 2004          |      
|          | 2003          |      
|          | 2002          |      
|          | 2001          |      
|          | 2000          |      
|Quarterly |               |      
|          | Q4 - 2004     |      
|          | Q3 - 2004     |      
|          | Q2 - 2004     |      
|          | Q1 - 2004     |      
|          | Q4 - 2003     |      
|          | Q3 - 2003     |      
|          | Q2 - 2003     |      
|          | Q1 - 2003     |      
|Monthly   |               |      
|          | April 2005    |      
|          | March 2005    |      
|          | February 2005 |      
|          | January 2005  |      
|          | December 2004 |      
|          | November 2004 |      

B.    Plan of Distribution

Not applicable.

C.    Markets

In February 1997, the Company's Common Shares commenced trading in the United States on the Nasdaq National Market tier of The Nasdaq Stock Market
under the symbol "NGPSF." The Common Shares are not listed on any other non-United States trading market. On March 15, 1999, the Company's symbol was changed to "NGPS."

Prior
to February 4, 1997, the Company's Common Shares were not listed on any trading market.

A
significant number of the Company's Common Shares are held in street name. To the best of the Company's knowledge, as of March 1, 2005, there were 16 shareholders of record
resident in the United States, including Cede & Co., holding approximately 8,251,620 shares, representing 99% of the Common Shares then outstanding. In total, the Company has 18
shareholders of record.

D.    Selling Shareholders

Not applicable.

E.    Dilution

Not applicable.

62

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F.     Expenses of the Issue

Not applicable.

Item 10.    Additional Information

A.    Share Capital

Not applicable.

B.    Articles of Incorporation

The Company is registered under theCanada Business Corporations Act("CBCA" or the "Act") as corporation number
076226-1 and has the capacity and, subject to the provisions of the Act, the rights, powers and privileges of a natural person.

Powers of Directors

Subject to any unanimous shareholder agreement, the directors shall manage or supervise the management of the business and affairs of the Company and may exercise
all such powers and do all such acts and things as may be exercised or done by the Company and are not by the Act, the articles, the by-laws, any special resolution of the Company, a
unanimous shareholder agreement or by statute expressly directed or required to be done in some other manner. Notwithstanding any vacancy among the directors, the remaining directors may exercise all
the powers of the board so long as a quorum of the board remains in office.

The
Act requires every director or officer who is a party to a material contract or a material transaction, whether made or proposed with the Company, or who is a director or officer of
or has a material interest in any person who is a party to a material contract or a material transaction, whether made or proposed contract with the Company to disclose in writing to the Company or
request to have entered in the minutes of meetings of directors or meetings of committees of directors the nature and extent of his or her interest, and shall, except in certain limited circumstances,
refrain from voting in respect of the material contract or material transaction. The articles and by-laws do not require an independent quorum to enable the directors to vote compensation
to themselves or any member of their body. The Act also provides that the shareholders of the Company may examine the portion of any minutes of meetings of directors or such other documents that
contain such disclosures of interest.

Unless
the articles or by-laws of or a unanimous shareholder agreement relating to the Company otherwise provide, the directors of the Company may, without authorization of
the shareholders, (a) borrow money on the credit of the Company, (b) issue, reissue, sell, pledge or hypothecate debt obligations of the Company, (c) to the extent permitted by
the CBCA, give a guarantee on behalf of the Company to secure performance of an obligation by any person, and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or
any property of the Company, owned or subsequently acquired, to secure any obligation of the Company. The Company does not have a unanimous shareholder agreement and the Company's articles and
by-laws do not limit the above powers.

Directors
of the Company are not required to own shares of the Company in order to qualify as a director and the directors are not required to retire upon reaching a specified age.

Description of Securities

The Company is authorized to issue an unlimited number of Common Shares and an unlimited number of First Preference Shares.

Holders
of Common Shares are entitled to receive notice of and to attend all meetings of the shareholders of the Company, except meetings at which holders of another specified class of
shares are exclusively entitled to vote, and are entitled to one vote for each Common Share held on all votes taken at such meetings. The holders of Common Shares are entitled to receive such
dividends as the directors may in their discretion declare, regardless of whether dividends are declared on any other class of shares. Upon liquidation, dissolution or wind-up of the
Company, the holders of Common Shares are entitled to receive any remaining property after payment of any amount required to redeem or retract the issued and outstanding First Preference Shares.

63

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The
First Preference Shares may be issued in one or more series with each series to consist of such number of shares as may, before the issue of the series, be fixed by the directors of
the Company. The directors are authorized, before the issue of the series, to determine the designation, rights, privileges, restrictions and conditions attaching to the First Preference Shares of
each series.

The
First Preference Shares of each series rank equally with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation,
dissolution or winding-up and in priority to the Common Shares and any other shares of the Company ranking junior to the First Preference Shares. In addition, if any amount of cumulative
dividend or declared non-cumulative dividend or an amount payable on return of capital in respect of shares of a series of First Preference Shares is not paid in full, the shares of the
series are entitled to participate rateably with the shares of any other series of the same class in respect of such amounts.

In
accordance with the provisions of the CBCA, the amendment of certain rights attaching to a class of shares, including Common Shares, requires the approval of not less than
two-thirds of the votes cast by the holders of such shares voting at a special meeting of such holders. Pursuant to the Company's By-laws, a quorum for a meeting of the holders
of Common Shares occurs when persons not being less than two in number and holding or representing by proxy not less than 331/3% of the issued and outstanding Common Shares entitled to
vote at such meetings are present, unless a higher number is designated by the Board. In circumstances where the rights of Commons Shares may be amended, to add, change or remove any provisions
restricting or constraining the issue, transfer or ownership of Common Shares, holders of Common Shares have the right under the CBCA to dissent from such amendment and require the Company to pay them
the then fair value of the Common Shares.

Shareholder Meetings

There are two types of shareholder meetings: regular annual meetings and special meetings. Pursuant to the CBCA, the annual shareholder meeting shall be held not
later than fifteen months after the holding of the last preceding annual meeting but no later than six months after the end of preceding financial year, unless an order extending the time for calling
the annual meeting is obtained. The Directors may at any time call a special meeting of shareholders.

A
notice stating the day, hour and place of meeting and, if special business is to be transacted details of the nature of the business, must be served by sending such notice to each
person who is entitled to notice of such meeting and who on the record date for notice appears on the records of the Company or the Company's transfer agent as a shareholder entitled to vote at the
meeting and to each director of the Company and to the auditor of the Company by prepaid mail not less than 21 days and not more than 60 days before the meeting unless such requirement
is otherwise waived. The Company must fix a record date in advance of the meeting for the purpose of determining shareholders entitled to notice of the meeting. Only shareholders of record on such
date will be entitled to notice of the meeting.

Votes
at meetings of shareholders may be given either personally or by proxy. Every shareholder, including a shareholder that is a body corporate, entitled to vote at a meeting of
shareholders may by means of a proxy appoint a proxyholder or one or more alternate proxyholders, who need not be shareholders, as his nominee to attend and act at the meeting in the manner, to the
extent and with the authority conferred by the proxy.

C.    Material Contracts

Except for contracts entered into in the ordinary course of business, the only material contract entered into by NovAtel in the two years immediately preceding
the date of this Annual Report which can reasonably be regarded as presently material is the following:

64

---



D.    Exchange Controls

Investment Canada Act

Canada has no system of exchange controls. There is no law, government decree or regulation in Canada restricting the export or import of capital or affecting the
remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements. See
"Item 10  Additional Information, Taxation."

There
is no limitation imposed by Canadian law or by the articles or other charter documents of the Company on the right of a non-resident to hold or vote Common Shares or
Preferred Shares of the Company with voting rights (collectively, "Voting Shares"), other than as provided in the Investment Canada Act (the "Investment Act"), as amended by the World Trade
Organization Agreement Implementation Act (the "WTOA Act"). The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a "Canadian," as defined in the Investment Act (a "non-Canadian"), unless, after review, the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit to Canada. An investment in Voting Shares of the Company by a non-Canadian (other than a
"WTO Investor," as defined below) would be reviewable under the Investment Act if it was an investment to acquire control of the Company and the Company was not, immediately prior to the
implementation of the investment, controlled by a WTO Investor, and the value of the assets of the Company were $5.0 million or more. An investment in Voting Shares of the Company by a
WTO Investor would be reviewable under the Investment Act if it was an investment to acquire direct control of the Company, and the value of the assets of the Company equalled or exceeded
$223 million for the year 2003 and $237 million, the expected threshold, for the year 2004. A non-Canadian, whether a WTO Investor or otherwise, would acquire control
of the Company for purposes of the Investment Act if he or she acquired a majority of the Voting Shares of the Company. The acquisition of less than a majority, but at least one-third of
the Voting Shares of the Company, would be presumed to be an acquisition of control of the Company, unless it could be established that the Company was not controlled in fact by the acquirer through
the ownership of Voting Shares. In general, an individual is a WTO Investor if he or she is a "national" of a country (other than Canada) that is a member of the World Trade Organization
("WTO Member") or has a right of permanent residence in a WTO Member other than
Canada. A corporation or other entity will be a WTO investor if it is a "WTO investor-controlled entity" pursuant to detailed rules set out in the Investment Act. The United States is a
WTO Member.

Certain
transactions involving Voting Shares of the Company would be exempt from the Investment Act, including: (a) an acquisition of Voting Shares of the Company if the
acquisition was made in connection with the person's business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of a security
interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and (c) an acquisition of control of the Company by reason of
an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains
unchanged.

E.    Taxation

The following is a summary of the principal Canadian federal income tax considerations generally applicable to a holder of Shares who is neither resident nor
deemed to be resident in Canada, who does not use or hold and is not deemed to use or hold their Shares in carrying on a business in Canada and whose Shares do not otherwise constitute "taxable
Canadian property" for purposes of the Tax Act (a "U.S. Holder"). Shares of a holder will generally not constitute "taxable Canadian property unless (a) at any time within the
sixty (60) months immediately preceding the disposition of Shares by such holder, such holder, persons not dealing at arm's length with such holder, or any combination thereof, owned (or had
options to acquire) 25% or more of the issued shares of any class or series of the capital stock of the Company or a predecessor, (b) a holder, upon ceasing to be a Canadian resident, elected
under the Tax Act to have the Shares deemed to be taxable Canadian property, or (c) the Shares were acquired in circumstances under which they are deemed to be taxable Canadian property.
The Tax Act contains provisions relevant to a non-resident insurer for whom any Securities are "designated insurance property" which this summary does not take into account. This
summary is not exhaustive

65

---



of
all potential Canadian income tax consequences to a U.S. Holder of acquiring, holding or disposing of Common Shares.

This
summary takes into account the current provisions of Tax Act, the regulations thereunder, all specific proposals to amend the Tax Act publicly announced prior to the
date of this Annual Report, and the current published administrative practices and policies of the Canada Customs and Revenue Agency. It assumes that all proposals to amend the Tax Act will be
enacted in their present form and otherwise does not take into account or anticipate changes in the law, whether by way of judicial decision or legislative action nor does it take into account
provincial, territorial or foreign tax legislation or considerations.

A
U.S. Holder will not be subject to tax under the Tax Act on any gain realized in respect of the disposition or deemed disposition of Common Shares to a person other than
the Company. A disposition of the Shares to the Company may give rise to a deemed dividend that would be subject to Canadian withholding tax. Generally, dividends paid or credited, or deemed to be
paid or credited by the Company are subject to
Canadian withholding tax at the rate of 15% (reduced from 25% by the Convention) for U.S. Holders who beneficially own the dividends. The Company assumes responsibility for the withholding of
tax on dividends to a U.S. Holder at the source.

F.     Dividends and Paying Agents

Not applicable.

G.    Statement by Experts

Not applicable.

H.    Documents on Display

Documents concerning the Company referred to in this Annual Report may be inspected at its headquarters at 1120 - 68th
Avenue N.E., Calgary, Alberta, T2E 8S5, CANADA. The Company provides access to its Quarterly Reports filed on Form 6-K and Annual Report on
Form 20-F on its website free of charge, as soon as reasonably practicable after those reports are electronically filed. The Company's Code of Ethics and Business Conduct is posted
on its website at www.novatel.ca.

The
Company's SEC filings, and the exhibits thereto, are available for inspection and copying at the public reference facilities maintained by the SEC in Room 1024,
450 Fifth Street N.W., Washington, D.C., 20549. Copies of these filings may be obtained from these offices after the payment of prescribed fees. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.

As
a foreign private issuer, the Company is exempt from the proxy rules under the Securities Exchange Act of 1934, as amended, prescribing the furnishing and content of proxy statements
to shareholders. As the Company is a foreign private issuer, the Company's directors and officers are also exempt from the shortswing profit recovery and disclosure regime of Section 16 of the
Exchange Act.

I.     Subsidiary Information

Not applicable.

Item 11.    Quantitive and Qualitative Disclosures about Market Risk

See "Item 5  Operating and Financial Review and Prospects, Operating
Results  Financial Instruments." The Company is not subject to significant interest rate risk due to the short-term maturities of the Company's
outstanding loans and short-term investments.

Item 12.    Description of Securities other than Equity Securities

Not applicable.

66

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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

Not applicable.

Item 15.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures.The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934, Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this Annual Report, have concluded that the Company's disclosure controls and procedures were effective and designed to ensure
that material information relating to the Company should be made known to them by others within those entities.

Changes in Internal Controls.There were no changes in the Company's internal controls over financial reporting identified in
connection with the evaluation above during the period covered by this Annual
Report that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

Item 16A.    Audit Committee Financial Expert

The Company's board of directors has determined that Joel A. Schleicher is the Company's audit committee financial expert as defined by the rules of the
SEC. Mr. Schleicher is "independent" as defined by the NASD rules.

Item 16B.    Code of Ethics

The Company has adopted a Code of Ethics and Business Conduct that applies to its principal executive officer, principal financial officer and all other officers,
employees and directors of the Company. A copy of the Company's Code of Ethics and Business Conduct can be found on the Company's website at www. novatel.ca. There were no amendments to, or waivers
granted under, the Code of Ethics and Business Conduct during the year ended December 31, 2004.

Item 16C.    Principal Accountant Fees and Services

The following table sets forth the aggregate fees billed to the Company for the years ended December 31, 2003 and December 31, 2004:

|Fees                   |  | 2004 |         | 2003
|---------------------- |  | ---- | ------- | ----
|Audit Fees (1)         |  | $    | 361,095 |     
|Audit-Related Fees (2) |  |      |        |     
|Tax Fees (3)           |  |      | 34,012  |     
|Other Fees (4)         |  |      |        |     
|                       |  |      |         |     
|Total Fees             |  | $    | 395,107 |     
|                       |  |      |         |     

---

67

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Effective
February 13, 2003, the Audit Committee requires pre-approval of all audit and permissible non-audit services (including the fees and terms
thereof) to be performed for the
Company by its independent auditors, subject to the de-minimus exception for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange act of 1934.

The
Audit Committee reviews all non-audit related services provided by the independent registered chartered accountants to the Company, at each quarterly meeting. In 2004,
the Audit Committee approved 100% of the non-audit related services provided in 2004.

Item 16D.    Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchases

The Company did not purchase any of its equity securities in 2004.

Item 17.    Financial Statements

Not applicable.

Item 18.    Financial Statements

See Item 19 below for Financial Statements filed as a part of this Annual Report.

Item 19.    Financial Statements and Exhibits



|Exhibit Number |  | Exhibit                                                                                                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------
|3.1            |  | Restated Articles of Incorporation of Registrant. (1)                                                          
|3.2            |  | Restated Bylaws of Registrant. (7)                                                                             
|4.1            |  | Form of Common Stock Certificate. (1)                                                                          
|10.1           |  | Directors Stock Option Plan. (1)                                                                               
|10.2           |  | Stock Option Plan with form of stock option agreement. (1)                                                     
|10.3           |  | Form of Indemnification Agreement to be entered into between Registrant and certain directors and officers. (1)
|10.4           |  | Employment Agreement dated July 1, 1997 between NovAtel Inc. and Werner Gartner. (3)                           
|               |  |                                                                                                                

68

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|10.5   |  | Lease Agreement (Building) dated January 29, 1999 between Christian Schumacher and NovAtel Inc. (2)                                     
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------
|10.6   |  | Agreement made effective July 20, 1999 between NovAtel Inc. and Sokkia Co., Ltd. (4)                                                    
|10.7   |  | License Agreement made effective August 1, 1999 between NovAtel Inc., Sokkia Co., Ltd. and Point, Inc. (4)                              
|10.8   |  | Operating Loan Credit Facility Letter from HSBC Bank Canada made effective November 6, 2000. (5)                                        
|10.9   |  | Amendment made effective January 26, 2001 to Operating Loan Credit Facility Letter from HSBC Bank Canada. (5)                           
|10.10  |  | Employment Agreement dated April 5, 2004 between NovAtel Inc. and Jonathan W. Ladd. (7)                                                 
|10.11  |  | Operating Line of Credit Facility Letter from The Toronto Dominion Bank dated June 5, 2002. (6)                                         
|10.12  |  | Employment Agreement dated November 20, 1996 between NovAtel Inc. and Patrick C. Fenton. (7)                                            
|*10.13 |  | Change of Control Agreement dated April 5, 2004 between NovAtel Inc. and Leica Geosystems A.G., CMC Electronics Inc., and Oncap L.P. (7)
|10.14  |  | 2004 Employee Long-term Incentive Plan.                                                                                                 
|21.1   |  | List of Subsidiaries.                                                                                                                   
|23.1   |  | Consent of Deloitte & Touche LLP, Independent Registered Chartered Accountants.                                                         
|31.1   |  | Section 302 Certification of Chief Executive Officer.                                                                                   
|31.2   |  | Section 302 Certification of Chief Financial Officer.                                                                                   
|32.1   |  | Section 906 Certification of Chief Executive Officer.                                                                                   
|32.2   |  | Section 906 Certification of Chief Financial Officer.                                                                                   

---

69

---





SIGNATURES

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

|
|

| |  | NOVATEL INC.
| |  | ------------
| |  | By:         
| |  |             

Date:
May 24, 2005

70

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NOVATEL INC.    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports
of Independent Registered Chartered Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

---



MANAGEMENT'S REPORT

Management is responsible to the Board of Directors for the preparation of the Company's consolidated financial statements. These statements have been prepared in
accordance with generally accepted accounting principles in Canada and necessarily include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable
basis to ensure that the consolidated financial statements are presented fairly, in all material respects. Financial information presented elsewhere in this Annual Report is consistent with that in
the consolidated financial statements.

The
Company maintains a system of internal controls which provides management with reasonable assurance that assets are safeguarded and that reliable financial records are maintained.

The
independent registered chartered accountants of the Company, Deloitte & Touche LLP, have been appointed by the shareholders to express an opinion as to whether these
consolidated financial statements present fairly the Company's consolidated financial position and operating results in accordance with generally accepted accounting principles in Canada. Their report
follows.

The
Board of Directors has reviewed and approved these consolidated financial statements. To assist the Board in meeting its responsibility, it has appointed an Audit Committee, all of
whose members are outside directors. The committee meets periodically with management and the external auditors to review internal controls, audit results and accounting principles and practices. The
external auditors have full and free access to the Audit Committee.

|/s/DAVID E. VAUGHN                    |  | /s/WERNER GARTNER                                                  
|------------------------------------- |  | -------------------------------------------------------------------
|David E. Vaughn
Chairman of the Board |  | Werner Gartner
Executive Vice President and
Chief Financial Officer

May 18,
2005

F-2

---



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Shareholders of NovAtel Inc.,

We
have audited the consolidated balance sheets of NovAtel Inc. as at December 31, 2004 and 2003, and the consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three year period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of NovAtel Inc. as at December 31, 2004 and 2003
and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles.

The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly we express no such opinion.

/s/DELOITTE & TOUCHE LLPCalgary, Canada
Independent Registered Chartered Accountants
January 28, 2005

|
|

COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS  FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Company's financial statements, such as the change described in Note 2(i)
to the consolidated financial statements, or changes that have been implemented in the financial statements such as those described in Note 2(j)(k) and (l). Our report to the
shareholders on the consolidated financial statements of NovAtel Inc., dated January 28, 2005, is expressed in accordance with Canadian reporting standards which do not require a
reference to such changes in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements.

/s/DELOITTE & TOUCHE LLPCalgary, Canada
Independent Registered Chartered Accountants
January 28, 2005

F-3

---





NOVATEL INC.        CONSOLIDATED BALANCE SHEETS        (in thousands, Canadian dollars)

|                                                           |                                                                                                                                      | December 31,                                                                                                       |                                           
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------
|
|ASSETS                                                     |                                                                                                                                      |                                                                                                                    |                                           
|Current assets:                                            |                                                                                                                                      |                                                                                                                    |                                           
|                                                           | Cash and cash equivalents (Note 8) (includes compensating balances of $1,000 at
    December 31, 2004 and $nil at December 31, 2003) |                                                                                                                    | $                                         
|                                                           | Short-term investments (Note 8) (includes compensating balances of $3,158 at
    December 31, 2004 and $3,278 at December 31, 2003)  |                                                                                                                    |                                           
|                                                           | Accounts receivable (Notes 3 and 12)                                                                                                 |                                                                                                                    |                                           
|                                                           | Related party receivables (Note 16)                                                                                                  |                                                                                                                    |                                           
|                                                           | Related party notes receivable (Note 16)                                                                                             |                                                                                                                    |                                           
|                                                           | Inventories (Note 4)                                                                                                                 |                                                                                                                    |                                           
|                                                           | Prepaid expenses and deposits                                                                                                        |                                                                                                                    |                                           
|                                                           | Future income tax asset  current portion (Note 15)                                                                                  |                                                                                                                    |                                           
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|                                                           |                                                                                                                                      | Total current assets                                                                                               |                                           
|Capital assets (Note 5)                                    |                                                                                                                                      |                                                                                                                    | 3,447                                     
|Intangible assets (Notes 6 and 9)                          |                                                                                                                                      |                                                                                                                    | 2,515                                     
|Deferred development costs (Note 7)                        |                                                                                                                                      |                                                                                                                    | 2,359                                     
|Future income tax asset  long term portion (Note 15)      |                                                                                                                                      |                                                                                                                    | 1,903                                     
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|                                                           |                                                                                                                                      | Total assets                                                                                                       |                                           
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|LIABILITIES AND SHAREHOLDERS' EQUITY                       |                                                                                                                                      |                                                                                                                    |                                           
|Current liabilities:                                       |                                                                                                                                      |                                                                                                                    |                                           
|                                                           | Accounts payable and accrued liabilities                                                                                             |                                                                                                                    | $                                         
|                                                           | Related party payables (Note 16)                                                                                                     |                                                                                                                    |                                           
|                                                           | Notes payable (Note 17)                                                                                                              |                                                                                                                    |                                           
|                                                           | Deferred revenue and customer deposits                                                                                               |                                                                                                                    |                                           
|                                                           | Provision for future warranty costs                                                                                                  |                                                                                                                    |                                           
|                                                           | Capital lease obligations  current portion                                                                                          |                                                                                                                    |                                           
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|                                                           |                                                                                                                                      | Total current liabilities                                                                                          |                                           
|Deferred gain on sale/leaseback of capital assets (Note 5) |                                                                                                                                      |                                                                                                                    | 453                                       
|Related party payables  long-term portion (Note 16)       |                                                                                                                                      |                                                                                                                    |                                          
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|                                                           |                                                                                                                                      | Total liabilities                                                                                                  |                                           
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|Commitments, contingencies and guarantees (Note 9)         |                                                                                                                                      |                                                                                                                    |                                           
|Shareholders' equity (Note 11):                            |                                                                                                                                      |                                                                                                                    |                                           
|                                                           | Capital stock                                                                                                                        |                                                                                                                    |                                           
|                                                           |                                                                                                                                      | (Common shares issued and outstanding: 8,260 at December 31, 2004 and 7,984 at
    December 31, 2003 respectively) |                                           
|                                                           | Contributed surplus                                                                                                                  |                                                                                                                    |                                           
|                                                           | Retained earnings (deficit)                                                                                                          |                                                                                                                    |                                           
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|                                                           |                                                                                                                                      | Total shareholders' equity                                                                                         |                                           
|                                                           |                                                                                                                                      |                                                                                                                    |                                           
|                                                           |                                                                                                                                      |                                                                                                                    | Total liabilities and shareholders' equity
|                                                           |                                                                                                                                      |                                                                                                                    |                                           

On behalf of the Board of Directors

|/s/DAVID E. VAUGHNDAVID E. VAUGHNChairman of the Board |  | /s/RICHARD D. ORMANRICHARD D. ORMANVice Chairman and Director
|------------------------------------------------------ |  | -------------------------------------------------------------

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

F-4

---



NOVATEL INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data, Canadian dollars)

|                                                      |                                                         | Year Ended December 31,        |       
|----------------------------------------------------- | ------------------------------------------------------- | ------------------------------ | ------
|
|Revenues (Notes 12 and 16)                            |                                                         |                                |       
|                                                      | Product sales                                           |                                | $     
|                                                      | NRE fees                                                |                                |       
|                                                      |                                                         |                                |       
|                                                      |                                                         | Total revenues                 |       
|                                                      |                                                         |                                |       
|Cost of sales (Note 16)                               |                                                         |                                |       
|                                                      | Cost of product sales                                   |                                |       
|                                                      | Cost of NRE fees                                        |                                |       
|                                                      |                                                         |                                |       
|                                                      |                                                         | Total cost of sales            |       
|                                                      |                                                         |                                |       
|Gross profit                                          |                                                         |                                | 31,429
|                                                      |                                                         |                                |       
|Operating expenses:                                   |                                                         |                                |       
|                                                      | Research and development                                |                                |       
|                                                      | Selling and marketing                                   |                                |       
|                                                      | General and administration                              |                                |       
|                                                      | Share offering costs (Note 13)                          |                                |       
|                                                      |                                                         |                                |       
|                                                      |                                                         | Total operating expenses       |       
|                                                      |                                                         |                                |       
|Operating income                                      |                                                         |                                | 10,024
|Interest income, net                                  |                                                         |                                | 313   
|Other expense (Note 14)                               |                                                         |                                | (662  
|Benefit of investment tax credits                     |                                                         |                                | 4,356 
|                                                      |                                                         |                                |       
|Income from continuing operations before income taxes |                                                         |                                | 14,031
|Income taxes (Note 15)                                |                                                         |                                |       
|                                                      | Current provision                                       |                                |       
|                                                      | Future income tax expense (benefit)                     |                                |       
|                                                      |                                                         |                                |       
|Net income from continuing operations                 |                                                         |                                | 12,794
|Income (loss) from discontinued operations (Note 18)  |                                                         |                                | 21    
|                                                      |                                                         |                                |       
|Net income                                            |                                                         | $                              | 12,815
|                                                      |                                                         |                                |       
|Net income (loss) per share (basic) (Note 11)         |                                                         |                                |       
|                                                      | Continuing operations                                   |                                | $     
|                                                      | Discontinued operations                                 |                                |       
|                                                      |                                                         |                                |       
|                                                      |                                                         | Net income per share (basic)   |       
|                                                      |                                                         |                                |       
|                                                      | Weighted average shares outstanding (basic) (Note 11)   |                                |       
|                                                      |                                                         |                                |       
|Net income (loss) per share (diluted) (Note 11)       |                                                         |                                |       
|                                                      | Continuing operations                                   |                                | $     
|                                                      | Discontinued operations                                 |                                |       
|                                                      |                                                         |                                |       
|                                                      |                                                         | Net income per share (diluted) |       
|                                                      |                                                         |                                |       
|                                                      | Weighted average shares outstanding (diluted) (Note 11) |                                |       
|                                                      |                                                         |                                |       

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

F-5

---



NOVATEL INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        (in thousands, Canadian dollars)

|                                                                                 |  | Common Shares (Note 11) |   |   |        |   |   |      |  
|-------------------------------------------------------------------------------- |  | ----------------------- | - | - | ------ | - | - | ---- | -
|
|
|January 1, 2002                                                                  |  | 7,683                   |   | $ | 35,596 |   | $ | 25   |  
|Common shares issued pursuant to exercise of
    stock options (Note 11)         |  | 14                      |   |   | 31     |   |   |     |  
|Repurchase of shares                                                             |  | (12                     | ) |   | (55    | ) |   | (12  | )
|Net income                                                                       |  |                        |   |   |       |   |   |     |  
|                                                                                 |  |                         |   |   |        |   |   |      |  
|December 31, 2002                                                                |  | 7,685                   |   | $ | 35,572 |   | $ | 13   |  
|Common shares issued pursuant to exercise of
    stock options (Note 11)         |  | 301                     |   |   | 1,449  |   |   |     |  
|Repurchase of shares                                                             |  | (2                      | ) |   | (9     | ) |   |     |  
|Net income                                                                       |  |                        |   |   |       |   |   |     |  
|                                                                                 |  |                         |   |   |        |   |   |      |  
|December 31, 2003                                                                |  | 7,984                   |   | $ | 37,012 |   | $ | 13   |  
|Change in accounting policy relating to
    stock-based compensation (Note 2(i)) |  |                        |   | $ | 66     |   | $ | 390  |  
|Common shares issued pursuant to exercise of
    stock options (Note 11)         |  | 276                     |   |   | 1,792  |   |   | (287 | )
|Stock based compensation (Note 2(i))                                             |  |                        |   |   |       |   |   | 326  |  
|Net income                                                                       |  |                        |   |   |       |   |   |     |  
|                                                                                 |  |                         |   |   |        |   |   |      |  
|December 31, 2004                                                                |  | 8,260                   |   | $ | 38,870 |   | $ | 442  |  
|                                                                                 |  |                         |   |   |        |   |   |      |  

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

F-6

---



NOVATEL INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands of Canadian dollars)

|                                                                     |                                                                             | Year Ended December 31,                                                             |      
|-------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | -----
|
|Operating activities:                                                |                                                                             |                                                                                     |      
|                                                                     | Net income from continuing operations                                       |                                                                                     | $    
|                                                                     | Income (loss) from discontinued operations                                  |                                                                                     |      
|                                                                     | Share offering costs (Note 13)                                              |                                                                                     |      
|                                                                     | Charges and credits to operations not involving an outlay of cash:          |                                                                                     |      
|                                                                     |                                                                             | Amortization                                                                        |      
|                                                                     |                                                                             | Loss (gain) on disposal of capital assets                                           |      
|                                                                     |                                                                             | Current income tax provision and future income tax benefit                          |      
|                                                                     |                                                                             | Benefit of investment tax credits                                                   |      
|                                                                     |                                                                             | Gain on dilution of equity interest in Mezure, Inc. (Note 18)                       |      
|                                                                     |                                                                             | Gain on liquidation of Mezure assets and liabilities (Note 18)                      |      
|                                                                     |                                                                             | Stock based compensation expense                                                    |      
|                                                                     |                                                                             | Amortization of deferred gain on sale/leaseback of capital assets                   |      
|                                                                     |                                                                             | Accretion on royalty payable to CMC related to GPS OEM product line
    acquisition |      
|                                                                     | Net change in non-cash working capital related to operations (Note 20)      |                                                                                     |      
|                                                                     |                                                                             |                                                                                     |      
|                                                                     |                                                                             | Cash provided by operating activities                                               |      
|                                                                     |                                                                             |                                                                                     |      
|Financing activities:                                                |                                                                             |                                                                                     |      
|                                                                     | Issuance of shares (Note 11)                                                |                                                                                     |      
|                                                                     | Repurchase of shares (Note 11)                                              |                                                                                     |      
|                                                                     | Equity financing of joint venture (Note 17)                                 |                                                                                     |      
|                                                                     | Related party notes receivable                                              |                                                                                     |      
|                                                                     | Notes payable                                                               |                                                                                     |      
|                                                                     | Share offering costs (Note 13)                                              |                                                                                     |      
|                                                                     | Repayment of capital lease obligations (Note 5)                             |                                                                                     |      
|                                                                     | Effect of exchange rate changes on financing activities                     |                                                                                     |      
|                                                                     |                                                                             |                                                                                     |      
|                                                                     |                                                                             | Cash provided by financing activities                                               |      
|                                                                     |                                                                             |                                                                                     |      
|                                                                     |                                                                             | Increase in cash before investing activities                                        |      
|                                                                     |                                                                             |                                                                                     |      
|Investing activities:                                                |                                                                             |                                                                                     |      
|                                                                     | Purchase of capital and intangible assets                                   |                                                                                     |      
|                                                                     | Proceeds from disposal of capital assets                                    |                                                                                     |      
|                                                                     | Purchase of short-term investments                                          |                                                                                     |      
|                                                                     | Proceeds from short-term investments                                        |                                                                                     |      
|                                                                     | Investment in Point, Inc. (Note 17)                                         |                                                                                     |      
|                                                                     | Acquisition of CMC Electronics' OEM GPS business (Note 19)                  |                                                                                     |      
|                                                                     | Royalty payment relating to CMC Electronics' OEM GPS business
    (Note 19) |                                                                                     |      
|                                                                     | Deferred development costs                                                  |                                                                                     |      
|                                                                     |                                                                             |                                                                                     |      
|                                                                     |                                                                             | Cash used in investing activities                                                   |      
|                                                                     |                                                                             |                                                                                     |      
|Increase in cash and cash equivalents                                |                                                                             |                                                                                     | 6,504
|Cash and cash equivalents beginning of year                          |                                                                             |                                                                                     | 2,445
|                                                                     |                                                                             |                                                                                     |      
|Cash and cash equivalents, end of year                               |                                                                             | $                                                                                   | 8,949
|                                                                     |                                                                             |                                                                                     |      
|Interest paid related to bank advances and capital lease obligations |                                                                             | $                                                                                   | 3    
|                                                                     |                                                                             |                                                                                     |      
|Income taxes paid                                                    |                                                                             | $                                                                                   | 71   
|                                                                     |                                                                             |                                                                                     |      

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

F-7

---





NOVATEL INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of Canadian dollars, except
per share data and unless otherwise stated)

NOTE 1  NATURE OF BUSINESS



NOTE 2  SIGNIFICANT ACCOUNTING POLICIES



a)Principles of Consolidation



b)Foreign Currency Translation



F-8

---





c)Cash and Cash Equivalents, Short Term Investments



d)Inventories



e)Capital Assets, Intangible Assets and Amortization



Computer and ancillary equipment

4 yearsResearch and development equipment

4 yearsProduction equipment

5 yearsLeasehold improvements

over term of leasesFurniture and fixtures

10 yearsProduct tooling

2 - 4 yearsPatents and other intangibles

4 - 10 years




f)Revenue Recognition



F-9

---





g)Research and Development Costs



h)Provision for Future Warranty Costs



i)Stock-based Compensation Plans



j)Hedging Relationships



k)Impairment of Long-Lived Assets



l)Asset retirement obligations



F-10

---





m)Income Taxes



n)Investment Tax Credits



o)Earnings Per Share



p)Comparative Figures



NOTE 3  ACCOUNTS RECEIVABLE

December 31, 2004

December 31, 2003Trade receivables, net

$
8,909

$
5,930Goods and Services Tax receivable


164


366Other


340


87$
9,413

$
6,383




F-11

---



NOTE 4  INVENTORIES

December 31, 2004

December 31, 2003Raw materials and components

$
2,174

$
1,948Work-in-progress


345


280Finished goods


2,672


2,554$
5,191

$
4,782




NOTE 5  CAPITAL ASSETS

|                                                   |  | December 31, 2004 |        | December 31, 2003
|-------------------------------------------------- |  | ----------------- | ------ | -----------------
|
|Computer and ancillary equipment                   |  | $                 | 3,875  |                  
|Production, research and
    development equipment |  |                   | 3,740  |                  
|Automobiles                                        |  |                   | 26     |                  
|Leasehold improvements                             |  |                   | 170    |                  
|Furniture and fixtures                             |  |                   | 1,757  |                  
|Product tooling                                    |  |                   | 1,787  |                  
|Equipment under capital lease                      |  |                   | 3      |                  
|                                                   |  |                   |        |                  
|                                                   |  | $                 | 11,358 |                  
|                                                   |  |                   |        |                  



NOTE 6  INTANGIBLE ASSETS

Intangible assets subject to amortization are as set out below:

|                                                             |                   | December 31, 2004 |       | December 31, 2003
|------------------------------------------------------------ | ----------------- | ----------------- | ----- | -----------------
|
|Patents and trademarks                                       |                   | $                 | 3,925 |                  
|Technology                                                   |                   |                   | 2,410 |                  
|Software licences                                            |                   |                   | 3,133 |                  
|Market presence of CMC Electronics'
    OEM GPS product line |                   |                   | 348   |                  
|                                                             |                   |                   |       |                  
|                                                             | Total intangibles |                   | $     | 9,816            
|                                                             |                   |                   |       |                  

F-12

---





2005

$
7742006


6882007


5382008


4762009


476


NOTE 7  DEFERRED DEVELOPMENT COSTS

December 31, 2004

December 31, 2003Deferred development costs

$
3,064

$
2,846Accumulated amortization


(705
)

(289
)$
2,359

$
2,557




NOTE 8  BANK ADVANCES



F-13

---





NOTE 9  COMMITMENTS, CONTINGENCIES AND GUARANTEES

Operating Leases2005

$
9152006


1,1472007


1,1552008


1,1482009


1,2492010 and beyond


7,843Total future minimum lease payments

$
13,457




F-14

---



NOTE 10  FINANCIAL INSTRUMENTS



NOTE 11  SHAREHOLDERS' EQUITY



F-15

---





2004

2003

2002Options

Number of Options

Weighted-Average Exercise Price

Number of Options

Weighted-Average Exercise Price

Number of Options

Weighted-Average Exercise PriceOutstanding at beginning
    of year

855

U.S.$4.42

974

U.S.$4.59

834

U.S.$5.08Granted

5

11.81

186

2.29

198

2.41Exercised

(276
)
4.41

(301
)
3.69

(13
)
1.47Forfeited

(10
)
2.28

(4
)
3.85

(45
)
4.87Outstanding at end of
    year

574

U.S.$4.51

855

U.S.$4.42

974

U.S.$4.59Options exercisable at
    end of year

313

U.S.$6.24

449

U.S.$6.35

624

U.S.$5.94




|                    |  | Options Outstanding |  | Options Exercisable
|------------------- |  | ------------------- |  | -------------------
|
|U.S.$13.16          |  | 3                   |  | 9.1 years          
|$7.50 to $11.25     |  | 228                 |  | 2.5                
|$4.00 to $4.94      |  | 4                   |  | 8.1                
|$2.25 to $3.44      |  | 284                 |  | 7.5                
|$1.38 to $2.00      |  | 55                  |  | 5.8                
|                    |  |                     |  |                    
|U.S.$1.38 to $13.16 |  | 574                 |  | 5.3                
|                    |  |                     |  |                    



|                                                     |  | Year Ended December 31,
|---------------------------------------------------- |  | -----------------------
|
|Weighted average common shares outstanding (basic)   |  | 8,063                  
|Dilutive effect of options                           |  | 437                    
|                                                     |  |                        
|Weighted average common shares outstanding (diluted) |  | 8,500                  
|                                                     |  |                        



F-16

---



NOTE 12  MAJOR CUSTOMERS, EXPORT SALES AND SUPPLIERS



Year Ended December 31,Sales by Major Customer

2004

2003

2002Customer A

$
8,631

$
2,328

$
1,844Customer B


8,150


1,946


1,261Customer C


5,684


4,631


3,151Customer D


3,333


4,219


3,431Customer E








3,781$
25,798

$
13,124

$
13,468Percentage of total revenue


48%


34%


41%




Year Ended December 31,Sales by Geographic Market

2004

2003

2002U.S.A

$
25,105

46
%
$
19,437

50
%
$
13,887

42
%Europe


13,852

26
%

7,793

20
%

5,515

17
%Asia/Australia


10,331

19
%

8,367

22
%

10,646

32
%Canada


3,044

6
%

2,753

7
%

2,681

8
%Other


1,600

3
%

334

1
%

417

1
%$
53,932

100
%
$
38,684

100
%
$
33,146

100
%




NOTE 13  SHARE OFFERING COSTS



F-17

---





NOTE 14  OTHER EXPENSE

Year Ended December 31,2004

2003

2002Employee relocation

$


$


$
(128
)Employee termination








(84
)Foreign exchange


(595
)

(527
)

(49
)Financing charge on sales by Point


(70
)

(83
)

(47
)Miscellaneous


3


(54
)

(20
)$
(662
)
$
(664
)
$
(328
)


NOTE 15  INCOME TAXES



2004

2003Future income tax assetsLoss carryforwards

$
1,650

$
3,875Scientific research deductions and credits


49,725


50,375Reserves not currently deductible for tax


1,500


1,425Capital assets


1,500


900Capital losses


150


150Deferred gain on sale of building


150


20054,675


56,925Future income tax liabilitiesIntangible assets


(275
)

(350
)Deferred development costs


(800
)

(875
)Deferred gain on hedging contracts


(50
)

(1,125
)

(1,225
)Valuation allowance


(50,361
)

(55,700
)$
3,189

$
Future income tax asset  current portion


1,286


Future income tax asset  long term portion


1,903


$
3,189

$





F-18

---





Year Ended December 31,2004

2003

2002Income from continuing operations before
    income taxes

$
14,031



$
3,152



$
2,222Statutory income tax expense

$
4,752

33.9%

$
1,169

37.1%

$
873

39.3%Adjusted for the effects of:Change in valuation allowance on tax benefit


(5,339
)



(2,377
)



(1,963
)Change in tax rates on future tax benefit


1,604




1,005




1,067Non deductible capital loss







162




Tax deductible share issue costs












(15
)Non deductible expenses and costs


166




34




38Other


(17
)








Large corporation tax


71




59




77Current provision for income tax and future
        income tax benefit

$
1,237

8.8%

$
52

1.6%

$
77

3.5%


a)Canadian Income Taxes



2009

$
1002010


5502011


1502012


7002013


9002014


9002015


800$
4,100




F-19

---





b)U.S. Income Taxes



NOTE 16  RELATED PARTY TRANSACTIONS



Year Ended December 31,2004

2003

2002Product sales to Point, Inc.

$
2,178

$
1,590

$
740Services provided to Point, Inc.


137


133


186Royalty income from Point, Inc.








54Engineering and other services charged by Point, Inc.


265


87


58Engineering services charged to Point, Inc.


309





Inventory purchases from CMC Electronics, Inc. and Point, Inc.


1,272


2,809


703Inventory sold to CMC Electronics, Inc.


85





Contracted development costs charged by CMC Electronics, Inc.


218


523


125Product sales and engineering services charged to CMC Electronics, Inc.





54


220Other charges from CMC Electronics, Inc.


318


408


162Royalties charged to CMC Electronics, Inc.


545


261


76Royalties paid to CMC Electronics, Inc.


261


82


Share offering costs charged to CMC Electronics, Inc.


748





Share offering costs charged by CMC Electronics, Inc.


55





Consulting fees charged by Dave Vaughn, after resignation as CEO in
    February 2002





38


105




F-20

---





Capital assets

$
150Intangibles


497Total investment

$
647


NOTE 17  INVESTMENT IN POINT, INC.



Year Ended December 31,2004

2003

2002Current assets

$
1,603

$
1,728

$
2,247Non-current assets


104


100


139Total assets

$
1,707

$
1,828

$
2,386Current liabilities

$
2,635

$
2,818

$
3,477Long-term liabilities








Total liabilities

$
2,635

$
2,818

$
3,477Revenues

$
5,932

$
6,097

$
4,635Gross profit

$
1,760

$
1,501

$
1,203Expenses

$
1,781

$
1,535

$
2,644Income (loss)

$
(21
)
$
(34
)
$
(1,441
)Cash provided by (used in)Operating activities

$
62

$
32

$
(1,929
)Investing activities

$
(23
)
$
(7
)
$
(48
)Financing activities

$
9

$
142

$
932Effect of exchange rate changes on financing activities

$
(118
)
$
(351
)
$
(9
)




F-21

---





NOTE 18  DISCONTINUED OPERATIONS (MEZURE, INC.)



2004

2003

2002Revenues

$


$
34

$
288Cost of sales





(1
)

(135
)Research and development expenses





(27
)

(185
)Selling and marketing expenses





(32
)

(356
)General and administration expenses


21


(112
)

(388
)Other income





119


128Gain on liquidation of assets and liabilities





379


Income (loss) from discontinued operations

$
21

$
360

$
(648
)




F-22

---





NOTE 19  ACQUISITION OF CMC ELECTRONICS' OEM GPS PRODUCT LINE



Capital assets

$
150Intangibles


497Total investment

$
647




NOTE 20  CONSOLIDATED STATEMENTS OF CASH FLOWS



Year Ended December 31,2004

2003

2002(Increase) decrease in accounts receivable and related party receivables

$
(3,480
)
$
2,876

$
(3,649
)(Increase) decrease in inventories


(409
)

(71
)

1,782Decrease (increase) decrease in prepaid expenses and deposits


89


(84
)

2Increase in accounts payable, accrued liabilities and related party payables


2,699


677


1,288Increase (decrease) in deferred revenue


443


(192
)

329Increase in provision for future warranty costs


128


66


59Net change in non-cash working capital

$
(530
)
$
3,272

$
(189
)


NOTE 21  STOCK-BASED COMPENSATION



F-23

---





Year Ended December 31,2003

2002Net income from continuing operations

As reported

$
3,100

$
2,145Pro forma

$
2,637

$
1,755Basic net income from continuing operations per share

As reported

$
0.40

$
0.28Pro forma

$
0.34

$
0.23Diluted net income from continuing operations per share

As reported

$
0.39

$
0.27Pro forma

$
0.33

$
0.22Net income

As reported

$
3,460

$
1,497Pro forma

$
2,997

$
1,107Basic net income per share

As reported

$
0.45

$
0.19Pro forma

$
0.39

$
0.14Diluted net income per share

As reported

$
0.43

$
0.19Pro forma

$
0.38

$
0.14




F-24

---





NOTE 22  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES



a)Deferred Development Costs(see Note 7)



b)Stock-Based Compensation



c)Derivatives and Hedging Activities



F-25

---





d)Investment in Joint Ventures



e)Intangibles Related to Acquisition of CMC Electronics OEM GPS Business



f)Classification of Employee Relocation and Termination Costs



F-26

---



g)Provision for Future Warranty Costs



Year Ended December 31,2004

2003

2002Opening balance, beginning of period

$
410

$
344

$
285Additions to provision


312


220


203Costs incurred


(184
)

(154
)

(144
)Ending balance, end of period

$
538

$
410

$
344


h)Comprehensive Income



i)New Canadian and U.S. GAAP Accounting Pronouncements



F-27

---





F-28

---





F-29

---





j)Summary of the Differences Between Canadian and U.S. GAAP



Year Ended December 31,2004

2003

2002Net income from continuing operationsCanadian GAAP

$
12,794

$
3,100

$
2,145Adjustments to U.S. GAAPDeferred development costs (a)


(218
)

(157
)

(125
)Amortization of deferred development costs (a)


416


196


57Stock-based compensation expense (b)


326





Amortization of intangibles acquired from CMC Electronics (e)


124


62


Net income from continuing operations  U.S. GAAP

$
13,442

$
3,201

$
2,077Net income (loss) from discontinued operations  Canadian GAAP


21


360


(648
)Adjustment to U.S. GAAPGain on liquidation of Mezure, Inc. (d)





192


Gain on dilution of equity in Mezure, Inc. (d)








(121
)Income (loss) from discontinued operations  U.S. GAAP


21


552


(769
)Net income  U.S. GAAP


13,463


3,753


1,308Net unrealised gain (loss) on foreign exchange contracts (c)


179





(48
)Reclassification to income of gains and losses on cash flow hedges





48


(1
)Comprehensive income

$
13,642

$
3,801

$
1,259


F-30

---



|
|

Year Ended
December 31,2004

2003Total AssetsCanadian GAAP

$
52,946

$
35,572Adjustments to U.S. GAAPDeferred development costs (a)


(2,359
)

(2,557
)Fair value of financial instruments (c)


179


Reduction of intangibles acquired from CMC Electronics to carrying value (e)


(306
)

(430
)U.S. GAAP

$
50,460

$
32,585Total Shareholders' EquityCanadian GAAP

$
40,093

$
25,447Adjustments to U.S. GAAPDeferred development costs (a)


(2,359
)

(2,557
)Reduction of intangibles acquired from CMC Electronics to carrying value (e)


(492
)

(492
)Amortization of intangibles acquired from CMC Electronics (e)


186


62U.S. GAAP  before other comprehensive income


37,428


22,460Accumulated other comprehensive income


179


U.S. GAAP  including accumulated other comprehensive income

$
37,607

$
22,460


k)Net Income (Loss) per Share



Year Ended December 31,Canadian GAAP

U.S. GAAPNet Income (Loss) per Share  Basic

Net Income (Loss) per Share  Basic2004

2003

2002

2004

2003

2002Continuing operations

$
1.59

$
0.40

$
0.28

$
1.67

$
0.41

$
0.27Discontinued operations





0.05


(0.09
)




0.08


(0.10
)Net income per share

$
1.59

$
0.45

$
0.19

$
1.67

$
0.49

$
0.17


|
|

Net Income (Loss) per Share  Diluted

Net Income (Loss) per Share  Diluted2004

2003

2002

2004

2003

2002Continuing operations

$
1.51

$
0.39

$
0.27

$
1.58

$
0.40

$
0.27Discontinued operations





0.04


(0.08
)




0.07


(0.10
)Net income per share

$
1.51

$
0.43

$
0.19

$
1.58

$
0.47

$
0.17


F-31

---



l)Stock-Based Compensation



Year Ended December 312004

2003

2002Net income from continuing operations  U.S. GAAP
    Less: Fair value of stock options

As reported

$
13,442
408

$
3,201
463

$
2,077
390Net income from continuing operations  U.S. GAAP

Pro forma

$
13,034

$
2,738

$
1,687Net income from continuing operations  earnings per
    share (basic)

As reported
Pro forma

$$
1.67
1.62

$$
0.41
0.35

$$
0.27
0.22Net income from continuing operations  earnings per
    share (diluted)

As reported
Pro forma

$$
1.58
1.53

$$
0.40
0.34

$$
0.27
0.22Net income  U.S. GAAP
    Less: Fair value of stock options

As reported

$
13,463
408

$
3,753
463

$
1,308
390Net income  U.S. GAAP

Pro forma

$
13,055

$
3,290

$
918Net income  earnings per share (basic)

As reported
Pro forma

$$
1.67
1.62

$$
0.49
0.43

$$
0.17
0.12Net income  earnings per share (diluted)

As reported
Pro forma

$$
1.58
1.54

$$
0.47
0.41

$$
0.17
0.12




F-32

---



m)Consolidated Statement of Cash Flows



Year Ended December 31,2004

2003

2002Cash flow provided by operations  Canadian GAAP

$
12,504

$
8,013

$
3,162Adjustments to U.S. GAAPDeferred development costs (a)


(218
)

(157
)

(125
)Royalty payment relating to CMC Electronics' OEM
    GPS business (e)


(261
)

(82
)

Cash flow provided by operations  U.S. GAAP

$
12,025

$
7,774

$
3,037Cash flow provided by financing activities  Canadian GAAP

$
598

$
1,308

$
435Adjustments to U.S. GAAP








Cash flow provided by financing activities  U.S. GAAP

$
598

$
1,308

$
435Cash used in investing activities  Canadian GAAP

$
(6,598
)
$
(8,576
)
$
(3,835
)Adjustments to U.S. GAAPDeferred development costs (a)


218


157


125Royalty payment relating to CMC Electronics' OEM
    GPS business (e)


261


82


Cash used in investing activities  U.S. GAAP

$
(6,119
)
$
(8,337
)
$
(3,710
)


n)Accounts Payable and Accrued Liabilities



Year Ended December 31,2004

2003Accounts payable and accrued trade liabilities

$
4,327

$
3,632Accrued salaries, incentive plans and other employee-related obligations


4,031


1,745Accrued dealer and agent commissions


271


137Other


519


354Total

$
9,148

$
5,868


F-33

---



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To
the Shareholders of NovAtel Inc.,

We
have audited the consolidated financial statements of NovAtel Inc. as at December 31, 2004 and 2003, and for each of the years in the three year period ended December 31, 2004,
and have issued our reports thereon dated January 28, 2005 (which audit report expresses an unqualified opinion and includes a separate report titled Comments by Independent Registered
Chartered Accountants for U.S. Readers on Canada  U.S. Reporting Differences referring to changes in accounting principles that have a material
effect on the comparability of the Company's financial statements and changes in accounting principles that have been implemented in the Company's financial statements); such financial statements and
reports are included in the 2004 Annual Report on Form 20-F. Our audits also included the financial statement schedules of NovAtel Inc. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

|/s/DELOITTE & TOUCHE LLP |  | 
|------------------------ |  | 

Deloitte & Touche LLP
Independent Registered Chartered Accountants
Calgary, Canada
January 28, 2005

---



SCHEDULE II  Valuation and Qualifying Accounts  (in thousands)

|2002                                                                |  | Balance at beginning of period |     | Additions |     | Deductions |      | Balance at end of period
|------------------------------------------------------------------- |  | ------------------------------ | --- | --------- | --- | ---------- | ---- | ------------------------
|Allowance for doubtful accounts and provision
    for sales returns |  | $                              | 676 |           | 587 |            | (186 | )                       
|Provision for future warranty costs                                 |  | $                              | 285 |           | 203 |            | (144 | )                       

|
|

|2003                                                                |  | Balance at beginning of period |       | Additions |     | Deductions |      | Balance at end of period
|------------------------------------------------------------------- |  | ------------------------------ | ----- | --------- | --- | ---------- | ---- | ------------------------
|Allowance for doubtful accounts and provision
    for sales returns |  | $                              | 1,077 |           | 430 |            | (429 | )                       
|Provision for future warranty costs                                 |  | $                              | 344   |           | 220 |            | (154 | )                       

|
|

|2004                                                                |  | Balance at beginning of period |       | Additions |     | Deductions |      | Balance at end of period
|------------------------------------------------------------------- |  | ------------------------------ | ----- | --------- | --- | ---------- | ---- | ------------------------
|Allowance for doubtful accounts and provision
    for sales returns |  | $                              | 1,078 |           | 215 |            | (86  | )                       
|Provision for future warranty costs                                 |  | $                              | 410   |           | 312 |            | (184 | )                       

---



EXHIBIT INDEX

|Exhibit Number |  | Exhibit                                                                                                                                
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Restated Articles of Incorporation of Registrant.(1)                                                                                   
|3.2            |  | Restated Bylaws of Registrant.(7)                                                                                                      
|4.1            |  | Form of Common Stock Certificate.(1)                                                                                                   
|10.1           |  | Directors Stock Option Plan.(1)                                                                                                        
|10.2           |  | Stock Option Plan with form of stock option agreement.(1)                                                                              
|10.3           |  | Form of Indemnification Agreement to be entered into between Registrant and certain directors and officers.(1)                         
|10.4           |  | Employment Agreement dated July 1, 1997 between NovAtel Inc. and Werner Gartner.(3)                                                    
|10.5           |  | Lease Agreement (Building) dated January 29, 1999 between Christian Schumacher and NovAtel Inc.(2)                                     
|10.6           |  | Agreement made effective July 20, 1999 between NovAtel Inc. and Sokkia Co., Ltd.(4)                                                    
|10.7           |  | License Agreement made effective August 1, 1999 between NovAtel Inc., Sokkia Co., Ltd. and Point, Inc.(4)                              
|10.8           |  | Operating Loan Credit Facility Letter from HSBC Bank Canada made effective November 6, 2000.(5)                                        
|10.9           |  | Amendment made effective January 26, 2001 to Operating Loan Credit Facility Letter from HSBC Bank Canada.(5)                           
|10.10          |  | Employment Agreement dated April 5, 2004 between NovAtel Inc. and Jonathan W. Ladd.(7)                                                 
|10.11          |  | Operating Line of Credit Facility Letter from The Toronto Dominion Bank dated June 5, 2002.(6)                                         
|10.12          |  | Employment Agreement dated November 20, 1996 between NovAtel Inc. and Patrick C. Fenton.(7)                                            
|*10.13         |  | Change of Control Agreement dated April 5, 2004 between NovAtel Inc. and Leica Geosystems A.G., CMC Electronics Inc., and Oncap L.P.(7)
|10.14          |  | 2004 Employee Long-term Incentive Plan.                                                                                                
|21.1           |  | List of Subsidiaries.                                                                                                                  
|23.1           |  | Consent of Deloitte & Touche LLP, Independent Registered Chartered Accountants.                                                        
|31.1           |  | Section 302 Certification of Chief Executive Officer.                                                                                  
|31.2           |  | Section 302 Certification of Chief Financial Officer.                                                                                  
|32.1           |  | Section 906 Certification of Chief Executive Officer.                                                                                  
|32.2           |  | Section 906 Certification of Chief Financial Officer.                                                                                  

---

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