Coupled with this, the inherent management and employee skills supported the move towards the energy industry. The Company worked diligently to reposition itself within the marketplace as a company, which has the appropriate experience to supply geospatial services to utilities. A corporate re-branding effort has evolved over the past year and has enabled Optimal Geomatics Inc. (Optimal) to push forward in the electric and pipeline industries with new intensity. We have been successful in separating ourselves from the development, manufacture, and sale of aerial survey technology allowing us to become a growing geomatics service and software solution provider.

As a result, 2004 was a pivotal year for Optimal, revenues for the nine months ending October 31, 2004 were $4.9 million, a significant gain since the commencement of the restructuring in 2002, when revenues for the fiscal year ended January 31, 2002 were reported as $398,580. In addition, the acquisition of our United States and the United Kingdom subsidiaries are proving to be a positive investment for the company.

Achievements for the Nine month fiscal year 2004:

· Established seven new customers: Balfour Beatty, Central Networks, Duke Power, Kansas Gas Service, Texas Gas, and Southern Maryland Electric Cooperative

· Maintained strong relationships with seven current customers: Conectiv, Dominion East Ohio, Oklahoma Natural Gas, East Kentucky Power Coop, TXU, Xcel Energy, and United Utilities

· Converted and redeemed debentures into common stock at a price of $0.29 per share

· Strengthen management team

· Received Supplemental Type Certificate (STC) in Canada for Proprietary Acquisition Technology

· Hosted Gas Pipeline Symposium for regulators and regulated within the pipeline utilities

· Completed private placement of $1.4 million at $0.21

Company Initiatives

During 2004, the Company expanded its vertical market penetration to the natural gas pipeline market, a large industry opportunity in the United States for Optimal. The services we have performed for pipeline companies include: mapping and surveying services of gas linear transmission corridors, and dealing with industry safety and security issues.

Optimal continues to develop its presence in new markets such as gas class location and vegetation management and is committed to improve delivery, reduce cost, and increase customer satisfaction.

The reorganized UK subsidiary focuses its business activities to reflect the Optimal core geomatics services and software solutions and has contributed $1.8 million to the group revenues for the nine months ended October 31, 2004.

Financial Overview

Geomatics revenues for the nine month period ending October 31, 2004 were $4.9 million. This represents an increase in geomatics revenues of $1.3 million over the twelve month period to January 31, 2004 where geomatics revenues accounted for $3.6 million of the total revenues. The non-geomatics business was discontinued in July 2003. Comparing the revenues of the nine month fiscal period to the prorated annual geomatics revenues from last fiscal year shows an adjusted growth of 80%.

The revenues achieved represent services to electric and gas utility customers in United States and electric customers in the United Kingdom, which stem from fresh marketing efforts. The substantial increase largely reflects our success in repositioning Optimal in the market place as a provider of geomatics and software solutions. The benefits of the reorganization are also reflected in significant cost and overhead savings.

Optimal’s long-term debt was completely eliminated with the conversion and redemption of the debentures this year; in our fiscal report dated January 31, 2004 we reported a long-term debt figure of $1,748,567.

As we anticipated at the time of the decision to re-engineer in 2002, the Company would sustain losses for a two-year period. These losses reflect the acquisitions, restructuring, change of management and transformation of the company’s business model. The company is looking forward to the end of the next fiscal period and a reversal of its fortunes that will be directly reflected in our operational results. It should be noted that the Company’s financial results could be affected by the timing, duration, and product delivery requirements of customer contracts.

Market

Over the last two years Optimal has clearly identified the linear corridor management market as a significant opportunity for growth within the energy industry.

The United States Department of Labor has identified the geospatial sector as one of the three largest growing job markets for the next decade. Coupled with this is the fact that the electric and pipeline utility markets offer strong growth opportunities for Optimal. Substantial business development efforts have been made in the past year resulting in new business wins in the short term and have also laid the foundation for ongoing business relations moving forward into 2005 and 2006.

An aging infrastructure and the rising rate of unexpected natural disasters have caused the 3,500 electric utility companies in the United States to increase their financial budgets for right-of-way maintenance programs. In 2002, electric utility companies spent between US$7-10 billion on vegetation management in the United States.

The pipeline utility market has undergone dramatic change over the last 10 years. The deregulations of this market and the rigid new regulatory laws have had a significant impact and brought pipeline inspection and safety to the forefront of the industry. There are over 300 pipeline utilities across the United States affected by the new regulatory compliance standards. All gas companies must comply with the integrity testing and planning regulations, which will cost an estimated US$3.2 billion over the next 18 years.

Products & Services for the Energy Sector

Optimal continues to develop and offer electric and pipeline utilities innovative technologies and techniques for the management and maintenance of their right-of-ways and network integrity.

In the United States and United Kingdom electric sector we offer a range of products covering asset management, maintenance services, inventory and vegetation risk assessment, as well as survey for design. In the United States, Optimal has a growing service offering for pipeline asset management, which currently includes facility mapping, class location studies, impact zone, and blast calculations.

Optimal believes its current mapping technologies and data processing expertise are likely to be applicable to other linear transmission markets. Potential markets are likely to be those that have linear right of ways, however, the company remains focused on growing within our current markets and establishing substantial share in the business sector.

Government Regulations

The Company has successfully attained the appropriate regulatory approval from Transport Canada, receiving our Supplemental type Certification and is actively engaged with regulatory agencies in the USA (Federal Aviation Association) and UK (Civil Aviation Authority) for the equivalent certification. The certification is necessary for us to be allowed to use our proprietary technology within specific countries where certification has been achieved. We anticipate receiving these certifications through 2005 and 2006.

Outlook

To maintain the momentum in the organization, a clear set of goals for the fiscal year ending October 31, 2005 has been established:

· Revenue Target of $9-10million

· Fulfill the TSX listing requirements

· Recruit a Chief Financial Officer

· Appoint additional independent directors to the Board

In addition, operations will be built out to ensure that a significant amount of the current contract wins are delivered by the end of the next fiscal year and the remainder by Q1 2006. The sales team will be strengthened with additional recruitment in North America. This is of particular importance for 2006, as the utility industry has a relatively long sales cycle. The company will also focus on key business partnering opportunities with data acquisition providers.

In conclusion, 2004 has been a breakthrough year for our company and we believe that Optimal Geomatics has a bright future ahead. The team is highly motivated and excited with the prospects ahead of us under this new environment. We will continue to seek out partners and business relationships to help maximize margins and explore new initiatives. We believe that our recent endeavors will help the company push into new markets and give us the ability to leverage our business relationships to build an expanding customer base and allow us to be a leader in our industry.

I want to thank our employees and their families, the Board and our advisors for their contribution, dedication, and commitment over the last year.

Optimal Geomatics has accomplished a great deal during this period and we could not have done it without the phenomenal effort put forward by the whole team. I also want to thank our shareholders who have come along with us, shared the vision, and invested in the Company to assist in this re-engineering process to make the future of the Company successful. I am confident that Optimal Geomatics is well positioned to carry out our plan to become the first choice provider of geomatics service and software solutions to the electric and pipeline utility industries.

On behalf of the Board,

"Colum Caldwell" (signed)

Colum Caldwell,
President and Chief Executive Officer
info@optimalgeo.com