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

FORM 6-K

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934

For the month of May 2004

(Commission File No. 0-30718)

SIERRA WIRELESS, INC., A CANADA CORPORATION
(Translation of registrant's name in English)

13811 Wireless Way
Richmond, British Columbia, Canada V6V 3A4
(Address of principal executive offices and zip code)

Registrant's Telephone Number, including area code: 604-231-1100

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:

Form 20-F o Form 40-F ý

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes o No ý

SIERRA WIRELESS, INC.

FIRST QUARTER REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2004
US GAAP

2

SIERRA WIRELESS, INC.

CHAIRMAN'S MESSAGE

TO OUR SHAREHOLDERS

        The first quarter of 2004 was the strongest in our history, with revenue of $41.6 million, net earnings of $4.6 million, and positive cash flow from operations. Our results represent our seventh consecutive quarter of profitable growth and positive cash flow.

Results for Q1 2004 Compared to Q1 2003

        For the three months ended March 31, 2004, our revenues increased by 107% to $41.6 million, from $20.1 million in the first quarter of 2003. The increase reflects growing demand for our PC Card, Embedded Module and Mobile product lines, with notable strength in North American markets.

        Our gross margin also increased in the first quarter, climbing to $16.8 million, or 40.3% of revenue, from $7.9 million, or 39.4% of revenue, in the comparable period in 2003. This improvement primarily reflects an increase in volume, changes in our product mix and lower product costs.

        Operating expenses for the first quarter of 2004 were $11.6 million. First quarter operating expenses were $12.9 million, excluding $1.1 million of funding from Technology Partnerships Canada ("TPC") relating to 2003 and an additional Metricom recovery of $0.2 million. This compares to $7.6 million during the first three months of 2003. The increase in operating expenses reflects our acquisition of AirPrime, which was completed in August 2003, as well as costs related to the development of new products including EDGE products and the Voq professional phone.

        Net earnings for the first quarter were $4.6 million, or diluted earnings per share of $0.18. Excluding the TPC funding and Metricom recovery, net earnings were $3.3 million, or diluted earnings per share of $0.13, compared to net earnings of $0.4 million, or diluted earnings per share of $0.02, during the first three months of 2003. Earnings results for the first quarter of 2004 also include a foreign exchange loss of approximately $0.3 million.

Q1 2004 Results Compared to Guidance

        First quarter revenues of $41.6 million were consistent with our upward-revised guidance of revenues greater than $40 million, while our net earnings of $4.6 million, or diluted earnings per share of $0.18, exceeded our revised guidance of net earnings greater than $3.0 million, or diluted earnings per share of greater than $0.12. At positive $5.3 million, our cash flow from operations was consistent with our revised guidance of significantly positive cash flow.

Business Developments

        First quarter highlights included a number of business and corporate developments:

Progress on Products for CDMA 2000 Networks and Channels:

•

Our Sierra Wireless MP 555 GPS rugged wireless modem was certified by Sprint for operation on the enhanced Sprint Nationwide PCS Network. We will work with Sprint to market and sell the MP 555 GPS in-vehicle mobile solution, primarily targeting public safety and utility departments.



•

We added the Sierra Wireless AirCard® 555R to our product line for the China market. Operating on CDMA 1X networks, the AirCard 555R will provide mobile professionals with wireless data access, and will be distributed by Beijing Putian Taili Telecom.



•

We provided next generation wireless technology to the Harris County Sheriff's Office in Texas, outfitting approximately 600 patrol vehicles and 300 detectives with a high-speed mobile solution powered by the Sierra Wireless AirCard 555.

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•

Verizon Wireless, Citrix Systems, Inc., and Zumasys, Inc., announced that Continental Laboratory Products is the first customer to roll out a mobile access solution combining Citrix® MetaFrame® Presentation Server and Verizon Wireless' BroadbandAccess high-speed wireless service. Currently available in San Diego and Washington D.C., Verizon Wireless plans to make BroadbandAccess service available throughout additional portions of its network beginning later this year.

Progress on Products for GSM/GPRS/EDGE Networks and Channels:

•

We announced the commercial availability of the Sierra Wireless AirCard 750 for O2 customers in the United Kingdom. This best in class PC Card offers the highest GPRS throughput on the market today and a superior network interface for fast and reliable mobile computing.



•

Together with Analog Devices, Inc. (ADI) and TTPCom, we announced that we will bring wireless EDGE (Emerging Data rates for Global Evolution) capabilities to laptop computers and personal digital assistants. We have selected ADI's Blackfin SoftFone for EDGE Platform and TTPCom's protocol stack software, to power our new Sierra Wireless AirCard 775 PC Card for the EDGE network.



•

We selected QUALCOMM's MSM6250™ Mobile Station Modem™ (MSM™) chipset and system software for our multimode third-generation (3G) wireless products. With the MSM6250 chipset, products are under development that we expect will provide the WCDMA (UMTS) market with a high-quality, high-speed wireless connectivity solution using a proven chipset technology.



•

We announced the introduction of the Sierra Wireless AirCard 775 PC Card and the Sierra Wireless MP 775 GPS modem for EDGE networks. The AirCard 775 wireless wide area network (WWAN) card will provide mobile users with faster data rates, reaching speeds up to three times faster than that provided by GPRS networks. The MP 775 GPS rugged vehicle-mount modem provides similar high-speed connectivity, and will operate over EDGE and GSM/GPRS networks. The AirCard 775 and MP 775 are expected to be commercially available in the second half of 2004.



•

We announced the availability of an upgrade program for current Sierra Wireless MP 750 GPS rugged wireless modem customers to the next generation Sierra Wireless MP 775 GPS modem for use on the AT&T Wireless EDGE network. Built for demanding environments and worldwide connectivity, the MP 775 GPS rugged wireless modem provides an in-vehicle mobile solution with data transmission speeds averaging between 100-130 kbps, up to three times faster than currently available with GPRS. The product upgrade is expected to be available for $399 in the third quarter of 2004.

Progress on the Voq Professional Phone™:

•

Our new Voq Professional Phone, a pocketable Microsoft Windows Mobile™-based SmartPhone, is expected to be commercially available in selected countries in the second quarter of 2004.



•

We signed an agreement with KPN to launch and sell the Voq Professional Phone and the VoqMail Professional Edition product to customers in the Netherlands.



•

We signed an agreement with THBBury to provide industry leading car accessories for the new Voq Professional Phone through THBBury distribution channels in Europe and North America.



•

We announced agreements with key European distributors to sell the Voq Professional Phone and the VoqMail Professional Edition to customers in Austria, Belgium, Germany, Holland, Italy, Luxemburg, the Nordics, Switzerland, and Spain.

Corporate Developments:

•

In March we announced the appointment of David McLennan as our Chief Financial Officer. David will assume overall responsibility for the financial management of the company, and for directing the financial, planning, administrative support and investor relations functions of the business. He brings us strong financial, management and leadership skills gained at the BCE Group of companies. David succeeds Peter Roberts, who retired as our CFO at the end of March.

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Outlook

        We are very pleased with our first quarter results and anticipate continued progress in 2004. Enterprise spending on wireless communications is increasing in step with improving economies, and we are experiencing strong product sales. We believe the emergence of next generation networks such as EDGE and EV-DO will continue to drive adoption of wireless data. Our business operating premise remains profitable growth.

/s/  DAVID B. SUTCLIFFE David B. Sutcliffe
Chairman and Chief Executive Officer

        This report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, plans and timing for the introduction or enhancement of our services and products, statements about future market conditions, supply and demand conditions, channel inventory and sell through, revenue, gross margin, operating expenses, profits, and other expectations, intentions and plans contained in this report that are not historical fact. Our expectations regarding future revenues depend upon our ability to develop, manufacture and supply products that we do not produce today and that meet defined specifications, as well as our ability to bring the Voq professional phone to market. When used in this report, the words "plan", "expect", "believe", and similar expressions generally identify forward-looking statements. These statements reflect our current expectations. They are subject to a number of risks and uncertainties, including, but not limited to, changes in technology and changes in the wireless data communications market. In light of the many risks and uncertainties surrounding the wireless data communications market, you should understand that we cannot assure you that the forward-looking statements contained in this report will be realized.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our consolidated financial condition and results of operations, as of April 15, 2004, has been prepared in accordance with United States generally accepted accounting principles (GAAP) and, except where otherwise specifically indicated, all amounts are expressed in United States dollars.

Additional information related to Sierra Wireless, Inc., including our Annual Information Form, may be found on SEDAR at www.sedar.com.

Overview

        We provide highly differentiated wireless solutions worldwide. We develop and market a broad range of products that include wireless data modems for portable computers, embedded modules for original equipment manufacturers, or OEMs, rugged vehicle-mounted modems and mobile phones. Our products permit users to access wireless data and voice networks using notebook computers, personal digital assistants, or PDAs, vehicle-based systems and mobile phones.

        Wireless data communications is an expanding market positioned at the convergence of wireless communications, portable computing and the Internet, each of which we believe represents a growing market. Our products are based on open standards, including the Internet protocol, and operate on the networks of major wireless communications service providers.

        Our products are primarily used by businesses and government organizations to enable their employees access to a wide range of wireless data applications including Internet access, e-mail, messaging, corporate intranet access, remote database inquiry and computer aided dispatch. We sell our products directly to end-users and through indirect channels, including wireless operators, resellers and OEMs.

        Beginning in fiscal 2001, there was a slowdown in enterprise spending and an overall economic slowdown that impacted our business. The trend intensified during fiscal 2002 and continued into fiscal 2003. Reasons for the market deterioration included a general economic slowdown, customer bankruptcies, network build-out delays and limited availability of capital. During the latter part of 2003 and the first quarter of 2004, we experienced stronger than expected demand.

        During the first quarter of 2004, our revenue increased 106.6% to $41.6 million, compared to $20.1 million in the first quarter of 2003. Our revenue from customers in the Americas, Europe and the Asia-Pacific region comprised 91%, 5% and 4%, respectively, of our total revenue in the first quarter of 2004 and 61%, 16% and 23%, respectively, in the same period of 2003. Our North American business has shifted from long-term, large volume commitments by carriers to faster book/ship cycles driven by customer demand on channels. This shift lowers our dependence on carriers and is the status quo for our business in Europe and in the Asia-Pacific region.

        Operating expenses were $11.6 million in the first quarter of 2004 and increased from $7.6 million in the prior year due primarily to the acquisition of AirPrime, Inc., which was completed in August 2003, and costs related to the development of new products, including EDGE and the Voq professional phone. Included in our operating expenses is conditionally repayable research and development funding of $1.4 million, of which $1.1 million is related to the period April 1, 2003 to December 31, 2003. We also received an additional recovery from Metricom of $0.2 million that has been recorded as a reduction of administration expense.

        Net earnings were $4.6 million in the first quarter of 2004, compared to $0.3 million in the same period of 2003. Our net earnings were $3.3 million in the first quarter of 2004, excluding the conditionally repayable government funding of $1.1 million and the additional recovery from Metricom of $0.2 million. Our improvement in net earnings was attributable to the increase in revenue, strong margins and operating cost control.

        Our balance sheet remains strong, with $115.3 million of cash and short and long-term investments, compared to $109.7 million at December 31, 2003. During the first quarter of 2004, we generated $5.3 million in cash from operations, compared to $3.9 million in the same period of 2003.

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Results of Operations

        The following table sets forth our operating results for the three months ended March 31, 2004, expressed as a percentage of revenue:

		Three months ended March 31,
		2004		2003
Revenue		100.0	%	100.0	%
Cost of goods sold		59.7		60.6
Gross margin		40.3		39.4
Expenses
	Sales and marketing	10.0		13.5
	Research and development, net	11.4		13.7
	Administration	4.9		8.0
	Amortization	1.5		2.7
		27.8		37.9
Earnings from operations		12.5		1.5
Other income		0.2		0.5
Net income before income taxes		12.7		2.0
Income tax expense		1.7		0.2
Net income		11.0	%	1.8	%

        Our revenue by product, by distribution channel and by geographical region is as follows:

		Three months ended March 31,
		2004		2003
Revenue by product
	PC card	49	%	80	%
	OEM	43		11
	Mobile	6		7
	Other	2		2
		100	%	100	%
Revenue by distribution channel
	Wireless carriers	33	%	48	%
	OEM	44		15
	Resellers	23		36
	Direct and other	—		1
		100	%	100	%
Revenue by geographical region
	Americas	91	%	61	%
	Europe	5		16
	Asia-Pacific	4		23
		100	%	100	%

7

Results of Operations — Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

Revenue

        Revenue amounted to $41.6 million for the three months ended March 31, 2004, compared to $20.1 million in the same period of 2003, an increase of 106.6%. Included in our revenue was research and development funding of $0.2 million, compared to nil in 2003. The increase in revenue was due primarily to an increase in sales of our 2.5G PC card and OEM products, including sales of products formerly sold by AirPrime. During the first quarter of 2004, we also commenced commercial shipment of the Sierra Wireless AirCard 580.

Gross margin

        Gross margin amounted to $16.8 million in the first quarter of 2004, compared to $7.9 million in the first quarter of 2003. Included in our gross margin was research and development funding of $0.2 million in 2004, compared to nil in 2003. Our gross margin percentage was 40.3% of revenue for the three months ended March 31, 2004, compared to 39.4% of revenue for the three months ended March 31, 2003. Our margin increased compared to the same period in 2003 due to strong PC card margins that offset the impact of OEM products that yield lower margins than our PC card and MP products. During the first quarter of 2004, we sold $0.1 million of products that had a net book value after writedowns of nil.

        We expect our gross margin to fluctuate moderately from quarter to quarter as a result of changes in product mix, changes in geographical mix and changes in product cost due to new product introductions.

Sales and marketing

        Sales and marketing expenses were $4.2 million in the first quarter of 2004, compared to $2.7 million in the same period of 2003. The increase is due primarily to the addition of staff from the AirPrime acquisition and marketing costs related to the Voq professional phone. Sales and marketing expenses as a percentage of revenue decreased to 10.0% in 2004, compared to 13.5% in 2003. This decrease was due primarily to an increase in revenue. We expect to continue to make significant and increased investments in sales and marketing as we introduce new products and continue to expand our distribution channels in Europe and the Asia-Pacific region.

Research and development, net

        Research and development expenses, net of conditionally repayable government research and development funding, amounted to $4.7 million in the first quarter of 2004, compared to $2.7 million in the first quarter of 2003, an increase of 72.4%.

        Gross research and development expenses, before government research and development funding, were $6.2 million or 14.8% of revenue in the first quarter of 2004, compared to $3.1 million or 15.2% of revenue in 2003. Gross research and development expenses increased due to the addition of staff and projects from the AirPrime acquisition and the development of new products, including EDGE and the Voq professional phone. We expect our gross research and development expenses to continue to increase as we invest in next generation technology and develop new products.

        In the first quarter of 2004, we signed a second agreement with the Government of Canada's Technology Partnerships Canada ("TPC") program under which we are eligible to receive conditionally repayable research and development funding up to Cdn. $9,540 to support the development of a range of third generation wireless technologies. The agreement is effective for development work commencing April 2003. Funding of $1.4 million was recognized in the first quarter of 2004, of which $1.1 million relates to the period from April 1, 2003 to December 31, 2003.

        We expect that our TPC funding will decrease from Q1 2004 as funding will be based on research and development work completed in each quarter.

8

Administration

        Administration expenses amounted to $2.1 million, or 4.9% of revenue, in the first quarter of 2004, compared to $1.6 million, or 8.0% of revenue, in the same period of 2003. The increase is due primarily to an increase in insurance costs and the addition of staff from the AirPrime acquisition partially offset by an additional recovery from Metricom of $0.2 million.

Income tax expense

        Income tax expense amounted to $0.7 million for the three months ended March 31, 2004, compared to nil for the three months ended March 31, 2003. Income tax expense has increased primarily due to our increase in net earnings before tax.

Net earnings

        Our net earnings amounted to $4.6 million, or diluted earnings per share of $0.18, in the first quarter of 2004, compared to net earnings of $0.4 million, or diluted earnings per share of $0.02, in the same period of 2003. Excluding the TPC funding of $1.1 million related to the 2003 period and the Metricom recovery of $0.2 million, our net earnings for the first quarter of 2004 were $3.3 million, or diluted earnings per share of $0.13.

        The weighted average number of shares outstanding increased to 26.0 million in 2004 due to the issuance of shares in August 2003 related to the AirPrime acquisition and to our secondary public offering in November 2003, as compared to 16.7 million in 2003.

Contingent Liabilities

        During 2002, we executed a settlement agreement with Metricom, one of our U.S. customers, in a Chapter 11 reorganization under U.S. bankruptcy laws, under which all claims and counterclaims were settled for $10.3 million. We received the amount of $1.8 million that has been included in our net loss for 2002. We also received additional recoveries of $0.3 million and $0.2 million that have been included in our second and third quarter net earnings, respectively, for 2003 and $0.2 million that has been included in our first quarter net earnings for 2004.

        Under license agreements, we are committed to royalty payments based on the sales of products using certain technologies. We recognize royalty obligations as determinable in accordance with agreement terms. Where agreements are not finalized, we have recognized our current best estimate of the obligation. When the agreements are finalized, the estimate will be revised accordingly.

        We are engaged in other legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.

Critical Accounting Policies

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, and we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, adequacy of allowance for doubtful accounts, adequacy of inventory reserve, income taxes and adequacy of warranty reserve. We base our estimates on historical experience and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates. Senior management has discussed with our audit committee the development, selection, and disclosure of accounting estimates used in the preparation of our consolidated financial statements.

        During the quarter ended March 31, 2004, we did not adopt any new accounting policies that have a material impact on our consolidated financial statements or make changes to existing accounting policies.

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        The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements:

•

We recognize revenue from sales of products and services upon the later of transfer of title or upon shipment of the product to the customer or rendering of the service, so long as collectibility is reasonably assured. Customers include resellers, original equipment manufacturers, wireless service providers and end-users. We record deferred revenue when we receive cash in advance of the revenue recognition criteria being met.

A significant portion of our revenue is generated from sales to resellers. We recognize revenue on the portion of sales to certain resellers that are subject to provisions allowing various rights of return and stock rotation when the rights have expired or the products have been reported as sold by the resellers.

Funding from research and development agreements, other than government research and development arrangements, is recognized as revenue when certain criteria stipulated under the terms of those funding agreements have been met, and when there is reasonable assurance the funding will be received. Certain research and development funding will be repayable only on the occurrence of specified future events. If such events do not occur, no repayment would be required. We will recognize the liability to repay research and development funding in the period in which conditions arise that would cause research and development funding to be repayable.

•

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. We consider the following factors when determining if collection is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. If we have no previous experience with the customer, we typically obtain reports from credit organizations to ensure that the customer has a history of paying its creditors. We may also request financial information, including financial statements, to ensure that the customer has the means of making payment. If these factors indicate collection is not reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash. If the financial condition of any of our customers deteriorates, we may increase our allowance.



•

We value our inventory at the lower of cost, determined on a first-in-first-out basis, and estimated net realizable value. We assess the need for an inventory writedown based on our assessment of estimated market value using assumptions about future demand and market conditions. Our reserve requirements generally increase as our projected demand requirements decrease, due to market conditions, technological and product life cycle changes and longer than previously expected usage periods. If market conditions are worse than our projections, we may further writedown the value of our inventory.



•

We currently have intangible assets of $35.4 million, including goodwill of $20.0 million generated from our acquisition of AirPrime in August 2003. Goodwill is tested for impairment annually, or more often, if an event or circumstance indicates that an impairment loss has been incurred.

The initial goodwill impairment test was completed during the fourth quarter of 2003, which resulted in no impairment loss. We assessed the realizability of goodwill related to our reporting unit during the fourth quarter and determined that its fair value did not have to be re-computed because the components of the reporting unit had not changed since the fair value computation completed at August 12, 2003, the date of acquisition, the previous fair value amount exceeded the carrying amount of the reporting unit by a substantial margin, and no evidence exists to indicate that the current fair value of the reporting unit would be less than its current carrying amount.

•

We evaluate our deferred income tax assets to assess whether their realization is more likely than not. If their realization is not considered more likely than not, we provide for a valuation allowance. The ultimate realization of our deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. We consider projected future taxable income and tax planning strategies in making our assessment. If we determine that we would not be able to realize our deferred tax assets, we may make an adjustment to our deferred tax assets which would be charged to income.



•

We accrue product warranty costs in accrued liabilities to provide for the repair or replacement of defective products. Our accrual is based on an assessment of historical experience and management's estimates. If we suffer a decrease in the quality of our products, we may increase our accrual.

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•

Under license agreements, we are committed to royalty payments based on the sales of products using certain technologies. We recognize royalty obligations as determinable in accordance with agreement terms. Where agreements are not finalized, we have recognized our current best estimate of the obligation in accrued liabilities. When the agreements are finalized, the estimate will be revised accordingly.



•

We recorded a lease provision during 2002 as a result of our restructuring program by estimating the net present value of the future cash outflows over the remaining lease period. The estimate was based on various assumptions including the obtainable sublease rates and the time it will take to find a suitable tenant. These assumptions are influenced by market conditions and the availability of similar space nearby. If market conditions change, we will adjust our provision.



•

We are engaged in other legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position. We estimate the range of liability related to pending litigation where the amount and range of loss can be reasonably estimated. We record our best estimate of a loss when the loss is considered probable. As additional information becomes available, we assess the potential liability relating to our pending litigation and revise our estimates.

Liquidity and Capital Resources

Operating Activities

        Cash provided by operating activities amounted to $5.3 million for the first quarter of 2004, compared to cash provided by operating activities of $3.9 million in the same period of 2003, an improvement of $1.4 million. The source of cash in 2004 primarily resulted from earnings from operations of $4.6 million adjusted for non-cash items, inventory levels and changes in other operating assets and liabilities of $0.7 million. Our working capital has not changed significantly from December 31, 2003. Generally, our working capital requirements will increase or decrease with quarterly revenue levels.

Investing Activities

        Cash used by investing activities was $15.9 million in the first three months of 2004, compared to cash used by investing activities of $0.7 million during the same period in 2003. The use of cash in 2004 was due primarily to the net investment of cash of $13.1 million in 2004. Expenditures on intangible assets were $1.2 million in 2004, compared to $0.6 million in 2003, and were primarily for license fees and patents. Capital expenditures were $1.5 million in 2004, compared to $0.1 million in 2003, and were primarily for tooling, research and development equipment and software.

        We do not have any trading activities that involve any type of commodity contracts that are accounted for at fair value but for which a lack of market price quotations necessitate the use of fair value estimation techniques.

Financing Activities

        Cash provided by financing activities was $2.8 million in the first quarter of 2004, compared to a use of cash of $0.4 million during the same period in 2003, an increase of $2.4 million. The source of cash in 2004 was primarily from the issuance of common shares upon the exercise of stock options, offset slightly by repayments of our long-term obligations.

        As of March 31, 2004, we did not have any off-balance sheet finance or special purpose entities.

Cash Requirements

        We expect our operations will generate positive net cash during fiscal 2004. We also expect that lower cash requirements for restructuring activities and the effect of previous cost reduction actions, offset by the additional working capital impact of the AirPrime acquisition will contribute to positive cash flow from operations for 2004.

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        Our near-term cash requirements are primarily related to funding our operations, capital expenditures and other obligations discussed below. We believe our cash and cash equivalents of $62.6 million, short-term investments of $20.4 million and long-term investments of $32.3 million as of March 31, 2004 and cash generated from operations will be sufficient to fund our expected working and other capital requirements for the next twelve months based on current business plans. Our capital expenditures during 2004 are expected to be primarily for research and development equipment, tooling, licenses and patents. However, we cannot provide assurance that our actual cash requirements will not be greater than we currently expect.

        The following table quantifies our future contractual obligations as of March 31, 2004:

Payments due in fiscal	Operating Leases		Obligations under Capital Leases		Total
2004	$	2,702	$	87	$	2,789
2005		2,522		—		2,522
2006		2,559		—		2,559
2007		2,629		—		2,629
2008		2,643		—		2,643
Thereafter		5,144		—		5,144
Total	$	18,199	$	87	$	18,286

        We have entered into purchase commitments totaling $32.4 million with certain contract manufacturers under which we commit to buy a minimum amount of designated products. In certain of these agreements, we may be required to acquire and pay for such products up to the prescribed minimum or forecasted purchases. The terms of the commitment require us to purchase $32.4 million of product from certain contract manufacturers between April 2004 and July 2004.

Sources and Uses of Cash

        In November 2003, we completed a new issue and secondary public offering in the United States and Canada. Our net proceeds after selling commissions and expenses of the offering amounted to approximately $67.4 million. The net proceeds from the offering are to be used for product development, working capital and general corporate purposes, including acquisitions.

        We expect the proceeds from the November 2003 financing and our expected future operating cash flow will continue to fund our operations.

        One of our significant sources of funds is expected to be our future operating cash flow. In the past, our revenue was dependent on us fulfilling our commitments in accordance with agreements with major customers. We have completed volume shipments on those contracts. Therefore, in the future, we will rely on purchase orders with these customers and these customers, like our other customers, will be under no contractual obligation to purchase our products. If they do not make such purchases, our revenue will be negatively impacted. We have a risk of impairment to our liquidity should there be any interruption to our business operations.

        The source of funds for our future capital expenditures and commitments is cash, short and long-term investments, accounts receivable, research and development funding, borrowings and cash from operations, as follows:

•

Net cash and short-term investments amounted to $83.0 million at March 31, 2004 compared to $85.1 million at December 31, 2003.



•

Long-term investments amounted to $32.3 million at March 31, 2004 compared to $24.6 million at December 31, 2003.



•

Accounts receivable amounted to $22.6 million at March 31, 2004 compared to $21.6 million at December 31, 2003.



•

We have a $10.0 million operating line of credit with a Canadian chartered bank. The credit facility bears interest at prime plus 1.25% and is secured by a general security agreement providing a first charge against all assets. At March 31, 2004, there were no borrowings under this line of credit.

12

Market Risk Disclosure

        During the first quarter ended March 31, 2004, 86% of our revenue was earned from United States-based customers compared to 61% in the first quarter ended March 31, 2003. Our risk from currency fluctuations between the Canadian and U.S. dollar is reduced by purchasing inventory, other costs of sales and many of our services in U.S. dollars. We are exposed to foreign currency fluctuations since the majority of our research and development, sales and marketing, and administration costs are incurred in Canada. We monitor our exposure to fluctuations between the Canadian and U.S. dollars. As a result of the adoption of U.S. dollars as our currency of measurement in the year ended December 31, 1999, our foreign currency risk has changed from U.S. dollar denominated monetary assets and liabilities to non-U.S. dollar denominated monetary assets and liabilities and the risk of the impact of exchange rate changes relative to the U.S. dollar. For the three months ended March 31, 2004, we have recorded a foreign exchange loss of approximately $0.3 million. As we have available funds and very little debt, we have not been adversely affected by significant interest rate fluctuations.

        With our international expansion into Europe and the Asia-Pacific region, we are transacting business in additional foreign currencies and the potential for currency fluctuations is increasing. The risk associated with currency fluctuations between the U.S. dollar and foreign currencies in Europe and the Asia-Pacific region has been minimal as such transactions have not been material to date. We expect that, as our business expands in Europe, we will also continue to be exposed to Euro transactions. To date we have not entered into any futures contracts. To manage our foreign currency risks, we may enter into such contracts should we consider it to be advisable to reduce our exposure to future foreign exchange fluctuations.

        Currently, we do not have any hedging activities or derivative instruments, therefore the impact of FAS No. 133 is not material to our financial results.

Related Party Transactions

        During the three months ended March 31, 2004, there were no material related party transactions.

Quarterly Results of Operations

        The following tables set forth certain unaudited consolidated statements of operations data for each of the eight most recent quarters that, in management's opinion, have been prepared on a basis consistent with the audited consolidated financial statements contained in our fiscal 2003 Annual Report. The unaudited consolidated statements of operations data presented below reflects all adjustments, consisting primarily of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods. These operating results are not necessarily indicative of results for any future period. You should not rely on them to predict our future performance.

13

		Quarter Ended
2003
		March 31		June 30		Sept. 30			Dec. 31		Year 2003
Revenue		$	20,150	$	20,736	$	26,250		$	34,573	$	101,709
Cost of goods sold			12,210		12,405		15,566			20,370		60,551
Gross margin			7,940		8,331		10,684			14,203		41,158
Expenses:
	Sales and marketing		2,729		2,590		2,653			3,613		11,585
	Research and development, net		2,749		2,947		4,677			5,621		15,994
	Administration		1,617		1,451		1,331			2,198		6,597
	Restructuring and other charges		—		—		1,220			—		1,220
	Integration costs		—		—		1,026			921		1,947
	Amortization		553		546		590			638		2,327
			7,648		7,534		11,497			12,991		39,670
Earnings (loss) from operations			292		797		(813	)		1,212		1,488
Other income (expense)			104		167		(74	)		768		965
Earnings (loss) before income taxes			396		964		(887	)		1,980		2,453
Income tax expense			35		54		54			55		198
Net earnings (loss)		$	361	$	910	$	(941	)	$	1,925	$	2,255
Earnings (loss) per share:
	Basic	$	0.02	$	0.06	$	(0.05	)	$	0.09	$	0.12
	Diluted	$	0.02	$	0.05	$	(0.05	)	$	0.08	$	0.12
Weighted average number of shares (in thousands):
	Basic		16,355		16,375		18,409			22,563		18,442
	Diluted		16,718		16,754		18,409			23,383		18,989

		Quarter Ended
2002
		March 31			June 30			Sept. 30		Dec. 31			Year 2002
Revenue		$	16,700		$	16,929		$	21,083	$	22,547		$	77,259
Cost of goods sold			10,780			29,677			12,817		15,987			69,261
Gross margin			5,920			(12,748	)		8,266		6,560			7,998
Expenses:
	Sales and marketing		2,710			2,920			2,801		3,133			11,564
	Research and development, net		4,801			4,615			3,217		2,263			14,896
	Administration		1,973			1,837			1,331		(356	)		4,785
	Restructuring and other charges		—			13,093			—		(224	)		12,869
	Amortization		653			594			529		555			2,331
			10,137			23,059			7,878		5,371			46,445
Earnings (loss) from operations			(4,217	)		(35,807	)		388		1,189			(38,447	)
Other income (expense)			(122	)		96			124		149			247
Earnings (loss) before income taxes			(4,339	)		(35,711	)		512		1,338			(38,200	)
Income tax expense			—			3,424			9		30			3,463
Net earnings (loss)		$	(4,339	)	$	(39,135	)	$	503	$	1,308		$	(41,663	)
Earnings (loss) per share:
	Basic	$	(0.27	)	$	(2.40	)	$	0.03	$	0.08		$	(2.56	)
	Diluted	$	(0.27	)	$	(2.40	)	$	0.03	$	0.08		$	(2.56	)
Weighted average number of shares (in thousands):
	Basic		16,263			16,305			16,314		16,334			16,304
	Diluted		16,263			16,305			16,539		16,733			16,304

14

Selected Annual Information

Years ended December 31,	2001			2002			2003
Revenue	$	62,348		$	77,259		$	101,709
Net earnings (loss)		(24,269	)		(41,663	)		2,255
Diluted earnings (loss) per share		(1.50	)		(2.56	)		0.12
Total assets		110,724			71,089			175,868
Total long-term liabilities		2,720			6,590			3,735

Forward-looking Statements

        This report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, plans and timing for the introduction or enhancement of our services and products, statements about future market conditions, supply and demand conditions, channel inventory and sell through, revenue, gross margin, operating expenses, profits, and other expectations, intentions and plans contained in this annual report that are not historical fact. Our expectations regarding future revenues and earnings depend in part upon our ability to develop, manufacture, and supply products that we do not produce today and that meet defined specifications, as well as our ability to bring the Voq professional phone to market. When used in this report, the words "plan", "expect","believe", and similar expressions generally identify forward-looking statements. These statements reflect our current expectations. They are subject to a number of risks and uncertainties, including but not limited to, changes in technology and changes in the wireless data communications market. In light of the many risks and uncertainties surrounding the wireless data communications market, you should understand that we cannot assure you that the forward-looking statements contained in this report will be realized.

Risk Factors

        Our business is subject to significant risks and past performance is no guarantee of future performance. Some of the risks we face are:

We have incurred net losses in the past and may not sustain profitability.

While we had earnings from operations for the year ended December 31, 2003, we have incurred a loss from operations in each of the previous three fiscal years. As of December 31, 2003 our accumulated deficit was approximately $71.3 million. While we had net earnings of $2.3 million for the year ended December 31, 2003, our ability to achieve and maintain profitability will depend on, among other things, the continued sales of our products and the successful development and commercialization of new products. We cannot predict if the current profitability will be sustainable on a quarterly or an annual basis. As a result, our share price may decline.

If the current profitability does not continue, we may need to raise additional capital in the future. Additional financing may not be available, and even if available, may not be on acceptable terms. We may seek to raise additional capital through an offering of common shares, preference shares or debt, which may result in dilution, and/or the issuance of securities with rights senior to the rights, of the holders of common shares.

If demand for our current products declines and we are unable to launch successful new products, our revenues will decrease.

If the markets in which we compete fail to grow, or grow more slowly than we currently anticipate, or if we are unable to establish markets for our new products, it would significantly harm our business, results of operations and financial condition. In addition, demand for one or all of our current products could decline as a result of competition, technological change or other factors.

15

If we are unable to design and develop new products that gain sufficient commercial acceptance, we may be unable to maintain our market share or to recover our research and development expenses and our revenues could decline.

We depend on designing, developing and marketing new products to achieve much of our future growth. Our ability to design, develop and market new products depends on a number of factors, including, but not limited to the following:

•

Our ability to attract and retain skilled technical employees;



•

The availability of critical components from third parties;



•

Our ability to successfully complete the development of products in a timely manner; and



•

Our ability to manufacture products at an acceptable price and quality.

A failure by us, or our suppliers, in any of these areas, or a failure of new products, such as Voq, to obtain commercial acceptance, could mean we receive less revenue than we anticipate and we are unable to recover our research and development expenses, and could result in a decrease in the market price for our shares.

The loss of any of our material customers could adversely affect our revenue and profitability, and therefore shareholder value.

We depend on a small number of customers for a significant portion of our revenues. In the last two fiscal years, there have been four different customers that individually accounted for more than 10% of our revenues. If any of these customers reduce their business with us or suffer from business failure, our revenues and profitability could decline, perhaps materially.

We may not be able to continue to design products that meet our customer needs and, as a result, our revenue and profitability may decrease.

We develop products to meet our customers' requirements but, particularly with original equipment manufacturers, current design wins do not guarantee future design wins. If we are unable or choose not to meet our customers' future needs, we may not win their future business and our revenue and profitability may decrease.

We do not expect to have significant long term customer contracts and our revenues will be negatively impacted if customers do not continue to order our products under purchase orders.

In late 1999 and 2000, we entered into significant supply contracts with AT&T Wireless, Sprint PCS and Verizon Wireless. We have completed volume shipments on all three contracts by the last quarter of 2003. We are now relying on purchase orders with these customers, and these customers, like our other customers, will be under no contractual obligation to purchase our products. If they do not make such purchases, our revenue and our share price may decline.

We may not be able to sustain our current gross margins and, as a result, our profitability may decrease.

We generally price our products based on our estimate of future production costs. If actual production costs are higher than we anticipate, our gross margins will decrease. In addition, competitive pressures may force us to lower our product prices, which will decrease our gross margins if we are unable to offset that effect by cost reduction measures. If our gross margins are reduced with respect to an important product line, or if our sales of lower margin products exceed our sales of higher margin products, our profitability may decrease and our business could suffer.

Our revenues and earnings may fluctuate from quarter to quarter, which could affect the market price of our common shares.

Our revenues and earnings may vary from quarter to quarter as a result of a number of factors, including:

•

The timing of releases of our new products;



•

The timing of substantial sales orders;



•

Possible seasonal fluctuations in demand;



•

Possible delays in the manufacture or shipment of current or new products; and



•

Possible delays or shortages in component supplies.

Because our operating expenses are determined based on anticipated sales, are generally fixed and are incurred throughout each fiscal quarter, any of the factors listed above could cause significant variations in our revenues and earnings in any given quarter. Thus, our quarterly results are not necessarily indicative of our overall business, results of operations and financial condition. However, quarterly fluctuations in our revenues and earnings may affect the market price of our common shares.

16

We depend on a few third parties to manufacture our products and supply key components. If they do not manufacture our products properly or cannot meet our needs in a timely manner, we may be unable to fulfill our product delivery obligations and our costs may increase, and our revenue and margins could decrease.

We outsource a substantial part of the manufacture of our products to third parties and depend heavily on the ability of these manufacturers to meet our needs in a timely and satisfactory manner. Some components used by us may only be available from a small number of suppliers, in some cases from only one supplier. We currently rely on three manufacturers, any of which may terminate the manufacturing contract with us at the end of any contract year. Our reliance on third party manufacturers and suppliers subjects us to a number of risks, including the following:

•

The absence of guaranteed manufacturing capacity;



•

Reduced control over delivery schedules, production yields and costs; and



•

Inability to control the amount of time and resources devoted to the manufacture of our products.

If we are unable to successfully manage any of these risks or to locate alternative or additional manufacturers or suppliers in a timely and cost-effective manner, we may not be able to deliver products in a timely manner. In addition, our results of operations could be harmed by increased costs, reduced revenues and reduced margins.

We do not have fixed-term employment agreements with our key personnel and the loss of any key personnel may harm our ability to compete effectively.

None of our officers or other key employees has entered into a fixed-term employment agreement. Our success depends in large part on the abilities and experience of our executive officers and other key employees. Competition for highly skilled management, technical, research and development and other key employees is intense in the wireless communications industry. We may not be able to retain our current key employees or attract and retain additional key employees as needed. The loss of key employees could disrupt our operations and impair our ability to compete effectively.

We may have difficulty responding to changing technology, industry standards and customer preferences, which could cause us to be unable to recover our research and development expenses and lose revenues.

The wireless industry is characterized by rapid technological change. Our success will depend in part on our ability to develop products that keep pace with the continuing changes in technology, evolving industry standards and changing customer and end-user preferences and requirements. Our products embody complex technology that may not meet those standards, changes and preferences. In addition, wireless communications service providers require that wireless data systems deployed in their networks comply with their own standards, which may differ from the standards of other providers. We may be unable to successfully address these developments in a timely basis or at all. Our failure to respond quickly and cost-effectively to new developments through the development of new products or enhancements to existing products could cause us to be unable to recover significant research and development expenses and reduce our revenues.

Competition from bigger more established companies with greater resources may prevent us from increasing or maintaining our market share and could result in price reductions and reduced revenues.

The wireless industry is intensely competitive and subject to rapid technological change. We expect competition to intensify. More established and larger companies with greater financial, technical and marketing resources sell products that compete with ours. We also may introduce new products that will put us in direct competition with major new competitors. Existing or future competitors may be able to respond more quickly to technological developments and changes or may independently develop and patent technologies and products that are superior to ours or achieve greater acceptance due to factors such as more favorable pricing or more efficient sales channels. If we are unable to compete effectively with our competitors' pricing strategies, technological advances and other initiatives, our market share and revenues may be reduced.

17

As the adoption of wireless data has continued to increase, we have experienced an increase in competition in our market. If wireless adoption continues to grow, we may continue to experience increased competition from new entrants into the market, and from bigger and more established companies with greater resources, which could result in reduced revenues and profits.

We depend on third parties to offer wireless data and voice communications services for our products to operate.

Our products can only be used over wireless data and voice networks operated by third parties. In addition, our future growth depends, in part, on the successful deployment of next generation wireless data and voice networks by third parties for which we are developing products. If these network operators cease to offer effective and reliable service, or fail to market their services effectively, sales of our products will decline and our revenues will decrease.

Acquisitions of companies or technologies may result in disruptions to our business or may not achieve the anticipated benefits.

As part of our business strategy, we may acquire additional assets and businesses principally relating to or complementary to our current operations. Any other acquisitions and/or mergers by us will be accompanied by the risks commonly encountered in acquisitions of companies. These risks include, among other things:

•

Exposure to unknown liabilities of acquired companies;



•

Higher than anticipated acquisition costs and expenses;



•

Effects of costs and expenses of acquiring and integrating new businesses on our operating results and financial condition;



•

The difficulty and expense of integrating the operations and personnel of the companies;



•

Disruption of our ongoing business;



•

Diversion of management's time and attention away from our remaining business during the integration process;



•

Failure to maximize our financial and strategic position by the successful incorporation of acquired technology;



•

The inability to implement uniform standards, controls, procedures and policies;



•

The loss of key employees and customers as a result of changes in management;



•

The incurrence of amortization expenses; and



•

Possible dilution to our shareholders.

In addition, geographic distances may make integration of businesses more difficult. We may not be successful in overcoming these risks or any other problems encountered in connection with any acquisitions. If realized, these risks could reduce shareholder value.

Others could claim that we infringe on their intellectual property rights, which may result in substantial costs, diversion of resources and management attention and harm to our reputation.

It is possible that other parties may claim that we have violated their intellectual property rights. Rights to intellectual property can be difficult to verify. Competitors could assert, for example, that former employees of theirs whom we have hired have misappropriated their proprietary information for our benefit. A successful infringement claim against us could damage us in the following ways:

•

We may be liable for damages and litigation costs, including attorneys' fees;



•

We may be prohibited from further use of the intellectual property;



•

We may have to license the intellectual property, incurring licensing fees; and



•

We may have to develop a non-infringing alternative, which could be costly and delay or result in the loss of sales.

18

Regardless of the outcome, an infringement claim could result in substantial costs, diversion of resources and management attention and harm to our reputation.

If we are successful in the design and development of our new products, and there is commercial acceptance of our products, such as the Voq Smartphone, others may claim that we infringe on their intellectual property rights, which may result in substantial costs, diversion of resources and management attention and harm our reputation.

Misappropriation of our intellectual property could place us at a competitive disadvantage.

Our intellectual property is important to our success. We rely on a combination of patent protection, copyrights, trademarks, trade secrets, licenses, non-disclosure agreements and other contractual agreements to protect our intellectual property. Third parties may attempt to copy aspects of our products and technology or obtain information we regard as proprietary without our authorization. If we are unable to protect our intellectual property against unauthorized use by others it could have an adverse effect on our competitive position.

Our strategies to deter misappropriation could be inadequate due to the following risks:

•

Non-recognition of the proprietary nature or inadequate protection of our methodologies in the United States, Canada or foreign countries;



•

Undetected misappropriation of our intellectual property;



•

The substantial legal and other costs of protecting and enforcing our rights in our intellectual property; and



•

Development of similar technologies by our competitors.

In addition, we could be required to spend significant funds and our managerial resources could be diverted in order to defend our rights, which could disrupt our operations.

As our business expands internationally, we will be exposed to additional risks relating to international operations.

Our expansion into international operations exposes us to additional risks unique to such international markets, including the following:

•

Increased credit management risks and greater difficulties in collecting accounts receivable;



•

Unexpected changes in regulatory requirements, wireless communications standards, exchange rates, trading policies, tariffs and other barriers;



•

Uncertainties of laws and enforcement relating to the protection of intellectual property;



•

Language barriers; and



•

Potential adverse tax consequences.

Furthermore, if we are unable to further develop distribution channels in Europe and the Asia-Pacific region we may not be able to grow our international operations and our ability to increase our revenue will be negatively impacted.

Government regulation could result in increased costs and inability to sell our products.

Our products are subject to certain mandatory regulatory approvals in the United States, Canada and other countries in which we operate. In the United States, the Federal Communications Commission regulates many aspects of communications devices. In Canada, similar regulations are administered by the Ministry of Industry, through Industry Canada. Although we have obtained all the necessary Federal Communications Commission, Industry Canada and other required approvals for the products we currently sell, we may not obtain approvals for future products on a timely basis, or at all. In addition, regulatory requirements may change or we may not be able to obtain regulatory approvals from countries other than the United States and Canada in which we may desire to sell products in the future.

19

Fluctuations in exchange rates between the United States dollar and the Canadian dollar may affect our operating results.

We are exposed to fluctuations in the exchange rate between the United States dollar and the Canadian dollar through our operations in Canada. To reduce our risk because of currency fluctuations, we purchase inventory, other costs of sales items and many of our services in United States dollars. If the Canadian dollar rises relative to the United States dollar, our operating results may be negatively impacted. To date, we have not entered into any foreign currency futures contracts as part of a hedging policy, but we have purchased Canadian currency to cover our Canadian currency requirements for the next several fiscal quarters. We have entered into distribution agreements in Europe and the Asia-Pacific region that are denominated primarily in U.S. dollars. We expect that as our business expands in Europe and the Asia-Pacific region, we will also be exposed to additional foreign currency transactions and to the associated currency risk. To date, we have not entered into any futures contracts.

20

SIERRA WIRELESS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in thousands of United States dollars, except per share amounts)
(Prepared in accordance with United States generally accepted accounting principles (GAAP))
(Unaudited)

		Three months ended March 31,
		2004			2003
Revenue		$	41,641		$	20,150
Cost of goods sold			24,839			12,210
Gross margin			16,802			7,940
Expenses:
	Sales and marketing		4,173			2,729
	Research and development, net		4,739			2,749
	Administration		2,064			1,617
	Amortization		636			553
			11,612			7,648
Earnings from operations			5,190			292
Other income			84			104
Earnings before income taxes			5,274			396
Income tax expense			704			35
Net earnings			4,570			361
Deficit, beginning of period			(71,309	)		(73,564	)
Deficit, end of period		$	(66,739	)	$	(73,203	)
Earnings per share:
	Basic	$	0.18		$	0.02
	Diluted	$	0.18		$	0.02
Weighted average number of shares (in thousands)
	Basic		24,986			16,355
	Diluted		26,027			16,718

See accompanying notes to consolidated financial statements.

21

SIERRA WIRELESS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Expressed in thousands of United States dollars)
(Prepared in accordance with United States GAAP)
(Unaudited)

		Three months ended March 31,
		2004		2003
Net earnings		$	4,570	$	361
Other comprehensive income
	Unrealized gain on marketable securities		329		—
Comprehensive income		$	4,899	$	361

See accompanying notes to consolidated financial statements.

22

SIERRA WIRELESS, INC.

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States dollars)
(Prepared in accordance with United States GAAP)

		March 31, 2004			December 31, 2003
		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	62,601		$	70,358
	Short-term investments (note 3)		20,369			14,760
	Accounts receivable		22,652			21,566
	Inventories		2,096			1,511
	Prepaid expenses		1,956			2,223
			109,674			110,418
Long-term investments (note 3)			32,331			24,639
Fixed assets			6,551			5,985
Intangible assets			15,354			14,620
Goodwill			20,022			19,706
Deferred income taxes			500			500
		$	184,432		$	175,868
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable	$	2,634		$	5,966
	Accrued liabilities		26,558			22,221
	Deferred revenue and credits		250			399
	Current portion of long-term liabilities		1,328			1,328
	Current portion of obligations under capital lease		87			141
			30,857			30,055
Long-term liabilities			1,935			2,266
Shareholders' equity:
	Share capital (note 4)		217,241			214,047
	Warrants		1,538			1,538
	Deficit		(66,739	)		(71,309	)
	Accumulated other comprehensive loss		(400	)		(729	)
			151,640			143,547
		$	184,432		$	175,868
Contingencies (note 5)

See accompanying notes to consolidated financial statements.

23

SIERRA WIRELESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of United States dollars)
(Prepared in accordance with United States GAAP)
(Unaudited)

			Three months ended March 31,
			2004			2003
Cash flows from operating activities:
	Net earnings		$	4,570		$	361
	Adjustments to reconcile net earnings to net cash provided by operating activities
		Amortization		1,630			1,338
		Loss on disposal		(14	)		—
		Accrued warrants		—			168
	Changes in operating assets and liabilities
		Accounts receivable		(998	)		3,725
		Inventories		(585	)		(815	)
		Prepaid expenses		267			6
		Accounts payable		(3,332	)		564
		Accrued liabilities		3,922			(1,589	)
		Deferred revenue and credits		(149	)		104
	Net cash provided by operating activities			5,311			3,862
Cash flows from investing activities:
	Purchase of fixed assets			(1,503	)		(143	)
	Increase in intangible assets			(1,246	)		(602	)
	Purchase of long-term investments			(17,011	)		—
	Proceeds on disposal of long-term investments			3,217			—
	Purchase of short-term investments			(7,226	)		—
	Proceeds on maturity of short-term investments			7,892			—
	Net cash used in investing activities			(15,877	)		(745	)
Cash flows from financing activities:
	Issue of common shares, net of share issue costs			3,194			41
	Repayment of long-term liabilities			(385	)		(456	)
	Net cash provided by (used in) financing activities			2,809			(415	)
Net increase (decrease) in cash and cash equivalents				(7,757	)		2,702
Cash and cash equivalents, beginning of period				70,358			34,841
Cash and cash equivalents, end of period			$	62,601		$	37,543

See supplementary cash flow information (note 6).

See accompanying notes to consolidated financial statements.

24

SIERRA WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, except per share amounts and number of shares)
(Prepared in accordance with United States GAAP)
(Unaudited)

1.     Basis of presentation

        The accompanying financial information does not include all disclosures required under United States generally accepted accounting principles for annual financial statements. The accompanying financial information reflects all adjustments, consisting primarily of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our fiscal 2003 Annual Report.

2.     Significant accounting policies

        These interim financial statements follow the same accounting policies and methods of application as our annual financial statements, except for 2(b) and 2(c).

(a)   Principles of consolidation

        Our consolidated financial statements include the accounts of Sierra Wireless, Inc. and its wholly-owned subsidiaries Sierra Wireless Data, Inc., Sierra Wireless America, Inc. (formerly AirPrime, Inc.), Sierra Wireless (UK) Limited, Sierra Wireless (Asia Pacific) Limited, Sierra Wireless SRL and Sierra Wireless ULC from their respective dates of formation or acquisition. We have eliminated all significant intercompany balances and transactions.

(b)   Stock-based compensation

        We have elected under FAS No. 123, "Accounting for Stock-based Compensation", to account for employee stock options using the intrinsic value method. This method is described in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As we grant all stock options with an exercise price equal to the market value of the underlying common shares on the date of the grant, no compensation expense is required to be recognized under APB 25. FAS No. 123 uses a fair value method of calculating the cost of stock option grants. Had compensation cost for our employee stock option plan been determined by this method, our net earnings (loss) and earnings (loss) per share would have been as follows:

		Three months ended March 31,
		2004			2003
Net earnings (loss):
	As reported	$	4,570		$	361
	Less: Total stock-based employee compensation expense determined under fair value based method for all awards		(1,487	)		(2,577	)
	Pro forma	$	3,083		$	(2,216	)
Basic and diluted earnings (loss) per share:
	As reported	$	0.18		$	0.02
	Pro-forma		0.12			(0.14	)

        We recognize the calculated benefit at the date of granting the stock options on a straight-line basis over the shorter of the expected service period and the vesting period.

25

        We have estimated the fair value of each option on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

	Three months ended March 31,
	2004		2003
Expected dividend yield		—		—
Expected stock price volatility		99%		104%
Risk-free interest rate		3.32%		4.10%
Expected life of options		4 years		4 years
Weighted average fair value of options granted	$	18.19	$	2.45

(c)   Recent accounting pronouncements

        In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS 132"). This statement establishes standards that require companies to provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. In addition to expanded annual disclosures, companies are required to report the various elements of pension and other postretirement benefit costs on a quarterly basis. This statement is effective for fiscal years ending after December 15, 2003. We have adopted FAS 132, as revised in 2003, which had no effect on our consolidated financial statements.

3.     Investments

        Investments, all of which are classified as available-for-sale, were comprised as follows:

	Short-term				Long-term
	March 31, 2004		December 31, 2003		March 31, 2004		December 31, 2003
Government treasury bills	$	10,124	$	11,827	$	—	$	—
Bankers acceptances		3,022		1,937		—		—
Commercial paper		995		996		—		—
Government bonds		6,228		—		32,331		24,639
	$	20,369	$	14,760	$	32,331	$	24,639

        Our short-term investments of $20,369 all have contractual maturities of less than one year. Our long-term investments of $32,331 all have contractual maturities of one to five years.

        The fair value of our investments is as follows:

March 31, 2004	Cost		Unrealized Gains (Losses)			Fair Value
Government treasury bills	$	10,114	$	10		$	10,124
Bankers acceptances		3,010		12			3,022
Commercial paper		996		(1	)		995
Government bonds		38,251		308			38,559
	$	52,371	$	329		$	52,700

        At December 31, 2003, there were no significant unrealized holding gains or losses on available-for-sale securities.

26

4.     Share capital

        Changes in the issued and outstanding common shares for the three months ended March 31, 2004 are as follows:

	Number of Shares	Amount
Balance at December 31, 2003	24,822,071	$	214,047
Stock option exercises	335,835		3,194
Balance at March 31, 2004	25,157,906	$	217,241

5.     Contingencies

(a)   Contingent liability on sale of products

(i)

Under license agreements, we are committed to royalty payments based on the sales of products using certain technologies. We recognize royalty obligations as determinable in accordance with agreement terms. Where agreements are not finalized, we have recognized our current best estimate of the obligation. When the agreements are finalized, the estimate will be revised accordingly.



(ii)

Under certain research and development funding agreements, we are contingently liable to repay up to $3,328. Repayment for certain of the research and development funding agreements is contingent upon reaching certain revenue levels for specified products.



(iii)

Under an agreement with the Government of Canada's Technology Partnerships Canada ("TPC") program, we have received Cdn. $9,999 to support the development of a range of third generation wireless technologies. Under the terms of the agreement, an amount up to a maximum of Cdn. $13,000 is to be repaid based on annual sales, in excess of certain minimum amounts, of specified products commencing in 2004. During the three months ended March 31, 2004, we claimed nil (2003 — $316) that has been recorded as a reduction of research and development expense.    During the three months ended March 31, 2004, we have repaid $365. In addition, we issued warrants to TPC to purchase 138,696 common shares on December 30, 2003, valued at Cdn. $2,000 based on the Black-Scholes pricing model. The warrants are exercisable at Cdn $20.49 per share for a term of five years from December 30, 2003. As of March 31, 2004 no warrants have been exercised.

In March 2004, we entered into a second agreement with TPC under which we are eligible to receive conditionally repayable research and development funding up to Cdn. $9,540 to support the development of a range of third generation wireless technologies. The agreement is effective April 2003. During the three months ended March 31, 2004, we have claimed $1,428 for the period April 1, 2003 to March 31, 2004, which has been recorded as a reduction of research and development expense. Under the terms of the agreement, repayment based on a percentage of annual sales, in excess of certain minimum amounts, will be made over the period from April 2003 to December 2011. If the payments during this period are less than Cdn. $16,455, payments will continue subsequent to December 2011 until the earlier of when the amount is reached or December 2014.

(iv)

We accrue product warranty costs, when we sell the related products, to provide for the repair or replacement of defective products. Our accrual is based on an assessment of historical experience and on management's estimates. An analysis of changes in the liability for product warranties follows:

Balance, December 31, 2002	$	1,163
Provisions		1,939
Increase due to acquisition		418
Expenditures		(1,179	)
Balance, December 31, 2003		2,341
Provisions		380
Expenditures		(267	)
Balance, March 31, 2004	$	2,454

27

(b)   Other commitments

        We have entered into purchase commitments totaling $32,440 with certain contract manufacturers under which we commit to buy a minimum amount of designated products between April 2004 and July 2004.    In certain of these agreements, we may be required to acquire and pay for such products up to the prescribed minimum or forecasted purchases.

(c)   Legal proceedings

        We are engaged in certain legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.

6.     Supplementary information

		Three months ended March 31,
		2004		2003
Cash received for interest		$	334	$	76
Cash paid for
	Interest		3		25
	Income taxes		56		14
Non-cash financing activities
	Purchase of fixed assets funded by obligations under capital lease		—		113

7.     Comparative figures

        We have reclassified certain of the figures presented for comparative purposes to conform to the financial statement presentation we adopted for the current period.

28

SIERRA WIRELESS, INC.

FIRST QUARTER REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2004
CANADIAN GAAP

29

SIERRA WIRELESS, INC.

CHAIRMAN'S MESSAGE

TO OUR SHAREHOLDERS

        The first quarter of 2004 was the strongest in our history, with revenue of $41.6 million, net earnings of $3.1 million, and positive cash flow from operations. Our results represent our seventh consecutive quarter of profitable growth and positive cash flow.

Results for Q1 2004 Compared to Q1 2003

        For the three months ended March 31, 2004, our revenues increased by 107% to $41.6 million, from $20.1 million in the first quarter of 2003. The increase reflects growing demand for our PC Card, Embedded Module and Mobile product lines, with notable strength in North American markets.

        Our gross margin also increased in the first quarter, climbing to $16.7 million, or 40.2% of revenue, from $7.8 million, or 38.8% of revenue, in the comparable period in 2003. This improvement primarily reflects an increase in volume, changes in our product mix and lower product costs.

        Operating expenses for the first quarter of 2004 were $13.0 million. First quarter operating expenses were $14.3 million, excluding $1.1 million of funding from Technology Partnerships Canada ("TPC") relating to 2003 and an additional Metricom recovery of $0.2 million. This compares to $10.1 million during the first three months of 2003. The increase in operating expenses reflects our acquisition of AirPrime, which was completed in August 2003, as well as costs related to the development of new products including EDGE products and the Voq professional phone.

        Effective January 1, 2004, we adopted the fair value recognition provisions of the amended Canadian Institute of Chartered Accountants' recommendations that require an estimate of the fair value of stock-based awards be charged to earnings. The charge to earnings for compensation expense related to employee stock options was $1.5 million and $2.6 million for the three months ended March 31, 2004 and March 31, 2003, respectively.

        Net earnings for the first quarter were $3.1 million, or diluted earnings per share of $0.12. Excluding the TPC funding and Metricom recovery, net earnings were $1.8 million, or diluted earnings per share of $0.07, compared to a net loss of $2.2 million, or loss per share of $0.14, during the first three months of 2003. Earnings results for the first quarter of 2004 also include a foreign exchange loss of approximately $0.3 million.

Business Developments

        First quarter highlights included a number of business and corporate developments:

Progress on Products for CDMA 2000 Networks and Channels:

•

Our Sierra Wireless MP 555 GPS rugged wireless modem was certified by Sprint for operation on the enhanced Sprint Nationwide PCS Network. We will work with Sprint to market and sell the MP 555 GPS in-vehicle mobile solution, primarily targeting public safety and utility departments.



•

We added the Sierra Wireless AirCard® 555R to our product line for the China market. Operating on CDMA 1X networks, the AirCard 555R will provide mobile professionals with wireless data access, and will be distributed by Beijing Putian Taili Telecom.



•

We provided next generation wireless technology to the Harris County Sheriff's Office in Texas, outfitting approximately 600 patrol vehicles and 300 detectives with a high-speed mobile solution powered by the Sierra Wireless AirCard 555.



•

Verizon Wireless, Citrix Systems, Inc., and Zumasys, Inc., announced that Continental Laboratory Products is the first customer to roll out a mobile access solution combining Citrix® MetaFrame® Presentation Server and Verizon Wireless' BroadbandAccess high-speed wireless service. Currently available in San Diego and Washington D.C., Verizon Wireless plans to make BroadbandAccess service available throughout additional portions of its network beginning later this year.

30

Progress on Products for GSM/GPRS/EDGE Networks and Channels:

•

We announced the commercial availability of the Sierra Wireless AirCard 750 for O2 customers in the United Kingdom. This best in class PC Card offers the highest GPRS throughput on the market today and a superior network interface for fast and reliable mobile computing.



•

Together with Analog Devices, Inc. (ADI) and TTPCom, we announced that we will bring wireless EDGE (Emerging Data rates for Global Evolution) capabilities to laptop computers and personal digital assistants. We have selected ADI's Blackfin SoftFone for EDGE Platform and TTPCom's protocol stack software, to power our new Sierra Wireless AirCard 775 PC Card for the EDGE network.



•

We selected QUALCOMM's MSM6250™ Mobile Station Modem™ (MSM™) chipset and system software for our multimode third-generation (3G) wireless products. With the MSM6250 chipset, products are under development that we expect will provide the WCDMA (UMTS) market with a high-quality, high-speed wireless connectivity solution using a proven chipset technology.



•

We announced the introduction of the Sierra Wireless AirCard 775 PC Card and the Sierra Wireless MP 775 GPS modem for EDGE networks. The AirCard 775 wireless wide area network (WWAN) card will provide mobile users with faster data rates, reaching speeds up to three times faster than that provided by GPRS networks. The MP 775 GPS rugged vehicle-mount modem provides similar high-speed connectivity, and will operate over EDGE and GSM/GPRS networks. The AirCard 775 and MP 775 are expected to be commercially available in the second half of 2004.



•

We announced the availability of an upgrade program for current Sierra Wireless MP 750 GPS rugged wireless modem customers to the next generation Sierra Wireless MP 775 GPS modem for use on the AT&T Wireless EDGE network. Built for demanding environments and worldwide connectivity, the MP 775 GPS rugged wireless modem provides an in-vehicle mobile solution with data transmission speeds averaging between 100-130 kbps, up to three times faster than currently available with GPRS. The product upgrade is expected to be available for $399 in the third quarter of 2004.

Progress on the Voq Professional Phone™:

•

Our new Voq Professional Phone, a pocketable Microsoft Windows Mobile™-based SmartPhone, is expected to be commercially available in selected countries in the second quarter of 2004.



•

We signed an agreement with KPN to launch and sell the Voq Professional Phone and the VoqMail Professional Edition product to customers in the Netherlands.



•

We signed an agreement with THBBury to provide industry leading car accessories for the new Voq Professional Phone through THBBury distribution channels in Europe and North America.



•

We announced agreements with key European distributors to sell the Voq Professional Phone and the VoqMail Professional Edition to customers in Austria, Belgium, Germany, Holland, Italy, Luxemburg, the Nordics, Switzerland, and Spain.

Corporate Developments:

•

In March we announced the appointment of David McLennan as our Chief Financial Officer. David will assume overall responsibility for the financial management of the company, and for directing the financial, planning, administrative support and investor relations functions of the business. He brings us strong financial, management and leadership skills gained at the BCE Group of companies. David succeeds Peter Roberts, who retired as our CFO at the end of March.

31

Outlook

        We are very pleased with our first quarter results and anticipate continued progress in 2004. Enterprise spending on wireless communications is increasing in step with improving economies, and we are experiencing strong product sales. We believe the emergence of next generation networks such as EDGE and EV-DO will continue to drive adoption of wireless data. Our business operating premise remains profitable growth.

/s/  DAVID B. SUTCLIFFE David B. Sutcliffe
Chairman and Chief Executive Officer

        This report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, plans and timing for the introduction or enhancement of our services and products, statements about future market conditions, supply and demand conditions, channel inventory and sell through, revenue, gross margin, operating expenses, profits, and other expectations, intentions and plans contained in this report that are not historical fact. Our expectations regarding future revenues depend upon our ability to develop, manufacture and supply products that we do not produce today and that meet defined specifications, as well as our ability to bring the Voq professional phone to market. When used in this report, the words "plan", "expect", "believe", and similar expressions generally identify forward-looking statements. These statements reflect our current expectations. They are subject to a number of risks and uncertainties, including, but not limited to, changes in technology and changes in the wireless data communications market. In light of the many risks and uncertainties surrounding the wireless data communications market, you should understand that we cannot assure you that the forward-looking statements contained in this report will be realized.

32

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our consolidated financial condition and results of operations, as of April 15, 2004, has been prepared in accordance with United States generally accepted accounting principles (GAAP), with a reconciliation to Canadian GAAP. Except where otherwise specifically indicated, all amounts are expressed in United States dollars.

Additional information related to Sierra Wireless, Inc., including our Annual Information Form, may be found on SEDAR at www.sedar.com.

Overview

        We provide highly differentiated wireless solutions worldwide. We develop and market a broad range of products that include wireless data modems for portable computers, embedded modules for original equipment manufacturers, or OEMs, rugged vehicle-mounted modems and mobile phones. Our products permit users to access wireless data and voice networks using notebook computers, personal digital assistants, or PDAs, vehicle-based systems and mobile phones.

        Wireless data communications is an expanding market positioned at the convergence of wireless communications, portable computing and the Internet, each of which we believe represents a growing market. Our products are based on open standards, including the Internet protocol, and operate on the networks of major wireless communications service providers.

        Our products are primarily used by businesses and government organizations to enable their employees access to a wide range of wireless data applications including Internet access, e-mail, messaging, corporate intranet access, remote database inquiry and computer aided dispatch. We sell our products directly to end-users and through indirect channels, including wireless operators, resellers and OEMs.

        Beginning in fiscal 2001, there was a slowdown in enterprise spending and an overall economic slowdown that impacted our business. The trend intensified during fiscal 2002 and continued into fiscal 2003. Reasons for the market deterioration included a general economic slowdown, customer bankruptcies, network build-out delays and limited availability of capital. During the latter part of 2003 and the first quarter of 2004, we experienced stronger than expected demand.

        During the first quarter of 2004, our revenue increased 106.6% to $41.6 million, compared to $20.1 million in the first quarter of 2003. Our revenue from customers in the Americas, Europe and the Asia-Pacific region comprised 91%, 5% and 4%, respectively, of our total revenue in the first quarter of 2004 and 61%, 16% and 23%, respectively, in the same period of 2003. Our North American business has shifted from long-term, large volume commitments by carriers to faster book/ship cycles driven by customer demand on channels. This shift lowers our dependence on carriers and is the status quo for our business in Europe and in the Asia-Pacific region.

        Operating expenses were $11.6 million in the first quarter of 2004 and increased from $7.6 million in the prior year due primarily to the acquisition of AirPrime, Inc., which was completed in August 2003, and costs related to the development of new products, including EDGE and the Voq professional phone. Included in our operating expenses is conditionally repayable research and development funding of $1.4 million, of which $1.1 million is related to the period April 1, 2003 to December 31, 2003. We also received an additional recovery from Metricom of $0.2 million that has been recorded as a reduction of administration expense.

        Net earnings were $4.6 million in the first quarter of 2004, compared to $0.3 million in the same period of 2003. Our net earnings were $3.3 million in the first quarter of 2004, excluding the conditionally repayable government funding of $1.1 million and the additional recovery from Metricom of $0.2 million. Our improvement in net earnings was attributable to the increase in revenue, strong margins and operating cost control.

        Our balance sheet remains strong, with $115.3 million of cash and short and long-term investments, compared to $109.7 million at December 31, 2003. During the first quarter of 2004, we generated $5.3 million in cash from operations, compared to $3.9 million in the same period of 2003.

33

Results of Operations

        The following table sets forth our operating results for the three months ended March 31, 2004, expressed as a percentage of revenue:

Three months ended March 31,		2004		2003
Revenue		100.0	%	100.0	%
Cost of goods sold		59.7		60.6
Gross margin		40.3		39.4
Expenses
	Sales and marketing	10.0		13.5
	Research and development, net	11.4		13.7
	Administration	4.9		8.0
	Amortization	1.5		2.7
		27.8		37.9
Earnings from operations		12.5		1.5
Other income		0.2		0.5
Net income before income taxes		12.7		2.0
Income tax expense		1.7		0.2
Net income		11.0	%	1.8	%

        Our revenue by product, by distribution channel and by geographical region is as follows:

Three months ended March 31,		2004		2003
Revenue by product
	PC card	49	%	80	%
	OEM	43		11
	Mobile	6		7
	Other	2		2
		100	%	100	%
Revenue by distribution channel
	Wireless carriers	33	%	48	%
	OEM	44		15
	Resellers	23		36
	Direct and other	—		1
		100	%	100	%
Revenue by geographical region
	Americas	91	%	61	%
	Europe	5		16
	Asia-Pacific	4		23
		100	%	100	%

34

Results of Operations — Three Months Ended March 31, 2004 Compared to
Three Months Ended March 31, 2003

Revenue

        Revenue amounted to $41.6 million for the three months ended March 31, 2004, compared to $20.1 million in the same period of 2003, an increase of 106.6%. Included in our revenue was research and development funding of $0.2 million, compared to nil in 2003. The increase in revenue was due primarily to an increase in sales of our 2.5G PC card and OEM products, including sales of products formerly sold by AirPrime. During the first quarter of 2004, we also commenced commercial shipment of the Sierra Wireless AirCard 580.

Gross margin

        Gross margin amounted to $16.8 million in the first quarter of 2004, compared to $7.9 million in the first quarter of 2003. Included in our gross margin was research and development funding of $0.2 million in 2004, compared to nil in 2003. Our gross margin percentage was 40.3% of revenue for the three months ended March 31, 2004, compared to 39.4% of revenue for the three months ended March 31, 2003. Our margin increased compared to the same period in 2003 due to strong PC card margins that offset the impact of OEM products that yield lower margins than our PC card and MP products. During the first quarter of 2004, we sold $0.1 million of products that had a net book value after writedowns of nil.

        We expect our gross margin to fluctuate moderately from quarter to quarter as a result of changes in product mix, changes in geographical mix and changes in product cost due to new product introductions.

Sales and marketing

        Sales and marketing expenses were $4.2 million in the first quarter of 2004, compared to $2.7 million in the same period of 2003. The increase is due primarily to the addition of staff from the AirPrime acquisition and marketing costs related to the Voq professional phone. Sales and marketing expenses as a percentage of revenue decreased to 10.0% in 2004, compared to 13.5% in 2003. This decrease was due primarily to an increase in revenue. We expect to continue to make significant and increased investments in sales and marketing as we introduce new products and continue to expand our distribution channels in Europe and the Asia-Pacific region.

Research and development, net

        Research and development expenses, net of conditionally repayable government research and development funding, amounted to $4.7 million in the first quarter of 2004, compared to $2.7 million in the first quarter of 2003, an increase of 72.4%.

        Gross research and development expenses, before government research and development funding, were $6.2 million or 14.8% of revenue in the first quarter of 2004, compared to $3.1 million or 15.2% of revenue in 2003. Gross research and development expenses increased due to the addition of staff and projects from the AirPrime acquisition and the development of new products, including EDGE and the Voq professional phone. We expect our gross research and development expenses to continue to increase as we invest in next generation technology and develop new products.

        In the first quarter of 2004, we signed a second agreement with the Government of Canada's Technology Partnerships Canada ("TPC") program under which we are eligible to receive conditionally repayable research and development funding up to Cdn. $9,540 to support the development of a range of third generation wireless technologies. The agreement is effective for development work commencing April 2003. Funding of $1.4 million was recognized in the first quarter of 2004, of which $1.1 million relates to the period from April 1, 2003 to December 31, 2003.

        We expect that our TPC funding will decrease from Q1 2004 as funding will be based on research and development work completed in each quarter.

35

Administration

        Administration expenses amounted to $2.1 million, or 4.9% of revenue, in the first quarter of 2004, compared to $1.6 million, or 8.0% of revenue, in the same period of 2003. The increase is due primarily to an increase in insurance costs and the addition of staff from the AirPrime acquisition partially offset by an additional recovery from Metricom of $0.2 million.

Income tax expense

        Income tax expense amounted to $0.7 million for the three months ended March 31, 2004, compared to nil for the three months ended March 31, 2003. Income tax expense has increased primarily due to our increase in net earnings before tax.

Net earnings

        Our net earnings amounted to $4.6 million, or diluted earnings per share of $0.18, in the first quarter of 2004, compared to net earnings of $0.4 million, or diluted earnings per share of $0.02, in the same period of 2003. Excluding the TPC funding of $1.1 million related to the 2003 period and the Metricom recovery of $0.2 million, our net earnings for the first quarter of 2004 were $3.3 million, or diluted earnings per share of $0.13.

        The weighted average number of shares outstanding increased to 26.0 million in 2004 due to the issuance of shares in August 2003 related to the AirPrime acquisition and to our secondary public offering in November 2003, as compared to 16.7 million in 2003.

Contingent Liabilities

        During 2002, we executed a settlement agreement with Metricom, one of our U.S. customers, in a Chapter 11 reorganization under U.S. bankruptcy laws, under which all claims and counterclaims were settled for $10.3 million. We received the amount of $1.8 million that has been included in our net loss for 2002. We also received additional recoveries of $0.3 million and $0.2 million that have been included in our second and third quarter net earnings, respectively, for 2003 and $0.2 million that has been included in our first quarter net earnings for 2004.

        Under license agreements, we are committed to royalty payments based on the sales of products using certain technologies. We recognize royalty obligations as determinable in accordance with agreement terms. Where agreements are not finalized, we have recognized our current best estimate of the obligation. When the agreements are finalized, the estimate will be revised accordingly.

        We are engaged in other legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.

Critical Accounting Policies

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, and we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, adequacy of allowance for doubtful accounts, adequacy of inventory reserve, income taxes and adequacy of warranty reserve. We base our estimates on historical experience and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates. Senior management has discussed with our audit committee the development, selection, and disclosure of accounting estimates used in the preparation of our consolidated financial statements.

        During the quarter ended March 31, 2004, we did not adopt any new accounting policies that have a material impact on our consolidated financial statements or make changes to existing accounting policies.

        The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements:

36

•

We recognize revenue from sales of products and services upon the later of transfer of title or upon shipment of the product to the customer or rendering of the service, so long as collectibility is reasonably assured. Customers include resellers, original equipment manufacturers, wireless service providers and end-users. We record deferred revenue when we receive cash in advance of the revenue recognition criteria being met.

A significant portion of our revenue is generated from sales to resellers. We recognize revenue on the portion of sales to certain resellers that are subject to provisions allowing various rights of return and stock rotation when the rights have expired or the products have been reported as sold by the resellers.

Funding from research and development agreements, other than government research and development arrangements, is recognized as revenue when certain criteria stipulated under the terms of those funding agreements have been met, and when there is reasonable assurance the funding will be received. Certain research and development funding will be repayable only on the occurrence of specified future events. If such events do not occur, no repayment would be required. We will recognize the liability to repay research and development funding in the period in which conditions arise that would cause research and development funding to be repayable.

•

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. We consider the following factors when determining if collection is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. If we have no previous experience with the customer, we typically obtain reports from credit organizations to ensure that the customer has a history of paying its creditors. We may also request financial information, including financial statements, to ensure that the customer has the means of making payment. If these factors indicate collection is not reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash. If the financial condition of any of our customers deteriorates, we may increase our allowance.



•

We value our inventory at the lower of cost, determined on a first-in-first-out basis, and estimated net realizable value. We assess the need for an inventory writedown based on our assessment of estimated market value using assumptions about future demand and market conditions. Our reserve requirements generally increase as our projected demand requirements decrease, due to market conditions, technological and product life cycle changes and longer than previously expected usage periods. If market conditions are worse than our projections, we may further writedown the value of our inventory.



•

We currently have intangible assets of $35.4 million, including goodwill of $20.0 million generated from our acquisition of AirPrime in August 2003. Goodwill is tested for impairment annually, or more often, if an event or circumstance indicates that an impairment loss has been incurred.

The initial goodwill impairment test was completed during the fourth quarter of 2003, which resulted in no impairment loss. We assessed the realizability of goodwill related to our reporting unit during the fourth quarter and determined that its fair value did not have to be re-computed because the components of the reporting unit had not changed since the fair value computation completed at August 12, 2003, the date of acquisition, the previous fair value amount exceeded the carrying amount of the reporting unit by a substantial margin, and no evidence exists to indicate that the current fair value of the reporting unit would be less than its current carrying amount.

•

We evaluate our deferred income tax assets to assess whether their realization is more likely than not. If their realization is not considered more likely than not, we provide for a valuation allowance. The ultimate realization of our deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. We consider projected future taxable income and tax planning strategies in making our assessment. If we determine that we would not be able to realize our deferred tax assets, we may make an adjustment to our deferred tax assets which would be charged to income.



•

We accrue product warranty costs in accrued liabilities to provide for the repair or replacement of defective products. Our accrual is based on an assessment of historical experience and management's estimates. If we suffer a decrease in the quality of our products, we may increase our accrual.

37

•

Under license agreements, we are committed to royalty payments based on the sales of products using certain technologies. We recognize royalty obligations as determinable in accordance with agreement terms. Where agreements are not finalized, we have recognized our current best estimate of the obligation in accrued liabilities. When the agreements are finalized, the estimate will be revised accordingly.



•

We recorded a lease provision during 2002 as a result of our restructuring program by estimating the net present value of the future cash outflows over the remaining lease period. The estimate was based on various assumptions including the obtainable sublease rates and the time it will take to find a suitable tenant. These assumptions are influenced by market conditions and the availability of similar space nearby. If market conditions change, we will adjust our provision.



•

We are engaged in other legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position. We estimate the range of liability related to pending litigation where the amount and range of loss can be reasonably estimated. We record our best estimate of a loss when the loss is considered probable. As additional information becomes available, we assess the potential liability relating to our pending litigation and revise our estimates.

Liquidity and Capital Resources

Operating Activities

        Cash provided by operating activities amounted to $5.3 million for the first quarter of 2004, compared to cash provided by operating activities of $3.9 million in the same period of 2003, an improvement of $1.4 million. The source of cash in 2004 primarily resulted from earnings from operations of $4.6 million adjusted for non-cash items, inventory levels and changes in other operating assets and liabilities of $0.7 million. Our working capital has not changed significantly from December 31, 2003. Generally, our working capital requirements will increase or decrease with quarterly revenue levels.

Investing Activities

        Cash used by investing activities was $15.9 million in the first three months of 2004, compared to cash used by investing activities of $0.7 million during the same period in 2003. The use of cash in 2004 was due primarily to the net investment of cash of $13.1 million in 2004. Expenditures on intangible assets were $1.2 million in 2004, compared to $0.6 million in 2003, and were primarily for license fees and patents. Capital expenditures were $1.5 million in 2004, compared to $0.1 million in 2003, and were primarily for tooling, research and development equipment and software.

        We do not have any trading activities that involve any type of commodity contracts that are accounted for at fair value but for which a lack of market price quotations necessitate the use of fair value estimation techniques.

Financing Activities

        Cash provided by financing activities was $2.8 million in the first quarter of 2004, compared to a use of cash of $0.4 million during the same period in 2003, an increase of $2.4 million. The source of cash in 2004 was primarily from the issuance of common shares upon the exercise of stock options, offset slightly by repayments of our long-term obligations.

        As of March 31, 2004, we did not have any off-balance sheet finance or special purpose entities.

Cash Requirements

        We expect our operations will generate positive net cash during fiscal 2004. We also expect that lower cash requirements for restructuring activities and the effect of previous cost reduction actions, offset by the additional working capital impact of the AirPrime acquisition will contribute to positive cash flow from operations for 2004.

        Our near-term cash requirements are primarily related to funding our operations, capital expenditures and other obligations discussed below. We believe our cash and cash equivalents of $62.6 million, short-term investments of $20.4 million and long-term investments of $32.3 million as of March 31, 2004 and cash generated from operations will be sufficient to fund our expected working and other capital requirements for the next twelve months based on current business plans. Our capital expenditures during 2004 are expected to be primarily for research and development equipment, tooling, licenses and patents. However, we cannot provide assurance that our actual cash requirements will not be greater than we currently expect.

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        The following table quantifies our future contractual obligations as of March 31, 2004:

Payments due in fiscal	Operating Leases		Obligations under Capital Leases		Total
2004	$	2,702	$	87	$	2,789
2005		2,522		—		2,522
2006		2,559		—		2,559
2007		2,629		—		2,629
2008		2,643		—		2,643
Thereafter		5,144		—		5,144
Total	$	18,199	$	87	$	18,286

        We have entered into purchase commitments totaling $32.4 million with certain contract manufacturers under which we commit to buy a minimum amount of designated products. In certain of these agreements, we may be required to acquire and pay for such products up to the prescribed minimum or forecasted purchases. The terms of the commitment require us to purchase $32.4 million of product from certain contract manufacturers between April 2004 and July 2004.

Sources and Uses of Cash

        In November 2003, we completed a new issue and secondary public offering in the United States and Canada. Our net proceeds after selling commissions and expenses of the offering amounted to approximately $67.4 million. The net proceeds from the offering are to be used for product development, working capital and general corporate purposes, including acquisitions.

        We expect the proceeds from the November 2003 financing and our expected future operating cash flow will continue to fund our operations.

        One of our significant sources of funds is expected to be our future operating cash flow. In the past, our revenue was dependent on us fulfilling our commitments in accordance with agreements with major customers. We have completed volume shipments on those contracts. Therefore, in the future, we will rely on purchase orders with these customers and these customers, like our other customers, will be under no contractual obligation to purchase our products. If they do not make such purchases, our revenue will be negatively impacted. We have a risk of impairment to our liquidity should there be any interruption to our business operations.

        The source of funds for our future capital expenditures and commitments is cash, short and long-term investments, accounts receivable, research and development funding, borrowings and cash from operations, as follows:

•

Net cash and short-term investments amounted to $83.0 million at March 31, 2004 compared to $85.1 million at December 31, 2003.



•

Long-term investments amounted to $32.3 million at March 31, 2004 compared to $24.6 million at December 31, 2003.



•

Accounts receivable amounted to $22.6 million at March 31, 2004 compared to $21.6 million at December 31, 2003.



•

We have a $10.0 million operating line of credit with a Canadian chartered bank. The credit facility bears interest at prime plus 1.25% and is secured by a general security agreement providing a first charge against all assets. At March 31, 2004, there were no borrowings under this line of credit.

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Market Risk Disclosure

        During the first quarter ended March 31, 2004, 86% of our revenue was earned from United States-based customers compared to 61% in the first quarter ended March 31, 2003. Our risk from currency fluctuations between the Canadian and U.S. dollar is reduced by purchasing inventory, other costs of sales and many of our services in U.S. dollars. We are exposed to foreign currency fluctuations since the majority of our research and development, sales and marketing, and administration costs are incurred in Canada. We monitor our exposure to fluctuations between the Canadian and U.S. dollars. As a result of the adoption of U.S. dollars as our currency of measurement in the year ended December 31, 1999, our foreign currency risk has changed from U.S. dollar denominated monetary assets and liabilities to non-U.S. dollar denominated monetary assets and liabilities and the risk of the impact of exchange rate changes relative to the U.S. dollar. For the three months ended March 31, 2004, we have recorded a foreign exchange loss of approximately $0.3 million. As we have available funds and very little debt, we have not been adversely affected by significant interest rate fluctuations.

        With our international expansion into Europe and the Asia-Pacific region, we are transacting business in additional foreign currencies and the potential for currency fluctuations is increasing. The risk associated with currency fluctuations between the U.S. dollar and foreign currencies in Europe and the Asia-Pacific region has been minimal as such transactions have not been material to date. We expect that, as our business expands in Europe, we will also continue to be exposed to Euro transactions. To date we have not entered into any futures contracts. To manage our foreign currency risks, we may enter into such contracts should we consider it to be advisable to reduce our exposure to future foreign exchange fluctuations.

        Currently, we do not have any hedging activities or derivative instruments, therefore the impact of FAS No. 133 is not material to our financial results.

Related Party Transactions

        During the three months ended March 31, 2004, there were no material related party transactions.

Quarterly Results of Operations

        The following tables set forth certain unaudited consolidated statements of operations data for each of the eight most recent quarters that, in management's opinion, have been prepared on a basis consistent with the audited consolidated financial statements contained in our fiscal 2003 Annual Report. The unaudited consolidated statements of operations data presented below reflects all adjustments, consisting primarily of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods. These operating results are not necessarily indicative of results for any future period. You should not rely on them to predict our future performance.

40

		Quarter Ended									Year
2003		March 31		June 30		Sept. 30			Dec. 31		2003
Revenue		$	20,150	$	20,736	$	26,250		$	34,573	$	101,709
Cost of goods sold			12,210		12,405		15,566			20,370		60,551
Gross margin			7,940		8,331		10,684			14,203		41,158
Expenses:
	Sales and marketing		2,729		2,590		2,653			3,613		11,585
	Research and development, net		2,749		2,947		4,677			5,621		15,994
	Administration		1,617		1,451		1,331			2,198		6,597
	Restructuring and other charges		—		—		1,220			—		1,220
	Integration costs		—		—		1,026			921		1,947
	Amortization		553		546		590			638		2,327
			7,648		7,534		11,497			12,991		39,670
Earnings (loss) from operations			292		797		(813	)		1,212		1,488
Other income (expense)			104		167		(74	)		768		965
Earnings (loss) before income taxes			396		964		(887	)		1,980		2,453
Income tax expense			35		54		54			55		198
Net earnings (loss)		$	361	$	910	$	(941	)	$	1,925	$	2,255
Earnings (loss) per share:
	Basic	$	0.02	$	0.06	$	(0.05	)	$	0.09	$	0.12
	Diluted	$	0.02	$	0.05	$	(0.05	)	$	0.08	$	0.12
Weighted average number of shares (in thousands):
	Basic		16,355		16,375		18,409			22,563		18,442
	Diluted		16,718		16,754		18,409			23,383		18,989

		Quarter Ended											Year
2002		March 31			June 30			Sept. 30		Dec. 31			2002
Revenue		$	16,700		$	16,929		$	21,083	$	22,547		$	77,259
Cost of goods sold			10,780			29,677			12,817		15,987			69,261
Gross margin			5,920			(12,748	)		8,266		6,560			7,998
Expenses:
	Sales and marketing		2,710			2,920			2,801		3,133			11,564
	Research and development, net		4,801			4,615			3,217		2,263			14,896
	Administration		1,973			1,837			1,331		(356	)		4,785
	Restructuring and other charges		—			13,093			—		(224	)		12,869
	Amortization		653			594			529		555			2,331
			10,137			23,059			7,878		5,371			46,445
Earnings (loss) from operations			(4,217	)		(35,807	)		388		1,189			(38,447	)
Other income (expense)			(122	)		96			124		149			247
Earnings (loss) before income taxes			(4,339	)		(35,711	)		512		1,338			(38,200	)
Income tax expense			—			3,424			9		30			3,463
Net earnings (loss)		$	(4,339	)	$	(39,135	)	$	503	$	1,308		$	(41,663	)
Earnings (loss) per share:
	Basic	$	(0.27	)	$	(2.40	)	$	0.03	$	0.08		$	(2.56	)
	Diluted	$	(0.27	)	$	(2.40	)	$	0.03	$	0.08		$	(2.56	)
Weighted average number of shares (in thousands):
	Basic		16,263			16,305			16,314		16,334			16,304
	Diluted		16,263			16,305			16,539		16,733			16,304

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Selected Annual Information

	Years ended December 31,
	2001			2002			2003
Revenue	$	62,348		$	77,259		$	101,709
Net earnings (loss)		(24,269	)		(41,663	)		2,255
Diluted earnings (loss) per share		(1.50	)		(2.56	)		0.12
Total assets		110,724			71,089			175,868
Total long-term liabilities		2,720			6,590			3,735

Differences Between United States and Canadian GAAP

        The MD&A has been prepared in accordance with U.S. GAAP. Differences between our consolidated financial statements under U.S. GAAP and our consolidated financial statements under Canadian GAAP reflect differences in accounting for employee stock compensation, accounting for available-for-sale investments, and exchange rates used to translate prior years' assets, liabilities, revenue, and expenses on adopting the U.S. dollar as our primary currency for measurement and display during the year ended December 31, 1999.

        Cost of goods sold, sales and marketing expense, research and development expense, administration expense, deficit, contributed surplus and share capital for the three months ended March 31, 2004 were different under Canadian GAAP due to the retroactive adoption on January 1, 2004 of the new recommendations of the Canadian Institute of Chartered Accountants related to stock-based compensation. The amended standard requires recognition of an estimate of the fair value of employee stock-based awards in earnings. Under the amended standard, compensation expense is recorded and contributed surplus and share capital are increased to reflect the fair values of the unexercised and exercised stock options, respectively. Under U.S. GAAP, only note disclosure is required for the pro forma net income using a fair value based method for employee stock-based awards. The impact of the retroactive application of the recommendations on our net earnings under Canadian GAAP for the three months ended March 31, 2004 was a reduction of $1,487 (2003 — $2,577) and a reduction of our diluted earnings per share of $0.06 (2003 — $0.16). At December 31, 2003, the restatement resulted in an increase in our deficit of $39,004 (2002 — $24,229).

        Short-term and long-term investments and shareholders' equity at March 31, 2004 are different under Canadian GAAP due to the difference in accounting treatment applied to investments classified as available-for sale. Under Canadian GAAP, short-term investments are recorded at the lower of cost and quoted market value, while long-term investments are recorded at cost unless there is an other than temporary decline in value. Under U.S. GAAP, available-for-sale investments are recorded at quoted market value. In accordance with U.S. GAAP, unrealized holding gains (losses) related to available-for-sale investments, after deducting amounts allocable to income taxes, are reflected as part of accumulated other comprehensive income, a separate component of shareholders' equity. Under Canadian GAAP, unrealized holding gains are not recorded and unrealized holding losses are charged to earnings. The difference in accounting treatment results in a reduction of short-term and long-term investments under Canadian GAAP at March 31, 2004 of $329. Shareholders' equity under Canadian GAAP also decreases by $329.

Forward-looking Statements

        This report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, plans and timing for the introduction or enhancement of our services and products, statements about future market conditions, supply and demand conditions, channel inventory and sell through, revenue, gross margin, operating expenses, profits, and other expectations, intentions and plans contained in this annual report that are not historical fact. Our expectations regarding future revenues and earnings depend in part upon our ability to develop, manufacture, and supply products that we do not produce today and that meet defined specifications, as well as our ability to bring the Voq professional phone to market. When used in this report, the words "plan", "expect","believe", and similar expressions generally identify forward-looking statements. These statements reflect our current expectations. They are subject to a number of risks and uncertainties, including but not limited to, changes in technology and changes in the wireless data communications market. In light of the many risks and uncertainties surrounding the wireless data communications market, you should understand that we cannot assure you that the forward-looking statements contained in this report will be realized.

42

Risk Factors

        Our business is subject to significant risks and past performance is no guarantee of future performance. Some of the risks we face are:

We have incurred net losses in the past and may not sustain profitability.

While we had earnings from operations for the year ended December 31, 2003, we have incurred a loss from operations in each of the previous three fiscal years. As of December 31, 2003 our accumulated deficit was approximately $71.3 million. While we had net earnings of $2.3 million for the year ended December 31, 2003, our ability to achieve and maintain profitability will depend on, among other things, the continued sales of our products and the successful development and commercialization of new products. We cannot predict if the current profitability will be sustainable on a quarterly or an annual basis. As a result, our share price may decline.

If the current profitability does not continue, we may need to raise additional capital in the future. Additional financing may not be available, and even if available, may not be on acceptable terms. We may seek to raise additional capital through an offering of common shares, preference shares or debt, which may result in dilution, and/or the issuance of securities with rights senior to the rights, of the holders of common shares.

If demand for our current products declines and we are unable to launch successful new products, our revenues will decrease.

If the markets in which we compete fail to grow, or grow more slowly than we currently anticipate, or if we are unable to establish markets for our new products, it would significantly harm our business, results of operations and financial condition. In addition, demand for one or all of our current products could decline as a result of competition, technological change or other factors.

If we are unable to design and develop new products that gain sufficient commercial acceptance, we may be unable to maintain our market share or to recover our research and development expenses and our revenues could decline.

We depend on designing, developing and marketing new products to achieve much of our future growth. Our ability to design, develop and market new products depends on a number of factors, including, but not limited to the following:

•

Our ability to attract and retain skilled technical employees;



•

The availability of critical components from third parties;



•

Our ability to successfully complete the development of products in a timely manner; and



•

Our ability to manufacture products at an acceptable price and quality.

A failure by us, or our suppliers, in any of these areas, or a failure of new products, such as Voq, to obtain commercial acceptance, could mean we receive less revenue than we anticipate and we are unable to recover our research and development expenses, and could result in a decrease in the market price for our shares.

The loss of any of our material customers could adversely affect our revenue and profitability, and therefore shareholder value.

We depend on a small number of customers for a significant portion of our revenues. In the last two fiscal years, there have been four different customers that individually accounted for more than 10% of our revenues. If any of these customers reduce their business with us or suffer from business failure, our revenues and profitability could decline, perhaps materially.

We may not be able to continue to design products that meet our customer needs and, as a result, our revenue and profitability may decrease.

We develop products to meet our customers' requirements but, particularly with original equipment manufacturers, current design wins do not guarantee future design wins. If we are unable or choose not to meet our customers' future needs, we may not win their future business and our revenue and profitability may decrease.

43

We do not expect to have significant long term customer contracts and our revenues will be negatively impacted if customers do not continue to order our products under purchase orders.

In late 1999 and 2000, we entered into significant supply contracts with AT&T Wireless, Sprint PCS and Verizon Wireless. We have completed volume shipments on all three contracts by the last quarter of 2003. We are now relying on purchase orders with these customers, and these customers, like our other customers, will be under no contractual obligation to purchase our products. If they do not make such purchases, our revenue and our share price may decline.

We may not be able to sustain our current gross margins and, as a result, our profitability may decrease.

We generally price our products based on our estimate of future production costs. If actual production costs are higher than we anticipate, our gross margins will decrease. In addition, competitive pressures may force us to lower our product prices, which will decrease our gross margins if we are unable to offset that effect by cost reduction measures. If our gross margins are reduced with respect to an important product line, or if our sales of lower margin products exceed our sales of higher margin products, our profitability may decrease and our business could suffer.

Our revenues and earnings may fluctuate from quarter to quarter, which could affect the market price of our common shares.

Our revenues and earnings may vary from quarter to quarter as a result of a number of factors, including:

•

The timing of releases of our new products;



•

The timing of substantial sales orders;



•

Possible seasonal fluctuations in demand;



•

Possible delays in the manufacture or shipment of current or new products; and



•

Possible delays or shortages in component supplies.

Because our operating expenses are determined based on anticipated sales, are generally fixed and are incurred throughout each fiscal quarter, any of the factors listed above could cause significant variations in our revenues and earnings in any given quarter. Thus, our quarterly results are not necessarily indicative of our overall business, results of operations and financial condition. However, quarterly fluctuations in our revenues and earnings may affect the market price of our common shares.

We depend on a few third parties to manufacture our products and supply key components. If they do not manufacture our products properly or cannot meet our needs in a timely manner, we may be unable to fulfill our product delivery obligations and our costs may increase, and our revenue and margins could decrease.

We outsource a substantial part of the manufacture of our products to third parties and depend heavily on the ability of these manufacturers to meet our needs in a timely and satisfactory manner. Some components used by us may only be available from a small number of suppliers, in some cases from only one supplier. We currently rely on three manufacturers, any of which may terminate the manufacturing contract with us at the end of any contract year. Our reliance on third party manufacturers and suppliers subjects us to a number of risks, including the following:

•

The absence of guaranteed manufacturing capacity;



•

Reduced control over delivery schedules, production yields and costs; and



•

Inability to control the amount of time and resources devoted to the manufacture of our products.

If we are unable to successfully manage any of these risks or to locate alternative or additional manufacturers or suppliers in a timely and cost-effective manner, we may not be able to deliver products in a timely manner. In addition, our results of operations could be harmed by increased costs, reduced revenues and reduced margins.

44

We do not have fixed-term employment agreements with our key personnel and the loss of any key personnel may harm our ability to compete effectively.

None of our officers or other key employees has entered into a fixed-term employment agreement. Our success depends in large part on the abilities and experience of our executive officers and other key employees. Competition for highly skilled management, technical, research and development and other key employees is intense in the wireless communications industry. We may not be able to retain our current key employees or attract and retain additional key employees as needed. The loss of key employees could disrupt our operations and impair our ability to compete effectively.

We may have difficulty responding to changing technology, industry standards and customer preferences, which could cause us to be unable to recover our research and development expenses and lose revenues.

The wireless industry is characterized by rapid technological change. Our success will depend in part on our ability to develop products that keep pace with the continuing changes in technology, evolving industry standards and changing customer and end-user preferences and requirements. Our products embody complex technology that may not meet those standards, changes and preferences. In addition, wireless communications service providers require that wireless data systems deployed in their networks comply with their own standards, which may differ from the standards of other providers. We may be unable to successfully address these developments in a timely basis or at all. Our failure to respond quickly and cost-effectively to new developments through the development of new products or enhancements to existing products could cause us to be unable to recover significant research and development expenses and reduce our revenues.

Competition from bigger more established companies with greater resources may prevent us from increasing or maintaining our market share and could result in price reductions and reduced revenues.

The wireless industry is intensely competitive and subject to rapid technological change. We expect competition to intensify. More established and larger companies with greater financial, technical and marketing resources sell products that compete with ours. We also may introduce new products that will put us in direct competition with major new competitors. Existing or future competitors may be able to respond more quickly to technological developments and changes or may independently develop and patent technologies and products that are superior to ours or achieve greater acceptance due to factors such as more favorable pricing or more efficient sales channels. If we are unable to compete effectively with our competitors' pricing strategies, technological advances and other initiatives, our market share and revenues may be reduced.

As the adoption of wireless data has continued to increase, we have experienced an increase in competition in our market. If wireless adoption continues to grow, we may continue to experience increased competition from new entrants into the market, and from bigger and more established companies with greater resources, which could result in reduced revenues and profits.

We depend on third parties to offer wireless data and voice communications services for our products to operate.

Our products can only be used over wireless data and voice networks operated by third parties. In addition, our future growth depends, in part, on the successful deployment of next generation wireless data and voice networks by third parties for which we are developing products. If these network operators cease to offer effective and reliable service, or fail to market their services effectively, sales of our products will decline and our revenues will decrease.

Acquisitions of companies or technologies may result in disruptions to our business or may not achieve the anticipated benefits.

As part of our business strategy, we may acquire additional assets and businesses principally relating to or complementary to our current operations. Any other acquisitions and/or mergers by us will be accompanied by the risks commonly encountered in acquisitions of companies. These risks include, among other things:

•

Exposure to unknown liabilities of acquired companies;



•

Higher than anticipated acquisition costs and expenses;

45

•

Effects of costs and expenses of acquiring and integrating new businesses on our operating results and financial condition;



•

The difficulty and expense of integrating the operations and personnel of the companies;



•

Disruption of our ongoing business;



•

Diversion of management's time and attention away from our remaining business during the integration process;



•

Failure to maximize our financial and strategic position by the successful incorporation of acquired technology;



•

The inability to implement uniform standards, controls, procedures and policies;



•

The loss of key employees and customers as a result of changes in management;



•

The incurrence of amortization expenses; and



•

Possible dilution to our shareholders.

In addition, geographic distances may make integration of businesses more difficult. We may not be successful in overcoming these risks or any other problems encountered in connection with any acquisitions. If realized, these risks could reduce shareholder value.

Others could claim that we infringe on their intellectual property rights, which may result in substantial costs, diversion of resources and management attention and harm to our reputation.

It is possible that other parties may claim that we have violated their intellectual property rights. Rights to intellectual property can be difficult to verify. Competitors could assert, for example, that former employees of theirs whom we have hired have misappropriated their proprietary information for our benefit. A successful infringement claim against us could damage us in the following ways:

•

We may be liable for damages and litigation costs, including attorneys' fees;



•

We may be prohibited from further use of the intellectual property;



•

We may have to license the intellectual property, incurring licensing fees; and



•

We may have to develop a non-infringing alternative, which could be costly and delay or result in the loss of sales.

Regardless of the outcome, an infringement claim could result in substantial costs, diversion of resources and management attention and harm to our reputation.

If we are successful in the design and development of our new products, and there is commercial acceptance of our products, such as the Voq Smartphone, others may claim that we infringe on their intellectual property rights, which may result in substantial costs, diversion of resources and management attention and harm our reputation.

Misappropriation of our intellectual property could place us at a competitive disadvantage.

Our intellectual property is important to our success. We rely on a combination of patent protection, copyrights, trademarks, trade secrets, licenses, non-disclosure agreements and other contractual agreements to protect our intellectual property. Third parties may attempt to copy aspects of our products and technology or obtain information we regard as proprietary without our authorization. If we are unable to protect our intellectual property against unauthorized use by others it could have an adverse effect on our competitive position.

Our strategies to deter misappropriation could be inadequate due to the following risks:

•

Non-recognition of the proprietary nature or inadequate protection of our methodologies in the United States, Canada or foreign countries;



•

Undetected misappropriation of our intellectual property;



•

The substantial legal and other costs of protecting and enforcing our rights in our intellectual property; and

46

•

Development of similar technologies by our competitors.

In addition, we could be required to spend significant funds and our managerial resources could be diverted in order to defend our rights, which could disrupt our operations.

As our business expands internationally, we will be exposed to additional risks relating to international operations.

Our expansion into international operations exposes us to additional risks unique to such international markets, including the following:

•

Increased credit management risks and greater difficulties in collecting accounts receivable;



•

Unexpected changes in regulatory requirements, wireless communications standards, exchange rates, trading policies, tariffs and other barriers;



•

Uncertainties of laws and enforcement relating to the protection of intellectual property;



•

Language barriers; and



•

Potential adverse tax consequences.

Furthermore, if we are unable to further develop distribution channels in Europe and the Asia-Pacific region we may not be able to grow our international operations and our ability to increase our revenue will be negatively impacted.

Government regulation could result in increased costs and inability to sell our products.

Our products are subject to certain mandatory regulatory approvals in the United States, Canada and other countries in which we operate. In the United States, the Federal Communications Commission regulates many aspects of communications devices. In Canada, similar regulations are administered by the Ministry of Industry, through Industry Canada. Although we have obtained all the necessary Federal Communications Commission, Industry Canada and other required approvals for the products we currently sell, we may not obtain approvals for future products on a timely basis, or at all. In addition, regulatory requirements may change or we may not be able to obtain regulatory approvals from countries other than the United States and Canada in which we may desire to sell products in the future.

Fluctuations in exchange rates between the United States dollar and the Canadian dollar may affect our operating results.

We are exposed to fluctuations in the exchange rate between the United States dollar and the Canadian dollar through our operations in Canada. To reduce our risk because of currency fluctuations, we purchase inventory, other costs of sales items and many of our services in United States dollars. If the Canadian dollar rises relative to the United States dollar, our operating results may be negatively impacted. To date, we have not entered into any foreign currency futures contracts as part of a hedging policy, but we have purchased Canadian currency to cover our Canadian currency requirements for the next several fiscal quarters. We have entered into distribution agreements in Europe and the Asia-Pacific region that are denominated primarily in U.S. dollars. We expect that as our business expands in Europe and the Asia-Pacific region, we will also be exposed to additional foreign currency transactions and to the associated currency risk. To date, we have not entered into any futures contracts.

47

SIERRA WIRELESS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in thousands of United States dollars, except per share amounts)
(Prepared in accordance with Canadian generally accepted accounting principles (GAAP))
(Unaudited)

		Three months ended March 31,
		2004		2003
				(Restated — Note 2)
Revenue		$	41,641	$	20,150
Cost of goods sold			24,918		12,327
Gross margin			16,723		7,823
Expenses:
	Sales and marketing		4,571		3,452
	Research and development, net		5,281		3,709
	Administration		2,532		2,394
	Amortization		636		553
			13,020		10,108
Earnings (loss) from operations			3,703		(2,285	)
Other income			84		104
Earnings (loss) before income taxes			3,787		(2,181	)
Income tax expense			704		35
Net earnings (loss)		$	3,083	$	(2,216	)
Earnings (loss) per share:
	Basic	$	0.12	$	(0.14	)
	Diluted	$	0.12	$	(0.14	)
Weighted average number of shares (in thousands)
	Basic		24,986		16,355
	Diluted		25,795		16,355

See accompanying notes to consolidated financial statements.

48

SIERRA WIRELESS, INC.

CONSOLIDATED STATEMENTS OF DEFICIT

(Expressed in thousands of United States dollars)
(Prepared in accordance with Canadian GAAP)
(Unaudited)

	Three months ended March 31,
	2004			2003
				(Restated — Note 2)
Deficit, beginning of period as previously reported	$	(70,331	)	$	(72,586	)
Adjustment to reflect change in accounting for employee stock options (note 2)		(39,004	)		(24,229	)
Deficit, beginning of period as restated		(109,335	)		(96,815	)
Net earnings (loss)		3,083			(2,216	)
Deficit, end of period	$	(106,252	)	$	(99,031	)

See accompanying notes to consolidated financial statements.

49

SIERRA WIRELESS, INC.

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States dollars)
(Prepared in accordance with Canadian GAAP)

		March 31, 2004			December 31, 2003
		(Unaudited)			(Restated — Note 2)
Assets
Current assets:
	Cash and cash equivalents	$	62,601		$	70,358
	Short-term investments		20,342			14,760
	Accounts receivable		22,652			21,566
	Inventories		2,096			1,511
	Prepaid expenses		1,956			2,223
			109,647			110,418
Long-term investments			32,029			24,639
Capital assets			6,551			5,985
Intangible assets			15,354			14,620
Goodwill			20,022			19,706
Future income taxes			500			500
		$	184,103		$	175,868
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable	$	2,634		$	5,966
	Accrued liabilities		26,558			22,221
	Deferred revenue and credits		250			399
	Current portion of long-term liabilities		1,328			1,328
	Current portion of obligations under capital lease		87			141
			30,857			30,055
Long-term liabilities			1,935			2,266
Shareholders' equity:
	Share capital (notes 2 and 3)		218,821			213,964
	Warrants		1,538			1,538
	Contributed surplus (note 2)		37,688			37,864
	Deficit (note 2)		(106,252	)		(109,335	)
	Cumulative translation adjustments		(484	)		(484	)
			151,311			143,547
		$	184,103		$	175,868

        Contingencies (note 4)

See accompanying notes to consolidated financial statements.

50

SIERRA WIRELESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of United States dollars)
(Prepared in accordance with Canadian GAAP)
(Unaudited)

			Three months ended March 31,
			2004			2003
						(Restated — Note 2)
Cash flows from operating activities:
	Net earnings (loss)		$	3,083		$	(2,216	)
	Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
		Amortization		1,630			1,338
		Stock-based employee compensation (note 2)		1,487			2,577
		Loss on disposal		(14	)		—
		Accrued warrants		—			168
	Changes in operating assets and liabilities
		Accounts receivable		(998	)		3,725
		Inventories		(585	)		(815	)
		Prepaid expenses		267			6
		Accounts payable		(3,332	)		564
		Accrued liabilities		3,922			(1,589	)
		Deferred revenue and credits		(149	)		104
	Net cash provided by operating activities			5,311			3,862
Cash flows from investing activities:
	Purchase of capital assets			(1,503	)		(143	)
	Increase in intangible assets			(1,246	)		(602	)
	Purchase of long-term investments			(17,011	)		—
	Proceeds on disposal of long-term investments			3,217			—
	Purchase of short-term investments			(7,226	)		—
	Proceeds on maturity of short-term investments			7,892			—
	Net cash used in investing activities			(15,877	)		(745	)
Cash flows from financing activities:
	Issue of common shares, net of share issue costs			3,194			41
	Repayment of long-term liabilities			(385	)		(456	)
	Net cash provided by (used in) financing activities			2,809			(415	)
Net increase (decrease) in cash and cash equivalents				(7,757	)		2,702
Cash and cash equivalents, beginning of period				70,358			34,841
Cash and cash equivalents, end of period			$	62,601		$	37,543

See supplementary cash flow information (note 5).

See accompanying notes to consolidated financial statements.

51

SIERRA WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, except per share amounts and number of shares)
(Prepared in accordance with Canadian GAAP)
(Unaudited)

1.     Basis of presentation

The accompanying financial information does not include all disclosures required under Canadian generally accepted accounting principles for annual financial statements. The accompanying financial information reflects all adjustments, consisting primarily of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our fiscal 2003 Annual Report.

2.     Significant accounting policies

These interim financial statements follow the same accounting policies and methods of application as our annual financial statements, except for 2(b).

(a)

Principles of consolidation

Our consolidated financial statements include the accounts of Sierra Wireless, Inc. and its wholly-owned subsidiaries Sierra Wireless Data, Inc., Sierra Wireless America, Inc. (formerly AirPrime, Inc.), Sierra Wireless (UK) Limited, Sierra Wireless (Asia Pacific) Limited, Sierra Wireless SRL and Sierra Wireless ULC from their respective dates of formation or acquisition. We have eliminated all significant intercompany balances and transactions.

(b)

Stock-based compensation

Prior to January 1, 2004, we accounted for employee stock options using the intrinsic value method. Accordingly, no stock-based compensation cost was recognized as all options were granted with an exercise price equal to the market value of the underlying common shares on the date of grant. Previously, we provided note disclosure of pro forma net earnings (loss) as if the fair value based method had been used.

Effective January 1, 2004, we adopted the fair value recognition provisions of the amended Canadian Institute of Chartered Accountants Handbook ("HB") 3870, "Stock-based Compensation and Other Stock-based Payments" ("HB 3870"), which requires recognition of an estimate of the fair value of stock-based awards in earnings. We have retroactively applied HB 3870, with restatement of prior periods to record the compensation cost that would have been recognized had the fair value recognition provisions of HB 3870 been applied to all awards granted to employees since the inception of the stock option plan in 1997.

We have accounted for employee stock-based compensation using the fair value recognition provisions of HB 3870 and the Black-Scholes option-pricing model. The restatement at December 31, 2003 resulted in an increase in the deficit of $39,004 (December 31, 2002 — $24,229), an increase in contributed surplus of $37,864 and an increase in share capital of $1,140. The change in accounting policy results in compensation expense related to employee stock options of $1,487 and $2,577 for the three months ended March 31, 2004 and March 31, 2003, respectively.

52

3.     Share capital

Changes in the issued and outstanding common shares for the three months ended March 31, 2004 are as follows:

	Number of Shares	Amount
Balance at December 31, 2003	24,822,071	$	213,964
Stock option exercises	335,835		4,857
Balance at March 31, 2004	25,157,906	$	218,821

The fair value of stock options exercised increased share capital for the three months ended March 31, 2004 by $1,663.

Stock option plan

In accordance with HB 3870, we record compensation expense in the statements of operations by recognizing the calculated benefit at the date of granting the stock options on a straight-line basis over the vesting period. We have estimated the fair value of each option on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

	Three months ended March 31,
	2004		2003
Expected dividend yield	—		—
Expected stock price volatility	99	%	104	%
Risk-free interest rate	3.32	%	4.10	%
Expected life of options	4 years		4 years
Weighted average fair value of options granted	$18.19		$2.45

Stock option activity since December 31, 2002 is presented below:

	Number of Stock Options
Outstanding, December 31, 2002	2,550,564
Granted	609,300
Exercised	(325,932	)
Forfeited	(1,107,572	)
Outstanding, December 31, 2003	1,726,360
Granted	370,813
Exercised	(335,835	)
Forfeited	(20,319	)
Outstanding, March 31, 2004	1,741,019

4.     Contingencies

(a)

Contingent liability on sale of products

(i)

Under license agreements, we are committed to royalty payments based on the sales of products using certain technologies. We recognize royalty obligations as determinable in accordance with agreement terms. Where agreements are not finalized, we have recognized our current best estimate of the obligation. When the agreements are finalized, the estimate will be revised accordingly.



(ii)

Under certain research and development funding agreements, we are contingently liable to repay up to $3,328. Repayment for certain of the research and development funding agreements is contingent upon reaching certain revenue levels for specified products.



(iii)

Under an agreement with the Government of Canada's Technology Partnerships Canada ("TPC") program, we have received Cdn. $9,999 to support the development of a range of third generation wireless technologies. Under the terms of the agreement, an amount up to a maximum of Cdn. $13,000 is to be repaid based on annual sales, in excess of certain minimum amounts, of specified products commencing in 2004. During the three months ended March 31, 2004, we claimed nil (2003 — $316) that has been recorded as a reduction of research and development expense.    During the three months ended March 31, 2004, we have repaid $365. In addition, we issued warrants to TPC to purchase 138,696 common shares on December 30, 2003, valued at Cdn. $2,000 based on the Black-Scholes pricing model. The warrants are exercisable at Cdn $20.49 per share for a term of five years from December 30, 2003. As of March 31, 2004 no warrants have been exercised.

53

In March 2004, we entered into a second agreement with TPC under which we are eligible to receive conditionally repayable research and development funding up to Cdn. $9,540 to support the development of a range of third generation wireless technologies. The agreement is effective April 2003. During the three months ended March 31, 2004, we have claimed $1,428 for the period April 1, 2003 to March 31, 2004, which has been recorded as a reduction of research and development expense. Under the terms of the agreement, repayment based on a percentage of annual sales, in excess of certain minimum amounts, will be made over the period from April 2003 to December 2011. If the payments during this period are less than Cdn. $16,455, payments will continue subsequent to December 2011 until the earlier of when the amount is reached or December 2014.

(iv)

We accrue product warranty costs, when we sell the related products, to provide for the repair or replacement of defective products. Our accrual is based on an assessment of historical experience and on management's estimates. An analysis of changes in the liability for product warranties follows:

Balance, December 31, 2002	$	1,163
Provisions		1,939
Increase due to acquisition		418
Expenditures		(1,179	)
Balance, December 31, 2003		2,341
Provisions		380
Expenditures		(267	)
Balance, March 31, 2004	$	2,454

(b)

Other commitments

We have entered into purchase commitments totaling $32,440 with certain contract manufacturers under which we commit to buy a minimum amount of designated products between April 2004 and July 2004.    In certain of these agreements, we may be required to acquire and pay for such products up to the prescribed minimum or forecasted purchases.

(c)

Legal proceedings

We are engaged in certain legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.

5.     Supplementary information

		Three months ended March 31,
		2004		2003
Cash received for interest		$	334	$	76
Cash paid for
	Interest		3		25
	Income taxes		56		14
Non-cash financing activities
	Purchase of capital assets funded by obligations under capital lease		—		113

54

6.     Comparative figures

We have reclassified certain of the figures presented for comparative purposes to conform to the financial statement presentation we adopted for the current period.

55

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SIERRA WIRELESS, INC.
Date: May 14, 2004
	By:	/s/  DAVID G. MCLENNAN David G. McLennan Chief Financial Officer and Secretary

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FIRST QUARTER REPORT
CHAIRMAN'S MESSAGE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF DEFICIT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIGNATURES