SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                   ------------------------------------------

                                    FORM 10-K


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

     For the fiscal year ended December 31, 1998

                                       OR

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

     For the transition period from ___________________ to ___________________.

                         Commission file number 0-28968


                         MDSI MOBILE DATA SOLUTIONS INC.
             (Exact name of registrant as specified in its charter)


               CANADA                              NOT APPLICABLE
      (Jurisdiction of incorporation)   (I.R.S. Employer Identification No.)


                              10271 Shellbridge Way
                           Richmond, British Columbia,
                                 Canada V6X 2W8
                    (Address of principal executive offices)

                 Registrant's telephone number: (604) 207-6000

          Securities registered pursuant to Section 12(b) of the Act:

        Title of each class           Name of each exchange on which registered
        -------------------           -----------------------------------------
               None                                     None

                          Common Shares, no par value
                          ---------------------------
                                (Title of Class)

                        Rights to Purchase Common Shares
                        --------------------------------
                                (Title of Class)

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__   No ____


Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.   __X__   

Aggregate market value of the Registrant's  Common Shares held by non-affiliates
as of March 26, 1999 was  approximately  US$77,255,000.  The number of shares of
the Registrant's Common Shares outstanding as of March 26, 1999, was 7,241,664.


                        Exhibit Index Appears at Page 38




<PAGE>


Forward-Looking Statements

     Certain   statements  in  this  Annual  Report  on  Form  10-K   constitute
forward-looking  statements  within the meaning of Section 21E of the Securities
Exchange Act of 1934. Such forward-looking  statements involve known and unknown
risks,  uncertainties  and other  factors  that may cause  the  actual  results,
performance or achievements  of MDSI Mobile Data Solutions Inc.  ("MDSI" or "the
Company"),  or developments in the Company's industry, to differ materially from
the anticipated  results,  performance or  achievements  expressed or implied by
such forward-looking  statements.  Such factors include, but are not limited to:
the Company's limited  operating  history,  lengthy sales cycles,  the Company's
dependence upon large contracts and relative  concentration of customers,  risks
involving the management of growth and integration of acquisitions, competition,
product  development  risks and risks of  technological  change,  dependence  on
selected vertical markets and third-party marketing relationships and suppliers,
the Company's ability to protect its intellectual  property rights and the other
risks and  uncertainties  described  under  "Business Risk Factors" in Part I of
this  Annual  Report on Form 10-K.  Certain of the  forward  looking  statements
contained in this Report are  identified  with cross  references to this section
and/or to specific risks identified under "Business - Risk Factors">


                                     Part I
Item 1: Business

The Company

     MDSI develops, markets, implements and supports mobile workforce management
solutions  for use in the field service and delivery  industries.  The Company's
products include  market-specific  applications,  wireless connectivity software
and related network and mobile computing equipment. These products are used by a
wide variety of companies with substantial  mobile  workforces,  such as utility
and telecommunications companies, taxi services and courier companies and public
safety and roadside recovery organizations. When used in conjunction with public
and private  wireless data  communications  networks,  MDSI's  products  provide
comprehensive solutions for the automation of business processes associated with
the scheduling,  dispatching and management of a mobile workforce.  In addition,
these products enable the Company's  customers to  cost-effectively  communicate
with their mobile workers, while simultaneously enabling the mobile workforce to
interface with their corporate information system on a real-time basis.

     The first  generation of the Company's core product for the utility market,
Advantex-Utility, was originally developed by MDI Mobile Data International Inc.
("MDI"), which was acquired by Motorola Inc. ("Motorola") in 1988. The Company's
predecessor,  MDSI Mobile Data Solutions Canada Inc. ("MDSI Canada"),  commenced
operations  in  February,  1993 when it acquired  the  Advantex-Utility  4.0 and
certain other assets of the Mobile Data Division of Motorola Canada  Limited,  a
wholly-owned subsidiary of Motorola.

     In December  1995, as part of its strategy to broaden its  technology  base
and product  offerings,  the Company,  MDSI Canada and TelSoft  Mobile Data Inc.
("TelSoft")  completed a plan of arrangement (the "Plan of  Arrangement")  under
the Company Act (British  Columbia).  Prior to the Plan of Arrangement,  TelSoft
held a 60%  interest in MDSI  Canada.  As part of the Plan of  Arrangement,  the
Company  acquired  all of the  outstanding  shares of  TelSoft in  exchange  for
1,828,387 Common Shares of the Company and the assumption of $797,000  principal
amount of  convertible  debentures  (the  "Convertible  Debentures")  previously
issued by TelSoft,  and all of the outstanding shares of MDSI Canada, other than
those shares of MDSI Canada already owned by TelSoft,  in exchange for 2,160,000
Common Shares of the Company.  Following the acquisition of TelSoft, TelSoft was
merged with and into MDSI Canada.  The acquisition by the Company of MDSI Canada
was  accounted  for  as  a  reorganization   of  assets  under  common  control.
Accordingly, the Company is deemed to be a continuance of MDSI Canada subsequent
to the Plan of Arrangement,  and the historical  accounting basis of MDSI Canada
was carried forward. The acquisition of TelSoft has been accounted for under the
purchase  method of accounting.  Effective  October 1, 1998, the Company carried
out a vertical short form  amalgamation  with MDSI Canada pursuant to which MDSI
Canada was amalgamated with and into the Company.  See "Management's  Discussion
and  Analysis of  Financial  Condition  and Results of  Operations  - Effects of
Acquisitions".

     In June 1996, the Company acquired all of the outstanding  share capital of
MDSI UK for aggregate consideration of $10,616,023,  consisting of 55,263 Common
Shares and $9,733,270 ((pound)4,500,000) in cash. The acquisition of MDSI UK has
been accounted for by the Company under the purchase  method of accounting.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Effects of Acquisitions">

     In July 1997, the Company acquired all of the outstanding  share capital of
Alliance  Systems,  Incorporated  ("Alliance")  for aggregate  consideration  of
$9,116,828, consisting of 347,750 Common Shares and US$1,582,088 ($2,188,750) in
cash. Effective January 4, 1999, Alliance merged with Mobile Data Solutions Inc.
("MDSI  USA"),  a Delaware  corporation  and a  wholly-owned  subsidiary  of the
Company. MDSI USA is the surviving corporation. See "Management's Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations  -  Effects  of
Acquisitions" and "Results of Operations - Effects of Acquisitions".

                                       2
<PAGE>

     Pursuant  to the Plan of  Arrangement,  the  Company  was  incorporated  in
September 1995 under the Canada  Business  Corporations  Act ("CBCA") as 3181910
Canada Inc. The Company  changed its name to MDSI Mobile Data  Solutions Inc. in
December  1995.  Unless the context  otherwise  requires,  references  herein to
"MDSI"  or the  "Company"  refer to MDSI  Mobile  Data  Solutions  Inc.  and its
subsidiaries.  The Company's  principal  executive  offices are located at 10271
Shellbridge Way, Richmond,  British Columbia,  Canada V6X 2W8, and its telephone
number at that location is (604) 207-6000.

Background

     Organizations  within the field service and delivery  industries are highly
dependent upon their mobile  workforces to deliver and support their  respective
products and  services.  The field  service  industry is composed of a number of
market  segments,  such as the  utility,  telecommunications,  cable  and  other
general  field  service  repair  markets,  in which mobile  workers  principally
provide repair, maintenance,  installation and other services for customers. The
delivery industry is composed of a number of market segments,  such as the taxi,
courier and roadside  recovery  markets,  in which mobile workers are engaged in
the movement of people and goods.  The public safety industry is composed of the
police,  fire  and  ambulance  markets  in  which  mobile  workers  provide  law
enforcement,  emergency and medical services.  Historically, these organizations
have managed and supported  their mobile  workers by  communicating  information
through  wireline  or voice radio  systems.  Although  voice  radio  systems are
mobile, such systems rely on heavily used portions of the radio spectrum and are
subject to frequent periods of congestion.

     Mobile data  communication  systems that addressed  certain  limitations of
voice  communications  systems  were  first  developed  for a limited  number of
vertical  markets,  such as utility,  public safety,  taxi,  courier and general
field  service.  Businesses in these  markets  recognized  certain  productivity
benefits  associated with wireless data applications.  Although such mobile data
communications  systems were introduced in a number of vertical  markets,  these
systems failed to achieve widespread adoption. The Company believes that the low
rate of adoption was attributable to the high cost of establishing private radio
networks, the difficulty of obtaining radio spectrum for such networks, the high
cost  and  limited  functionality  of early  mobile  computing  devices  and the
regulatory   environment   in  certain   industries,   such  as  utilities   and
telecommunications, which diminished competitive pressures. Additionally, a lack
of industry-specific  application software which effectively addressed the needs
of mobile workers limited the cost-effectiveness of early systems.

     The Company believes that significant trends in the regulatory environment,
numerous technological advances and a recent significant increase in competitive
pressures have reduced many of these limitations and have accelerated,  and will
continue to  accelerate,  the  adoption of mobile  data  solutions  by the field
service,  delivery and public safety  industries.  Deregulation  has exposed the
utility and  telecommunications  markets to new competitive  pressures,  driving
businesses  within  those  markets  to  seek  ways  to  reduce  costs,   improve
operations,  efficiently allocate resources and increase the quality of customer
service. In addition,  the availability of powerful mobile computing devices has
permitted the  development  of  sophisticated  software  applications.  Finally,
public data networks,  such as ARDIS and RAM, are now widely  available in North
America,  and similar  networks  are  available  in Europe and the Asia  Pacific
region.  Increasing  competition  among these  networks and the emergence of new
wireless  communication  services,  provided  by  organizations  such  as  AT&T,
Ameritech Mobile  Communication and others, has resulted in greater availability
of wireless networks and lower costs to subscribers.  Consequently,  mobile data
solutions  may  now  be  implemented  without  the  difficulty  and  expense  of
establishing a private radio network,  thereby increasing the cost-effectiveness
of such systems.  The Company believes that the convergence of these trends will
increase the likelihood of adoption of mobile data solutions by companies in the
field  service,  delivery and public  safety  industries.  See  "Forward-Looking
Statements".

The MDSI Solution

     MDSI has combined its  expertise in software  application  development  and
mobile data communications technology with its understanding of the unique needs
of targeted  vertical  markets in the field service,  delivery and public safety
industries to develop  mobile  workforce  management  solutions that address the
specific needs of businesses  within those  vertical  markets.  MDSI's  products
enable organizations in the field service and delivery industries to effectively
communicate with, manage and support their mobile workers.

     MDSI's  solutions  include the Advantex family of applications and wireless
connectivity  software  products  designed for the field  service,  delivery and
public safety industries.  MDSI's software products provide applications for the
automation of business processes,  such as service order generation,  scheduling
and assignment,  as well as wireless applications,  such as work order dispatch,
real-time status updates,  service and credit  authorization,  two-way messaging
and remote  database  access.  MDSI products also include  equipment for private
mobile radio data networks, mobile computing devices and ancillary equipment for
selected vertical markets and in certain geographic regions. MDSI's products are
combined with professional services,  such as implementation  planning,  project
management, software configuration, software customization, training and ongoing
technical support and software  maintenance to effectively  address a customer's
mobile workforce management requirements.  Where appropriate, MDSI also provides
third party  products and services as part of a complete  mobile data  solution.
MDSI also offers

                                        3
<PAGE>


general consulting  services to organizations  evaluating the costs and benefits
of implementing  mobile workforce  management  systems, as well as organizations
evaluating wireless industry software products and technologies.

     MDSI's  products are scaleable to address the needs of both small and large
organizations.  For example, MDSI's  Advantex-Utility  product has been sold for
applications  intended  to  support  as few as 70 and as  many as  7,000  mobile
workers.  MDSI's products are also modular so that a solution can be implemented
in phases  and  expanded  to  satisfy  an  organization's  evolving  information
requirements. MDSI's products are designed to interface with a variety of public
and private  mobile data  networks,  including PCS networks and  satellite-based
data  transmission  networks,  and are  compatible  with a variety of  operating
platforms, computer networks and in-house applications.

Markets

     The Company  markets its products and services within the field service and
delivery  industries.  The  Company  evaluates  new  markets  based  upon  their
similarity  to  existing   vertical  markets  in  which  the  Company  has  been
successful, and upon the ability of the Company to utilize its core competencies
and proven technology to meet the needs of companies in these new markets.

Field Service Industry

     The field service  industry  consists of organizations  having  significant
numbers of mobile workers who provide various  customer  services outside of the
office.  The Company  believes  that  increasing  competition  is forcing  field
service  companies  to focus on the  efficiency  and  quality of their  customer
service  operations.  The Company's  principal vertical markets within the field
service  industry are the utility,  telecommunications  and cable markets.  MDSI
also provides products for other segments of the field service industry, such as
companies engaged in the maintenance and repair of office and medical equipment.

     Utilities.  The utilities market targeted by the Company primarily consists
of gas  and  electric  companies.  Industry  sources  indicate  that  there  are
approximately 4,100 gas and electric companies in the United States. The Company
has traditionally  targeted the distribution  operations  within a utility.  The
Company  believes,  however,  that such operations  generally account for only a
portion of the total  number of a  utility's  mobile  workers,  with the balance
attributable to mobile workers engaged in sales,  construction,  engineering and
management  functions.  As a  result,  the  Company  believes  that  there is an
opportunity  to increase  sales to existing  customers and generate  incremental
revenue. See "Forward-Looking Statements". MDSI's products have been implemented
or are being  implemented in over 60 gas and electric  utilities  located in the
United States, Canada, the United Kingdom and Asia.

     In the United States, the production and supply of natural gas and electric
power has been regulated  primarily by the Federal Energy Regulatory  Commission
(the  "FERC").  In recent  years,  the FERC has  implemented  rules  designed to
transfer  certain areas of regulatory  authority  from the FERC to state utility
commissions  and to encourage  competition  in the supply and delivery of energy
resources.  As a result  of  these  regulatory  changes  and  other  anticipated
regulatory  developments,  the Company believes that gas and electric  utilities
are facing new  competitive  pressures  and are seeking ways to reduce costs and
improve the quality of their customer service.

     Telecommunications.  The telecommunications market consists of providers of
local,  long-distance and wireless  communication  services worldwide.  Although
only a few such  companies  have  adopted  mobile data  solutions  to date,  the
Company  believes  that a  number  of  major  telecommunications  companies  are
evaluating  the need for such a system.  The Company  believes  that this market
will  grow  as   companies   implement   new   technology   to   improve   their
competitiveness,   efficiency   and   service   levels.   See   "Forward-Looking
Statements".  The Company has installed or has a contract to supply its products
to 11 telecommunication  companies  worldwide,  including two divisions of AT&T,
Tele Danmark A/S,  Frontier  Information  Technologies  Inc.,  Citizens  Telecom
Services Company L.L.C. and Belgacom S.A.

     Cable.  The cable market  targeted by the Company  consists of providers of
cable  television  services  principally  in North America and Europe.  In North
America, over 75% of the subscriber base is under the control of the ten largest
multiple  service   operators.   Changes  in  the  regulatory   environment  and
technological  developments,  such  as  satellite  television  have  led  to the
introduction  of  significant  competition  in the cable  market.  Technological
advances have also led to the  development  of new services  utilizing the cable
infrastructure,  allowing cable operators to provide high-speed  Internet access
and  basic  telephony  to  subscribers.   The  Company   believes  that  growing
competition  and the  introduction  of new services will lead cable operators to
adopt mobile data  solutions to improve their  competitiveness,  efficiency  and
level of customer service.  See "Forward-Looking  Statements".  Although several
major cable operators have implemented  mobile data solutions in selected sites,
few operators have rolled out these systems to multiple  sites.  The Company has
installed  or has a  contract  to  supply  its  products  to seven  major  cable
operators,  including Cox Communications Inc., Comcast Corp., MediaOne, Inc. and
Adelphia Communications Corporation in the United States and Rogers Cablesystems
Ltd. in Canada.

                                       4
<PAGE>

     Public  Safety.  The public  safety market  consists of federal,  state and
local agencies that provide police,  fire, medical and other emergency services.
The public  safety  industry was one of the first  vertical  industries to adopt
mobile  data   technology.   As  a  result,   the  Company  believes  that  many
organizations  in the public  safety  industry  are now poised to upgrade  their
original  mobile  data  systems  with new  technology  that  provides  increased
capabilities   over  the  first   generation   systems.   See  "Forward  Looking
Statements". The Company has installed one  Advantex-Public  Safety product with
the North  Carolina  State  Highway  Patrol  and has a contract  to supply  this
product to the State of Ohio.

Delivery  Industry.  

     The delivery industry consists of organizations  engaged in the movement of
people and goods.  MDSI  believes  that  companies  in this  industry  generally
require  real-time,  two-way  transmission  of  information  between the central
office and the most  appropriate  field  worker for the job,  and that  updating
status  information from each mobile worker is vital for effective fleet command
and control in a constantly changing environment.

     Taxi. The taxicab market is  characterized  by the need to provide flexible
scheduling,  efficient use of vehicles and the ability to accept  multiple forms
of payment,  including  account card settlement and on-line credit card systems.
The Company  believes that most major cities  worldwide are serviced by at least
two  competing  taxi  organizations.  The  Company  has  marketed  its  products
primarily to taxi service  providers in Europe and the Asia Pacific region,  and
currently  has supplied or has contracts to supply its products to over ten taxi
service providers within these regions.

     Courier.  The courier  market is  characterized  by the need for  accurate,
real-time  communications between the dispatcher and courier to facilitate rapid
allocation of parcel  pick-up  requests,  provide  up-to-the-minute  tracking of
domestic and  international  parcel  shipments  and improve the timing of parcel
deliveries.  The Company  believes that most major cities worldwide are serviced
by at least two competing  courier  organizations.  The Company has marketed its
products  primarily to courier  organizations in Europe, the Middle East and the
Asia Pacific  region and  currently  has supplied or has contracts to supply its
products for over 20 installations  within these regions,  including  systems in
over 17 countries with DHL.

     Roadside  Recovery.  The roadside recovery market includes services such as
tow-truck and automobile  association services.  This market is characterized by
the need for  real-time  accurate  messaging  between  the  fleet  and  dispatch
operations. Vehicle status and location data is required to allow the dispatcher
to respond in a timely  fashion to emergency  situations.  The Company  believes
that most major cities  worldwide  are  serviced by a minimum of one  automobile
association and two competing tow-truck  services.  The Company has marketed its
products to the roadside  recovery  organizations in Europe and the Asia Pacific
region and  currently  has  supplied or has  contracts to supply its products to
three roadside recovery organizations within these regions.

Customers and Applications

     The Company's  customers vary in size from small local service companies to
large regional and international organizations.  During the years ended December
31, 1998, 1997 and 1996, one U.S. utility company accounted for 7%, 11% and 35%,
respectively of the Company's  consolidated revenue. In the years ended December
31,  1998,  1997 and 1996,  approximately  29%,  36% and 67%,  of the  Company's
consolidated  revenue was attributable to five or fewer  customers.  The Company
believes that revenue  derived from a limited  number of customers will continue
to represent a significant  portion of its  consolidated  revenue.  In the years
ended  December 31, 1998,  1997 and 1996 revenue  derived from sales  outside of
North America  accounted for 21%, 32% and 31% of the  Company's  total  revenue,
respectively.  Because the  Company's  revenue is  dependent,  in large part, on
significant contracts with a limited number of customers,  the percentage of the
Company's  revenues  that is derived  from sales  outside of North  America  has
fluctuated,   and  may  continue  to  fluctuate,   from  period-to-period.   See
"Business-Risk  Factors - Dependence  on Large  Contracts and  Concentration  of
Customers" and "Forward-Looking Statements".

Products

     The Company currently offers mobile workforce  management solutions focused
on two targeted  industry  segments:  field service and delivery.  The Company's
products  automate   processes  such  as  appointment   scheduling,   work  load
distribution,  service order dispatching, real-time status updating, credit card
authorization  and  database  access,  and replace  voice radio and  paper-based
communications  with  wireless  exchanges of  information  and messages  between
mobile users and remote database and dispatch centers.


                                       5
<PAGE>

Field Service Industry

     Advantex-Utility.  Advantex-Utility  is the Company's  core product for the
utility  industry.  Advantex-Utility  provides  the  dispatcher  with  real-time
service order  information  ("en route," "on site" or "job  complete") and field
service  representative  information  (the number and location of service orders
assigned,  completed and outstanding)  facilitating the effective  management of
the mobile work force.  Numerous alerts are built into the system,  including an
alert to notify a dispatcher of a service order appointment which is in jeopardy
of  being   missed.   Employing   mobile   computing   devices,   field  service
representatives  have significantly  reduced paperwork.  Advantex-Utility can be
seamlessly  integrated with an  organization's  LAN or WAN to provide  real-time
updates  to  other   applications,   such  as  inventory  and  billing  systems.
Advantex-Utility's  modular  design  allows a utility  company  to  configure  a
solution to its  specific  requirements.  Building on the core  Advantex-Utility
functionality, optional modules include Map-based Dispatching, Order Scheduling,
Workload Distribution and Call Ahead.

     Advantex-Telecommunications.  Advantex-Telecommunications  is the Company's
core product for the  telecommunications  industry.  This  product  provides the
dispatcher with real-time work order  information ("en route," "on site" or "job
complete") and field service representative  information (number and location of
work order assigned,  completed and outstanding)  facilitating the effective and
timely  management of field service  resources.  Advantex-Telecommunications  is
designed to be integrated into other telecommunications  enterprise applications
such as telephone  line testing,  inventory and billing and may be interfaced to
existing  customer service systems  (mainframe or  non-mainframe)  that generate
work orders or provide data required by  telecommunications  company  operations
personnel. The Advantex-Telecommunications product is also marketed to the cable
industry. Additional features of the Advantex-Telecommunications product include
Least  Cost  Routing,   Map-based   Dispatching,   Order  Scheduling,   Workload
Distribution and Call Ahead.

     Advantex-Field  Service.  Advantex-Field Service is a general field service
management system targeted to non-utility and non-telecommunications segments of
the field service industry. Advantex-Field Service's core dispatch functionality
allows service calls to be entered, displayed, printed and updated. The dispatch
function allows work to be assigned,  re-assigned,  re-scheduled or canceled.  A
summary  of the  service  schedule  can be  displayed  for  any day or  week.  A
dispatcher has access to all customer  information (by name,  telephone  number,
customer number or equipment  identifier)  including the ability to access terms
of  agreements  and view  dispatch  times,  current  field worker  locations and
schedules.

     Advantex-Public Safety. The Advantex-Public Safety product is a mobile data
solution  for the public  safety  market.  The  software  provides  connectivity
between  statewide  networks and databases and wireless  networks.  The solution
consists  of a message  switch and a mobile  device  software  application.  The
message switch allows multiple agencies to access the system,  provides optional
computer aided dispatch (CAD) interface for each agency and provides the ability
to  access  state  and  national  databases.   The  Company  has  installed  the
Advantex-Public  Safety product with the North Carolina Highway Patrol and has a
contract to supply this product to the State of Ohio. The Advantex-Public Safety
product is able to control  multiple  public  safety  agencies from one platform
infrastructure.  Once the  original  system  is  installed  within a  government
agency,  other  agencies  can be added to the  system  without  procuring  a new
system.  An  incremental  license fee is charged for each agency and mobile data
terminal added to the system.

     Advantex-Enterprise.  The  Advantex-Enterprise  family of  inter-networking
software  products   provides  high  speed,   cost  effective,   enterprise-wide
connectivity solutions across multiple wireless and wireline data networks. This
software  technology  provides for the  integration  of existing  wireline-based
computing    environments   with   the   most   prevalent   wireless   networks.
Advantex-Enterprise  allows  users  to  integrate  wireless  and  wireline  data
applications  in  a  marketplace  where  no  connectivity  or   interpretability
standards are currently defined.  MDSI markets the  Advantex-Enterprise  product
primarily to its existing customers. The Advantex-Enterprise product consists of
both the open  message  service  (OMS) and open message  client  (OMC)  software
components.  OMS is a UNIX-based messaging solution providing bridge, router and
gateway functionality.  OMC is a Windows product providing wireless and wireline
data access for PC compatible mobile computing devices.


                                       6
<PAGE>

Delivery Industry

     Advantex-Taxi.   Advantex-Taxi  is  an  automated  taxi  management  system
designed for medium and large  taxicab  companies  which  permits call takers to
enter customer calls and  automatically  identify the most  appropriate  taxicab
taking  into  account  customers  special  requests.  Advantex-Taxi  utilizes  a
zone-based call assignment algorithm or, optionally, a global positioning system
("GPS")  technology to identify the closest cab and  determine  the  appropriate
radio  frequency  to  optimize  radio  channel  usage.  Once a request  has been
accepted by the driver, all pertinent  information is transmitted via a wireless
network to the driver's mobile computer. The driver updates the application with
various status  indicators  including  "passenger on board," "soon to clear" and
"passenger  disembark".  Advantex-Taxi  incorporates numerous modules allowing a
taxicab  organization  to  configure  a solution  to its  specific  requirements
including a Billing System and Scheduling & Ride Sharing.

     Advantex-Courier. Advantex-Courier provides a dispatch application that can
be  connected  to the  in-house  tracking  and billing  package  used by courier
customers.  Advantex-Courier facilitates the tracking, allocation,  dispatch and
redistribution  of  pick-up  and  drop-off  information.   The  Advantex-Courier
applications is currently being upgraded for a Windows  architecture  with added
features  that  will  allow  it to be used  as a  stand-alone  system,  or to be
configured for  connection to existing  systems.  Advantex-Courier  incorporates
numerous  modules  allowing a courier  organization  to  configure a solution to
their specific requirements.  A key Advantex-Courier module is Advantex-Tracking
which enables  real-time  tracking of vehicles using GPS receivers to constantly
update the drivers' mobile computer with location information.  The location and
vehicle  identification  information  is  transmitted  to the dispatch  computer
facilitating real-time tracking of an organization's entire fleet.

     Mobile  Computing  Devices.  The Company's  offers several mobile computing
devices that work in conjunction  with its software,  including the S645 MDT and
S850MDT mobile terminals for roadside recovery, taxi and courier markets and the
S650 Intelligent Modem for the courier market.

Professional and Customer Support Services

     The  Company  provides a complete  range of  specialized  professional  and
customer support services to assist its clients in implementing and using MDSI's
products  effectively.  Typically,  contracts  for  the  sale  of the  Company's
software  include   implementation   planning,   project  management,   software
configuration,  software  customization,  installation,  education and training,
technical support and ongoing  maintenance.  The Company believes providing high
quality,    cost-effective    professional    services   facilitates   effective
implementation of the Company's products and fosters a strong  relationship with
the customer that often leads to future orders for MDSI products and services.

 Professional Services

     The Company's professional services personnel facilitate the implementation
and optimization of the Company's products.  A professional  services engagement
usually lasts for six to twelve  months and involves  working with the client in
planning,  specification and implementation of its products. During the planning
phase  of  the   engagement,   MDSI's   personnel  work  closely  with  customer
representatives  to prepare a detailed  project plan that  includes a timetable,
resource requirements,  milestones,  training requirements and demonstrations of
product capabilities.

     During the  specification  phase of the professional  services  engagement,
MDSI's  professional  services  personnel  work with the customer to specify the
exact MDSI products and system configuration.  MDSI personnel also work with the
customer to design the technology infrastructure, specify the business processes
and formats for those  elements of the products  that are  configurable,  define
business  processes  and formats for the elements  that are custom  designed and
establish the procedure for  implementation of the product.  MDSI personnel also
develop and recommend  modifications  to the  customer's  business  processes to
improve the  performance  of the MDSI  software and reduce or eliminate the need
for customization.

     During  the  final  phase  of   implementation,   MDSI  personnel  complete
configuration of the software products, complete project customization, finalize
product installation and develop end-user  documentation and other technical and
business  processes  required to integrate  the MDSI  products into the client's
environment. MDSI personnel also work with the client to develop and test custom
features and various  interfaces to corporate  networks,  wireless  networks and
other corporate information systems.

 Customer Support

     The  Company  believes  that its  ability to offer a high level of customer
support is  critical  to its  success.  The  Company's  customer  support  group
provides MDSI customers with telephone and on-line  technical support as well as
product  updates.  Most MDSI  customers  enter into  separate  customer  support
agreements,  typically on an annual basis, that take effect on the expiration of



                                       7
<PAGE>

the product warranty.  At December 31, 1998, the Company had 66 customer support
personnel, of whom 28 were located in Canada, 18 in the United States, 13 in the
United Kingdom, 4 in Singapore and 3 in Copenhagen.

Product Development

     The  mobile  workforce   management  industry  is  characterized  by  rapid
technological change and increasing user requirements.  Accordingly, the Company
must be able to provide new products and to modify and enhance existing products
on a timely and continuing basis in order to be competitive.  To accomplish this
objective,  the Company's  strategy is to utilize  proven  technology to further
enhance its existing products and to create new products. Where appropriate, the
Company may acquire  complementary  technology  developed  by third  parties for
integration into the Company's products.

     The  Company  believes  that  its  highly  qualified  software  development
personnel provide MDSI with a significant competitive advantage.  MDSI personnel
have  considerable  experience  and  expertise  in  the  development  of  mobile
workforce management applications  specifically designed for use with a wireless
data  network,  as well  as in the  integration  of  these  applications  with a
customer's  corporate  information  system.  MDSI software  product  development
personnel  employ  modular  software  architecture,   object-oriented   software
development  and  graphical  user  interface  design   technologies  to  develop
scaleable,  modular,  configurable  products.  MDSI  personnel have expertise in
software technology, wireless and wireline communications technologies, computer
environments  and  corporate  information  systems  integration.  They also have
considerable  expertise  in the design and  development  of  specialized  mobile
computing  devices,  as well as radio  system  design and  implementation.  MDSI
believes that this combination of expertise in multiple  disciplines has allowed
and will  continue to allow the Company to design and develop  mobile  workforce
management  solutions  which can be implemented  in a timely and  cost-effective
manner.

     As of December 31, 1998, MDSI's technical and engineering staff, supporting
both product development and professional services,  consisted of 311 employees,
including 190 employees based at its Richmond, British Columbia headquarters, 88
employees based primarily at its Itasca,  Illinois  facility and other locations
in the United States and 33 employees based at its Cambridge, England facility.

     During the years ended  December 31,  1998,  1997 and 1996,  the  Company's
total expenditures for product  development were $9.9 million,  $6.5 million and
$4.4 million,  respectively,  reflecting  11.9%,  9.3% and 9.7% of the Company's
revenue,  respectively.  Management  believes that timely and continuing product
development  is  critical  to the  Company's  success  and plans to  continue to
allocate  significant  resources to product  development.  See  "Forward-Looking
Statements".

Sales and Marketing

     The Company  markets its  products  and  services  through its direct sales
force and  certain  strategic  remarketing  arrangements.  The  Company's  sales
personnel,  who are knowledgeable about the technological components of wireless
applications and current industry and  enterprise-specific  application  issues,
work in teams that  specialize  in each of the targeted  vertical  markets.  The
Company's   sales  personnel   employ  their  expertise  to  develop   long-term
consultative  relationships with customers in order to identify the needs of the
customer and provide specific and effective  solutions.  To date,  substantially
all of the Company's revenue has been generated by direct sales activities.

     At December 31, 1998, the Company's sales,  marketing and technical support
group  consisted of 50 employees,  with 34 based out of the Company's  Richmond,
British Columbia  facility,  12 based out of its Itasca,  Illinois  facility,  1
based out of its  Cambridge,  England  facility and 3 based out of various other
international locations.

Competition

     The  markets  for  mobile  workforce  management   applications,   wireless
connectivity  software,  mobile  data  network  equipment  and mobile  computing
devices  are  highly   competitive.   Numerous   factors  affect  the  Company's
competitive position, including price, product features, product performance and
reliability, ease of use, product scalability,  product availability on multiple
platforms  (both server and mobile  workstation),  ability to  implement  mobile
workforce  management solutions  domestically and internationally  while meeting
customer  schedules,  integration of products with other  enterprise  solutions,
availability of project consulting  services and timely ongoing customer service
and support.

     Within  these  markets,  there are a small number of new  ventures,  either
small  companies  attempting  to  establish  a business  in this market or large
companies  attempting to diversify their product offerings.  The Company expects
such  competition  to  intensify  as  acceptance  and  awareness  of mobile data
communications  and  technology  continue.  In  addition,  a small number of the
Company's  potential  customers develop software solutions  internally,  thereby
eliminating  the  requirement  for  suppliers  such as the  Company.  Current or
potential competitors may establish cooperative arrangements among themselves or
with third parties to increase the ability of their products to address customer
requirements.


                                       8
<PAGE>


     Certain of the Company's  competitors have substantially greater financial,
technical,  marketing and distribution  resources than the Company. As a result,
they may be able to respond  more  quickly to new or emerging  technologies  and
changing  customer   requirements,   or  to  devote  greater  resources  to  the
development  and  distribution of existing  products.  There can be no assurance
that the Company will be able to compete  successfully against current or future
competitors  or alliances of such  competitors,  or that  competitive  pressures
faced by the Company will not have a material  adverse  effect on its  business,
financial condition, operating results and cash flows.

     The Company  believes that in the utility and  telecommunications  industry
segments  the most  important  competitive  factors  are the  reputation  of the
supplier and their proven record in implementing  wireless data  solutions.  The
Company primarily  competes in the utility market with Utility  Partners,  L.C.,
M3i Systems,  Inc. and Alterra Corp. The Company has several  competitors in the
telecommunications  market,  a few of which have historical  relationships  with
certain  of  the  large  telecommunications  companies.  The  Company's  primary
competitors   for   telecommunications   customers   are   Bellcore  and  Lucent
Technologies,  Inc. The Company believes that the principal  competitive factors
in the field  service  market are the  ability to improve the  customer  service
aspects of an  organization's  business and increase the productivity of service
representatives.  In this market, the Company's principal  competitors are Astea
International  Inc. and Metrix Inc. The Company's  principal  competitors in the
cable  market  are  Bellcore  and  MobileForce   Technologies,   Inc.  (formerly
Ubiquinet, Inc).

     The Company  believes  that the principal  competitive  factors in the taxi
markets in Europe and the Asia Pacific region are the  functionality of products
and an  understanding  of the  needs  of the  taxi  operators.  In  Europe,  the
Company's principal  competitors in the taxi market are Indelco, Oslo Taxi, Finn
Frogne,  Auriga  (United  Kingdom),  Axijest  (France),  Tadiran  (Israel),  H&W
(Germany)  and Mikrotek  (Italy).  In the Asia  Pacific  region,  the  Company's
principal  competitors  are Raywood and Sig-tec.  The Company  believes that the
principal  competitive  factors in the courier market are the configurability of
products and an understanding of the courier industry.  The Company's  principal
competitors  in the courier  market are  MobileRadio,  BT  Syntegra  and Dynamic
Transport Management.

     MDSI  primarily  competes in the public safety market with  Cerulean,  PRC,
Tiberon Systems,  and New World Systems.  Many of MDSI's competitors have a more
established  reputation in the public safety market. In many of the large public
safety  opportunities,  MDSI subcontracts to a large prime contractor serving as
the overall system  integrator.  MDSI is currently used as a  subcontractor  for
public safety installations by Motorola.

Employees

     As of  December  31,  1998,  the Company had 466  full-time  employees  and
contractors,  including 311 in technical and engineering, 50 in sales, marketing
and technical support, 66 in customer support and 39 in management,  finance and
administration.  None of the Company's employees is represented by a labor union
and the Company believes its employee relations to be good.

Risk Factors

     The Company's  business is subject to the following risks. These risks also
could cause actual results to differ  materially  from results  projected in any
forward-looking statement in this report.

Potential Fluctuations in Quarterly Operating Results

     The  Company's  results of operations  have  fluctuated in the past and are
likely to continue to fluctuate  from period to period  depending on a number of
factors,  including the timing and receipt of significant  orders, the timing of
completion of contracts,  increased  competition,  changes in the demand for the
Company's  products and services,  the cancellation of contracts,  the timing of
new product announcements and introductions,  changes in pricing policies by the
Company  and  its  competitors,  delays  in  the  introduction  of  products  or
enhancements  by the  Company,  expenses  associated  with  the  acquisition  of
products or  technology  from third  parties,  the mix of sales of the Company's
products  and  services  and  third  party  products,  seasonality  of  customer
purchases,  personnel  changes,  the mix of  international  and  North  American
revenue,  tax policies,  foreign  currency  exchange rates and general  economic
conditions.

                                       9

<PAGE>

     The Company  relies  upon its ability to  implement  and  integrate  mobile
workforce  management  solutions  on  schedule  and to the  satisfaction  of its
customers.  The Company from time to time has experienced certain implementation
and other  problems  that have  delayed  the  completion  of  certain  projects,
including  the  failure of third  parties to deliver  products  or services on a
timely  basis and delays  caused by  customers.  Because the Company  recognizes
revenue on a percentage  of completion  method,  delays in completion of certain
contracts  has  caused  delays in  recognition  of  revenue  and,  consequently,
unanticipated  fluctuations in quarterly results. There can be no assurance that
the  Company  will be able to complete  current  projects  or  implement  future
systems on a timely and  cost-effective  basis or that delays will not result in
cancellations of contracts or result in the imposition of substantial penalties.
Any such material delay,  cancellation or penalty could have a material  adverse
effect upon the Company's business,  financial condition,  operating results and
cash flows.

     Because  the Company is unable to forecast  with  certainty  the receipt of
orders for its  products  and  services  and the  Company's  expense  levels are
relatively fixed and are based, in part, upon its expectation of future revenue,
if revenue levels fall below expectations as a result of a delay in completing a
contract, the inability to obtain new contracts, the cancellation of an existing
contract or otherwise, operating results are likely to be adversely effected. As
a result,  net income may be  disproportionately  affected  because a relatively
small amount of the Company's expenses vary with its revenue. In particular, the
Company  plans to  increase  its  operating  expenses  to  expand  its sales and
marketing operations,  expand its distribution channels,  fund greater levels of
research and development, broaden its customer support capabilities and increase
its  administrative  resources.  Based upon all of the  foregoing  factors,  the
Company  believes  that its  quarterly  revenue,  direct  expenses and operating
results are likely to vary  significantly in the future,  that  period-to-period
comparisons of the results of operations are not necessarily meaningful and that
such  comparisons  should  not  be  relied  upon  as  an  indication  of  future
performance.  The Company may also choose to reduce prices or increase  spending
in  response  to  competition,  or  to  pursue  new  market  opportunities.  See
"Forward-Looking  Statements".  If new  competitors,  technological  advances by
existing  competitors or other competitive factors require the Company to reduce
its prices or invest significantly greater resources in research and development
efforts,  the  Company's  operating  results  in the  future  may  be  adversely
affected.  There can be no  assurance  that the Company  will be able to grow in
future  periods or that it will be able to sustain its level of total revenue or
its rate of revenue growth on a quarterly or annual basis.  It is likely that in
some  future  quarter  the  Company's   operating  results  will  be  below  the
expectations  of public  market  analysts and  investors.  See "Forward  Looking
Statements".  In such event,  the price of the  Company's  Common  Shares  would
likely be materially adversely affected.

     Commencing in 1996, the Company has been, and anticipates that from time to
time it will be,  engaged  to  provide,  in  addition  to its own  products  and
services,  third  party  hardware,  software  and  services,  which the  Company
purchases from vendors and sells to its customers.  For the years ended December
31, 1998, 1997 and 1996, 23.4%, 23.7% and 33.7%, respectively,  of the Company's
revenue was  attributable  to third party  products  and  services.  Because the
revenue  generated  from the supply of third party  products  and  services  may
represent a significant  portion of certain  contracts and the  installation and
rollout of third party  products is generally at the discretion of the customer,
the Company  may,  depending  on the level of third party  products and services
provided during a period,  experience  large quarterly  fluctuations in revenue.
See "Forward  Looking  Statements".  In addition,  because the  Company's  gross
margins on third party  products  and  services  are  substantially  below gross
margins  historically  achieved on revenue  associated  with MDSI  products  and
services,  large  fluctuations in quarterly revenue from the sale of third party
products and services will result in significant  fluctuations  in direct costs,
gross  profits,  operating  results,  cash flows and other items  expressed as a
percentage of revenue.

     Certain of the vertical markets targeted by the Company include  industries
with  implementation  requirements  that vary seasonally.  For example,  utility
companies in North America generally have decreased  implementation  activity in
winter months when such  utilities  face their greatest  consumer  demand.  As a
result,  the Company's results of operations may also vary seasonally,  and such
variation may be significant.

Lengthy Sales Cycles

     The  purchase  of a  mobile  workforce  management  solution  is  often  an
enterprise-wide  decision for prospective  customers and requires the Company to
engage  in sales  efforts  over an  extended  period  of time and to  provide  a
significant  level of education to prospective  customers  regarding the use and
benefits  of such  systems.  Due in  part to the  significant  impact  that  the
application of mobile workforce  management solutions has on the operations of a
business and the  significant  commitment of capital  required by such a system,
potential  customers tend to be cautious in making acquisition  decisions.  As a
result, the Company's products generally have a lengthy sales cycle ranging from
several  months to  several  years.  Consequently,  if sales  forecasted  from a
specific customer for a particular quarter are not realized in that quarter, the
Company may not be able to generate revenue from alternative  sources in time to
compensate for the shortfall. The loss or delay of a large contract could have a
material  adverse  effect  on  the  Company's  quarterly  financial   condition,
operating  results and cash flows,  which may cause such results to be less than
analysts'  expectations.  Moreover, to the extent that significant contracts are
entered  into and  required to be performed  earlier  than  expected,  operating
results for subsequent  quarters may be adversely affected.  In particular,  the
Company has recently  experienced  an increase in the time necessary to complete
the  negotiation  and  signing  of  certain  contracts  with some of its  larger
customers.


                                       10
<PAGE>


Dependence on Large Contracts and Concentration of Customers

     The Company's revenue is dependent, in large part, on significant contracts
from a limited  number of customers.  During the years ended  December 31, 1998,
1997 and 1996,  approximately 29%, 36% and 67%,  respectively,  of the Company's
consolidated  revenue was  attributable to five or fewer  customers.  During the
years ended December 31, 1998, 1997 and 1996, one customer accounted for 7%, 11%
and 35%,  respectively,  of the  Company's  consolidated  revenue.  The  Company
believes  that revenue  derived from  current and future  large  customers  will
continue to represent a significant  portion of its total revenue.  See "Forward
Looking  Statements".  The  inability  of the  Company to continue to secure and
maintain a sufficient  number of large contracts  would have a material  adverse
effect on the Company's  business,  financial  condition,  operating results and
cash flows. Moreover, the Company's success will depend in part upon its ability
to obtain  orders from new  customers,  as well as the  financial  condition and
success of its customers and general economic conditions.

     The size of a contract  for a particular  customer  can vary  substantially
depending on whether the Company is providing only its own products and services
or is also  responsible  for supplying  third party  products and services.  The
Company recognizes revenue using the percentage of completion method,  which the
Company  calculates  based on  total  costs  incurred  compared  to total  costs
estimated by the Company for completion.  Therefore, any significant increase in
the costs required to complete a project,  or any significant delay in a project
schedule,  could have a material adverse effect on that contract's profitability
and because of the size of each contract,  on the Company's  overall  results of
operations.  The  Company  from  time  to  time  has  also  experienced  certain
implementation  and other  problems that have delayed the  completion of certain
projects, including the failure of third parties to deliver products or services
on a timely  basis and  delays  caused by  customers.  The  Company's  contracts
generally  provide for  payments  upon the  achievement  of certain  milestones.
Therefore, any significant delay in the achievement of milestones on one or more
contracts  would affect the timing of the Company's  cash flows and could have a
material  adverse  effect  on  the  Company's  business,   financial  condition,
operating  results and cash  flows.  Any  significant  failure by the Company to
accurately  estimate the scope of work  involved,  plan and formulate a contract
proposal,  effectively  negotiate a favorable contract price,  properly manage a
project or efficiently  allocate  resources among several  projects could have a
material  adverse  effect  on  the  Company's  business,   financial  condition,
operating results and cash flows.

Potential Fluctuations in Backlog

     The  Company's  backlog  consists  of a  relatively  small  number of large
contracts  relating to sales of its mobile  workforce  management  and  wireless
connectivity  software and related  equipment and  services,  and sales of third
party products and services.  Due to the long, complex sales process and the mix
of sales of the  Company's  products and  services and third party  products and
services,    the   Company's   backlog   may   fluctuate    significantly   from
period-to-period.  In addition,  under the terms of the Company's contracts, the
Company's  customers may elect to terminate  their contracts with the Company at
any  time  after  notice  to  the  Company  or  to  delay  certain   aspects  of
installation.  Due to the relative  size of a typical  contract  compared to the
Company's annual and quarterly  revenue,  a termination or installation delay of
one or more  contracts  could have a material  adverse  effect on the  Company's
business,  financial condition,  operating results and cash flows. Contracts for
software  maintenance  and support are  generally  renewable  every year and are
subject  to  renegotiation  upon  renewal.  There can be no  assurance  that the
Company's customers will renew their maintenance contracts or that renewal terms
will be as favorable to the Company as existing terms.

Limited Operating History; History of Losses; Increased Expenses

     The Company commenced  operations in February 1993 and therefore has only a
limited operating history upon which an evaluation of its business and prospects
can be based.  Due to  non-recurring  charges of $6.4  million,  including  $1.1
million with respect to restructuring certain operations and $5.3 million due to
changes in estimates to complete certain contracts in the UK

                                       10
<PAGE>

operations taken in September 1997,  restructuring and reorganization charges of
$2.0  million  and  $688,374,   respectively,   taken  in  connection  with  the
reorganization  of the Company and the  acquisition of TelSoft in December 1995,
and  write-offs  of $8.5  million and $10.0  million for  acquired  research and
development  taken in connection  with the  acquisitions of MDSI UK in June 1996
and Alliance effective April 1997, respectively, the Company incurred net losses
of $11.5  million,  $6.0 million , and $1.5 million in the years ended  December
31, 1997, 1996 and 1995, respectively.  As of December 31, 1998, the Company had
an accumulated deficit of $13.7 million.  Although the Company was profitable in
its most recently  completed fiscal year, there can be no assurance that, in the
future,  the Company will realize revenue growth or be profitable on a quarterly
or annual  basis.  In  addition,  the Company  plans to increase  its  operating
expenses to expand its sales and marketing  operations,  fund greater  levels of
research and development, broaden its customer support capabilities and increase
its  administration  resources.  A relatively  high  percentage of the Company's
expenses is typically  fixed in the short term as the Company's  expense  levels
are based, in part, on its  expectations  of future revenue.  To the extent that
such expenses precede or are not subsequently followed by increased revenue, the
Company's business, financial condition,  operating results and cash flows would
be materially adversely affected.  In addition,  in view of the Company's recent
revenue growth,  the rapidly  evolving  nature of its business and markets,  the
Company's  limited operating  history and the recent  


                                       11

<PAGE>


acquisitions,   the  Company  believes  that  period-to-period   comparisons  of
financial  results are not necessarily  meaningful and should not be relied upon
as an indication of future performance.

Integration of Acquisitions

     The  Company  may,  when  and  if the  opportunity  arises,  acquire  other
products,  technologies or businesses involved in activities,  or having product
lines, that are complementary to the Company's  business.  Acquisitions  involve
numerous risks,  including  difficulties in the  assimilation of the operations,
technologies  and  products  of  the  acquired   companies,   the  diversion  of
management's  attention  from other business  concerns,  risks  associated  with
entering  markets or  conducting  operations  with which the  Company  has no or
limited  direct prior  experience and the potential loss of key employees of the
acquired  company.  Moreover,  there can be no  assurance  that any  anticipated
benefits of an acquisition will be realized.  Future acquisitions by the Company
could  result  in  potentially  dilutive  issuances  of equity  securities,  the
incurrence of debt and contingent liabilities,  amortization of expenses related
to goodwill and other intangible assets and write-off of restructuring costs and
acquired  research and  development  costs,  all of which could  materially  and
adversely affect the Company's  financial  condition,  results of operations and
cash flows.

New Product Development

     The Company  expects that a significant  portion of its future revenue will
be derived from the sale of newly  introduced  products and from  enhancement of
existing products. See "Forward-Looking  Statements". The Company's success will
depend in part upon its ability to enhance its current  products on a timely and
cost-effective  basis and to develop  new  products  that meet  changing  market
conditions, including changing customer needs, new competitive product offerings
and  enhanced  technology.  There can be no  assurance  that the Company will be
successful in developing and marketing on a timely and cost-effective  basis new
products and enhancements  that respond to such changing market  conditions.  If
the  Company  is unable  to  anticipate  or  adequately  respond  on a timely or
cost-effective  basis to changing  market  conditions,  to develop new  software
products and  enhancements to existing  products,  to correct errors on a timely
basis  or to  complete  products  currently  under  development,  or if such new
products  or  enhancements  do not  achieve  market  acceptance,  the  Company's
business,  financial  condition,  operating  results  and  cash  flows  could be
materially adversely affected. In light of the difficulties inherent in software
development,  the  Company  expects  that  it  will  experience  delays  in  the
completion  and  introduction  of new software  products.  See  "Forward-Looking
Statements".

Management of Growth

     Since its inception,  the Company has  experienced  rapid growth in product
sales, personnel,  research and development activities, number and complexity of
products,  the number and geographic focus of its targeted  vertical markets and
product distribution  channels. The total number of employees of the Company has
grown from nine employees in Canada in February 1993 to 466 employees located in
Canada, the United States, the United Kingdom and other international  locations
at December 31, 1998. In addition,  the recent acquisitions of Alliance and MDSI
UK have  increased the number of products the Company  supports and markets,  as
well as the number of  vertical  markets  into which it sells  products  and the
geographical  areas in which the Company  operates.  The Company  believes  that
continued  growth in the number and  complexity of products and in the number of
personnel will be required to maintain the Company's competitive  position.  The
Company's  rapid  growth,  coupled  with the rapid  evolution  of the  Company's
markets, has placed, and is likely to continue to place,  significant strains on
its management, administrative,  operational and financial resources, as well as
increased  demands  on  its  internal  systems,  procedures  and  controls.  The
Company's ability to manage recent and future growth will require the Company to
continue to improve its financial and management controls, reporting systems and
procedures  on a timely  basis,  to implement  new systems as  necessary  and to
expand, train, motivate and manage its sales and technical personnel.  There can
be no assurance that the Company will be able to manage its growth successfully.
Failure to do so could have a material adverse effect on the Company's business,
financial condition, operating results and cash flows.

Dependence on Key Personnel

     The Company's  performance and future operating  results are  substantially
dependent on the continued  service and performance of its senior management and
key technical  and sales  personnel.  The Company  intends to hire a significant
number  of  additional  technical  and sales  personnel  in the next  year.  See
"Forward-Looking  Statements".  Competition  for such personnel is intense,  and
there can be no assurance that the Company can retain its key  technical,  sales
and  managerial  employees  or  that  it will  be  able  to  attract  or  retain
highly-qualified  technical and managerial  personnel in the future. The loss of
the services of any of the Company's senior management or other key employees or
the  inability  to  attract  and  retain  the  necessary  technical,  sales  and
managerial  personnel  could have a material  adverse  effect upon the Company's
business, financial condition, operating results and cash flows.

                                       12
<PAGE>


Dependence on Selected Vertical Markets

     Prior to 1996,  substantially all of the Company's revenue was derived from
the sale of products and services to  customers in the utility  market.  For the
years ended December 31, 1997 and 1996, the utility market accounted for greater
than 50% of the Company's revenue.  In those years, the Company sought to reduce
its  reliance  on the  utility  market by  developing  or  acquiring  compatible
products for organizations with mobile workforces in other vertical markets.  In
1998,  the  utility  market  accounted  for  greater  than 40% of the  Company's
revenue.  The  Company  anticipates  that a  significant  portion  of its future
revenue   will  also  be  generated  by  sales  of  products  to  the  taxi  and
telecommunications  markets.  See  "Forward-Looking  Statements".  A decline  in
demand for the  Company's  products in the utility,  taxi or  telecommunications
markets as a result of  competition,  technological  change or otherwise,  would
have a material adverse effect on the Company's business,  financial  condition,
operating  results and cash flows.  There can be no  assurance  that the Company
will be able to continue to diversify  its product  offerings or revenue base by
entering into new vertical markets.

Dependence on Marketing Relationships

     The  Company's  products are marketed by the  Company's  direct field sales
force as well as by resellers.  The Company's existing agreements with resellers
of its products are  nonexclusive  and may be terminated by either party without
cause.  Such  organizations  are not within the control of the Company,  are not
obligated to purchase  products from the Company and may also represent and sell
competing  products.  There  can be no  assurance  that the  Company's  existing
resellers  will continue to provide the level of services and technical  support
necessary to provide a complete solution to the Company's customers or that they
will not  emphasize  their own or  third-party  products to the detriment of the
Company's products. The loss of these resellers,  the failure of such parties to
perform  under  agreements  with the Company or the  inability of the Company to
attract and retain new resellers  with the technical,  industry and  application
experience  required to market the Company's products  successfully could have a
material  adverse  effect  on  the  Company's  business,   financial  condition,
operating  results and cash flows.  The Company  expects  that it may enter into
certain joint  ventures in order to facilitate its expansion into other vertical
markets and geographic  areas. See "Forward Looking  Statements".  To the extent
that such joint ventures are not successful,  there could be a material  adverse
effect on the Company's  business,  financial  condition,  operating results and
cash flows.

Competition

     The  markets  for  mobile  workforce  management   applications,   wireless
connectivity  software,  mobile  data  network  equipment  and mobile  computing
devices  are  highly   competitive.   Numerous   factors  affect  the  Company's
competitive position, including price, product features, product performance and
reliability, ease of use, product scalability,  product availability on multiple
platforms  (both server and mobile  workstation),  ability to  implement  mobile
workforce  management solutions  domestically and internationally  while meeting
customer  schedules,  integration of products with other  enterprise  solutions,
availability of project consulting  services and timely ongoing customer service
and support.

     Within  these  markets,  there are a small number of new  ventures,  either
small  companies  attempting  to  establish  a business  in this market or large
companies  attempting to diversify their product offerings.  The Company expects
such  competition  to  intensify  as  acceptance  and  awareness  of mobile data
communications and technology  continue.  See "Forward Looking  Statements".  In
addition,  a small number of the Company's  potential customers develop software
solutions internally,  thereby eliminating the requirement for suppliers such as
the  Company.   Current  or  potential  competitors  may  establish  cooperative
arrangements  among  themselves or with third parties to increase the ability of
their products to address customer requirements.

     Certain of the Company's  competitors have substantially greater financial,
technical,  marketing and distribution  resources than the Company. As a result,
they may be able to respond  more  quickly to new or emerging  technologies  and
changing  customer   requirements,   or  to  devote  greater  resources  to  the
development  and  distribution of existing  products.  There can be no assurance
that the Company will be able to compete  successfully against current or future
competitors  or alliances of such  competitors,  or that  competitive  pressures
faced  by the  Company  will  not  materially  adversely  affect  its  business,
financial condition, operating results and cash flows.


                                       13
<PAGE>


     The Company primarily competes in the utility market with Utility Partners,
L.C., M3i Systems, Inc. and Alterra Corp. The Company has several competitors in
the telecommunications market, a few of which have historical relationships with
certain  of  the  large  telecommunications  companies.  The  Company's  primary
competitors   for   telecommunications   customers   are   Bellcore  and  Lucent
Technologies  Inc. The Company's  principal  competitors in the cable market are
Bellcore and MobileForce Technologies, Inc. In the general field service market,
the Company's principal competitors are Astea International Inc. and Metrix Inc.
In the European taxi market,  the Company's  principal  competitors are Indelco,
OsloTaxi,  Finn Frogne,  Auriga  (United  Kingdom),  Axijest  (France),  Tadiran
(Israel),  H&W (Germany) and Mikrotek (Italy).  In the Asia Pacific region,  the
Company's principal  competitors in the taxi market are Raywood and Sig-tec. The
Company's  principal  competitors  in the  courier  market are  MobileRadio,  BT
Syntegra and Dynamic  Transport  Management.  In the public safety  market,  the
Company's principal competitors are Cerulean, PRC, Tiberon Systems and New World
Systems.

Risk of Product Defects

     Software   products,   including   those  offered  by  the  Company,   from
time-to-time  contain  undetected errors or failures.  There can be no assurance
that,  despite  testing by the Company and by current and  potential  customers,
errors will not be found in the Company's products.  Such errors could result in
loss of or delay in market  acceptance  of the Company's  products,  which could
have a material adverse effect on the Company's business,  financial  condition,
operating results and cash flows.

Proprietary Technology

     The  Company's   success  is  dependent  on  its  ability  to  protect  its
intellectual  property rights. The Company relies principally upon a combination
of copyright, trademark, trade secret and patent laws, non-disclosure agreements
and other contractual  provisions to establish and maintain its rights. To date,
the Company has applied for trademark  registration in the United States, Canada
and several  European  countries  for the MDSI and  Advantex  marks.  Other than
certain  patents  held or  pending  by MDSI  UK,  MDSI  has  not  sought  patent
protection  for its products.  As part of its  confidentiality  procedures,  the
Company generally enters into nondisclosure and confidentiality  agreements with
each of its key employees,  consultants,  distributors,  customers and corporate
partners, to limit access to and distribution of its software, documentation and
other  proprietary  information.  There can be no assurance  that the  Company's
efforts to protect its intellectual property rights will be successful.  Despite
the Company's efforts to protect its intellectual property rights,  unauthorized
third parties,  including  competitors,  may be able to copy or reverse engineer
certain  portions of the  Company's  software  products,  and use such copies to
create competitive products.

     Policing the unauthorized use of the Company's products is difficult,  and,
while the  Company  is unable to  determine  the  extent to which  piracy of its
software  products  exists,  software  piracy can be  expected to  continue.  In
addition,  the laws of certain countries in which the Company's  products are or
may be licensed do not protect its products and intellectual  property rights to
the same  extent as do the laws of Canada  and the United  States.  As a result,
sales of products by the Company in such  countries may increase the  likelihood
that the  Company's  proprietary  technology is infringed  upon by  unauthorized
third parties.

     In  addition,   because  third  parties  may  attempt  to  develop  similar
technologies independently, the Company expects that software product developers
will be increasingly  subject to  infringement  claims as the number of products
and competitors in the Company's industry segments grow and the functionality of
products  in  different  industry  segments   overlaps.   See  "Forward  Looking
Statements".  Although the Company believes that its products do not infringe on
the  intellectual  property  rights of third parties,  there can be no assurance
that  third  parties  will  not  bring   infringement   claims  (or  claims  for
indemnification  resulting from  infringement  claims)  against the Company with
respect to copyrights,  trademarks,  patents and other proprietary  rights.  Any
such claims,  whether with or without merit, could be time consuming,  result in
costly  litigation and diversion of resources,  cause product shipment delays or
require the Company to enter into royalty or licensing agreements.  Such royalty
or licensing agreements,  if required,  may not be available on terms acceptable
to the  Company or at all. A claim of product  infringement  against the Company
and failure or  inability  of the Company to license  the  infringed  or similar
technology  could  have a material  adverse  effect on the  Company's  business,
financial condition, operating results and cash flows.



                                       14
<PAGE>


Dependence on Third Parties

     Certain  contracts  require the Company to supply,  coordinate  and install
third party products and services.  The Company believes that there are a number
of acceptable vendors and subcontractors for most of its required products,  but
in many cases,  despite the  availability of multiple  sources,  the Company may
select a single  source in order to  maintain  quality  control and to develop a
strategic relationship with the supplier or may be directed by a customer to use
a  particular  product.  The  failure  of a third  party  supplier  to provide a
sufficient  supply of parts and  components or products and services in a timely
manner  could  have a  material  adverse  effect  on the  Company's  results  of
operations.  In  addition,  any  increase  in the  price of one or more of these
products,  components or services  could have a material  adverse  effect on the
Company's business, financial condition, operating results and cash flows.

     Additionally,  under certain  circumstances,  the Company supplies products
and  services to a customer  through a larger  company  with a more  established
reputation  acting  as  a  project  manager  or  systems  integrator.   In  such
circumstances,  the  Company  has a  sub-contract  to supply  its  products  and
services to the customer through the prime contractor.  In these  circumstances,
the Company is at risk that  situations  may arise  outside of its control  that
could lead to a delay, cost over-run or cancellation of the prime contract which
could also result in a delay,  cost  over-run or  cancellation  of the Company's
sub-contract.  The  failure of a prime  contractor  to supply its  products  and
services  or perform its  contractual  obligations  to the  customer in a timely
manner  could  have  a  material  adverse  effect  on  the  Company's  financial
condition, results of operations and cash flows.

Exchange Rate Fluctuations

     Because the  Company's  reporting  currency  is the  Canadian  dollar,  its
operations outside Canada face additional risks,  including fluctuating currency
values and exchange  rates,  hard  currency  shortages  and controls on currency
exchange.  The  Company has  operations  outside  Canada and is hedged,  to some
extent, from foreign exchange risks because of its ability to purchase,  develop
and sell in the local currency of those jurisdictions.  In addition, the Company
does enter into foreign currency contracts under certain circumstances to reduce
the Company's  exposure to foreign  exchange  risks.  There can be no assurance,
however,   that  the  attempted  matching  of  foreign  currency  receipts  with
disbursements  or  hedging  activities  will  adequately  moderate  the  risk of
currency  or exchange  rate  fluctuations  which  could have a material  adverse
effect on the Company's  business,  financial  condition,  operating results and
cash  flows.  In  addition,  to the extent the Company  has  operations  outside
Canada,  the Company is subject to the impact of foreign  currency  fluctuations
and exchange rate charges on the Company's reporting in its financial statements
of the  results  from such  operations  outside  Canada.  Since  such  financial
statements   are  prepared   utilizing   Canadian   dollars  as  the  basis  for
presentation,  results from operations  outside Canada reported in the financial
statements  must be restated into  Canadian  dollars  utilizing the  appropriate
foreign currency exchange rate, thereby subjecting such results to the impact of
currency and exchange rate fluctuations.

Risks Associated with International Operations

     In the years ended  December 31, 1998,  1997 and 1996 revenue  derived from
sales outside of North America  accounted for  approximately  21 %, 32% and 30%,
respectively  of the Company's total revenue.  Because the Company's  revenue is
dependent,  in large part, on  significant  contracts  with a limited  number of
customers,  the percentage of the Company's  revenues that is derived from sales
outside of North America has  fluctuated,  and may continue to  fluctuate,  from
period-to-period.   The  Company   believes  that  its   continued   growth  and
profitability will require additional expansion of its sales in foreign markets,
and that revenue derived from international sales will account for a significant
percentage of the Company's revenue for the foreseeable  future.  This expansion
has required and will continue to require significant  management  attention and
financial resources.  The inability of the Company to expand international sales
in a timely and  cost-effective  manner could have a material  adverse effect on
the Company's business,  financial condition,  operating results and cash flows.
There are a number of risks  inherent in the  Company's  international  business
activities,  including  changes in  regulatory  requirements,  tariffs and other
trade  barriers,  costs and risks of  localizing  products for foreign  markets,
longer accounts receivable payment cycles,  difficulties in collecting payments,
reduced   protection  for  intellectual   property,   potentially   adverse  tax
consequences,  limits on repatriation of earnings, the burdens of complying with
a wide variety of foreign laws,  nationalization,  war, insurrection,  terrorism
and other political risks and factors beyond the Company's control. Fluctuations
in currency  exchange rates could adversely affect sales  denominated in foreign
currencies  and cause a reduction in revenue  derived from sales in a particular
country.  In addition,  revenue of the Company  earned  abroad may be subject to
taxation  by  more  than  one  jurisdiction,  thereby  adversely  affecting  the
Company's  earnings.  There  can be no  assurance  that  such  factors  will not
materially  adversely  affect  the  Company's  future  international  sales and,
consequently,  the Company's business, financial condition operating results and
cash flows.



                                       15
<PAGE>


Product Liability

     The  license  and support of products by the Company may entail the risk of
exposure to product  liability claims. A product liability claim brought against
the Company or a third party that the Company is required to indemnify,  whether
with or without  merit,  could have a material  adverse  effect on the Company's
business,  financial  condition,  operating  results and cash flows. The Company
carries insurance  coverage for product liability claims which it believes to be
adequate for its operations.

Concentration of Stock Ownership; Anti-Takeover Effects; Investment Canada Act

     The Company's directors,  officers and their respective affiliates,  in the
aggregate,  beneficially  own  approximately  26.6%  of the  outstanding  Common
Shares.  As a result,  these  shareholders,  if acting together,  may be able to
exercise  significant  influence  over the  Company and many  matters  requiring
shareholder  approval,  including  the  election of  directors  and  approval of
significant  corporate  transactions.  Such concentration of ownership may under
certain circumstances also have the effect of delaying,  deferring or preventing
a change in control of the Company.

     An investment in the Common Shares of the Company which results in a change
of control of the Company may, under certain circumstances, be subject to review
and approval under the Investment  Canada Act if the party or parties  acquiring
control is not a Canadian person (as defined therein).  Therefore,  the Canadian
regulatory environment may have the effect of delaying,  deferring or preventing
a change in control of the Company.

     The  Company is  organized  under the laws of Canada and,  accordingly,  is
governed by the CBCA.  The CBCA differs in certain  material  respects from laws
generally  applicable to United States corporations and shareholders,  including
the   provisions   relating  to  interested   directors,   mergers  and  similar
arrangements,  takeovers,  shareholders' suits, indemnification of directors and
inspection of corporate records.

     In December 1998, the Company implemented a stock rights plan (the "Plan").
Pursuant to the Plan,  shareholders  of record on December  17, 1998  received a
dividend of one right to purchase  for CDN$140 one Common  Share of the Company.
The rights are  attached  to the  Company's  Common  Shares and will also become
attached to Common  Shares  issued in the future.  The rights will not be traded
separately and will not become  exercisable until the occurrence of a triggering
event,  defined as an accumulation by a single person or group of 20% or more of
the Company's  Common Shares.  After a triggering  event, the rights will detach
from the Common  Shares.  If the Company is then merged into, or is acquired by,
another corporation, the Company may either (i) redeem the rights or (ii) permit
the rights  holder to receive in the merger  Common  Shares of the Company or of
the acquiring  company equal to two times the exercise price of the right (i.e.,
CDN$280).  In the latter  instance,  the rights attached to the acquirer's stock
become  null and void.  The effect of the rights  program is to make a potential
acquisition of the Company more expensive for the acquirer if, in the opinion of
the Company's Board of Directors, the offer is inadequate.  While the Company is
not  aware  of any  circumstance  that  might  result  in the  acquisition  of a
sufficient   number  of  shares  of  the  Company's  Common  Shares  to  trigger
distribution of the Rights,  existence of the Rights could discourage offers for
the Company's  stock that may exceed the current market price of the stock,  but
that the Board of Directors deems inadequate.

     As a result of being a reporting issuer in certain provinces of Canada, the
Company is required to file certain  reports in such  jurisdictions.  As part of
such reports, the Company is required to file consolidated  financial statements
prepared in accordance with generally accepted accounting  principles as applied
in Canada  ("Canadian  GAAP").  Canadian and US GAAP differ in certain respects,
including the treatment of certain  reorganization  costs and acquired  research
and  development  costs.  As a  result,  the  Company's  Consolidated  Financial
Statements  included in this  report may differ  materially  from the  financial
statements filed by the Company in Canada.

Market for the Common Shares; Potential Volatility of Stock Price

     The  trading  prices  of the  Common  Shares  have  been  subject  to  wide
fluctuations  since trading of the Company's  shares commenced in December 1995.
There can be no assurance  that the market  price of the Common  Shares will not
significantly  fluctuate from its current level.  The market price of the Common
Shares may be subject to wide  fluctuations in response to quarterly  variations
in operating results, announcements of technological innovations or new products
by the Company or its competitors,  changes in financial estimates by securities
analysts,  or other events or factors.  In addition,  the financial markets have
experienced  significant price and volume  fluctuations for a number of reasons,
including  the failure of the  operating  results of certain  companies  to meet
market expectations that have particularly  affected the market prices of equity
securities of many  high-technology  companies that have often been unrelated to
the operating performance of such companies. These broad market fluctuations, or
any industry-specific market fluctuations, may adversely affect the market price
of the Common Shares. In the past, following periods of volatility in the market
price of a company's  securities,  securities class action  litigation has often
been instituted against such a company. 


                                       16
<PAGE>


Such  litigation,  whether with or without  merit,  could result in  substantial
costs and a diversion of management's attention and resources,  which would have
a  material  adverse  effect on the  Company's  business,  financial  condition,
operating results and cash flows.

Year 2000

     Many currently installed computer systems, software products and electronic
products  are coded to accept  only  two-digit  entries in the date code  field.
These date code  fields will need to accept  four digit  entries to  distinguish
21st  century  dates  from 20th  century  dates.  As a result,  during  1999 the
Company, its suppliers and customers, and its potential suppliers and customers,
may need to upgrade,  repair or replace certain  computer systems or software to
minimize  the  adverse  impact  of  system  failures   related  to  "Year  2000"
noncompliance.

     The Company has  conducted an internal  and external  review of its systems
and has  contacted  its material  software and other  suppliers to determine any
major areas of exposure of its systems of Year 2000  issues.  As a result of the
internal  review to date,  the Company  believes that its products are Year 2000
compliant  and  that it has  identified  all  necessary  computer  hardware  and
software  upgrades and  replacements  necessary to make the  Company's  material
computing and business systems Year 2000 compliant.  As a result of the external
review to date, the Company  believes that its material  suppliers are Year 2000
compliant.

     To date,  the  Company  has not  incurred,  and does not  expect  to incur,
material costs to review and remedy Year 2000 compliance problems.  Although the
Company  believes that its products are Year 2000 compliant,  failure to provide
Year 2000  compliant  solutions to its  customers  or to receive  such  business
solutions  from its  suppliers  could  have a  material  adverse  effect  on the
Company's  business,  financial  condition,  operating  results  and cash flows.
Furthermore,  the Company may incur additional  expense if its products are used
by customers on  third-party  hardware and  operating  systems that are not Year
2000 compliant, which could result in a material adverse effect on the Company's
business,  operating results,  financial condition, and cash flows. There can be
no  assurance  that the  systems or products of other  entities,  including  the
Company's  suppliers  on which the Company  relies,  disruptions  in the economy
generally  resulting from Year 2000, issues, and disruptions caused by customers
deferring  their  purchase  decisions or  implementation  plans due to their own
internal  Year 2000  remediation  activities,  will not have a material  adverse
effect on the Company.

     Additionally, there is the possibility that in the coming year corporations
in dealing  with their own Year 2000 issues will defer some  software  purchases
except for the most  urgent and those  relevant  to solving  their own Year 2000
concerns.  To the extent that this occurs, it could materially  adversely affect
the Company's results of operations.  See "Management's  Discussion and Analysis
of Financial Condition and Results of Operation - Year 2000".

Item 2: Properties

     The Company  occupies  approximately  92,000  square feet of leased  office
space  at its  headquarters  in  Richmond,  British  Columbia  for  its  product
development,  marketing,  support,  administration  and  sales  operations.  The
Company  intends to seek to  sub-let a portion  of the space  until such time as
full  occupancy  is  required.  The lease  expires on November 30, 2008 with two
options to renew for five years  each.  The Company  also  leases  approximately
17,400  square feet of office space in  Cambridge,  England  under a lease which
terminates  on April 8, 2004.  The Company  also  maintains an office in Itasca,
Illinois.  The Itasca office lease is for  approximately  28,000 square feet and
terminates on November 30, 1999.

Item 3:  Legal Proceedings

     As of the date hereof,  there is no material litigation pending against the
Company.  From time to time,  the  Company is a party to  litigation  and claims
incident to the ordinary course of its business. While the results of litigation
and claims cannot be predicted  with  certainty,  the Company  believes that the
final  outcome of such  matters will not have a material  adverse  effect on the
Company's business, financial condition, operating results and cash flows.

Item 4:  Submission of Matters to a Vote of Security Holders

Not applicable.




                                       17
<PAGE>


                                     Part II

Item 5:  Market for Registrant's Common Equity And Related Stockholder Matters

Price Range of Common Shares

     The Company's Common Shares began trading on The Toronto Stock Exchange and
on the Montreal  Exchange  under the symbol "MMD" on December 20, 1995 and began
trading  on the  NASDAQ  National  Market  System  under the  symbol  "MDSIF" on
November  26, 1996.  The Company  intends to change its NASDAQ  National  Market
System trading symbol to "MDSI" in April 1999. Prior to December 20, 1995, there
was no public market for the Common Shares.  The following table sets forth, for
the periods  indicated,  the high and low sale  prices for the Common  Shares as
reported on The Toronto  Stock  Exchange and the NASDAQ  National  Market System
with their equivalent U.S. dollar amounts where applicable.


<TABLE>
                                                          The Toronto Stock Exchange                     NASDAQ National Market
                                          -----------------------------------------------------------  ----------------------------
                                                     US$(1)                         CDN$                   US$            US$
                                          -----------------------------  ---------------------------- --------------  -------------
                                              High             Low            High           Low           High            Low
                                          --------------  -------------  ------------- -------------- --------------  -------------
1997
<S>                                           <C>             <C>            <C>            <C>             <C>           <C>  
   First Quarter.........................     20.35           15.01          27.80          20.50           20.13         15.88
   Second Quarter........................     28.50           16.59          39.50          23.00           28.75         16.25
   Third Quarter.........................     28.17           14.81          39.00          20.50           28.75         14.88
   Fourth Quarter........................     22.52           14.78          32.00          21.00           23.00         14.25

1998
   First Quarter.........................     19.57           10.66          28.00          15.25           19.00         10.50
   Second Quarter........................     17.11           11.41          24.75          16.50           17.63         11.13
   Third Quarter.........................     14.09            7.92          21.35          12.00           14.13          7.88
   Fourth Quarter........................     17.83            9.40          27.50          14.50           18.00          9.25

</TABLE>

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

(1)  US dollar amounts have been  translated  using the average noon buying rate
     for Canadian dollars for the relevant quarter.

     As of December 31, 1998 the Company had  approximately  187 shareholders of
record (including nominees and brokers holding street accounts), 66 shareholders
of whom had addresses in the United States and who held 4,403,697 Common Shares,
or 67.1% of the Company's outstanding Common Shares.

     The  Company  has never paid  dividends  on its Common  Stock.  The Company
currently  intends  to  retain  earnings  for use in its  business  and does not
anticipate paying any dividends in the foreseeable future. The Company's current
bank credit agreement  prohibits the payment of dividends  without prior consent
of the lender.



                                       18
<PAGE>


Item 6: Selected Financial Data

     The  following  selected  consolidated  financial  data of the  Company  is
qualified in its entirety by reference to and should be read in conjunction with
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of  Operations"  and the  consolidated  financial  statements  and notes thereto
included  elsewhere in this report.  The  consolidated  statements of operations
data for the years ended  December  31, 1998,  1997,  1996 and 1995 and the year
ended June 30, 1995 and the  consolidated  balance  sheet data at  December  31,
1998,  1997,  1996  and  1995 and at June  30,  1995  are  derived  from and are
qualified  by  reference  to  the  Company's  audited   consolidated   financial
statements   which  were  audited  by  Deloitte  &  Touche  LLP.  This  selected
consolidated  financial data is presented in conformity with generally  accepted
accounting principles in the United States.

<TABLE>
                                                                                                                      
                                                                  Years ended December 31,                            Year ended
                                           -----------------------------------------------------------------------     June 30,
                                                1998              1997              1996             1995(5)             1995
                                           ----------------  ----------------  ---------------   -----------------  ---------------
                                                                     (in thousands, except per share data)
Statement of Operations Data:
<S>                                           <C>            <C>              <C>               <C>                   <C>      
  Revenue...............................      $ 83,383       $   70,280       $    45,143       $       9,313         $   8,000
  Gross profit..........................        38,794           26,921            16,822               6,303             5,250
  Operating income (loss)(1)(2)(3)......         7,926           (9,763)           (5,203)             (1,159)            1,588
  Net income (loss) for the year........         5,499          (11,547)           (6,014)             (1,533)              993
  Diluted earnings (loss) per 
   common share ........................      $   0.82       $    (1.84)      $     (1.24)      $       (0.30)        $    0.19
  Weighted average shares outstanding...         6,723            6,261             4,855               5,117             5,117

US$ Equivalent (4):
  Revenue...............................      $ 55,992        $  50,588       $    33,085       $      6,803           $   5,807
  Gross profit..........................        26,050           19,378            12,329              4,604               3,811
  Operating income (loss)(1)(2)(3)......         5,322           (7,027)           (3,813)              (847)              1,153
  Net income (loss) for the year........         3,693           (8,312)           (4,408)            (1,120)                722
  Diluted earnings (loss) per
    common share                              $   0.55        $   (1.33)      $     (0.91)      $      (0.22)          $    0.14
  Weighted average shares outstanding...         6,723            6,261             4,855              5,117               5,117

</TABLE>


<TABLE>
                                                                                                                          US$
                                                                At December 31,                                       Equivalent(4)
                                           -----------------------------------------------------------    At June 30,  December 31,
Balance Sheet Data:                           1998          1997          1996            1995(5)            1995         1998
                                           ------------  ------------  ------------   ----------------  -------------  -----------
<S>                                        <C>           <C>           <C>             <C>               <C>            <C>     
  Cash and cash equivalents.............   $  6,137      $    110      $ 20,207        $   1,992         $   1,350      $ 3,992 
  Working capital.......................     20,871        13,655        21,380           (1,752)            2,164       13,574
  Total assets..........................     56,568        40,644        45,572            4,978             4,978       36,792
  Non-current liabilities...............      1,907           296            20            1,995             1,995        1,240
  Stockholders' equity .................     30,819        23,836        26,836              559               721       20,045

</TABLE>
----------------------------

(1)  Operating loss for the year ended December 31, 1997 includes  non-recurring
     charges of $6,371,192 (US$4,585,984) including $1,145,152 (US$824,280) with
     respect to restructuring  certain operations and $5,226,040  (US$3,761,704)
     due to changes in estimates to complete certain  contracts  entered into by
     its UK operations which existed prior to the Company's  acquisition of MDSI
     UK.
(2)  Operating  loss for the years ended  December  31,  1997 and 1996  includes
     non-recurring   charges  of  $10,002,982   (US$7,200,146)   and  $8,523,363
     (US$6,229,726)  as a result of  acquired  research  and  development  costs
     relating to the acquisitions of Alliance and MDSI UK in April 1997 and June
     1996, respectively.
(3)  Operating loss for the year ended December 31, 1995 includes  non-recurring
     charges of $2,017,819  (US$1,490,765) and $688,374 (US$508,571) as a result
     of restructuring and reorganization  costs,  respectively,  relating to the
     acquisition of TelSoft in December 1995.
(4)  Solely for the convenience of the reader,  Canadian dollar income statement
     amounts  have been  translated  into U.S.  dollars  using the average  noon
     buying  rate in New York  City for  cable  transfers  payable  in  Canadian
     dollars as certified  for customs  purposes by the Federal  Reserve Bank of
     New York for the relevant period, and Canadian dollar balance sheet amounts
     have been translated using the relevant period-end noon buying rate, as set
     forth  in  "Exchange   Rates".  These   translations  are  not  necessarily
     representative  of the amounts that would have been reported if the Company
     had  historically  reported its financial  statements in U.S.  dollars.  In
     addition, the rates utilized are not necessarily indicative of the rates in
     effect at any other time.
(5)  In 1995, the Company  changed its year end from June 30 to December 31. The
     results of operations  for the year ended December 31, 1995 are restated to
     present the results for the entire twelve month period.


                                       19
<PAGE>

Exchange Rates

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


                        U.S. Dollars Per Canadian Dollar
<TABLE>

                                            1998            1997           1996             1995           1994
                                       -------------   -------------   -------------   -------------   -------------
<S>                                       <C>              <C>             <C>             <C>             <C>    
Period End..........................    US$0.6504        US$0.6999       US$0.7301       US$0.7323       US$0.7128
Average.............................       0.6715           0.7198          0.7329          0.7305          0.7300
High ...............................       0.7105           0.7487          0.7513          0.7527          0.7632
Low.................................       0.6341           0.6945          0.7235          0.7023          0.7103

</TABLE>

On December 31, 1998 the noon buying rate was Cdn$1.00 = US$0.6504. The Canadian
dollar is convertible  into U.S. dollars at freely floating rates, and there are
currently no  restrictions on the flow of Canadian  currency  between Canada and
the United States.

Item 7: Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     The following  discussion  contains "forward looking statements" within the
meaning  of  Section  21E of the  Securities  Exchange  Act of 1934.  The fourth
paragraph  under   "Revenue",   and  the  paragraphs   entitled   "Research  and
Development" , "Sales and Marketing" , and "General and Administrative" , in the
section  entitled  "Year  ended  December  31,  1998  Compared to the Year ended
December 31, 1997" contain  forward  looking  statements.  Actual  results could
differ  materially from those  projected in the forward looking  statements as a
result of the  Company's  ability to  accelerate  or defer  operating  expenses,
achieve revenue in a particular period, hire new personnel and other factors set
forth under  "Business-Risk  Factors"  in Item 1 of this  Annual  Report on Form
10-K.  In  particular,   note  the  Business-Risk  Factors  entitled  "Potential
Fluctuations   in  Quarterly   Operating   Results",   "Lengthy  Sales  Cycles",
"Dependence  on  Large  Contracts  and  Concentration  of  Customers",  "Limited
Operating  History;  Increased  Expenses",  "Integration  of  Acquisitions"  and
"Competition".

     Unless  otherwise  noted,  all  financial  information  in this  report  is
expressed in the Company's functional currency,  Canadian dollars. See item 7A -
Market Risk.

Overview

     MDSI develops, markets, implements and supports mobile workforce management
and  wireless  connectivity  software and related  network and mobile  computing
equipment for use by a wide variety of companies  that have  substantial  mobile
workforces,  such  as  utilities,  telecommunications  companies,  taxi  service
providers,  courier  companies  and  roadside  recovery  organizations.   MDSI's
products  are used by such  companies  in  conjunction  with  public and private
wireless data communications networks to provide comprehensive solutions for the
automation of business processes associated with the scheduling, dispatching and
management   of  a  mobile   workforce.   The  Company's   products   provide  a
cost-effective  method  for  companies  with  mobile  workers  to  utilize  data
communications  to  communicate  with  such  workers,  and for such  workers  to
interface on a real-time basis with their corporate information systems.

     The Company's revenue is derived from (i) software and services, consisting
of the  licensing  of software  and  provision  of related  services,  including
project management, installation,  integration, customization and training; (ii)
third party  products  and  services,  consisting  of the  provision of non-MDSI
products and services as part of the total contract; terminal and infrastructure
equipment consisting of the sale of mobile computing devices, related in-vehicle
equipment and wireless data network equipment manufactured by the Company; (iii)
terminal and infrastructure equipment consisting of the sale of mobile computing
devices,  related  in-vehicle  equipment  and wireless  data  network  equipment
manufactured by the Company; and (iv) maintenance and support, consisting of the
provision of after-sale  support services as well as hourly,  annual or extended
maintenance contracts.


                                       20
<PAGE>


     The  implementation  of a complete mobile data solution requires a wireless
data communications  network, a land-based data communications  network,  mobile
computing  devices  integrated  with wireless data  communication  modems,  host
computer   equipment,   industry   specific   application   software,   wireless
connectivity  software  and a variety of services  to manage and  install  these
components, integrate them with an organization's existing computer systems, and
configure or customize the software to meet customer  requirements.  Frequently,
in the Company's  larger contracts only a limited number of the mobile computing
devices and  in-vehicle  equipment  are  installed  initially,  with the balance
implemented  over a rollout period that may extend up to one year or more. Where
increases in mobile work forces  require,  or where  additional  departments  of
mobile workers are added, additional mobile computing devices may be installed.

     Revenue  for  software  and  services  has  historically  accounted  for  a
substantial  portion of the Company's  revenue . Typically,  the Company  enters
into a fixed  price  contract  with a customer  for the  licensing  of  selected
software  products and the  provision of specific  services  that are  generally
performed  within six to twelve  months.  Pricing for these  contracts  includes
license fees as well as a fee for professional  services.  The Company generally
recognizes  total revenue for software and services  associated  with a contract
using a percentage of completion  method based on the total costs  incurred over
the total estimated costs to complete the contract.

     Commencing  in the third  quarter of 1996,  the  Company  began  generating
revenues  from the sale of mobile  computing and  infrastructure  equipment as a
result of the acquisition of MDSI UK. The Company's  contracts with customers in
the taxi, courier and roadside recovery markets generally require the Company to
provide  mobile  computing  devices and  wireless  data  communications  network
equipment. Revenues for these products are recognized at the time of transfer of
title.

     The Company's customers typically enter into ongoing maintenance agreements
that provide for maintenance, product enhancement and technical support services
for a  period  commencing  after  expiration  of the  initial  warranty  period.
Maintenance  agreements  typically have a term of twelve months and are invoiced
either  annually or monthly.  Revenue for these  services is recognized  ratably
over the term of the contract.

     Prior to 1996,  MDSI  typically  supplied  only  the MDSI  application  and
wireless connectivity software and related services as part of its contract with
a  customer.  The  portion of  contracts  requiring  the  supply of third  party
products  and  services  was not  material  and was not  separated  for  revenue
purposes.  Beginning in 1996, however,  the Company was called on to provide, in
addition to MDSI products and services,  certain third party  products,  such as
host computer  hardware and operating system software,  mobile computing devices
and radio data network infrastructure  equipment, or sub-contract services, such
as radio data system design and  implementation.  The Company recognizes revenue
for the supply of third party  hardware  upon transfer of title to the customer.
The Company  recognizes  revenue for the supply of third party  services using a
percentage  of  completion  method  based on the costs  incurred  over the total
estimated cost to complete the third party services contract.

     The Company  believes that it will often supply some portion of third party
products  and services to customers  where it is  successful  in selling its own
products and services.  There can be no assurance,  however,  that any contracts
entered into by the Company to supply  third party  software and products in the
future will  represent a  substantial  portion of revenue in any future  period.
Since the revenue generated from the supply of third party products and services
may represent a significant  portion of certain  contracts and the  installation
and  rollout of third party  products  is  generally  at the  discretion  of the
customer,  the Company may,  depending on the level of third party  products and
services  provided during a period,  experience large quarterly  fluctuations in
revenue.

     Prior to 1996,  the  Company  achieved  a gross  margin  of  60-70%  on its
consolidated  revenue.  The gross  margins  achieved on revenue from the MDSI UK
operations during the three years prior to its acquisition by the Company ranged
from 62.6% to 21.2%. In addition, since the commencement of sales of third party
products  and  services  in 1996,  the  Company has  achieved  gross  margins of
approximately  12.2% on revenue  attributable  to such  products  and  services.
Accordingly,  the Company expects that its consolidated  gross margins in future
periods  will be  lower  than  those  achieved  by  MDSI  prior  to the  MDSI UK
acquisition  and that  changes in the mix of these  revenues  in any period will
result in significant  fluctuations  in direct costs,  gross profits,  operating
results and other items expressed as a percentage of revenue.

     The Company's revenue is dependent, in large part, on significant contracts
from a limited number of customers.  As a result,  any substantial  delay in the
Company's  completion of a contract,  the inability of the Company to obtain new
contracts or the cancellation of an existing contract by a customer could have a
material  adverse effect on the Company's  results of operations.  The Company's
contracts are  generally  cancelable  upon notice by the  customer.  The loss of
certain  contracts  could  have a  material  adverse  effect  on  the  Company's
business, financial condition,  operating results and cash flows. As a result of
these and other factors,  the Company's results of operations have fluctuated in
the past and may continue to fluctuate from period-to-period.


                                       21
<PAGE>


Effects of Acquisitions

     The   consolidated   financial   statements  of  the  Company  reflect  the
acquisitions of Alliance  effective April 17, 1997 and MDSI UK on June 28, 1996.
These acquisitions have been accounted for using the purchase method.

     The Company  acquired MDSI UK on June 28, 1996. MDSI UK develops,  markets,
implements  and  supports  mobile  workforce  management  application  software,
wireless  connectivity  software,   wireless  data  network  equipment,   mobile
computing devices and related in-vehicle equipment used by customers principally
in the taxi, courier and roadside recovery markets.  The acquisition resulted in
the write-off of $8.5 million associated with acquired research and development.
As the  acquisition  was completed at the end of the second quarter in 1996, the
Company's  results of  operations  for the year ended  December 31, 1996 include
only the results of operations of MDSI UK for the six months ended  December 31,
1996.

     On April 17,  1997,  the  Company  entered  into an  agreement  to  acquire
Alliance  which was  completed  July 1, 1997.  Alliance  is a supplier of mobile
workforce management solutions to the utility,  public safety and cable markets.
The  acquisition  resulted in the  write-off of $10.0  million  associated  with
acquired  research and development.  The Company's results of operations for the
year ended  December 31, 1997 include only the results of operations of Alliance
from April 17, 1997.

     The Company has a limited  history of operations  on a combined  basis with
Alliance and MDSI UK. In addition,  since the  acquisition  of Alliance and MDSI
UK, the Company  has  restructured  certain  aspects of those  operations.  As a
result,  the  financial  information  presented  in this  Annual  Report  is not
indicative  of the results that would have been  obtained  had the  acquisitions
occurred  prior to the  commencement  of the periods  covered  herein,  and such
information should not be relied upon as an indication of future performance.

Results of Operations

     The following table sets forth, for the years indicated, certain components
of the selected financial data of the Company:

<TABLE>

                                                                                        Years ended December 31,
                                                                --------------------------------------------------------------------
                                                                        1998                    1997                    1996
                                                                ---------------------    --------------------    -------------------
                                                                                            (in thousands)
<S>                                                                 <C>                  <C>                           <C>          
 Revenue:
    Software and services..................................         $         47,497     $            39,358           $     18,388
    Terminals and infrastructure...........................                    8,385                  10,646                  8,708
    Third party products and services .....................                   19,514                  16,677                 15,228
    Maintenance and support................................                    7,987                   3,599                  2,819
                                                                ---------------------    --------------------    -------------------
                                                                              83,383                  70,280                 45,143
 Direct costs..............................................                   44,589                  43,359                 28,321
                                                                ---------------------    --------------------    -------------------
 Gross profit..............................................                   38,794                  26,921                 16,822
                                                                ---------------------    --------------------    -------------------
 Operating expenses:
    Research and development...............................                    9,894                   6,540                  4,357
    Sales and marketing....................................                   13,423                  12,071                  5,689
    General and administrative.............................                    6,686                   6,088                  3,125
    Amortization of intangible assets......................                      864                     837                    331
    Acquired research and development......................                        -                  10,003                  8,523
    Restructuring costs....................................                        -                   1,145                      -
                                                                ---------------------    --------------------    -------------------
                                                                              30,867                  36,684                 22,025
                                                                ---------------------    --------------------    -------------------
 Operating income (loss)...................................                    7,927                  (9,763)                (5,203)
 Other income..............................................                      162                     535                    114
                                                                ---------------------    --------------------    -------------------
 Income (loss) before provision for income taxes...........                    8,089                  (9,228)                (5,089)
 Provision for income taxes................................                  ( 2,590)                 (2,319)                  (925)
                                                                ---------------------    --------------------    -------------------
 Net income (loss) for the year............................         $          5,499     $           (11,547)          $     (6,014)
                                                                =====================    ====================    ===================
</TABLE>


                                       22
<PAGE>


     The following table sets forth, for the years indicated, certain components
of the selected financial data of the Company as a percentage of total revenue:

<TABLE>
                                                                                        Years ended December 31,
                                                                --------------------------------------------------------------------
                                                                          1998                    1997                    1996
                                                                ---------------------    --------------------    -------------------
                                                                                            (in thousands)
<S>                                                                 <C>                  <C>                           <C>          

 Revenue:
    Software and services..................................                   57.0%                    56.0%                  40.7%
    Terminals and infrastructure...........................                   10.0                     15.2                   19.3
    Third party products and services......................                   23.4                     23.7                   33.7
    Maintenance and support................................                    9.6                      5.1                    6.3
                                                                ---------------------    ---------------------   -------------------
                                                                             100.0                    100.0                  100.0
 Direct costs..............................................                   53.5                     61.7                   62.7
                                                                ---------------------    ---------------------   -------------------
 Gross profit..............................................                   46.5                     38.3                   37.3
                                                                ---------------------    ---------------------   -------------------
 Operating expenses:
    Research and development...............................                   11.9                      9.3                    9.7
    Sales and marketing....................................                   16.1                     17.2                   12.6
    General and administrative.............................                    8.0                      8.7                    6.9
    Amortization of intangible assets......................                    1.0                      1.2                    0.7
    Acquired research and development......................                      -                     14.2                   18.9
    Restructuring costs....................................                      -                      1.6                      -
                                                                ---------------------    ---------------------   -------------------
                                                                              37.0                     52.2                   48.8
                                                                ---------------------    ---------------------   -------------------
 Operating income (loss)...................................                    9.5                    (13.9)                 (11.5)
 Other income..............................................                    0.2                      0.8                    0.2
                                                                ---------------------    ---------------------   -------------------
 Income (loss) before provision for income taxes...........                    9.7                    (13.1)                 (11.3)
 Provision for income taxes................................                   (3.1)                    (3.3)                  (2.0)
                                                                =====================    =====================   ===================
 Net income (loss) for the year............................                    6.6%                   (16.4)%                (13.3)%
                                                                =====================    =====================   ===================
</TABLE>


Year ended December 31, 1998 Compared to the Year ended December 31, 1997

     Revenue - Revenue  increased  by $13.1  million  (18.6%) for the year ended
December 31, 1998 as compared to the year ended December 31, 1997. This increase
in revenue can be attributed to the reflection in the financial  statements of a
full year of  Alliance's  (now MDSI US)  operations,  in comparison to eight and
one-half months in the year ended December 31, 1997, and to the continued growth
of the existing business.

     Software and  services  revenue  increased by $8.1 million  (20.7%) for the
year ended  December  31, 1998 as compared to the year ended  December 31, 1997.
This  increase is due  primarily to the  reflection of a full year of Alliance's
results in the financial  statements,  and additional  revenue from customers in
both the telecommunications and utility markets.

     Terminals and infrastructure  revenue decreased by $2.3 million (21.2%) for
the year ended  December  31,  1998.  Terminals  and  infrastructure  revenue is
derived solely from the MDSI UK operations.  Due to the delay in  implementation
of two legacy taxi contracts in 1997, MDSI UK was unable to commence work on new
taxi contracts  until 1998,  resulting in reduced  terminals and  infrastructure
revenue during the period.

     Third party products and services revenue increased by $2.8 million (17.0%)
for the year ended  December 31, 1998 compared the year ended December 31, 1997.
Third party  products  and  services  revenue is  primarily  earned from certain
customers in the utility market  pursuant to agreements  under which the Company
provides  third party products and services,  typically host computer  equipment
and mobile  computing  devices,  as part of the  installation  of  software  and
provision  of  services.  Revenue from  deliveries  of third party  products and
services  will  fluctuate  from  period to period  given the  timing of  certain
contracts  and the rollout  schedules  which are  established  primarily  by the
customers.  Accordingly,  this will  result in large  fluctuations  in  revenue,
direct  costs,  gross  profits  and income  from  operations  from one period to
another.

     Maintenance  and  support  revenue  was $8.0  million  for the  year  ended
December  31, 1998 as compared to $3.6  million for the year ended  December 31,
1997, an increase of 121.9%.  Typically,  maintenance  and support  revenue will
increase with the number of customers using MDSI's software.

     Direct  Costs - Direct  costs  were  53.5% of  revenue  for the year  ended
December 31, 1998 as compared to 61.7% for the year ended December 31, 1997. The
decrease in direct costs as a  percentage  of revenue  relates  primarily to the
fact that during the year ended December 31, 1997, the Company  recorded  direct
costs of $5.2 million  relating to estimated losses on two MDSI UK contracts due
to changes in estimates to complete.  Under the percentage of completion  method
used to recognize revenue on fixed price contracts, where it has been determined
that a contract  will be  completed  at a loss due to changes  in  estimates  to
complete, the Company is required to recognize the full amount of such losses in
the period that the loss is determined. Excluding these contracts, the Company's
direct costs for the year ended December 31, 1997 were 54.3% of revenue.


                                       23
<PAGE>


     Direct costs  include labor and other costs  directly  related to a project
including those related to the provision of services and support, production and
inventory costs associated with terminals and infrastructure  equipment provided
by MDSI UK and costs related to host  equipment and mobile  devices on behalf of
third party product  sales.  Labor costs include  direct  payroll,  benefits and
overhead charges.

     Gross  Margins.  Gross  margins  were 46.5% of  revenue  for the year ended
December 31, 1998 as compared to 38.3% for the year ended December 31, 1997. The
increase in gross  margins is  attributable  to the absence of charges to direct
costs caused by changes in estimates to complete  contracts  required during the
year ended  December  31,  1998,  and the higher  proportion  of total  revenues
represented by the high margin software and services  business.  After adjusting
for the margins on the legacy contracts in the MDSI UK operations, the Company's
gross margins for the year ended December 31, 1997 were 45.7% of revenue.

     Research and  Development.  Research  and  development  expenses  were $9.9
million, or 11.9% of revenue,  for the year ended December 31, 1998, compared to
$6.5  million,  or 9.3% of revenue,  for the year ended  December 31, 1997.  The
51.3% increase in research and  development  expenses in 1998 is a result of the
continued  development and enhancement of the Company's Advantex  products.  The
Company  anticipates  continuing to commit a significant  portion of its product
revenues  to  enhancement  of  existing  products  and  the  development  of new
products, resulting in an anticipated increase in the dollar amounts of research
and development expenses.

     Sales and  Marketing.  Sales and  marketing  expenses were $13.4 million or
16.1% of revenue for the year ended  December  31, 1998 and 17.2% of revenue for
the year ended  December 31, 1997.  This  represents an increase of $1.4 million
(11.2%) as compared to 1997.  The increase was  primarily  due to an increase in
marketing,  sales and  technical  support  personnel  to support  the  Company's
increased  marketing  activities  worldwide.  The Company  anticipates  that the
dollar amounts of its sales and marketing  expenses will continue to increase as
the result of the Company's commitment to its international marketing effort.

     General and Administrative.  General and administrative  expenses were $6.7
million,  or 8.0% of  revenue,  for the year ended  December  31,  1998 and $6.1
million, or 8.7% of revenue, for the year ended December 31, 1997. This increase
was due  primarily to the hiring of  additional  accounting  and  administrative
personnel to support the Company's growth.  The Company expects that its general
and  administrative  expenses will increase in the future as the Company expands
its staffing,  information systems and other administrative costs to support its
expanding operations.

     Other Income. Other income was $0.2 million for the year ended December 31,
1998 as  compared  to $0.5  million  for  the  year  ended  December  31,  1997.
Substantially  all of other income relates to interest  income on cash and short
term  deposits and  fluctuations  in the  currencies  of the  Company's  foreign
operations

     Income  Taxes.  The Company  provided  for income taxes on earnings for the
year ended  December  31,  1998 at the rate of 28.9%,  after  adjusting  for the
amortization of intangible assets. The Company's effective tax rate reflects the
application of certain  operating loss carry forwards against taxable income and
the blended  effect of Canadian,  US, UK and other  foreign  jurisdictions'  tax
rates.

Year ended December 31, 1997 Compared to the Year ended December 31, 1996

     Revenue - Revenue  increased  by $25.1  million  (55.7%) for the year ended
December 31, 1997 as compared to the year ended December 31, 1996. This increase
in revenue is due to revenue contributed by Alliance and MDSI UK during the year
ended  December  31,  1997 of $27.9  million  and the  continued  growth  of the
existing business.

     Software and services  revenue  increased by $21.0  million  (114%) for the
year ended  December  31, 1997 as compared to the year ended  December 31, 1996.
This  increase is due primarily to the  acquisitions  of Alliance and MDSI UK in
April 1997 and June 1996, respectively, and additional revenue from customers in
both the telecommunications and utility markets.

     Terminals and infrastructure  revenue increased by $1.9 million (22.4%) for
the year ended  December 31, 1997 due to the  inclusion of revenue from the MDSI
UK operations for the full year ended December 31, 1997 whereas 1996 results are
only included  subsequent to the acquisition of MDSI UK at the end of June 1996.
Terminals  and  infrastructure  revenue  is  derived  solely  from  the  MDSI UK
operations.


                                       24
<PAGE>


     Third party products and services revenue  increased by $1.5 million (9.5%)
for the year ended  December 31, 1997 compared the year ended December 31, 1996.
Third party products and services revenue  primarily  represents  revenue earned
from certain  customers in the utility market pursuant to agreements under which
the Company provides third party products and services,  typically host computer
equipment and mobile computing devices,  as part of the installation of software
and provision of services.  

     Maintenance  and  support  revenue  was $3.6  million  for the  year  ended
December  31, 1997 as compared to $2.8  million for the year ended  December 31,
1996. The increase in maintenance and support revenue reflects the growth in the
number of installations of the Company's products.

     Direct  Costs - Direct  costs  were  61.7% of  revenue  for the year  ended
December 31, 1997 as compared to 62.7% for the year ended December 31, 1996. The
decrease in direct costs as a  percentage  of revenue  related  primarily to the
proportionately  large amount of third party  hardware and services  supplied in
1996.  Margins on third party supplied hardware and services are typically lower
than margins on software and services.  Also, under the percentage of completion
method  used to  recognize  revenue on fixed  price  contracts,  the  Company is
required to  recognize  the full  amount of any loss in the period  where it has
been  determined  that a contract  will be completed at a loss due to changes in
estimates to  complete.  During the year ended  December  31, 1997,  the Company
recorded  direct  costs of $5.2 million  relating to estimated  losses on legacy
contracts in MDSI UK due to changes in estimates  to complete.  Excluding  these
contracts,  the Company's  direct costs were 54.3% of revenue for the year ended
December 31, 1997.

     Direct costs  include labor and other costs  directly  related to a project
including those related to the provision of services and support, production and
inventory costs associated with terminals and infrastructure  equipment provided
by MDSI UK and costs related to host  equipment and mobile  devices on behalf of
third party product  sales.  Labor costs include  direct  payroll,  benefits and
overhead charges.

     Gross  Margins.  Gross  margins  were 38.3% of  revenue  for the year ended
December  31, 1997 as compared to 37.3% for the year ended  December  31,  1996.
After  adjusting  for  the  margins  on the  legacy  contracts  in the  MDSI  UK
operations, the Company's gross margins were 45.7% of revenue.

     Research and  Development.  Research and development  expenses were 9.3% of
revenue  for the year ended  December  31, 1997 and 9.7% of revenue for the year
ended December 31, 1996.  Total research and  development  expenditures  for the
year ended  December  31, 1997 of $6.5  million  represents  an increase of $2.2
million (50.1%) as compared to the same period in 1996. The increase in research
and development  expenses in 1997 was a result of the continued  development and
enhancement of the Company's Advantex products.

     Sales and Marketing. Sales and marketing expenses were 17.2% of revenue for
the year  ended  December  31,  1997 and  12.6% of  revenue  for the year  ended
December  31,  1996.  This  represents  an  increase of $6.4  million  (112%) as
compared  to the same  period in 1996.  The  increase  was  primarily  due to an
increase in  marketing,  sales and  technical  support  personnel to support the
Company's increased marketing activities worldwide.

     General and Administrative.  General and administrative  expenses were 8.7%
of revenue for the year ended December 31, 1997 and 6.9% of revenue for the year
ended  December  31, 1996.  Total  general and  administrative  expenses of $6.1
million  represents  an  increase  of $3.0  million  (94.8%)  for the year ended
December 31, 1997, as compared to the same period in 1996.  The increase was due
primarily to the hiring of additional accounting and administrative personnel to
support the Company's growth and inclusion of costs associated with Alliance and
MDSI UK. 

     Restructuring  Costs.  During the year ended December 31, 1997, the Company
incurred  costs of $1.1 million  associated  with the  restructuring  of certain
operations  related  to  its UK  and  Kansas  operations.  These  costs  include
severance  and  related   provisions  for  future  costs  as  a  result  of  the
restructuring. The restructuring was complete as of December 31, 1997.

     Acquired  Research and  Development . Effective April 17, 1997, the Company
acquired Alliance for total consideration of $9.1 million.  Included in the fair
value of net assets acquired was research and development of $10.0 million which
was expensed at the time of acquisition.

     Other  Income.  Other income was  $535,000 for the year ended  December 31,
1997 as compared to $113,664 for the year ended December 31, 1996. Substantially
all of other income  relates to interest  income on cash and short term deposits
and fluctuations in the currencies of the Company's foreign operations


                                       25
<PAGE>


     Income  Taxes.  The Company  provided  for income taxes on earnings for the
year ended  December  31,  1997 at the rate of 31.8%,  after  adjusting  for the
amortization of intangible  assets,  acquired research and development costs and
the  recovery  of income  taxes  related  to  restructuring  costs and losses on
certain legacy contracts in the MDSI UK operations.  The Company's effective tax
rate reflects the application of certain  operating loss carry forwards  against
taxable  income and the blended  effect of  Canadian,  US, UK and other  foreign
jurisdictions' tax rates.

Quarterly Results of Operations

     The following  table sets forth certain  unaudited  statement of operations
data for  each of the  eight  quarters  beginning  January  1,  1997 and  ending
December 31, 1998 as well as the percentage of the Company's revenue represented
by each item. The unaudited financial  statements have been prepared on the same
basis as the  audited  financial  statements  contained  herein and  include all
adjustments,  consisting only of normal recurring adjustments,  that the Company
considers  necessary to present fairly this information when read in conjunction
with the Company's audited financial  statements and the notes thereto appearing
elsewhere in this report.  In view of the Company's  recent  growth,  its recent
acquisitions and other factors, the Company believes that quarterly  comparisons
of its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.

<TABLE>
                                                                          Three Months Ended
                             -------------------------------------------------  ------------------------------------------------
                                                   1998                                              1997
                             -------------------------------------------------  ------------------------------------------------
                                    Dec. 31     Sept. 30     June 30     March 31     Dec. 31       Sept. 30     June 30    March 31
                                  ----------   ----------  ----------  -----------   ----------   -----------  ----------  ---------
                                                                      (Unaudited, in thousands)
<S>                                <C>          <C>          <C>        <C>           <C>          <C>          <C>         <C>    
Statement of Operations Data:
   Revenue:
     Software and services......   $ 15,185     $12,372      $11,023    $ 8,917       $11,908      $  9,175     $11,157     $ 7,118
     Terminals and infrastructure     2,070       1,890        1,977      2,448         2,767         1,359       4,654       1,865
     Third party products and 
       services...................    8,277       7,141        3,058      1,038         1,235         5,236       1,994       8,212
     Maintenance and support....      2,312       2,113        1,885      1,677         1,070         1,033         659         837
                                  -----------  ----------  ----------  -----------   ----------   -----------  ----------  ---------
                                     27,844      23,516       17,943     14,080        16,980        16,803      18,464      18,032

   Direct costs.................     15,245      13,087        9,197      7,060         8,036        14,425       9,446      11,452
                                  -----------  ----------  ----------  -----------   ----------   -----------  ----------  ---------
   Gross profit.................     12,598      10,429        8,746      7,020         8,944         2,378       9,018       6,580
                                  -----------  ----------  ----------  -----------   ----------   -----------  ----------  ---------
   Operating expenses:
     Research and development...      3,153       2,765        2,049      1,927         1,427         1,870       1,843       1,400
     Sales and marketing........      3,823       3,194        3,267      3,139         3,596         3,453       2,896       2,125
     General and administrative.      1,908       1,696        1,573      1,508         1,488         1,796       1,646       1,159
     Amortization of intangible         
     assets.....................        216         216          216        216           238           238         216         145
     Acquired research and
       development...........             _           _            _          _             _             _      10,003           _
     Restructuring costs........          _           _            _          _             _         1,145           _           _
                                  -----------  ----------  ----------  -----------   ----------   -----------  ----------  ---------
                                      9,100       7,871        7,105      6,790         6,749         8,502      16,604       4,829
                                  -----------  ----------  ----------  -----------   ----------   -----------  ----------  ---------
   Operating income (loss)......      3,498       2,558        1,641        230         2,195        (6,124)     (7,586)      1,751
   Other income.................         55          54           81        (28)          266           135          20         115
                                  -----------  ----------  ----------  -----------   ----------   -----------  ----------  ---------
   Income (loss) before income
     tax provision..............      3,553       2,612        1,722        202         2,461        (5,989)     (7,566)      1,866
   Recovery of (provision for)
     income taxes...............     (1,031)       (848)        (586)      (126)         (934)           43        (826)       (603)
                                  ===========  ==========  ==========  ===========   ==========   ===========  ==========  =========
   Net income (loss) for the        
   period......................     $ 2,522     $ 1,764      $ 1,136    $    76       $ 1,527      $ (5,946)    $(8,392)    $ 1,263
                                  ===========  ==========  ==========  ===========   ==========   ===========  ==========  =========
</TABLE>

                                       26
<PAGE>


The following table sets forth, for the periods indicated, certain components of
the selected financial data of the Company as a percentage of total revenue:

<TABLE>
                                                                       Three Months Ended
                                -----------------------------------------------   ------------------------------------------------
                                                    1998                                               1997
                                ------------------------------------------------   -----------------------------------------------
                                  Dec. 31    Sept. 30     June 30      March 31     Dec. 31    Sept. 30     June 30     March 31
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
Revenue:
<S>                                <C>         <C>         <C>          <C>           <C>        <C>         <C>          <C>  
  Software and services.....       54.6%       52.6%       61.4%        63.3%         70.1%      54.6%       60.4%        39.5%
  Terminals and infrastructure      7.4         8.0        11.0         17.4          16.3        8.1        25.2         10.3
  Third party products and         29.7        30.4        17.1          7.4           7.3       31.2        10.8         45.6
  services..................
  Maintenance and support....       8.3         9.0        10.5         11.9           6.3        6.1         3.6          4.6
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
                                  100.0       100.0       100.0        100.0         100.0      100.0       100.0        100.0
Direct costs.................      54.8        55.6        51.3         50.2          47.3       85.8        51.2         63.5
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
Gross profit.................      45.2        44.4        48.7         49.8          52.7       14.2        48.8         36.5
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
Operating expenses:
  Research and development...      11.3        11.8        11.4         13.7           8.4       11.1        10.0          7.8
  Sales and marketing........      13.7        13.6        18.2         22.3          21.2       20.5        15.7         11.8
  General and administrative.       6.9         7.2         8.8         10.7           8.8       10.7         8.9          6.4
  Amortization of intangible        
  assets.....................       0.7         0.9         1.2          1.5           1.4        1.4         1.2          0.8
  Acquired research and
       development...........         _           _           _            _             _          _        54.1            _
  Restructuring costs........         _           _           _            _             _        6.8           _            _
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
                                   32.6        33.5        39.6         48.2          39.8       50.5        89.9         26.8
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
Operating income (loss)....        12.6        10.9         9.1          1.6          12.9      (36.3)      (41.1)         9.7
Other income...............         0.2         0.2         0.5         (0.2)          1.6        0.6         0.1          0.6
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
Income (loss) before income
   tax provision...........        12.8        11.1         9.6          1.4          14.5      (35.7)      (41.0)        10.3
                                ----------  ----------  ----------   -----------  ----------  ----------  ----------  ------------
Recovery of (provision for)
   income taxes............        (3.7)       (3.6)       (3.3)        (0.9)         (5.5)       0.3        (4.5)        (3.3)
                                ==========  ==========  ==========   ===========  ==========  ==========  ==========  ============
Net income (loss) for the           
   period..................         9.1%        7.5%        6.3%         0.5%          9.0%     (35.4)%     (45.5)%        7.0%
                                ==========  ==========  ==========   ===========  ==========  ==========  ==========  ============

</TABLE>

Liquidity and Capital Resources

     The Company finances its operations,  acquisitions and capital expenditures
with cash  generated  from  operations,  loans,  private  placements  and public
offerings of its securities. At December 31, 1998, the Company had cash and cash
equivalents of $6.1 million and working capital of $20.9 million. On January 29,
1999 the Company  issued 575,000  common shares for net  consideration  of $14.7
million.

     Cash provided by (used in) operating  activities was $5.9 million,  $(13.5)
million and $(1.7) million,  respectively for the years ended December 31, 1998,
1997 and 1996. The $5.9 million of cash provided by operating activities in 1998
comprised $5.5 million net income,  non-cash  charges of $2.4 million and $(2.0)
million of changes to non-cash  working  capital  items.  The changes to working
capital  items  include a $3.5  million  increase in trade  receivables,  a $3.2
million  increase in unbilled  receivables,  a $2.2 million  increase in prepaid
expenses and a $2.4  million  decrease in accrued  liabilities  offset by a $3.8
million increase in trade payables, a $578,000 increase in taxes payable, a $4.4
million increase in deferred revenue and a $800,000  decrease in deferred income
taxes.  Unbilled accounts  receivable arise where the Company has earned revenue
on a project though has yet to complete  specific  billing  milestones under the
terms of the applicable contract.  Deferred revenue arises where the Company has
achieved a billing  milestone under a customer contract but has yet to recognize
all  of the  revenue  billed  due to the  percentage  of  completion  under  the
contract.  The  increase in accounts  payable of $3.8  million is due in part to
payments for third party products and services accrued at December 31, 1998. The
$2.2 million increase in prepaid expenses is primarily  attributable to expenses
incurred with respect to the Richmond  facility which are  recoverable  from the
landlord and are expected to be recovered during the first half of 1999.

     Cash provided by (used in) financing  activities  was $2.9 million,  $(2.2)
million and $22.0  million,  respectively  during the years ended  December  31,
1998, 1997 and 1996. The cash provided by financing activities in 1998 comprised
$1.6 million in capital  leases and $1.5 million from the issue of common shares
partially  offset by a $134,000  repayment of long-term  debt.  During 1998, the
Company  financed a major  portion of its capital  expenditure  program  through
capital leases. In addition, the equipment lease to a customer was financed by a
capital lease.  Common shares were issued on the conversion of outstanding share
purchase warrants ($731,000), exercise of stock options ($449,000) and purchases
by employees under the Company's share purchase plan ($303,000).


                                       27
<PAGE>


     Cash used in investing  activities  was $2.8 million,  $4.5  million,  $2.0
million,  respectively  for the years ended  December 31,  1998,  1997 and 1996.
Total  investing  activity in 1998 consisted of $2.8 million for the purchase of
capital equipment,  including computer hardware and software for use in research
and development  activities and to support the growth of the Company's corporate
information systems.

     Existing  sources of liquidity at December 31, 1998 include $6.1 million of
cash and cash equivalents and funds available under the Company's operating line
of credit.  During the year ended December 31, 1998,  the Company  increased its
borrowing  capacity  under  this  line of credit  to a limit of $8  million.  At
December 31, 1998,  (pound)200,000  of such amount was committed to securing the
Company's  obligations under an outstanding letter of credit. The (pound)200,000
letter of credit is provided as security for any overdraft  position of MDSI UK.
Under the terms of the  agreement,  borrowings  and letters of credit  under the
line are  limited  to 60% to 90% of  eligible  accounts  receivable.  Borrowings
accrue  interest  at the bank's  prime rate plus  0.5%.  From time to time,  the
Company  draws on the line of credit for general  working  capital  requirements
related to its operations.

     The Company  believes that future cash flows from  operations,  the January
29, 1999 financing and its borrowing capacity under the operating line of credit
will provide  sufficient  funds to meet cash  requirements for at least the next
twelve  months.  Commensurate  with its past and  expected  future  growth,  the
Company  may  increase,  from time to time,  its  borrowing  facility  under its
operating line of credit to support its operations.  The Company has no material
additional  commitments  other than  operating  leases.  Future  growth or other
investing activities may require the Company to obtain additional equity or debt
financing,  which may or may not be available on attractive terms, or at all, or
may be dilutive to current or future shareholders.

Derivative Financial Instruments

     It is the  policy of the  Company  not to enter into  derivative  financial
instruments for trading  purposes.  The Company does enter into foreign currency
forward exchange  contracts in the ordinary course of business to protect itself
from  adverse  currency  rate  fluctuations  on certain  firm  foreign  currency
transactions.  The Company may also utilize foreign currency exchange  contracts
to hedge net assets on  liabilities  denominated  in foreign  currencies.  These
contracts are generally for eighteen months or less. Gains or losses relating to
hedging firm  commitments  are deferred and included in the  measurement  of the
foreign currency transaction subject to the hedge.

     The Company's  foreign currency forward  contracts are executed with credit
worthy banks and are denominated in currencies of major industrial countries. No
foreign currency forward contracts were entered into during 1998.

Year 2000

     The Year 2000 issue is the result of computer  programs being written using
two digits  rather  than four  digits to define the  applicable  year.  Computer
equipment,  software  and  other  devices  with  embedded  technology  that  are
time-sensitive  may recognize a date using "00" as the year 1900 rather than the
year 2000.  This could  result in system  failures  or  miscalculations  causing
disruption of operations,  including,  among other things, a temporary inability
to manufacture products,  acquire or ship products,  process transactions,  send
invoices,  or engage in other  normal  business  activities.  The  inability  of
business  processes to function  correctly  in 2000 could have  serious  adverse
effects on companies and entities throughout the world.

     In 1997 the Company established a team of professionals  within the company
to plan and  implement  its year 2000  compliance  initiative.  The  Company has
developed  and is  implementing  a  Company-wide  Year 2000 plan (the "Plan") to
ensure that its computer  equipment  and software with date  sensitive  embedded
technology  will be able to  distinguish  the  year  1900  and the 2000 and will
function  properly  with  respect  to  all  dates  (referred  to as  "Year  2000
Compliant").  The Company presently  believes that its planned  modifications or
replacements  of  certain  existing  computer  equipment  and  software  will be
completed  on a  timely  basis so as to  minimize  potential  Year  2000-related
disruptions or malfunctions of its computer equipment and software.

     The  Company's  Plan  focuses  on  internal  systems,  including  personal
computing,  facilities and business  systems,  and  third-party  considerations,
including  products and  suppliers.  The tasks common to each of these areas are
(i) the  identification  and assessment of Year 2000 issues,  (ii) assessment of
remediation required, (iii) prioritization of risk, (iv) remediation and testing
and (v) contingency planning.


                                       28
<PAGE>


Internal Systems

     The Company's  compliance team has evaluated  significant internal personal
computing and business systems that are critical to the ongoing operation of the
Company and has  identified  the computer  hardware  and  software  upgrades and
replacements  necessary to make such systems Year 2000 compliant.  Such upgrades
and  replacements  are expected to be completed by the end of the second quarter
of 1999.  The  Company  is  reviewing  its  present  financial  systems  and its
long-term business system  requirements.  Any decision to purchase and implement
new  systems  will  include  the  requirement  that  such  systems  be Year 2000
compliant.

Customers

     The  Company is a software  developer  and has been  testing  its  software
internally  and in  conjunction  with  customers  for Year 2000  readiness.  The
Company  believes  that all its current  products  are Year 2000  compliant  and
believes that it has identified and informed all its customers of the steps that
are required to make software  previously  purchased by such customers Year 2000
compliant. The Company's software runs on a variety of third party computers and
operating systems. While the Company is not obligated to ensure that third party
suppliers are Year 2000  compliant,  the Company has suggested to customers that
they  utililize  available  Year 2000  remedies.  The Company is  assisting  its
customers with Year 2000 validation  efforts including  synchronization  of Year
2000  upgrades  and  testing,  to  eliminate  implementation  of  non-compatible
solutions by customers.

     There is also the  possibility  that in the  coming  year  corporations  in
dealing  with their own Year 2000  issues  will defer  some  software  purchases
except for the most  urgent and those  relevant  to solving  their own Year 2000
concerns.  To the extent that this occurs, it could materially  adversely affect
the Company's results of operations.

Suppliers

     The Company has  identified  its third party  software and, in  conjunction
with its vendors, has considered possible remediation requirements. After review
and  consultation,  the Company has  determined  that no updates are required to
make existing  software Year 2000  compliant.  Business  operations will also be
dependent  on the  Year  2000  readiness  of  infrastructure  suppliers  such as
banking, communications, transportation and other services. In this environment,
there will  likely be  instances  of failure  that could  cause  disruptions  in
business   processes.   The   likelihood   and  effects  of  such   failures  in
infrastructure systems and the supply chain cannot be estimated.

Costs

     The total  cost of the  Company's  Year 2000  Plan is not  material  to the
Company's financial condition.  The estimated total cost of the Plan is expected
to be approximately  $400,000,  and is being funded through operating cash flow.
As at December 31,  1998,  the Company had  incurred  approximately  $225,000 in
costs  related  to its Year 2000  identification,  assessment,  remediation  and
testing  efforts.  The major portion of the remaining  amount of the estimate is
expected to have been incurred by the end of the second quarter of 1999 when the
Company's Year 2000  compliance  efforts are expected to be completed,  with the
balance  expended  thereafter  to monitor the  compliance  process.  None of the
Company's  other  projects  have been  delayed  or  deferred  as a result of the
implementation of the Year 2000 Compliance Plan.

Risks

     To date,  the  Company  has not  incurred,  and does not  expect  to incur,
material costs to review and remedy Year 2000 compliance problems.  Although the
Company  believes that its products are Year 2000 compliant,  failure to provide
Year 2000  compliant  solutions to its  customers  or to receive  such  business
solutions  from its  suppliers  could  have a  material  adverse  effect  on the
Company's  business,  financial  condition,  operating  results  and cash flows.
Furthermore,  the Company may incur additional  expense if its products are used
by customers on  third-party  hardware and  operating  systems that are not Year
2000 compliant, which could result in a material adverse effect on the Company's
business,  operating results,  financial condition, and cash flows. There can be
no  assurance  that the  systems or products of other  entities,  including  the
Company's  suppliers  on which the Company  relies,  disruptions  in the economy
generally  resulting from Year 2000, issues, and disruptions caused by customers
deferring  their  purchase  decisions or  implementation  plans due to their own
internal  Year 2000  remediation  activities,  will not have a material  adverse
effect on the Company.

     The  preceding  "Year 2000"  discussion  contains  various  forward-looking
statements  which  represent the  Company's  beliefs or  expectations  regarding
future  events.   These   forward-looking   statements   include  the  Company's
expectations  and beliefs as to the most likely  scenarios or  occurrences.  All
forward-looking  statements,  however,  involve  a  number  of risks  which  and
uncertainties that could cause actual results to differ from projected results.



                                       29
<PAGE>


Contingency Plans

     As  part  of  its  continuing   assessment  of  its  Year  2000  compliance
requirements,  the Company has developed  contingency plans to deal with what it
feels is its worst case scenario.  This contingency plan revolves around a staff
team of Information  Technology  professionals that will be available during the
Year 2000 date change period and the facilities to support that staff.

Item 7A: Quantitative and Qualitative Disclosure About Market Risk

     The Company's  primary market risk is foreign currency  exchange rates. The
Company has  established  procedures to manage  sensitivity to foreign  currency
exchange  rate market  risk.  These  procedures  include the  monitoring  of the
Company's net exposure to each foreign  currency and the use of foreign currency
forward  contracts to hedge firm exposures to currencies other than the Canadian
and  United  States  dollars  and the  Great  Britain  pound.  The  Company  has
operations  in the United  States and Great  Britain in addition to its Canadian
operations and did not hedge these exposures in 1998.  However,  the Company may
from  time-to-time  hedge any net exposure to the United  States  dollar and the
Great Britain pound.

     As of December 31, 1998, the potential  reduction in future earnings from a
hypothetical  instantaneous 10% change in quoted foreign currency exchange rates
applied  to the  foreign  currency  sensitive  contracts  and  assets  would  be
approximately $3.0 million. The foreign currency sensitivity model is limited by
the  assumption  that all foreign  currencies,  to which the Company is exposed,
would  simultaneously  change by 10%. Such synchronized  changes are unlikely to
occur. The sensitivity model does not include the inherent risks associated with
anticipated  future  transactions  denominated  in foreign  currencies or future
forward contracts entered into for hedging purposes.

     Subsequent  to December  31,  1998,  the Company has entered  into  foreign
currency forward contracts in respect of net exposures under customer  contracts
to the Belgian Franc and Danish Kroner.  Effective  January 1, 1999, the Belgian
Franc is tied to the Euro, the new European Union common currency. The effect of
the  subsequent  transactions  is to reduce the  potential  reduction  in future
earnings from a hypothetical instantaneous 10% change in quoted foreign currency
exchange rates to $2.2 million.

     The Company  does not have any  material  exposure to interest or commodity
risks. The Company is exposed to economic and political changes in international
markets where the Company competes such as inflation rates,  recession,  foreign
ownership  restrictions and other external factors over which the Company has no
control; domestic and foreign government spending, budgetary and trade policies.

Item 8: Financial Statements and Supplementary Data

     Reference  is made to the  financial  statements  listed  under the heading
"(a)(1) Financial  Statements" of Item 14 herein, which financial statements are
incorporated herein by reference in response to this Item 8.

Item  9:  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

     Not applicable.



                                       30
<PAGE>
     

                                    PART III

Item 10:  Directors and Officers of the Registrant

         The  following  table sets forth  certain  information  concerning  the
Company's executive officers, officers and directors as of December 31, 1998.

<TABLE>

Name                                           Age        Position
-----------------------------------------      ---        -----------------------------------------------------------------------
Executive Officers
-----------------------------------------
<S>                                             <C>       <C>
Erik Dysthe..............................       61        Chairman of the Board and Director
Kenneth R. Miller (1)....................       43        Chief Executive Officer and Director
Robert G. Cruickshank (2) ...............       48        President and Chief Operating Officer
Verne D. Pecho...........................       55        Vice President - Finance and Administration and Chief Financial Officer

Officers
-----------------------------------------
Robert Campbell..........................       45        Vice President - Telecom/Cable
James R. Dalbey..........................       47        Senior Vice President - International
Brent W. James...........................       41        Vice President - Marketing and Business Development
M. Greg Beniston.........................       41        Vice President - Legal and Corporate Secretary
Glenn Y. Kumoi...........................       36        General Counsel
Geoffrey Engerman........................       44        Vice President - US Operations
Tommy Lee................................       35        Vice President - Product Development
Douglas Engerman.........................       42        Vice President - Utilities
Simon Backer.............................       43        Vice President - Transportation & Customer Engineering
Ronald Toffolo ..........................       47        Vice President - Human Resources

Directors
-----------------------------------------
Gerald F. Chew (1)(3)(4).................       38        Director
Bruno Ducharme (3)(4)....................       40        Director
Robert C. Harris, Jr. (1)(3).............       52        Director
John T. McLennan (3) ....................       53        Director
Terrence P. McGarty (3)(4)...............       55        Director
Marc Rochefort (3).......................       51        Director
-----------------------------------------
</TABLE>

(1)  Member of Compensation Committee.
(2)  Appointed February 1, 1999
(3)  Member of Corporate Governance and Nominating Committee.
(4)  Member of Audit Committee.

     Erik Dysthe has served as Chairman of the Company since its  inception.  He
was also Chief  Executive  Officer of the Company from its inception to November
1998 and President from its inception  until  February  1996.  From July 1989 to
March 1992,  Mr.  Dysthe was Vice  President of Marketing  and Sales at Orcatron
Systems. Since September 1997, Mr. Dysthe has also been Managing Director - U.K.
Operations on an interim basis.

     Kenneth R. Miller has served as the Company's Chief Executive Officer since
December  1998.  From 1995 to 1998,  Mr. Miller held various  senior  management
positions  within the Company,  including  President,  Vice President - Finance,
Chief Financial Officer and Corporate Secretary.  Since May 1995, Mr. Miller has
served as a director of Avcan Global Systems Inc. From 1987 to the present,  Mr.
Miller has served as President and Chief Executive Officer of Southview Equities
Ltd.,  a  private  investment  company  of which  Mr.  Miller  is a  controlling
shareholder.

     Robert G.  Cruickshank  was  appointed  the  Company's  President and Chief
Operating  Officer  on  February  1,  1999.  Mr.  Cruickshank  has over 28 years
experience in the  telecommunications  industry with BC Telephone Company, where
he  held  a  number  of  senior  management  positions,  including  Senior  Vice
President,  Sales and Customer Service from 1997 to 1999 and President of BC Tel
Mobility from 1992 to 1997.

     Verne D. Pecho has served as Vice  President - Finance  and  Administration
and Chief  Financial  Officer of the Company since June 1996.  From June 1995 to
June 1996, Mr. Pecho was an independent consultant.  From September 1992 to June
1995,  Mr. Pecho was Executive  Vice  President and Chief  Financial  Officer of
Versacold Corporation.

     Robert Campbell has served as Vice President - Telecom/Cable of the Company
since  February  1996.  From 1991 to 1996,  Mr.  Campbell  was a Regional  Sales
Manager of McDonald, Dettwiler and Associates Ltd.


                                       31
<PAGE>


     James R. Dalbey has served as Senior Vice  President -  International  from
November  1998.  From  inception of the Company to October 1998, Mr. Dalbey held
various senior  management  positions within the Company,  including Senior Vice
President - Utilties & International and Vice President - Sales, Utilities. From
October 1992 to December  1995,  Mr. Dalbey was Vice  President - Sales for MDSI
Canada. From 1990 to 1992, Mr. Dalbey was President of Epic Security Systems.

     Brent W.  James has  served as Vice  President  -  Marketing  and  Business
Development  of the Company since  January 1996.  From February 1994 to December
1995, Mr. James was Vice  President and General  Manager of MDSI USA. From March
1993 to January  1994,  Mr.  James was Vice  President - Marketing  and Business
Development of MDSI Canada.  From February 1991 to March 1993, Mr. James was the
Vice President of TIR Systems, Inc.

     M. Greg  Beniston  has  served  as Vice  President  - Legal  and  Corporate
Secretary  of the  Company  since  March  1996.  From 1993 to the  present,  Mr.
Beniston  has  also  served  as  Corporate   Counsel  and  Secretary  of  Xillix
Technologies  Corp.  From 1988 to 1993, Mr. Beniston was a lawyer at the firm of
Russell & DuMoulin, Barristers and Solicitors in Vancouver, British Columbia.

     Glenn Y. Kumoi has served as General  Counsel  since  December  1998.  From
April 1997 to November  1998 he was President of MDSI Software SRL. From October
1996 to March 1997, Mr. Kumoi served as Vice  President - Customer  Contracts of
the Company.  From 1994 to 1996, Mr. Kumoi was a lawyer at the firm of Wedge and
Company,  Computer Law in Vancouver,  British  Columbia.  From 1991 to 1994, Mr.
Kumoi  was a lawyer  at the firm of  Richards,  Buell,  Sutton,  Barristers  and
Solicitors in Vancouver, British Columbia.

     Geoffrey  Engerman has served as Vice President - US Operations  since July
1997.  From 1994 to July 1997,  was  President and Chief  Technology  Officer of
Alliance.  From  1983 to 1994,  Mr.  Engerman  served as Vice  President,  Chief
Operating Officer of Alliance.

     Simon  Backer has served as Vice  President -  Transportation  and Customer
Engineering  since July 1998. From August 1997 to June 1998, Mr. Backer was Vice
President - Customer Engineering. Between 1997 and 1998 he was President and CEO
of Retix Wireless Inc. From 1984 to 1996, Mr. Backer held numerous  positions of
progressive  responsibility  at Motorola's  Wireless Data Group  (formerly MDI),
culminating in his appointment as Director of Architecture in 1996.

     Tommy Lee has served as Vice  President - Product  Development  since 1997.
From  inception  of the  Company to 1997,  Mr.  Lee served in various  technical
positions,  including  Director - Product  Development and Software  Development
Manager.  Between  1998 and 1995,  Mr.  Lee was a member of the  scientific  and
engineering staff at McDonald, Dettwiler and Associates Ltd.

     Douglas  Engerman has served as Vice  President - Utilities  since November
1998.  From July 1997 to October 1998 he was Vice President - Sales of MDSI USA.
From  1989  to  1997,  he was  Executive  Vice  President  at  Alliance  and was
responsible for Sales and Marketing.

     Ronald Toffolo has served as Vice President - Human  Resources  since 1999.
Between 1997 and 1998 he was Director of Human Resources.  From 1985 to 1997, he
held  various  human  resources   management   positions  at  Canadian  Airlines
International Ltd.

     Gerald F. Chew has served as a director of the Company since December 1995.
Mr.Chew is currently  Executive  Vice  President of Ancora  Capital & Management
Group, LLC. From August 1996 to February 1997, he was Chief Operating Officer of
SpotMagic,  Inc. From  November 1992 to July 1996,  Mr. Chew served as Executive
Director of Strategy Development for U S WEST, Inc.

     Bruno  Ducharme has served as a director of the Company since May 1996. Mr.
Ducharme  is  currently  President  and Chief  Executive  Officer of  Telesystem
International Wireless Services Inc. and Executive  Vice-President of Telesystem
Ltd. Mr.  Ducharme  has held  various  senior  management  positions  within the
Telesystem group of companies since its inception in 1991.

     Robert C.  Harris,  Jr.  has  served as a  director  of the  Company  since
December 1995. Mr. Harris is currently Senior Managing  Director of Bear Stearns
& Co.,  Inc.  Mr.  Harris was a co-founder  and  Managing  Director of Unterberg
Harris from May 1989 until November,  1997. Mr. Harris also serves as a director
of N2K, Inc. and a number of private companies.

     John T.  McLennan  has served as a director of the Company  since  February
1998. Mr. McLennan was the President and Chief Executive  Officer of Bell Canada
from 1994 to 1997 and is currently the President of Jenmark  Consulting Inc. Mr.
McLennan  also  serves as a director  of  Hummingbird  Communications  Ltd.  and
Architel Systems Corporation.


                                       32
<PAGE>

     Terrence P. McGarty has served as a director of the Company since  December
1995.  Mr. McGarty is currently  President and CEO of Zepher  Telecommunications
Inc.  He also  served as  Chairman  and Chief  Executive  Officer of The Telmarc
Group, Inc. from 1992 to 1998.

     Marc Rochefort has served as a director of the Company since June 1996. Mr.
Rochefort has been a partner at the law firm of Desjardins Ducharme Stein Monast
in Montreal, Quebec since May 1993. From March 1989 to April 1993, Mr. Rochefort
was a partner at the law firm of Clark Lord  Rochefort  Fortier.  Mr.  Rochefort
also serves as a director of Mont Saint-Sauveur  International  Inc., as well as
numerous other private companies.

Board of Directors

     Each member of the Board of Directors is elected  annually and holds office
until the next annual  meeting of  shareholders  or until his successor has been
elected or appointed,  unless his office is earlier  vacated in accordance  with
the Bylaws of the Company or the  provisions of the CBCA.  Officers serve at the
discretion  of the Board and are  appointed  annually.  The  Company's  Board of
Directors  currently has three  committees,  the Audit Committee,  the Corporate
Governance and Nominating Committee and the Compensation Committee.

Committees of the Board of Directors

     The Audit Committee  recommends  independent  accountants to the Company to
audit the Company's financial statements, discusses the scope and results of the
audit with the  independent  accountants,  reviews  the  Company's  interim  and
year-end  operating  results  with  the  Company's  executive  officers  and the
Company's  independent  accountants,  considers  the  adequacy  of the  internal
accounting  controls,  considers the audit procedures of the Company and reviews
the  non-audit  services to be performed  by the  independent  accountants.  The
members of the Audit Committee are Terrence P. McGarty, Gerald F. Chew and Bruno
Ducharme.

     The Corporate Governance and Nominating Committee monitors and assesses the
corporate  governance  system  in  place  in  the  Company,  develops  corporate
disclosure and insider trading  policies,  and monitors the effectiveness of the
Board of Directors, its size and composition,  its committees and the individual
performance of its directors.  The Corporate Governance and Nominating Committee
also identifies and recommends  potential  appointees to the Board of Directors,
reviews the adequacy of directors and officers  third-party  liability coverage,
ensures  that annual  strategic  planning  process and review is carried out and
approves appropriate  orientation and education programs for new directors.  The
members of the Corporate Governance and Nominating Committee are Marc Rochefort,
Gerald F. Chew, Robert C. Harris, Jr., John T. McLennan, Terrence P. McGarty and
Bruno Ducharme.

     The  Compensation   Committee   reviews  and  recommends  the  compensation
arrangements  for the  executive  officers of the Company  and  administers  the
Company's stock option and stock purchase plans. The members of the Compensation
Committee are Robert C. Harris, Jr., Gerald F. Chew and Kenneth R. Miller.

Section 16 (a) Beneficial Ownership Reporting Compliance

     The Company is a foreign  private issuer and, as such, its insiders are not
required to file reports under Section 16(a).

Item 11:  Executive Compensation


Report of the Compensation Committee

     The  Company's   compensation   program  for  all  executive   officers  is
administered  by the  Compensation  Committee of the Board of Directors which is
composed  of  two  non-employee   directors  and  one-employee   director.   The
compensation of the Chairman,  Chief  Executive  Officer (CEO) and the President
and Chief Operating Officer (COO) is determined by Compensation  Committee.  The
Chairman and the CEO had variable  components to their  compensation in the past
financial  year  based  on  certain  performance   criteria.   With  respect  to
compensation  for executive  officers  other than the  Chairman,  the CEO or the
President  and COO,  the  Board of  Directors  reviews a  compensation  proposal
prepared by the CEO and the President and COO, and approved by the  Compensation
Committee.


                                       33
<PAGE>


Objectives

     The primary objectives of the Company's executive  compensation program are
to enable the Company to attract,  motivate and retain  outstanding  individuals
and to align their success with that of the Company's  shareholders  through the
achievement of strategic corporate objectives and creation of shareholder value.
The level of  compensation  paid to an individual  is based on the  individual's
overall  experience,  responsibility  and performance.  The Company's  executive
compensation  program consists of a base salary,  performance  bonuses and stock
options.  The Company  furnishes  other  benefits to certain of its officers and
other employees.

Chief Executive Officers and Executive Officers

     There are currently 15 executive  officers of the Company.  For purposes of
this section,  "executive officer" of the Company means an individual who at any
time  during  the year  was the  Chairman  or a  Vice-Chairman  of the  board of
directors,  where  such  person  performed  the  functions  of such  office on a
full-time  basis;  the President;  any  Vice-President  in charge of a principal
business unit such as sales,  finance or production;  any officer of the Company
or of a  subsidiary  of the  Company,  and any  other  person  who  performed  a
policy-making function in respect of the Company.

Employment Agreements

     The Company has entered into  employment  agreements with each of its Named
Executive  Officers (as  hereinafter  defined),  providing for base salaries and
incentive  plan  bonuses as approved by the Board of  Directors  of the Company,
medical and dental benefits and  reimbursement  for certain expenses approved by
the Company.

Termination Arrangements

     The Company may terminate any of its officers for cause without any payment
of any kind of compensation,  except for such compensation earned to the date of
such termination. The Company may terminate any of its officers without cause by
giving notice and upon payment of all salary and bonuses owing up to the date of
termination  and a lump sum  termination  payment  equal to  their  base  annual
salary.  Any officer may terminate their employment with the Company at any time
by giving four weeks written notice to the Board of Directors of the Company. In
the event of a takeover or change of control of the Company,  any officer of the
Company may elect to terminate  their  employment  and  receive,  in addition to
compensation earned to the date of his termination,  a lump sum payment equal to
their annual base salary.  If an officer is terminated by the Company within two
years after such takeover or change in control, such officer is also entitled to
compensation  earned to the date of termination and a lump-sum  payment equal to
his annual base salary.

Pension Arrangements

     The Company and its  subsidiaries  do not have any pension  arrangements in
place for the Named Executive Officers or any other officers.




                                       34
<PAGE>

Summary Compensation Table

The  following  table  sets  forth  all  compensation  paid  in  respect  of the
individuals  who were at any time during the 1998, 1997 and 1996 financial years
of the Company,  Chief Executive Officers of the Company or its subsidiaries and
the four most highly  compensated  executive  officers among the Company and its
subsidiaries (collectively "Named Executive Officers"):

<TABLE>
--------------------------------------------------- --------------- -----------------------------------------  ---------------------
                                                                          Annual Compensation (in $Cdn)              Long Term
                                                                    -----------------------------------------   Compensation Awards
                                                                                                                --------------------
                                                                                                  Other Annual     
                                                     Years Ending       Salary        Bonus       Compensation     Securities Under
Name and Principal Position                          December 31         ($)           ($)            ($)            Options (#)
--------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
<S>                                                      <C>           <C>             <C>            <C>             <C>    
Kenneth R. Miller                                        1998          180,632           Nil          N/A              150,000
Chief Executive Officer                                  1997          115,436           Nil          N/A                7,500
                                                         1996          106,242           Nil          N/A               65,000
--------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Erik Dysthe                                              1998          178,959           Nil          N/A               50,000
Chairman of the Board                                    1997          115,008         4,370          N/A                7,500
                                                         1996          114,036           Nil          N/A               10,000
--------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Robert Campbell(1)                                       1998          135,000       106,532          N/A               35,000
Vice President, Telecommunications/Cable                 1997          135,000        94,162          N/A                5,000
                                                         1996           67,286       130,000          N/A               25,000
--------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Glenn Y. Kumoi(2)                                        1998          258,359           Nil          N/A                5,000
General Counsel                                          1997          192,686           Nil          N/A                4,000
                                                         1996           28,752           Nil          N/A                7,500
--------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Douglas Engerman(3)                                      1998          201,029     186,882(4)         N/A               30,000
Vice President, Utilities                                1997           94,065     208,395(5)         N/A                  Nil
--------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
</TABLE>

Notes:

(1)      Mr. Campbell joined the Company in February 1996.
(2)      Mr. Kumoi joined the Company in October 1996.
(3)      Mr. Engerman joined the Company in July 1997.
(4)(5)   Non-recurring bonus paid to Mr. Engerman in connection with the
         Company's acquisition of Alliance Systems, Incorporated.

Stock Options

The following  table sets forth stock options  granted by the Company during the
financial year ended December 31, 1998 to any of the Named Executive Officers:

Option Grants During the Financial Year Ended December 31, 1998\

<TABLE>
------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
                                                                                                  Market Value of
                                                                % of Total                          Securities
                                                              Options Granted                       Underlying
                                              Securities       to employees      Exercise of      Options on the
                                             Under Options     in Financial      Base Price        Date of Grant
Name                                          Granted (#)          Year         ($/Security)       ($/Security)     Expiration Date
------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
<S>                                              <C>               <C>             <C>                <C>           <C>
Kenneth R. Miller                                75,000            9.6%            $15.50             $15.50        September 16,
Chief Executive Officer                          75,000            9.6%            $20.00             $20.00        2003
                                                                                                                    October 27, 2003
------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Erik Dysthe                                      50,000            6.4%            $15.50             $15.50        September 16,
Chairman of the Board                                                                                               2003

------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Robert Campbell                                  35,000            4.5%            $20.00             $20.00        February 28,
Vice President, Telecommunications/Cable                                                                            2003

------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Glenn Y. Kumoi                                    5,000            0.6%            $15.50             $15.50        September 16,
General Counsel                                                                                                     2003

------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Douglas Engerman                                 30,000            3.9%            $15.50             $15.50        September 16,
Vice President, Utilities                                                                                           2003

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

</TABLE>


                                       35
<PAGE>


The following  table sets forth details of each exercise of stock options during
the  financial  year  ended  December  31,  1998 by any of the  Named  Executive
Officers,  and the  financial  year  end  value  of  unexercised  options  on an
aggregate basis:


 Aggregated Options Exercised During the Financial Year Ended December 31, 1998
                      And Financial Year-End Option Values

<TABLE>

---------------------------------------------- --------------- ---------------- -------------------- -------------------------------
                    Name                         Securities       Aggregate     Unexercised Options    Value of Unexercised in the
                                                Acquired on    Value Realized      At FY-End (#)         Money-Options at FY-End
                                                Exercise (#)         ($)           Exercisable/             ($) Exercisable/
                                                                                   Unexercisable            Unexercisable (1)
---------------------------------------------- --------------- ---------------- -------------------- -------------------------------
<S>                                            <C>             <C>              <C>                  <C>                     
Kenneth R. Miller                              Nil             Nil              98,333               $1,220,266 (exercisable)
Chief Executive Officer                                                         (exercisable)        $1,161,284 (unexercisable)
                                                                                124,167(unexercisable)

---------------------------------------------- --------------- ---------------- -------------------- -------------------------------
Erik Dysthe                                    Nil             Nil              49,530               $604,460   (exercisable)
Chairman of the Board                                                           (exercisable)        $361,371   (unexercisable)
                                                                                30,002
                                                                                (unexercisable)

---------------------------------------------- --------------- ---------------- -------------------- -------------------------------
Robert Campbell                                Nil             Nil              28,194               $447,163 (exercisable)
Vice President, Telecommunications/Cable                                        (exercisable)        $273,337 (unexercisable)
                                                                                36,806
                                                                                (unexercisable)

---------------------------------------------- --------------- ---------------- -------------------- -------------------------------
Glenn Y. Kumoi                                 Nil             Nil              7,624 (exercisable)  $75,597 (exercisable)
General Counsel                                                                 8,876                $91,653 (unexercisable)
                                                                                (unexercisable)

---------------------------------------------- --------------- ---------------- -------------------- -------------------------------
Douglas Engerman                               Nil             Nil              0 (exercisable)      $0       (exercisable)
Vice President, Utilities                                                       30,000               $360,000 (unexercisable)
                                                                                (unexercisable)

---------------------------------------------- --------------- ---------------- -------------------- -------------------------------
</TABLE>

(1)  Based on TSE closing price of $27.50 on December 31, 1998.


Compensation of Directors

     In November  1998 the  Company  commenced  paying its  outside  directors a
meeting  stipend of US$2,500 for each board  meeting they attended in person and
US$1,000  for  certain  committee  meetings.  During  the  financial  year ended
December  31,  1998,  the  directors  of the  Company  received  aggregate  cash
compensation of $24,134 for their  services.  The Directors were also reimbursed
for actual  expenses  reasonably  incurred in connection with the performance of
their duties as Directors.

     Directors  were also eligible to receive stock options  issued  pursuant to
the Company's Stock Option Plan and in accordance with rules and policies of The
Toronto Stock  Exchange.  On February 26, 1998,  one Director was granted 30,000
stock options  vesting over three years at an exercise  price of $20.00 and five
Directors  were each granted  3,000 stock options with  immediate  vesting at an
exercise  price of $20.00.  On  September  17,  1998 three  Directors  were each
granted  3,000 stock  options  vesting  over two years at an  exercise  price of
$15.50.  These stock  options are subject to the grantee being a Director on the
date of vesting.


                                       36
<PAGE>


Item 12: Security Ownership of Certain Beneficial Owners and Management

     The  following  table sets forth certain  information  known to the Company
with respect to the beneficial ownership of its Common Shares as of December 31,
1998, by (i) each person known by the Company to be the beneficial owner of more
than 5% of the  outstanding  Common  Shares,  (ii) each director of the Company,
(iii) each Named  Executive  Officer,  and (iv) all  directors and officers as a
group. Except as otherwise  indicated,  the Company believes that the beneficial
owners of the Common Shares listed below, based on information furnished by such
owners,  have sole  investment  and voting  power with  respect to such  shares,
subject to community property laws where applicable.

<TABLE>
                                                                     Number of Shares      % of total Shares
Directors, Named Executive Officers and 5% Shareholders(1)             Beneficially              Owned
                                                                         Owned(2)
------------------------------------------------------------------ ---------------------  ---------------------
<S>                                                                <C>                     <C>
Erik Dysthe(3)............................................                531,526                 7.6
Kenneth R. Miller(4)......................................                381,164                 5.5
Robert Campbell(5)........................................                 40,983                   *
Glenn Y. Kumoi(6).........................................                  8,263                   *
Douglas Engerman..........................................                 43,262                   *
Gerald F. Chew(7).........................................                 30,032                   *
Bruno Ducharme(8).........................................                 18,000                   *
Robert C. Harris, Jr. (9).................................                 51,413                   *
Terrence P. McGarty(10)....................................                19,170                   *
Marc Rochefort(11).........................................                11,755                   *
John T. McLennan(12)..........................................             10,000                   *
All Directors, Named Executive Officers and Officers as               -------------
  a group (20 persons) (13)...............................              1,901,313

</TABLE>
------------------

*    Represents beneficial ownership of less than 1% of the Common Shares.

(1)  Unless otherwise indicated, the address of each beneficial owner is that of
     the Company.

(2)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Securities and Exchange  Commission,  based on factors including voting and
     investment  power with respect to shares.  Common Shares subject to options
     currently  exercisable,  or  exercisable  within 60 days after December 31,
     1997, are deemed outstanding for computing the percentage  ownership of the
     person holding such options,  but are not deemed  outstanding for computing
     the  percentage  ownership  for any  other  person.  Applicable  percentage
     ownership based on aggregate  Common Shares  outstanding as of December 31,
     1996.

(3)  Includes 389,498 Common Shares held by Erik Dysthe Holdings Co. and options
     to purchase 52,864 Common Shares  exercisable within 60 days after December
     31, 1998 held by Mr. Dysthe individually.

(4)  Includes  options to purchase 106,110 Common Shares  exercisable  within 60
     days after December 31, 1998.

(5)  Includes  options to purchase  30,805 Common Shares  exercisable  within 60
     days after December 31, 1998.

(6)  Represents  options to purchase 8,263 Common Shares  exercisable  within 60
     days after December 31, 1998.

(7)  Represents  options to purchase 30,032 Common Shares  exercisable within 60
     days of December 31, 1998.

(8)  Represents  options to purchase 18,000 Common Shares  exercisable within 60
     days after December 31, 1998.

(9)  Includes  options to purchase  33,000 Common Shares  exercisable  within 60
     days after December 31, 1998.

(10) Includes  options to purchase 1,170 Common Shares held by The Telmarc Group
     Inc. and options to purchase  10,375  Common Shares  exercisable  within 60
     days after December 31, 1998.

(11) Includes  options to purchase  10,375 Common Shares  exercisable  within 60
     days after December 31, 1998.

(12) Represents  options to purchase 10,000 Common Shares  exercisable within 60
     days after December 31, 1998.

(13) Includes  options  to  purchase  an  aggregate  of  440,373  Common  Shares
     exercisable within 60 days after December 31, 1998

Item 13:  Certain Relationships and Related Transactions

     In April 1996, the Company  entered into  employment  agreements  with Erik
Dysthe,  the Company's  Chairman,  and Kenneth R. Miller,  the  Company's  Chief
Executive Officer. See Item 11 - "Executive Compensation".

     The Company has granted  options to certain of its  directors and executive
officers. See Item 11 - "Executive Compensation".

     The Company believes that all of the transactions set forth above were made
on terms no less  favorable  to the Company than could have been  obtained  from
unaffiliated third parties.  All future  transactions,  including loans, between
the  Company  and its  officers,  directors,  principal  shareholders  and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested directors, and will continue to be
on  terms  no  less  favorable  to the  Company  than  could  be  obtained  from
unaffiliated third parties.


                                       37
<PAGE>


                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

     The  following  financial  statements of the  Registrant  and the Report of
Independent Auditors thereon are included herewith in response to Item 8 above.

(a)  1.  Consolidated Financial Statements
         Report of Independent Auditors
         Consolidated Balance Sheets
         Consolidated Statements of Operations
         Consolidated Statements of Changes in Stockholders' Equity
         Consolidated Statements of Cash Flows
         Notes to the Consolidated Financial Statements

     2.  Consolidated financial statement schedules and Report of Independent 
         Auditors are included as  follows:
         Schedule II: Valuation and Qualifying Accounts

     3.  Exhibits:

         The following Exhibits are filed as part of this report:

Exhibit 
Number         Exhibit Description
--------       -------------------  

   t2.1        Agreement  and Plan of  Merger  dated  April 17,  1997  among the
               Company, MDSI Acquisition Corp., Alliance,  Geoffrey Engerman and
               Doug Engerman (previously filed as Exhibit 2.2)

   *3.1        Articles of Incorporation of the Company

   *3.2        Articles of Amendments of the Company

   *3.3        By-laws of the Company

   *4.1        Form of Common Share Certificate

tt*10.1        1996 Stock Option Plan

 tt10.2        1997 Stock Option Plan

 tt10.3        1998 Stock Option Plan

tt*10.4        Stock Purchase Plan (previously filed as Exhibit 10.2)

 tt10.5        1998 Stock Purchase Plan

  *10.6        Form of Indemnification Agreement between the Company and certain
               officers of the Company (previously filed as Exhibit 10.4)

  *10.7        Promissory  Note dated January 2, 1996 granted by the Company and
               TelSoft in favor of Killean Consulting Inc.  (previously filed as
               Exhibit 10.8)

  *10.8        Promissory  Note dated January 2, 1996 granted by the Company and
               TelSoft in favor of 382904 B.C. Ltd. (previously filed as Exhibit
               10.9)

tt*10.9        Employment  Agreement dated April 1, 1996 between the Company and
               Erik Dysthe (previously filed as Exhibit 10.18)

tt*10.10       Employment  Agreement  dated July 1, 1995 between the Company and
               Kenneth R. Miller (previously filed as Exhibit 10.19)

   10.11       Lease dated September 25, 1997 between Sun Life Assurance Company
               of Canada and the Company

  *10.12       Lease dated June 2, 1989 between  Corporate Woods  Associates and
               Service Systems  International  Limited and subsequent amendments
               (previously filed as Exhibit 10.23)

  *10.13       Lease  dated April 8, 1993  between  Cambridge  Scanning  Company
               Limited and Spectronics  Micro Systems Limited  (previously filed
               as Exhibit 10.25)

    11.1       Computation of Earnings Per Common Share.

   *21.1       List of the Company's Subsidiaries.

    23.1       Consent of Deloitte & Touche LLP.

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

*    Previously  filed as exhibits with the same  corresponding  number with the
     Registrants' Registration Statement on Form F-1 (Registration No. J33-5872)
     and  amendments  numbers 1 and 2  thereto,  filed with the  Securities  and
     Exchange Commission on October 28, 1996, November 13, 1996 and November 25,
     1996, respectively.

tt   This document has been identified as a management  contract or compensatory
     plan or arrangement.

t    Previously  filed as an exhibit to Registrant's  Registration  Statement on
     Form F-4

(b)  Reports on Form 8-K
     None.


                                       38
<PAGE>




SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  MDSI Mobile  Data  Solutions  Inc.  has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 31,1999.

                                  MDSI MOBILE DATA SOLUTIONS INC.


                                  By: /s/ KENNETH R. MILLER
                                      ----------------------------------------
                                      Kenneth R. Miller, Chief Executive Officer



     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report to be signed  by the  following  persons  on behalf of MDSI  Mobile  Data
Solutions Inc. in the capacities and on the dates indicated.

<TABLE>

          Signature                                          Title                                   Date
<S>                                      <C>                                                        <C>    
/s/ KENNETH R. MILLER
-------------------------------------    Chief Executive Officer and Director (Principal           March 31, 1999
Kenneth R. Miller                          Executive Officer)                                       


/s/ VERNE D. PECHO
-------------------------------------    Vice President - Finance and Administration and Chief
Verne D. Pecho                            Financial Officer (Principal Financial and Accounting    March 31, 1999
                                          Officer)


/s/ ERIK DYSTHE
-------------------------------------    Chairman of the Board and Director                        March 31, 1999
Erik Dysthe                              


/s/ GERALD F. CHEW
-------------------------------------    Director
Gerald F. Chew                           (Authorized U.S. Representative)                          March 31, 1999


/s/ BRUNO DUCHARME
-------------------------------------    Director                                                  March 31, 1999
Bruno Ducharme                              


/s/ ROBERT C. HARRIS, JR.
-------------------------------------    Director                                                  March 31, 1999
Robert C. Harris, Jr.                       


/s/ TERRENCE P. MCGARTY
-------------------------------------    Director                                                  March 31, 1999
Terrence P. McGarty                      


/s/ MARC ROCHEFORT
-------------------------------------    Director                                                  March 31, 1999
Marc Rochefort                           


/s/ JOHN T. MCLENNAN
-------------------------------------    Director                                                  March 31, 1999
John T. McLennan                         

</TABLE>

                                       39
<PAGE>



                         MDSI MOBILE DATA SOLUTIONS INC.
                          INDEX TO FINANCIAL STATEMENTS



                                                                            Page

Report of Independent Auditors.............................................  F-2


Consolidated Balance Sheets................................................  F-3


Consolidated Statements of Operations......................................  F-4


Consolidated Statements of Changes in Stockholders' Equity.................  F-5


Consolidated Statements of Cash Flows......................................  F-6


Notes to the Consolidated Financial Statements.............................  F-8









                                      F-1
<PAGE>



Report of Independent Auditors


To the Board of Directors and Shareholders of
MDSI Mobile Data Solutions Inc.


We have audited the accompanying consolidated balance sheets of MDSI Mobile Data
Solutions  Inc.  as at December  31, 1998 and 1997 and the related  consolidated
statements of  operations,  stockholders'  equity and cash flows for the each of
the years in the three year period  ended  December 31,  1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its  operations and cash flows for each of the years
in the three year period ended December 31, 1998 in conformity  with  accounting
principles generally accepted in the United States.





/s/ DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, British Columbia
February 25, 1999








                                      F-2
<PAGE>


MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Balance Sheets
(Expressed in Canadian dollars)

<TABLE>

                                                                                       At December 31,
                                                                   ------------------------------------------------
                                                                           1998                       1997
                                                                   ----------------------     ---------------------
<S>                                                                    <C>                      <C>            
ASSETS
CURRENT ASSETS
      Cash and cash equivalents                                        $    6,136,711           $       110,117
      Accounts receivable, net
         Trade                                                             18,776,551                15,256,202
         Unbilled                                                          12,778,398                 9,604,060
      Work in progress                                                      1,377,228                 1,451,662
      Prepaid expenses                                                      3,863,738                 1,647,748
      Deferred income taxes (Note 8)                                        1,220,350                 2,096,544
      Current portion of lease receivable (Note 3)                            560,478          
                                                                                                              -
                                                                   ----------------------     ---------------------
                                                                           44,713,454                30,166,333

LEASE RECEIVABLE (Note 3)                                                     845,889          
                                                                                                              -
CAPITAL ASSETS, NET (Note 4)                                                5,687,543                 4,291,755
INTANGIBLE ASSETS, NET (Note 5)                                             5,321,470                 6,185,926
                                                                   ----------------------     ---------------------

TOTAL ASSETS                                                             $ 56,568,356              $ 40,644,014
                                                                   ======================     =====================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
      Accounts payable                                                 $    7,698,324            $    3,936,501
      Accrued liabilities                                                   4,080,392                 6,488,755
      Income taxes payable (Note 8)                                         2,442,571                 1,864,662
      Deferred revenue                                                      8,370,664                 3,985,261
      Current portion of long-term debt (Note 6)                              377,332                   215,454
      Current obligations under capital lease (Note 10)                       872,917          
                                                                                                         20,621
                                                                   ----------------------     ---------------------
                                                                           23,842,200                16,511,254

OBLIGATIONS UNDER CAPITAL LEASES (Note 10)                                  1,907,037          
                                                                                                              -
LONG-TERM DEBT (Note 6)                                                                                 296,324
                                                                                    -
                                                                   ----------------------     ---------------------
TOTAL LIABILITIES                                                          25,749,237                16,807,578
                                                                   ----------------------     ---------------------

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' EQUITY Common stock (Note 7)
      Authorized:
        Unlimited common shares with no par value Issued:
        1998: 6,562,088 shares;  1997:  6,459,725 shares                   44,637,778                43,154,039
      Treasury stock (13,475 shares)                                         (122,743)                 (122,743)
      Deficit                                                             (13,695,916)              (19,194,860)
                                                                   ----------------------
                                                                                              ---------------------
                                                                           30,819,119                23,836,436
                                                                   ----------------------     ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $ 56,568,356              $ 40,644,014
                                                                   ======================     =====================

</TABLE>




                                      F-3
<PAGE>


MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Operations
(Expressed in Canadian dollars)


<TABLE>

                                                                                Years ended December 31,
                                                          ------------------------------------------------------------------
                                                                  1998                        1997                   1996
                                                          ---------------------   --------------------   -------------------
<S>                                                          <C>                         <C>                   <C>         
REVENUE
   Software and services                                     $ 47,497,292                $ 39,358,386          $ 18,387,600
   Terminals and infrastructure                                 8,385,099                  10,645,596             8,708,078
   Third party products and services                           19,513,884                  16,676,557            15,227,463
   Maintenance and support                                      7,986,579                   3,599,640             2,819,429
                                                          ---------------------   --------------------   -------------------
                                                               83,382,854                  70,280,179            45,142,570

DIRECT COSTS  (Note 14)                                        44,589,107                  43,358,975            28,320,887
                                                          ---------------------   --------------------   -------------------
GROSS PROFIT                                                   38,793,747                  26,921,204            16,821,683
                                                          ---------------------   --------------------   -------------------
OPERATING EXPENSES
   Research and development                                     9,894,101                   6,539,841             4,356,884
   Sales and marketing                                         13,422,494                  12,070,517             5,688,455
   General and administrative                                   6,686,231                   6,088,499             3,124,748
   Amortization of intangible assets                              864,456                     837,163               331,411
   Restructuring costs (Note 14)                                        -                   1,145,152                     -
   Acquired research and development                                    -                  10,002,982             8,523,363
                                                          ---------------------   --------------------   -------------------
                                                               30,867,282                  36,684,154            22,024,861
                                                          ---------------------   --------------------   -------------------
OPERATING INCOME (LOSS)                                         7,926,465                  (9,762,950)           (5,203,178)

OTHER INCOME                                                      162,371                     535,089               113,664
                                                          ---------------------   --------------------   -------------------
INCOME (LOSS) BEFORE TAX PROVISION                              8,088,836                  (9,227,861)           (5,089,514)

PROVISION FOR INCOME TAXES (Note 8)                            (2,589,892)                 (2,319,175)             (924,615)
                                                          ---------------------   --------------------   -------------------

NET INCOME (LOSS) FOR THE YEAR                            $     5,498,944               $ (11,547,036)         $ (6,014,129)
                                                          =====================   ====================   ===================
EARNINGS (LOSS) PER COMMON SHARE
    Basic                                                 $          0.85               $       (1.84)         $      (1.24)
                                                          =====================    ====================  ===================
    Diluted                                               $          0.82               $       (1.84)         $      (1.24)
                                                          =====================   ====================   ===================
WEIGHTED AVERAGE SHARES OUTSTANDING
    Basic                                                       6,504,188                   6,261,001             4,855,479
                                                          =====================   ====================   ===================
    Diluted                                                     6,722,823                   6,261,001             4,855,479
                                                          =====================   ====================   ===================

</TABLE>





                                      F-4
<PAGE>


MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Stockholders' Equity
(Expressed in Canadian dollars)


<TABLE>

                                            Common Stock               
                                  ---------------------------------    Special         Treasury
                                      Shares           Amount          Warrants          Stock          Deficit           Total
                                  --------------- -----------------  -------------   -------------  --------------  ----------------

<S>                                <C>            <C>               <C>              <C>             <C>             <C>          
Balance, January 1, 1996           3,988,387      $  2,315,000      $         -      $  (122,743)    $ (1,633,695)   $     558,562

 Issued on exercise of
   stock options                      19,890           210,117                -               -                 -          210,117
 Issue of specia
   warrants (Note 7)                                                  3,925,100               -                 -        3,925,100
 Issued on conversion
   of debentures                     144,754           797,000                -               -                 -          797,000
 Issued on conversion
   of notes payable                   55,263           882,753                -               -                 -          882,753
 Issued on public
   offering (Note 7)               1,495,000        26,476,306                -               -                 -       26,476,306
 Net loss for the year                     -                 -                -               -        (6,014,129)      (6,014,129)
                                  --------------- -----------------  -------------   -------------  --------------  ----------------
Balance, December 31, 1996         5,703,294        30,681,176        3,925,100        (122,743)       (7,647,824)      26,835,709
                                                    
 Issued on exercise of
   stock options                     107,010         1,275,842                -               -                 -        1,275,842
 Issued under Stock
   Purchase Plan                      21,671           343,843                -               -                 -          343,843
 Issued on acquisition of
   Alliance (Note 2)                 347,750         6,928,078                -               -                 -        6,928,078
 Issued on conversion of 
   special warrants (Note 7)         280,000         3,925,100       (3,925,100)              -                 -                -
Net loss for the year                      -                 -                -               -       (11,547,036)     (11,547,036)
                                  --------------- -----------------  -------------   -------------  --------------  ----------------

Balance, December 31, 1997         6,459,725        43,154,039                -        (122,743)      (19,194,860)      23,836,436

 Issued on exercise of
  stock options                       32,844           448,944                -               -                 -          448,944
 Issued under Stock
  Purchase Plan (Note 7)              17,919           303,395                -               -                 -          303,395
 Issued on conversion of
  warrants (Note 7)                   51,600           731,400                -               -                 -          731,400
 Net income for the year                   -                 -                -               -         5,498,944        5,498,944
                                  --------------- -----------------  -------------   -------------  --------------  ----------------

Balance, December 31, 1998         6,562,088      $ 44,637,778      $         -      $ (122,743)     $(13,695,916)    $ 30,819,119
                                  =============== =================  =============   =============  ==============  ================

</TABLE>



                                      F-5
<PAGE>

MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)


<TABLE>
                                                                                   Years ended December 31,
                                                              -----------------------------------------------------------------
                                                                       1998                   1997                  1996
                                                              ---------------------   -------------------   -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                               <C>                   <C>                   <C>            
  Net income (loss) for the year                                  $    5,498,944       $  (11,547,036)       $   (6,014,129)
  Items not affecting cash:
     Depreciation and amortization                                     2,237,201            2,478,332             1,031,952
     Deferred income taxes                                               147,321              454,513               924,615
     Acquired research and development                                         -           10,002,982             8,523,363
     Changes in non-cash operating working
       capital items (Note 12)                                        (1,997,751)         (14,847,491)           (6,141,234)
                                                              ---------------------   -------------------   -------------------

  Net cash provided by (used in) operating activities                  5,885,715          (13,458,700)           (1,675,433)
                                                              ---------------------   -------------------   -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Issuance of common shares                                            1,483,739            1,619,685            26,686,423
                                                                                               
  Repayment of long-term debt                                           (134,446)          (3,295,398)             (346,200)
  Repayment of notes payable                                                   -             (428,424)           (8,214,874)
  Proceeds from special warrants                                               -                    -             3,925,100
  Proceeds from (repayment of) capital leases                          1,560,119              (53,856)              (46,519)
                                                              ---------------------   -------------------   -------------------
  Net cash provided by (used in) financing activities                  2,909,412           (2,157,943)           22,003,930
                                                              ---------------------   -------------------   -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisition of MDSI UK                                                       -                    -            (1,089,973)
  Acquisition of Alliance                                                      -           (1,892,426)                    -
  Acquisition of capital assets                                       (2,768,533)          (2,587,833)             (953,304)
                                                              ---------------------   -------------------   -------------------
  Net cash used in investing activities                               (2,768,533)          (4,480,259)           (2,043,277)
                                                              ---------------------   -------------------   -------------------
NET CASH INFLOW (OUTFLOW)                                              6,026,594          (20,096,902)           18,285,220
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                             110,117           20,207,019             1,921,799
                                                              ---------------------   -------------------   -------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                 6,136,711              110,117            20,207,019
                                                              =====================   ===================   ===================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash payments for interest                                      $      140,475       $      182,513        $       93,648
  Cash receipts for interest                                      $      147,420       $      344,697        $           -
  Cash payments for taxes                                         $      224,667       $      417,701        $       10,227
                                                              =====================   ===================   ===================


</TABLE>


                                      F-6
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                     Consolidated Statements of Cash Flows
                        (Expressed in Canadian dollars)


SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES

During the year ended December 31, 1998,  the Company  leased  certain  computer
equipment to a customer. The transaction was accounted for as a sales-type lease
with a discounted present value of $1,406,367 at December 31,1998. The equipment
purchase was financed by capital  lease,  which had a balance of  $1,199,214  at
December 31, 1998.

During the year ended  December  31, 1997,  the Company  issued  280,000  common
shares and 280,000  common  share  purchase  warrants on the exercise of 280,000
special warrants without additional consideration.

Also,  during the year ended December 31, 1997, the Company  acquired all of the
issued and outstanding shares of Alliance Systems, Incorporated ("Alliance") for
$9,116,828.  Consideration consisted of 347,750 common shares of the Company and
payments  of  $2,188,750,   including  cash  of  $1,892,426  (US$1,367,869)  and
unsecured promissory notes for $296,324 (US$214,219)

During the year ended December 31, 1996, the Company  acquired all of the issued
and  outstanding  shares of MDSI  Mobile  Data  Solutions  (UK)  Ltd.  (formerly
Spectronics  Micro Systems Limited - "MDSI UK") for  $10,616,023.  Consideration
consisted  of cash  payments of  $1,089,973  and  convertible  loan notes in the
amount of $9,526,050.











                                      F-7
<PAGE>

                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES

     These financial  statements have been prepared in accordance with generally
     accepted  accounting  principles  in the  United  States  and  reflect  the
     following significant accounting policies:

     (a)  Basis of presentation

          These  consolidated  financial  statements include the accounts of the
          Company and its wholly-owned  subsidiaries.  All intercompany balances
          and transactions have been eliminated.

     (b)  Nature of operations

          The  Company  develops,  markets  and  supports  wireless  mobile data
          communication software products.

     (c)  Research and development

          Research  and  development  costs  related to software are expensed as
          incurred   unless  a  project   meets  the   specified   criteria  for
          capitalization  in accordance  with Statement of Financial  Accounting
          Standard No. 86  Accounting  for the Costs of Computer  Software to be
          Sold, Leased or Otherwise Marketed.  Acquired research and development
          costs  related to software are charged to earnings on  acquisition  if
          there is no alternative  future use and technological  feasibility has
          not been established.

     (d)  Revenue recognition

          The Company's revenue is derived primarily from the following sources:

          (i) Software and services

               Revenue  related to software  and  services,  including  software
               licenses,  is generally  recognized on a percentage of completion
               basis,  representing  costs incurred  relative to total estimated
               costs.  Where the  Company  has  contracted  to deliver  software
               without  significant  production,  modification or  customization
               required,  revenue  is  recognized  upon  delivery  if the fee is
               determinable  and there is  reasonable  assurance of  collection.
               Provisions  for  estimated  losses on contracts are recorded when
               identifiable.

          (ii) Third   party   products   and   services   and   terminals   and
               infrastructure

               Revenue  from sales of third  party  products  and  services  and
               terminals  and   infrastructure  is  recognized  on  delivery  of
               products.

          (iii) Maintenance and support

               Revenue  related to  maintenance  agreements  for  supporting and
               maintaining the Company's  products are recognized  rateably over
               the term of the agreement, generally one year.

     (e)  Work in progress

          Work in  progress  is valued  at the lower of cost and net  realizable
          value. Cost is determined on a first-in  first-out basis and generally
          consists of raw materials and direct labor.  Net  realizable  value is
          based on the  estimated  selling  price after  allowing for all future
          costs of completion and disposal.




                                      F-8
<PAGE>

                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (f)  Capital assets

          Capital  assets  are  recorded  at cost.  Depreciation  is  charged to
          operations over the estimated useful lives of the assets as follows:

            Computer hardware and software        30% declining balance
            Plant and equipment                   15% declining balance
            Furniture and fixtures                20% declining balance
            Leasehold improvements                lesser of lease term or useful
                                                    life, generally five years

          The carrying  value of capital  assets is reviewed on a regular  basis
          for any permanent impairment in value. To date, no such impairment has
          been indicated.

     (g)  Goodwill

          Goodwill  arising on  acquisitions  is amortized on the  straight-line
          basis  over  seven to ten  years.  Management  regularly  reviews  the
          carrying value of goodwill based upon expected  future cash flows.  To
          date, no impairment has been indicated.

     (h)  Foreign exchange

          The accounts of the Company and its foreign subsidiaries are expressed
          in Canadian  dollars,  its functional  currency.  Monetary  assets and
          liabilities  denominated  in foreign  currencies are translated at the
          rate in effect at the balance  sheet date.  Other  balance sheet items
          and revenues and expenses are  translated  at the rates  prevailing on
          the  respective  transaction  dates.   Translation  gains  and  losses
          relating  to  current   monetary   items  and  revenue  and   expenses
          denominated in foreign currencies are included in income.

     (i)  Income taxes

          The Company  accounts for income  taxes using the asset and  liability
          method. Under this method,  deferred income taxes are recorded for the
          temporary  differences  between the financial  reporting basis and tax
          basis of the Company's  assets and  liabilities.  These deferred taxes
          are  measured  by  the  provisions  of  currently  enacted  tax  laws.
          Management  believes  that it is more likely than not that the Company
          will generate  sufficient  taxable income to allow the  realization of
          the recorded deferred tax assets.





                                      F-9
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (j) Earnings (loss) per common share

          In February  1997,  the Financial  Accounting  Standards  Board issued
          Statement No. 128,  Earnings Per Share (SFAS 128),  which  established
          new  standards  for  computing  and  presenting   earnings  per  share
          effective for fiscal years ending after  December 15, 1997.  With SFAS
          128,  Primary  earnings  per share is replaced by Basic  earnings  per
          share  which is  computed  by  dividing  income  available  to  common
          shareholders by the weighted average number of shares  outstanding for
          the period. In addition, SFAS 128 requires the presentation of Diluted
          earnings per share which  includes the  potential  dilution that could
          occur  if  common  stock  equivalents  or other  potentially  dilutive
          securities were exercised or converted into common stock. Common stock
          equivalent shares are excluded from the computation if their effect is
          anti-dilutive.  Common  equivalent shares consist of the common shares
          issuable  upon the  conversion  of the  special  warrants  (using  the
          if-converted method) and incremental shares issuable upon the exercise
          of stock options and share purchase warrants (using the treasury stock
          method).

     (k)  Use of estimates

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

     (l)  Derivatives

          From time to time the Company may attempt to hedge its  position  with
          respect  to  currency  fluctuations  on  specific  contracts.  This is
          generally  accomplished  by entering into forward  contracts.  Related
          costs are realized as the forward  contracts are settled.  The Company
          was not engaged in any forward contracts at December 31, 1998.

     (m)  Stock -based compensation

          The Company accounts for stock-based  compensation using the intrinsic
          value based  method  whereby  compensation  cost is  recorded  for the
          excess,  if any, of the quoted  market  price of the common share over
          the exercise  price at the date granted for all common stock  options.
          As December 31, 1998, no  compensation  cost has been recorded for any
          period under this method.

          The following pro forma  financial  information  presents the net loss
          for the year  and  loss  per  common  share  had the  Company  adopted
          Statement  of  Financial   Accounting  Standard  No.  123  (SFAS  123)
          Accounting for Stock-based Compensation.

<TABLE>
 
                                                               1998               1997               1996
                                                        -----------------  ------------------ ------------------
          <S>                                             <C>               <C>                 <C>          
          Net income (loss) for the year                   $ 2,130,833       $ (13,258,031)      $ (6,746,740)
                                                        =================  ================== ==================
          Diluted income (loss) per common share           $      0.32       $       (2.12)      $      (1.39)
                                                        =================  ================== ==================

</TABLE>





                                      F-10
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (m)  Stock -based compensation (Continued)

          Using the fair value method for stock-based  compensation,  additional
          compensation  costs  of  approximately   $3,368,111  would  have  been
          recorded for the year ended  December 31, 1998 (1997 - $1,710,995  and
          1996 - $732,611,  respectively).  This amount is  determined  using an
          option  pricing model assuming no dividends are to be paid, an average
          vesting  period  of  three  years,  a  weighted   average   annualized
          volatility of the  Company's  share price of 56.03% (1997 - 43.93% and
          1996 - 30.74%  respectively)  and a weighted  average  annualized risk
          free   interest  rate  at  5.00%  (1997  -  5.00%  and  1996  -  5.46%
          respectively).

     (n)  Recent pronouncements

          In  June  1997,  the  Financial   Accounting  Standards  Board  issued
          Statement No. 130 (SFAS 130), Reporting Comprehensive Income, which is
          required to be adopted for fiscal years beginning on or after December
          15, 1997. SFAS 130 establishes standards for the reporting and display
          of  comprehensive  income and its  components in a full set of general
          purpose financial statements. Reclassification of financial statements
          for earlier periods presented is required. As the Company's operations
          do not generate any other  comprehensive  items,  the adoption of this
          standard has no affect on the Company's financial statements.

          In  June  1997,  the  Financial   Accounting  Standards  Board  issued
          Statement  No.  131  (SFAS  131),  Disclosures  About  Segments  of an
          Enterprise  and Related  Information,  which is required to be adopted
          for fiscal  years  beginning on or after  December 15, 1997.  SFAS 131
          establishes  new standards for the reporting of segmented  information
          in annual  financial  statements and requires the reporting of certain
          selected segmented information on interim reports to shareholders. The
          Company  adopted  SFAS 131 for the year ended  December 31, 1997 (Note
          11).

          In  October  1997,   the  American   Institute  of  Certified   Public
          Accountants   issued  a  Statement  of  Position,   Software   Revenue
          Recognition (SOP 97-2),  which provides guidance in applying generally
          accepted  accounting  principles  in  recognizing  revenue on software
          transactions.  SOP 97-2 is effective for transactions  entered into in
          fiscal years  beginning  after December 15, 1997. The Company  adopted
          SOP-97-2  for the year ended  December  31, 1997 and  subsequent.  The
          impact on the Company's financial statements is not material.

          In  June  1998,  the  Financial   Accounting  Standards  Board  issued
          Statement No. 133 (SFAS 133),  Accounting for  Derivative  Instruments
          and  Hedging   Activities,   which  standardizes  the  accounting  for
          derivative instruments.  SFAS 133 is effective for all fiscal quarters
          of all fiscal years  beginning  after June 15, 1999. The impact on the
          Company's financial statements is not expected to be material.

     (o)  Cash and cash equivalents

          Cash and cash equivalents  consist of cash on hand,  deposits in banks
          and highly  liquid  investments  with an  original  maturity  of three
          months or less.



                                      F-11
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


2)   ACQUISITIONS

     (a)  Alliance Systems Incorporated

          On April 17,  1997,  the Company  entered into an agreement to acquire
          all  of  the  issued  and  outstanding   shares  of  Alliance  Systems
          Incorporated ("Alliance") for $9,116,828, consisting of 347,750 common
          shares and  US$1,582,088  ($2,188,750)  including cash of US$1,367,869
          ($1,892,426) and US$214,219  ($296,324) of unsecured  promissory notes
          which bear  interest  at 6.07% and  mature on  January  1,  1999.  The
          acquisition  was  completed  July 1, 1997 and the common  shares  were
          issued at that date.  Alliance,  based out of Itasca,  Illinois,  is a
          supplier of mobile  workforce  management  solutions  to the  utility,
          public safety and cable market sectors.

          This  transaction has been accounted for using the purchase method and
          the purchase  price has been  allocated to the estimated fair value of
          net assets acquired as follows:

          Estimated fair value of net assets acquired:

          Current assets                                       $ 1,737,363
          Capital assets                                         1,117,328
          Deferred income taxes                                  2,401,290
          Other assets                                              27,287
                                                             -----------------
                                                                 5,283,268
                                                             -----------------
          Current liabilities                                    6,833,045
          Long-term debt                                         3,111,690
                                                             -----------------
                                                                 9,944,735
                                                             -----------------
                                                                (4,661,467)
          Acquired research and development                     10,002,982
          Goodwill                                               3,775,313
                                                             -----------------
                                                               $ 9,116,828
                                                             =================

          The results of  operations  of Alliance  have been  consolidated  from
          April 17, 1997.

     (b)  MDSI Mobile Data Solutions (UK) Ltd.

          On June 28,  1996,  the Company  entered  into an agreement to acquire
          100%  of the  issued  and  outstanding  shares  of  MDSI  Mobile  Data
          Solutions  (UK) Ltd.  (formerly  Spectronics  Micro Systems  Limited -
          "MDSI  UK")  for  aggregate  consideration  of  $10,616,023  including
          (pound)500,000  ($1,089,973)  payable in cash on closing  and  secured
          convertible loan notes in the amount of (pound)4,500,000 ($9,526,050).
          MDSI UK is a supplier of wireless  computer-aided  dispatching systems
          for the taxi,  courier,  and transport  markets in the United Kingdom,
          Europe, Middle East, Southeast Asia and Australia.





                                      F-12
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


2.   ACQUISITIONS (Continued)

     (b)  MDSI Mobile Data Solutions (UK) Ltd. (Continued)

          The  acquisition  has been accounted for using the purchase method and
          the purchase  price has been allocated to the net estimated fair value
          of assets acquired as follows:

          Net estimated fair value of assets acquired:

          Current assets                                     $ 5,343,114
          Capital assets                                         547,081
                                                         -----------------
                                                               5,890,195
                                                         -----------------
          Current liabilities                                  7,205,980
                                                         -----------------
                                                              (1,315,785)
          Acquired research and development                    8,523,363
          Goodwill                                             3,408,445
                                                         -----------------
                                                             $10,616,023
                                                         =================


     The operations of MDSI UK have been consolidated from June 28, 1996.

     The secured convertible loan notes consisted of non-interest  bearing Class
     A  and  B  loan  notes.   The  Class  A  loan  notes,   in  the  amount  of
     (pound)3,870,940  were repaid  December 4, 1996.  The Class B loan notes in
     the amount of (pound)629,060  were discharged on the issue of 55,263 common
     shares  on  the  conversion  of  notes  in  the  amount  of  (pound)417,003
     ($882,753) and the balance repaid during the year ended December 31, 1996.


3.   LEASE RECEIVABLE

     At December 31, future  payments under customer  sales-types  leases are as
     follows:

                                                                    1998
                                                            --------------------

        Total lease payments due                              $   1,552,842
        Less: amount representing interest                         (146,475)
                                                            --------------------
        Present value of lease payments                           1,406,367
        less: current portion                                      (560,478)
                                                            --------------------
                                                              $     845,889
                                                            ====================

     The lease has an effective  interest  rate of 7.25% and is payable in equal
     monthly instalments over 36 months.




                                      F-13
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)

4.   CAPITAL ASSETS

<TABLE>
                                                                1998                 1997
                                                       -------------------   ------------------
<S>                                                        <C>                  <C>         
     Computer hardware and software                        $  8,038,184         $  5,262,667
     Plant and equipment                                        351,003              290,138
     Furniture and fixtures                                     829,935            1,040,859
     Vehicles                                                   139,048                    -
     Leasehold improvements                                     202,279              198,252
                                                       -------------------   ------------------
                                                              9,560,449            6,791,916
     Less: accumulated depreciation                          (3,872,906)          (2,500,161)
                                                       -------------------   ------------------
                                                           $  5,687,543         $  4,291,755
                                                       ===================   ==================

</TABLE>

5.     INTANGIBLE ASSETS

<TABLE>
                                                                1998                 1997
                                                       -------------------   ------------------
<S>                                                        <C>                  <C>         
       Goodwill                                            $  7,183,758         $  7,183,758
       Less: accumulated amortization                        (1,862,288)            (997,832)
                                                       -------------------   ------------------
                                                           $  5,321,470         $  6,185,926
                                                       ===================   ==================
</TABLE>

6.   LONG-TERM DEBT
<TABLE>
                                                                1998                 1997
                                                       -------------------   ------------------
<S>                                                        <C>                  <C>         
       Stockholders (i)                                    $     72,800          $   215,454
       Promissory notes (ii)                                    304,532              296,324
                                                       -------------------   ------------------

                                                                377,332              511,778
       Less: current portion                                   (377,332)            (215,454)
                                                       -------------------   ------------------
                                                           $          -          $   296,324
                                                       ===================   ==================
</TABLE>

     (i)  Stockholders

          The amounts owing to stockholders are unsecured,  non-interest bearing
          and without specific terms for repayment.

     (ii) Promissory notes

          The Company  issued  promissory  notes in the amount of  US$214,219 as
          part of the Alliance  acquisition (Note 2 (a)) to former  stockholders
          of Alliance. The promissory notes are unsecured,  bear interest at the
          rate of 6.07% and matured  January 1, 1999. The promissory  notes have
          been paid, subsequently.

7.   STOCKHOLDERS' EQUITY

(a)  Stock options

     The Company  adopted its Stock  Option Plan to provide  options to purchase
     common  shares of the Company for its  employees,  officers,  directors and
     consultants.  The options  granted  pursuant  to the Stock  Option Plan are
     exercisable  at a price  which is equal  to the  fair  market  value of the
     common  shares at the time the options are granted.  The maximum  number of
     common shares reserved for issuance under the Stock Option Plan,  including
     current  options  outstanding,  is  1,850,000  common  shares.  Information
     regarding the Company's stock options is as follows:


                                      F-14

<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


7.   STOCKHOLDERS' EQUITY (Continued)
<TABLE>

                                                                                                           Weighted
                                                                                          Number of        Average
                                                                                           Shares           Price
                                                                                      ----------------   -----------
<S>                                                                                        <C>              <C>  
     Outstanding at January 1, 1996                                                        228,603          11.13

     Granted                                                                               441,500          14.18
     Exercised                                                                             (19,890)         10.54
     Cancelled                                                                             (25,214)         11.75
                                                                                      ----------------   
     Outstanding at December 31, 1996                                                      624,999          13.29

     Granted                                                                               514,000          23.46
     Exercised                                                                            (107,010)         11.92
     Cancelled                                                                             (53,471)         18.25
                                                                                      ----------------   
     Outstanding at December 31, 1997                                                      978,518          18.48

     Granted                                                                             1,112,750          16.56
     Exercised                                                                             (32,844)         13.78
     Cancelled                                                                            (403,218)         23.67

                                                                                      ================
     Outstanding at December 31, 1998                                                    1,655,206          16.01
                                                                                      ================

</TABLE>


The following table summarizes  information  concerning  options  outstanding at
December 31, 1998:

<TABLE>

                                 Options Outstanding                               Options Excersable
                       --------------------------------------------------       ---------------------------
                                                 Weighted
                          Number                  Average                          Number
                       Outstanding               Remaining       Weighted        Exercisable      Weighted
                           as of                Contractual       Average          as of          Average
   Range of              December                  Life           Exercise        December        Exercise
Exercise Prices           31,998                 (months)          Price          31, 1998          Price
---------------       -------------             ------------     ----------      ------------     ---------
<S>                     <C>                       <C>            <C>              <C>             <C>   
$10.38-$15.50            1,268,306                 20.04          $14.72           522,321         $13.69
$16.00-$20.00              276,900                 32.50           19.39            29,103          17.03
$21.00-$25.00              110,000                 20.67           22.38            66,944          22.60
                      -------------             ------------     ----------      ------------     ---------
                         1,655,206                 22.69          $16.01           618,368         $14.81
                      =============             ============     ==========      ============     =========

</TABLE>


At December 31,1997 and 1996,  414,547 and 218,499 options were exercisable at a
weighted average exercise price of $13.15 and $11.55 respectively.

     (b)  Stock purchase plan

          The Company has established a voluntary stock compensation arrangement
          for its full and part-time  employees to purchase common shares of the
          Company by way of payroll deductions for a maximum of $10,000 for each
          employee per year. The  subscription  price of common shares purchased
          under the Stock  Purchase  Plan is  determined  based  upon a weighted
          average market price of the Company's common shares each quarter, less
          15%.  The Company has  reserved  100,000  common  shares for  issuance
          pursuant to the Stock  Purchase  Plan.  During the year ended December
          31, 1998, 17,919 common shares were issued under this Plan.


                                      F-15
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


7.   STOCKHOLDERS' EQUITY (Continued)

     (c)  Special warrants and share purchase warrants

          In June 1996, the Company issued 280,000  special  warrants  through a
          private  placement for net proceeds of $3,925,100  (net of issue costs
          of $30,000).  Each special warrant was  exchangeable,  without further
          payment or  additional  consideration,  into one common  share and one
          share  purchase  warrant.  During the year ended  December  31,  1997,
          280,000 common shares and 280,000 share purchase  warrants were issued
          on the conversion of special warrants.  During the year ended December
          31, 1998,  258,000 share purchase  warrants were exercised to purchase
          51,600 common shares for proceeds of $731,400.

     (d)  Stock transactions

          On December 2, 1996, the Company  completed a public  offering for the
          sale and  issue  of  1,495,000  common  shares  at a price  of  $20.10
          (US$14.875) per share for net proceeds of $26,476,306 (net of offering
          costs of $3,573,194).

     (e)  Alliance employee stock ownership plan

          Prior to the Company's acquisition of Alliance, the Alliance employees
          participated in an employee stock ownership plan (the ESOP).  Upon the
          Company's   acquisition  of  Alliance   (Note  2(a)),   the  remaining
          unallocated  shares held by the ESOP were  allocated to employees.  At
          December 31, 1998,  99,079 shares of the Company were held by the ESOP
          of which 99,079 will vest on July 1, 1999.

     (f)  Shareholder rights plan

          On December 17, 1998,  the Company's  Board of Directors  approved the
          adoption of a  Shareholder  Rights Plan,  similar to those  adopted by
          other Canadian companies,  subject to shareholder approval at the next
          annual general meeting of the Company,  scheduled to be held on May 6,
          1999.  Under the terms of the Plan,  rights are attached to the common
          shares of the Company.  These rights become marketable and exercisable
          only after certain  specified events related to the acquisition of, or
          announcement of an intention to acquire 20% or more of the outstanding
          common shares of the Company.

8.   INCOME TAXES

     The provision for income taxes consists of the following:

<TABLE>

                                                                   1998                1997               1996
                                                             -----------------   -----------------  -----------------
<S>                                                             <C>                 <C>                     <C>     
       Current:
         Canada                                                 $ (1,872,670)       $ (1,945,359)       $         -
         United States                                              (471,015)            107,146                  -
         United Kingdom                                                    -             254,821                  -
         Other                                                       (98,886)           (281,270)
                                                             -----------------   -----------------  -----------------
           Total current provision for income taxes               (2,442,571)         (1,864,662)                 -
                                                             -----------------   -----------------  -----------------
       Deferred:
         Canada                                                      594,237                   -         (1,334,615)
         United States                                              (464,974)           (960,252)           160,000
         United Kingdom                                             (261,546)            452,542            250,000
         Other                                                       (15,038)             53,197                  -
                                                             -----------------   -----------------  -----------------
          Total deferred provision for income taxes                 (147,321)           (454,513)          (924,615)
                                                             -----------------   -----------------  -----------------
       Provision for income taxes                               $ (2,589,892)       $ (2,319,175)       $  (924,615)
                                                             =================   =================  =================
</TABLE>


                                      F-16
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)



The provision  for income taxes  reported  differs from the amounts  computed by
applying the cumulative  Canadian Federal and provincial income tax rates to the
loss before tax provision due to the following:


<TABLE>
                                                                   1998               1997               1996
                                                             -----------------  -----------------  -----------------
<S>                                                                     <C>                <C>                <C>  
       Statutory tax rate                                               45.0%             45.0%              45.0%

       (Provision for) Recovery of income taxes computed
          at statutory rate                                     $ (3,639,976)     $  4,152,381       $  2,290,281
       Tax losses and (benefits) not recognized in the period
         that the benefit arose                                      808,111        (1,238,564)           769,752
       Lower effective rate on earnings of foreign                   
         subsidiaries                                                706,309          (186,071)                 -
       Acquired research and development costs not
         deductible for tax purposes                                       -        (4,501,342)        (3,835,513)
       Amortization of intangibles not deductible for tax
         purposes                                                   (389,005)         (376,724)          (149,135)
       Other permanent differences                                   (75,331)         (168,855)                 -
                                                             -----------------  -----------------  -----------------
       Provision for income taxes                               $ (2,589,892)     $ (2,319,175)      $   (924,615)
                                                             =================  =================  =================
</TABLE>

     The  principal  components  of the deferred  portion of the  provision  for
     income taxes are as follows:

<TABLE>
                                                                   1998                1997               1996
                                                             -----------------   -----------------  -----------------
<S>                                                                  <C>                 <C>                <C>      
        Depreciation                                             $          -         $         -        $   (2,677)
        Research and development                                            -                   -           (19,627)
        Deferred revenue                                                    -             258,233          (308,553)
        Operating loss carry forwards                                (147,321)           (712,746)         (624,000)
        Other                                                               -                   -            30,242
                                                             -----------------   -----------------  -----------------
        Total deferred provision for income taxes                $   (147,321)        $  (454,513)       $ (924,615)
                                                             =================   =================  =================
</TABLE>

     The approximate  tax effect of each type of temporary  difference that gave
     rise to the Company's deferred tax assets are as follows:

                                                  1998               1997
                                           -----------------  -----------------
     Current
     Operating loss carry forwards         $   1,220,350        $ 2,096,544
                                          -----------------  -----------------
     Net current deferred tax asset        $   1,220,350        $ 2,096,544
                                           =================  =================

                                                 1998               1997
                                           -----------------  -----------------
     Non-current
     Depreciation                          $      40,271        $    60,406
     Operating loss carry forwards             1,314,131          4,460,628
     Other                                        (4,631)           (17,348)
                                           -----------------  -----------------
                                               1,349,771          4,503,686
     Less: valuation allowance                (1,349,771)        (4,503,686)
                                           -----------------  -----------------
     Net non-current deferred tax asset    $          -          $        -
                                           =================  =================



                                      F-17
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)



8.   INCOME TAXES (Continued)

     During the year ended  December 31, 1998,  the Company  concluded  that tax
     benefits of $2,633,000  relating to previously disposed US operations would
     not be  available  to the Company in the future.  The benefit of the losses
     and the related  valuation  allowance have been removed from the income tax
     reconciliations.

     At December 31, 1998,  the Company has the  following  loss  carry-forwards
     available for tax purposes:

     Country                              Amount                  Expiry
     -------                              ------                  ------

     Canada                            $1,300,000            2003 through 2004
                                   
     United Kingdom                    3,000,000 (pound)     unlimited


     The  loss   carry-forwards   in  Canada  are  subject  to  certain   annual
     restrictions.

9.   RELATED PARTY TRANSACTIONS

     Related party  transactions  and balances not disclosed  elsewhere in these
     financial  statements  include advisory fees of US$25,000 paid to a company
     controlled by a director during the year ended December 31,1997.

10.  COMMITMENTS AND CONTINGENCIES

     (a) Capital and operating leases

          At December  31,  1998,  future  minimum  payments  under  capital and
          non-cancellable   operating  leases  for  office  space  and  computer
          equipment are as follows:

<TABLE>
                                                                    Capital             Operating
                                                                    leases               leases
                                                               ------------------   ------------------
<S>                                                                 <C>                  <C>         
  1999                                                              $  1,109,422         $  2,542,360
  2000                                                                 1,109,410            2,040,633
  2001                                                                   906,182            1,973,879
  2002                                                                    15,551            1,760,867
  2003                                                                     5,781            1,570,409
  Thereafter                                                                  -             7,590,000
                                                               ------------------   ------------------
  Total minimum lease payments                                         3,146,346         $ 17,478,148
                                                                                    ==================
  Less: amount representing interest                                    (366,392)
                                                               ------------------
  Present value of net minimum lease payments                          2,779,954
  Less: current portion                                                 (872,917)
                                                               ------------------
                                                                    $  1,907,037
                                                               ==================

</TABLE>

          Rent  expense  for the year  ended  December  31,  1998 in  respect of
          operating  leases for office space was $2,728,233  (1997 - $1,583,767;
          1996 - $658,765).


                                      F-18
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


10.  COMMITMENTS AND CONTINGENCIES (Continued)

     (b)  Line and letters of credit

          The Company has an operating line of credit with a Canadian commercial
          bank to borrow up to  $8,000,000  which  bears  interest at prime plus
          0.5%.  As at  December  31,1998,  the Company  was not  utilizing  the
          operating line of credit. In addition,  the Company has an irrevocable
          revolving  letter  of  credit  with the  same  bank in the  amount  of
          (pound)200,000.  Subsequent  to  December  31,  1998 the  Company  has
          provided as  performance  bonds,  an irrevocable  revolving  letter of
          credit in the amount of Belgian Franc 101,068,000 and a bank guarantee
          in the amount of Danish  Kroner  9,740,000,  both with same bank.  The
          company  has  pledged  an amount  equal to the  letters  of credit and
          guarantee against its operating line of credit as security.

11.  SEGMENTED INFORMATION

     Segmented information

     In 1997,  the Company  adopted the  Financial  Accounting  Standards  Board
     statement  No.131 (SFAS 131) requiring  disclosure of a company's  business
     segments.  At the time of adoption,  the Company had determined that it had
     only one  reportable  segment  and  therefore  did not  provide a  detailed
     breakdown other than provided by its general purpose financial  statements.
     In 1998,  the Company has  reassessed its position in regards to reportable
     segments  and  determined  that it has two distinct  segments  based on the
     differing  capabilities of the software and hardware  platforms  offered to
     customers.  The  following  describes  the  reportable  segments  on  which
     management bases its operating decisions and performance assessment.

     Field Service - Field Service  comprises  software and services designed to
     serve the mobile  workforce  management  needs of industry and  government.
     Examples   include  the  utility,   telecommunication   and  public  safety
     industries.

     Delivery - The Delivery segment comprises  software,  hardware and services
     designed to serve  providers  of  services  to the  general  public for the
     movement  of people and  goods.  Examples  include  the taxi,  courier  and
     roadside recovery industries.

     Business Segments

                                      Field         
                                     Service         Delivery           Total
--------------------------------------------------------------------------------
1998

  Revenue                          $ 67,588,754    $15,794,100     $ 83,382,854
  Operating earnings                  9,051,802     (1,125,337)       7,926,465
  Depreciation & Amortization         1,298,480        938,721        2,237,201

  Assets                             44,018,594     12,549,762       56,568,356
  Capital Expenditures                2,607,807        160,726        2,768,533

1997
  Revenue                          $ 52,859,186    $17,420,993     $ 70,280,179
                                                      
  Operating earnings                 (1,587,178)    (8,175,772)      (9,762,950)
  Depreciation & Amortization         1,628,683        849,650        2,478,332

  Assets                             27,064,461     13,579,553       40,644,014
  Capital Expenditures                2,059,685        528,148        2,587,833



                                      F-19
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


11.  SEGMENTED INFORMATION (Continued)


Business Segments (continued)
                                      Field         
                                     Service         Delivery           Total
--------------------------------------------------------------------------------
1996
  Revenue                          $ 31,923,675     $13,218,895     $45,142,570
                                                     
Operating earnings                    3,320,636      (8,523,814)     (5,203,178)
  Depreciation & Amortization           638,801         393,148       1,031,952
  Assets                             34,920,694      10,651,064      45,571,758
  Capital Expenditures                  851,829         101,475         953,304


     Geographic information

     The Company  earned  revenue  from sales to  customers  and has  long-lived
     assets,  including capital assets and goodwill, in the following geographic
     locations:

<TABLE>

                               1998                             1997                           1996
                          -------------------------------- ------------------------------  ------------------------------
                                             Long-lived                      Long-lived                      Long-lived
                              Revenue          assets          Revenue         assets         Revenue          assets
                          --------------- ---------------- --------------- --------------  --------------  --------------

<S>                        <C>             <C>             <C>                <C>           <C>                <C>      
        Canada             $ 2,984,562      $ 3,429,687     $ 1,975,850      2,222,706     $   851,163        1,030,274
        United States       62,583,853        5,614,529      45,525,859      4,712,938      30,349,559          677,855
        Europe              14,806,724        2,752,711      18,134,893      3,527,130       9,672,356        3,767,411
        Asia                 2,657,917           44,385       2,112,136              -       4,269,492                -
        South America          349,798                -       2,531,441              -               -                -
        Other                        -           13,590               -         14,907               -                -
                          --------------- ---------------- --------------- --------------  --------------  --------------
                            83,382,854      $11,854,902      70,280,179     10,477,681      45,142,570        5,475,540
                          =============== ================ =============== ==============  ==============  ==============

</TABLE>


     Long-lived assets consist of the lease  receivable,  capital and intangible
     assets.

     Major customers

     During the year ended  December 31, 1998,  the Company  earned revenue from
     one customer of  $6,129,753  (1997 one customer of  $7,598,277;  1996 - one
     customer of $15,922,960).


                                      F-20
<PAGE>


                        MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
                        (Expressed in Canadian dollars)


12.  CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS

<TABLE>
                                                                   1998               1997               1996
                                                             -----------------  -----------------  ------------------
     <S>                                                       <C>                <C>                 <C>           
       Accounts receivable                                     $  (6,694,687)     $ (5,047,163)      $ (10,791,491)
       Work in progress                                               74,434            63,437             (68,240)
       Prepaid expenses                                           (2,215,990)       (1,499,151)              8,478
       Other                                                        (207,153)                -                   -
       Income taxes payable                                          577,909         1,864,662                   -
       Accounts payable and accrued liabilities                    2,082,333        (8,244,375)          3,847,758
       Deferred revenue                                            4,385,403        (1,984,901)            862,261
                                                             -----------------  -----------------  ------------------
                                                               $  (1,997,751)     $(14,847,491)      $  (6,141,234)
                                                             =================  =================  ==================

</TABLE>

13.  FINANCIAL INSTRUMENTS

     The  carrying  value  of cash and cash  equivalents,  accounts  receivable,
     accounts  payable,   accrued  liabilities  and  capital  lease  obligations
     reflected in the balance sheets approximate their respective fair values.

     The Company estimates the fair value of its non-interest  bearing long-term
     debt using  discounted  cash flows  assuming a borrowing  rate equal to the
     Bank of Canada rate plus 2%.

<TABLE>

                                                            1998                         1997
                                             ------------------------------------  -------------------------------------
                                                 Carrying                              Carrying
                                                  amount           Fair value           amount            Fair value
                                             -----------------  -----------------  -----------------   -----------------
          <S>                                   <C>                <C>               <C>                 <C>        
        Long-term debt:
          Stockholders                             $   72,800         $   72,800        $   215,454         $   215,454
          Promissory note                             304,532            295,229            296,324             277,717
                                             -----------------  -----------------  -----------------   -----------------
                                                  $   377,332        $   368,029        $   511,778         $   493,171
                                             =================  =================  =================   =================
</TABLE>

     The Company's  revenues have historically been dependent on large contracts
     from a limited  number of  customers  in the  utility,  telecommunications,
     courier  and  taxi  market  sectors.   However,   as  these  customers  are
     geographically   dispersed  and  bad  debts  have  not  been   significant,
     concentrations of credit risk are considered to be minimal.

14.  PROVISION FOR RESTRUCTURING AND CHANGES IN ESTIMATES TO COMPLETE

     During the year ended  December 31, 1997,  the Company  recorded a one-time
     charge of $6,371,192, including $1,145,152 with respect to restructuring of
     certain  operations  and  $5,226,040  due to a change in the  estimates  to
     complete  certain  contracts by its UK  operations.  These  contracts  were
     entered into by MDSI UK prior to the acquisition by the Company.

15.  SUBSEQUENT EVENTS

     Subsequent to December 31, 1998, the Company:

(a)  Issued  575,000 common shares on an  oversubscribed  share offering for net
     proceeds of $14,735,937

(b)  Provided as performance  bonds, an irrevocable  revolving  letter of credit
     expiring  May 28,  2001  in the  amount  Belgian  Franc  101,068,000  ($4.2
     million) and a bank  guarantee  expiring  February 2, 2000 in the amount of
     Danish Kroner 9,740,000 ($2.2 million).

(c)  Sold  Belgian  Franc  134,400,000  ($5.6  million)  and  104,000,000  ($4.3
     million)  under  forward  contracts  due  December 14, 1999 and October 31,
     2000, respectively.

(d)  Sold Danish Kroner  5,000,000  ($1.1 million) under a forward  contract due
     October 29, 1999.


                                      F-21



<PAGE>

                                   SCHEDULE II

                         MDSI MOBILE DATA SOLUTIONS INC.
                        Valuation and Qualifying Accounts
                         (Expressed in Canadian dollars)


<TABLE>

                                                                                   Application/
                                                   Balance,         Additions        Write-off         Balance,
                                                  Beginning          During           During              End
                                                  of Period          Period          of Period         of Period
                                               ----------------  ---------------  ----------------  ----------------
<S>                                              <C>               <C>              <C>                <C>        
Accumulated amortization of software
  Year ended December 31, 1998                   $          -      $         -      $          -       $         -
  Year ended December 31, 1997                         87,950           87,920          (175,870)                -
  Year ended December 31, 1996                              -           87,950                 -            87,950

Allowance for doubtful accounts
  Year ended December 31, 1998                   $    252,243      $         -      $    (30,009)      $   222,234
  Year ended December 31, 1997                         37,000          252,243           (37,000)          252,243
  Year ended December 31, 1996                        142,046           37,000          (142,046)           37,000

Accumulated depreciation of capital assets
  Year ended December 31, 1998                   $  2,500,161      $ 1,372,745      $          -       $ 3,872,906
  Year ended December 31, 1997                      1,128,000        1,372,161                 -         2,500,161
  Year ended December 31, 1996                        427,459          700,541                 -         1,128,000

Accumulated amortization of goodwill
  Year ended December 31, 1998                   $    997,832      $   864,456      $          -       $ 1,862,288
  Year ended December 31, 1997                        243,461          754,371                 -           997,832
  Year ended December 31, 1996                              -          243,461                 -           243,461

Deferred income tax valuation allowance
  Year ended December 31, 1998                   $  4,503,686      $         -      $ (3,153,915)      $ 1,349,771
  Year ended December 31, 1997                      3,070,673        2,485,470        (1,052,457)        4,503,686
  Year ended December 31, 1996                      3,667,500                -          (596,827)        3,070,673


Reserve for contracts
  Year ended December 31, 1998                   $  4,646,276      $         -      $ (4,646,276)      $         -
  Year ended December 31, 1997                         21,169        9,139,182        (4,514,075)        4,646,276
  Year ended December 31, 1996                              -        1,041,515        (1,020,346)           21,169

</TABLE>

<PAGE>


Exhibit 
Number         Exhibit Description
--------       -------------------  

   t2.1        Agreement  and Plan of  Merger  dated  April 17,  1997  among the
               Company, MDSI Acquisition Corp., Alliance,  Geoffrey Engerman and
               Doug Engerman (previously filed as Exhibit 2.2)

   *3.1        Articles of Incorporation of the Company

   *3.2        Articles of Amendments of the Company

   *3.3        By-laws of the Company

   *4.1        Form of Common Share Certificate

tt*10.1        1996 Stock Option Plan

 tt10.2        1997 Stock Option Plan

 tt10.3        1998 Stock Option Plan

tt*10.4        Stock Purchase Plan (previously filed as Exhibit 10.2)

 tt10.5        1998 Stock Purchase Plan

  *10.6        Form of Indemnification Agreement between the Company and certain
               officers of the Company (previously filed as Exhibit 10.4)

  *10.7        Promissory  Note dated January 2, 1996 granted by the Company and
               TelSoft in favor of Killean Consulting Inc.  (previously filed as
               Exhibit 10.8)

  *10.8        Promissory  Note dated January 2, 1996 granted by the Company and
               TelSoft in favor of 382904 B.C. Ltd. (previously filed as Exhibit
               10.9)

tt*10.9        Employment  Agreement dated April 1, 1996 between the Company and
               Erik Dysthe (previously filed as Exhibit 10.18)

tt*10.10       Employment  Agreement  dated July 1, 1995 between the Company and
               Kenneth R. Miller (previously filed as Exhibit 10.19)

   10.11       Lease dated September 25, 1997 between Sun Life Assurance Company
               of Canada and the Company

  *10.12       Lease dated June 2, 1989 between  Corporate Woods  Associates and
               Service Systems  International  Limited and subsequent amendments
               (previously filed as Exhibit 10.23)

  *10.13       Lease  dated April 8, 1993  between  Cambridge  Scanning  Company
               Limited and Spectronics  Micro Systems Limited  (previously filed
               as Exhibit 10.25)

    11.1  Computation of Earnings Per Common Share.

   *21.1  List of the Company's Subsidiaries.

    23.1  Consent of Deloitte & Touche LLP.

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

*    Previously  filed as exhibits with the same  corresponding  number with the
     Registrants' Registration Statement on Form F-1 (Registration No. J33-5872)
     and  amendments  numbers 1 and 2  thereto,  filed with the  Securities  and
     Exchange Commission on October 28, 1996, November 13, 1996 and November 25,
     1996, respectively.

tt   This document has been identified as a management  contract or compensatory
     plan or arrangement.

t    Previously  filed as an exhibit to Registrant's  Registration  Statement on
     Form F-4

<PAGE>