UNITED STATES
                       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, 2002

                                       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.)
    or organization)
                              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

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

                           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]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes ___ No [X]

     The aggregate market value of the voting and non-voting  common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold on Nasdaq as of the last  business  day of the  registrant's  most
recently completed second fiscal quarter, which was June 28,2002: $30,008,310

     The number of shares of the  Registrant's  Common Shares  outstanding as of
March 25, 2003 was 8,176,431.


<PAGE>

                                TABLE OF CONTENTS


Item 1:  Business..............................................................2

Item 2:  Properties...........................................................21

Item 3:  Legal Proceedings....................................................21

Item 4:  Submission of Matters to a Vote of Security Holders..................22

Item 5:  Market for Registrant's Common Equity And Related
           Stockholder Matters................................................23

Item 6:  Selected Financial Data..............................................26

Item 7:  Management's Discussion and Analysis of Financial Condition
           and Results of Operations..........................................27

Item 7A:  Quantitative and Qualitative Disclosure About Market Risk...........42

Item 8:  Financial Statements and Supplementary Data..........................42

Item 9:  Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure...............................................76

Item 10:  Directors and Executive Officers of the Registrant..................77

Item 11:  Executive Compensation..............................................80

Item 12:  Security Ownership of Certain Beneficial Owners and Management......85

Item 13:  Certain Relationships and Related Transactions......................86

Item 14:  Controls and Procedures.............................................86

Item 15:  Exhibits, Financial Statement Schedules and Reports on Form 8-K.....87



                                       i

<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, as amended. 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: lengthy sales cycles, the Company's  dependence upon large contracts
and  relative  concentration  of  customers,  the  failure  of MDSI to  maintain
anticipated  levels  of  expenses  in  future  periods  and the risk  that  cost
reduction  efforts  adversely affect the ability of MDSI to achieve its business
objectives, the failure of MDSI to successfully execute its business strategies,
the effect of slow United  States and  international  economies  generally,  the
threat or reality of war,  as well as  economic  trends  and  conditions  in the
vertical  markets  that MDSI  serves,  the effect of the risks  associated  with
technical  difficulties  or  delays  in  product  introductions,   improvements,
implementations,  product  development,  product pricing or other initiatives of
MDSI's  competitors,  the  possibility  that our potential  customers will defer
purchasing  decisions  due to  economic  or other  conditions  or will  purchase
products  offered by our  competitors,  risks associated with litigation and the
protection of  intellectual  property,  risks  associated with the collection of
accounts  receivable,  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."


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>
                        2002             2001              2000             1999              1998
                        ----             ----              ----             ----              ----
<S>                   <C>              <C>               <C>              <C>               <C>
Period End          US$0.6342        US$0.6275         US$0.6666        US$0.6925         US$0.6504
Average                0.6369           0.6461            0.6740           0.6744            0.6715
High                   0.6656           0.6714            0.6983           0.6925            0.7105
Low                    0.6175           0.6227            0.6397           0.6535            0.6341
</TABLE>


     On March 25,  2003 the noon  buying  rate was  CDN$1.00  =  US$0.6755.  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. Unless stated otherwise, all financial information
is expressed in United States dollars.




                                       1
<PAGE>

                                     PART I

Item 1:  Business

The Company

     MDSI Mobile Data Solutions Inc. is a leading  provider of mobile  workforce
management  solutions.  MDSI's suite of software  applications improves customer
service and  relationships,  and reduces  operating costs by empowering  service
companies to optimally  manage  their mobile field  resources.  The Company also
provides all of the professional services necessary to implement and support its
solutions. Founded in 1993, MDSI has approximately 100 major customers worldwide
with  operations and support offices in the United States,  Canada,  and Europe.
MDSI markets its solutions to a variety of companies that have substantial field
service organizations,  and focuses primarily upon utilities (electric,  gas and
water companies),  telecommunications  companies, and cable/broadband companies.
MDSI's  products are used by such companies in  conjunction  with various public
and private  wireless data  communications  networks,  mobile devices and server
hardware  to provide  comprehensive  solutions  for the  automation  of business
processes associated with the scheduling, dispatching and management of a mobile
workforce.

     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.  The Company's  web site is  www.mdsi-advantex.com.
Information contained on the Company's web site is not part of this report.


Background

     Field  service  organizations  are  confronted  on a daily  basis  with the
difficult task of optimally  assigning work requests to their mobile  workforce,
dispatching  the  work  to the  field,  monitoring  the  progress  of the  work,
responding to changing conditions,  and measuring workforce performance.  Common
workforce management problems include:

o    missed appointments;

o    unnecessary overtime;

o    repeat customer visits to get the job done right;

o    jobs that take too long to complete;

o    delayed status reports;

o    inadequate information collected from/supplied to the field;

o    redundant data entry work; and

o    excessive driving time.


     Historically,  these  organizations have managed and supported their mobile
workers by communicating  information on paper, or through wireline solutions or
through  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  commercial  field service.  Businesses in these markets  recognized
certain  productivity  benefits  associated  with


                                       2
<PAGE>

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 this initial low rate of adoption
was attributable to a number of factors  including 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. In addition to
these  factors,  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 ongoing  trends in the  regulatory  environment,
numerous  technological  advances and competitive pressures have reduced many of
these  limitations and have provided,  and will continue to provide a compelling
case for the adoption of mobile data  solutions by field service  organizations.
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  providing services at lower costs
than ever are now widely  available in North America,  and similar  networks are
available in Europe, Austral-Asia and Africa. Consequently, the Company believes
that 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 these trends will
continue to increase  the  likelihood  of adoption of mobile data  solutions  by
companies with field service organizations. 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 field service  organizations  in targeted  vertical markets to develop mobile
workforce  management  solutions  that address the specific  needs of businesses
within those vertical  markets.  MDSI's products enable these  organizations  to
effectively  communicate  with, manage and support their mobile workers in their
execution and completion of work orders.

     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.  The most recent  version of the
Company's  software is also designed to be  Internet-enabled,  allowing  service
companies'  mobile  technicians  to use  web  browsers  to  interface  with  the
Company's  software.  For the  mobile  user,  that  browser  can be located on a
variety of mobile devices, such as a laptop,  personal digital assistant,  pager
or web phone.

     To   effectively   address  a  customer's   mobile   workforce   management
requirements,  MDSI  combines  its  products  with  services,  such  as  systems
implementation and integration, training and documentation, workforce management
assessments, consulting, and ongoing technical support and software maintenance.
Where appropriate,  MDSI also provides third party products and services as part
of a complete mobile data solution.


Advantex r7

     Advantex  r7, the  latest  version of MDSI's  mobile  workforce  management
product, is a feature-rich product that offers a comprehensive solution tailored
to address the specific mobile workforce management needs of MDSI's customers in
MDSI's  target  markets,  including  market-specific  solutions  for the utility
industry,  the telecommunications  industry,  and the cable/broadband  industry.
Advantex efficiently manages mobile workers and the work orders they execute. It
schedules work requests and, using complex  business rules,  assigns them to the
best available  mobile worker.  Advantex then  dispatches  work order details to
mobile workers who use the solution to process their work throughout the day and
send status  updates  and order  completion  information  back to the office all
wirelessly, in real-time.  Advantex also determines the best sequence for mobile
workers to  address  their work  orders  and the best  routes to travel  between
assignments. This provides dispatchers, supervisors and enterprise applications,
such  as  call  centers  and  customer  information  systems,   with  up-to-date
information  to enable  them to  effectively  monitor and manage  field  service
operations at all times.


                                       3
<PAGE>

     Advantex is the result of more than ten years of  development  and has been
field   validated   by    approximately    100   companies   in   the   utility,
telecommunications   and  cable/broadband   industries.   Advantex  uses  global
standards,  such as CORBA (Common  Object Request  Broker  Architecture),  Java,
HTML, XML, WAP and Unicode,  and industry  standard  products,  such as Oracle's
database  and BEA's  infrastructure  tools,  to  deliver a  solution  that meets
customers' needs for a scalable, open and interoperable  solution.  Advantex has
been  implemented,  or is in the  process of being  implemented,  for  customers
supporting as few as 70 and as many as 13,000 users.  The primary  components of
Advantex are:

o    Advantex  Scheduling--Books  and manages  appointments  with  customers and
     automatically  assigns  work  orders to mobile  workers  based on skill and
     equipment match, location, availability, and priority.

o    Advantex  Dispatch--Allows  dispatchers to monitor work orders and workers.
     Allows  dispatchers  to view the  field  service  information  that is most
     critical to them at any given moment, to manage work orders (e.g.,  cancel,
     modify,  dispatch),  and to receive alerts for unusual situations requiring
     dispatcher   intervention   (e.g.,   worker  in   jeopardy  of  missing  an
     appointment).

o    Advantex  Mobile--Enables  mobile workers to receive work orders, view work
     order  information,  track  their  status,  enter work  results,  and query
     company  applications for additional  information  needed to complete work.
     Promotes  efficient  workflow by providing the  information  mobile workers
     need to do their work when they need it.

o    Advantex Wireless--Provides wireless connectivity across public and private
     networks,  and wireless  compression,  encryption,  and the ability to work
     offline in "out of coverage" situations.

o    Advantex Resources--Allows  administrators to define resources that perform
     work (e.g.,  mobile  workers and crews) and their  attributes  (e.g.,  work
     areas, skills, equipment), manage crew composition, define shift rotations,
     and manage day-to-day technician availability (e.g., ad hoc adjustments for
     absences).

o    Advantex  Decision  Support--Collects  and  archives  data in a  historical
     database and allows it to be presented for easy-to-understand reporting and
     trend analysis via a web-browser.  Lets managers prepare customized reports
     on key performance indicators to measure mobile workforce performance.

o    Advantex  Compose--A  configuration  tool used to define a customer's  work
     practices and generate a configured  Advantex system.  Defines the types of
     work the customer performs, the work order details, how the work orders are
     presented to dispatchers and mobile  workers,  the forms to be completed in
     the field,  and the validation  rules that apply to work results entered in
     the field.

o    Advantex  Enterprise  Connector--Integrates  Advantex  with the  customer's
     enterprise  applications  (e.g., SAP,  Siebel).  Bundled with Advantex when
     MDSI provides application integration services.

o    Advantex Vehicle  Tracking--Allows  dispatchers to use maps and GPS (Global
     Positioning System)-equipped vehicles to track in real-time the location of
     mobile workers and their work orders and to execute a wide variety of tasks
     directly from the map interface.

o    Advantex  Complex  Orders--Coordinates  mobile  workers  working on related
     orders.  Parcels orders into individual tasks,  manages task assignment and
     dispatch,   ensures  that  precedence  relationships  are  maintained,  and
     monitors task status.

o    Advantex Common Cause--Allows dispatchers and managers to recognize related
     trouble work orders and manage them as individual dispatched work orders.


                                       4
<PAGE>

o    Advantex  Time  Reporting--Allows  mobile  workers to allocate  time to job
     codes and to record time spent on other  activities.  Replaces  paper-based
     time reporting.


Professional and Customer Support Services

     MDSI provides a complete  range of  specialized  professional  and customer
support services to assist its clients in implementing and using MDSI's products
effectively.  Contracts  for the sale of  MDSI's  software  typically  include a
customer  support and maintenance  agreement,  as well as professional  services
such as implementation, systems integration, training and documentation, and may
also include  workforce  management  assessments  and audits or other  workforce
management  consulting.  The Company  believes  that  providing  these  services
facilitates  effective  implementation  of its  products  and  fosters  a strong
relationship with the customer that often leads to future sales of MDSI products
and services. See "Forward-Looking Statements."

Professional Services

     A professional  services  engagement usually lasts for six to twelve months
and involves  working with the customer in defining,  configuring and installing
the Advantex  solution,  as well as  integrating  it with the  customer's  other
enterprise  software  solutions  and  training  the  client  in how  best to use
Advantex.  The engagement generally occurs in three logical phases:  definition,
configuration, and installation.

o    Definition--MDSI  works  with the  customer  to  determine  the  customer's
     preferred  configuration  for the Advantex  system.  A customer's  Advantex
     configuration  will depend on a number of factors,  including  the types of
     work the customer  performs,  the information  associated with each type of
     work order,  how the customer  would prefer  information to be presented to
     dispatchers and mobile workers (i.e.,  screen layouts) and what information
     the customer intends to collect from the field (i.e., work results).

o    Configuration--MDSI configures the baseline Advantex software in accordance
     with the customer's needs to create a finished  product.  Once the Advantex
     system has been  configured,  MDSI tests the  system at its  facilities  to
     ensure  that  the  configured  system  is  ready  to be  installed  at  the
     customer's site.

o    Installation--MDSI  installs Advantex at the customer's site. The system is
     then  tested  until  acceptance  criteria  are met.  Upon  acceptance,  the
     customer is ready to deploy the  solution  to the field and begin  rollout.
     The  duration  of the  rollout  period  will  depend  on  several  factors,
     including  the  length of time the  customer  wishes to test the new system
     with a pilot group, the size of the customer's  mobile  workforce,  and the
     extent to which the practices the customer has incorporated into the system
     are a departure from current practices.

     MDSI's  depth  of  experience  in  the  utility,  telecommunications,   and
cable/broadband  industries  allows  it  to  integrate  Advantex  with  customer
information systems,  customer relationship management systems,  billing systems
and outage management systems, among others. Whenever industry solutions such as
these are the source of work orders or the  destination  for work results,  MDSI
offers  application   integration  services.  MDSI  provides  complete  training
services and systems documentation that address the implementation and operation
of an Advantex mobile workforce management system.

     MDSI also offers mobile workforce management practices assessment services,
to help customers  assess where they stand against their peers, as well as other
mobile workforce management  consulting services to enable customers to make the
most  effective  use of  Advantex  in their  organizations  to improve  customer
satisfaction and increase operational efficiency.


                                       5
<PAGE>

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,  which may be annual or on a multi-year  basis,  that take effect on
the expiration of the product warranty  period,  which is typically 90 days from
the acceptance of Advantex.


Markets

     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 to develop mobile workforce  management  solutions
that address the specific  needs of businesses  within those  vertical  markets.
Traditionally,  the Company has focused  its  attention  on mid and  large-sized
customers in the utilities (electric,  gas and water),  telecommunications,  and
cable/broadband  markets.  In total,  MDSI believes that there are approximately
1.8  million  mobile  workers  worldwide  in  its  traditional  markets,   split
approximately  evenly amongst North America,  Western Europe,  and certain other
commercially viable geographical  markets in the rest of the world. During 2002,
the Company launched a product,  MDSI Ideligo, to serve field service workforces
outside the Company's  core markets.  Within these  markets,  MDSI believes that
there  are   approximately   6.9  million   mobile  workers   worldwide,   split
approximately  evenly amongst North America,  Western Europe,  and certain other
commercially  viable  geographical  markets in the rest of the world. See "Other
Field Service  Markets"  below.  The Company  evaluates  new target  markets for
mobile workforce  management  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.  The Company  believes  that its markets will
grow,  both in terms of number  of  potential  customers  and  revenues,  in the
future,  particularly outside North America.  See "Forward-Looking  Statements."
During 2002, the Company  stopped  pursuing  opportunities  in the public safety
market. See "Public Safety" below.

     Utilities.  The  utilities  market  targeted  by the  Company  consists  of
electric, gas and water companies worldwide,  most notably in the United States,
Canada,  Europe and to a lesser extent South America,  Austral-Asia  and Africa.
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  70  electric,  gas  and  water
utilities located in the United States,  Canada,  Europe and Austral-Asia.  MDSI
believes  that the total number of utilities  with more than 100 mobile  workers
(MDSI's typical target market) exceeds 300 in the United States alone.

     Telecommunications  and  Cable/Broadband.  MDSI sells its Advantex  product
into the telecommunications, and cable/broadband markets worldwide, most notably
in  the  United  States,  Canada,  Europe  and to a  lesser  extent  in  Africa,
Austral-Asia  and South America.  Recently,  the markets for these services have
been converging.  For example,  companies that used to provide traditional voice
telecommunications  services are now permitted to provide data  services,  basic
cable  and  other  broadband  services.   Similarly,   companies  that  provided
traditional  cable TV service now also  provide  cable  telephony  services  and
Internet services.

     The telecommunications  market consists of wireline providers of local, and
long-distance  services,  wireless  communication  service  providers  and  ISPs
(Internet service providers).  The wireline market in North America is comprised
of IXCs  (Inter-exchange  carriers),  ILECs (Incumbent Local Exchange Carriers),
and CLECs  (Competitive  Local  Exchange  Carriers).  In  Europe,  the  national
telecommunication  providers  are  referred  to  as  PTT's  (Post,  Telephone  &
Telegraph).  MDSI has  installed  or has a contract  to supply its  products  to
numerous


                                       6
<PAGE>

telecommunication  companies worldwide,  including Belgacom S.A., Bravida A.S.A,
eircom  P.L.C.,  TDC Tele  Danmark A/S and TELKOM  South  Africa  Limited.  MDSI
believes   that  the  total   number   of   telecommunications   companies   and
cable/broadband  companies  with more than 100 mobile  workers  (MDSI's  typical
target market)  exceeds 300 and 100,  respectively,  in the United States alone.
Although only a small  percentage of  telecommunications  companies have adopted
mobile  workforce  management  solutions,  MDSI  believes that a number of major
telecommunications companies are evaluating the need for such a system, and that
this market will grow as companies  implement  new  technology  to improve their
competitiveness,  efficiency and service levels as the worldwide deregulation of
the  telecommunications  markets continues to unfold.  The Company  anticipates,
however,  that  continued  economic  uncertainty in the  telecommunications  and
cable/broadband  markets  will have an adverse  impact on software  and services
revenues in the short term. See "Forward-Looking Statements."

     Cable/broadband services consist of basic cable television services and new
digital  interactive  broadband  services,  including digital cable TV services,
cable  data  and  Internet  services,   cable  telephony  services,   and  other
interactive  broadband data and multimedia services.  The market is comprised of
traditional  cable MSOs (Multiple System Operators) and independent cable system
operators,  satellite service operators,  new broadband divisions of traditional
telecommunication  firms,  and  new  broadband  entrants.  Currently,  in  North
America,  approximately  80% of the subscriber  base is under the control of the
ten  largest  MSOs.  Although  several  of  these  major  cable  operators  have
implemented  mobile data solutions in selected sites,  few operators have rolled
out these systems to multiple sites.  Additionally,  these MSOs are increasingly
outsourcing  some of their field  technician  work to specialty  contractors,  a
group  where MDSI does not have  market  share,  but one that could  represent a
future opportunity. See "Forward-Looking  Statements." MDSI has installed or has
a contract to supply its products to several  major cable  operators,  including
Cox  Communications  Inc. in the United States and Rogers  Cablesystems  Ltd and
Videotron in Canada.

     Changes in the regulatory environment and technological developments,  such
as satellite television have led to the introduction of significant  competition
in the cable market.  MDSI sees this enhanced level of competition as being very
positive  for its  business.  MDSI  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."

     Other Field Service Markets.  There are a large number of companies outside
MDSI's  traditional  markets  that  employ  field  service  workforces,  such as
security companies,  office equipment companies,  home appliance  companies,  as
well as many other  organizations  that contract field services as their primary
business,  such as companies engaged in the maintenance and repair of oil wells,
IT/Networking services,  medical/scientific equipment, industrial equipment, and
HVAC (Heating,  Ventilation and Air  Conditioning)  systems,  amongst others. To
date, the Company has not focused its primary  attention on these markets.  MDSI
believes  that the total  number  of such  companies  with more than 100  mobile
workers (MDSI's typical target market) exceeds 3,500 in the United States alone.

     For this opportunity,  MDSI has developed a subset of Advantex, called MDSI
ideligo,  that is  primarily  comprised  of the  Advantex  Wireless and Advantex
Mobile  components.  MDSI  ideligo  wirelessly  communicates  data in  real-time
between the field and  enterprise  applications,  automates  workflow,  and lets
field workers be more efficient and productive.  Initially,  MDSI has integrated
MDSI ideligo with Siebel Systems' Field Service application.  Together, MDSI and
Siebel Systems Inc. have won one new customer,  Texas-based Key Energy Services,
and have approached several additional prospects.  MDSI anticipates  integrating
MDSI  ideligo  with  field  service  products  from other  independent  software
vendors.

     Public  Safety.  The Public  Safety market  consists of federal,  state and
local agencies that provide police,  fire, medical and other emergency services.
During  2001,  MDSI  ceased  pursuing  opportunities  in the  market and in 2002
reached an agreement with Datamaxx  Applied  Technologies,  Inc. of Tallahassee,
Florida,  granting  Datamaxx  exclusive  license  rights to MDSI's Public Safety
products in the North American  public safety market and  non-exclusive  license
rights for such products outside North America. MDSI had installed solutions for
a limited  number of  customers,  and the market has not  represented a material
portion of MDSI's revenues.


                                       7
<PAGE>


Customers

     For the year ended December 31, 2002, MDSI's software and services revenues
were distributed approximately as follows: 65% from the utilities (electric, gas
and water) market, 33% from the telecommunications and,  cable/broadband market,
and the remaining 2% from other markets. During the year ended December 31, 2002
the  Company  generated  approximately  68% of its revenue  from North  America,
approximately  30% of its revenue from Europe,  Middle East and Africa,  and the
remaining 2% of its revenue from other parts of the world.

     The Company's  customers  vary in size from small local  companies to large
regional and  international  organizations.  During the year ended  December 31,
2002, TELKOM South Africa Limited accounted for 10.1% of MDSI's overall revenue.
The Company  anticipates  that  revenue  from this  customer  will account for a
larger  percentage of revenue in 2003.  During the year ended December 31, 2001,
eircom P.L.C.  accounted for 11.9% of MDSI overall revenue.  The Company did not
earn  revenue  from any one  customer  that  accounted  for greater  than 10% of
overall  revenue  during the year ended  December 31,  2000.  In the years ended
December 31, 2002,  2001,  and 2000 ,  approximately  30.7%,  29.8%,  and 30.6%,
respectively,  of the Company's consolidated revenue was attributable to five or
fewer customers. The Company believes that this percentage will increase in 2003
and 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, 2002, 2001, and 2000,  revenue derived from
sales outside of North  America  accounted  for 31.7%,  23.8%,  and 23.6% of the
Company's   total  revenue,   respectively.   See  "Note  10  of  the  Company's
Consolidated  Financial Statements." 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."


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  functionality  and to modify and  enhance  existing
functionality  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  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 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.  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.
During the fiscal years ended  December 31, 2002,  2001 and 2000,  the Company's
research and development  expenses were $5.5 million, or 14.2% of revenue,  $7.3
million,  or  16.2%  of  revenue,   and  $8.2  million,  or  15.8%  of  revenue,
respectively.  The Company intends to continue  committing a significant portion
of its product revenues to enhance  existing  products and develop new products.
See "Forward-Looking Statements."


                                       8
<PAGE>


Sales and Marketing

     The Company  markets its  products  through a direct sales force as well as
through strategic remarketing and/or joint selling arrangements with independent
software vendors, and systems integrators.

     Direct Sales Force.  MDSI's sales  personnel  are  knowledgeable  about the
technological  components  of wireless  applications  and current  industry  and
enterprise-specific  application issues. As part of its 2001 restructuring,  the
Company organized its sales personnel by geographic  market. 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.

     Independent  Software Vendors.  MDSI establishes  relationships  with other
independent software vendors that sell complementary  products,  such as billing
or  customer  relationship  management  solutions,   into  MDSI's  markets.  The
relationships  typically  involve MDSI and the vendors  establishing  a standard
integration of their products,  then jointly  identifying and executing on sales
prospects  for the  integrated  solution.  The  Company has  established  such a
relationship  for its MDSI  ideligo  product  with Siebel  Systems  Inc. In some
cases,  relationships  have been formalized  through written  agreements,  while
others remain informal.

     Systems  Integrators.  MDSI also establishes  strategic  relationships with
systems  integrators  that work in the Company's  markets to provide  end-to-end
solutions on a  customer-by-customer  basis or as an integrated product offering
for the vertical  market.  In either  case,  MDSI works with the  integrator  to
assist in the sales  process and to  integrate  MDSI's  products  with the other
component  software  pieces.  To date,  MDSI has worked with Cap Gemini  Ernst &
Young LLP, Accenture LLP, IBM Business Consulting Services,  CGI Group Inc., and
SchlumbergerSema, a business segment of Schlumberger Limited, amongst others. In
some cases the relationships  have been formalized  through written  agreements,
while others  remain  informal.  In the future,  MDSI  intends to involve  these
integrators  in  providing  the   implementation   work   surrounding   customer
installations. See "Forward-Looking Statements."


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 number of  competitors,  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,  some of the  Company's
potential  customers develop software solutions  internally,  which may delay or
eliminate  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


                                       9
<PAGE>

Company  will not have a  material  adverse  effect on its  business,  financial
condition, operating results and cash flows.

     The  Company  believes  that  in  the  utilities,  telecommunications  and,
cable/broadband industry segments the most important competitive factors are the
reputation of the supplier and its proven record in  implementing  wireless data
solutions.  MDSI  believes  that its long and  successful  track record in these
markets gives it a competitive advantage in this regard.

     The  Company  primarily  competes  in the  utilities  market  with  Utility
Partners,  L.C. (which recently  emerged from Chapter 11 bankruptcy),  CGI Group
Inc. (via its  acquisition of Cognicase,  Inc.,  that owned MDSI  competitor M3i
Systems, Inc.), Intergraph Corporation,  Axiom Corporation,  Oracle Corporation,
Itron Inc.  (via its  acquisition  of e-Mobile  Data Inc.) and ViryaNet Ltd. The
Company has several  competitors in the  telecommunications  and cable/broadband
markets.  The Company's primary competitor for  telecommunications  customers is
Telcordia Technologies,  Inc., a company that has historical  relationships with
certain of the large  telecommunications  companies.  Other competitors  include
ClickSoftware,  Inc., ViryaNet Ltd., which the Company mostly sees competing for
small accounts, and more recently Accenture FFE. In the cable/broadband  market,
the Company's primary  competitors are Telcordia  Technologies  Inc.,  C-Cor.net
Corp.,  PointServe Inc., CSG Systems  International  Inc.,  Viryanet Ltd., again
mostly for small accounts, and more recently Accenture FFE.

     The Company believes that the principal  competitive factors in other field
service  markets are the ability to improve the customer  service  aspects of an
organization's    business   and   increase   the    productivity   of   service
representatives.  In this  market,  MDSI  sells a wireless  enablement  product,
called MDSI  ideligo,  that is a subset of  Advantex.  MDSI  ideligo  provides a
mobile extension of selected field service application  vendors' solutions.  The
initial  implementation  has been with Siebel  Systems' Field Service  offering.
Other wireless  enablement  products are offered by Aether Systems Inc., Antenna
Systems,  Broadbeam  Corporation,  Everypath Inc., Extended Systems Incorporated
and IBM,  as well as a variety of other  newer  competitors.  Also  serving  the
commercial field service market are enterprise  application  solution providers,
such as Astea  International  Inc.,  Metrix  Inc.,  and  FieldCentrix  Inc.,  in
addition to several larger enterprise software companies, such as Amdocs Limited
(which recently acquired the assets of Clarify), Oracle Corporation,  PeopleSoft
Inc.,  and Siebel Systems Inc. MDSI believes that these  enterprise  application
vendors offer less comprehensive  wireless  enablement  solutions than MDSI, and
are consequently  potential  partners for expanding  MDSI's  penetration in this
market.


Hosting and IT Services

     In June 2000, the Company acquired all of the outstanding  share capital of
Connectria Corporation,  a Missouri corporation,  for aggregate consideration of
845,316 Common Shares and the assumption of 583,037 stock options.  The business
combination  was  accounted  for  under  the  pooling  of  interests  method  of
accounting.  Connectria became the Company's Hosting and IT Services subsidiary.
In June 2002, as part of management's  strategy to return MDSI's focus to mobile
workforce management in the Company's  traditional markets, MDSI entered into an
Exchange  Agreement to return  ownership of Connectria  to its former  principal
shareholders,  Richard S.  Waidmann and Eric Y.  Miller.  The services of MDSI's
Hosting and IT Services  comprised  outsourcing,  hosting  and  consulting,  and
ranged from complete  outsourcing  of an IT  department to providing  turnkey IT
projects.  Connectria's  results  of  operations  for  2002,  2001  and 2000 are
summarized in MDSI's Consolidated Statements of Operations as Income (Loss) From
Discontinued  Operations.  See Note 2 of the  Company's  Consolidated  Financial
Statements  for more detail  regarding  this  transaction.  Except as  otherwise
indicated, the financial information in this Annual Report on Form 10-K excludes
the results of  discontinued  operations.  The Company now  operates as a single
business segment.

Employees

     As of December 31, 2002, the Company had 325 full-time employees, including
134  in  operations  (including  professional  services,  customer  support  and
operations management),  91 in product development and product management, 55 in
sales and marketing  (including  employees working on the Company's MDSI ideligo


                                       10
<PAGE>

initiative),  and 45 in  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.


Financial Information About Segments and Geographic Markets

     For certain  information  regarding the Company's  reportable  segments and
geographic  markets,  see  Note  10 to  the  consolidated  financial  statements
included in Item 8 of this Annual Report on Form 10-K.


Risk Factors

     The Company's business is subject to the following risks. These risks 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  cost  in  the  completion  of  contracts,
increased  competition,  regulatory  and  other  developments  in the  Company's
vertical markets, changes in the demand for the Company's products and services,
the  cancellation of contracts,  difficulties in collection of receivables,  the
timing of new product announcements and introductions,  difficulties encountered
in the protection of intellectual  property rights,  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,  political and economic  uncertainty,  the mix of
international  and  North  American  revenue,  tax  policies,  foreign  currency
exchange rates and general economic and political conditions.

     The Company  believes that economic and political  developments  and trends
have adversely affected and may continue to affect levels of capital spending by
companies  in a variety  of  industries,  including  companies  in the  vertical
markets  that  the  Company  serves.   The  current  excess  of  supply  in  the
telecommunications  industry has adversely  affected the financial  condition of
many  telecommunications  companies  worldwide.  In addition,  current  economic
conditions and  developments in the energy markets have had an adverse affect on
the financial condition of energy and utility companies in certain  geographical
areas of North America.  The Company  believes that these and other factors have
adversely  affected demand for products and services offered by the Company,  as
certain  prospective and existing customers have delayed or deferred  purchasing
decisions  or have sought to  terminate  existing  contracts  for the  Company's
products and services.  While the Company  believes that economic  conditions in
certain of its vertical markets show signs of improvement,  the Company believes
that economic and political conditions and general trends are likely to continue
to affect demand for the Company's  products and services in 2003,  particularly
demand for software  and related  services.  Such factors may also  increase the
amount of doubtful  accounts or adversely affect the likelihood of collection of
such accounts.

     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,  delays caused by customers and  development  delays.  Because the
Company  currently  recognizes  revenue on a percentage  of  completion  method,
delays in completion of


                                       11
<PAGE>

certain   contracts   have  caused  delays  in   recognition   of  revenue  and,
consequently,  unanticipated  fluctuations in quarterly results. In light of the
Company's recent reduction in its work force, 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 affected. As
a result,  net income may be  disproportionately  affected  because a relatively
small amount of the Company's expenses vary with its revenue.

     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 achieve  revenue  growth on a quarterly or
annual basis.  In fiscal 2002, the Company's  revenue  declined  compared to the
same period in 2001.  These recent  declines have resulted from an economic slow
down in the vertical industries served by the Company. 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  market  price  of the  Company's  Common  Shares  would  likely  be
materially adversely affected.


Dependence on Third Party Products and Services

     Since 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,  2002,  2001 and
2000,  6.4%,  5.5%,  and  3.4%  respectively,   of  the  Company's  revenue  was
attributable to third party products and services. As 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.


Lengthy Sales Cycles for Advantex Products

     The  purchase  of  a  mobile  workforce  management  solution  is  often  a
significant purchase 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


                                       12
<PAGE>

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 the Company's or 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,   due  to  economic  conditions  and
developments  in the Company's  core  markets,  the Company has  experienced  an
increase  in the time  necessary  to  complete  the  negotiation  and signing of
contracts with some of its customers.


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, 2002,
2001, and 2000,  approximately  30.7%,  29.8%,  and 30.6%  respectively,  of the
Company's  consolidated  revenue was  attributable  to five or fewer  customers.
During the year ended December 31, 2002,  TELKOM South Africa Limited  accounted
for 10.1% of the Company's consolidated revenue.  During the year ended December
31,  2001,  eircom  P.L.C.  accounted  for 11.9% of the  Company's  consolidated
revenue.  During the year ended December 31, 2000, no single customer  accounted
for 10% or more 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,   effectively
negotiate the specifications for a workforce management system,  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.


                                       13
<PAGE>

     The Company  believes  that  unfavorable  economic  conditions  and reduced
capital spending by existing and prospective  customers have and may continue to
adversely  affect  demand for the  Company's  products and services in 2003.  In
particular,   service  providers,  utilities  companies  and  telecommunications
companies  in North  America have been  impacted  since the latter half of 2000.
While the Company  believes that economic  conditions in certain of its vertical
markets show signs of improvement, the Company believes that economic conditions
and general trends are likely to continue to delay purchasing and implementation
decisions.  If the economic conditions in the United States and Canada worsen or
if a wider or global  economic  slowdown  occurs,  the  Company  may  experience
reduced  revenues,   increased  costs,   reduced  margins  and  increased  risks
associated with the collection of customer receivables,  any of which may have a
material  adverse  impact on its  business,  operating  results,  cash flows and
financial condition.


Seasonal Variations in Demand

     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.


History of Losses and Fixed Operating Expenses

     As of December 31, 2002,  the Company had an  accumulated  deficit of $25.2
million.  There can be no assurance that the Company will realize revenue growth
or be profitable  on a quarterly or annual basis.  The Company plans to continue
to contribute  significant  resources to its operating expenses related to sales
and  marketing   operations,   to  fund  significant   levels  of  research  and
development,  to broaden its customer  support  capabilities and to maintain its
administrative resources. A relatively high percentage of the Company's expenses
are fixed in the short term and 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  could be  materially
adversely  affected.  In  addition,  due to the rapidly  evolving  nature of its
business and markets, 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  issuance's  of equity  securities,  the
incurrence  of debt  and  contingent  liabilities,  and  write-off  of  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,  including  Advantex r7,
and from enhancement of existing products. See "Forward-Looking


                                       14
<PAGE>

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. For example,
the time required for the initial  implementation  and field testing of Advantex
r7 was  greater  than  expected,  which  resulted in delays in  commencement  of
certain installations of the Advantex r7 product.


Litigation

     The Company is a party to a suit filed against  Citizens  Telecom  Services
Co.,  L.L.C.,  generally  alleging that Citizens  breached a series of contracts
dated October 15, 1998. The suit alleges that Citizens has wrongfully terminated
the contracts and failed to pay sums due. The suit seeks  damages,  interest and
attorneys' fees.  Citizens filed an answer and counterclaims  alleging that MDSI
breached the contracts,  justifying  Citizens'  termination of the contracts and
entitling  Citizens to repayment of  approximately  $3.5 million paid to MDSI in
addition to interest and attorneys' fees. In addition,  Citizens'  counterclaims
allege fraud, negligent misrepresentation, breach of express warranty and breach
of  implied  warranties.   Citizens  seeks  actual,   special,   incidental  and
consequential  damages  associated  with these  claims,  in addition to punitive
damages,  interest and  attorneys'  fees. In March 2003,  Citizens  submitted an
expert report estimating that Citizens had incurred  approximately  $6.1 million
in damages due to lost  productivity  and direct costs, and that Citizens may be
entitled to additional  contractual  penalties from MDSI of  approximately  $1.1
million.  On March 5, 2003,  the court  granted  Citizens'  motion  for  summary
judgment,  dismissing MDSI's claims for lack of sufficient  evidence of damages.
MDSI filed a motion for  reconsideration  of this ruling. On March 26, 2003, the
court denied MDSI's motion for  reconsideration.  MDSI cannot assure you that it
will  be  successful  in  reinstituting  its  claim  for  damages  or  that,  if
successful, it will be able to recover on its claims at trial. Further, although
the court has granted  MDSI's motion for partial  summary  judgment on Citizens'
breach of the professional  services  agreement,  and MDSI believes that it will
successfully defend against Citizens'  counterclaims,  there can be no assurance
that MDSI will be successful in the defense of Citizens' counterclaims.

     In its  consolidated  balance sheet as of December 31, 2002 and 2001,  MDSI
has classified  approximately  $3.7 million in amounts due from Citizens,  which
amounts are subject to the suit,  as a long term  receivable  as of December 31,
2002.  MDSI has recorded  $1.0 million of such amounts as doubtful  accounts and
has not  recorded  any  amounts  claimed by Citizens  as a  contingent  or other
liability of MDSI.  If MDSI is not  successful in its claims  against  Citizens,
MDSI may need to take a $2.7 million dollar charge to earnings. Additionally, if
MDSI is made to refund monies  collected  under the  contract,  MDSI may need to
take a further $3.5 million  dollar charge to income to reflect this refund.  If
the customer is successful in any fraud, negligent misrepresentation,  breach of
express warranty or breach of implied warranties claims, the Company may need to
take an  additional  charge to  earnings  to the  extent of the  judgment.  MDSI
believes  that any amounts  that it is  required to pay to Citizens  would be an
insured  loss that is covered by  insurance,  other than any amounts  that it is
required  to  pay  to  Citizens  as a  result  of  fraud  or  other  intentional
misconduct.  There is currently no provision in MDSI's  financial  statements to
address  any  refund or other  payment to  Citizens  as MDSI views this to be an
unlikely event. If MDSI is not successful in the Citizens  litigation,  the loss
may have a material  adverse impact on MDSI's  business,  results of operations,
financial condition or liquidity.


Management of Growth and Reduction of Workforce

     Since its inception, the Company has experienced periods of 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 9 employees in Canada in February  1993 to 325  employees
located  in Canada,  the United  States  and


                                       15
<PAGE>

other  international  locations at December 31, 2002.  The Company also recently
expanded the geographical areas in which it operates.  In March and April, 2001,
the Company made several  announcements  regarding  its  intention to reduce the
size of its work force by  approximately  25% in  anticipation of reduced demand
for its  products and services  due to the general  economic  slowdown.  In July
2002, the Company completed the sale of its subsidiary  Connectria  Corporation,
reducing the size of its work force by 71 employees.  If the Company resumes its
growth in future  periods,  such  growth may place  strains  on its  management,
administrative,  operational  and  financial  resources,  as well  as  increased
demands  on its  internal  systems,  procedures  and  controls.  There can be no
assurance that the Company will be able to effectively  manage its operations or
future  growth and  expansion  into new  markets.  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.  Competition  for  qualified  personnel is
intense,  and in light of the Company's recent layoffs 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 if demand for the  Company's  products  and
services  increase.  The loss of the  services  of any of the  Company's  senior
management  or other key  employees  or the  inability  to 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.


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.  In  1999,  the  telecommunications  market  accounted  for  54% of the
Company's revenue. In 2000 the  telecommunications  and cable/broadband  markets
accounted  for greater than 53% of the Company's  revenue.  In 2002 and 2001 the
utility market accounted for 65% and 70% respectively of the Company's  revenue.
The Company anticipates that a significant portion of its future revenue will be
generated  by  sales  of  products  to  the  utility,  telecommunications,   and
cable/broadband  markets and that recent economic  developments  and trends have
adversely  affected  and may  continue  to  adversely  affect  levels of capital
spending by companies in a variety of industries, including the vertical markets
MDSI  serves.  The  Company  believes  that  these and other  factors  may cause
potential and existing customers to delay or defer purchasing  decisions or seek
to  terminate  or delay  payment  under  existing  contracts  for the  Company's
products and  services.  Such  factors may also  increase the amount of doubtful
accounts or adversely affect the likelihood of collection of such accounts.  See
"Forward-Looking  Statements." A decline in demand for the Company's products in
these  markets as a result of economic  conditions,  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 or continue to
earn revenue in current markets.


Dependence on Marketing Relationships

     The  Company's  products are marketed by the  Company's  direct field sales
force as well as by third  parties that act as lead  generators or with whom the
Company acts together as a  co-marketer  or  co-seller.  The Company's  existing
agreements with such partners 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  partners


                                       16
<PAGE>

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  partners,  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  MDSI's  competitive
position,   including  price,   product   features,   product   performance  and
reliability, ease of use, product scalability,  product availability on multiple
platforms  (server,  wireless  carrier,  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.  MDSI
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  MDSI's  potential  customers  develop  software
solutions internally,  thereby eliminating the requirement for suppliers such as
MDSI. 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  MDSI's   competitors  have
substantially greater financial, technical, marketing and distribution resources
than  MDSI.  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 MDSI will be able to compete  successfully  against current or
future  competitors  or  alliances  of such  competitors,  or  that  competitive
pressures  faced by MDSI will not  materially  adversely  affect  its  business,
financial condition, operating results and cash flows.

     The  Company  primarily  competes  in the  utilities  market  with  Utility
Partners,  L.C. (which recently  emerged from Chapter 11 bankruptcy),  CGI Group
Inc. (via its  acquisition of Cognicase,  Inc.,  that owned MDSI  competitor M3i
Systems, Inc.), Intergraph Corporation,  Axiom Corporation,  Oracle Corporation,
Itron Inc.  (via its  acquisition  of e-Mobile  Data Inc.) and ViryaNet Ltd. The
Company has several  competitors in the  telecommunications  and cable/broadband
markets.  The Company's primary competitor for  telecommunications  customers is
Telcordia Technologies,  Inc., a company that has historical  relationships with
certain of the large  telecommunications  companies.  Other competitors  include
ClickSoftware,  Inc., ViryaNet Ltd., which the Company mostly sees competing for
small accounts, and more recently Accenture FFE. In the cable/broadband  market,
the Company's primary  competitors are Telcordia  Technologies  Inc.,  C-Cor.net
Corp.,  PointServe Inc., CSG Systems  International  Inc.,  Viryanet Ltd., again
only for small accounts, and more recently Accenture FFE.

     The Company believes that the principal  competitive factors in other field
service  markets are the ability to improve the customer  service  aspects of an
organization's    business   and   increase   the    productivity   of   service
representatives.  In this  market,  MDSI  sells a wireless  enablement  product,
called MDSI  ideligo,  that is a subset of  Advantex.  MDSI  ideligo  provides a
mobile extension of selected field service application  vendors' solutions.  The
initial  implementation  has been with Siebel  Systems' Field Service  offering.
Other wireless  enablement  products are offered by Aether Systems Inc., Antenna
Systems,  Broadbeam  Corporation,  Everypath Inc., Extended Systems Incorporated
and IBM,  as well as a variety of other  newer  competitors.  Also  serving  the
commercial field service market are enterprise  application  solution providers,
such as Astea  International  Inc.,  Metrix  Inc.,  and  FieldCentrix  Inc.,  in
addition to several larger enterprise software companies, such as Amdocs Limited
(which recently acquired the assets of Clarify), Oracle Corporation,  PeopleSoft
Inc.,  and Siebel Systems Inc. MDSI believes that these


                                       17
<PAGE>

enterprise  application  vendors offer less  comprehensive  wireless  enablement
solutions  than MDSI,  and are  consequently  potential  partners for  expanding
MDSI's penetration in this market.


Risk of Product Defects and Implementation Failure

     Software  products,   including  those  offered  by  the  Company,  contain
undetected errors or omissions. Software products, when implemented,  installed,
configured  and  customized,  may also fail to  perform  according  to  customer
expectations  due to the failure by the customer to properly  specify its system
requirements,  failure by the customer to properly  operate or interact with the
system,  operator error,  technical problems associated with the customer's host
system,  or the  resistance of the  customer's  workforce to the adoption of new
technology.  In addition,  software  products  may fail to perform  according to
expectations  due to the failure by the Company to properly design the system to
operate in the environment,  infrastructure or  communications  network in which
the product is to be used.  There can be no assurance  that,  despite testing by
the Company and by current and potential customers,  that the Company's products
will be  free of  errors  or  that  such  products  will  perform  according  to
expectations with respect to response time, ability to communicate over multiple
networks, scalability, stability and ease of use. Such errors and failures could
result in loss of or delay in market acceptance of the Company's  products,  the
cancellation  of contracts or the  imposition of substantial  penalties,  any of
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 been  granted  trademark  registrations  or has  registrations
pending in the United  States,  Canada and the European  Community for the MDSI,
Advantex,  Wireless@work  and Compose  trademarks.  MDSI has also filed  several
patent  applications in the United States and  internationally  covering various
aspects of its technology, and has recently been granted a US patent for certain
aspects of Compose. The earliest of these applications has been granted and will
be  issued  as a U.S.  patent,  and the  remainder  are  pending  a  substantive
examination.  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,  the risk of  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  may 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


                                       18
<PAGE>

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.


Dependence on Third Parties

     Certain  contracts  require the Company to supply,  coordinate  and install
third party products and services or employ subcontractors. 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 or  subcontractor  to provide a sufficient and reliable 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  and  functional  currency is the United
States dollar,  its operations  outside the United States face additional risks,
including   fluctuating  currency  values  and  exchange  rates,  hard  currency
shortages and controls on currency exchange.  The Company has operations outside
the United States 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 the United States, 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 the United States.


Risks Associated with International Operations

     In the years ended December 31, 2002,  2001, and 2000 revenue  derived from
sales outside of North America  accounted for  approximately  31.7%,  23.8%, and
23.6%,  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 ability to grow
and be  profitable  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


                                       19
<PAGE>

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.

     As a result of the  international  scope of the Company's  operations,  the
Company's  business is carried out under an  international  corporate  structure
that has been  designed in part to  optimize  tax  savings to the  Company.  The
effectiveness of this international  corporate structure from a tax perspective,
and the corresponding  risk of any negative financial impact on the Company from
the  imposition of tax  liability on the Company in the event such  structure is
not effective,  depends on the quality of the Company's internal  compliance and
implementation  procedures,  as  well as  external  regulatory  factors  such as
investigations,  audits and  decisions by tax officials and changes in tax laws,
regulations and policies.


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. See "forward looking statements."


Anti-Takeover Effects; Investment Canada Act

     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 Canada Business  Corporations Act (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.

     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.


                                       20
<PAGE>

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


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 lease
expires on November 30, 2008 with two options to renew for five years each.  The
Company  has  sub-let  approximately  22,000  square  feet of this  space  until
December 31, 2003. The Company also maintains an office in Itasca, Illinois. The
Itasca office lease is for  approximately  29,000 square feet and  terminates on
November 30,  2009.  The Company has sub-let  approximately  17,600 feet of this
space until  November 30, 2004.  The Company  believes  that the current  office
space under lease less the  current  subleased  portions is adequate to meet its
needs for the foreseeable future.


Item 3:  Legal Proceedings

     Mobile Data Solutions Inc. v. Citizens  Telecom Services Co., L.L.C. - U.S.
District  Court,  Texas  District  Court Collin  County - 366 Judicial  District
(Docket No. 366-01914-00) .

     On November 22, 2000, MDSI filed suit in Texas District Court Collin County
against Citizens Telecom Services Co., L.L.C.,  generally alleging that Citizens
breached a series of contracts  dated  October 15,  1998.  The suit alleges that
Citizens has  wrongfully  terminated the contracts and failed to pay sums due of
approximately $3.7 million. The suit seeks payment of the contract balance, plus
other  damages,  interest and attorneys'  fees. In late February 2001,  Citizens
filed an answer and  counterclaim  alleging  that MDSI  breached the  contracts,
justifying  Citizens'  termination  of the contracts  and entitling  Citizens to
repayment of all sums paid to MDSI of approximately  $3.5 million in addition to
interest and attorneys' fees. At Citizens'  request the parties held a mediation
on April 2, 2001. Mediation was not successful and both parties began discovery.
In October 2002, Citizens filed amended counterclaims  alleging fraud, negligent
misrepresentation,  breach of express warranty and breach of implied warranties.
Citizens  seeks  all  actual,  special,  incidental  and  consequential  damages
associated  with these  claims,  in addition to punitive  damages,  interest and
attorneys' fees. In March 2003,  Citizens  submitted an expert report estimating
that  Citizens  had incurred  approximately  $6.1 million in damages due to lost
productivity  and direct costs,  and that Citizens may be entitled to additional
contractual  penalties from MDSI of  approximately  $1.1 million.  MDSI disputes
these claims and believes them to be without merit.

     On March 5, 2003, the court granted  Citizens' motion for summary judgment,
dismissing MDSI's claims for lack of sufficient evidence of damages.  MDSI filed
a motion for reconsideration of this ruling. On March 26, 2003, the court denied
MDSI's motion.

     On March 26, 2003,  the court  granted  MDSI's  motion for partial  summary
judgment,  finding that Citizens breached the professional services agreement by
wrongfully terminating the agreement.


                                       21
<PAGE>

     MDSI has tendered the prosecution of its claim and the defense of Citizen's
counterclaims to Chubb Insurance Company.  Chubb has accepted the claims under a
reservation of rights. MDSI believes that any amounts that it is required to pay
to Citizens  would be an insured loss that is covered by  insurance,  other than
any amounts that it is required to pay to Citizens as a result of fraud or other
intentional misconduct. See "Forward-Looking Statements".

     The scheduled trial date for this matter is April 7, 2003 in Texas District
Court  Collin  County.  MDSI  believes  that  it has  various  defenses  against
Citizen's  claims,  and it  intends  to  vigorously  pursue  these  defenses  as
appropriate.  MDSI also believes that its claims against Citizens are strong and
it intends to vigorously pursue its claims for damages, on appeal, if necessary.
If,  contrary to MDSI's  expectations,  MDSI is not  successful  in the Citizens
litigation,  the loss may have a  material  adverse  impact on MDSI's  business,
results of  operations,  financial  condition or liquidity.  See  "Business-Risk
Factors-Litigation" and "Forward-Looking Statements".

     From time to time,  the Company is a party to other  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, results of operations, financial condition or liquidity.


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

     Not applicable.







                                       22
<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 changed its Nasdaq National Market System trading
symbol to "MDSI" in April 1999. In December 1999,  the Company's  listing on the
Montreal Exchange was automatically withdrawn as part of a restructuring plan of
the Canadian stock  exchanges.  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
                                ----------     ----------     ----------     ----------     ----------      ----------
<S>                                <C>             <C>           <C>             <C>           <C>             <C>
2001
First Quarter.............         11.13           5.07          17.00           7.75          11.25           4.88
Second Quarter............          6.32           4.05           9.75           6.25           6.20           4.00
Third Quarter.............          5.02           2.26           7.75           3.50           5.29           2.23
Fourth Quarter............          5.03           2.66           7.95           4.20           5.08           2.71

 2002
First Quarter.............          4.29           3.31           6.76           5.22           4.25           3.40
Second Quarter............          3.93           3.10           6.21           4.87           3.95           3.05
Third Quarter.............          3.48           2.83           5.50           4.47           3.62           2.87
Fourth Quarter............          3.55           2.82           5.60           4.44           3.60           2.78
----------
<FN>
(1) US dollar  amounts have been  translated  using the average noon buying rate
for Canadian dollars for the relevant quarter. See "Exchange Rates."
</FN>

</TABLE>


Shareholders

     As of December 31, 2002 the Company had  approximately  190 shareholders of
record,  77 shareholders of whom had addresses in the United States and who held
4,998,896 Common Shares, or 61.1% of the Company's outstanding Common Shares.


Dividends

     The  Company has never paid  dividends  on its Common  Shares.  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.


Recent Sales of Unregistered Securities

     The Company  did not issue any  unregistered  securities  during the fiscal
year ended December 31, 2002.



                                       23
<PAGE>



Exchange Controls

     There are no  government  laws,  decrees  or  regulations  in Canada  which
restrict  the  export or import of capital or which  affect  the  remittance  of
dividends,  interest or other payments to non-resident  holders of the Company's
Common Shares.  Any  remittances of dividends to United States  residents and to
other  non-residents  are,  however,  subject to withholding tax. See "Taxation"
below.


Taxation

     Canadian Federal Income Taxation

     We consider  that the  following  summary  fairly  describes in general the
principal Canadian federal income tax consequences applicable to a holder of our
common  shares  who at all times  deals at arm's  length  with us, who holds all
common shares as capital property,  who is resident in the United States, who is
not a resident of Canada and who does not use or hold,  and is not deemed to use
or hold, his common shares of MDSI Mobile Data Solutions Inc. in connection with
carrying on a business in Canada (a "non-resident  holder").  It is assumed that
the common shares will at all material  times be listed on a stock exchange that
is  prescribed  for  purposes  of the Income Tax Act  (Canada)  (the  "ITA") and
regulations thereunder.  The Canadian federal income tax consequences applicable
to  holders  of the  Company's  common  shares  will not change if we are deemed
inactive by the Toronto Stock Exchange.  Investors  should however be aware that
the  Canadian  federal  income  tax  consequences  applicable  to holders of the
Company's  common  shares will  change if we cease to be listed on a  prescribed
stock  exchange  like the  Toronto  Stock  Exchange.  Accordingly,  holders  and
prospective  holders  of our common  shares  should  consult  with their own tax
advisors with respect to the income tax consequences of them purchasing,  owning
and  disposing of the  Company's  common  shares  should the Company cease to be
listed on a prescribed stock exchange.

     This  summary  is  based  upon  the  current  provisions  of the  ITA,  the
regulations  thereunder,  the Canada-United  States Tax Convention as amended by
the  Protocols  thereto  (the  "Treaty")  as at the  date  of  the  registration
statement  and the currently  publicly  announced  administrative  and assessing
policies of the Canada  Customs and Revenue  Agency (the  "CCRA").  This summary
does not take into account Canadian  provincial  income tax  consequences.  This
description  is not  exhaustive  of all  possible  Canadian  federal  income tax
consequences  and does not take into account or  anticipate  any changes in law,
whether by  legislative,  governmental  or judicial  action.  This summary does,
however,  take  into  account  all  specific  proposals  to  amend  the  ITA and
regulations  thereunder,  publicly  announced by the Government of Canada to the
date hereof.

     This summary does not address potential tax effects relevant to the Company
or those tax  considerations  that  depend upon  circumstances  specific to each
investor.  Accordingly,  holders and  prospective  holders of our common  shares
should  consult  with  their own tax  advisors  with  respect  to the income tax
consequences to them of purchasing, owning and disposing of the Company's common
shares.


     Dividends

     The ITA  provides  that  dividends  and  other  distributions  deemed to be
dividends paid or deemed to be paid by a Canadian resident  corporation (such as
MDSI Mobile Data Solutions Inc.) to a non-resident of Canada shall be subject to
a non-resident  withholding tax equal to 25% of the gross amount of the dividend
or deemed  dividend.  Provisions  in the ITA  relating  to  dividend  and deemed
dividend  payments  and gains  realized  by  non-residents  of  Canada,  who are
residents of the United States, are subject to the Treaty. The Treaty may reduce
the withholding tax rate on dividends as discussed below.

     Article X, of the Treaty as amended by the US-Canada  Protocol  ratified on
December 16, 1997  provides a 5%  withholding  tax on gross  dividends or deemed
dividends paid to a United States  corporation which  beneficially owns at least
10% of our voting stock paying the dividend.  In cases where dividends or deemed
dividends are paid to a United States  resident  (other than a corporation) or a
United States  corporation  which  beneficially owns less than 10% of our voting
stock,  a withholding  tax of 15% is imposed on the gross amount of the dividend
or deemed  dividend  paid. The Company will be required to withhold any such tax
from the  dividend  and remit the tax  directly  to CCRA for the  account of the
investor.



                                       24
<PAGE>

     The reduction in withholding tax from 25%, pursuant to the Treaty, will not
be available:

     (a)  if the  shares  in  respect  of  which  the  dividends  are  paid  are
          effectively  connected  with a permanent  establishment  or fixed base
          that the holder has in Canada, or

     (b)  the holder is a U.S. LLC which is not subject to tax in the U.S.

     The Treaty  generally  exempts from Canadian income tax dividends paid to a
religious, scientific, literary, educational or charitable organization or to an
organization exclusively administering a pension, retirement or employee benefit
fund or plan,  if the  organization  is resident in the U.S.  and is exempt from
income tax under the laws of the U.S.


     Capital Gains

     A  non-resident  holder is not subject to tax under the ITA in respect of a
capital  gain  realized  upon the  disposition  of our  share  unless  the share
represents  "taxable  Canadian  property" to the holder  thereof.  The Company's
Common shares will be considered  taxable  Canadian  property to a  non-resident
holder only if:

     (a)  the non-resident holder,

     (b)  persons  with  whom  the  non-resident  holder  did not  deal at arm's
          length, or

     (c)  the non-resident holder and persons with whom he did not deal at arm's
          length,

     owned 25% or more of the Company's  issued shares of any class or series at
any time during the five year period preceding the disposition. In the case of a
non-resident  holder to whom the Company's  shares  represent  taxable  Canadian
property  and who is  resident  in the United  States,  no  Canadian  taxes will
generally be payable on a capital gain  realized on such shares by reason of the
Treaty unless:

     (a)  the value of such  shares is derived  principally  from real  property
          (including resource property) situated in Canada,

     (b)  the holder was resident in Canada for 120 months  during any period of
          20  consecutive  years  preceding  the  disposition,  the  holder  was
          resident  in  Canada  at any  time  during  the 10  years  immediately
          preceding  the  disposition  and the shares  were owned by him when he
          ceased to be a resident of Canada,

     (c)  they  formed  part  of  the  business   property  or  were   otherwise
          effectively  connected  with a permanent  establishment  or fixed base
          that the  holder has or had in Canada  within the 12 months  preceding
          the disposition, or

     (d)  the holder is a U.S. LLC which is not subject to tax in the U.S.

     If subject to Canadian tax on such a disposition,  the  taxpayer's  capital
gain (or capital loss) from a disposition  is the amount by which the taxpayer's
proceeds  of  disposition  exceed  (or are  exceeded  by) the  aggregate  of the
taxpayer's  adjusted  cost  base  of  the  shares  and  reasonable  expenses  of
disposition.  For Canadian  income tax purposes,  the "taxable  capital gain" is
equal to one-half of the capital gain.



                                       25
<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, 2002,  2001 and 2000 and the  consolidated
balance  sheet  data at  December  31,  2002 and 2001 are  derived  from and are
qualified  by  reference  to  the  Company's  audited   consolidated   financial
statements. This selected consolidated financial data is presented in conformity
with generally accepted accounting principles in the United States.

<TABLE>

                                                               Years ended December 31,
                                           2002               2001             2000             1999            1998
                                       -------------     -------------    -------------    -------------  -------------
                                                         (In thousands, except per share data)
<S>                                     <C>                <C>              <C>              <C>              <C>
Statement of Operations Data:
Revenue                                 $  38,735          $ 44,706         $ 52,000         $ 52,157         $ 44,866
Gross profit                               21,716            23,658           30,919           29,606           23,458
Operating (loss) income                    (2,409)          (11,402)           1,060            7,781            5,944
(Loss) income from continuing
  operations for the year (1)(2)           (1,536)          (13,454)             127            4,877            4,173
Diluted (loss) earnings per common
  share                                 $   (0.17)         $  (1.64)        $  (0.07)        $   0.13         $   0.50
Weighted average shares outstanding         8,481             8,623            8,527            9,101            7,563




Balance Sheet Data:                        2002              2001             2000             1999            1998
                                       -------------     -------------    -------------    -------------  -------------

Cash and cash equivalents               $  11,017          $ 13,176         $ 12,865         $ 14,750         $  3,456
Working capital                             9,364            11,918           24,084           23,783            8,637
Total assets                               37,705            44,577           61,028           50,443           38,522
Non-current liabilities                     1,914             3,050            6,738            3,399            3,945
Stockholders' equity                       20,533            24,475           38,177           35,537           20,596
----------

<FN>
(1)  Net  loss for the year  ended  December  31,  2001  includes  non-recurring
     charges of $6,105,927 with respect to restructuring of certain  operations,
     $2,749,992  for the impairment in valuation of investments in three private
     companies,  $1,558,578 for the impairment in valuation of intangible assets
     acquired on acquisition of Alliance Systems Incorporated,  $165,000 for the
     impairment  in  valuation  of  a  commercial  web  site  domain  name,  and
     $2,938,195 for bad debts with respect to several doubtful accounts.

(2)  Net income from continuing  operations for the year ended December 31, 2000
     includes  non-recurring  charges  of  $1,691,028  for costs of merger  with
     respect to the Company's merger with Connectria, and $985,000 for bad debts
     with respect to one doubtful account.
</FN>
</TABLE>




                                       26
<PAGE>


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 first and
sixth  paragraphs  under  "Restructuring",  the first and fifth paragraphs under
"Field   Service   Business",   the   sections   entitled   "Recent   Accounting
Pronouncements" and "Critical  Accounting  Policies and Significant  Estimates",
the subsections entitled "Revenue",  "Direct Costs", "Gross Margins",  "Research
and  Development",  "Sales and  Marketing",  "General  and  Administrative"  and
"Income (loss) from Discontinued  Operations",  in "Year ended December 31, 2002
Compared to the Year ended December 31, 2001, and the fourth,  eighth, ninth and
eleventh  paragraphs  under  "Liquidity and Capital  Resources".  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 for Advantex
Products",  "Dependence  on Large  Contracts and  Concentration  of  Customers",
"History  of  Losses  and  Fixed  Expenses",   "Integration  of   Acquisitions,"
"Litigation" and "Competition."

     Unless  otherwise  noted,  all  financial  information  in this  report  is
expressed in the Company's functional currency,  United States dollars. See Item
7A, "Quantitative and Qualitative Disclosure About Market Risk".


Overview

     MDSI develops, markets, implements and supports mobile workforce management
and wireless  connectivity  software for use by a wide variety of companies that
have substantial mobile workforces,  such as utilities,  telecommunications  and
cable/broadband  companies.  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  are  designed to 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, configuration,  customization and
training;  (ii)  maintenance  and  support,   consisting  of  the  provision  of
after-sale  support services as well as hourly,  annual or extended  maintenance
contracts;  and (iii) third  party  products  and  services,  consisting  of the
provision of non-MDSI products and services as part of the total contract.


Restructuring

     The Company  believes that economic  conditions  and trends have  adversely
affected and may continue to affect levels of capital spending by companies in a
variety of  industries,  including  companies in the  vertical  markets that the
Company serves. The current excess supply of capacity in the  telecommunications
industry   has   adversely   affected   the   financial    condition   of   many
telecommunications  companies  worldwide.  In addition,  economic conditions and
developments  in the energy  markets have had an adverse effect on the financial
condition of energy and utility  companies in certain  geographic areas of North
America.  The  Company  believes  that these and other  factors  have  adversely
affected  demand for products and  services  offered by the Company,  as certain
prospective and existing customers have delayed or deferred purchasing decisions
or have sought to terminate  existing  contracts for the Company's  products and
services.  While the Company believes that economic conditions in certain of its
vertical  markets show signs of improvement,  the Company believes that economic
and political conditions and general trends are likely to continue to affect the
demand for the Company's products and services in 2003,  particularly demand for
software  and related  services.  Such  factors may also  increase the amount of
doubtful  accounts or adversely  affect the  likelihood  of  collection  of such
accounts.


                                       27
<PAGE>

     In order to address the uncertainties caused by these economic trends, MDSI
announced in March 2001 its intention to reduce its operating  expenses  through
workforce  reductions  and other  measures.  These  measures have been gradually
implemented with incremental reductions in costs each quarter, and were expected
to result in an estimated $2.9 million in cost reductions per quarter by the end
of 2002.  A majority of the  savings  have been  realized by reduced  salary and
payroll costs, and the remaining  savings have been realized from the subleasing
of excess space, and a reduction in discretionary  spending.  As a result of the
sale of the public  safety  operations  during the second  quarter of 2002,  the
Company has exceeded the estimated quarterly savings.  There can be no assurance
that the  workforce  reductions  and  other  measures  will not have a  material
adverse affect on the Company's  business  operations.

     In connection with this  restructuring,  on March 30, 2001, MDSI terminated
34 employee and contractor positions in Canada and the United States. On May 11,
2001, the Company  continued the  restructuring by announcing the elimination of
an additional 115 positions,  which in combination with the workforce reductions
of March 30, 2001 amounted to approximately  25% of MDSI's staff as of March 30,
2001.  The  Company  recorded  a  one-time  charge of $1.2  million in the first
quarter of 2001  relating  to the  workforce  reductions,  and leasing of excess
office space.  The Company also recorded an additional  charge of  approximately
$4.9  million  in the second  quarter of 2001  relating  to  elimination  of 115
positions, leasing of excess office space, and fixed asset write-downs announced
on May 11, 2001. A breakdown of the nature of the charges and the costs incurred
to date is as follows:


                                                            Total Restructuring
                                                                 Charge
                                                            -------------------
  Workforce reduction                                            $  3,375,000
  Provision for excess office space                                 1,861,000
  Non cash write-down of capital assets                               563,780
  Other                                                               306,147
                                                            -------------------
  Total restructuring charges                                       6,105,927
  Cumulative draw-downs                                            (4,848,592)
                                                            -------------------
  Accrued restructuring charges as at December 31, 2002          $  1,257,335
                                                            ===================


     During the year ended  December 31, 2002 the Company made cash  payments of
$1,876,325 relating to the restructuring accruals.

     Workforce  reduction  charges  of  $3.4  million  were  taken  relating  to
severance and continued benefits for the elimination of 149 positions across all
operating departments and segments of the organization. As of December, 31 2002,
the  provision  balance  has been  fully  drawn  down by cash  payments  with no
additional amounts expected to be paid out.

     The  provision  for excess  office space of $1.9 million for the year ended
December 31, 2001,  relates to surplus office space under long term lease by the
Company at two  locations,  where the Company has entered  into fixed cost lease
arrangements,  with  agreements  extending up to 2004.  The Company has incurred
approximately  $0.6 million of cash costs relating to this provision  leaving an
accrual of $1.3 million as at December 31,  2002.  The Company  expects that the
charge will be fully drawn down no later than the time the lease  expires in the
fourth quarter of 2004.

     Due to the elimination of 149 positions,  certain capital assets  belonging
to the Company have been declared  surplus and a charge of $0.6 million has been
recorded to reflect the difference  between the previous  carrying value and the
estimated  fair market value,  net of disposal  costs.  As at December 2002, the
full amount of the charge has been  applied to the assets to value them at their
estimated net realizable value.



                                       28
<PAGE>

     The Company has recorded a $0.3 million  charge for the year ended December
31, 2001 for other items, including costs of outplacement services and legal and
consulting fees. As at December 31, 2002, the Company has incurred cash costs of
approximately  $0.3 million against this provision,  with no additional  amounts
expected to be paid out.


Field Service Business

     The  implementation  of a complete mobile data solution requires a wireless
data communications  network,  mobile computing devices integrated with wireless
data  communication   modems,   host  computer   equipment,   industry  specific
application  software such as MDSI's Advantex  products,  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 workforces require or where additional  departments of mobile workers are
added, additional mobile computing devices may be installed, which may result in
additional revenue for the Company. See "Forward-Looking Statements."

     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.

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

     The  Company is  periodically  required  to  provide,  in  addition to MDSI
products and  services,  certain  third party  products,  such as host  computer
hardware and  operating  system  software,  and mobile  computing  devices.  The
Company  recognizes  revenue on the supply of third party  hardware and software
upon transfer of title to the customer.  The Company  recognizes  revenue on 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 periodically  supply 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 fluctuations in revenue.

     During 2001,  MDSI decided not to continue  pursuing  opportunities  in the
Public Safety market. These opportunities  consisted of federal, state and local
agencies that provide police,  fire, medical and other emergency  services.  The
Company had  installed  solutions for a limited  number of  customers,  and this
market did not represent a material portion of MDSI's revenues.  On May 24, 2002
the Company entered into an agreement with Datamaxx  Applied  Technologies  Inc.
("Datamaxx"),  granting  exclusive  license to Datamaxx for MDSI's Public Safety
products in North America,  and non exclusive  license rights for these products
outside North America.  The Company also assigned its existing  contracts in the
Public Safety market to Datamaxx.  MDSI will receive royalty  payments under the
agreement  for any  license  and  implementation  revenue  earned by Datamaxx in
relation  to the  licensed  products,  subject  to a maximum  royalty  payout of
$1,500,000.  As a result of this licensing  agreement, the


                                       29
<PAGE>

Company has now exited the Public Safety  market,  and all employees  related to
the Public Safety market were terminated prior to June 30, 2002.

     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.  Some of the
Company's  contracts are  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.


Disposition of Hosting and Information Technology (IT) Services Business Segment

     In June 2002, MDSI adopted a plan for sale and entered into an agreement to
sell its  Hosting  and IT  Services  business  segment,  Connectria  Corporation
(Connectria) to former  Connectria  shareholders who were both  shareholders and
employees of the Company.  The transaction closed in July 2002.  Pursuant to the
terms  of the  agreement,  the  Company  received  from  the  former  Connectria
shareholders  824,700  shares  that had a market  value  of  approximately  $2.8
million and the cancellation of 103,088  previously issued stock options of MDSI
as  consideration  for  Connectria.  In addition to the share  consideration,  a
wholly-owned  subsidiary of MDSI also received a warrant allowing it to purchase
up to 50,380  shares of Series A Nonvoting  Preferred  Stock of  Connectria at a
price of $50 per share  exercisable  for a period of five  years.  The  Series A
Nonvoting  Preferred  Stock of  Connectria  has a face  value of $100 per share,
bears a dividend of five percent per annum, bears a liquidation preference equal
to the face value, may be redeemed at Connectria's  option at any time, and must
be redeemed by Connectria upon a capital infusion of $10 million or greater.  In
addition  MDSI has advanced  Connectria  $500,000,  consisting  of a loan in the
principal  amount of $250,000 with a two year term,  bearing interest at 5%, and
$250,000 for prepaid hosting services.  On closing, the Company realized a small
gain as a result of the disposition of Connectria.

     As a result of its decision to dispose of Connectria, MDSI has treated this
business  segment as a  discontinued  operation  and the results of  operations,
financial  position  and  changes  in cash  flow  for  this  segment  have  been
segregated  from those of continuing  operations.  The following  discussion and
analysis of the Company's  results of  operations  excludes  Connectria  for the
current and corresponding prior periods.


Disposition of Transportation Business Unit

     In February  1999,  the  Company's  Board of  Directors  approved a plan to
dispose  of the  delivery  segment  of its  business  ("Transportation  Business
Unit").  Effective  June  1,  1999,  the  Company  completed  the  sale  of  the
Transportation  Business  Unit to Digital  Dispatch  Systems,  Inc.  ("DDS"),  a
supplier of dispatch systems to the taxi market for proceeds of $3,805,746.  The
proceeds were comprised of common shares of DDS, representing an 11% interest in
DDS, and a promissory note in the principal  amount of $331,455  ($500,000 CDN),
due January 1, 2001,  bearing  interest  at 8% per annum.  During the year ended
December 31, 2000,  DDS exercised its option to buyback the DDS shares that MDSI
received  as  compensation  on the  sale of the  Transportation  Business  Unit.
Proceeds on sale of the DDS shares were  $3,273,392.  The promissory  note, with
interest, was paid in the first quarter of 2001.

     Under the terms of the  agreement  between the Company and DDS, the Company
retained  certain assets and  liabilities of the  discontinued  operations.  The
Company  liquidated  all  remaining  assets  and  liabilities  relating  to  the
Transportation Business Unit during the year ended December 31, 2001.

     As a result of the Company's disposal of its Transportation  Business Unit,
the Transportation Business Unit has been classified as a discontinued operation
and the results of operation,  financial position and cash flow for this segment
have  been  segregated  from  those  of  continuing  operations.  The  following
discussion  and analysis of the  Company's  results of  operations  excludes the
Transportation Business Unit for the corresponding prior periods.


                                       30
<PAGE>

Recent Accounting Pronouncements

     In June 2002,  the FASB issued SFAS No. 146 ("SFAS 146"),  "Accounting  for
Costs Associated with Exit or Disposal  Activities".  SFAS 146 requires that the
liability for a cost associated with an exit or disposal  activity be recognized
at its fair value when the liability is incurred.  Under  previous  guidance,  a
liability  for certain  exit costs was  recognized  at the date that  management
committed to an exit plan,  which was generally  before the actual liability had
been  incurred.  As SFAS 146 is effective  only for exit or disposal  activities
initiated  after  December 31, 2002,  adoption of this statement will not impact
the  Company's  financial  statements  for  fiscal  2002  but  will  affect  the
accounting and recognition of any future restructuring costs.

     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others"  (FIN45).  FIN 45  requires  that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions of FIN 45 will be effective for any guarantees  that are
issued or modified after December 31, 2002. The Company is currently  evaluating
the effects of FIN 45; however, it does not expect that the adoption will have a
material impact on the Company's results of operations or financial position.

     In  December  2002,  the FASB  issued  Statement  of  Financial  Accounting
Standard  No.  148  (SFAS  148),  "Accounting  for  Stock-Based  Compensation  -
Transition and Disclosure".  SFAS 148 provides alternative methods of transition
for a  voluntary  change  to the fair  value  based  method  of  accounting  for
stock-based employee  compensation.  SFAS 148 also requires prominent disclosure
in the "Summary of Significant  Accounting  Policies" of both annual and interim
financial  statements  about the method of accounting for  stock-based  employee
compensation and the effect of the method used on reported results.  SFAS 148 is
effective  for the Company's  2002 fiscal year.  Adoption  this  statement  will
affect  the  frequency  of the  Company's  disclosure,  but will not  impact the
Company's  results of operation or financial  position until the Company changes
to the fair value method of accounting for stock-based employee compensation.


Critical Accounting Policies and Significant Estimates

     The  significant  accounting  policies  are  outlined  within Note 1 to the
Financial  Statements.  Some of those accounting policies require the Company to
make estimates and assumptions  that affect the amounts reported by the Company.
The following  items require the most  significant  judgment and involve complex
estimation:


Restructuring Charges

     In  calculating  the cost to dispose of excess  facilities  the Company was
required  to  estimate  for  each  location  the  amount  to be  paid  in  lease
termination payments,  the future lease and operating costs to be paid until the
lease is terminated, and the amount, if any, of sublease revenues. This required
estimating  the timing and costs of each lease to be  terminated,  the amount of
operating  costs,  and the timing and rate at which the Company might be able to
sublease the site.  From the estimates for these costs the Company  performed an
assessment  of  the  affected  facilities  and  considered  the  current  market
conditions  for each  site.  A  charge  of $1.9  million  was  recorded  for the
restructuring  of  excess  facilities  as part of the  restructuring  plan.  The
Company's assumptions on either the lease termination payments,  operating costs
until  terminated,  or the offsetting  sublease revenues may be proven incorrect
and actual cost may be materially different from the estimates.


                                       31
<PAGE>

Accounts Receivable

     The  Company  periodically  reviews  the  collectability  of  its  accounts
receivable  balances.  Where  significant  doubt  exists  with  regards  to  the
collection  of a certain  receivable  balance,  an  allowance  and charge to the
income  statement is recorded.  At December 31, 2002, the allowance for doubtful
accounts was $3.5 million.  The Company intends to continue  vigorously pursuing
these accounts.  If future events indicate  additional  collection  issues,  the
Company may be required to record an additional allowance for doubtful accounts.


Revenue Recognition - Percentage Completion

     The Company  uses  estimates  based on inputs to determine  the  percentage
completion  of its software and service  implementation  contracts  and thus its
revenue recognition. Under the percentage-of-completion  method, sales and gross
profit are recognized as the work is performed based on the relationship between
costs incurred and the total estimated costs of completion.  These estimates and
contracts are reviewed  regularly and are adjusted  prospectively to reflect the
Company's best estimate at the time. Provision for estimated losses on contracts
are recorded when  identifiable.  The Company's  assumptions  used to form these
estimates may be proven to be erroneous and  materially  different  outcomes may
result.


Income Taxes

     The Company has incurred losses and other costs that can be applied against
future taxable  earnings to reduce the tax liability on those  earnings.  As the
Company  is  uncertain  of  realizing  the future  benefit  of those  losses and
expenditures,  the  Company  has  recorded a valuation  allowance  against  most
non-capital  loss carry  forwards,  and other  deferred tax assets  arising from
differences  in tax and  accounting  bases.  Actual  results  may be  materially
different from the current estimate.


Intangible Assets

     As part of the Company's restructuring plan, during the year ended December
31, 2001 the Company determined that an impairment in the value of goodwill that
resulted  from the  acquisition  of  Alliance  Systems,  Inc.  had  occurred.  A
valuation  allowance  was recorded of $1.6  million,  equal to the remaining net
book value. The Company also  discontinued  development of its e-Service Manager
product line during the year. A valuation allowance of $0.2 million was recorded
to remove the remaining net book value.


Investments and Advances

     During the year ended  December 31, 2000 MDSI invested in or advanced funds
to private  companies,  which the Company  reviews  periodically to determine if
there has been a non-temporary  decline in the market value of those investments
and advances  below the carrying  value.  The assessment of fair market value is
made based on the market value trends of similar public  companies,  the current
business  performance  of the  companies  in  which  MDSI has  invested,  and if
available, the estimated future market potential of the companies. MDSI recorded
an  impairment  of the  investments  in private  companies  and advances of $2.7
million  during 2001.  This  resulted in a full  allowance  against the recorded
costs of the investments  and advances.  During the year ended December 31, 2002
one of the Companies in which MDSI had made an $500,000  equity  investment  was
liquidated,  with no net proceeds  being  realized by MDSI. As a result MDSI has
written off the  investment of $500,000  against the valuation  allowance set up
during the year ended December 31, 2001.


                                       32
<PAGE>

Contingencies

     The Company is involved in a dispute with  Citizens  Telcom  Services  Co.,
L.L.C.  The Company has filed suit against  Citizens  alleging that Citizens had
breached a series of contracts,  and failed to pay sums due.  Citizens has filed
an  answer  and  counterclaim  alleging  the  Company  breached  the  contracts,
entitling Citizens to repayment of all sums paid to the Company of approximately
$3.5 million.  In addition,  Citizens'  counterclaims  allege  fraud,  negligent
misrepresentation,  breach of express warranty and breach of implied warranties.
Citizens  seeks  all  actual,  special,  incidental  and  consequential  damages
associated  with these  claims,  in addition to punitive  damages,  interest and
attorneys' fees. In March 2003,  Citizens  submitted an expert report estimating
that  Citizens  had incurred  approximately  $6.1 million in damages due to lost
productivity  and direct costs,  and that Citizens may be entitled to additional
contractual  penalties  from the  Company of  approximately  $1.1  million.  The
Company valued the receivable from Citizens at $2.7 million on its  consolidated
balance sheet as of December 31, 2002. The Company believes that its position in
the matter is strong and intends to vigorously  pursue  collection.  The Company
believes  that any amounts  that it is  required to pay to Citizens  would be an
insured  loss that is covered by  insurance,  other than any amounts  that it is
required  to  pay  to  Citizens  as a  result  of  fraud  or  other  intentional
misconduct.  Any judgment not in the Company's favor could materially affect the
Company's financial condition, results of operations, business or liquidity. See
"Business-Risk Factors-Litigation" and "Forward-Looking Statements".






                                       33
<PAGE>

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,
                                                          2002               2001               2000
                                                   -------------------  ----------------  ------------------
                                                                        (In thousands)
<S>                                                     <C>               <C>                 <C>
 Revenue:
    Software and services.....................          $  25,755         $  32,066           $  41,338
    Maintenance and support...................             10,500            10,187               8,888
    Third party products and services ........              2,480             2,453               1,774
                                                   -------------------  ----------------  ------------------
                                                           38,735            44,706              52,000
 Direct costs.................................             17,019            21,048              21,081
                                                   -------------------  ----------------  ------------------
 Gross profit.................................             21,716            23,658              30,919
                                                   -------------------  ----------------  ------------------
 Operating expenses:
    Research and development..................              5,506             7,258               8,236
    Sales and marketing.......................             12,382            10,859              12,206
    General and administrative................              6,237             6,075               6,447
    Restructuring charge......................                 --             6,106                  --
    Amortization and provision for valuation
       of intangible assets......................              --             1,824                 294
    Costs of merger...........................                 --                --               1,691
    Provision for doubtful accounts...........                 --             2,938                 985
                                                   -------------------  ----------------  ------------------
                                                           24,125            35,060              29,859
 Operating (loss) income......................             (2,409)          (11,402)              1,060
 Valuation allowance on investments...........                 --            (2,750)                 --
 Other income (expense) ......................                273               177                (441)
                                                   -------------------  ----------------  ------------------
 (Loss) income from continuing operations
 before tax provision.........................             (2,136)          (13,975)                619

 Recovery of (provision for) income taxes
 from continuing operations...................                600               521                (492)
                                                   -------------------  ----------------  ------------------
 (Loss) income for continuing operations                   (1,536)          (13,454)                127
                                                   -------------------  ----------------  ------------------
 Income (loss) from discontinued operations                   121              (653)               (681)
                                                   -------------------  ----------------  ------------------
 Net loss for the year........................          $  (1,415)        $ (14,107)          $    (554)
                                                   ===================  ================  ==================
</TABLE>







                                       34

<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,
                                                          2002               2001                2000
                                                   -------------------  ----------------  ------------------
<S>                                                     <C>               <C>                 <C>
Revenue:
   Software and services.....................             66.6%               71.7%             79.5%
   Maintenance and support.....................           27.2                22.8              17.1
   Third party products and services...........            6.2                 5.5               3.4
                                                    ------------------  ----------------  -------------------
                                                         100.0               100.0             100.0
Direct costs...................................           43.9                47.1              40.5
                                                    ------------------  ----------------  -------------------
Gross profit...................................           56.1                52.9              59.5

Operating expenses:
   Research and development....................           14.2                16.2              15.9
   Sales and marketing.........................           32.0                24.3              23.5
   General and administrative..................           16.1                13.6              12.4
   Restructuring charge........................             --                13.6                --
   Amortization and provision for valuation of
      intangible assets........................             --                 4.1               0.6
   Costs of merger.............................             --                  --               3.2
   Provision for doubtful accounts.............             --                 6.6               1.9
                                                      ------------------  ----------------  -------------------
                                                          62.3                78.4              57.5

Operating (loss) income........................           (6.2)              (25.5)              2.0
Valuation allowance on investments.............             --                (6.2)               --
Other income (expense).........................            0.7                 0.4              (0.8)
                                                    ------------------  ----------------  -------------------
(Loss) income from continuing operations
before tax provision..........................            (5.5)              (31.3)              1.2

Recovery of (provision for) income taxes from
continuing operations..........................            1.5                 1.2              (1.0)
                                                    ------------------  ----------------  -------------------
(Loss) income from continuing operations.......           (4.0)              (30.1)              0.2
Income (loss) from discontinued operations.....            0.3                (1.5)             (1.3)
                                                    ------------------  ----------------  -------------------
Net loss for the year..........................           (3.7)%             (31.6)%            (1.1)%
                                                    ==================  ================  ===================
</TABLE>


Year ended December 31, 2002 Compared to the Year ended December 31, 2001

     Revenue.  Revenue  decreased  by $6.0  million  (13.4%)  for the year ended
December 31, 2002,  compared to the year ended  December 31, 2001.  The decrease
was  primarily  due to the  decrease in the revenue  earned  from  software  and
services,  which was partially  offset by an increase in the revenue earned from
maintenance and support.

     Software and  services  revenue  decreased by $6.3 million  (19.7%) for the
year ended December 31, 2002,  compared to the year ended December 31, 2001. The
Company  believes its software and service revenue was adversely  impacted by an
increase in time taken for the  decision-making  cycle regarding the purchase of
software,  and reduction of capital  expenditures  by customers.  This delay and
reduction  in  expenditure  has caused  fewer  contracts  to be worked on by the
Company  in the year  ended  December  31,  2002 as  compared  to the year ended
December 30, 2001 and as a result has caused a reduction  in revenue.  While the
Company  believes  that economic  conditions in certain of its vertical  markets
show signs of improvement,  the Company anticipates that economic conditions and
general  trends are likely to continue to have an adverse impact on software and
services revenues in future periods. See "Forward-Looking Statements".

     Maintenance  and  support  revenue  was $10.5  million  for the year  ended
December 31,  2002,  compared to $10.2  million for the year ended  December 31,
2001, an increase of 3.1%. The Company believes  maintenance and support revenue
will continue to increase as the Company's  installed  customer base  increases.
See "Forward-Looking Statements".


                                       35
<PAGE>

     Third party products and services  revenue  increased by $27,000 (1.1%) for
the year ended December 31, 2002,  compared to the year ended December 31, 2001.
Third party  products  and  services  revenue is  primarily  earned from certain
customers in the utilities 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. In addition, not all customers under contract require the
provision of third party products and services.  Accordingly, there may be large
fluctuations in revenue,  direct costs, gross profits and income from operations
from one period to another.  The Company has recently  entered into an agreement
whereby it has agreed to supply a large  amount of third  party  services  at no
margin, in connection with one particular  contract,  and therefore expects that
future revenues from third party products and services will increase in the near
term. For the year ended December 31, 2002  approximately  $0.1 million of these
third  party  services  has  been  provided  to  date.   See  "Forward   Looking
Statements."

     Direct  Costs.  Direct  costs  were  43.9% of  revenue  for the year  ended
December  31,  2002,  compared to 47.1% for the year ended  December  31,  2001.
Direct  costs  include  labor  and other  costs  directly  related  to a project
including  those  related to the  provision of services  and support,  and costs
related to equipment  purchased for sale to third  parties.  Labor costs include
direct payroll, benefits and overhead charges. The decrease in direct costs as a
percentage of revenue  occurred as the Company  increased its  efficiency due to
its  restructuring,  and as a result of increased  experience  with  Advantex r7
installations. The Company has recently entered into an agreement whereby it has
agreed to  supply a large  amount  of  third-party  services  at no  margin,  in
connection with one particular  contract.  As a result, the Company expects that
future  direct costs will  increase as a percentage of revenue in the near term.
See "Forward-Looking Statements."

     Gross  Margins.  Gross  margins  were 56.1% of  revenue  for the year ended
December 31, 2002,  compared to 52.9% for the year ended  December 31, 2001. The
increase in gross margin as a  percentage  of revenue  relates  primarily to the
increased  efficiencies  for the  installations  of Advantex r7. The Company has
recently  entered  into an  agreement  whereby  it has  agreed to supply a large
amount of third-party  services at no margin.  As a result,  the Company expects
that gross  margins as a percentage  of revenue will  decrease in the near term.
See "Forward-Looking Statements."

     Research and  Development.  Research  and  development  expenses  were $5.5
million, or 14.2% of revenue,  for the year ended December 31, 2002, compared to
$7.3 million,  or 16.2% of revenue,  for the year ended  December 31, 2001.  The
decrease in research  and  development  expenses in 2002 is a result of research
and development  personnel being utililized on revenue producing projects in the
current year,  and  corresponding  portions of the  associated  salary costs for
these  staff  being  reflected  as  direct  costs as  opposed  to  research  and
development.  The  decrease  is also the result of the  Company's  restructuring
efforts,  and the completion of a major development project in the first quarter
of 2001. The Company intends to continue committing a significant portion of its
product  revenues to enhance  existing  products and develop new  products.  See
"Forward-Looking Statements".

     Sales and  Marketing.  Sales and  marketing  expenses were $12.4 million or
32.0% of revenue for the year ended December 31, 2002 and $10.9 million or 24.3%
of revenue for the year ended  December  31,  2001.  Total  sales and  marketing
expenses represents an increase of approximately $1.5 million as compared to the
same period of 2001. The increase in expenditures in the current year was due to
an increase in commission  costs  relating to contracts  entered into during the
period that are expected to generate significant revenues in future periods. See
"Forward-Looking Statements". The Company anticipates that the dollar amounts of
its sales and marketing  expenses will continue to be significant as a result of
the Company's commitment to its international  marketing efforts and attempts to
penetrate additional markets for its products. See "Forward-Looking Statements".

     General and Administrative.  General and administrative  expenses were $6.2
million,  or 16.1% of  revenue,  for the year ended  December  31, 2002 and $6.1
million, or 13.6% of revenue,  for the year ended December 31, 2001. General and
administrative  expenses  remained  relatively  consistent  with the comparative
period as a result of a cost control effort initiated by the Company,  offset by
one-time  severance  costs expensed during the year. The Company expects that in
the near future, general and administrative  expenditures will remain relatively
consistent with current levels. See "Forward-Looking Statements".


                                       36
<PAGE>

     Amortization and Provision for Valuation of Intangible  Assets. The Company
adopted Statement of Financial  Accounting  Standard No. 142 "Goodwill and other
Intangible  Assets" on a  prospective  basis at the beginning of fiscal 2002. As
the Company had taken a full valuation  allowance against the remaining value of
intangible assets during the year ended December 31, 2001,  Adoption of SFAS 142
on a  prospective  basis  did not have a  significant  impact  on the  Company's
financial statements.  Amortization and impairment charges for intangible assets
for the year ended December 31, 2001 were $1.8 million.  The charge was a result
of a  determination  by the  Company  that an  impairment  in the  value  of the
Goodwill  acquired on the  acquisition  of Alliance  Systems  Inc.  had occurred
during the year ended,  December 31, 2001 due to poor  historical and forecasted
performance  in the acquired  company's  business.  The impact of not amortizing
goodwill on net (loss)  income and net (loss) income per share for 2001 and 2000
is provided in Note 1 to the Consolidated Financial Statements.

     Provision for Doubtful  Accounts.  During the year ended  December 31, 2002
the Company recovered  approximately  $0.6 million from a previously allowed for
doubtful  account.  Also  during the year ended  December  31,  2002 the Company
determined  that an  additional  allowance  of  approximately  $0.6  million was
required due to  significant  uncertainty  surrounding  collection of a specific
account.  The net result is that there was no charge  recorded in the  provision
for doubtful accounts for the year ended December 31, 2002. The Company included
in its operating  results for the year ended  December 31, 2001, a provision for
$2.9  million  with  respect  to  doubtful  accounts.  The  Company  intends  to
vigorously pursue collection of these accounts;  however due to uncertainty with
regard to ultimate  collection,  the Company determined that it would be prudent
to record an  allowance  to address  the  uncertainty  regarding  collection  of
amounts due.

     Valuation  Allowance on  Investments.  No charge was recorded for valuation
allowance on investments during the year ended December 31, 2002, as a valuation
allowance  equal to the remaining book value of investments  was recorded during
the year ended December 31, 2001. As part of its e-Business strategy the Company
invested in or advanced funds to three private companies in 2000. As a result of
significant  uncertainty over the future realization of any return on investment
or capital, the Company recorded a valuation allowance equal to the full cost of
the investments during the year ended December 31, 2001.

     Other  Income  (expense).  Other income was $0.3 million for the year ended
December  31,  2002,  compared to $0.2  million for the year ended  December 31,
2001.  Substantially all of other income (expense) relates to interest income on
cash  and  short-term   deposits,   interest  expense  on  capital  leases,  and
fluctuations in foreign currency denominated assets and liabilities.

     Income Taxes.  The Company  provided for recovery of income taxes on losses
for the year ended December 31, 2002 at the rate of 28.1%,  after  adjusting for
the amortization and impairment 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, and other foreign
jurisdictions'  tax rates.  Since the  Company  has  incurred a loss  during the
period  and it is not more  likely  than not  that the  Company  will be able to
utilize the benefits of these losses, the Company did not record a full recovery
of income tax expense during the year ended December 31, 2002.

     Income (loss) from Discontinued Operations.  During the year ended December
31, 2002 the Company  divested itself of its Hosting and IT services  subsidiary
Connectria  Corporation  ("Connectria").  As a result,  Connectria's  results of
operations  for the current  and  comparative  periods  have been  presented  as
Discontinued Operations.  Income from Discontinued Operations for the year ended
December 31, 2002 was $121,000 as compared to a loss of $(653,000)  for the year
ended December 31, 2001. The increase in the income from discontinued operations
was due to strict cost control efforts  implemented at Connectria in the current
year, and the completion of the disposal of Connectria  during the third quarter
of 2002.  Going  forward,  the Company  expects no further  financial  statement
impact from this disposition.



                                       37

<PAGE>

Year ended December 31, 2001 Compared to the Year ended December 31, 2000

     Revenue.  Revenue  decreased  by $7.3  million  (14.0%)  for the year ended
December 31, 2001,  compared to the year ended  December 31, 2000.  The decrease
was primarily due to the decrease in software and services  revenues,  partially
offset by an  increase  in the revenue  earned  from third  party  products  and
services and maintenance and support.

     Software and  services  revenue  decreased by $9.3 million  (22.4%) for the
year ended December 31, 2001,  compared to the year ended December 31, 2000. The
Company  believes its software and service  revenues were adversely  impacted by
customers postponing purchasing decisions.  Customer delays in making purchasing
decisions and reductions in  expenditures  resulted in fewer customer  contracts
and lower than anticipated  revenues from the  implementation  of those customer
contracts  in the year ended  December  31,  2001 as  compared to the year ended
December 31, 2000.

     Maintenance  and  support  revenue  was $10.2  million  for the year  ended
December  31,  2001,  compared to $8.9  million for the year ended  December 31,
2000, an increase of 14.6%. Maintenance and support revenues increased primarily
due to the increase in the level of the Company's installed customer base.

     Third party products and services revenue increased by $0.7 million (38.3%)
for the year ended  December 31, 2001,  compared to the year ended  December 31,
2000. The Company's revenue from deliveries of third party products and services
fluctuates from period to period depending upon the timing of certain  contracts
and the rollout schedules that are established primarily by the customers.

     Direct  Costs.  Direct  costs  were  47.1% of  revenue  for the year  ended
December  31,  2001,  compared to 40.5% for the year ended  December  31,  2000.
Direct  costs  include  labor  and other  costs  directly  related  to a project
including  those  related to the  provision of services  and support,  and costs
related to equipment  purchased for sale to third  parties.  Labor costs include
direct  payroll,  benefits and overhead  charges.  The increase in proportion of
direct  costs to revenue  relates to the Company  incurring  a certain  level of
fixed  costs.  As a result of such fixed  costs,  the  decrease in software  and
services  revenues  during  2001 was not  completely  offset by the  decrease in
software and services direct costs and the percentage of direct costs increased.

         Gross Margins. Gross margins were 52.9% of revenue for the year ended
December 31, 2001, compared to 59.5% for the year ended December 31, 2000. Gross
margins were impacted by the Company's fixed costs. As a result, the decrease in
software and services revenues during 2001 was not completely offset by the
decrease in software and service direct costs, and gross margins decreased.

     Research and  Development.  Research  and  development  expenses  were $7.3
million, or 16.2% of revenue,  for the year ended December 31, 2001, compared to
$8.2 million,  or 15.8% of revenue,  for the year ended  December 31, 2000.  The
11.9% decrease in research and development  expenses in 2001 was a result of the
substantial  completion of the  Company's  new version of its Advantex  software
during the year ended December 31, 2000.

     Sales and  Marketing.  Sales and  marketing  expenses were $10.9 million or
24.3% of revenue for the year ended December 31, 2001 and $12.2 million or 23.5%
of revenue for the year ended December 31, 2000.  This  represents a decrease of
$1.3 million  (11.0%) as compared to 2000. The decrease was due to the Company's
restructuring  and  cost  control  efforts,  which  resulted  in a  decrease  in
discretionary spending pertaining to sales and marketing activities.



                                       38
<PAGE>

     General and Administrative.  General and administrative  expenses were $6.1
million,  or 13.6% of  revenue,  for the year ended  December  31, 2001 and $6.4
million,  or 12.4% of  revenue,  for the year  ended  December  31,  2000.  This
decrease was due  primarily to the  Company's  restructuring  and  discretionary
spending controls instituted during the year ended December 31, 2001.

     Amortization and Provision for Valuation of Intangible Assets. Amortization
and  impairment  charges for  intangible  assets for the year ended December 31,
2001 increased $1.5 million as compared to the year ended December 31, 2000. The
increase in amortization  is a result of a determination  by the Company that an
impairment  in the value of  goodwill  acquired on the  acquisition  of Alliance
Systems,  Inc. had occurred during the year ended December 31, 2001. The Company
determined  that an impairment  had occurred due to poor current and  forecasted
performance in the acquired company's business.  As a result of this impairment,
the Company  wrote off the  remaining  goodwill of $1.6 million  relating to the
acquisition of Alliance  Systems,  Inc. during the year ended December 31, 2001.
The Company also  determined  that there was an impairment in value  regarding a
web site domain name (eservice.com)  during the year ended December 31, 2001. As
a result of the Company not  pursuing  it's  e-Service  suite of  products,  the
domain  name's  value was  written  down to zero  which  resulted  in a $165,000
valuation allowance being recorded for the year ended December 31, 2001.

     Costs of merger.  During the year ended  December  31,  2000,  the  Company
completed its acquisition of Connectria. This transaction has been accounted for
under the pooling of interests method.  During the year ended December 31, 2000,
the Company incurred one-time acquisition costs of approximately $1.7 million.

     Provision for doubtful accounts.  The Company has included in its operating
results for the year ended  December  31, 2001 a provision  for $2.9 million and
for the year ended December 31, 2000 a provision of $1.0 million with respect to
doubtful accounts.  The Company intends to vigorously pursue collection of these
accounts;  however due to uncertainty with regard to these customers'  financial
conditions,  and the  ultimate  amount  that  will  be  collected,  the  Company
determined  that it would be  prudent  to record an  allowance  to  address  the
uncertainty regarding collection of amounts due.

     Valuation  Allowance  on  Investments.  As  part of its  former  e-Business
strategy,  the Company invested in or advanced funds to three private  companies
in 2000. As a result of significant  uncertainty over the future  realization of
any return on  investment  or  capital,  the  Company  has  recorded a valuation
allowance  equal to the  full  cost of the  investments  during  the year  ended
December 31, 2001.

     Other Income  (expense).  Other income  (expense)  was $0.2 million for the
year ended  December  31,  2001  compared  to $(0.4)  million for the year ended
December  31,  2000.  Substantially  all of other  income  (expense)  relates to
interest  income on cash and short-term  deposits,  interest  expense on capital
leases, and fluctuations in foreign currency denominated assets and liabilities.

     Income Taxes.  The Company provided for income tax recoveries on losses for
the year ended  December 31, 2001 at the rate of 4.3%,  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, and other foreign jurisdictions' tax rates.
Since the  Company  has  incurred  a loss  during  the period and it is not more
likely than not that the Company  will be able to utilize the  benefits of these
losses,  the Company did not record a full recovery of income tax expense during
the year ended December 31, 2001.

     Income (loss) from Discontinued Operations.  During the year ended December
31, 2002 the Company announced its intention to divest itself of its Hosting and
IT  services  subsidiary  Connectria  Corporation  (Connectria).  As  a  result,
Connectria's  results of operations for the current and comparative periods have
been presented as Discontinued Operations. Loss from Discontinued Operations for
the year ended December 31, 2001 of $0.7 million is relatively  consistent  with
the loss of $0.7 million for the year ended December 31, 2000.



                                       39
<PAGE>


 Liquidity and Capital Resources

     The  Company  has  financed  its  operations,   acquisitions   and  capital
expenditures with cash generated from operations,  loans, private placements and
public  offerings of its securities.  At December 31, 2002, the Company had cash
and cash equivalents of $11.0 million (2001 - $13.2 million) and working capital
of $9.4 million (2001 - $11.9 million).

     Cash provided by (used in)  operating  activities  was $2.3  million,  $3.2
million and $(0.6) million, respectively, for the years ended December 31, 2002,
2001 and 2000. The $2.3 million of cash provided by operating activities in 2002
was comprised of $1.5 million net loss,  non-cash  charges of $2.5 million,  and
$1.3  million of changes to  non-cash  working  capital  items.  The  changes to
working capital items include a $3.5 million  decrease in trade  receivables,  a
$1.0  million  increase  in unbilled  receivables,  a $0.3  million  decrease in
prepaid expenses, a $2.2 million decrease in accrued liabilities, a $0.1 million
decrease in trade payables,  a $1.0 million increase in taxes payable and a $0.2
million decrease in deferred revenue.  Unbilled accounts  receivable arise where
the  Company  has earned  revenue on a project  and has not  completed  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 Company  maintains  as at December 31, 2002 a provision of $3.5 million
with respect to doubtful  accounts.  The Company  intends to  vigorously  pursue
collection  of these  accounts;  however,  due to  uncertainty  with  regards to
ultimate collection, the Company determined that it would be prudent to maintain
an allowance to address this uncertainty.

     The Company is currently  involved in a dispute  with a customer,  and as a
result had previously  reclassified $3.7 million in accounts  receivable as long
term as the Company  determined  it is not likely to collect the amounts  within
one year. As part of its total $3.5 million dollar doubtful accounts  provision,
the Company has recorded an allowance of $1.0 million,  against this  receivable
given the uncertain nature of collection.  The Company is currently  involved in
litigation  to collect the amounts due.  The nature and amount of the  Company's
claims, the customer's  counterclaims and recent  developments in the litigation
are described more fully under Item 3 of this Annual Report.  Should the Company
not be successful in its claims against the customer the Company may be required
to take a $2.7 million dollar charge to earnings.  Additionally,  if the Company
is required to refund monies  collected  under the contract,  the Company may be
required to take a further $3.5 million  dollar charge to income to reflect this
refund. If the customer is successful in any fraud, negligent misrepresentation,
breach of express warranty or breach of implied  warranties  claims, the Company
may be  required to take an  additional  charge to earnings to the extent of the
judgment.  The Company  believes  that any amounts that it is required to pay to
the customer  would be an insured loss that is covered by insurance,  other than
any amounts  that it is required to pay to the  customer as a result of fraud or
other intentional  misconduct.  There is currently no provision in the Company's
financial  statements  to address any refund or other payment to the customer as
the Company views this to be an unlikely  event.  The Company  believes that its
position in the matter is strong and intends to vigorously pursue collection. If
the  Company  is not  successful  in the  litigation,  the  Company's  financial
position,  results of  operations,  business or  liquidity  could be  materially
adversely affected. See "Business-Risk  Factors-Litigation" and "Forward-Looking
Statements".

     Cash provided by (used in) financing activities was $(1.7) million,  $(1.6)
million and $4.9  million,  respectively,  during the years ended  December  31,
2002,  2001 and 2000.  The cash used in financing  activities in 2002  comprised
$2.0 million in repayments of capital  leases and $0.3 million from the issuance
of common shares.

     Cash used in investing activities was $2.2 million,  $0.9 million, and $4.2
million,  respectively,  for the years ended  December 31, 2002,  2001 and 2000.
Total  investing  activity in 2002  primarily  consisted of $2.1 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, 2002 include $11.0 million of
cash and cash equivalents and funds available under the Company's operating line
of credit. At the year ended December 31, 2002, the Company's borrowing capacity
under  the line of  credit  was up to $10 CDN  million.  Under  the terms of the
agreement, borrowings and letters of credit under the line are limited to 75% to
90% of eligible  accounts  receivable.  Borrowings accrue interest at the bank's
prime


                                       40
<PAGE>

rate plus 0.5%.  At December  31,  2002,  the Company was not using this line of
credit, other than to secure performance guarantees.

     The  Company  believes  that  the  principal  source  of its  liquidity  is
operating cash flow. Certain  circumstances  including a reduction in the demand
for the Company's products, an increase in the length of the sales cycle for the
Company's  products,  an increase in  operating  costs,  unfavorable  results of
litigation,  or general  economic  slowdowns could have a material impact on the
Company's  operating cash flow and liquidity.  See "Business - Risk Factors" and
"Forward Looking Statements".

     The  Company  believes  that  future  cash  flows from  operations  and its
borrowing capacity under the operating line of credit combined with current cash
balances 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.  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.  See  "Forward  Looking
Statements".  As at December 31, 2002 the Company had the following  contractual
obligations and commercial commitments:

<TABLE>
   --------------------------------------------------------------------------------------------------
                                                Payments Due by Period
      Contractual         ---------------------------------------------------------------------------
      Obligations             Total        Less Than One      1-3 Years       4-5 Years      After 5
                                                Year                                          Years
   --------------------------------------------------------------------------------------------------
   <S>                    <C>               <C>              <C>
   Capital Lease          $ 4,390,957       $ 2,343,275      $ 2,047,682              --           --
     Obligations

   Operating Leases       $ 6,832,701       $ 1,144,771      $ 2,672,759     $ 2,082,469    $ 932,702

   Total Contractual      $11,223,658       $ 3,488,046      $ 4,720,441     $ 2,082,469    $ 932,702
     Obligations
   --------------------------------------------------------------------------------------------------
</TABLE>


     In addition to these commercial  commitments the Company has also provided,
as performance bonds, an irrevocable revolving letter of credit in the amount of
EUR 501,082 (USD  $516,114)  expiring May 31, 2003, and letters of credit in the
amount of EUR 75,855 (USD $78,131) expiring February 28, 2003, $397,760 expiring
May 1, 2003, and CAD $1,864,568 (USD  $1,187,623)  expiring October 1, 2003. The
Company  has  pledged an amount  equal to the  letters  of credit as  guarantees
against its operating line of credit as security.

     The Company has entered into a significant  customer  contract in which the
Company has agreed to utilize a certain  amount of local  services  and create a
certain  amount of commercial  activity in South  Africa.  The Company is in the
last  stages  of  negotiating  the  terms  and  conditions  that  relate to this
obligation.  Based on current negotiations,  the Company expects that it will be
required to utilize local content or obtain credits  equivalent to approximately
$7  million  over a seven  year  period.  The  Company  expects  that it will be
required to furnish a performance  guarantee equal to  approximately  5% of such
amounts.  The  Company  expects to fulfill  its  obligation  through a number of
activities,  including the  establishment  of a software  development  center in
South Africa, the provision of technical services, and the provision of training
to  local  systems  integrators  who  will be able  to  provide  implementations
services with respect to the Company's software products. As the Company expects
to fulfill its obligations through the purchase of services in the normal course
of  business,  no  liability  has been  established  for these  future  spending
commitments.


Derivative Financial Instruments

     The  Company  generates  a  significant  portion  of  sales  from  sales to
customers  located outside the United States,  principally in Canada and Europe.
Canadian sales are made mostly by the Company and on occasion are denominated in
Canadian dollars.  International sales are made mostly from a foreign subsidiary
and are typically  denominated in either U.S.


                                       41
<PAGE>

dollars or Euros.  The  Company  also incurs a  significant  portion of expenses
outside the United States, principally in Canada and Europe, which are typically
denominated  in  Canadian  dollars,  Euros  or  British  pounds.  The  Company's
international  business is subject to risks typical of an international business
including,  but not  limited  to:  differing  economic  conditions,  changes  in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility.  Accordingly, the Company's future results
could be materially adversely impacted by changes in these or other factors. The
Company may enter into foreign exchange  forward  contracts to offset the impact
of  currency   fluctuations  on  certain   nonfunctional   currency  assets  and
liabilities,  primarily  denominated  in the Canadian  dollar,  Euro and British
pound. The foreign exchange forward  contracts the Company enters into generally
have original maturities ranging from three to eighteen months. The Company does
not enter into foreign exchange forward contracts for trading purposes, and does
not expect gains or losses on these  contracts to have a material  impact on the
Company's financial results.

     The Company's  foreign currency forward  contracts are executed with credit
worthy banks and are denominated in currencies of major industrial countries. As
at December  31,  2002,  and 2001 the Company  had no foreign  currency  forward
contracts outstanding.


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 United States
dollars.  The  Company  has  operations  in Canada and Europe in addition to its
United States operations and did not hedge these exposures in 2002. However, the
Company may from  time-to-time  hedge any net exposure to currencies  other than
the United States dollar.

     As of December 31, 2002, 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 $3.4 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.

     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

     The  financial  statements  listed  under the heading  "(a)1.  Consolidated
Financial Statements" of Item 15 herein, are included immediately following this
page.





                                       42
<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,  2002  and  2001  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, 2002.  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  auditing  standards  generally
accepted in the United States of America.  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,
2002 and 2001 and the results of its  operations  and cash flows for each of the
years in the three year  period  ended  December  31,  2002 in  conformity  with
accounting principles generally accepted in the United States of America.

     On January 28,  2003,  except for Note 9(c),  as to which the date is March
27, 2003, we reported  separately to the Board of Directors and  Shareholders of
MDSI Mobile Data Solutions  Inc. on  consolidated  financial  statements for the
same  periods  prepared  in  accordance  with  generally   accepted   accounting
principles in Canada.


/s/ Deloitte & Touche LLP

Chartered Accountants
Vancouver, British Columbia
January 28, 2003, except for Note 9(c), as to which the date is March 27, 2003




                                       43
<PAGE>


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





<TABLE>
                                                                                           As at December 31,
                                                                                ------------------------------------
                                                                                     2002                   2001
                                                                                ------------           -------------
<S>                                                                              <C>                    <C>
Assets
Current assets
        Cash and cash equivalents                                                $11,016,945            $13,176,080
        Accounts receivable, net
           Trade (net of allowance for doubtful accounts of $2,506,614;
             2001 - $3,587,303)                                                    6,705,088              9,229,663
           Unbilled                                                                5,347,993              4,331,924
        Prepaid expenses and other assets (note 8)                                 1,552,236              1,866,459
        Income taxes receivable                                                            -                366,506
                                                                                ------------           -------------
        Total current assets                                                      24,622,262             28,970,632

Capital assets, net (note 4)                                                       9,798,087              7,635,248

Long term receivable (note 9(c))                                                   2,749,860              3,749,860

Deferred income taxes (note 7)                                                       534,640                364,640
                                                                                ------------           -------------
                                                                                  37,704,849             40,720,380

Assets of discontinued operations (note 2)                                                 -              3,856,440
                                                                                ------------           -------------
Total assets                                                                     $37,704,849            $44,576,820
                                                                                ============           =============

Liabilities and stockholders' equity
Current liabilities

        Accounts payable                                                          $1,777,465             $1,961,656
        Accrued liabilities (note 13)                                              3,300,113              5,421,808
        Income taxes payable                                                         602,717                      -
        Deferred revenue                                                           7,503,613              7,685,068
        Current obligations under capital lease (note 9(a))                        2,073,906              1,984,018
                                                                                ------------           -------------
        Total current  liabilities                                                15,257,814             17,052,550

Obligations under capital leases (note 9(a))                                       1,913,538              1,301,996
                                                                                ------------           -------------
                                                                                  17,171,352             18,354,546

Liabilities of discontinued operations (note 2)                                            -              1,747,521
                                                                                ------------           -------------
Total liabilities                                                                 17,171,352             20,102,067
                                                                                ------------           -------------


Stockholders' equity
        Common stock (note 6)
          Authorized:
            Unlimited common shares with no par value
        Issued:  8,176,431 shares; 2001: 8,676,020 shares                         44,208,511             48,519,060
        Additional paid-up capital                                                 2,222,128                522,621
        Treasury stock nil; (2001:13,745 shares)                                           -                (85,043)
        Accumulated other comprehensive (loss)                                      (690,104)              (690,104)
        Deficit                                                                  (25,207,038)           (23,791,781)
                                                                                ------------           -------------
                                                                                  20,533,497             24,474,753
                                                                                ------------           -------------
Total liabilities and stockholders' equity                                       $37,704,849            $44,576,820
                                                                                ============           =============
</TABLE>


Commitments and contingencies (note 9)




         See accompanying notes to the consolidated financial statements





                                       44

<PAGE>


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


<TABLE>
                                                                                           Years ended December 31,
                                                                             ------------------------------------------------------
                                                                                 2002                  2001                 2000
                                                                             ------------         -------------        ------------
<S>                                                                          <C>                   <C>                  <C>
Revenue
      Software and services                                                  $25,754,805           $32,065,559          $41,338,221
      Maintenance and support                                                 10,500,287            10,186,907            8,887,738
      Third party products and services                                        2,480,368             2,453,137            1,774,031
                                                                             ------------         -------------        ------------
                                                                              38,735,460            44,705,603           51,999,990
                                                                             ------------         -------------        ------------
Direct costs                                                                  17,019,346            21,047,146           21,080,654
                                                                             ------------         -------------        ------------
Gross profit                                                                  21,716,114            23,658,457           30,919,336
                                                                             ------------         -------------        ------------
Operating expenses
      Research and development                                                 5,505,810             7,258,396            8,235,472
      Sales and marketing                                                     12,381,679            10,858,596           12,206,265
      General and administrative                                               6,237,194             6,075,396            6,447,135
      Restructuring charge (note 13)                                                   -             6,105,927                    -
      Amortization and provision
      for valuation of intangible assets (note 5)                                      -             1,824,058              294,247
      Costs of merger                                                                  -                     -            1,691,028
      Provision for doubtful accounts                                                  -             2,938,195              985,000
                                                                             ------------         -------------        ------------
                                                                              24,124,683            35,060,568           29,859,147
                                                                             ------------         -------------        ------------
Operating (loss) income                                                       (2,408,569)          (11,402,111)           1,060,189

Valuation allowance on investments (note 3)                                            -            (2,749,992)                   -

Other income (expense)                                                           272,988               177,200             (441,483)
                                                                             ------------         -------------        ------------
(Loss) income from continuing operations before tax provision                 (2,135,581)          (13,974,903)             618,706

Recovery of (Provision for) income taxes from
continuing operations (note 7)                                                   599,293               521,375             (491,505)
                                                                             ------------         -------------        ------------
(Loss) income from continuing operations                                      (1,536,288)          (13,453,528)             127,201

Income (loss) from discontinued operations (note 2)                              121,031              (653,165)            (681,601)
                                                                             ------------         -------------        ------------
Net loss for the year                                                        ($1,415,257)         ($14,106,693)           ($554,400)
                                                                             ============         =============        ============
(Loss) earnings per common share
      (Loss) earnings from continuing operations
       Basic                                                                      ($0.18)               ($1.56)               $0.01
                                                                             ============         =============        ============
       Diluted                                                                    ($0.18)               ($1.56)               $0.01
                                                                             ============         =============        ============
      Net loss
       Basic                                                                      ($0.17)               ($1.64)              ($0.07)
                                                                             ============         =============        ============
       Diluted                                                                    ($0.17)               ($1.64)              ($0.07)
                                                                             ============         =============        ============
</TABLE>



         See accompanying notes to the consolidated financial statements


                                       45

<PAGE>

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




<TABLE>
                                                                                       Accumulated
                                      Common Stock          Additional                    Other
                               --------------------------      Paid        Treasury    Comprehensive
                                 Shares          Amount     Up Capital       Stock         Loss            Deficit          Total
                               ----------     -----------   -----------    ---------     ----------     ------------     ----------
<S>                            <C>            <C>              <C>          <C>          <C>             <C>             <C>
Balance, January 1, 2000       8,226,596      44,961,759       220,700      (85,043)     (429,438)       (9,130,688)     35,537,290

  Issued on exercise of
  stock options                  369,236       3,268,972            --           --            --                --       3,268,972

  Issued under stock
  purchase plan (Note 6(b))       16,621         185,771            --           --            --                --         185,771

  Change in foreign
  exchange fluctuations               --              --            --           --      (260,666)               --        (260,666)

  Net loss for the year               --              --            --           --            --          (554,400)       (554,400)
                               -----------------------------------------------------------------------------------------------------

Balance, December 31, 2000     8,612,453      48,416,502       220,700      (85,043)     (690,104)       (9,685,088)     38,176,967

  Issued on exercise of           63,567         102,558            --           --            --                --         102,558
  stock options
  Stock based compensation
  charge                              --              --       301,921           --            --                --         301,921
  Net loss for the year               --              --            --           --            --       (14,106,693)    (14,106,693)

                               -----------------------------------------------------------------------------------------------------
Balance, December 31, 2001     8,676,020     $48,519,060    $  522,621     $(85,043)    $(690,104)     $(23,791,781)    $24,474,753

  Issued on exercise of
  stock options                  253,181          65,366            --           --            --                --          65,366
  Issued under stock
  purchase plan (Note 6(b))       85,405         212,614            --           --            --                --         212,614
  Redemption of shares
  during year on
  divestiture of
  subsidiary (Note 2)           (824,700)     (4,515,766)    1,711,787           --            --                --      (2,803,979)
  Redemption of treasury
  shares                         (13,475)        (72,763)      (12,280)      85,043            --                --              --
  Net loss for the year               --              --            --           --            --        (1,415,257)     (1,415,257)
                               -----------------------------------------------------------------------------------------------------
Balance, December 31, 2002     8,176,431     $44,208,511    $2,222,128     $     --     $(690,104)     $(25,207,038)    $20,533,497
====================================================================================================================================
</TABLE>



        See accompanying notes to the consolidated financial statements



                                       46
<PAGE>


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



<TABLE>
                                                                                            Years ended December 31,
                                                                          ----------------------------------------------------------
                                                                                  2002                2001                  2000
                                                                            ---------------      ---------------      --------------
<S>                                                                         <C>                  <C>                    <C>
Cash flows from operating activities
  Net (loss) income from continuing operations for the year                 $  (1,536,288)       $ (13,453,528)         $   127,201
  Items not affecting cash:
   Depreciation, amortization and provision for valuation of                    2,706,987            4,502,772            2,551,927
   intangible assets
   Write down in value of surplus capital assets                                        -              563,780                    -
   Valuation allowance on investments                                                   -            2,749,992                    -
   Deferred income taxes                                                         (170,000)             (17,290)             230,077
   Stock based compensation charge                                                      -              301,921                    -
   Changes in non-cash operating working capital items (Note 11)                1,304,612            8,558,044           (3,498,577)
                                                                            ---------------      ---------------      --------------
  Net cash provided by (used in) operating activities                           2,305,311            3,205,691             (589,372)
                                                                            ---------------      ---------------      --------------
Cash flows from financing activities
  Issuance of common shares                                                       277,980              102,558            3,454,743
  Proceeds from (repayment of) capital leases                                  (1,989,664)          (1,727,326)           1,413,858
                                                                            ---------------      ---------------      --------------
  Net cash (used in) provided by financing activities                          (1,711,684)          (1,624,768)           4,868,601
                                                                            ---------------      ---------------      --------------
Cash flows from investing activities
  Repayment of lease receivable                                                         -              133,724              386,860
  Acquisition of investments                                                            -                    -           (2,748,029)
  Proceeds on sale of investments                                                       -              331,458            3,807,039
  Acquisition of intangible asset                                                       -                    -             (220,000)
  Acquisition of capital assets                                                (2,178,732)          (1,346,279)          (5,393,504)
                                                                            ---------------      ---------------      --------------
  Net cash used in investing activities                                        (2,178,732)            (881,097)          (4,167,634)
                                                                            ---------------      ---------------      --------------

Net cash (used in) provided by continuing operations                           (1,585,105)             699,826              111,595

Net cash used in discontinued operations (note 2)                                (574,030)            (388,727)          (1,735,988)
                                                                            ---------------      ---------------      --------------
Net cash (outflow) inflow                                                      (2,159,135)             311,099           (1,624,393)

Effects of foreign exchange fluctuations on cash                                        -                    -             (260,666)

Cash and cash equivalents, beginning of year                                   13,176,080           12,864,981           14,750,040
                                                                            ---------------      ---------------      --------------
Cash and cash equivalents, end of year                                      $  11,016,945        $  13,176,080         $ 12,864,981
                                                                            ===============      ===============      ==============

Supplemental disclosure of cash flow information

  Cash payments for interest                                                $     174,619        $     387,773         $    148,798
                                                                            ===============      ===============      ==============
  Cash (refund) payment for taxes                                           $  (1,320,664)       $     326,694         $  2,110,283
                                                                            ===============      ===============      ==============
</TABLE>




         See accompanying notes to the consolidated financial statements



                                       47
<PAGE>


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



SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES

     During the year ended December 31, 2002 MDSI completed an agreement to sell
its  Hosting  and  IT  Services   business   segment,   Connectria   Corporation
(Connectria).  Pursuant to the terms of the agreement, the Company received from
the former Connectria shareholders 824,700 shares that had an approximate market
value of $2.8 million and the  cancellation of 103,088  previously  issued stock
options  of MDSI as  consideration  for  Connectria.  In  addition  to the share
consideration,  a wholly-owned subsidiary of MDSI received a warrant allowing it
to  purchase  up to  50,380  shares  of Series A  Nonvoting  Preferred  Stock of
Connectria at a price of $50 per share  exercisable  for a period of five years.
The Series A Nonvoting  Preferred  Stock of Connectria  has a face value of $100
per share,  bears a dividend  of five  percent  per annum,  bears a  liquidation
preference  equal to the face value,  may be redeemed at Connectria's  option at
any time,  and must be redeemed  by  Connectria  upon a capital  infusion of $10
million or greater.

     During  the year ended  December  31,  2002 the  Company  entered  into two
capital  lease  arrangements  for the  gross  amount  of  $2,922,078  for  newly
purchased capital assets. As a result of these  arrangements the Company did not
incur cash outlays to purchase these assets but will pay lease  obligations with
interest  accruing  at  interest  rates of up to 9.5% over  terms of up to three
years. Since these asset purchases in 2002 are non cash transactions,  the gross
amount of the leases have been  excluded  from both the  Acquisition  of Capital
Assets and  Proceeds  from  Capital  Leases  line items,  and  instead  only the
principal  portion of repayments in 2002 of $230,984 have been included in these
line items. In future periods, as additional principal repayments are made under
these capital  leases those amounts will be included in the Cash Flow  Statement
in order to properly reflect the cash flows during the period.






         See accompanying notes to the consolidated financial statements





                                       48
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001 and 2000
                      (Expressed in United States 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, and are presented in United
          States dollars.  All intercompany  balances and transactions have been
          eliminated.

          In June  2002,  MDSI  adopted  a plan  for sale  and  entered  into an
          agreement  to  sell  its  Hosting  and IT  services  business  segment
          Connectria Corporation  (Connectria) to former Connectria shareholders
          who were both  shareholders and employees of the Company.  As a result
          of this transaction, the consolidated financial statements and related
          footnotes have been restated to present the results of the business as
          discontinued operations (Note 2).

     (b)  Nature of operations

          The  Company  develops,  markets  and  supports  workforce  management
          software  solutions for use in the mobile service  industry.  Prior to
          the  disposition  of  Connectria  (Note  2),  the  Company  was also a
          provider of managed application services.

     (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

          In December  1999,  the  Securities  and Exchange  Commission  ("SEC")
          issued Staff Accounting  Bulletin ("SAB") 101, Revenue  Recognition in
          Financial  Statements  which  provides  guidance  related  to  revenue
          recognition  based on  interpretations  and practices  followed by the
          SEC.  SAB 101  requires  companies  to report  any  changes in revenue
          recognition as a cumulative change in accounting principle at the time
          of  implementation  in accordance  with  Accounting  Principles  Board
          Opinion 20 "Accounting  Changes." The Company  adopted SAB 101 for the
          Company's  year  ended  December  31,  2000.  Based  on the  Company's
          interpretation   of  SAB  101,   the  Company   believes  its  revenue
          recognition policies are consistent with SAB 101 and as a result there
          has been no material  impact on the  Company's  financial  position or
          results of operations.

          Statement of Position 97-2 (Software Revenue  Recognition) (SOP 97-2),
          was issued in October  1997 by the  American  Institute  of  Certified
          Public  Accountants  (AICPA)  and  was  amended  by the  Statement  of
          Position 98-4  (Deferral of the  Effective  Date of a Provision of SOP
          97-2,  Software  Revenue  Recognition)  (SOP  98-4) and  Statement  of
          Position 98-9 (Modification of SOP 97-2, Software Revenue Recognition,
          With Respect to Certain  Transactions) (SOP 98-9). The Company adopted
          SOP 97-2 effective for the



                                       49
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001 and 2000
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (d)  Revenue recognition

          Company's year ended December 31, 1998. Based upon our  interpretation
          of SOP 97-2, SOP 98-4 and SOP 98-9,  the Company  believes its current
          revenue  recognition  policies and practices are  consistent  with SOP
          97-2, SOP 98-4, and SOP 98-9.

          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.  These  estimates and contracts are
                    reviewed regularly and are adjusted prospectively to reflect
                    the Company's  best estimate at the time.  Where the Company
                    has  contracted  to  deliver  software  without  significant
                    production,  modification or customization required, revenue
                    is recognized  upon  delivery if  persuasive  evidence of an
                    arrangement  exists,  the  fee is  fixed  and  determinable,
                    vendor  specific  objective  evidence exists to allocate the
                    total  fee to  elements  of the  arrangement  and  there  is
                    reasonable assurance of collection. Provisions for estimated
                    losses on contracts are recorded when identifiable.

          (ii)      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,  which is generally  one to
                    three years.

          (iii)     Third party products and services

                    Revenue  from sales of third party  products and services is
                    recognized on delivery of the products or services.

     (e)  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
          Furniture and fixtures               20% declining balance
          Leasehold improvements               lesser of lease term or useful
                                                  life, generally five years
          Vehicle                              20% declining balance

          The carrying  value of capital  assets is reviewed on a regular  basis
          for any  impairment in value.  An impairment  loss would be recognized
          when estimates of future cash flows expected to result from the use of
          an asset  and its  eventual  disposition  are less  than its  carrying
          amount.



                                       50
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001 and 2000
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (f)  Intangible Assets

          Intangible  assets  previously  consisted  of goodwill  arising on the
          acquisition of Alliance Systems Inc., and the purchase of a commercial
          web-site domain name and were previously  amortized on a straight line
          basis over ten and five years respectively. All intangible assets were
          written off during the year ended December 31, 2001 (note 5).

          In July  2001,  the FASB  issued  Statement  of  Financial  Accounting
          Standards  No.  142  ("SFAS  142"),  "Goodwill  and  Other  Intangible
          Assets", which is effective January 1, 2002. SFAS 142 requires,  among
          other  things,  the  discontinuance  of  goodwill   amortization.   In
          addition, the standard includes provisions for the reclassification of
          certain existing recognized  intangibles as goodwill,  reassessment of
          the useful lives of existing recognized intangibles,  reclassification
          of certain  intangibles  out of previously  reported  goodwill and the
          identification of reporting units for purposes of assessing  potential
          future impairments of goodwill.  SFAS 142 also requires the Company to
          complete a transitional  goodwill  impairment test six months from the
          date of adoption.  As a result of the Company's  decision to write-off
          goodwill during the year ended December 31, 2001, the adoption of SFAS
          142 on a prospective  basis did not have a  significant  impact on the
          Company's financial statements.

          The Company  adopted SFAS 142 on a prospective  basis at the beginning
          of fiscal  2002.  Net loss and net loss per share  adjusted to exclude
          goodwill and other intangible  assets that would not have been subject
          to amortization for 2002, 2001 and 2000 are as follows:


<TABLE>
                                                                              Year ended December 31,
                                                             -----------------------------------------------------
                                                                 2002                2001                 2000
                                                             -------------       -------------       -------------
           <S>                                                <C>                <C>                    <C>
          Net loss for the year as reported                   $(1,415,257)       $(14,106,693)          $(554,400)
          Adjustments
               Amortization of goodwill                                 -             989,693            (272,247)
               Amortization of other intangible assets                  -              22,000             (22,000)
                                                             -------------       -------------       -------------
          Adjusted net loss                                   $(1,415,257)       $(15,118,386)          $(260,153)
                                                             =============       =============       ==============

          Basic and diluted net loss per share, as            $     (0.17)       $      (1.64)          $   (0.07)
            reported
          Basic and diluted net loss per share, as            $     (0.17)       $      (1.75)          $   (0.03)
            adjusted
</TABLE>








                                       51
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001 and 2000
                      (Expressed in United States dollars)



     (g)  Foreign exchange; Reporting and Functional currency

          Foreign exchange

          The accounts of the Company and its foreign subsidiaries are expressed
          in United States dollars,  its functional  currency.  Current 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 monetary  items and revenue and expenses
          denominated in foreign currencies are included in income.

          Reporting currency

          The Company changed its reporting currency to the United States dollar
          effective  January 1, 2000. The change in reporting  currency was made
          to improve  investors'  ability to compare the Company's  results with
          those of most other publicly traded businesses in the industry.  These
          consolidated   financial   statements  and  those  amounts  previously
          reported  in  Canadian  dollars  have been  translated  from  Canadian
          dollars to United States dollars by translating assets and liabilities
          at the rate in  effect  at the  respective  balance  sheet  dates  and
          revenues and expenses at the average rate for the  reporting  periods.
          Any  resulting  foreign  exchange  gains and losses are  recorded as a
          separate  component  of  stockholder's  equity and  described as other
          comprehensive income (loss).

          Comprehensive income for the period can be summarized as follows:

<TABLE>
                                                                        Year ended December 31,
                                                      ------------------------------------------------------
                                                          2002                2001                 2000
                                                      --------------      --------------      --------------
         <S>                                          <C>                 <C>                     <C>
          Net loss for the year                        $(1,415,257)        $(14,106,693)           $(554,400)

          Other Comprehensive items
              - Translation adjustment                            -                    -            (260,666)
                                                      --------------      --------------      --------------
          Comprehensive net income for the year        $(1,415,257)        $(14,106,693)           $(815,066)
                                                      ==============      ==============      ===============
</TABLE>


          Functional currency

          As at June 1, 2000 the Company and its subsidiaries adopted the United
          States dollar as their primary currency of measurement.  The change in
          the  Company's  currency  of  measurement  was made due to the Company
          incurring an increasing  amount of United  States  dollar  denominated
          expenditures as a percentage of overall  expenditures  and an increase
          in the generation of cash flows from sales in United States dollars.



                                       52
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (g)  Foreign exchange; Reporting and Functional currency (continued)

          As a  result  of  the  change  in the  currency  of  measurement,  the
          Company's  foreign currency risk has changed from United States dollar
          denominated  monetary  assets and  liabilities  to  non-United  States
          dollar denominated monetary assets and liabilities and the risk of the
          impact of exchange rate changes relative to the United States dollar.

     (h)  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.  A
          valuation  allowance is recognized to the extent the recoverability of
          future income tax assets is not considered likely.

     (i)  Investments

          The Company  accounts for investments on a cost basis.  Any impairment
          in value that is determined  to be other than  temporary is charged to
          earnings.

     (j)  Earnings (loss) per common share

          Basic  earnings  per share is computed by dividing  net income  (loss)
          available to common  shareholders  by the weighted  average  number of
          common shares  outstanding for the period.  Diluted earnings per share
          reflects the  potential  dilution of  securities  by  including  other
          common  share  equivalents  in the weighted  average  number of common
          shares outstanding for a period, if dilutive. Common equivalent shares
          consist of  incremental  shares  issuable  upon the  exercise of stock
          options and share purchase warrants (using the treasury stock method).

          A  reconciliation  of net  (loss) per  common  share  from  continuing
          operations  and the weighted  average  shares used in the earnings per
          share ("EPS")  calculations for fiscal years 2002, 2001 and 2000 is as
          follows:

<TABLE>
                                                       Net (Loss)                                  (Loss) Earnings
                                                 Income from Continuing          Shares             Per Share from
                                                 Operations (Numerator)       (Denominator)     continuing operations
                                             -------------------------------------------------------------------------
         <S>                                      <C>                          <C>                 <C>
          2002
          ----
          Basic                                    $   (1,536,288)              8,480,866             $   (0.17)
          Effect of stock options                                                       -                     -
                                              ------------------------------------------------------------------------
          Diluted                                  $   (1,536,288)              8,480,866             $   (0.17)
                                             =========================================================================

          2001
          ----
          Basic                                    $  (13,453,528)              8,623,296             $   (1.56)
          Effect of stock options                                                       -                     -
                                             -------------------------------------------------------------------------
          Diluted                                  $  (13,453,528)              8,623,296             $   (1.56)
                                             =========================================================================

          2000
          ----
          Basic                                    $      127,201               8,526,723             $    0.01
          Effect of stock options                                               1,672,116                     -
                                             -------------------------------------------------------------------------
          Diluted                                  $      127,201              10,198,839              $   0.01
                                             =========================================================================
</TABLE>



                                       53

<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (j)  Earnings (loss) per common share (continued)

          Options and  warrants to purchase  1,291,181,  2,056,361,  and 641,828
          shares of common stock were  outstanding  during fiscal 2002, 2001 and
          2000 respectively, but were not included in the computation of diluted
          EPS because of the net loss in fiscal 2002,  2001 and 2000, or because
          the options'  exercise  prices were  greater  than the average  market
          prices of the common  stock,  and  therefore,  their  effect  would be
          antidilutive.

     (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 and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting periods. Estimates are used for, but
          not limited to, the  accounting  for  doubtful  accounts,  accrual for
          restructuring charges, amortization,  determination of net recoverable
          value of assets, revenue recognized on long-term contracts,  taxes and
          contingencies. 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.  As at
          December  31,  2002 and  December  31, 2001 the Company had no forward
          transactions open.

     (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 of the common stock option at the date granted.

          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>
                                                                     2002                2001                2000
                                                                 -------------       -------------       -------------
         <S>                                                    <C>                <C>                  <C>
          Net loss for the year                                   $(1,952,390)       $(16,189,425)        $(6,521,603)
                                                                 -------------       -------------       -------------
          Basic and fully diluted loss per common share                $(0.23)             $(1.87)             $(0.76)
                                                                 =============       ==============      ==============
</TABLE>


          Using the fair value method for stock-based  compensation,  additional
          compensation costs of approximately  $537,133 would have been recorded
          for the year ended  December  31, 2002 (2001 -  $2,082,732  and 2000 -
          $5,967,203  respectively).  This amount is determined  using an option
          pricing model assuming no dividends are to be paid, an average vesting
          period of four years (2001 - 3 years; 2000 - 3 years), average life of
          the  option  of 5 years  (2001 - 5 years;  2000 5  years)  a  weighted
          average  annualized  volatility  of the  Company's  share price of 73%
          (2001  - 96%  and  2000 - 81%  respectively)  and a  weighted  average
          annualized risk free interest rate at 2.7% (2001 3.7% and 2000 - 7.00%
          respectively).



                                       54
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (m)  Stock-based compensation (continued)

          In March 2000,  the  Financial  Accounting  Standards  Board  ("FASB")
          issued   FASB   interpretation   No.  44,   "Accounting   for  Certain
          Transactions  Involving Stock  Compensation - an interpretation of APB
          Opinion No. 25" ("FIN 44").  FIN 44 clarifies the  application  of APB
          Opinion No. 25 and among other issues  clarifies  the  following:  the
          definition of an employee for purposes of applying APB Opinion No. 25,
          the  criteria  for   determining   whether  a  plan   qualifies  as  a
          noncompensatory   plan,   the  accounting   consequences   of  various
          modifications  to the terms of the  previously  fixed stock options or
          awards,  and the  accounting  for an  exchange  of stock  compensation
          awards in a business  combination.  FIN 44 covers specific events that
          occurred  after  either  December  15, 1998 or January 12,  2000.  The
          Company  adopted FIN 44 in the third  quarter of fiscal 2000 and there
          was no material effect on the consolidated financial position, results
          of operations or cash flows.

     (n)  Comprehensive income

          The Company  reports  comprehensive  income or loss in accordance with
          the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS
          No. 130 establishes  standards for reporting  comprehensive income and
          its components in financial statements.  Comprehensive income or loss,
          as  defined,  includes  all changes in equity  (net  assets)  during a
          period  from  non-owner  sources.   Other  than  comprehensive  income
          resulting from changes in reporting  currency (note 1 (g)) the Company
          had no other  source of  comprehensive  income.  Tax  effects of other
          comprehensive  income  or loss  are not  considered  material  for any
          period.

     (o)  Segmented information

          SFAS 131,  "Disclosures  About  Segments of an Enterprise  and Related
          Information," established 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.  In accordance  with SFAS 131 the Company has determined
          that it has one reportable segment,  Field Service and has reported in
          accordance with SFAS 131 in note 10.

     (p)  Accounting for derivative instruments and hedging activities

          Effective   January  1,  2001,  the  Company  adopted  SFAS  No.  133,
          Accounting for Derivative  Instruments  and Hedging  Activities  (SFAS
          133), and the corresponding  amendments under SFAS No. 138, Accounting
          for Certain Derivative Instruments and Certain Hedging Activities - an
          amendment  of SFAS No.  133 (SFAS  138).  SFAS 133  requires  that all
          derivative  financial  instruments  be  recognized  in  the  financial
          statements  and  measured at fair value  regardless  of the purpose or
          intent for holding  them.  If the  derivative  is designated as a fair
          value hedge,  changes in the fair value of the  derivative  and of the
          hedged  item  attributable  to the hedged risk are  recognized  in net
          earnings (loss). If the derivative is designated as a cash flow hedge,
          the effective  portions of changes in the fair value of the derivative
          are  recorded in other  comprehensive  income  (loss)  ("OCI") and are
          recognized  in net  earnings  (loss) when the hedged item  affects net
          earnings (loss).  Ineffective portions of changes in the fair value of
          cash  flow  hedges  are  recognized  in net  earnings  (loss).  If the
          derivative used in an economic hedging  relationship is not designated
          in an accounting  hedging  relationship,  changes in the fair value of
          the derivative are recognized in net earnings (loss).  The adoption of
          this  statement  has not had a  significant  effect  on the  Company's
          financial position or results of operations.



                                       55
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (q)  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.

     (r)  Product Warranties

          The company  generally  provides a limited  warranty of ninety days on
          its products  and holds back a portion of revenue as deferred  revenue
          based on its  experience.  The  deferred  revenue  is then  recognized
          ratably  over the  warranty  period.  Reconciliation  of the  deferred
          product  warranty  revenue held back for the years ended  December 31,
          2002 and 2001 is as follows:

<TABLE>
                                                                      December 31,
                                                                 2002              2001
                                                              ----------------------------
         <S>                                                  <C>             <C>
          Beginning Balance                                    $ 511,351       $1,145,758
          Revenue holdback for new warranties issued             607,488          172,800
          Reduction for warranty obligations satisfied          (612,745)        (807,207)
                                                              ----------------------------
          Total deferred warranty revenue                     $  506,094       $  511,351
                                                              ============================
</TABLE>


     (s)  Recent accounting pronouncements

          In June 2002,  the FASB issued SFAS No. 146 ("SFAS 146"),  "Accounting
          for Costs  Associated  with  Exit or  Disposal  Activities".  SFAS 146
          requires  that the  liability  for a cost  associated  with an exit or
          disposal  activity be  recognized at its fair value when the liability
          is incurred.  Under  previous  guidance,  a liability for certain exit
          costs was recognized at the date that management  committed to an exit
          plan,  which  was  generally  before  the  actual  liability  had been
          incurred.  As  SFAS  146  is  effective  only  for  exit  or  disposal
          activities  initiated  after  December  31,  2002,  adoption  of  this
          statement  will not  impact the  Company's  financial  statements  for
          fiscal  2002 but will affect the  accounting  and  recognition  of any
          future restructuring costs.

          In  November  2002,  the  FASB  issued  FASB  Interpretation  No.  45,
          "Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,
          Including Indirect Guarantees of Indebtedness of Others" (FIN45).  FIN
          45 requires  that upon  issuance  of a  guarantee,  a  guarantor  must
          recognize  a  liability  for the fair value of an  obligation  assumed
          under a guarantee.  FIN 45 also requires  additional  disclosures by a
          guarantor  in its interim and annual  financial  statements  about the
          obligations   associated  with  guarantees   issued.   The  disclosure
          provisions of FIN 45 are effective for financial  statements  for both
          interim and annual  periods  ending after  December 15, 2002 (see note
          9). The  recognition  provisions  of FIN 45 will be effective  for any
          guarantees  that are issued or modified  after  December 31, 2002. The
          Company is currently  evaluating  the effects of FIN 45;  however,  it
          does not expect that the adoption  will have a material  impact on the
          Company's results of operations or financial position.


                                       56
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (r)  Recent accounting pronouncements (continued)

          In December  2002, the FASB issued  Statement of Financial  Accounting
          Standard No. 148 (SFAS 148), "Accounting for Stock-Based  Compensation
          - Transition and Disclosure". SFAS 148 provides alternative methods of
          transition  for a voluntary  change to the fair value based  method of
          accounting  for  stock-based  employee  compensation.  SFAS  148  also
          requires   prominent   disclosure  in  the  "Summary  of   Significant
          Accounting  Policies" of both annual and interim financial  statements
          about the method of accounting for stock-based  employee  compensation
          and the effect of the method  used on  reported  results.  SFAS 148 is
          effective  for  the  Company's  2002  fiscal  year.  Adoption  of this
          statement will affect the frequency of the Company's  disclosure,  but
          will not  impact  the  Company's  results of  operation  or  financial
          position  until  the  Company  changes  to the fair  value  method  of
          accounting for stock-based employee compensation. (See note 1 (m)).


2.   DISCONTINUED OPERATIONS

     Connectria Corporation

     In June 2002, MDSI adopted a plan for sale and entered into an agreement to
     sell its Hosting and IT Services business segment,  Connectria  Corporation
     (Connectria) to former  Connectria  shareholders who were both shareholders
     and employees of the Company. The transaction closed in July 2002. Pursuant
     to the  terms of the  agreement,  the  Company  received  from  the  former
     Connectria shareholders 824,700 shares that had an approximate market value
     of $2.8 million and the  cancellation  of 103,088  previously  issued stock
     options of MDSI as consideration  for Connectria.  In addition to the share
     consideration,  a  wholly-owned  subsidiary  of  MDSI  received  a  warrant
     allowing it to purchase up to 50,380 shares of Series A Nonvoting Preferred
     Stock of Connectria at a price of $50 per share exercisable for a period of
     five years. The Series A Nonvoting Preferred Stock of Connectria has a face
     value of $100 per share,  bears a dividend of five percent per annum, bears
     a  liquidation  preference  equal to the face  value,  may be  redeemed  at
     Connectria's  option at any time, and must be redeemed by Connectria upon a
     capital  infusion of $10 million or greater.  In addition MDSI has advanced
     to Connectria  $500,000,  consisting  of a loan in the principal  amount of
     $250,000  with a two year term,  bearing  interest at 5%, and  $250,000 for
     prepaid hosting services.  The Company  recognized a gain of $12,419 on the
     disposal of Connectria. Connectria represented a significant segment of the
     Company's business.


     Transportation Business Unit

     In February 1999, the Company's Board of Directors  approved a plan for the
     sale of the Transportation  Business Unit, which developed mobile workforce
     software  for  the  taxi,  courier  and  roadside  recovery  markets.   The
     disposition was completed June 24,  effective June 1, 1999, for proceeds of
     $3,839,267.  The  proceeds  comprised  common  shares  representing  an 11%
     interest in Digital  Dispatch  Systems Inc., a supplier of dispatch systems
     to the taxi market,  and an 8%, $331,455 ($500,000 CAD) promissory note due
     January 1, 2001.

     Certain  contracts of the  Transportation  Business  Unit were retained for
     completion  during the year 2000.  During the year ended  December 31, 2000
     the Company recorded an additional  $395,022 charge in order to account for
     additional costs to complete the retained contracts,  and the loss realized
     on sale of shares in Digital  Dispatch Systems Inc., taken as consideration
     on sale of the Company's Transportation Business Unit.

     During  the year  ended  December  31,  2001  all  outstanding  assets  and
     liabilities  of the  Transportation  Business  Unit  were  settled  with no
     further charge to earnings.


                                       57
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


2.   DISCONTINUED OPERATIONS (Continued)

     These  businesses  are accounted  for as  discontinued  operations  and for
     reporting  purposes the results of operations,  financial position and cash
     flow are segregated from those of continuing operations for the current and
     prior periods.  The Company has included in the results of the discontinued
     operations,  the sale proceeds,  the costs of  disposition,  the results of
     operations from the  measurement  date to the disposal date and an estimate
     of the costs to complete the remaining contracts.

     Summarized  financial  information  of the  discontinued  operations  is as
     follows:


<TABLE>
                                                          December 31, 2002    December 31, 2001    December 31, 2000
                                                        --------------------------------------------------------------
      <S>                                                  <C>                  <C>                 <C>
      Revenues from discontinued operations
      (after applicable income taxes of $ - nil)            $ 5,058,101           $13,414,690           $ 9,543,489

      Income (loss) before income taxes                         108,612             (653,165)              (286,579)
                                                        --------------------  --------------------   ----------------
      Operating income (loss) to measurement date               108,612             (653,165)              (286,579)
      Estimated income (loss) on disposal
      (net of income taxes of 2002 - $5,322;
      2000 - nil)                                                12,419                     -              (395,022)
                                                        --------------------  --------------------   ----------------
      Income (loss) from discontinued operations            $   121,031           $ (653,165)           $  (681,601)
                                                        ====================  =====================  ================
</TABLE>


      Net assets of discontinued operations


<TABLE>
                                                      December 31, 2002     December 31, 2001
                                                   -------------------------------------------
     <S>                                             <C>                    <C>
      Current assets                                    $       -            $   2,242,633
      Long term assets                                          -                1,613,807
                                                   -------------------     -------------------
      Total assets of discontinued operations                   -                3,856,440
                                                   -------------------     -------------------
      Current liabilities                                       -                1,426,638
      Long term liabilities                                     -                  320,883
                                                   -------------------     -------------------
      Total liabilities of discontinued operations      $       -            $   1,747,521
                                                   ===================     ===================
</TABLE>


     Cash flow of discontinued operations



<TABLE>
                                                          December 31, 2002    December 31, 2001    December 31, 2000
                                                          -----------------    -----------------    ------------------
      <S>                                                  <C>                  <C>                 <C>
      Operating activities                                   $ 2,491,158          $   758,508        $    (841,474)
      Investing activities                                       (43,775)            (807,710)          (1,792,799)
      Financing activities                                    (3,021,413)            (339,525)             898,285
                                                          -----------------    -----------------    ------------------
      Cash (used in) provided by discontinued
      operations                                             $  (574,030)         $  (388,727)       $  (1,735,988)
                                                          =================    =================    ==================
</TABLE>



                                       58
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


3.   INVESTMENTS AND ADVANCES

                                                        2002             2001
                                                  -------------    -------------

    Investment in private companies, at cost         2,000,000        2,499,992
    Other advances                                     500,000          500,000
    Less:  Valuation allowance                      (2,500,000)      (2,999,992)
                                                  -------------    -------------
    Total Investments                              $         -      $         -
                                                  =============    =============



     During the year ended December 31, 2000 the Company made equity investments
     of $2,499,992 in two private companies and made advances to a third Company
     of $500,000.  These investments do not represent  significant  influence in
     the  companies  and at December  31, 2000 were valued at cost which was the
     valuation as at the latest round of financing.

     As a result of significant  uncertainty over the future  realization of any
     return on  investment  or  advances,  the Company has  recorded a valuation
     allowance equal to the full cost of the investments and advances during the
     year ended December 31, 2001.

     During the year ended  December 31, 2002 one of the Companies in which MDSI
     had made a $500,000 equity investment was liquidated,  with no net proceeds
     being  realized by MDSI. As a result MDSI has written off the investment of
     $500,000  against  the  valuation  allowance  set up during  the year ended
     December 31, 2001.





                                       59
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


4.   CAPITAL ASSETS

                                                   2002                2001
                                              --------------     --------------
     Computer hardware and software           $  15,830,618       $  11,403,557
     Furniture and fixtures                       2,532,807           2,440,006
     Leasehold improvements                         918,920             568,956
     Vehicles                                        50,905              50,905
                                              --------------     --------------
                                                 19,333,250          14,463,424
     Less:  accumulated amortization             (9,535,163)         (6,828,176)
                                              --------------     --------------
                                              $   9,798,087       $   7,635,248
                                              ==============     ===============


     As at  December  31,  2002 the  Company  has  entered  into  capital  lease
     arrangements  for  computer  hardware in the amount of  $7,218,355  (2001 -
     $6,261,660)  and recorded  accumulated  amortization  of  $2,489,013  (2001
     -$2,656,071) relating to these assets (note 9(a)).

5.   INTANGIBLE ASSETS


<TABLE>
                                                                             2002               2001
                                                                        --------------      --------------
     <S>                                                                <C>                  <C>
     Goodwill                                                           $  2,615,751         $  2,615,751
     Commercial web site domain name                                         220,000              220,000
     Less:  accumulated amortization and provision
         for valuation                                                    (2,835,751)          (2,835,751)
                                                                        --------------      --------------
                                                                        $          -         $          -
                                                                        ==============      ==============
</TABLE>


     In connection  with the Company's  announced  restructuring  (note 13), the
     Company  determined  that an impairment in the value of Goodwill that arose
     on acquisition of Alliance Systems Inc., had occurred during the year ended
     December 31, 2001. The Company determined an impairment had occurred due to
     poor current and forecasted performance in the acquired Company's business.
     As a result of this impairment the Company has taken a valuation  allowance
     of  $1,558,578  which  was  equal to the  remaining  net book  value of the
     Goodwill.

     During the year ended December 31, 2001 the Company announced that it would
     not direct future resources to develop its e-Service  Manager product line.
     As a result the Company has taken a valuation  allowance of $165,000  which
     was equal to the  remaining  value of the  commercial  web site domain name
     purchased to support the e-Service Manager product.




                                       60
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


6.   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  options  typically  vest over a three year period and the term of
          the option is  typically  five  years.  The  maximum  number of common
          shares  reserved for issuance  under the Stock Option Plan,  including
          current  options   outstanding,   is  2,400,000  common  shares.  Upon
          acquisition  of Connectria  the Company  assumed  certain  obligations
          under  the  Connectria  Stock  Option  Plan,  and  all  future  option
          issuances  will  occur  under  the  MDSI  Plan.  As a  result  of  the
          divestiture of Connectria  (note 2) all outstanding  options under the
          Connectria plan were cancelled during 2002. The resulting  position of
          the two Stock Option plans is as follows:

<TABLE>
                                                  Connectria Plan        MDSI Plan         Total         Weighted
                                                    Number of            Number of       Number of       Average
                                                      Shares               Shares          Shares         Price
                                                  ------------------------------------------------------------------
           <S>                                   <C>                 <C>             <C>             <C>
           Outstanding at December 31, 1999          548,057             1,898,534       2,446,591       $    9.49

             Granted                                  34,980               430,554         465,534           16.08
             Exercised                               (48,791)             (235,899)       (284,690)           8.64
             Cancelled                                     -              (313,491)       (313,491)          12.08
                                                  ------------------------------------------------------------------
           Outstanding at December 31, 2000          534,246             1,779,698       2,313,944       $   10.32

             Granted                                       -               711,765         711,765            4.18
             Exercised                               (54,123)               (9,444)        (63,567)           1.61
             Cancelled                               (52,980)             (852,801)       (905,781)          14.50
                                                  ------------------------------------------------------------------
           Outstanding at December 31, 2001          427,143             1,629,218       2,056,361       $    6.62

             Granted                                       -               249,000         249,000            3.48
             Exercised                              (253,077)                 (104)       (253,181)           0.26
             Cancelled                              (174,066)             (586,933)       (760,999)           7.13
                                                  ------------------------------------------------------------------
           Outstanding at December 31, 2002                -             1,291,181       1,291,181            6.96
                                                  ==================================================================
</TABLE>




                                       61
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001 and 2000
                      (Expressed in United States dollars)


6.   STOCKHOLDERS' EQUITY (Continued)

     The following table summarizes  information  concerning options outstanding
     at December 31, 2002:

<TABLE>

                                 Options Outstanding                      Options Exercisable
                             -----------------------------             ---------------------------
                              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, 2002       (months)       Price       31, 2002        Price
     ---------------         -----------    ------------   ---------   ------------  ------------
    <S>                        <C>            <C>          <C>           <C>           <C>
        $0-$6.75                778,249         40.7        $  3.89       448,434       $  4.16
      $6.80-$13.35              466,298         19.7          11.02       431,078         10.99
      $13.40-$20.00              34,634         15.6          15.04        34,509         15.04
      $20.05-$36.20              12,000         30.1          25.48        12,000         25.48
                             -----------    ------------   ---------   ------------  ------------
                              1,291,181         32.3        $  6.96       926,021       $  8.02
                             ===========    ============   =========   ============  ============
</TABLE>


     At December 31, 2001 and 2000 under the combined MDSI and Connectria option
     plans,  1,304,959  and  1,441,280  options were  exercisable  at a weighted
     average exercise price of $6.73 and $8.31, 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 CDN for
          each  employee  per year.  The  subscription  price of  common  shares
          purchased under the 2002 Stock Purchase Plan is determined  based upon
          a weighted  average  market price of the Company's  common shares each
          quarter,  less 15%.  During the year ended  December 31, 2002,  85,405
          (2001 - nil;  2000 - 16,621)  common shares were issued under the 2000
          Stock Purchase Plan, a predecessor to the current plan.





                                       62

<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


6.   STOCKHOLDERS' EQUITY (Continued)

     (c)  Shareholder rights plan

          At  the  Annual  General   Meeting  on  May  6,  1999,  the  Company's
          shareholders'  approved  the  adoption of a  Shareholder  Rights Plan,
          similar to those adopted by other Canadian companies.  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.

7.   INCOME TAXES

          The provision for income taxes consists of the following:

<TABLE>
                                                                     2002                 2001                  2000
                                                                --------------       --------------        --------------
          <S>                                                   <C>                   <C>                  <C>
          Current:
            Canada                                               $       -             $        -           $    49,500
            Foreign                                                429,293                504,085              (310,928)
                                                                --------------       --------------        --------------
              Total current recovery of (provision for)
                income taxes from continuing operations            429,293                504,085              (261,428)
                                                                --------------       --------------        --------------
          Deferred:
            Canada                                                       -                      -                92,870
            Foreign                                                170,000                 17,290              (322,947)
                                                                --------------       --------------        --------------
             Total deferred  (recovery of) provision for
                income taxes from continuing operations            170,000                 17,290              (230,077)
                                                                --------------       --------------        --------------
          Recovery of (provision for) income taxes  from
                  continuing operations                          $ 599,293             $  521,375           $  (491,505)
                                                                ==============       ==============        ==============
</TABLE>


          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)  income  from  continuing  operations
          before tax provision due to the following:


<TABLE>
                                                                     2002                 2001                  2000
                                                                --------------       --------------        --------------
          <S>                                                   <C>                   <C>                  <C>
          Statutory tax rate                                           39.6%                 44.6%                 45.6%

          Recovery of (provision for) income taxes from
            continuing operations computed at statutory
            rate                                                 $  845,690           $ 6,232,807            $ (282,130)
          Tax losses and (benefits) not recognized in the
            period that the benefit arose                          (759,708)           (5,937,925)             (684,949)
          Lower effective rate on earnings of foreign
            subsidiaries                                            158,652             1,286,297               871,970
          Amortization and write-down of intangible assets
            not deductible for tax                                  393,202              (813,529)             (127,333)
          Other                                                     (38,543)             (246,275)             (269,063)
                                                                  ----------------- ------------------  -----------------
          Recovery of (provision for) income taxes from
                  continuing operations                          $  599,293           $   521,375            $ (491,505)
                                                                  ================= ==================  =================
</TABLE>



                                       63
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


7.   INCOME TAXES (continued)

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


<TABLE>
                                                                 2002                2001                  2000
                                                            ---------------     ---------------      ---------------
      <S>                                                   <C>                 <C>                 <C>
      Depreciation                                            $ 1,482,694         $   807,765         $   (349,067)
      Deferred revenue                                           (224,433)            756,867              969,689
      Operating loss carry forwards                                     -                   -             (361,160)
      Other                                                    (1,088,261)         (1,547,342)            (489,539)
                                                            ---------------     ---------------      ---------------
      Total deferred provision for income taxes               $   170,000         $    17,290         $   (230,077)
                                                            ===============     ===============      ================
</TABLE>


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

<TABLE>
                                                                 2002                 2001
                                                            --------------      --------------
     <S>                                                     <C>                 <C>
     Operating loss carry forwards                           $  3,789,394        $ 3,905,312
     Deferred revenue                                           1,029,846          1,254,279
     Capital assets & intangibles                               2,093,368            341,323
     Reserves and accrued expenses                              2,579,456          2,770,950
     Other                                                        375,530            241,456
                                                            --------------      --------------
                                                                9,867,594          8,513,320
     Less: Valuation allowance                                 (9,332,954)        (8,148,680)
                                                            --------------      --------------
     Net non current deferred tax asset                      $    534,640         $  364,640
                                                            ==============      ==============
</TABLE>


     At December 31, 2002,  the Company has the  following  loss  carry-forwards
     available for tax purposes:

     Country                          Amount               Expiry
     -------                          ------               ------
     Canada                         $4,700,000         2005 through 2009

     US                             $4,400,000         2021 through 2022



                                       67

<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


8.   RELATED PARTY TRANSACTIONS

     Related party  transactions  and balances not disclosed  elsewhere in these
     financial  statements  include advisory fees expensed during the year ended
     December  31,  2002 of $ nil  (2001 -  $280,000;  2000 -  $45,000)  paid to
     companies controlled by two former directors of MDSI.

     In June 2002, MDSI adopted a plan for sale and entered into an agreement to
     sell its Hosting and IT Services business segment,  Connectria  Corporation
     (Connectria) to former  Connectria  shareholders who were both shareholders
     and  employees  of the Company  (note 2). The Company  advanced  Connectria
     $500,000,  consisting  of a  promissory  note in the  principal  amount  of
     $250,000  with a two year term,  bearing  interest at 5%, and  $250,000 for
     prepaid  hosting  services.  As at December 31, 2002 the promissory note of
     $250,000   and  a  remaining   amount  of  prepaid   hosting   services  of
     approximately  $45,000 were included as part of prepaid  expenses and other
     assets.

9.   COMMITMENTS AND CONTINGENCIES

     (a)  Capital and operating leases

          At December  31,  2002,  future  minimum  payments  under  capital and
          non-cancelable   operating   leases  for  office  space  and  computer
          equipment are as follows:


<TABLE>
                                                                        Capital             Operating
                                                                         Leases               Leases
                                                                    ---------------      ----------------
          <S>                                                      <C>                  <C>
          2003                                                      $   2,343,275        $   1,144,771
          2004                                                          1,186,574            1,655,266
          2005                                                            861,108            1,017,493
          2006                                                                  -            1,064,976
          2007                                                                  -            1,017,493
          Therafter                                                             -              932,702
                                                                    ---------------      ----------------
          Total minimum lease payments                                  4,390,957        $   6,832,701
                                                                                         ================
          Less: amount representing interest                             (403,513)
                                                                    --------------
          Present value of net minimum lease payments                   3,987,444
          Less: current portion of capital lease obligations           (2,073,906)
                                                                    --------------
          Long term portion of capital lease obligations            $   1,913,538
                                                                   ===============
</TABLE>


          Rent  expense  for the year  ended  December  31,  2002 in  respect of
          operating  leases for office space was $1,139,352  (2001 - $1,662,337;
          2000 - $2,047,294).




                                       68
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


9.   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 $10,000,000 CDN (2001 - $10,000,000  CDN),  which
          bears  interest  at prime plus 0.5%.  As at  December  31,  2002,  the
          Company was not,  except as noted below,  utilizing the operating line
          of credit.

          The  Company  has  provided,  as  performance  bonds,  an  irrevocable
          revolving letter of credit in the amount of EUR 501,082 (USD $516,114)
          expiring  May 31,  2003,  and  letters  of credit in the amount of EUR
          75,855 (USD $78,131) expiring February 28, 2003, $397,760 expiring May
          1, 2003, and CAD $1,864,568 (USD $1,187,623) expiring October 1, 2003.
          The  Company  has  pledged  an amount  equal to the  letters of credit
          against its operating line of credit as security.

     (c)  Contingency

          The Company is involved in a dispute with a customer.  The Company has
          filed  suit  against  the  customer  alleging  that the  customer  had
          breached  a  series  of  contracts,  and  failed  to pay  sums  due of
          approximately  $3.7  million.  The suit seeks  payment of the contract
          balance,  plus  other  damages,  interest  and  attorneys'  fees.  The
          customer  has filed an answer and  counterclaim  alleging  the Company
          breached  the  contracts,  entitling  the customer to repayment of all
          sums paid to the Company of approximately  $3.5 million.  In addition,
          the customer counterclaims allege fraud, negligent  misrepresentation,
          breach of  express  warranty  and breach of  implied  warranties.  The
          customer  seeks all  actual,  special,  incidental  and  consequential
          damages associated with these claims of approximately $7.2 million, in
          addition  to punitive  damages,  interest  and  attorneys'  fees.  The
          Company expects that collection of monies due from the customer is not
          likely to occur within one year and as a result has  reclassified  the
          amounts due from the customer of approximately  $3.7 million as a long
          term  receivable.  Due to the uncertain  nature of the  receivable the
          Company has recorded an allowance of $1.0 million  against the amounts
          due.  There is  currently  no  provision  in the  Company's  financial
          statements  to address any refund or other  payment to the customer as
          the Company views this to be an unlikely  event. On March 5, 2003, the
          court granted the customer motion for summary judgment, dismissing the
          Company's  claims for lack of  sufficient  evidence  of  damages.  The
          Company filed a motion for  reconsideration  of this ruling.  On March
          26, 2003,  the court denied the Company's  motion.  On March 26, 2003,
          the court granted the Company's  motion for partial summary  judgment,
          finding that the customer breached the professional services agreement
          by  wrongfully  terminating  the  agreement.  The Company has tendered
          defense of the customers claim to Chubb Insurance  Company.  Chubb has
          accepted  defense of the claim  under a  reservation  of  rights.  The
          Company  believes  that any amounts  that it is required to pay to the
          customer would be an insured loss that is covered by insurance,  other
          than any  amounts  that it is  required  to pay to the  customer  as a
          result of fraud or other intentional misconduct.  The Company believes
          that its  claims  against  the  customer  are strong and it intends to
          vigorously pursue its claims for damages, on appeal, if necessary.

          From time to time,  the  Company  is a party to other  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.


                                       69
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


9.   COMMITMENTS AND CONTINGENCIES (Continued)

     (d)  Guarantees

          As part of the  disposition  agreement  with  Connectria  Corporation,
          Connectria  is to use its best  efforts  to  terminate,  or obtain the
          release of MDSI from approximately $0.4 million in loan guarantees and
          equipment  leases  made by  MDSI  on  behalf  of  Connectria.  To date
          termination or release from these obligations has not occurred, and as
          a result MDSI could  potentially  be liable  under  these  obligations
          should  Connectria  default  on  a  payment.   Based  on  management's
          estimates,  the Company does not anticipate having to make payments in
          connection  with this  guarantee and  accordingly no amounts have been
          accrued as a liability in the financial statements.

     (e)  Commitment

          The Company has entered into a significant  customer contract in which
          the Company has agreed to utilize a certain  amount of local  services
          and create a certain  amount of  commercial  activity in South Africa.
          The  Company  is in the last  stages  of  negotiating  the  terms  and
          conditions   that  relate  to  this   obligation.   Based  on  current
          negotiations,  the Company expects that it will be required to utilize
          local content or obtain credits equivalent to approximately $7 million
          over a seven year period. The Company expects that it will be required
          to furnish a performance  guarantee equal to  approximately 5% of such
          amounts.  The  Company  expects to fulfill  its  obligation  through a
          number  of  activities,  including  the  establishment  of a  software
          development  center  in  South  Africa,  the  provision  of  technical
          services,  and the provision of training to local systems  integrators
          who will be able to provide  implementations  services with respect to
          the Company's software products. As the Company expects to fulfill its
          obligations  through the purchase of services in the normal  course of
          business,  no liability has been established for these future spending
          commitments.






                                       70
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001, and 2000
                      (Expressed in United States dollars)


10.  SEGMENTED INFORMATION

     As  described  in Note 2, the  Company  has  reclassified  the  results  of
     operations  of  Connectria  as  discontinued  operations.  The business was
     previously  disclosed  as a  separate  operating  segment.  As a result  of
     discontinuing  this  business,  the Company  now only  operates in a single
     business  segment,  the Field Service  business  segment.  The segment data
     below has been  restated  to exclude  amounts  related to the  discontinued
     operations.

     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>
                                    2002                              2001                                2000
                       -------------------------------   -------------------------------     ------------------------------
                                          Long-lived                        Long-lived                          Long-lived
                           Revenue          assets           Revenue          assets            Revenue           assets
                       -------------    --------------   --------------   --------------     --------------   --------------
<S>                     <C>              <C>              <C>              <C>                <C>              <C>
Canada                  $   840,388      $ 8,880,084      $  1,374,365     $  6,789,712       $  1,688,705     $  8,731,563
United States            25,623,163          830,789        32,701,905          787,448         38,022,275        5,636,603
Europe, Middle East
and Africa               11,466,125           80,991         9,594,137           57,416          8,713,390           66,946
Asia and Other              805,784            6,223         1,035,196              672          3,575,620            1,856
                       -------------    --------------   --------------   --------------     --------------   --------------
                        $38,735,460      $ 9,798,087      $ 44,705,603      $ 7,635,248       $ 51,999,990     $ 14,436,968
                       =============    ==============   ==============   ==============     ==============   ==============
</TABLE>


     Major customer

     During the year ended December 31, 2002 the Company earned revenue from one
     customer of $3,896,232 or  approximately  10.1% of total  revenue.  For the
     year ended December 31, 2001 the Company earned revenue from on customer of
     $5,319,633  or  approximately  11.9% of total  revenue.  For the year ended
     December 31 2000,  the Company did not earn revenue from one customer  that
     accounted for greater than 10% of overall revenue.




                                       71
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001 and 2000
                      (Expressed in United States dollars)


11.  SUPPLEMENTAL CASH FLOW DISCLOSURES

<TABLE>
                                                                     2002              2001                2000
                                                               ---------------    ---------------     ---------------
     <S>                                                        <C>                <C>                 <C>
      Accounts receivable                                       $  2,508,506       $  8,616,099        $ (7,179,818)
      Prepaid expenses and other assets                              314,223           (595,648)           (153,431)
      Income taxes payable / receivable                              969,223         (1,457,670)           (476,507)
      Accounts payable and accrued liabilities                    (2,305,885)         1,841,956           1,504,268
      Deferred revenue                                              (181,455)           153,307           2,806,911
                                                               ---------------    ---------------     ---------------
                                                                $  1,304,612       $  8,558,044        $ (3,498,577)
                                                               ===============    ===============     ================
</TABLE>


     During the year ended December 31, 2002,  capital assets of $2,922,078 were
     acquired  through  the  assumption  of capital  lease  obligations  (2001 -
     $885,145; 2000 - $ 3,357,109).


12.  FINANCIAL INSTRUMENTS

     The  carrying  value  of cash and cash  equivalents,  accounts  receivable,
     certain other assets,  investments and advances,  accounts payable, accrued
     liabilities,  and capital lease  obligations  approximate  their respective
     fair values as of December 31, 2002.

     The Company's  revenues have historically been dependent on large contracts
     from a limited number of customers in the utility,  telecommunications  and
     cable  sectors.  Where exposed to credit risk,  the Company  mitigates this
     risk  by  analyzing  the  counter-parties'  financial  condition  prior  to
     entering into agreements, establishing billing arrangements and determining
     the  collectibility  of the account on an ongoing basis. As these customers
     are  geographically  dispersed,  concentrations  of credit risk are further
     mitigated.

13.  RESTRUCTURING CHARGE

     On  March  30,  2001,  the  Company,  in  response  to  uncertain  economic
     conditions and poor financial  performance,  announced a restructuring plan
     approved by the Company's Board of Directors  designed to reduce  operating
     costs  that  resulted  in the  elimination  of 34 full time and  contractor
     positions.  On May 11, 2001, the Company  announced a Board approved update
     to this plan,  which  resulted  in the  elimination  of an  additional  115
     positions. As part of this restructuring,  the Company recorded a charge to
     earnings of $6.1 million in the year ended December 31, 2001. These charges
     were  reflected in the  "restructuring  charge" line item of the  Company's
     Consolidated  Statement  of  Operations.  A breakdown  of the nature of the
     charges and the costs incurred to date is as follows:

<TABLE>
                                                                         Total Restructuring
                                                                               Charge
                                                                         -------------------
     <S>                                                                 <C>
      Workforce reduction                                                    $ 3,375,000
      Provision for excess office space                                        1,861,000
      Non cash writedown of capital assets                                       563,780
      Other                                                                      306,147
                                                                         -------------------
      Total restructuring charges                                              6,105,927
      Cumulative draw-downs                                                   (4,848,592)
                                                                         -------------------
      Accrued restructuring charges included in  accrued
      liabilities at December 31, 2002 (2001 - $3,133,660)                    $1,257,335
                                                                         ===================
</TABLE>



                                       72
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2002, 2001 and 2000
                      (Expressed in United States dollars)


13.  RESTRUCTURING CHARGE (continued)


     During year ended December 31, 2002 and 2001 the Company made cash payments
     of $1,876,325 and  $2,408,487  respectively  relating to the  restructuring
     accruals.

     Workforce  reduction charges in 2001 of $3.4 million were taken relating to
     severance  and  continued  benefits for the  elimination  of 149  positions
     across all operating  departments and segments of the  organization.  As of
     December 31, 2002, the provision  balance has been fully drawn down by cash
     payments with no additional amounts expected to be paid out.

     The  provision  for excess  office space of $1.9 million for the year ended
     December 31, 2001, relates to surplus office space under long term lease by
     the Company at two locations, where the Company has entered into fixed cost
     lease  arrangements  with agreements  extending up to 2004. The Company has
     incurred  approximately  $0.6  million  of  cash  costs  relating  to  this
     provision  leaving an accrual of $1.3 million as at December 31, 2002.  The
     Company  expects that the charge will be fully drawn down no later than the
     time the lease expires in the fourth quarter of 2004.

     Due to the elimination of 149 positions,  certain capital assets  belonging
     to the Company have been declared  surplus and a charge of $0.6 million has
     been recorded to reflect the difference between the previous carrying value
     and the estimated fair market value,  net of disposal costs. As at December
     31,  2002,  the full amount of the charge has been applied to the assets to
     value them at their estimated net realizable value.


     The Company has recorded a $0.3 million  charge for the year ended December
     31, 2001 for other items  including,  costs of outplacement  services,  and
     legal and  consulting  fees.  As at  December  31,  2002,  the  Company has
     incurred cash costs of  approximately  $0.3 million  against this provision
     with no additional amounts expected to be paid out.





                                       73
<PAGE>


Selected Quarterly Financial Data

     The following  table sets forth certain  unaudited  statement of operations
data for  each of the  eight  quarters  beginning  January  1,  2001 and  ending
December 31, 2002 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  restructuring,  its
recent  dispositions  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
                                                          2002                                       2001
                                       --------------------------------------------------------------------------------------
                                          Dec. 31    Sep. 30    June 30   Mar. 31    Dec. 31    Sep. 30   June 30    Mar. 31
                                          -------    -------    -------   -------    -------    -------   -------    -------
                                                               (Unaudited, in thousands of dollars)
<S>                                        <C>        <C>       <C>        <C>        <C>       <C>        <C>        <C>
Statement of Operations Data:
Revenue:
Software and services                      $8,448     $6,615   $ 4,885     $5,807    $ 7,332    $7,282    $ 7,714    $ 9,738
Maintenance and support                     2,472      2,605     2,867      2,557      2,649     2,647      2,434      2,457
Third party products and services             356      1,607       279        236        778       266        292      1,116
                                       --------------------------------------------------------------------------------------
                                           11,276     10,827     8,031      8,600     10,759    10,195     10,440     13,311

Direct costs                                4,897      5,001     3,491      3,630      5,010     4,449      4,836      6,752
                                       --------------------------------------------------------------------------------------
Gross profit                                6,379      5,826     4,540      4,970      5,749     5,746      5,604      6,559
                                       --------------------------------------------------------------------------------------
Operating expenses:
Research and development                    1,269      1,278     1,499      1,460      1,553     1,662      1,868      2,175
Sales and marketing                         3,026      3,030     3,912      2,414      2,274     2,277      3,266      3,041
General and administrative                  1,557      1,485     1,529      1,664      1,541     1,510      1,539      1,485
Amortization and provision for
valuation of intangible assets                  -          -         -          -        165        11         11      1,637
Restructuring                                   -          -         -          -          -         -      4,906      1,200
Provision for doubtful accounts                 -          -         -          -      1,736         -          -      1,203
                                       --------------------------------------------------------------------------------------
                                            5,852      5,793     6,940      5,538      7,269     5,460     11,590     10,741
                                       --------------------------------------------------------------------------------------
Operating income (loss)                       527         33    (2,400)      (568)    (1,520)      286     (5,986)    (4,182)
Valuation allowance on investments              -          -         -          -          -         -          -     (2,750)
                                       --------------------------------------------------------------------------------------
Other income (expense)                         40         70        86         76        305       203       (295)       (36)
                                       --------------------------------------------------------------------------------------
Income (loss) from continuing
   operations before income tax
   provision                                  567        103    (2,314)      (492)    (1,215)      489     (6,281)    (6,968)
(Provision for) recovery of income
taxes from continuing operations             (175)       (39)      689        126       (149)      (45)        23        693
                                       --------------------------------------------------------------------------------------
Income (loss) from continuing
   operations                                 392         64    (1,625)      (366)    (1,364)      444     (6,258)    (6,275)
Income (loss) from discontinued
   operations                                   -         12        22         86       (341)     (402)       (32)       121
                                       --------------------------------------------------------------------------------------
Net income (loss) for the period           $  392     $   76   $(1,603)    $ (280)   $(1,705)   $   42    $(6,290)   $(6,154)
                                       ======================================================================================
</TABLE>




                                       74

<PAGE>



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


<TABLE>
                                                                     Three Months Ended

                                       --------------------------------------------------------------------------------
                                                        2002                                    2001
                                        Dec. 31  Sept. 30   June 30   Mar. 31   Dec. 31  Sept. 30   June 30   Mar. 31
                                        -------  --------   -------   -------   -------  --------   -------   -------
<S>                                      <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenue:
Software and services                    74.9%     61.1%     60.8%     67.5%     68.2%     71.4%     73.9%     73.1%
Maintenance and support                  21.9      24.1      35.7      29.7      24.6      26.0      23.3      18.5
Third party products and services         3.2      14.8       3.5       2.8       7.2       2.6       2.8       8.4
                                       --------------------------------------------------------------------------------
                                        100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0
Direct costs                             43.4      46.2      43.5      42.2      46.6      43.6      46.3      50.7
                                       --------------------------------------------------------------------------------
Gross profit                             56.6      53.8      56.5      57.8      53.4      56.4      53.7      49.3
                                       --------------------------------------------------------------------------------
Operating expenses:
Research and development                 11.3      11.8      18.7      17.0      14.5      16.3      17.9      16.4
Sales and marketing                      26.8      28.0      48.7      28.1      21.1      22.4      31.3      22.8
General and administrative               13.8      13.7      19.0      19.3      14.3      14.8      14.7      11.2
Amortization and provision for
valuation of intangible assets              -         -         -         -       1.5       0.1       0.1      12.3
Restructuring                               -         -         -         -         -         -      47.0       9.0
Allowance for doubtful accounts             -         -         -         -      16.1         -         -       9.0
                                       --------------------------------------------------------------------------------
                                         51.9      53.5      86.4      64.4      67.5      53.6     111.0      80.7
                                       --------------------------------------------------------------------------------
Operating income (loss)                   4.7       0.3     (29.9)     (6.6)    (14.1)      2.8     (57.3)    (31.4)
Valuation allowance on investments          -         -         -         -         -         -         -     (20.6)
Other income (expense)                    0.3       0.7       1.1       0.9       2.8       2.0      (2.8)     (0.3)
                                       --------------------------------------------------------------------------------
Income (loss) from continuing
   operations before income tax
   provision                              5.0       1.0     (28.8)     (5.7)    (11.3)      4.8     (60.1)    (52.3)
                                       --------------------------------------------------------------------------------
(Provision for) recovery of income
  taxes from continuing operations       (1.5)     (0.4)      8.6       1.5      (1.4)     (0.4)      0.2       5.2
                                       --------------------------------------------------------------------------------
Income (loss) from continuing
   operations                             3.5       0.6     (20.2)     (4.2)    (12.7)      4.4     (59.9)    (47.1)
Income (loss) from discontinued
operations                                  -       0.1       0.2       1.0      (3.1)     (4.0)     (0.3)      0.9
                                       ================================================================================
Net income (loss) for the period          3.5%      0.7%    (20.0)%    (3.2)%   (15.8)%     0.4%    (60.2)%   (46.2)%
                                       ================================================================================

</TABLE>






                                       75
<PAGE>


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

     None









                                       76
<PAGE>

                                    PART III


Item 10:  Directors and Executive Officers of the Registrant

     The following table sets forth certain information concerning the Company's
executive officers and directors as of December 31, 2002.



<TABLE>
<S>                                     <C>    <C>
Name                                    Age     Position
-------------------------------------  -------  ------------------------------------------------------------------------
Executive Officers
Erik Dysthe.........................     65     Chairman of the Board, Director, President and Chief Executive Officer
Peter H. Rankin ....................     46     Executive Vice President, Operations
Verne D. Pecho......................     59     Vice President - Finance and Administration and Chief Financial Officer
Simon Backer........................     47     Senior Vice President - Wireless Services
Cyril Tordiffe......................     51     Senior Vice President - Project Implementation
Tommy Lee...........................     39     Senior Vice President - Product Development
Walter Beisheim.....................     48     Senior Vice President - Worldwide Sales and Marketing
Warren Cree.........................     43     Senior Vice President - Product Marketing
Glenn Y. Kumoi......................     40     Senior Vice President and Chief Legal Counsel
Paul H.L. Lui.......................     46     Vice President - Customer Support
M. Greg Beniston....................     45     Vice President - Legal and Corporate Secretary
Ronald P. Toffolo...................     51     Vice President - Human Resources
David Haak..........................     41     Vice President - Sales, Americas
Scott Munro.........................     38     Vice President - Product Marketing
Robert Owen.........................     55     Managing Director -Europe Middle East and Africa

Directors
Peter Ciceri (2)(3).................     47     Director
Robert C. Harris, Jr. (1)(2)........     56     Director
Terrence P. McGarty (2)(3)..........     59     Director
Marc Rochefort (1)(2)...............     55     Director
David R. Van Valkenburg(1)(2)(3)....     60     Director
------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Member of Compensation Committee.
(2)  Member of Corporate Governance and Nominating Committee.
(3)  Member of Audit Committee.
</FN>

</TABLE>


     Erik Dysthe has served as Chairman of the Company since its inception.  Mr.
Dysthe was appointed  Chief  Executive  Officer of the Company in March 2001 and
President  in March  2002.  He also  served as Chief  Executive  Officer  of the
Company from its  inception to November  1998 and  President  from its inception
until  February 1996. Mr. Dysthe also serves as a director of Avcan Systems Inc.
and several other private companies.

     Peter H. Rankin has served as Executive  Vice President - Operations of the
Company  since  May  2001.  From May  1997 to  April  2001,  Mr.  Rankin  was an
independent consultant. From February 1996 to May 1997, he served as Senior Vice
President - Operations  of the  Company.  From July 1995 to February  1996,  Mr.
Rankin was Vice  President - Product  Management  of MDSI Mobile Data  Solutions
Canada  Inc.  and from  February  1993 to June  1995,  he was Vice  President  -
Technology of MDSI Mobile Data Solutions Canada Inc.

     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.



                                       77
<PAGE>

     Simon Backer has served as Senior Vice President - Wireless Services of the
Company since June 2000.  Prior to that he was Senior Vice President - eBusiness
Operations  since  October  1999.  From  August 1998 to August 1999 he served as
Senior Vice President and General Manager,  Transportation  and from August 1997
to February 1999, 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.

     Cyril Tordiffe has served as Senior Vice President - Project Implementation
of the Company since July 2001 and as a Vice  President - Operations,  Australia
between  January 2001 and June 2001.  From 1999 to 2000, he was Vice President -
Implementation Engineering. From 1995 to 1998, Mr. Tordiffe was Vice President -
Project  Implementation  and  Customer  Support,  Utilities  Division.  From the
Company's  inception in 1993 to 1994, he held various senior project  management
positions at the Company.  Mr.  Tordiffe has over 20 years of  experience in the
information technology industry covering operations, project management, systems
analysis and application programming.

     Tommy Lee has served as Senior Vice President - Product  Development  since
March  1999,  and 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 1988 and 1995, Mr. Lee was a member of the  scientific  and  engineering
staff at MacDonald, Dettwiler and Associates Ltd.

     Walter  Beisheim has served as Senior Vice President - Worldwide  Sales and
Marketing since July 2002.  Prior to that he was Vice President,  North American
Sales  with  Click  Software,  Inc.  from 2001 to 2002.  From 2000 to 2001,  Mr.
Beisheim was Vice President  Worldwide Sales for Inxight Software.  From 1999 to
2000, he was General  Manager,  Software  Products  Group for Digital  Microwave
Corp. (now DMC Stratex Networks) and from 1997 to 1999 he was Vice President and
General  Manager of SR Datacom.  Mr.  Beishem has over 20 years of experience in
sales,  marketing  and  business  development  of  enterprise  software  with an
emphasis on the utility and telecommunications industries.

     Warren Cree has served as Senior  Vice  President - Products of the Company
since October  2001.  Prior to this he held  numerous  positions of  progressive
responsibility  in product  management for the Company since September 1999. Mr.
Cree also served as Manager,  Application  Engineering  of the Company  from its
inception  to  August  1999.  Between  1989 and  1994,  he was a  member  of the
scientific and engineering staff at MacDonald, Dettwiler and Associates Ltd.

     Glenn Y. Kumoi has served as Senior Vice President - Chief Legal Officer of
the Company since September 2002.  Before that he was Managing Director - Europe
Middle East and Africa of the Company since May 2001.  Prior to that he was Vice
President - Chief Legal Officer of the Company since October 1999. From December
1998 to October  1999,  Mr.  Kumoi was Vice  President - General  Counsel of the
Company.  From April 1997 to November 1998, 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.

     Paul H.L. Lui has served as Vice  President - Customer  Support since 2001.
Since  joining  the  Company in 1993,  Mr.  Lui has held  various  positions  of
progressive  responsibility,  including  Director of Customer  Service  (1993 to
1997), Director of Customer Service - UK Operations (1998 to 1999), and Director
of Special Projects (1999 to 2000).

     M. Greg  Beniston  has  served  as Vice  President  - Legal  and  Corporate
Secretary of the Company since March 1996. He also served as General Counsel and
Corporate Secretary of General Hydrogen Corporation from April 1999 to May 2001.
From 1993 to 2000,  Mr.  Beniston  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  (now  Fasken  Martineau  DuMoulin),  Barristers  and
Solicitors in Vancouver, British Columbia.

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

     David Haak has served as Vice  President,  Sales - Americas  of the Company
since  November  2000 and as Vice  President,  Sales - North  America since June
1999.  Prior to that he was Vice  President,  Sales - Utilities since


                                       78
<PAGE>

January of 1999.  Prior to joining  the  Company  Mr.  Haak was  employed by IBM
Corporation where he held a number of sales,  marketing and management positions
during his 11-year tenure.

     Robert Owen has served as Managing Director - Europe Middle East and Africa
since October 2002.  From 1999 to 2002 Mr. Owen was an  independent  consultant.
Prior to  joining  the  Company,  Mr.  Owen has  served  in a number  of  senior
executive positions at multi-national systems and software companies,  including
Managing  Director  (EMEA) for  Smallworld  plc between 1994 and 1999,  Managing
Director (EMEA) for Vision Systems  between 1992 and 1994 and Managing  Director
for Intergragh (UK) between 1987 and 1992.

     Scott Munro has served as Vice  President,  Product  Marketing  since 2001.
Since  joining the Company in 1996,  Mr.  Munro has held  numerous  positions of
progressive responsibility,  including Director of Product Marketing and Product
Manager - Utilities.  Prior to joining the Company, he held a number of software
engineering  and  project  management  positions  at  Telus,  Epic  Data and MPR
Teltech.

     David R. Van  Valkenburg has served as a director of the Company since June
2001.  Mr. Van  Valkenburg  is currently a management  consultant.  From 1999 to
2000, he was Executive Vice President of MediaOne Group,  Inc., and from 1996 to
1999 he was Executive Vice President, MediaOne International. From 1994 to 1995,
Mr. Van Valkenburg was Senior Vice President,  Multimedia Group,  MediaOne Group
Inc. He also serves as a director of  Harmonic,  Inc.,  360  Networks  Inc.  and
several other private companies.

     Peter Ciceri has served as a director of the Company  since June 2001.  Mr.
Ciceri is currently a management consultant and an Executive in Residence at the
University  of British  Columbia.  From 2000 to 2001, he was President of Rogers
Telecom,  Inc. and from 1996 to 2000 he was President  and Managing  Director of
Compaq Canada Ltd. and  Vice-President  Compaq  Computer  Corporation  (US). Mr.
Ciceri also serves as independent lead director of Sierra Wireless,  Inc. and as
a director of several other private companies.

     Robert C.  Harris,  Jr.  has  served as a  director  of the  Company  since
December 1995. Mr. Harris is currently Senior Managing Director,  Vice Chairman,
Technology  Investment  Banking 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 SoftNet  Systems,  Inc.,
Marex, Inc., and a number of private companies.

     Terrence P. McGarty has served as a director of the Company since  December
1995.  Mr.  McGarty  served as Chairman  and Chief  Executive  Officer of Zephyr
Telecommunications,  Inc from 1998 to 2002. 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.




                                       79
<PAGE>

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
and  approves  the  non-audit  services  to  be  performed  by  the  independent
accountants.  During the fiscal  year ended  December  31,  2002,  no  non-audit
services  were  performed or approved by the Audit  Committee to be performed by
the Company's  independent  accountants.  The members of the Audit Committee are
Terrence P. McGarty, Peter Ciceri and David Van Valkenburg.

     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,
Robert C.  Harris,  Jr.  Peter  Ciceri,  David Van  Valkenburg  and  Terrence P.
McGarty.

     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., Marc Rochefort and David Van Valkenburg.

     A Special  Committee  of the Board of  Directors  was  formed in 2002.  Its
mandate was to review strategic  business  development  alternatives  that would
potentially enhance  shareholder value,  including the disposition of Connectria
and other strategic initiatives.  The members of the Special Committee are Peter
Ciceri, Marc Rochefort and David Van Valkenburg.


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.  The
Compensation  Committee  is composed  of three  non-employee  directors.  During
fiscal 2002, the compensation of Erik Dysthe, the Chairman, President and CEO of
the Company,  Peter Rankin,  the  Executive  Vice  President,  Operations of the
Company,  Verne  Pecho  Vice  President  Finance  and  Administration  and Chief
Financial  Officer of the Company,  and Gerald  Chew,  the  President  and Chief
Operating  Officer (COO) of the Company  until March 15, 2002 was  determined by
the Compensation  Committee.  Erik Dysthe,  Peter Rankin, Verne Pecho and Gerald
Chew 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,  President and CEO,  Executive Vice
President  Operations,  CFO and the  President  and COO,  the Board of Directors
reviewed a compensation proposal prepared by the Chairman, President and CEO.



                                       80
<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, Executive Officers and Key Employees

     There are  currently 15 executive  officers of the Company,  including  the
Chief Executive Officer.  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 or key  employee 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)  except David Haak and Tommy Lee.
These  agreements  provide  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.

     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 for those  officers  with an employment  agreement,  a lump sum
termination  payment equal to amounts ranging up to two times base annual salary
and current  bonus.  Any officer may  terminate his or her  employment  with the
Company at any time by giving four,  or in certain  cases,  eight weeks  written
notice, to the Board of Directors of the Company.  The employment  agreements of
certain officers,  including Mr. Dysthe, provide that in the event of a takeover
or  change  of  control  of the  Company,  they  may  elect to  terminate  their
employment and receive,  in addition to compensation earned to the date of their
termination, a lump sum payment equal to their annual base salary. The Company's
employment  agreements  with  certain  of its  officers  also  provide  for  the
acceleration  of  options  in the event of  termination  without  cause,  and in
certain cases, in the event of a takeover or change in control of the Company.


Pension Arrangements

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




                                       81
<PAGE>

Summary Compensation Table

     The  following  table sets forth all  compensation  paid  during the fiscal
years ended December 31 2002,  2001 and 2000 in respect of each  individual who,
at any time during fiscal 2002, served as the Company's Chief Executive Officer,
the four  most  highly  compensated  executive  officers  other  than the  Chief
Executive Officer whose total salary and bonus exceeded $100,000 for fiscal 2002
who  were  serving  as  executive  officers  as at  December  31,  2002  and two
individuals  who would have been among the  foregoing but for the fact that such
individuals were not employed by the Company at December 31, 2002  (collectively
"Named  Executive  Officers") and one additional  individual who would have been
among the foregoing but for the fact that the individual was not employed by the
Company as at December 31, 2002 (the "Additional Officer"):


<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
                                                                 Annual Compensation                 Long Term         Other
                                                                                                   Compensation     Compensation
                                                                                                      Awards
                                                         -------------------------------------     ------------
                                                                                   Other Annual     Securities
                                       Years Ending      Salary         Bonus      Compensation    Under Options
Name and Principal Position             December 31        ($)           ($)            ($)             (#)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>           <C>            <C>              <C>
Erik Dysthe                                2002          177,632       19,032          N/A          100,000                 -
Chairman & Chief Executive Officer         2001          123,011            -          N/A           10,000                 -
                                           2000           25,953(1)         -          N/A            3,000                 -
--------------------------------------------------------------------------------------------------------------------------------
Peter H. Rankin(2)                         2002          139,568            -          N/A                -                 -
Executive Vice President, Operations       2001           92,668            -          N/A           70,000                 -
                                           2000                -            -          N/A                -                 -
--------------------------------------------------------------------------------------------------------------------------------
Gerald F. Chew(3)                          2002           40,504       45,677          N/A                -           227,500(4)
President and Chief Operating Officer      2001           64,612            -        81,500         215,000                 -
                                           2000           63,500            -          N/A            3,000                 -
--------------------------------------------------------------------------------------------------------------------------------
David Haak                                 2002          151,250       72,651          N/A                -                 -
Vice President Sales, Americas             2001          134,000       81,241          N/A            5,000                 -
                                           2000          120,000       81,568          N/A             Nil                  -
--------------------------------------------------------------------------------------------------------------------------------
Gene Mastro(5)                             2002          128,831      891,690          N/A                -           199,500(4)
Senior Vice President, Sales               2001          246,090      106,173          N/A           10,000                 -
                                           2000          190,000       17,100            -              Nil                 -
--------------------------------------------------------------------------------------------------------------------------------
Tom Lawdensky (6)                          2002           58,597            -          N/A                -            90,207(4)
Vice President, Technology                 2001          120,560        4,250          N/A            2,500                 -
                                           2000          110,000        3,850          N/A                -                 -
--------------------------------------------------------------------------------------------------------------------------------
Glenn Kumoi                                2002          125,662            -          N/A           12,000                 -
Senior Vice President and Chief            2001          120,787        5,815          N/A            5,000                 -
Legal Officer                              2000          101,097        9,099          N/A                -                 -
--------------------------------------------------------------------------------------------------------------------------------
Tommy Lee                                  2002          126,880            -          N/A            4,250                 -
Senior Vice President                      2001          101,764        5,815          N/A           10,000                 -
Product Development                        2000          101,097        9,099          N/A                -                 -
--------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Represents  compensation received by Mr. Dysthe in his capacity as Chairman
     of the Board and a director of the Company.
(2)  Had Mr. Rankin been employed for the full year ended  December 31, 2001 his
     salary would have been $142,146.
(3)  Excludes   consulting  fees  paid  to  Mr.  Chew.  See  "Item  13:  Certain
     Relationship and Related Transactions" for details.  Includes salary earned
     until Mr.  Chew's  resignation  on March  15,  2002.  If Mr.  Chew had been
     employed  by the  Company  for the full year ended  December  31,  2002 his
     salary would have been $152,256.
(4)  Represents severance paid in 2002.
(5)  Includes salary earned until Mr.  Mastro's  resignation on May 31, 2002. If
     Mr.  Mastro  had been  employed  by the  Company  for the full  year  ended
     December 31, 2002 his salary would have been $199,500.
(6)  Mr.  Lawdensky is the Additional  Officer.  Had Mr. Lawdensky been employed
     for the full year  ended  December  31,  2002 his  salary  would  have been
     $120,120.
</FN>
</TABLE>



                                       82

<PAGE>

Stock Options

     The following  table sets forth stock options granted by the Company during
the fiscal year ended December 31, 2002 to any of the Named  Executive  Officers
or the Additional Officer:


Option Grants During the Fiscal Year Ended December 31, 2002


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

                                                   % of Total                                           Potential Realized Value at
                                    Securities       Options                                              Assumed Annual Rates of
                                       Under       Granted to      Exercise or                            Stock Price Appreciation
                                      Options     Employees in     Base Price       Expiration Date           for Option Term
Name                                Granted (#)    Fiscal Year    ($/Security)                            ---------     ----------
                                                                                                          5% Growth     10% Growth
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>                   <C> <C>        <C>           <C>
Erik Dysthe                           50,000          20.1%           $4.20         January 29, 2007       $58,020       $128,760
Chairman & Chief Executive                                         ($6.57 CAD)
Officer                               50,000          20.1%           $3.32           July 2, 2007         $47,750       $103,760
                                                                   ($5.22 CAD)
-----------------------------------------------------------------------------------------------------------------------------------
Peter H. Rankin                          Nil           Nil              Nil                Nil                 Nil            Nil
Executive Vice President,
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Gerald F. Chew                           Nil           Nil              Nil                Nil                 Nil            Nil
President and Chief Operating
Officer
-----------------------------------------------------------------------------------------------------------------------------------
David Haak                               Nil           Nil              Nil                Nil                 Nil            Nil
Vice President Sales, Americas
-----------------------------------------------------------------------------------------------------------------------------------
Tom Lawdensky                            Nil           Nil              Nil                Nil                 Nil            Nil
Vice President, Technology
-----------------------------------------------------------------------------------------------------------------------------------
Tommy Lee                              4,250          1.7%            $3.58         February 1, 2007      $  4,200       $  9,300
Senior Vice President                                              ($5.63 CAD)
Product Development
-----------------------------------------------------------------------------------------------------------------------------------
Glenn Kumoi                           10,000          4.0%            $3.26        September 20, 2007     $  9,000       $ 19,900
Senior Vice President and Chief                                    ($5.10 CAD)
Legal Officer                          2,000          0.8%            $3.61         January 2, 2007       $  2,000       $  4,370
                                                                   (5.63 CAD)
-----------------------------------------------------------------------------------------------------------------------------------
Gene Mastro                              Nil           Nil              Nil                Nil                 Nil            Nil
Senior Vice President, Sales
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>




                                       83
<PAGE>


     The  following  table sets forth  details of each exercise of stock options
during the fiscal year ended  December  31,  2001 by any of the Named  Executive
Officers or the Additional Officer, and the fiscal year end value of unexercised
options on an aggregate basis:


<TABLE>

      Aggregated Options Exercised During the Fiscal Year Ended December 31, 2002 and Fiscal Year-End Option Values

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

                                                                      Unexercised Options     Value of Unexercised in the
                                      Securities       Aggregate          At FY-End (#)         Money-Options at FY-End
                                     Acquired on         Value            Exercisable/            ($) Exercisable/
Name                                 Exercise (#)      Realized($)      Unexercisable(2)          Unexercisable (1)
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>
Erik Dysthe                              Nil              Nil           nil (exercisable)        $ nil (exercisable)
Chairman & Chief Executive Officer                                     nil (unexercisable)       $ nil (unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Peter H. Rankin                          Nil              Nil           nil (exercisable)        $ nil (exercisable)
Executive Vice President,                                              nil (unexercisable)       $ nil (unexercisable)
Operations
-------------------------------------------------------------------------------------------------------------------------
Gerald F. Chew                           Nil              Nil         65,000 (exercisable)       $9,235 (exercisable)
President and Chief Operating                                         nil (unexercisable)        $ nil (unexercisable)
Officer
-------------------------------------------------------------------------------------------------------------------------
David Haak                               Nil              Nil         20,000 (exercisable)       $500 (exercisable)
Vice President Sales, Americas                                         2,500 (unexercisable)     $500 (unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Glenn Kumoi                              Nil              Nil         18,054 (exercisable)       $560 (exercisable)
Senior  Vice  President  and Chief                                    12,446 (unexercisable)     $560 (unexercisable)
Legal Officer
-------------------------------------------------------------------------------------------------------------------------
Gene Mastro                              Nil              Nil          nil (exercisable)         $ nil (exercisable)
Senior Vice President, Sales                                          nil (unexercisable)        $ nil (unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Tom Lawdensky                            Nil              Nil          nil (exercisable)         $ nil (exercisable)
Vice President, Technology                                            nil (unexercisable)        $ nil (unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Tommy Lee                                Nil              Nil         36,700(exercisable)        $1,115 (exercisable)
Senior Vice President                                                  3,800(unexercisable)      $1,115(unexercisable)
Product Development
-------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Based on Nasdaq closing price of $3.20 on December 31, 2002.
(2)  Includes  options to purchase  common shares within 60 days after  December
     31, 2002.
</FN>
</TABLE>



Compensation of Directors

     During the latest fiscal year, the Company paid its non-employee  Directors
a meeting  stipend of $2,500 for each board  meeting  they  attended  in person,
$1,250 for each board meeting they attended by telephone, and $1,000 for certain
committee  meetings.  In the case of the  Special  Committee,  members  received
$2,500 per day. During the fiscal year ended December 31, 2002, the non-employee
directors of the Company  received  aggregate cash  compensation of $194,478 for
their  services.  The  non-employee  Directors  were also  reimbursed for actual
expenses  reasonably incurred in connection with the performance of their duties
as Directors.

     Non-employee  Directors  were also eligible to receive stock options issued
pursuant to the Company's stock option plan in consideration  for their services
as Directors  and in  accordance  with rules and  policies of The Toronto  Stock
Exchange.  On June 27, 2002,  the  Company's  five non employee  Directors  were
granted  options to acquire 3,000 common  shares each;  at an exercise  price of
$3.27 per share, vesting over thirty-six months and subject to the grantee being
a Director on the date of vesting.


Compensation Committee Interlocks and Insider Participation

     During the fiscal year ended December 31, 2002, the Compensation  Committee
consisted of Robert C. Harris,  Jr., Marc  Rochefort  and David Van  Valkenburg.
None of the members of the Compensation  Committee was an officer or employee of
MDSI during the fiscal year ended  December 31, 2002, or was formerly an officer
of MDSI, or had any relationship  during the fiscal year ended December 31, 2002
that required disclosure under Item 14 below.

     During the fiscal year ended  December  31, 2002,  no executive  officer of
MDSI served as a director  or member of a  committee  of the board of any entity
that had one or more executive  officers  serving as a member of MDSI's Board or
Compensation Committee.


                                       84
<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,
2002, 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  executive
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
Directors, Executive Officers and 5% Shareholders(1)               Beneficially           % of total Shares
                                                                     Owned(2)                   Owned
-------------------------------------------------------------    -----------------       --------------------
<S>                                                                <C>                     <C>
Erik Dysthe(3) .............................................         490,394                     5.9
Peter Hill Rankin (4).......................................          86,598                     1.1
David Haak(5) ..............................................          27,500                       *
Glenn Kumoi(6)..............................................          20,421                       *
Tommy Lee(7)................................................          43,801                       *
Robert C. Harris, Jr. (8)...................................          91,662                     1.1
Terrence P. McGarty(9)......................................          27,502                       *
David R. Van Valkenburg(10).................................          32,332                       *
Peter Ciceri(11)............................................           8,999                       *
Marc Rochefort(12)..........................................          12,193                       *
-------------------------------------------------------------    -----------------       --------------------
All Directors and Executive Officers as a group
(20 persons) (13)...........................................       1,057,930                    12.2%
-------------------------------------------------------------    -----------------       --------------------
5% Shareholders:
Kern Capital Management (14)                                       1,288,100                    15.8%
114 West 47th Street, Suite 1926
New York, NY, 10036
Seamark Asset Management Ltd.                                      1,110,500                    13.6%
1801 Hollis Street, Suite 310
Halifax, Nova Scotia B3J 3N4
Howson Tattersall Investment Counsel Limited                         903,495                    11.0%
20 Queen Street West,
Toronto, Ontario M5H 3R3
Guardian Capital Inc.                                                578,375                     7.1%
Commerce Court West
Suite 3100 PO Box 201
Toronto Ontario M5L 1E8
----------
<FN>
*    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.  Unless otherwise  indicated,  the
     Company believes that each person has sole voting and investment power over
     the Common Shares beneficially owned by such person.  Common Shares subject
     to options  currently  exercisable  at December  31, 2002,  or  exercisable
     within  60 days  after  December  31,  2002,  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, 2002,  together with the applicable
     options of such shareholder.
(3)  Includes 326,898 Common Shares held by Erik Dysthe Holdings Co. and options
     to purchase 115,500 Common Shares exercisable within 60 days after December
     31, 2002 held by Mr. Dysthe individually.
(4)  Includes  options to purchase  40,833 Common Shares  exercisable  within 60
     days of December 31, 2002.
(5)  Includes  options to purchase  20,000 Common Shares  exercisable  within 60
     days after December 31, 2002.
(6)  Includes  options to purchase  18,054 Common Shares  exercisable  within 60
     days of December 31, 2002.
(7)  Includes  options to purchase  36,700 Common shares  exercisable  within 60
     days after December 31, 2002.
(8)  Includes  options to purchase  41,332 Common Shares  exercisable  within 60
     days after December 31, 2002.
(9)  Includes  1,170  Common  Shares held by The Telmarc  Group Inc.,  a company
     controlled  by Mr.  McGarty,  and options to purchase  26,332 Common Shares
     exercisable within 60 days after December 31, 2002.
(10) Includes  options to purchase  17,332 Common Shares  exercisable  within 60
     days after December 31, 2002.
(11) Includes options to purchase 8,999 Common Shares exercisable within 60 days
     after December 31, 2002.
(12) Includes  options to purchase  10,763 Common Shares  exercisable  within 60
     days after December 31, 2002.
(13) Includes  options to purchase 474,105 Common Shares  exercisable  within 60
     days after December 31, 2002.
(14) Beneficially owned by Robert E. Kern Jr. and David G. Kern.
</FN>

</TABLE>



                                       85
<PAGE>

Equity Compensation Plan Information as at December 31, 2002


<TABLE>

        Plan Category            Number of securities to be     Weighted-average exercise      Number of securities
                                   issued upon exercise of        price of outstanding        remaining available for
                                    outstanding options,          options, warrants and        future issuance under
                                     warrants and rights                 rights              equity compensation plans
                                                                                               (excluding securities
                                                                                              subject to outstanding
                                                                                               options, warrants and
                                                                                                      rights)
<S>                             <C>                                                  <C>                      <C>
Equity compensation plans        1,291,181 (stock option plan)          $6.96                          1,108,819
approved by security holders        Nil  (employee share                  N/A                            100,000
                                          purchase plan)

Equity compensation plans not                       Nil                   N/A                                Nil
approved by security holders
                                --------------------------------------------------------------------------------------
Total                                         1,291,181                   N/A                          1,208,819
                                ======================================================================================
</TABLE>




Item 13:  Certain Relationships and Related Transactions

     In January  2002,  the Company  entered into an employment  agreement  with
Verne D. Pecho,  the Company's Vice  President  Finance and  Administration  and
Chief Financial 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.


Item 14: Controls and Procedures

     Under  the  supervision  and  with  the   participation  of  the  Company's
management,  including its Chief Executive Officer and Chief Financial  Officer,
the Company  evaluated  the  effectiveness  of the design and  operation  of its
disclosure  controls  and  procedures  (as defined in Rule  13a-14(c)  under the
Exchange Act as of a date (the  "Evaluation  Date")  within 90 days prior to the
filing date of this  report.  Based upon that  evaluation,  the Chief  Executive
Officer and Chief Financial  Officer  concluded that, as of the Evaluation Date,
the  Company's  disclosure  controls  and  procedures  were  effective in timely
alerting  them to the  material  information  relating  to the  Company  (or its
consolidated subsidiaries) required to be included in the Company's periodic SEC
filings and Form 8-K reports.

     There were no significant  changes made in the Company's  internal controls
during  the  period  covered  by this  Annual  Report  on Form  10-K or,  to the
Company's  knowledge,  in other  factors that could  significantly  affect these
controls subsequent to the date of their execution.




                                       86
<PAGE>


                                     PART IV

Item 15:  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

     (a)  1. Consolidated Financial Statements

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

                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.   Financial Statement Schedules

          The financial  statement  schedules required to be filed by Item 8 and
Item 14(d) are included immediately following this page.








                                       87


<PAGE>


                                   SCHEDULE II

                         MDSI MOBILE DATA SOLUTIONS INC.
                        Valuation and Qualifying Accounts
                      (Expressed in United States Dollars)


<TABLE>

                                             Balance,        Additions,
                                           Beginning of       During            Application/Write     Balance, End
                                              Period          Period            off During Period     of Period
<S>                                        <C>              <C>                 <C>                   <C>
Allowance for doubtful accounts


Year ended December 31, 2002                3,587,303                -                 80,689        3,506,614
Year ended December 31, 2001                  985,000        2,938,195                335,892        3,587,303
Year ended December 31, 2000                        -          985,000                      -          985,000

Provision against investments and
   advances
Year ended December 31, 2002                2,999,992                -                500,000        2,499,992
Year ended December 31, 2001                  250,000        2,749,992                      -        2,999,992
Year ended December 31, 2000                        -          250,000                      -          250,000

Deferred income tax valuation
  allowance
Year ended December 31, 2002                8,148,680        1,184,274                      -        9,332,954
Year ended December 31, 2001                1,825,049        6,323,631                      -        8,148,680
Year ended December 31, 2000                        -        1,825,049                      -        1,825,049
</TABLE>


     3.   Exhibits

          The following Exhibits are filed as part of this report:

      Exhibit
      Number        Description
      ------        -----------
      2.1(3)        Agreement  and Plan of Merger dated April 17, 1997 among the
                    Company, MDSI Acquisition Corp., Alliance, Geoffrey Engerman
                    and Doug Engerman

      3.1(1)        Articles of Incorporation of the Company

      3.2(1)        Articles of Amendments of the Company

      3.3(1)        By-laws of the Company

      4.1(1)        Form of Common Share Certificate

     10.1(2)(3)     2000 Stock Option Plan

     10.2(1)        Form of  Indemnification  Agreement  between the Company and
                    certain officers of the Company

     10.3(1)        Lease dated  September  25, 1997 between Sun Life  Assurance
                    Company of Canada and the Company

     10.4(2)(4)     Employment  Agreement  dated  March  26,  2001  between  the
                    Company and Erik Dysthe

     10.5(2)(4)     Employment  Agreement  dated  April  24,  2001  between  the
                    Company and Gerald F. Chew

     10.6(2)(4)     Employment  Agreement  dated May 7, 2001 between the Company
                    and Peter H. Rankin

     10.7(5)        Lease  dated  October  12, 2001  between  Crown  Diversified
                    Industries   Corporation   and   Connectria   Corporation  a
                    subsidiary of the Company

     10.8(5)        Lease  dated  May  14,  1999   between   California   Public
                    Employees'  Retirement System and Mobile Data Solutions Inc.
                    a subsidiary of the Company

     10.9(5)        Amending  Agreement  dated December 1, 1998 between Sun Life
                    Assurance Company of Canada and the Company

     10.10(2)(5)    Employment  Agreement  dated May 9, 2001 between the Company
                    and Richard S. Waidmann

     10.11(2)(5)    Employment  Agreement  dated May 9, 2001 between the Company
                    and Eric Y. Miller

     10.12(2)(6)    Employment  Agreement  dated  January  2, 2002  between  the
                    Company and Verne Pecho

     10.13(2)(7)    2002 Stock Purchase Plan

     10.14(8)       Exchange  Agreement  dated as of June  26,  2002  among  the
                    Company,  Connectria  Corporation,  Richard S.  Waidmann and
                    Eric Y. Miller

     10.15(8)       Amendment  to Exchange  Agreement  dated as of June 30, 2002
                    among  the  Company,  Connectria  Corporation,   Richard  S.
                    Waidmann and Eric Y. Miller


                                       88

<PAGE>


      Exhibit
      Number        Description
      ------        -----------
     10.16(8)       Warrant dated as of June 29, 2002 to purchase  50,380 shares
                    of  Series  A  Nonvoting   Preferred   Stock  of  Connectria
                    Corporation

     10.17(8)       $250,000  Promissory  Note dated as of June 30, 2002 made by
                    Connectria Corporation in favor of the Company

     10.18(8)       Security  Agreement  dated  as  of  June  30,  2002  between
                    Connectria Connectria and the Company

     10.19(2)       Employment  Agreement  dated  January  1, 1999  between  the
                    Company and Glenn Y. Kumoi

     10.20(2)       Settlement  Agreement  dated  March  15,  2002  between  the
                    Company and Gerald F. Chew

     10.21(2)       Settlement  Agreement dated May 31, 2002 between the Company
                    and Gene Mastro*

     21.1           List of the Company's Subsidiaries

     23.1           Consent of Deloitte & Touche LLP
------------------

(1)  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.
(2)  This document has been identified as a management  contract or compensatory
     plan or arrangement.
(3)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on November 22, 2000.
(4)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2001.
(5)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2001.
(6)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2002.
(7)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2002.
(8)  Previously filed as exhibits with the Registrant's Form 8-K filed on August
     14, 2002.

*    Confidential   portions  of  this  exhibit  have  been  omitted  and  filed
     separately with the Commission  pursuant to an application for Confidential
     Treatment under Rule 24b-2 promulgated under the Securities Exchange Act of
     1934, as amended.


     (b)  Reports on Form 8-K

     The Company  furnished a Form 8-K on November  11, 2002  pursuant to Item 9
attaching the  certifications of the Company's Chief Executive Officer and Chief
Financial Officer made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
in connection with the Company's Quarterly Report on Form 10-Q filed on November
11, 2002. The  information in a Form 8-K furnished  pursuant to Item 9 shall not
be deemed to be filed under the Exchange Act.




                                       89
<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, 2003.



                                      MDSI MOBILE DATA SOLUTIONS INC.

                                      By:  /s/ Erick Dysthe
                                           ------------------------------------
                                           Erik Dysthe, President and Chief
                                           Executive Officer, Chairman of the
                                           Board and Director


     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.



Signature                    Title                                Date
---------                    -----                                ----


/s/ Erik Dysthe              President and Chief Executive
---------------------------  Officer, Chairman of the Board
Erik Dysthe                  and Director (Principal Executive   March 28, 2003
                               Officer)


/s/ Verne D. Pecho           Vice President - Finance and
---------------------------  Administration and Chief Financial
Verne D. Pecho               Officer (Principal Financial and
                             Accounting Officer)                 March 31, 2003


/s/ Peter Ciceri
---------------------------
Peter Ciceri                 Director                            March 28, 2003


/s/ Robert C. Harris, Jr.
---------------------------
Robert C. Harris, Jr.        Director                            March 31, 2003


/s/ Terrence P. McGarty
---------------------------
Terrence P. McGarty          Director                            March 28, 2003


/s/ Marc Rochefort
---------------------------
Marc Rochefort               Director                            March 27, 2003


/s/ David R. Van Valkenburg
---------------------------
David R. Van Valkenburg      Director (Authorized U.S.
                              Representative)                    March 27, 2003





                                       90

<PAGE>




                                 CERTIFICATIONS


     I, Erik Dysthe,  President,  Chief Executive Officer, Chairman of the Board
     and Director of MDSI Mobile Data Solutions Inc., certify that:

1.   I have  reviewed  this  annual  report  on Form  10-K of MDSI  Mobile  Data
     Solutions Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)  designed such  disclosure  controls and  procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

(b)  evaluated the  effectiveness  of the registrant's  disclosure  controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

(c)  presented in this annual report our conclusions  about the effectiveness of
     the disclosure  controls and  procedures  based on our evaluation as of the
     Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

(a)  all  significant  deficiencies  in the  design  or  operation  of  internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

(b)  any fraud,  whether or not  material,  that  involves  management  or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: March 31, 2003

                                      /s/ Erik Dysthe
                                      -----------------------------------------
                                      Erik Dysthe
                                      President, Chief Executive Officer,
                                      Chairman of the Board and Director




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<PAGE>




     I,  Verne D.  Pecho,  Vice  President  Finance &  Administration  and Chief
     Financial Officer of MDSI Mobile Data Solutions Inc., certify that:

1.   I have  reviewed  this  annual  report  on Form  10-K of MDSI  Mobile  Data
     Solutions Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)  designed such  disclosure  controls and  procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

(b)  evaluated the  effectiveness  of the registrant's  disclosure  controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

(c)  presented in this annual report our conclusions  about the effectiveness of
     the disclosure  controls and  procedures  based on our evaluation as of the
     Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

(a)  all  significant  deficiencies  in the  design  or  operation  of  internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

(b)  any fraud,  whether or not  material,  that  involves  management  or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

     Date: March 31, 2003

                                      /s/ Verne D. Pecho
                                      -----------------------------------------
                                      Verne D. Pecho
                                      Vice President Finance & Administration
                                      and Chief Financial Officer





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<PAGE>





                                  EXHIBIT LIST


      Exhibit
      Number        Description
      ------        -----------
      2.1(3)        Agreement  and Plan of Merger dated April 17, 1997 among the
                    Company, MDSI Acquisition Corp., Alliance, Geoffrey Engerman
                    and Doug Engerman

      3.1(1)        Articles of Incorporation of the Company

      3.2(1)        Articles of Amendments of the Company

      3.3(1)        By-laws of the Company

      4.1(1)        Form of Common Share Certificate

     10.1(2)(3)     2000 Stock Option Plan

     10.2(1)        Form of  Indemnification  Agreement  between the Company and
                    certain officers of the Company

     10.3(1)        Lease dated  September  25, 1997 between Sun Life  Assurance
                    Company of Canada and the Company

     10.4(2)(4)     Employment  Agreement  dated  March  26,  2001  between  the
                    Company and Erik Dysthe

     10.5(2)(4)     Employment  Agreement  dated  April  24,  2001  between  the
                    Company and Gerald F. Chew

     10.6(2)(4)     Employment  Agreement  dated May 7, 2001 between the Company
                    and Peter H. Rankin

     10.7(5)        Lease  dated  October  12, 2001  between  Crown  Diversified
                    Industries   Corporation   and   Connectria   Corporation  a
                    subsidiary of the Company

     10.8(5)        Lease  dated  May  14,  1999   between   California   Public
                    Employees'  Retirement System and Mobile Data Solutions Inc.
                    a subsidiary of the Company

     10.9(5)        Amending  Agreement  dated December 1, 1998 between Sun Life
                    Assurance Company of Canada and the Company

     10.10(2)(5)    Employment  Agreement  dated May 9, 2001 between the Company
                    and Richard S. Waidmann

     10.11(2)(5)    Employment  Agreement  dated May 9, 2001 between the Company
                    and Eric Y. Miller

     10.12(2)(6)    Employment  Agreement  dated  January  2, 2002  between  the
                    Company and Verne Pecho

     10.13(2)(7)    2002 Stock Purchase Plan

     10.14(8)       Exchange  Agreement  dated as of June  26,  2002  among  the
                    Company,  Connectria  Corporation,  Richard S.  Waidmann and
                    Eric Y. Miller

     10.15(8)       Amendment  to Exchange  Agreement  dated as of June 30, 2002
                    among  the  Company,  Connectria  Corporation,   Richard  S.
                    Waidmann and Eric Y. Miller

     10.16(8)       Warrant dated as of June 29, 2002 to purchase  50,380 shares
                    of  Series  A  Nonvoting   Preferred   Stock  of  Connectria
                    Corporation

     10.17(8)       $250,000  Promissory  Note dated as of June 30, 2002 made by
                    Connectria Corporation in favor of the Company

     10.18(8)       Security  Agreement  dated  as  of  June  30,  2002  between
                    Connectria Connectria and the Company

     10.19(2)       Employment  Agreement  dated  January  1, 1999  between  the
                    Company and Glenn Y. Kumoi

     10.20(2)       Settlement  Agreement  dated  March  15,  2002  between  the
                    Company and Gerald F. Chew

     10.21(2)       Settlement  Agreement dated May 31, 2002 between the Company
                    and Gene Mastro*

     21.1           List of the Company's Subsidiaries

     23.1           Consent of Deloitte & Touche LLP
-----------------

(1)  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.
(2)  This document has been identified as a management  contract or compensatory
     plan or arrangement.
(3)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on November 22, 2000.
(4)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2001.
(5)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2001.
(6)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2002.
(7)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2002.
(8)  Previously filed as exhibits with the Registrant's Form 8-K filed on August
     14, 2002.

*    Confidential   portions  of  this  exhibit  have  been  omitted  and  filed
     separately with the Commission  pursuant to an application for Confidential
     Treatment under Rule 24b-2 promulgated under the Securities Exchange Act of
     1934, as amended.

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