<PAGE>

                       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, 1999

                                       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                                   (I.R.S. Employer
incorporation or organization)                           Identification No.)

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

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

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

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

           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|

      Aggregate market value of the Registrant's Common Shares held by
non-affiliates as of March 27, 2000 was approximately US$386,765,000. The
number of shares of the Registrant's Common Shares outstanding as of March
27, 2000 was 7,671,856.

                        Exhibit Index Appears at Page 39

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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: the Company's limited operating
history, lengthy sales cycles, the Company's dependence upon large contracts
and relative concentration of customers, risks involving the management of
growth and integration of acquisitions, competition, product development
risks and risks of technological change, dependence on selected vertical
markets and third-party marketing relationships and suppliers, risks and
uncertainties related to delivering its products and services on the
Internet, the Company's ability to protect its intellectual property rights
and the other risks and uncertainties described under "Business - Risk
Factors" in Part I of this Annual Report on Form 10-K. Certain of the forward
looking statements contained in this Report are identified with cross
references to this section and/or to specific risks identified under
"Business - Risk Factors."

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

                           1999        1998        1997        1996        1995
                      ----------  ----------  ----------  ----------  ----------
Period End ........   US $0.6925  US $0.6504  US $0.6999  US $0.7301  US $0.7323
Average ...........       0.6744      0.6715      0.7198      0.7329      0.7305
High ..............       0.6925      0.7105      0.7487      0.7513      0.7527
Low ...............       0.6535      0.6341      0.6945      0.7235      0.7023

On December 31, 1999 the noon buying rate was CDN$1.00 = US$0.6925. 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 Canadian dollars.

                                     Part I

Item 1: Business

The Company

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

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

      In December 1995, as part of its strategy to broaden its technology base
and product offerings, the Company, MDSI Canada and TelSoft Mobile Data Inc.
("TelSoft") completed a plan of arrangement (the "Plan of Arrangement") under
the Company Act (British Columbia). Pursuant to the Plan of Arrangement, the
Company was incorporated in September 1995 under the Canada Business
Corporations Act ("CBCA") as 3181910 Canada Inc. The Company changed its name to
MDSI Mobile Data Solutions Inc. in December 1995. Prior to the Plan of
Arrangement, TelSoft held a 60% interest in MDSI Canada. As part of the Plan of
Arrangement, the Company


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acquired all of the outstanding shares of TelSoft in exchange for 1,828,387
Common Shares of the Company and the assumption of $797,000 principal amount of
convertible debentures (the "Convertible Debentures") previously issued by
TelSoft, and all of the outstanding shares of MDSI Canada, other than those
shares of MDSI Canada already owned by TelSoft, in exchange for 2,160,000 Common
Shares of the Company. Following the acquisition of TelSoft, TelSoft was merged
with and into MDSI Canada. The acquisition by the Company of MDSI Canada was
accounted for as a reorganization of assets under common control. Accordingly,
the Company is deemed to be a continuance of MDSI Canada subsequent to the Plan
of Arrangement, and the historical accounting basis of MDSI Canada was carried
forward. The acquisition of TelSoft has been accounted for under the purchase
method of accounting. Effective October 1, 1998, the Company carried out a
vertical short form amalgamation with MDSI Canada pursuant to which MDSI Canada
was amalgamated with and into the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Effects of
Acquisitions".

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

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

      In February 1999, the Company's Board of Directors approved a plan to
dispose of its 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 $5,532,730. The proceeds were comprised of common shares of DDS,
representing an 11% interest in DDS, and a promissory note in the principal
amount of $500,000, due January 1, 2001, bearing interest at 8% per annum.

      Unless the context otherwise requires, references herein to "MDSI" or the
"Company" refer to MDSI Mobile Data Solutions Inc. and its subsidiaries. The
Company's principal executive offices are located at 10271 Shellbridge Way,
Richmond, British Columbia, Canada V6X 2W8, and its telephone number at that
location is (604) 207-6000.

Background

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

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

      The Company believes that significant trends in the regulatory
environment, numerous technological advances and a recent significant
increase in competitive pressures have reduced many of these limitations and
have accelerated, and will continue to accelerate, the adoption of mobile
data solutions by the field service industry. Deregulation has exposed the
utility and telecommunications markets to new competitive pressures, driving
businesses within those markets to seek ways to reduce costs, improve
operations, efficiently allocate resources and increase the quality of
customer service. In addition, the availability of powerful mobile computing
devices has permitted the development of sophisticated software applications.
Finally, public data networks, such as ARDIS and RAM, are now widely
available in North America, and similar networks are available in Europe and
the Asia Pacific region. Increasing competition among these networks and the
emergence of new wireless communication services, provided by organizations
such as AT&T, Ameritech Mobile Communication and others, has resulted in
greater availability of wireless networks and lower costs to

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subscribers. 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 the convergence of these trends will increase the
likelihood of adoption of mobile data solutions by companies in the field
service industry. See "Forward-Looking Statements."

The MDSI Solution

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

      MDSI's solutions include the Advantex family of applications and
wireless connectivity software products designed for the field service
industry. MDSI's software products provide applications for the automation of
business processes, such as service order generation, scheduling and
assignment, as well as wireless applications, such as work order dispatch,
real-time status updates, service and credit authorization, two-way messaging
and remote database access. MDSI's products are combined with professional
services, such as implementation planning, project management, software
configuration, software customization, training and ongoing technical support
and software maintenance to effectively address a customer's mobile workforce
management requirements. Where appropriate, MDSI also provides third party
products and services as part of a complete mobile data solution. MDSI also
offers general consulting services to organizations evaluating the costs and
benefits of implementing mobile workforce management systems, as well as
organizations evaluating wireless industry software products and technologies.

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

Markets

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

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

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

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

      Telecommunications. The telecommunications market consists of providers of
local, long-distance and wireless communication services worldwide. The Company
believes that this market will grow as companies implement new technology to
improve their


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competitiveness, efficiency and service levels. See "Forward-Looking
Statements." The Company has installed or has a contract to supply its
products to numerous telecommunication companies worldwide, including two
divisions of AT&T, Tele Danmark A/S, Citizens Telecom Services Company L.L.C.
and Belgacom S.A.

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

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

Customers and Applications

      The Company's customers vary in size from small local service companies to
large regional and international organizations. During the year ended December
31, 1999 one international telecommunication company, Beligacom S.A., accounted
for 12.2% of the Company's consolidated revenues, and for the years ended
December 31, 1998 and 1997, one U.S. utility company accounted for 9.1% and
14.4%, respectively, of the Company's consolidated revenue. In the years ended
December 31, 1999, 1998 and 1997, approximately 36.6%, 32.6% and 42.5%,
respectively, of the Company's consolidated revenue was attributable to five or
fewer customers. The Company believes that revenue derived from a limited number
of customers will continue to represent a significant portion of its
consolidated revenue. In the years ended December 31, 1999, 1998 and 1997,
revenue derived from sales outside of North America accounted for 24.8%, 3.4%
and 10.1% of the Company's total revenue, respectively. See "Note 12 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."

Products

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

Field Service Industry

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

      Advantex-Telecommunications. Advantex-Telecommunications is the Company's
core product for the telecommunications industry. This product provides the
dispatcher with real-time work order information ("en route," "on site" or "job
complete") and field service representative information (number and location of
work order assigned, completed and outstanding), facilitating the effective and
timely management of field service resources. Advantex-Telecommunications is
designed to be integrated into other telecommunications


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enterprise applications such as telephone line testing, inventory and billing
and may be interfaced to existing customer service systems (mainframe or
non-mainframe) that generate work orders or provide data required by
telecommunications company operations personnel. The Advantex-Telecommunications
product is also marketed to the cable industry. Additional features of the
Advantex-Telecommunications product include Least Cost Routing, Map-based
Dispatching, Order Scheduling, Workload Distribution and Call Ahead.

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

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

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

Professional and Customer Support Services

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

Professional Services

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

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

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


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Customer Support

      The Company believes that its ability to offer a high level of customer
support is critical to its success. The Company's customer support group
provides MDSI customers with telephone and on-line technical support as well as
product updates. Most MDSI customers enter into separate customer support
agreements, typically on an annual basis, that take effect on the expiration of
the product warranty. At December 31, 1999, the Company had 46 customer support
personnel, of whom 22 were located in Canada, 19 in the United States, 1 in the
United Kingdom and 4 in Copenhagen.

Product Development

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

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

      As of December 31, 1999, MDSI's technical and engineering staff,
supporting both product development and professional services, consisted of 286
employees, including 223 employees based at its Richmond, British Columbia
headquarters, 62 employees based primarily at its Itasca, Illinois facility and
other locations in the United States and 1 in the United Kingdom.

      During the years ended December 31, 1999, 1998 and 1997, the Company's
total expenditures for product development were $9.9 million, $8.7 million and
$4.9 million, respectively, reflecting 12.9%, 13.0% and 9.3% of the Company's
revenue, respectively. Management believes that timely and continuing product
development is critical to the Company's success and plans to continue to
allocate significant resources to product development. See "Forward-Looking
Statements."

Sales and Marketing

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

      On February 1, 2000, the Company announced that it intends to sell its
Advantex family of mobile workforce and wireless connectivity application
software products over the Internet. See "Subsequent Events."

      At December 31, 1999, the Company's sales, marketing and technical support
group consisted of 47 employees, with 26 based out of the Company's Richmond,
British Columbia facility, 18 based out of its Itasca, Illinois facility, and 3
based out of various other international locations.

Competition

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


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

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

      The Company believes that in the utility and telecommunications industry
segments the most important competitive factors are the reputation of the
supplier and their proven record in implementing wireless data solutions. The
Company primarily competes in the utility market with Utility Partners, L.C.,
M3i Systems, Inc. and Alterra Corp. The Company has several competitors in the
telecommunications market, a few of which have historical relationships with
certain of the large telecommunications companies. The Company's primary
competitors for telecommunications customers are Lucent Technologies, Inc. and
Telcordia (formerly Bellcore).

      The Company believes that the principal competitive factors in the field
service market are the ability to improve the customer service aspects of an
organization's business and increase the productivity of service
representatives. In this market, the Company's principal competitors are Astea
International Inc. and Metrix Inc. The Company's principal competitors in the
cable market are Telcordia and MobileForce Technologies, Inc. (formerly
Ubiquinet, Inc).

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

Employees

      As of December 31, 1999, the Company had 453 full-time employees and
contractors, including 286 in technical and engineering, 47 in sales, marketing
and technical support, 46 in customer support and 74 in management, finance and
administration. None of the Company's employees is represented by a labor union
and the Company believes its employee relations to be good.

Subsequent Events

      On February 1, 2000, MDSI announced that it intends to sell its
Advantex family of mobile workforce management and wireless connectivity
application software products over the Internet from a wirelessly-enabled
Applications Service Provider ("ASP") site. When delivered over the Internet,
it is anticipated that the Advantex applications will be similar
in functionality to versions installed at customer sites. It is anticipated
that MDSI's customers will pay a monthly fee for use of the applications or
pay for the use of services on a "per transaction" basis. This strategy is
intended to create a recurring source of revenue for the Company.

      The Company believes that its eBusiness strategy will assist it in
addressing the needs of smaller organizations in its traditional markets that
were previously unable to afford its products, and who did not have the
technical resources to support such products. See "Forward-Looking
Statements." MDSI intends to offer its ASP solution to customers through
(i) direct sales by MDSI, and (ii) co-marketing and partnership
arrangements with other ASP providers in select vertical markets.

      MDSI also intends to use the ASP to host scheduling and dispatching
engines, which are limited-function, non-configurable versions of its
existing scheduling and wireless dispatching modules. MDSI intends to offer
these ASP-based products separately or jointly to small customers with simple
requirements in a variety of field service markets. See "Forward-Looking
Statements."

                                       8
<PAGE>

Markets (eBusiness)

      The Company intends to build upon its strength in the utilities and
telecommunications industries to implement the Company's eBusiness strategy.
The Company believes that competition and deregulation create an opportunity
for MDSI to offer its ASP services to smaller and medium-sized businesses in
MDSI's existing "core" markets. The Company's eBusiness offering is targeted
at the general services marketplace, which has been marked by the entrance of
Internet intermediaries who offer a wide range of services, including home
services, to consumers and small and medium-sized businesses. MDSI intends to
initially target the U.S. and Canadian markets and then pursue opportunities
in Europe. Further, MDSI intends to leverage its existing relationships with
wireless network carriers to act as an additional distribution point for its
ASP services. See "Forward-Looking Statements."

Customers and Applications (eBusiness)

      Currently, the Company does not have any eBusiness customers. The
Company, in discussion with two organizations to establish new marketing
channels. The Company is currently engaged in negotiations with OurHouse.com
Inc. ("OurHouse.com"), an Internet web site for home improvement, home
services and how-to information. The Company intends to enter into a
distribution agreement with OurHouse.com, under which the Company will
provide its scheduling and wireless dispatching engines to OurHouse.com.
Under the proposed distribution arrangement, OurHouse.com customers will have
access to real time, on-line scheduling and wireless dispatching of home
repair and home improvement services. The Company made an investment of
approximately $500,000 in OurHouse.com in connection with its distribution
arrangement with OurHouse.com.

      MDSI is also engaged in negotiations with BellSouth Wireless Data
("Bellsouth"), a company with which it has a current business relationship,
to finalize the terms of an agreement to integrate MDSI's ASP site with
BellSouth's Intelligent Wireless Network. Under the proposed agreement, the
parties intend to offer MDSI's eBusiness solutions jointly with airtime from
BellSouth's network. MDSI and BellSouth intend to jointly market the bundled
products, initially to small- to medium-sized utility and home service
companies.

      MDSI believes that its eBusiness products will initially appeal to
smaller customers who cannot afford the upfront costs of on-site
implementations, and who do not have the internal technical resources to
operate such systems. Because MDSI intends to offer its eBusiness products on
a monthly subscription and/or transaction fee basis, the products have the
potential to add a recurring revenue stream and may reduce MDSI's dependence
on large contracts and individual customers. See "Forward-Looking Statements."

Products (eBusiness)

      MDSI's eBusiness products are designed to leverage MDSI's core Advantex
products, including the wireless scheduling and dispatching technology.
MDSI's latest version of its Advantex platform, called R7, has been designed
to enable an ASP deployment. The eBusiness product, known as "eAdvantex",
represents a modular, configurable version of Advantex that can be configured
to support the needs of a variety of potential customers from a centrally
hosted system.  MDSI anticipates that additional vertical market versions of
eAdvantex may be developed as initial customers are established. See
"Forward-Looking Statements."

Professional and Customer Support Services (eBusiness)

      The Company is in the process of establishing a comprehensive, 7-day,
24-hour customer service support center to provide various levels of customer
support to its eBusiness customers. The Company is also conducting benchmarking
activities to assist in the design and operation of its data center. MDSI
intends to provide professional services in conjunction with the deployment of
its ASP offerings. These professional services personnel will draw upon the
experience of existing MDSI personnel and will assist in the configuration of
MDSI's systems to meet the needs of potential customers in the target markets.

Sales and Marketing (eBusiness)

      The Company intends to market its eBusiness products through a direct
sales force. The Company also intends to use up to three other channels to
market its eBusiness products. First, the Company intends to enter into
agreements relationships with ASP's that are offering end-to-end suites of
operating solutions to MDSI's targeted vertical markets, such as the
telecommunications, utility and insurance markets. Under this type of
arrangement, MDSI would link its ASP site to the ASP's site to offer Advantex as
the workforce management component of the total solution. MDSI has yet to enter
into any of these agreements. Second, MDSI intends to expand its agreements with
wireless carriers and/or enter into new agreements with such carriers whereby
the carrier's network services would be


                                       9
<PAGE>

integrated with MDSI's ASP site, allowing MDSI and the wireless carriers to
bundle airtime with workforce management and to jointly market the bundled
products to customers. MDSI is currently engaged in negotiations with
BellSouth with respect to a joint marketing agreement. Third, the Company
intends to enter into agreements with operators of Internet sites that
aggregate smaller service providers for home services, such as plumbing or
lawn care. In this case, the Company intends to offer its non-configurable
scheduling and dispatching products to such service providers. MDSI is
currently engaged in negotiations in enter into an agreement of this type
with OurHouse.com. See "Forward-Looking Statements."

Competition (eBusiness)

      The Company will face competition from a number of existing competitors
and emerging Internet-based competitors in the eBusiness field. Existing
competitors including iMedion, ClickService (formerly IET), FieldCentrix, and
eDispatch. The Company believes that these competitors are primarily
targeting smaller-sized businesses with an ASP service offering. These
companies offer a "basic" scheduling and dispatch system. New competitors
targeting Internet intermediaries for the provision of scheduling and
dispatch software services include PointServe, ServeClick and X-Time. These
competitors are specifically focused on Internet-based scheduling and
dispatching services for the growing general services market, but do not
currently offer a wireless solution.

      There can be no assurance that the Company will be able to successfully
develop its ebusiness strategy or that it will be able to compete
successfully against current or future competitors or alliances of such
competitors, or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition, operating
results and cash flows.

Risk Factors

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

Potential Fluctuations in Quarterly Operating Results

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

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

      Because the Company is unable to forecast with certainty the receipt of
orders for its products and services and the Company's expense levels are
relatively fixed and are based, in part, upon its expectation of future revenue,
if revenue levels fall below expectations as a result of a delay in completing a
contract, the inability to obtain new contracts, the cancellation of an existing
contract or otherwise, operating results are likely to be adversely effected. As
a result, net income may be disproportionately affected because a relatively
small amount of the Company's expenses vary with its revenue. In particular, the
Company plans to increase its operating expenses to implement its eBusiness
strategy, expand its sales and marketing operations, expand its distribution
channels, fund greater levels of research and development, broaden its customer
support capabilities and increase its administrative resources. The Company has
also implemented its eBusiness strategy, which it anticipates it will receive
revenues on a month-to-month or per-transaction basis. The Company anticipates
that costs associated with implementing its eBusiness strategy will increase the
Company's operating expenses and may not be offset by increased revenue until
the Company successfully penetrates the market for its ASP-based service. There
can be no assurance that the Company will effectively compete in this market or
receive sufficient revenues from its eBusiness to offset such costs.


                                       10
<PAGE>

      Based upon all of the foregoing factors, the Company believes that its
quarterly revenue, direct expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of the results of
operations are not necessarily meaningful and that such comparisons should not
be relied upon as an indication of future performance. The Company may also
choose to reduce prices or increase spending in response to competition, or to
pursue new market opportunities. See "Forward-Looking Statements". If new
competitors, technological advances by existing competitors or other competitive
factors require the Company to reduce its prices or invest significantly greater
resources in research and development efforts, the Company's operating results
in the future may be adversely affected. There can be no assurance that the
Company will be able to grow in future periods or that it will be able to
sustain its level of total revenue or its rate of revenue growth on a quarterly
or annual basis. It is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. See "Forward Looking Statements". In such event, the price of the
Company's Common Shares would likely be materially adversely affected.

      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, 1999, 1998
and 1997, 12.9%, 27.7% and 28.6%, respectively, of the Company's revenue was
attributable to third party products and services. Because the revenue generated
from the supply of third party products and services may represent a significant
portion of certain contracts and the installation and rollout of third party
products is generally at the discretion of the customer, the Company may,
depending on the level of third party products and services provided during a
period, experience large quarterly fluctuations in revenue. See "Forward Looking
Statements". In addition, because the Company's gross margins on third party
products and services are substantially below gross margins historically
achieved on revenue associated with MDSI products and services, large
fluctuations in quarterly revenue from the sale of third party products and
services will result in significant fluctuations in direct costs, gross profits,
operating results, cash flows and other items expressed as a percentage of
revenue.

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

Lengthy Sales Cycles for Advantex Products

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

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, 1999, 1998 and 1997, approximately 36.6%, 32.6% and 42.5%, respectively, of
the Company's consolidated revenue was attributable to five or fewer customers.
During the years ended December 31, 1999, 1998 and 1997, one customer accounted
for 12.2%, 9.1% and 14.4%, respectively, of the Company's consolidated revenue.
The Company believes that revenue derived from current and future large
customers will continue to represent a significant portion of its total revenue.
See "Forward Looking Statements". The inability of the Company to continue to
secure and maintain a sufficient number of large contracts would have a material
adverse effect on the Company's business, financial condition, operating results
and cash flows. Moreover, the Company's success will depend in part upon its
ability to obtain orders from new customers, as well as the financial condition
and success of its customers and general economic conditions.

      The size of a contract for a particular customer can vary substantially
depending on whether the Company is providing only its own products and services
or is also responsible for supplying third party products and services. The
Company recognizes revenue using the percentage of completion method, which the
Company calculates based on total costs incurred compared to total costs
estimated by the Company for completion. Therefore, any significant increase in
the costs required to complete a project, or any


                                       11
<PAGE>

significant delay in a project schedule, could have a material adverse effect on
that contract's profitability and because of the size of each contract, on the
Company's overall results of operations. The Company from time to time has also
experienced certain implementation and other problems that have delayed the
completion of certain projects, including the failure of third parties to
deliver products or services on a timely basis and delays caused by customers.
The Company's contracts generally provide for payments upon the achievement of
certain milestones. Therefore, any significant delay in the achievement of
milestones on one or more contracts would affect the timing of the Company's
cash flows and could have a material adverse effect on the Company's business,
financial condition, operating results and cash flows. Any significant failure
by the Company to accurately estimate the scope of work involved, plan and
formulate a contract proposal, effectively negotiate a favorable contract price,
properly manage a project or efficiently allocate resources among several
projects could have a material adverse effect on the Company's business,
financial condition, operating results and cash flows.

Potential Fluctuations in Backlog

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

Limited Operating History; History of Losses; Increased Expenses

      The Company commenced operations in February 1993 and therefore has only a
limited operating history upon which an evaluation of its business and prospects
can be based. Due to non-recurring charges of $6.4 million, including $1.1
million with respect to restructuring certain operations and $5.3 million due to
changes in estimates to complete certain contracts in the UK operations taken in
September 1997, restructuring and reorganization charges of $2.0 million and
$688,374, respectively, taken in connection with the reorganization of the
Company and the acquisition of TelSoft in December 1995, and write-offs of $8.5
million and $10.0 million for acquired research and development taken in
connection with the acquisitions of MDSI UK in June 1996 and Alliance effective
April 1997, respectively, the Company incurred net losses of $11.5 million, $6.0
million , and $1.5 million in the years ended December 31, 1997, 1996 and 1995,
respectively. As of December 31, 1999, the Company had an accumulated deficit of
$12.3 million.

      Although the Company was profitable in its most recently completed fiscal
year, there can be no assurance that, in the future, the Company will realize
revenue growth or be profitable on a quarterly or annual basis. In addition, the
Company plans to increase its operating expenses to implement its eBusiness
strategy, expand its sales and marketing operations, fund greater levels of
research and development, broaden its customer support capabilities and increase
its administration resources. A relatively high percentage of the Company's
expenses is typically fixed in the short term as the Company's expense levels
are based, in part, on its expectations of future revenue. To the extent that
such expenses precede or are not subsequently followed by increased revenue, the
Company's business, financial condition, operating results and cash flows would
be materially adversely affected. In addition, in view of the Company's recent
revenue growth, the rapidly evolving nature of its business and markets, the
Company's limited operating history and the recent acquisitions, the Company
believes that period-to-period comparisons of financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance.

Integration of Acquisitions

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


                                       12
<PAGE>

New Product Development

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

eBusiness Development

      The Company intends to sell its Advantex family of mobile workforce
management and wireless connectivity application software products over the
Internet from a wirelessly-enabled ASP site on subscription or "per
transaction" basis. The Company's eBusiness products are targeted at Internet
intermediaries who offer a wide range of services, including home services
that to consumers and small and medium-sized businesses. The Company
anticipates that its operating expenses will increase as the Company
establishes a comprehensive 7 day, 24 hour customer service support center to
provide various levels of customer support for its eBusiness customers and
increases its development and marketing efforts. The Company does not
currently have any eBusiness customers, and there can be no assurance that
the Company will successfully implement its eBusiness strategy. There also
can be no assurance that the Company will be able to compete successfully
against current or future competitors or alliances of such competitors, or
that competitive pressures faced by the Company will not materially adversely
affect its business, financial condition, operating results and cash flows.

Management of Growth

      Since its inception, the Company has experienced rapid growth in product
sales, personnel, research and development activities, number and complexity of
products, the number and geographic focus of its targeted vertical markets and
product distribution channels. The total number of employees of the Company has
grown from nine employees in Canada in February 1993 to 453 employees located in
Canada, the United States and other international locations at December 31,
1999. In addition, the recent acquisition of Alliance has increased the number
of products the Company supports and markets, as well as the number of vertical
markets into which it sells products. The Company has also recently expanded the
geographical areas in which it operates. The Company believes that continued
growth in the number and complexity of products and in the number of personnel
will be required to maintain the Company's competitive position. The Company's
rapid growth, coupled with the rapid evolution of the Company's markets, has
placed, and is likely to continue to place, significant strains on its
management, administrative, operational and financial resources, as well as
increased demands on its internal systems, procedures and controls. The
Company's ability to manage recent and future growth will require the Company to
continue to improve its financial and management controls, reporting systems and
procedures on a timely basis, to implement new systems as necessary and to
expand, train, motivate and manage its sales and technical personnel. There can
be no assurance that the Company will be able to manage its growth successfully.
Failure to do so could have a material adverse effect on the Company's business,
financial condition, operating results and cash flows.

Dependence on Key Personnel

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

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


                                       13
<PAGE>

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 48% 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 telecommunications
market. See "Forward-Looking Statements." A decline in demand for the Company's
products in the utility or telecommunications markets as a result of
competition, technological change or otherwise, would have a material adverse
effect on the Company's business, financial condition, operating results and
cash flows. There can be no assurance that the Company will be able to continue
to diversify its product offerings or revenue base by entering into new vertical
markets.

Dependence on Marketing Relationships

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

      The Company intends to market its eBusiness products through a direct
sales force and through marketing relationships with ASP's that are offering
end-to-end suites of operating solutions to MDSI's targeted vertical markets,
wireless carriers and operators of Internet sites that aggregate smaller service
providers for home services. The Company anticipates that these marketing
relationships will be nonexclusive and may be terminated by either party without
cause. There can be no assurance that the Company's eBusiness solutions will be
compatible with these marketing partners or that they will not emphasize their
own or third-party products to the detriment of the Company's products. The
Company's failure to enter into marketing relationships, the failure of the
parties to perform under these agreements or the inability of the Company to
provide effective eBusiness solutions successfully could have a material adverse
effect on the Company's business, financial condition, operating results and
cash flows.

Competition

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

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

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

      The Company primarily competes in the utility market with Utility
Partners, L.C., M3i Systems, Inc. and Alterra Corp. The Company has several
competitors in the telecommunications market, a few of which have historical
relationships with certain of the large telecommunications companies. The
Company's primary competitor for telecommunications customers are Lucent
Technologies, Inc. and Telcordia. The Company's principal competitors in the
cable market are Telcordia and MobileForce Technologies, Inc. In the general
field service market, the Company's principal competitors are Astea
International Inc. and Metrix Inc. In the public safety

                                       14
<PAGE>

market, the Company's principal competitors are Cerulean, PRC, Tiberon Systems
and New World Systems. The Company's eBusiness will face competition from a
number of existing competitors and emerging Internet-based competitors,
including iMedion, ClickService (formerly IET), FieldCentrix, eDispatch,
PointServe, ServeClick and X-Time.

Risk of Product Defects

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

Proprietary Technology

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

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

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


                                       15
<PAGE>

Dependence on Third Parties

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

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

Exchange Rate Fluctuations

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

Risks Associated with International Operations

      In the years ended December 31, 1999, 1998 and 1997 revenue derived from
sales outside of North America accounted for approximately 24.8%, 3.4% and
10.1%, respectively of the Company's total revenue. Because the Company's
revenue is dependent, in large part, on significant contracts with a limited
number of customers, the percentage of the Company's revenues that is derived
from sales outside of North America has fluctuated, and may continue to
fluctuate, from period-to-period. The Company believes that its continued growth
and profitability will require additional expansion of its sales in foreign
markets, and that revenue derived from international sales will account for a
significant percentage of the Company's revenue for the foreseeable future. This
expansion has required and will continue to require significant management
attention and financial resources. The inability of the Company to expand
international sales in a timely and cost-effective manner could have a material
adverse effect on the Company's business, financial condition, operating results
and cash flows. There are a number of risks inherent in the Company's
international business activities, including changes in regulatory requirements,
tariffs and other trade barriers, costs and risks of localizing products for
foreign markets, longer accounts receivable payment cycles, difficulties in
collecting payments, reduced protection for intellectual property, potentially
adverse tax consequences, limits on repatriation of earnings, the burdens of
complying with a wide variety of foreign laws, nationalization, war,
insurrection, terrorism and other political risks and factors beyond the
Company's control. Fluctuations in currency exchange rates could adversely
affect sales denominated in foreign currencies and cause a reduction in revenue
derived from sales in a particular country. In addition, revenue of the Company
earned abroad may be subject to taxation by more than one jurisdiction, thereby
adversely affecting the Company's earnings. There can be no assurance that such
factors will not materially adversely affect the Company's future international
sales and, consequently, the Company's business, financial condition operating
results and cash flows.

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


                                       16
<PAGE>

merit, could have a material adverse effect on the Company's business, financial
condition, operating results and cash flows. The Company carries insurance
coverage for product liability claims which it believes to be adequate for its
operations.

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

      The Company's directors, officers and their respective affiliates, in the
aggregate, beneficially own approximately 21.0% of the outstanding Common
Shares. As a result, these shareholders, if acting together, may be able to
exercise significant influence over the Company and many matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may under
certain circumstances also have the effect of delaying, deferring or preventing
a change in control of the Company.

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

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

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

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

Market for the Common Shares; Potential Volatility of Stock Price

      The trading prices of the Common Shares have been subject to wide
fluctuations since trading of the Company's shares commenced in December 1995.
There can be no assurance that the market price of the Common Shares will not
significantly fluctuate from its current level. The market price of the Common
Shares may be subject to wide fluctuations in response to quarterly variations
in operating results, announcements of technological innovations or new products
by the Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors. In addition, the financial markets have
experienced significant price and volume fluctuations for a number of reasons,
including the failure of the operating results of certain companies to meet
market expectations that have particularly affected the market prices of equity
securities of many high-technology companies that have often been unrelated to
the operating performance of such companies. These broad market fluctuations, or
any industry-specific market fluctuations, may adversely affect the market price
of the Common Shares. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such a company. Such litigation, whether with or without
merit, could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, financial condition, operating results and cash flows.


                                       17
<PAGE>

Item 2: Properties

      The Company occupies approximately 92,000 square feet of leased office
space at its headquarters in Richmond, British Columbia for its product
development, marketing, support, administration and sales operations. The
Company has sub-let approximately 16,500 of this space until June 30, 2001 after
which time it intends to occupy such space. The lease expires on November 30,
2008 with two options to renew for five years each. 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.

Item 3: Legal Proceedings

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

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

Not applicable.


                                       18
<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>
<CAPTION>
                                        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>
1998
   First Quarter........      19.57          10.66          28.00          15.25           19.00         10.50
   Second Quarter.......      17.11          11.41          24.75          16.50           17.63         11.13
   Third Quarter........      14.09           7.92          21.35          12.00           14.13          7.88
   Fourth Quarter.......      17.83           9.40          27.50          14.50           18.00          9.25

1999
   First Quarter........      21.66          12.63          32.75           19.10          21.50         12.63
   Second Quarter.......      19.01          15.28          28.00          22.50           19.88         14.88
   Third Quarter........      18.17          11.51          27.00          17.10           18.38         11.38
   Fourth Quarter.......      26.14          12.34          38.50          18.15           26.50         12.25
</TABLE>

----------

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

      As of December 31, 1999 the Company had approximately 205 shareholders of
record (including nominees and brokers holding street accounts), 98 shareholders
of whom had addresses in the United States and who held 4,509,480 Common Shares,
or 61.1 % of the Company's outstanding Common Shares.

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


                                       19
<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, 1999, 1998, 1997, 1996 and 1995 and the
consolidated balance sheet data at December 31, 1999, 1998, 1997, 1996 and 1995
are derived from and are qualified by reference to the Company's audited
consolidated financial statements which were audited by Deloitte & Touche LLP.
This selected consolidated financial data is presented in conformity with
generally accepted accounting principles in the United States.

<TABLE>
<CAPTION>
                                                              Years ended December 31,
                                               1999       1998       1997        1996      1995(5)
                                             --------   --------   --------    --------   --------
                                                        (in thousands, except per share data)
<S>                                          <C>        <C>        <C>         <C>         <C>
Statement of Operations Data:
  Revenue ................................   $ 77,440   $ 67,099   $ 52,859    $ 31,934    $  9,313
  Gross profit ...........................     43,902     35,030     27,977      13,460       6,303
  Operating income (loss)(3) .............     11,529      8,988     (1,587)      3,320      (1,159)
  Net income (loss) for the year(1)(2) ...      1,374      5,499    (11,547)     (6,014)     (1,533)
  Diluted earnings (loss) per common share   $   0.18   $   0.82   $  (1.84)   $  (1.24)   $  (0.30)
  Weighted average shares outstanding ....      7,767      6,723      6,261       4,855       5,117

US$ Equivalent (4):
  Revenue ................................   $ 52,225   $ 45,057   $ 38,078    $ 23,397    $  6,803
  Gross profit ...........................     29,608     23,523     20,138       9,865       4,604
  Operating income (loss)(2)(3) ..........      7,775      6,035     (1,142)      2,433        (847)
  Net income (loss) for the year(1) ......        927      3,693     (8,312)     (4,408)     (1,120)
  Diluted earnings (loss) per common share   $   0.12   $   0.55   $  (1.33)   $  (0.91)   $  (0.22)
  Weighted average shares outstanding ....      7,767      6,723      6,261       4,855       5,117

<CAPTION>
                                                                                                           US$
                                                                                                      Equivalent(4)
                                                                At December 31,                        December 31,
Balance Sheet Data:                            1999       1998       1997        1996      1995(5)        1999
                                             -------    -------    -------     -------     -------     ------------
  Cash and cash equivalents...............   $21,289    $ 5,308    $   110     $20,207     $ 1,992       $14,743
  Working capital ........................    34,326     13,266      9,287      23,112      (1,752)       24,060
  Total assets ...........................    70,878     56,568     40,644      45,572       4,978        49,083
  Non-current liabilities ................     3,496      1,907        296          20       1,995         2,421
  Stockholders' equity ...................    50,523     30,819     23,836      26,836         559        34,779
</TABLE>

----------

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


                                       20
<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 fourth
paragraph under "Revenue", and the paragraphs entitled "Research and
Development", "Sales and Marketing" , and "General and Administrative" , in the
section entitled "Year ended December 31, 1999 Compared to the Year ended
December 31, 1998" contain forward looking statements. Actual results could
differ materially from those projected in the forward looking statements as a
result of the Company's ability to accelerate or defer operating expenses,
achieve revenue in a particular period, hire new personnel and other factors set
forth under "Business-Risk Factors" in Item 1 of this Annual Report on Form
10-K. In particular, note the Business-Risk Factors entitled "Potential
Fluctuations in Quarterly Operating Results", "Lengthy Sales Cycles",
"Dependence on Large Contracts and Concentration of Customers", "Limited
Operating History; Increased Expenses", "Integration of Acquisitions" and
"Competition."

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

Overview

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

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

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

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


                                       21
<PAGE>

      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 twelve months and are
invoiced either annually or monthly. Revenue for these services is recognized
ratably over the term of the contract.

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

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

      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.

                                       22
<PAGE>

Effects of Acquisitions

      The consolidated financial statements of the Company reflect the
acquisition of Alliance effective April 17, 1997, which was accounted for
using the purchase method.

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

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

Disposition of Transportation Business Unit

      In February 1999, the Company's Board of Directors approved a plan to
dispose of its Delivery segment (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 $5,532,730. The proceeds comprised of common shares
of DDS, representing an 11% interest in DDS, and a promissory note in the
principal amount of $500,000, due January 1, 2001, bearing interest at 8% per
annum.

      Under the terms of the agreement between the Company and DDS, the Company
has retained certain assets and liabilities of the discontinued operations. The
Company expects that it will liquidate these assets and liabilities by June 30,
2000. In addition, the Company has agreed to complete the implementation of a
large contract with a taxi customer. The Company has experienced, and is
continuing to experience delays in the implementation of this contract. If the
Company is unable to complete the implementation of the contract on a timely
basis, the taxi customer has the right to cancel the contract. Any such
cancellation may require the Company to reimburse the customer for payments
received to date. The Company believes that it has adequately provided for the
costs to complete this contract.


                                       23
<PAGE>

Disposition of Transportation Business Unit (Continued)

      As a result of the Company's decision to dispose of its Delivery segment,
the Delivery segment 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 Delivery
segment for the current and corresponding prior period.

      The Company's net income of $1.4 million for the year ended December
31, 1999 was comprised of a $7.2 million after-tax profit from continuing
operations and an after-tax loss of $5.9 million on discontinued operations.
The loss on discontinued operations is comprised of loss on operations of
$2.4 million and loss on disposal of $3.5 million. There is no tax effect on
these losses. The discontinued operating loss includes not only the results
of operations but also foreign exchange losses and provisions against
contracts to the measurement date of February 25, 1999. The loss on disposal
includes the operating results from the measurement date to the effective
date, the costs of disposal, severance costs, and the estimated costs to
complete the remaining taxi contract.

Results of Operations

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

<TABLE>
<CAPTION>
                                                      Years ended December 31,
                                                  --------------------------------
                                                    1999        1998        1997
                                                  --------    --------    --------
                                                            (in thousands)
<S>                                               <C>         <C>         <C>
Revenue:
   Software and services ......................   $ 59,231    $ 42,814    $ 34,789
   Third party products and services ..........      9,955      18,567      15,133
   Maintenance and support ....................      8,254       5,718       2,937
                                                  --------    --------    --------
                                                    77,440      67,099      52,859
Direct costs ..................................     33,538      32,069      24,882
                                                  --------    --------    --------
Gross profit ..................................     43,902      35,030      27,977
                                                  --------    --------    --------
Operating expenses:
   Research and development ...................      9,982       8,709       4,915
   Sales and marketing ........................     13,653      11,586       9,635
   General and administrative .................      8,361       5,370       3,934
   Amortization of intangible assets ..........        378         378         350
   Acquired research and development ..........         --          --      10,003
   Restructuring costs ........................         --          --         726
                                                  --------    --------    --------
                                                    32,374      26,043      29,564
                                                  --------    --------    --------
Operating income (loss) .......................     11,529       8,988      (1,587)
Other income ..................................     (1,124)         41         729
                                                  --------    --------    --------
Income (loss) before provision for income taxes     10,405       9,029        (858)
Provision for income taxes ....................     (3,178)     (2,726)     (2,702)
                                                  --------    --------    --------
Income (loss) from Continuing  operations .....      7,227       6,303      (3,560)
(Loss) from Discontinued  operations ..........     (5,853)       (804)     (7,987)
                                                  --------    --------    --------
Net income (loss) for the year ................   $  1,374    $  5,499    $(11,547)
                                                  ========    ========    ========
</TABLE>


                                       24
<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:

                                                    Years ended December 31,
                                                ------------------------------
                                                 1999        1998        1997
                                                ------      ------      ------

Revenue:
   Software and services ...................      76.4%       63.8%       65.8%
   Third party products and services .......      12.9        27.7        28.6
   Maintenance and support .................      10.7         8.5         5.6
                                                ------      ------      ------
                                                 100.0       100.0       100.0
Direct costs ...............................      43.3        47.8        47.1
                                                ------      ------      ------
Gross profit ...............................      56.7        52.2        52.9
                                                ------      ------      ------
Operating expenses:
   Research and development ................      12.9        13.0         9.3
   Sales and marketing .....................      17.6        17.3        18.2
   General and administrative ..............      10.8         8.0         7.4
   Amortization of intangible assets .......       0.5         0.6         0.7
   Acquired research and development .......        --          --        18.9
   Restructuring costs .....................        --          --         1.4
                                                ------      ------      ------
                                                  41.8        38.8        55.9
                                                ------      ------      ------
Operating income (loss) ....................      14.9        13.4        (3.0)
Other income ...............................      (1.5)        0.1         1.4
                                                ------      ------      ------
Income (loss) before provision for
      income taxes .........................      13.4        13.5        (1.6)
Provision for income taxes .................      (4.1)       (4.1)       (5.1)
                                                ------      ------      ------
Income (loss) from Continuing operations....       9.3         9.4        (6.7)

(Loss) from Discontinued  operations ......       (7.6)       (1.2)      (15.1)
                                                ------      ------      ------
Net income (loss) for the year .............       1.8%        8.2%      (21.8)%
                                                ======      ======      ======

Year ended December 31, 1999 Compared to the Year ended December 31, 1998

      Revenue - Revenue increased by $10.3 million (15.4%) for the year ended
December 31, 1999 as compared to the year ended December 31, 1998. The increase
was primarily due to the increase in software and services which was partially
offset by a decrease in the revenue earned from third party products and
services.

      Software and services revenue increased by $16.4 million (38.4%) for the
year ended December 31, 1999 as compared to the year ended December 31, 1998.
This increase was due to an 92% increase in the revenues earned from customers
in the telecommunications market.

      Third party products and services revenue decreased by $8.6 million
(46.4%) for the year ended December 31, 1999 compared to the year ended December
31, 1998. Third party products and services revenue is primarily earned from
certain customers in the utility market pursuant to agreements under which the
Company provides third party products and services, typically host computer
equipment and mobile computing devices, as part of the installation of software
and provision of services. Revenue from deliveries of third party products and
services will fluctuate from period to period given the timing of certain
contracts and the rollout schedules which are established primarily by the
customers. Accordingly, this will result in large fluctuations in revenue,
direct costs, gross profits and income from operations from one period to
another.

      Maintenance and support revenue was $8.3 million for the year ended
December 31, 1999 as compared to $5.7 million for the year ended December 31,
1998, an increase of 44.3%. Typically, maintenance and support revenue will
increase with the number of customers using MDSI's software.


                                       25
<PAGE>

      Direct Costs. Direct costs were 43.3% of revenue for the year ended
December 31, 1999 as compared to 47.8% for the year ended December 31, 1998.
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 host equipment and mobile devices on behalf of third party product
sales. Labor costs include direct payroll, benefits and overhead charges. The
decrease in proportion of direct costs to revenue relates primarily to the
decrease third -party products and services, which have higher direct costs.

      Gross Margins. Gross margins were 56.7% of revenue for the year ended
December 31, 1999 as compared to 52.2% for the year ended December 31, 1998. The
change in profit margin relates to the change in the mix in revenues. The
proportion in revenue of lower margin third-party products and services
decreased in 1999 compared to 1998.

      Research and Development. Research and development expenses were $10.0
million, or 12.9% of revenue, for the year ended December 31, 1999, compared to
$8.7 million, or 13.0% of revenue, for the year ended December 31, 1998. The
14.6% increase in research and development expenses in 1999 is a result of the
continued development and enhancement of the Company's Advantex products. The
Company anticipates continuing to commit a significant portion of its product
revenues to enhancement of existing products and the development of new
products, resulting in an anticipated increase in the dollar amounts of research
and development expenses.

      Sales and Marketing. Sales and marketing expenses were $13.7 million or
17.6% of revenue for the year ended December 31, 1999 and 17.3% of revenue for
the year ended December 31, 1998. This represents an increase of $2.1 million
(17.8%) as compared to 1998. The increase was primarily due to an increase in
marketing, sales and technical support personnel to support the Company's
increased marketing activities worldwide. The Company anticipates that the
dollar amounts of its sales and marketing expenses will continue to increase as
the result of the Company's commitment to its international marketing effort.

      General and Administrative. General and administrative expenses were $8.3
million, or 10.8% of revenue, for the year ended December 31, 1999 and $5.4
million, or 8.0% of revenue, for the year ended December 31, 1998. This increase
was due primarily to the hiring of additional accounting and administrative
personnel to support the Company's growth. The Company expects that its general
and administrative expenses will increase in the future as the Company expands
its staffing, information systems and other administrative costs to support its
expanding operations.

      Other Income(expense). Other income (expense) was $(1.1) million for the
year ended December 31, 1999 as compared to $0.0 million for the year ended
December 31, 1998. Substantially all of other income (expense) relates to
interest income on cash and short term deposits and fluctuations in foreign
currency denominated assets and liabilities.

      Income Taxes. The Company provided for income taxes on earnings for the
year ended December 31, 1999 at the rate of 29.5%, 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.


                                       26
<PAGE>

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

      Revenue - Revenue increased by $14.2 million (26.9%) for the year ended
December 31, 1998 as compared to the year ended December 31, 1997. This increase
in revenue can be attributed to the reflection in the financial statements of a
full year of Alliance's (now MDSI US) operations, in comparison to eight and
one-half months in the year ended December 31, 1997, and to the continued growth
of the existing business.

      Software and services revenue increased by $8.0 million (23.1%) for the
year ended December 31, 1998 as compared to the year ended December 31, 1997.
This increase is due primarily to the reflection of a full year of Alliance's
results in the financial statements, and additional revenue from customers in
both the telecommunications and utility markets.

      Third party products and services revenue increased by $3.4 million
(22.7%) for the year ended December 31, 1998 compared the year ended December
31, 1997. Third party products and services revenue is primarily earned from
certain customers in the utility market pursuant to agreements under which the
Company provides third party products and services, typically host computer
equipment and mobile computing devices, as part of the installation of software
and provision of services. Revenue from deliveries of third party products and
services will fluctuate from period to period given the timing of certain
contracts and the rollout schedules which are established primarily by the
customers. Accordingly, this will result in large fluctuations in revenue,
direct costs, gross profits and income from operations from one period to
another.

      Maintenance and support revenue was $5.7 million for the year ended
December 31, 1998 as compared to $2.9 million for the year ended December 31,
1997, an increase of 94.7%. Typically, maintenance and support revenue will
increase with the number of customers using MDSI's software.

      Direct Costs - Direct costs were 47.8% of revenue for the year ended
December 31, 1998 as compared to 47.1% for the year ended December 31, 1997.

      Direct costs include labor and other costs directly related to a project
including those related to the provision of services and support, and costs
related to host equipment and mobile devices on behalf of third party product
sales. Labor costs include direct payroll, benefits and overhead charges.

      Gross Margins. Gross margins were 52.2% of revenue for the year ended
December 31, 1998 as compared to 52.9% for the year ended December 31, 1997.


                                       27
<PAGE>

      Research and Development. Research and development expenses were $8.7
million, or 13.0% of revenue, for the year ended December 31, 1998, compared to
$4.9 million, or 9.3% of revenue, for the year ended December 31, 1997. The
77.2% increase in research and development expenses in 1998 is a result of the
continued development and enhancement of the Company's Advantex products. The
Company anticipates continuing to commit a significant portion of its product
revenues to enhancement of existing products and the development of new
products, resulting in an anticipated increase in the dollar amounts of research
and development expenses.

      Sales and Marketing. Sales and marketing expenses were $11.6 million or
17.3% of revenue for the year ended December 31, 1998 and 18.2% of revenue for
the year ended December 31, 1997. This represents an increase of $1.9 million
(20.2%) as compared to 1997. The increase was primarily due to an increase in
marketing, sales and technical support personnel to support the Company's
increased marketing activities worldwide. The Company anticipates that the
dollar amounts of its sales and marketing expenses will continue to increase as
the result of the Company's commitment to its international marketing effort.

      General and Administrative. General and administrative expenses were $5.4
million, or 8.0% of revenue, for the year ended December 31, 1998 and $3.9
million, or 7.4% of revenue, for the year ended December 31, 1997. This increase
was due primarily to the hiring of additional accounting and administrative
personnel to support the Company's growth. The Company expects that its general
and administrative expenses will increase in the future as the Company expands
its staffing, information systems and other administrative costs to support its
expanding operations.

      Other Income. Other income was $41,000 for the year ended December 31,
1998 as compared to $0.7 million for the year ended December 31, 1997.
Substantially all of other income relates to interest income on cash and short
term deposits and fluctuations in the currencies of the Company's foreign
operations.

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

Quarterly Results of Operations

      The following table sets forth certain unaudited statement of operations
data for each of the eight quarters beginning January 1, 1998 and ending
December 31, 1999 as well as the percentage of the Company's revenue represented
by each item. The unaudited financial statements have been prepared on the same
basis as the audited financial statements contained herein and include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary to present fairly this information when read in conjunction
with the Company's audited financial statements and the notes thereto appearing
elsewhere in this report. In view of the Company's recent growth, its recent
acquisitions and other factors, the Company believes that quarterly comparisons
of its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.


                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                               ------------------

                                              -----------------------------------------   -----------------------------------------
                                                                  1999                                           1998
                                              -----------------------------------------   -----------------------------------------
                                              Dec. 31    Sept. 30   June 30    March 31   Dec. 31    Sept. 30   June 30    March 31
                                              --------   --------   --------   --------   --------   --------   --------   --------
                                                                             (Unaudited, in thousands)
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Statement of Operations Data:
   Revenue:
     Software and services .................  $ 14,961   $ 15,658   $ 15,391   $ 13,221   $ 14,058   $ 11,027   $  9,906   $  7,823

     Third party products and services .....     1,419      1,992      2,459      4,086      8,044      6,719      2,936        868
     Maintenance and support ...............     2,312      2,504      1,913      1,524      1,696      1,616      1,273      1,133
                                              --------   --------   --------   --------   --------   --------   --------   --------
                                                18,693     20,154     19,762     18,832     23,799     19,362     14,115      9,824

   Direct costs ............................     7,633      8,859      8,247      8,799     11,881      9,646      6,038      4,503
                                              --------   --------   --------   --------   --------   --------   --------   --------
   Gross profit ............................    11,060     11,294     11,515     10,033     11,917      9,716      8,076      5,321
                                              --------   --------   --------   --------   --------   --------   --------   --------
   Operating expenses:
     Research and development ..............     2,514      2,514      2,515      2,440      2,759      2,509      1,788      1,653
     Sales and marketing ...................     3,163      2,914      3,697      3,880      3,215      2,776      2,875      2,720
     General and administrative ............     2,410      1,887      2,027      2,037      1,638      1,428      1,182      1,123
     Amortization of intangible assets .....        94         94         94         94         94         94         94         94
                                              --------   --------   --------   --------   --------   --------   --------   --------
                                                 8,181      7,409      8,333      8,451      7,706      6,807      5,938      5,590
                                              --------   --------   --------   --------   --------   --------   --------   --------
   Operating income (loss) .................     2,879      3,885      3,182      1,582      4,211      2,908      2,138       (269)
   Other income ............................      (453)        66       (491)      (245)       (77)      (182)       123        177
                                              --------   --------   --------   --------   --------   --------   --------   --------
   Income (loss) before income
       tax provision .......................     2,426      3,915      2,691      1,337      4,134      2,727      2,261        (92)
   Provision for income taxes ..............      (700)    (1,205)      (844)      (429)    (1,168)      (845)      (711)        (1)
    Income (loss) from continuing operations     1,726      2,746      1,847        907      2,965      1,881      1,550        (93)
   Income(loss) from discontinued operations        --         --         --     (5,853)      (443)      (117)      (413)       169
                                              --------   --------   --------   --------   --------   --------   --------   --------
   Net income (loss) for the period ........  $  1,726   $  2,746   $  1,847   $ (4,945)  $  2,522   $  1,764   $  1,136   $     76
                                              ========   ========   ========   ========   ========   ========   ========   ========
</TABLE>


                                       29
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                Three Months Ended
                                                                                ------------------

                                               -----------------------------------------   -----------------------------------------
                                                                   1999                                      1998
                                               -----------------------------------------   -----------------------------------------
                                               Dec. 31    Sept. 30   June 30    March 31   Dec. 31    Sept. 30   June 30    March 31
                                               -------    --------   -------    --------   -------    --------   -------    --------
<S>                                              <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
   Revenue:
     Software and services ..................     80.0%      77.7%      77.9%      70.2%      59.1%      56.9%      70.2%      79.6%
     Third party products and services ......      7.6        9.9       12.4       21.7       33.8       34.7       20.8        8.8
     Maintenance and support ................     12.4       12.4        9.7        8.1        7.1        8.3        9.0       11.5
                                                ------     ------     ------     ------     ------     ------     ------     ------
                                                 100.0      100.0      100.0      100.0      100.0      100.0      100.0      100.0
   Direct costs .............................     40.8       44.0       41.7       46.7       49.9       49.8       42.8       45.8
                                                ------     ------     ------     ------     ------     ------     ------     ------
   Gross profit .............................     59.2       56.0       58.3       53.3       50.1       50.2       57.2       54.2
                                                ------     ------     ------     ------     ------     ------     ------     ------
   Operating expenses:
     Research and development ...............     13.4       12.5       12.7       13.0       11.6       13.0       12.7       16.8
     Sales and marketing ....................     16.9       14.5       18.7       20.6       13.5       14.3       20.4       27.7
     General and administrative .............     12.9        9.4       10.3       10.8        6.9        7.4        8.4       11.4
     Amortization of intangible assets ......      0.5        0.5        0.5        0.5        0.4        0.5        0.7        1.0
                                                ------     ------     ------     ------     ------     ------     ------     ------
                                                  43.8       36.8       42.2       44.9       32.4       35.2       42.1       56.9
                                                ------     ------     ------     ------     ------     ------     ------     ------
   Operating income (loss) ..................     15.4       19.3       16.1        8.4       17.7       15.0       15.1       (2.7)
   Other income .............................     (2.4)       0.3       (2.5)      (1.3)      (0.3)      (0.9)       0.9        1.8
                                                ------     ------     ------     ------     ------     ------     ------     ------
   Income (loss) before income
      tax provision .........................     13.0       19.6       13.6        7.1       17.4       14.1       16.0       (0.9)
                                                ------     ------     ------     ------     ------     ------     ------     ------
   Recovery of (provision for)
      income taxes ..........................     (3.7)      (6.0)      (4.3)      (2.3)      (4.9)      (4.4)      (5.0)      (0.0)
                                                ------     ------     ------     ------     ------     ------     ------     ------
Income (loss) form continuing
      operations ............................      9.2       13.6        9.3        4.8       12.5        9.7       11.0       (0.9)
Income (loss) form discontinued
      operations ............................       --         --         --      (31.1)      (1.9)%     (.06)      (2.9)%      1.7
                                                ======     ======     ======     ======     ======     ======     ======     ======
   Net income (loss) for the period .........      9.2%      13.6%       9.3%     (26.3)%     10.6%       9.1%       8.1%       0.8%
                                                ======     ======     ======     ======     ======     ======     ======     ======
</TABLE>

Liquidity and Capital Resources

            The Company finances its operations, acquisitions and capital
expenditures with cash generated from operations, loans, private placements and
public offerings of its securities. At December 31, 1999, the Company had cash
and cash equivalents of $21.3 million and working capital of $34.3 million.

            Cash provided by (used in) operating activities was $3.5 million,
$8.4 million and $(1.1) million, respectively for the years ended December 31,
1999, 1998 and 1997. The $3.5 million of cash provided by operating activities
in 1999 comprised $7.2 million net income, non-cash charges of $2.4 million and
$(6.1) million of changes to non-cash working capital items. The changes to
working capital items include a $2.4 million increase in trade receivables, a
$287,000 increase in unbilled receivables, a $1.8 million decrease in prepaid
expenses and a $241,000 increase in accrued liabilities offset by a $4.9 million
decrease in trade payables, a $180,000 increase in taxes payable and a $499,000
decrease in deferred revenue. Unbilled accounts receivable arise where the
Company has earned revenue on a project though has yet to complete specific
billing milestones under the terms of the applicable contract. Deferred revenue
arises where the Company has achieved a billing milestone under a customer
contract but has yet to recognize all of the revenue billed due to the
percentage of completion under the contract. The $1.8 million decrease in
prepaid expenses is primarily attributable to expenses incurred with respect to
the Richmond facility, which were recovered from the landlord during the first
half of 1999.


                                       30
<PAGE>

            Cash provided by (used in) financing activities was $20.4 million,
$2.9 million and $(1.7) million, respectively during the years ended December
31, 1999, 1998 and 1997. The cash provided by financing activities in 1999
comprised $2.4 million in capital leases and $18.3 million from the issue of
common shares partially offset by a $377,000 repayment of long-term debt. During
1999, the Company financed a major portion of its capital expenditure program
through capital leases. The $18.3 million received for shares issued was made up
of a 575,000 common shares issue on a private placement for net consideration of
$14.7 million, exercise of stock options for proceeds of $3.2million and
purchases by employees under the Company's share purchase plan of $409,000.

            Cash used in investing activities was $5.7 million, $2.6 million,
$4.1 million, respectively for the years ended December 31, 1999, 1998 and 1997.
Total investing activity in 1999 consisted of $5.9 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, 1999 include $21.3
million of cash and cash equivalents and funds available under the Company's
operating line of credit. At the year ended December 31, 1999, the Company's
borrowing capacity under the line of credit was $8 million. Under the terms of
the agreement, borrowings and letters of credit under the line are limited to
60% to 90% of eligible accounts receivable. Borrowings accrue interest at the
bank's prime rate plus 0.5%. At December 31, 1999, the Company was not utilizing
this line of credit.

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

Derivative Financial Instruments

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

      The Company's foreign currency forward contracts are executed with
credit worthy banks and are denominated in currencies of major industrial
countries. As at December 31,1999, the Company had the following foreign
currency forward contracts outstanding: 1) sold 104,000,000 Belgian Franc for
delivery on October 31, 2000 for $4.3 million, 2) sold GBP sterling 350,000
and 180,000 for $ 814,660 and $ 418,860 to be delivered on May 31, 2000 and
September 29, 2000 respectively.

Item 7A: Quantitative and Qualitative Disclosure About Market Risk

      The Company's primary market risk is foreign currency exchange rates. The
Company has established procedures to manage sensitivity to foreign currency
exchange rate market risk. These procedures include the monitoring of the
Company's net exposure to each foreign currency and the use of foreign currency
forward contracts to hedge firm exposures to currencies other than the Canadian
and United States dollars. The Company has operations in the United States and
Europe in addition to its Canadian operations and except as note below did not
hedge these exposures in 1999. However, the Company may from time-to-time hedge
any net exposure to the United States dollar.

      As of December 31, 1999, 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 $4.9 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 has entered into foreign currency forward contracts in respect
of net exposures under customer contracts to the Belgian Franc and Great Britain
Pound. Effective January 1, 1999, the Belgian Franc is tied to the Euro, the new
European Union common currency. The effect of these transactions is to reduce
the potential reduction in future earnings from a hypothetical instantaneous 10%
change in quoted foreign currency exchange rates to $4.1 million.


                                       31
<PAGE>

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

Item 8: Financial Statements and Supplementary Data

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

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

      None.

                                    Part III

Item 10: Directors and Officers of the Registrant

      The following table sets forth certain information concerning the
Company's executive officers, officers, key employees and directors as of
December 31, 1999.

Name                            Age      Position
------------------------------  ---      ---------------------------------------
Executive Officers
Erik Dysthe...................   62      Chairman of the Board and Director
Kenneth R. Miller (1).........   44      Chief Executive Officer and Director
Robert G. Cruickshank (2).....   49      President, Chief Operating Officer and
                                           Director
Verne D. Pecho................   56      Vice President - Finance and
                                           Administration and Chief Financial
                                           Officer
Officers and Key Employees
Simon Backer..................   44      Senior Vice President - Customer
                                           Engineering
Douglas Engerman(6)              43      Senior Vice President - Operations
Geoffrey Engerman(6)..........   45      Vice President - US Operations
Tommy Lee.....................   36      Senior Vice President - Product
                                           Development
Gene Mastro...................   52      Senior Vice President - Sales
Rodney Neumann (3)............   37      Senior Vice President - Business
                                           Development
Paul Ballinger................   52      Vice President and Chief Information
                                           Officer
M. Greg Beniston..............   42      Vice President - Legal and Corporate
                                           Secretary
Glenn Y. Kumoi................   37      Vice President - Chief Legal Officer
Ronald P. Toffolo.............   48      Vice President - Human Resources
Directors
Gerald F. Chew (1)(4)(5)......   39      Director
Bruno Ducharme (4)(5).........   41      Director
Robert C. Harris, Jr. (1)(4)..   53      Director
John T. McLennan (4) .........   54      Director
Terrence P. McGarty (4)(5)....   56      Director
Marc Rochefort (4)............   52      Director

----------
(1)   Member of Compensation Committee.
(2)   Appointed as a director on February 1, 2000.
(3)   Appointed as an officer February 7, 2000.
(4)   Member of Corporate Governance and Nominating Committee.
(5)   Member of Audit Committee.
(6)   Douglas Engerman and Geoffrey Engerman are brothers.

      Erik Dysthe has served as Chairman of the Company since its inception. He
was also Chief Executive Officer of the Company from its inception to November
1998 and President from its inception until February 1996. From July 1989 to
March 1992, Mr. Dysthe was Vice President of Marketing and Sales at Orcatron
Systems.

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


                                       32
<PAGE>

Miller has served as President and Chief Executive Officer of Southview Equities
Ltd., a private investment company of which Mr. Miller is a controlling
shareholder.

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

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

      Simon Backer has served as Senior Vice President - Customer Engineering
since March 1999. 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.

      Douglas Engerman has served as Senior Vice President Operations since
October 1999. Prior to that he was Vice President - Utilities since November
1998. From July 1997 to October 1998 he was Vice President - Sales of MDSI USA.
From 1989 to 1997, he was Executive Vice President at Alliance and was
responsible for Sales and Marketing.

      Geoffrey Engerman has served as Senior Vice President - US Operations
since October 1999, and as Vice President - US Operations since July 1997. From
1994 to July 1997, Mr. Engerman was President and Chief Technology Officer of
Alliance. From 1983 to 1994, Mr. Engerman served as Vice President, Chief
Operating Officer of Alliance.

      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 McDonald, Dettwiler and Associates Ltd.

      Gene Mastro has served as Senior Vice President - Sales of the Company
since October 1999. From November 1997 to September 1999, Mr. Mastro was Vice
President Sales, Telecommunications of the Company. Form November 1988 to
October 1997, Mr. Mastro held various senior sales management positions at
Computer Sciences Corporation, most recently as Vice President Sales -
Communications Industry Division. From 1974 to 1988 he held various sales
management positions with IBM, Exxon and Chemical (Chase Manhattan) Bank.

      Rodney Neumann has served as Senior Vice President - Business Development
of the Company since February 2000. From 1998 to February 2000, Mr. Neumann was
a Vice President and General Manager at Kelman Technologies Inc. From 1986 to
1998 he held various technical and managerial positions at TELUS including
Director of Enhanced Services responsible for its unregulated Internet and
Ecommerce data communication services.

      Paul Ballinger has served as Vice President and Chief Information Officer
since November 1999. From September 1993 to March 1999, Mr. Ballinger held a
number of senior management positions at Telus (formerly BC Telephone Company),
including Vice President and General Manager, Enhanced Services and Vice
President, Business Design & Support. From 1991 to 1993, Mr. Ballinger was
Director, Management Consulting with DMR Group.

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

      Glenn Y. Kumoi has served as 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. From 1991 to 1994, Mr. Kumoi was a
lawyer at the firm of Richards, Buell, Sutton, Barristers and Solicitors in
Vancouver, British Columbia. Mr. Kumoi is also a director of eTVtech.com
Communications Inc.

      Ronald 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.


                                       33
<PAGE>

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

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

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

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

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

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

Board of Directors

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

Committees of the Board of Directors

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

      The Corporate Governance and Nominating Committee monitors and assesses
the corporate governance system in place in the Company, develops corporate
disclosure and insider trading policies, and monitors the effectiveness of the
Board of Directors, its size and composition, its committees and the individual
performance of its directors. The Corporate Governance and Nominating Committee
also identifies and recommends potential appointees to the Board of Directors,
reviews the adequacy of directors and officers third-party liability coverage,
ensures that annual strategic planning process and review is carried out and
approves appropriate orientation and education programs for new directors. The
members of the Corporate Governance and Nominating Committee are Marc Rochefort,
Gerald F. Chew, Robert C. Harris, Jr., John T. McLennan, Terrence P. McGarty and
Bruno Ducharme. Mr. Erik Dysthe was also appointed to this Committee in February
2000.

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

Section 16 (a) Beneficial Ownership Reporting Compliance

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


                                       34
<PAGE>

Item 11: Executive Compensation

Report of the Compensation Committee

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

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 25 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), providing for base salaries and
incentive plan bonuses as approved by the Board of Directors of the Company,
medical and dental benefits and reimbursement for certain expenses approved by
the Company.

Termination Arrangements

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

         Pension Arrangements

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


                                       35
<PAGE>

Summary Compensation Table ---

The following table sets forth all compensation paid in respect of the
individuals who were, at any time during the 1999, 1998 and 1997 financial years
of the Company, Chief Executive Officer of the Company or its subsidiaries and
the four most highly compensated executive officers among the Company and its
subsidiaries (collectively "Named Executive Officers"):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                          Annual Compensation (in Cdn.$)
                                                                       --------------------------------------        Long Term
                                                                                                                Compensation Awards
                                                                                                                -------------------
                                                                                                 Other Annual     Securities Under
                                                     Years Ending      Salary        Bonus       Compensation         Options
Name and Principal Position                          December 31         ($)           ($)            ($)               (#)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>           <C>             <C>             <C>
Kenneth R. Miller                                        1999          275,000       44,000          N/A                 Nil
Chief Executive Officer                                  1998          180,632          Nil          N/A             150,000
                                                         1997          115,436          Nil          N/A               7,500

-----------------------------------------------------------------------------------------------------------------------------------
Robert G. Cruickshank                                     1999          233,750       38,400          N/A             25,000
President and Chief Operating Officer                    1998              N/A          N/A          N/A             100,000
                                                         1997              N/A          N/A          N/A                 N/A

-----------------------------------------------------------------------------------------------------------------------------------
Robert Campbell(1)                                       1999          135,000      335,261          N/A                 Nil
Senior Vice President, Telecommunications/Cable          1998          135,000      106,532          N/A              35,000
                                                         1997          135,000       94,162          N/A               5,000


-----------------------------------------------------------------------------------------------------------------------------------
Gene Mastro                                              1999          246,880      352,350          N/A              35,000
Senior Vice President, Sales                             1998          238,284          Nil          N/A                 Nil
                                                         1997           37,059       21,394          N/A              30,000

-----------------------------------------------------------------------------------------------------------------------------------
Douglas Engerman(2)                                      1999          200,485      110,925          N/A               5,000
Senior Vice President, Operations                        1998          201,029      186,882(3)       N/A              30,000
                                                         1997           94,065      208,395(4)       N/A                 Nil
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Mr. Campbell resigned from the Company on December 31, 1999.
(2)   Mr. Engerman joined the Company in July 1997.
(3)(4) Non-recurring bonus paid to Mr. Engerman in connection with the Company's
      acquisition of Alliance Systems, Incorporated.


                                       36
<PAGE>

Stock Options

The following table sets forth stock options granted by the Company during the
financial year ended December 31, 1999 to any of the Named Executive Officers:

         Option Grants During the Financial Year Ended December 31, 1999

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                   Name                        Securities       % of Total       Exercise or     Market Value of    Expiration Date
                                             Under Options        Options        Base Price         Securities
                                              Granted (#)        Grantedto     (Cdn.$/Security)     Underlying
                                                               employees in                       Options on the
                                                              Financial Year                      Date of Grant
                                                                                                 (Cdn.$/Security)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>             <C>                <C>             <C>
Kenneth R. Miller                                 N/A               --               --                 --                 --
Chief Executive Officer

-----------------------------------------------------------------------------------------------------------------------------------
Robert G. Cruickshank                            25,000            4.9%            $20.00             $20.00          Oct. 1, 2004
President and Chief Operating Officer

-----------------------------------------------------------------------------------------------------------------------------------
Robert Campbell                                   N/A               --               --                 --                 --
Senior Vice President,
Telecommunications/Cable

-----------------------------------------------------------------------------------------------------------------------------------
Gene Mastro                                      35,000            6.9%            $18.00             $18.00         Aug. 24, 2004
Senior Vice President, Sales

-----------------------------------------------------------------------------------------------------------------------------------
Douglas Engerman                                  5,000            1.0%            $18.50             $18.50          Oct. 5, 2004
Senior Vice President, Operations

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

The following table sets forth details of each exercise of stock options during
the financial year ended December 31, 1999 by any of the Named Executive
Officers, and the financial year end value of unexercised options on an
aggregate basis:

      Aggregated Options Exercised During the Financial Year Ended December 31,
1999 and Financial Year-End Option Values

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                    Name                         Securities       Aggregate     Unexercised Options    Value of Unexercised in the
                                                 Acquired on        Value          At FY-End (#)         Money-Options at FY-End
                                                Exercise (#)     Realized ($)       Exercisable/           (Cdn.$) Exercisable/
                                                                                   Unexercisable           Unexercisable (1)(2)

-----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>               <C>                    <C>
Kenneth R. Miller                              Nil              Nil               166,249/56,251         $3,623,728/$1,215,201
Chief Executive Officer

-----------------------------------------------------------------------------------------------------------------------------------
Robert G. Cruickshank                          Nil              Nil                40,000/85,000           $680,000/$1,445,000
President and Chief Operating Officer

-----------------------------------------------------------------------------------------------------------------------------------
Robert Campbell                                Nil              Nil                  39,332/0                 $906,769/$0
Senior Vice President,
Telecommunications/Cable

-----------------------------------------------------------------------------------------------------------------------------------
Gene Mastro                                    Nil              Nil                28,054/36,946            $593,531/$716,559
Senior Vice President, Sales

-----------------------------------------------------------------------------------------------------------------------------------
Douglas Engerman                               Nil              Nil                14,166/20,834            $304,569/$432,931
Senior Vice President, Operations

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

(1)   Based on TSE closing price of Cdn.$37.00 on December 31, 1999.
(2)   Includes Options to purchase common shares within 60 days after December
      31, 1999.

Compensation of Directors

      In November 1998, the Company commenced paying its outside directors a
meeting stipend of US$2,500 for each board meeting they attended in person and
US$1,000 for certain committee meetings. During the financial year ended
December 31, 1999, the directors of the Company received aggregate cash
compensation of $64,792 for their services. The Directors were also reimbursed
for actual expenses reasonably incurred in connection with the performance of
their duties as Directors.

      Directors were also eligible to receive stock options issued pursuant to
the Company's Stock Option Plan and in accordance with rules and policies of The
Toronto Stock Exchange. On May 6, 1999, six Directors were each granted 3,000
stock options with vesting over two years at an exercise price of $25.50. These
stock options are subject to the grantee being a Director on the date of
vesting.


                                       37
<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,
1999, by (i) each person known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Shares, (ii) each director of the Company,
(iii) each Named Executive Officer, and (iv) all directors and officers as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Shares listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.

<TABLE>
<CAPTION>
                                                                     Number of Shares      % of total Shares
Directors, Named Executive Officers and 5% Shareholders(1)             Beneficially              Owned
                                                                         Owned(2)
----------------------------------------------------------           ----------------      -----------------
<S>                                                                    <C>                        <C>
Erik Dysthe(3)                                                           466,867                  6.27
Richmond, B.C.  CANADA

Kenneth R. Miller(4)                                                     411,303                  5.45
Richmond, B.C.  CANADA

Robert G. Cruickshank(5)                                                  40,123                     *
Richmond, B.C.  CANADA

Robert Campbell(6)                                                        41,120                     *
Richmond, B.C.  CANADA

Gene Mastro(7)                                                            28,054                     *
New Yoik, NY USA

Douglas Engerman(8)                                                       57,428                     *
Blaine, WA USA

Gerald F. Chew(9)                                                         33,282                     *
San Francisco, CA  USA

Bruno Ducharme(10)                                                        19,125                     *
Montreal, Q.B.  CANADA

Robert C. Harris, Jr. (11)                                                88,080                  1.19
San Francisco, CA USA

Terrence P. McGarty(12)                                                   21,587                     *
Florham Park, NJ USA

Marc Rochefort(13)                                                        12,930                     *
Montreal, Q.B.  CANADA

John T. McLennan(14)                                                      21,125                     *
Mahone Bay, N.S. CANADA
                                                                      ----------
All Directors, Named Executive Officers and Officers as a group        1,559,400                 20.92
   (20 persons) ................................................

5% Shareholders

Kern Capital Management(15)                                              732,500                  9.92
114 West 47th Street
New York, NY
                                                                      ----------
</TABLE>

----------
*     Represents beneficial ownership of less than 1% of the Common Shares.
(1)   Unless otherwise indicated, the address of each beneficial owner is that
      of the Company.
(2)   Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission, based on factors including voting and
      investment power with respect to shares. Common Shares subject to options
      currently exercisable, or exercisable within 60 days after December 31,
      1999, are deemed


                                       38
<PAGE>

      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, 1999, together with
      the applicable options of such shareholder.
(3)   Includes 338,498 Common Shares held by Erik Dysthe Holdings Co. and
      options to purchase 68,205 Common Shares exercisable within 60 days after
      December 31, 1999 held by Mr. Dysthe individually.
(4)   Includes options to purchase 166,249 Common Shares exercisable within 60
      days after December 31, 1999.
(5)   Includes options to purchase 40,000 Common Shares exercisable within 60
      days after December 31, 1999.
(6)   Includes options to purchase 39,332 Common Shares exercisable within 60
      days after December 31, 1999.
(7)   Represents options to purchase 28,054 Common Shares exercisable within 60
      days of December 31, 1999.
(8)   Includes options to purchase 14,166 Common Shares exercisable within 60
      days after December 31, 1999.
(9)   Represents options to purchase 33,282 Common Shares exercisable within 60
      days after December 31, 1999.
(10)  Represents options to purchase 19,125 Common Shares exercisable within 60
      days after December 31, 1999.
(11)  Includes options to purchase 36,250 Common Shares exercisable within 60
      days after December 31, 1999.
(12)  Includes 1,170 Common Shares held by The Telmarc Group Inc. and options to
      purchase 20,417 Common Shares exercisable within 60 days after December
      31, 1999.
(13)  Includes options to purchase 11,500 Common Shares exercisable within 60
      days after December 31, 1999.
(14)  Represents options to purchase 21,125 Common Shares exercisable within 60
      days after December 31, 1999.
(15)  Beneficially owned by Robert E. Kern, Jr. and David G. Kern.

Item 13: Certain Relationships and Related Transactions

      In April 1996, the Company entered into an employment agreement with Erik
Dysthe, the Company's Chairman. In December 1998, the Company entered into an
employment agreement with Kenneth R. Miller, the Company's Chief Executive
Officer. In February 1999, the Company entered into an employment agreement with
Robert G. Cruickshank, the Company's President and Chief Operating 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.

                                     Part IV

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

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

(a)   1.    Consolidated Financial Statements

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

      2.    Consolidated financial statement schedules and Report of Independent
            Auditors are included as follows:

            Schedule II: Valuation and Qualifying Accounts

      3.    Exhibits:

            The following Exhibits are filed as part of this report:

            +2.1  Agreement and Plan of Merger dated April 17, 1997 among the
                  Company, MDSI Acquisition Corp., Alliance, Geoffrey Engerman
                  and Doug Engerman (previously filed as Exhibit 2.2)
            *3.1  Articles of Incorporation of the Company
            *3.2  Articles of Amendments of the Company
            *3.3  By-laws of the Company


                                       39
<PAGE>

                *4.1  Form of Common Share Certificate
             ++*10.1  1996 Stock Option Plan
             ++*10.2  1997 Stock Option Plan
             ++*10.3  1998 Stock Option Plan
              ++10.4  Stock Purchase Plan
              ++10.5  1999 Stock Option Plan
               *10.6  Form of Indemnification Agreement between the Company and
                      certain officers of the Company (previously filed as
                      Exhibit 10.4)
               *10.7  Promissory Note dated January 2, 1996 granted by the
                      Company and TelSoft in favor of Killean Consulting Inc.
                      (previously filed as Exhibit 10.8)
               *10.8  Promissory Note dated January 2, 1996 granted by the
                      Company and TelSoft in favor of 382904 B.C. Ltd.
                      (previously filed as Exhibit 10.9)
              +*10.9  Employment Agreement dated April 1, 1996 between the
                      Company and Erik Dysthe (previously filed as Exhibit
                      10.18)
             +*10.10  Employment Agreement dated July 1, 1995 between the
                      Company and Kenneth R. Miller (previously filed as Exhibit
                      10.19)
              *10.11  Lease dated September 25, 1997 between Sun Life Assurance
                      Company of Canada and the Company (previously filed as
                      Exhibit 10.20)
              *10.12  Lease dated June 2, 1989 between Corporate Woods
                      Associates and Service Systems International Limited and
                      subsequent amendments (previously filed as Exhibit 10.23)
              *10.13  Lease dated April 8, 1993 between Cambridge Scanning
                      Company Limited and Spectronics Micro Systems Limited
                      (previously filed as Exhibit 10.25)
           **++10.14  Employment Agreement dated February 1, 1999 between the
                      Company and Robert Cruickshank
           **++10.15  Employment Agreement dated February 1, 1999 between the
                      Company and Kenneth Miller
               10.16  Master Purchase and Sale Agreement dated June 1, 1999
                      Between Digital Dispatch Systems Inc. and the Company
                      (without schedules or exhibits)(1)

                21.1  List of the Company's Subsidiaries

                23.1  Consent of Deloitte & Touche LLP.

----------
*     Previously filed as exhibits with the same corresponding number with the
      Registrants' Registration Statement on Form F-1 (Registration No.
      J33-5872) and amendments numbers 1 and 2 thereto, filed with the
      Securities and Exchange Commission on October 28, 1996, November 13, 1996
      and November 25, 1996, respectively.
**    Previously filed as exhibits with the same corresponding number with the
      Registrant's Form 10-Q for the quarterly period ended September 30, 1999.
++    This document has been identified as a management contract or compensatory
      plan or arrangement.
+     Previously filed as an exhibit to Registrant's Registration Statement on
      Form F-4
(1)   The Company agrees to supplementally furnish a copy of any omitted
      schedule or exhibit to the Securities and Exchange Commission upon
      request.
(b)   Report on Form 8-K

         None.


                                       40
<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 29, 2000.

                                  MDSI MOBILE DATA SOLUTIONS INC.


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

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

<TABLE>
<CAPTION>
         Signature                                     Title                                      Date
-------------------------------   ------------------------------------------------------      --------------

<S>                               <C>                                                         <C>
/S/ KENNETH R. MILLER             Chief Executive Officer and Director (Principal
-------------------------------   Executive Officer)                                          March 29, 2000
Kenneth R. Miller


/S/ ROBERT G. CRUICKSHANK         President, Chief Operating Officer and Director             March 29, 2000
-------------------------------
Robert G. Cruickshank


/S/ VERNE D. PECHO                Vice President - Finance and Administration and Chief
-------------------------------   Financial Officer (Principal Financial and Accounting
Verne D. Pecho                    Officer)                                                    March 29, 2000


/S/ ERIK DYSTHE
-------------------------------   Chairman of the Board and Director                          March 29, 2000
Erik Dysthe


/S/ GERALD F. CHEW                Director
-------------------------------   (Authorized U.S. Representative)                            March 29, 2000
Gerald F. Chew


/S/ BRUNO DUCHARME
-------------------------------   Director                                                    March 29, 2000
Bruno Ducharme


/S/ ROBERT C. HARRIS, JR.         Director                                                    March 29, 2000
----------------------------
Robert C. Harris, Jr.


/S/ TERRENCE P. MCGARTY           Director                                                    March 29, 2000
-------------------------------
Terrence P. McGarty


/S/ MARC ROCHEFORT                Director                                                    March 29, 2000
-------------------------------
Marc Rochefort


/S/ JOHN T. MCLENNAN              Director                                                    March 28, 2000
-------------------------------
John T. McLennan
</TABLE>


                                       41
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                          INDEX TO FINANCIAL STATEMENTS

                                                                        Page
                                                                        ----

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

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

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

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

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

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


                                      F-1

<PAGE>

Report of Independent Auditors

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

We have audited the accompanying consolidated balance sheets of MDSI Mobile Data
Solutions Inc. as at December 31, 1999 and 1998 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, 1999. 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, 1999
and 1998 and the results of its operations and cash flows for each of the years
in the three year period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.


/S/ DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, British Columbia
February 3, 2000


                                      F-2
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                           Consolidated Balance Sheets
                         (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                                                       At December 31,
                                                                ----------------------------
                                                                    1999            1998
                                                                ------------    ------------
<S>                                                             <C>             <C>
Assets
Current assets
        Cash and cash equivalents                               $ 21,288,733    $  5,308,259
        Accounts receivable, net
           Trade                                                  18,982,034      16,603,944
           Unbilled                                                8,076,566       7,789,586
        Prepaid expenses                                           1,612,715       3,458,348
        Deferred income taxes (note 9)                               414,878       1,016,766
        Current portion of lease receivable (note 3)                 558,357         560,478
                                                                ------------    ------------
                  Total current assets                            50,933,283      34,737,381
Lease receivable (note 3)                                            193,003         845,889
Investments and advances, at cost (note 4)                         5,975,921              --
Capital assets, net (note 5)                                       9,217,847       5,137,296
Long term deferred income taxes (note 9)                             418,523              --
Intangible assets, net (note 6)                                    2,752,802       3,130,334
                                                                ------------    ------------
                                                                  69,491,379      43,850,900
Assets of discontinued operations (note 16)                        1,386,449      12,717,456
                                                                ------------    ------------
Total assets                                                    $ 70,877,828    $ 56,568,356
                                                                ============    ============

Liabilities and stockholders' equity
Current liabilities
        Accounts payable                                        $  2,267,631    $  7,140,470
        Accrued liabilities                                        3,559,318       3,320,436
        Income taxes payable (note 9)                              2,262,620       2,442,571
        Deferred revenue                                           6,819,376       7,317,895
        Current portion of long-term debt (note 7)                        --         377,332
        Current obligations under capital lease (note 11)          1,698,702         872,917
                                                                ------------    ------------
                  Total current liabilities                       16,607,647      21,471,621
Obligations under capital leases (note 11)                         3,496,431       1,907,037
                                                                ------------    ------------
                                                                  20,104,078      23,378,658
Liabilities of discontinued operations (note 16)                     250,303       2,370,579
                                                                ------------    ------------
Total liabilities                                                 20,354,381      25,749,237
                                                                ------------    ------------

Commitments and contingencies (note 11)

Stockholders' equity
        Common stock (note 8)
          Authorized:
            Unlimited common shares with no par value Issued:
            1999: 7,381,212 shares; 1998: 6,562,088 shares        62,968,249      44,637,778
        Treasury stock (13,475 shares)                              (122,743)       (122,743)
        Deficit                                                  (12,322,059)    (13,695,916)
                                                                ------------    ------------
                                                                  50,523,447      30,819,119
                                                                ------------    ------------
Total liabilities and stockholders' equity                      $ 70,877,828    $ 56,568,356
                                                                ============    ============
</TABLE>


                                      F-3
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                      Consolidated Statements of Operations
                         (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                                 --------------------------------------------
                                                      1999            1998            1997
                                                 ------------    ------------    ------------
<S>                                              <C>             <C>             <C>
Revenue
    Software and services                        $ 59,231,093    $ 42,813,657    $ 34,789,024
    Third party products and services               9,955,219      18,567,358      15,133,211
    Maintenance and support                         8,253,831       5,718,298       2,936,952
                                                 ------------    ------------    ------------
                                                   77,440,143      67,099,313      52,859,187

Direct costs                                       33,537,701      32,068,823      24,882,301
                                                 ------------    ------------    ------------
Gross profit                                       43,902,442      35,030,490      27,976,886
                                                 ------------    ------------    ------------
Operating expenses
    Research and development                        9,981,939       8,709,118       4,915,448
    Sales and marketing                            13,653,380      11,585,547       9,635,329
    General and administrative                      8,360,837       5,370,346       3,934,315
    Amortization of intangible assets                 377,532         377,532         350,239
    Restructuring costs (note 15)                          --              --         725,748
    Acquired research and development (note 2)             --              --      10,002,982
                                                 ------------    ------------    ------------
                                                   32,373,688      26,042,543      29,564,061
                                                 ------------    ------------    ------------
Operating income (loss)                            11,528,754       8,987,947      (1,587,175)
Other income (expense)                             (1,123,783)         41,362         729,265
                                                 ------------    ------------    ------------
Income (loss) before tax provision                 10,404,971       9,029,309        (857,910)

Provision for income taxes (note 9)                (3,178,328)     (2,725,957)     (2,702,498)
                                                 ------------    ------------    ------------

Income (loss) from continuing operations            7,226,643       6,303,352      (3,560,408)

Loss from discontinued operations (note 16)        (5,852,786)       (804,408)     (7,986,628)
                                                 ------------    ------------    ------------

Net income (loss) for the year                   $  1,373,857    $  5,498,944    $(11,547,036)
                                                 ============    ============    ============

Earnings (loss) per common share
    Earnings(loss) from continuing operations
     Basic                                       $       1.00           $0.97          $(0.57)
                                                 ============    ============    ============

     Diluted                                     $       0.93           $0.94          $(0.57)
                                                 ============    ============    ============

    Net earnings (loss)
     Basic                                       $       0.19           $0.85          $(1.84)
                                                 ============    ============    ============

     Diluted                                     $       0.18           $0.82          $(1.84)
                                                 ============    ============    ============

Weighted average shares outstanding
     Basic                                          7,245,071       6,504,188       6,261,001
                                                 ============    ============    ============

     Diluted                                        7,773,462       6,722,823       6,261,001
                                                 ============    ============    ============
</TABLE>


                                      F-4
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Consolidated Statements of Stockholders' Equity
                         (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                             Common Stock
                                    ------------------------------  Special        Treasury
                                       Shares         Amount        Warrants         Stock          Deficit          Total
                                    ------------   ------------   ------------    ------------    ------------    ------------
<S>                                    <C>         <C>            <C>             <C>             <C>             <C>
Balance, January 1, 1997               5,703,294   $ 30,681,176   $  3,925,100    $   (122,743)   $ (7,647,824)   $ 26,835,700

      Issued on exercise of
        stock options                    107,010      1,275,842             --              --              --       1,275,842
      Issued under Stock
        Purchase Plan                     21,671        343,843             --              --              --         343,843
      Issued on acquisition of
        Alliance (Note 2 )               347,750      6,928,078             --              --              --       6,928,078
      Issued on conversion of
        special warrants (Note 8)        280,000      3,925,100     (3,925,100)             --              --              --
      Net loss for the year                   --             --             --              --     (11,547,036)    (11,547,036)
                                    ------------   ------------   ------------    ------------    ------------    ------------

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

      Issued on exercise of
        stock options                     32,844        448,944             --              --              --         448,944
      Issued under Stock
        Purchase Plan (Note 8)            17,919        303,395             --              --              --         303,395
      Issued on conversion of
        warrants (Note 8)                 51,600        731,400             --              --              --         731,400
      Net income for the year                 --             --             --              --       5,498,944       5,498,944
                                    ------------   ------------   ------------    ------------    ------------    ------------

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

      Issued on exercise of
        stock options                    215,980      3,185,880             --              --              --       3,185,880
      Issued under Stock
        Purchase Plan (Note 8)            28,144        408,654             --              --              --         408,654
      Issued on public
        offering (Note 8)                575,000     14,735,937             --              --              --      14,735,937
      Net income for the year                 --             --             --              --       1,373,857       1,373,857
                                    ------------   ------------   ------------    ------------    ------------    ------------

Balance, December 31, 1999             7,381,212   $ 62,968,249   $         --    $   (122,743)   $(12,322,059)   $ 50,523,447
                                    ============   ============   ============    ============    ============    ============
</TABLE>


                                      F-5
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                      Consolidated Statements of Cash Flows
                         (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                                                                   Years ended December 31,
                                                                         --------------------------------------------
                                                                              1999            1998            1997
                                                                         ------------    ------------    ------------
<S>                                                                      <C>             <C>             <C>
Cash flows from operating activities
    Income (loss) from continuing operations for the year                $  7,226,643    $  6,303,352    $ (3,560,408)
    Items not affecting cash:
         Depreciation and amortization                                      2,219,092       1,298,480       1,773,284
         Deferred income taxes                                                183,365       1,079,778         454,513
         Acquired research and development                                         --              --      10,002,982
         Changes in non-cash operating working capital items (note 13)     (6,131,864)       (251,950)     (9,726,389)
                                                                         ------------    ------------    ------------
    Net cash provided by (used in) operating activities                     3,497,236       8,429,660      (1,056,018)
                                                                         ------------    ------------    ------------

Cash flows from financing activities
    Issuance of common shares                                              18,330,471       1,483,739       1,619,685
    Repayment of long-term debt                                              (377,332)       (134,446)     (3,295,348)
    Proceeds from (repayment of) capital leases                             2,415,179       1,560,119         (53,856)
                                                                         ------------    ------------    ------------

    Net cash provided by (used in)  financing activities                   20,368,318       2,909,141      (1,729,519)
                                                                         ------------    ------------    ------------

Cash flows from investing activities
    Long term lease receivable repayment                                      655,007              --              --
    Acquisition of Alliance (note 2)                                               --              --      (1,892,426)
    Advances                                                                 (443,191)             --              --
    Acquisition of capital assets                                          (5,922,111)     (2,607,807)     (2,182,689)
                                                                         ------------    ------------    ------------

    Net cash used in investing activities                                  (5,710,295)     (2,607,807)     (4,075,115)
                                                                         ------------    ------------    ------------

Net cash provided by continuing operations                                 18,155,259       8,730,994      (6,860,652)

Net cash (used by) discontinued operations                                 (3,003,237)     (3,532,852)    (13,236,250)
                                                                         ------------    ------------    ------------

Net cash inflow (outflow)                                                  15,152,022       5,198,142     (20,096,902)

Cash and cash equivalents, beginning of year                                6,136,711         110,117      20,207,019
                                                                         ------------    ------------    ------------

Cash and cash equivalents, end of year                                   $ 21,288,733    $  5,308,259    $    110,117
                                                                         ============    ============    ============

Supplemental disclosure of cash flow information

    Cash payments for interest                                           $    199,641    $    140,475    $    182,513
                                                                         ============    ============    ============

    Cash receipts for interest                                           $    790,304    $    147,420    $    344,697
                                                                         ============    ============    ============

    Cash payments for taxes                                              $  3,405,769    $    224,667    $    417,701
                                                                         ============    ============    ============
</TABLE>


                                       F-6
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                      Consolidated Statements of Cash Flows
                         (Expressed in Canadian dollars)

SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES

In February 1999, the Company adopted a plan to dispose of the Transportation
Business Unit which was completed on June 1, 1999. The Company disposed of the
Transportation Business Unit for proceeds of $5,532,730 comprised of common
shares representing an 11% interest in Digital Dispatch Systems, Inc. and a
promissory note in the principal amount of $500,000, due January 1, 2001 and
bearing an interest rate of 8% per annum.

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

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

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


                                      F-7
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

1.    SIGNIFICANT ACCOUNTING POLICIES

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

      (a)   Basis of presentation

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

      (b)   Nature of operations

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

      (c)   Research and development

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

      (d)   Revenue recognition

            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 (SOP 98-4). The Company adopted SOP 97-2
            effective for the Company's year ended December 31 1998. Based upon
            our interpretation of SOP 97-2 and SOP 98-4, the Company believes
            its current revenue recognition policies and practices are
            consistent with SOP 97-2 and SOP 98-4. Additionally, the AICPA
            issued SOP 98-9, which provides certain amendments to SOP 97-2,
            which is effective for transactions entered into beginning July 1,
            1999. This pronouncement has not materially impacted the Company's
            revenue recognition practices.

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

            (i)   Software and services

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

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

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

            (iii) Maintenance and support

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


                                      F-8
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (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

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

      (f)   Goodwill

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

      (g)   Foreign exchange

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

      (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.
            Management believes that it is more likely than not that the Company
            will generate sufficient taxable income to allow the realization of
            the recorded deferred tax assets.

            (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
                  common shares issuable upon the conversion of the special
                  warrants (using the if-converted method) and incremental
                  shares issuable upon the exercise of stock options and share
                  purchase warrants (using the treasury stock method).


                                      F-9
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (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,
            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. The Company
            had forward contracts as outlined in note 11(c).

      (m)   Stock-based compensation

            The Company accounts for stock-based compensation using the
            intrinsic value based method whereby compensation cost is recorded
            for the excess, if any, of the quoted market price of the common
            share over the exercise price at the date granted for all common
            stock options. As at December 31, 1999, no compensation cost has
            been recorded for any period under this method.

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

<TABLE>
<CAPTION>
                                               1999              1998             1997
                                         --------------    --------------   --------------
<S>                                      <C>               <C>              <C>
Net income (loss) for the year           $   (3,753,354)   $    2,130,833   $  (13,258,031)
                                         ==============    ==============   ==============
Diluted income (loss) per common share   $        (0.48)   $         0.32   $        (2.12)
                                         ==============    ==============   ==============
</TABLE>

            Using the fair value method for stock-based compensation, additional
            compensation costs of approximately $5,127,211 would have been
            recorded for the year ended December 31, 1999 (1998 - $3,368,111 and
            1997 - $1,710,995, respectively). This amount is determined using an
            option pricing model assuming no dividends are to be paid, an
            average vesting period of three years, a weighted average annualized
            volatility of the Company's share price of 65.14% (1998 - 56.03% and
            1997 - 43.93% respectively) and a weighted average annualized risk
            free interest rate at 5.00% (1998 - 5.00% and 1997 - 5.00%
            respectively).

      (n)   Comprehensive income

            SFAS 130, Reporting Comprehensive Income, establishes standards for
            the reporting and display of comprehensive income and its components
            in a full set of general purpose financial statements.
            Reclassification of financial statements for earlier periods
            presented is required. As the Company's operations do not generate
            any other comprehensive items, the adoption of this standard has no
            affect on the Company's financial statements.

      (o)   Segmented information

            SFAS 131, Disclosures About Segments of an Enterprise and Related
            Information, establishes new standards for the reporting of
            segmented information in annual financial statements and requires
            the reporting of certain selected segmented information on interim
            reports to shareholders. The Company adopted SFAS 131 for the year
            ended December 31, 1997 (note 12).


                                      F-10
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued

      (p)   Accounting for derivative instruments and hedging activities

            In June 1998, the Financial Accounting Standards Board issued
            Statement No. 133 (SFAS 133), Accounting for Derivative Instruments
            and Hedging Activities, which standardizes the accounting for
            derivative instruments and is effective for all fiscal quarters of
            all fiscal years beginning after June 15, 1999. The Company
            anticipates that the adoption of this statement, which requires the
            accounting recognition of derivatives at fair value, will not have a
            significant effect on the Company's financial position or results of
            operations. SFAS 137 defers the date of implementation to June 15,
            2000. The impact on the Company's financial statements has not been
            determined.

      (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.

2.    ACQUISITIONS

      Alliance Systems Incorporated

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

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

      Estimated fair value of net assets acquired:

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

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


                                      F-11
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

3.    LEASE RECEIVABLE

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

                                                   1999           1998
                                               -----------    -----------

      Total lease payments due                 $   771,893    $ 1,552,842
      Less: amount representing interest           (20,533)      (146,475)
                                               -----------    -----------
      Present value of lease payments              751,360      1,406,367
      less: current portion                       (558,357)      (560,478)
                                               -----------    -----------
                                               $   193,003    $   845,889
                                               ===========    ===========

      The lease has an effective interest rate of 7.25% and is payable in equal
      monthly instalments over 36 months with a remaining life of 16 months.


                                      F-12
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

4.    INVESTMENTS AND ADVANCES

                                                                  1999     1998
                                                              ----------   ----

      Investment in Digital Dispatch Systems Inc. (note 16)   $5,032,730   $ --
      Promissory note (note 16)                                  500,000     --
      Other advances                                             443,191     --
                                                              ----------   ----
      Total investments and advances                          $5,975,921   $ --
                                                              ==========   ====

5.    CAPITAL ASSETS

                                                 1999              1998
                                            ------------      ------------

      Computer hardware and software        $  8,390,577      $  5,280,566
      Furniture and fixtures                   2,837,268           130,663
      Vehicles                                    73,471            98,503
      Leasehold improvements                     327,224           196,697
                                            ------------      ------------
                                              11,628,540         5,706,429
      Less: accumulated depreciation          (2,410,694)         (569,134)
                                            ------------      ------------
                                            $  9,217,846      $  5,137,295
                                            ============      ============


6.    INTANGIBLE ASSETS

                                                  1999            1998
                                              -----------     -----------

      Goodwill                                $ 3,775,314     $ 3,775,314
      Less: accumulated amortization           (1,022,512)       (644,980)
                                              -----------     -----------
                                              $ 2,752,802     $ 3,130,334
                                              ===========     ===========

7.    LONG-TERM DEBT

                                                1999                 1998
                                             ---------            ---------

      Stockholders (i)                       $      --            $  72,800
      Promissory notes (ii)                         --              304,532
                                             ---------            ---------
                                                    --              377,332
      Less: current portion                         --             (377,332)
                                             ---------            ---------
                                             $      --            $      --
                                             =========            =========

            (i)   Stockholders

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

            (ii)  Promissory notes

                  The Company issued promissory notes in the amount of
                  US$214,219 as part of the Alliance acquisition (note 2 ) to
                  former stockholders of Alliance. The promissory notes were
                  unsecured, bearing interest at the rate of 6.07% and matured
                  January 1, 1999.


                                      F-13
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

8.    STOCKHOLDERS' EQUITY

      (a)   Stock options

            The Company adopted its Stock Option Plan to provide options to
            purchase common shares of the Company for its employees, officers,
            directors and consultants. The options granted pursuant to the Stock
            Option Plan are exercisable at a price which is equal to the fair
            market value of the common shares at the time the options are
            granted. The maximum number of common shares reserved for issuance
            under the Stock Option Plan, including current options outstanding,
            is 2,181,678 common shares. Information regarding the Company's
            stock options is as follows:

                                                                       Weighted
                                                      Number of        Average
                                                       Shares           Price
                                                     ----------       ---------
      Outstanding at January 1, 1997                    624,999           13.29

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

        Granted                                       1,112,750           16.56
        Exercised                                       (32,844)          13.78
        Cancelled                                      (403,218)          23.67
                                                     ----------
      Outstanding at December 31, 1998                1,655,206           16.01


        Granted                                         561,500           19.76
        Exercised                                      (215,980)          14.75
        Cancelled                                      (102,192)          15.75
                                                     ----------
      Outstanding at December 31, 1999                1,898,534           17.28
                                                     ==========

      The following table summarizes information concerning options outstanding
      at December 31, 1999:

                            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, 1999      (months)        Price     31, 1999    Price
---------------     --------      --------        -----     --------    -----
 $10.38-$15.50       985,135         9.81       $ 14.75     754,747    $ 14.41
 $16.00-$20.00       712,399        29.12         18.91     111,640      18.96
 $21.00-$25.00       138,000        25.73         22.56      84,639      22.44
 $25.50-$29.00        63,000        36.00         26.87          --         --
                   ---------        -----       -------     -------    -------
                   1,898,534        22.23       $ 17.28     951,026    $ 15.66
                   =========        =====       =======     =======    =======


                                      F-14
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

8.    STOCKHOLDERS' EQUITY (continued)

            At December 31,1998 and 1997, 618,368 and 414,547 options were
            exercisable at a weighted average exercise price of $14.81 and
            $13.15 respectively.

      (b)   Stock purchase plan

            The Company has established a voluntary stock compensation
            arrangement for its full and part-time employees to purchase common
            shares of the Company by way of payroll deductions for a maximum of
            $10,000 for each employee per year. The subscription price of common
            shares purchased under the Stock Purchase Plan is determined based
            upon a weighted average market price of the Company's common shares
            each quarter, less 15%. The Company has reserved 100,000 common
            shares for issuance pursuant to the Stock Purchase Plan. During the
            year ended December 31, 1999, 28,144 common shares were issued under
            this Plan.

      (c)   Special warrants and share purchase warrants

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

      (d)   Stock transactions

            On January 29, 1999, the Company completed a public offering for the
            sale and issue of 575,000 common shares at a price of $27.75 per
            share for net proceeds of $14,735,937 (net of offering costs of
            $1,220,313).

      (e)   Alliance employee stock ownership plan

            Prior to the Company's acquisition of Alliance, the Alliance
            employees participated in an employee stock ownership plan (the
            ESOP). Upon the Company's acquisition of Alliance (note 2), the
            remaining unallocated shares held by the ESOP were allocated to
            employees. At December 31, 1999, 99,079 shares of the Company were
            held by the ESOP of which all have vested and are in the process of
            being distributed.

      (f)   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.


                                      F-15
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

9.    INCOME TAXES

      The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                     1999            1998            1997
                                                                 -----------     -----------     -----------
<S>                                                              <C>             <C>             <C>
      Current:
        Canada                                                   $   799,670     $(1,872,670)    $(1,945,359)
        Foreign                                                   (3,794,632)        226,461        (302,626)
                                                                 -----------     -----------     -----------
          Total current provision for income taxes                (2,994,962)     (1,646,209)     (2,247,985)
                                                                 -----------     -----------     -----------
      Deferred:
        Canada                                                      (694,951)        594,237              --
        Foreign                                                      511,586      (1,674,015)       (454,513)
                                                                 -----------     -----------     -----------
         Total deferred provision for income taxes                  (183,365)     (1,079,778)       (454,513)
                                                                 -----------     -----------     -----------
      Provision for income taxes                                 $(3,178,327)    $(2,725,987)    $(2,702,498)
                                                                 ===========     ===========     ===========
</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 before tax provision due to the following:

<TABLE>
<S>                                                              <C>             <C>             <C>
      Statutory tax rate                                                45.0%           45.0%           45.0%

      (Provision for) recovery of income taxes computed
         at statutory rate                                       $(5,103,385)    $(3,142,549)    $    10,629
      Tax losses and (benefits) not recognized in the period
        that the benefit arose                                      (761,020)      1,528,458              --
      Lower effective rate on earnings of foreign subsidiaries     3,215,126        (647,530)      2,307,309
      Acquired research and development costs not
        deductible for tax purposes                                       --              --      (4,501,342)
      Amortization of intangibles not deductible for tax
        purposes                                                    (377,532)       (377,532)       (350,239)
      Other permanent differences                                   (151,518)        (86,804)       (168,855)
                                                                 -----------     -----------     -----------
      Provision for income taxes                                 $(3,178,329)    $(2,725,957)    $(2,702,498)
                                                                 ===========     ===========     ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                      1999            1998            1997
                                                                 -----------     -----------     -----------
<S>                                                              <C>             <C>             <C>
      Depreciation                                               $   393,223     $        --     $        --
      Deferred revenue                                              (299,372)     (1,132,761)        258,233
      Operating loss carry forwards                                 (848,586)        114,225        (712,746)
      Other                                                          571,370         (61,242)             --
                                                                 -----------     -----------     -----------
      Total deferred provision for income taxes                  $  (183,365)    $(1,079,778)    $  (454,513)
                                                                 ===========     ===========     ===========
</TABLE>

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


                                      F-16
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

9.    INCOME TAXES (Continued)

                                                   1999           1998
                                               -----------    -----------
      Current

      Operating loss carry forwards            $   414,878    $ 1,016,766
                                               -----------    -----------
      Net current deferred tax asset           $   414,878    $ 1,016,766
                                               ===========    ===========

                                                   1999           1998
                                               -----------    -----------
      Non-current

      Depreciation                             $  (393,223)   $    40,271
      Other                                        811,746         (4,631)
                                               -----------    -----------
                                                   418,523         35,640
      Less: valuation allowance                         --        (35,640)
                                               -----------    -----------
      Net non-current deferred tax asset       $   418,523    $        --
                                               ===========    ===========

      At December 31, 1999, the Company has the following loss carry-forwards
      available for tax purposes:

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

      Canada                                   $ 600,000      2003 through 2004

      Netherlands                            NLG 580,000      unlimited

10.   RELATED PARTY TRANSACTIONS

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


                                      F-17
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

11.   COMMITMENTS AND CONTINGENCIES

      (a)   Capital and operating leases

            At December 31, 1999, future minimum payments under capital and
            non-cancellable operating leases for office space and computer
            equipment are as follows:

                                                      Capital       Operating
                                                       leases         leases
                                                    -----------    -----------
      2000                                          $ 2,022,743    $ 2,506,163
      2001                                            2,414,822      2,463,462
      2002                                            1,216,280      2,482,153
      2003                                               66,324      2,503,267
      2004                                                   --      2,542,381
      Thereafter                                             --     12,248,614
                                                    -----------    -----------
      Total minimum lease payments                    5,720,169    $24,746,040
                                                                   ===========
      Less: amount representing interest               (525,036)
                                                    -----------
      Present value of net minimum lease payments     5,195,133
      Less: current portion                          (1,698,702)
                                                    -----------
                                                    $ 3,496,431
                                                    ===========

            Rent expense for the year ended December 31, 1999 in respect of
            operating leases for office space was $2,798,804 (1998 - $2,728,233;
            1997 - $1,583,767).

      (b)   Line and letters of credit

            The Company has an operating line of credit with a Canadian
            commercial bank to borrow up to $8,000,000 which bears interest at
            prime plus 0.5%. As at December 31, 1999, the Company was not
            utilizing the operating line of credit. The Company has provided, as
            performance bonds, an irrevocable revolving letter of credit in the
            amount of Belgian Franc 101,068,000 maturing May 28, 2001, a bank
            guarantee in the amount of Danish Kroner 9,740,000, which matured,
            undrawn, at February 2, 2000 and a bank guarantee in the amount of
            Belgian Franc 3,060,000 maturing August 30, 2001 all with the same
            bank. The Company has pledged an amount equal to the letters of
            credit and guarantee against its operating line of credit as
            security.

      (c)   Foreign exchange forward contracts

            The Company has entered into a forward contract for Belgian Franc
            104,000,000 with a delivery date of October 31, 2000, a forward
            contract for GBP 350,000 with a delivery date of May 31, 2000 and a
            forward contract for GBP 180,000 with a delivery date of September
            29, 2000. All three foreign exchange forward exchange contracts have
            been accounted for as foreign currency hedges for specific foreign
            currency transactions.


                                      F-18
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

12.   SEGMENTED INFORMATION

      Segmented information

      In 1997, the Company adopted the Financial Accounting Standards Board
      statement No.131 (SFAS 131) requiring disclosure of a company's business
      segments. In 1998, the Company reported two business segments - Field
      Service and Delivery based on the differing capabilities of the software
      and hardware platforms offered to customers. In February 1999, the
      Company's Board of Directors approved a plan to dispose of its Delivery
      Segment which was subsequently sold effective June 1, 1999 (note 16). As a
      result the Company now has only one business segment and therefore does
      not provide a detailed breakdown other than provided by its general
      purpose financial statements.

      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>
<CAPTION>
                          1999                        1998                        1997
                -------------------------   -------------------------   -------------------------
                               Long-lived                 Long-lived                  Long-lived
                  Revenue        assets       Revenue       assets        Revenue       assets
                -----------   -----------   -----------   -----------   -----------   -----------
<S>             <C>           <C>           <C>           <C>           <C>           <C>
Canada          $ 2,480,095   $13,046,173   $ 2,984,562   $ 3,429,687   $ 1,975,850   $ 2,222,706
United States    55,737,104     4,981,648    61,847,684     5,614,529    45,525,859     4,712,938
Europe           16,968,400       106,120     1,917,269        55,713     2,826,037        59,623
Asia              2,254,544            --            --            --            --            --
South America            --            --       349,798            --     2,531,441            --
Other                    --         7,978            --        13,590            --        14,907
                -----------   -----------   -----------   -----------   -----------   -----------
                $77,440,143   $18,141,919   $67,099,313   $ 9,113,519   $52,859,187   $ 7,010,174
                ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

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

      Major customers

      During the year ended December 31, 1999, the Company earned revenue from
      one customer of $9,442,816 (1998 - one customer of $6,129,753; 1997 - one
      customer of $7,598,277). No other single customer accounted for more than
      10% of total revenue.


                                      F-19
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

13.   CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS

<TABLE>
<CAPTION>
                                                     1999           1998           1997
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
      Accounts receivable                        $(2,665,070)   $(7,462,658)   $(3,455,667)
      Work in progress                                    --         66,963        413,879
      Prepaid expenses                             1,845,633     (2,546,559)      (763,192)
      Income taxes payable                          (179,951)       577,909      1,864,662
      Accounts payable and accrued liabilities    (4,633,957)     4,581,954     (8,658,058)
      Deferred revenue                              (498,519)     4,530,441        871,987
                                                 -----------    -----------    -----------
                                                 $(6,131,864)   $  (251,950)   $(9,726,389)
                                                 ===========    ===========    ===========
</TABLE>

14.   FINANCIAL INSTRUMENTS

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

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

                                 1999                   1998
                          -------------------   -------------------
                          Carrying    Fair      Carrying    Fair
                           Amount     Value      Amount     Value
                          --------   --------   --------   --------
      Long-term debt:
        Stockholders      $     --   $     --   $ 72,800   $ 72,800
        Promissory note         --         --    304,532    295,229
                          --------   --------   --------   --------
                          $     --   $     --   $377,332   $368,029
                          ========   ========   ========   ========

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

15.   PROVISION FOR RESTRUCTURING

      During the year ended December 31, 1997, the Company recorded a one-time
      charge of $725,748 with respect to restructuring of certain operations.


                                      F-20
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

16.   DISCONTINUED OPERATIONS

In February 1999, the Company's Board of Directors approved a plan for the sale
of the Transportation Business Unit which develops mobile workforce software for
the taxi, courier and roadside recovery markets. The disposition was completed
June 24, effective June 1, 1999, for proceeds of $5,532,730. The proceeds
comprise common shares representing an 11% interest in Digital Dispatch Systems
Inc., a supplier of dispatch systems to the taxi market, and an 8%, $500,000
promissory note due January 1, 2001.

For the year ended December 31, 1999, the Company recorded a one-time charge of
$5,852,786 concurrent with the decision to discontinue the Delivery segment of
the Company's business. Certain contracts were retained for completion during
the year 2000. The estimated cost to complete these contracts is included in the
one-time charge.

This business is accounted for as a discontinued operation 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 operation,
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 contract.


                                      F-21
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 1999, 1998 and 1997
                         (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
Results of discontinued operations
---------------------------------------------------------------------------------------------------------------------
                                                         December 31, 1999    December 31, 1998    December 31, 1997
                                                         -----------------    -----------------    -----------------
<S>                                                         <C>                 <C>                 <C>
  Revenues                                                  $  4,008,198        $ 16,283,541        $ 17,420,993
                                                            ============        ============        ============
  Loss before income taxes                                    (2,375,492)           (940,473)         (8,369,952)
  Income tax                                                          --             136,065             383,324
                                                            ------------        ------------        ------------
  Operating loss to measurement date                          (2,375,492)           (804,408)         (7,986,628)
  Estimated loss on disposal
     (net of nil income taxes)                                (3,477,294)                 --                  --
                                                            ------------        ------------        ------------
  Loss from discontinued operations                         $ (5,852,786)       $   (804,408)       $ (7,986,628)
                                                            ============        ============        ============
Financial position of discontinued operations
---------------------------------------------------------------------------------------------------------------------
                                                         December 31, 1999    December 31, 1998    December 31, 1997
                                                         -----------------    -----------------    -----------------
  Current assets                                            $  1,386,449        $  9,147,621        $ 10,050,048
  Long term assets                                                    --           2,741,383           3,467,507
                                                            ------------        ------------        ------------
  Total assets of discontinued operations                   $  1,386,449        $ 11,889,004        $ 13,517,555
                                                            ============        ============        ============

  Current liabilities                                       $    250,303        $  2,370,579        $  5,744,111
  Long term liabilities                                               --                  --                  --
                                                            ------------        ------------        ------------
  Total liabilities of discontinued operations              $    250,303        $  2,370,579        $  5,744,111
                                                            ============        ============        ============
Cash flow of discontinued operations
---------------------------------------------------------------------------------------------------------------------
                                                         December 31, 1999    December 31, 1998    December 31, 1997
                                                         -----------------    -----------------    -----------------
  Operating activities                                      $ (2,871,759)       $ (2,454,603)       $(12,399,682)
  Investing activities                                          (131,480)            (94,786)           (405,144)
  Financing activities                                                --                  --            (428,424)
                                                            ------------        ------------        ------------
  Cash provided by (used for) discontinued operations       $ (3,003,239)       $ (2,549,389)       $(13,233,250)
                                                            ============        ============        ============
</TABLE>


                                      F-22