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

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

                                    FORM 10-K

|X|  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended December 31, 2001

                                       OR

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

For the transition period from ______________ to ______________

                         Commission file number 0-28968

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

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

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

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

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

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

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

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

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

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

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

     Aggregate  market  value  of  the   Registrant's   Common  Shares  held  by
non-affiliates as of March 25, 2002 was approximately US$33,293,415.  The number
of shares of the Registrant's Common Shares outstanding as of March 25, 2002 was
8,761,425.



<PAGE>

                                TABLE OF CONTENTS


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

Item 2:  Properties...........................................................20

Item 3:  Legal Proceedings....................................................20

Item 4:  Submission of Matters to a Vote of Security Holders..................20

Item 5:  Market for Registrant's Common Equity And Related
           Stockholder Matters................................................21

Item 6:  Selected Financial Data..............................................24

Item 7:  Management's Discussion and Analysis of Financial Condition
           and Results of Operations..........................................25

Item 7A:  Quantitative and Qualitative Disclosure About Market Risk...........40

Item 8:  Financial Statements and Supplementary Data..........................41

Item 9:  Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure...............................................67

Item 10:  Directors and Officers of the Registrant............................67

Item 11:  Executive Compensation..............................................70

Item 12:  Security Ownership of Certain Beneficial Owners and Management......75

Item 13:  Certain Relationships and Related Transactions......................76

Item 14:  Exhibits, Financial Statement Schedules and Reports on Form 8-K.....76



                                       i
<PAGE>

Forward-Looking Statements

     Certain   statements  in  this  Annual  Report  on  Form  10-K   constitute
forward-looking  statements  within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking  statements involve known
and unknown  risks,  uncertainties  and other  factors that may cause the actual
results,  performance or achievements of MDSI Mobile Data Solutions Inc. ("MDSI"
or  the  "Company"),  or  developments  in the  Company's  industry,  to  differ
materially from the anticipated results,  performance or achievements  expressed
or implied by such forward-looking statements. Such factors include, but are not
limited to: the Company's limited operating  history,  lengthy sales cycles, the
Company's  dependence  upon  large  contracts  and  relative   concentration  of
customers, the failure of MDSI to achieve anticipated levels of cost savings and
the risk that such cost  reduction may  adversely  affect the ability of MDSI to
achieve its business objectives, the failure of MDSI to successfully execute its
business  strategies,  the effect of  slowing  United  States and  international
economies  generally,  as well as economic trends and conditions in the vertical
markets  that MDSI serves,  the effect of the risks  associated  with  technical
difficulties  or delays  in  product  introductions  and  improvements,  product
development,  product pricing or other  initiatives of MDSI's  competitors,  the
possibility that our potential customers will defer purchasing  decisions due to
economic  or  other  conditions  or  will  purchase   products  offered  by  our
competitors,   risks   associated  with  litigation  and  the  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.

<TABLE>
                                   U.S. Dollars Per Canadian Dollar

                         2001              2000             1999              1998             1997
                         ----              ----             ----              ----             ----
<S>                    <C>              <C>               <C>              <C>               <C>
Period End           US$0.6275        US$0.6666         US$0.6925        US$0.6504         US$0.6999
Average                 0.6461           0.6740            0.6744           0.6715            0.7198
High                    0.6714           0.6983            0.6925           0.7105            0.7487
Low                     0.6227           0.6397            0.6535           0.6341            0.6945
</TABLE>


     On March  25,  2002 the noon  buying  rate was  CDN$1.00  =  US$0.6312  The
Canadian dollar is convertible  into U.S.  dollars at freely floating rates, and
there are currently no  restrictions  on the flow of Canadian  currency  between
Canada and the United States. Unless stated otherwise, all financial information
is expressed in United States dollars.





                                       ii
<PAGE>

                                     Part I


Item 1:  Business

The Company

     MDSI Mobile Data Solutions Inc. is a leading  provider of mobile  workforce
management solutions. MDSI's suite of applications improves customer service and
relationships,  and reduces  operating costs by empowering  service companies to
optimally manage their mobile, field resources. The Company also provides all of
the  professional  services,  wireless  connectivity,  and hosting  capabilities
necessary to implement and support its solutions. Founded in 1993, MDSI has over
100 major customers  worldwide with operations and support offices in the United
States, Canada, Europe and Australia. MDSI markets its solutions to a variety of
companies that have substantial field service organizations, primarily utilities
(electric,   gas  and  water  companies),   telecommunications   companies,  and
cable/broadband  companies,  and to a much lesser extent to insurance  companies
and  commercial  field  service  providers.  MDSI's  products  are  used by such
companies in conjunction  with public and private  wireless data  communications
networks  and  mobile  devices  to  provide  comprehensive   solutions  for  the
automation of business processes associated with the scheduling, dispatching and
management of a mobile workforce.  Through the Company's Hosting and Information
Technology (IT) Services subsidiary, Connectria Corporation ("Connectria"),  the
Company  also  provides  hosting  and IT  services,  including  outsourcing  and
consulting, to a wide variety of customers.

     Unless the context otherwise  requires,  references herein to "MDSI" or the
"Company"  refer to MDSI Mobile Data  Solutions Inc. and its  subsidiaries.  The
Company's  principal  executive  offices are located at 10271  Shellbridge  Way,
Richmond,  British  Columbia,  Canada V6X 2W8, and its telephone  number at that
location   is  (604)   207-6000.   The   Company's   web  site  is   located  at
www.mdsi-advantex.com.  Information  contained on the  Company's web site is not
part of this report.


Background

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

     o    Missed appointments;

     o    Unnecessary overtime;

     o    Repeat customer visits to get the job done right;

     o    Jobs that take too long to complete;

     o    Delayed status reports;

     o    Inadequate information collected from/supplied to the field;

     o    Redundant data entry work; and

     o    Excessive driving time.

     Historically,  these  organizations have managed and supported their mobile
workers by  communicating  information  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 commercial
field service. Businesses



                                      -1-
<PAGE>

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 ongoing  trends in the  regulatory  environment,
numerous  technological  advances and competitive pressures have reduced many of
these  limitations and have provided,  and will continue to provide a compelling
case for the adoption of mobile data  solutions by field service  organizations.
Deregulation  has  exposed the  utility  and  telecommunications  markets to new
competitive  pressures,  driving businesses within those markets to seek ways to
reduce costs,  improve operations,  efficiently  allocate resources and increase
the quality of customer  service.  In  addition,  the  availability  of powerful
mobile computing devices has permitted the development of sophisticated software
applications.  Finally,  public data networks  providing services at lower costs
than ever are now widely  available in North America,  and similar  networks are
available in Europe and Austral-Asia .  Consequently,  the Company believes that
mobile data solutions may now be implemented  without the difficulty and expense
of   establishing   a   private   radio   network,    thereby   increasing   the
cost-effectiveness  of such systems. The Company believes that these trends will
continue to increase  the  likelihood  of adoption of mobile data  solutions  by
companies with field service organizations. See "Forward-Looking Statements."


The MDSI Solution

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

     MDSI's  products  are  designed to  interface  with a variety of public and
private mobile data networks,  including PCS networks and  satellite-based  data
transmission networks, and are compatible with a variety of operating platforms,
computer  networks and  in-house  applications.  The most recent  version of the
Company's  software is also designed to be  Internet-enabled,  allowing  service
companies'  dispatchers and mobile  technicians to use web browsers to interface
with the Company's  software and enable the users to manage their work.  For the
mobile user, that browser can be located on a variety of mobile devices, such as
a laptop, personal digital assistant, pager or web phone.

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




                                      -2-
<PAGE>

Advantex r7

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

     Advantex is the result of more than ten years of  development  and has been
field  validated by over 100  companies in the utility,  telecommunications  and
cable/broadband  industries.  Advantex  uses  global  standards,  such as  CORBA
(Common Object Request Broker  Architecture),  Java, HTML, XML, WAP and Unicode,
and  industry   standard   products,   such  as  Oracle's   database  and  BEA's
infrastructure  tools, to deliver a solution that meets  customers'  needs for a
scalable,  open and  interoperable  solution.  Advantex has been implemented for
customers supporting as few as 70 and as many as 7,000 mobile workers.  Advantex
can be offered as an  "enterprise"  solution  delivered and  implemented  on the
customer's  site,  or as an ASP  solution  (Advantex  ASP) hosted  offsite.  The
primary components of Advantex are:

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

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

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

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

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

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

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

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

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



                                      -3-
<PAGE>

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

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

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


Professional and Customer Support Services

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


Professional  Services

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

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

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

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

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

     MDSI also offers mobile workforce management practices assessment services,
to help customers assess where they stand against their peers, as well as mobile
workforce  management  consulting and training services,  to enable customers to
make the most  effective  use of  Advantex  in their  organizations  to  improve
customer satisfaction and increase operational efficiency. At December 31, 2001,
the Company had 172 professional services personnel,  of whom 91 were located in
Canada, 74 in the United States and 7 in Copenhagen.




                                      -4-
<PAGE>

Customer Support

     The  Company  believes  that its  ability to offer a high level of customer
support is  critical  to its  success.  The  Company's  customer  support  group
provides MDSI customers with telephone and on-line  technical support as well as
product  updates.  Most MDSI  customers  enter into  separate  customer  support
agreements,  which may be annual or on a multi-year  basis,  that take effect on
the expiration of the product  warranty  period,  which is typically 90 days. At
December 31, 2001,  the Company had 48 customer  support  personnel,  of whom 33
were located in Canada, 11 in the United States and 4 in Copenhagen.


Markets

     MDSI has combined its  expertise in software  application  development  and
mobile data communications technology with its understanding of the unique needs
of targeted  vertical markets to develop mobile workforce  management  solutions
that address the specific  needs of businesses  within those  vertical  markets.
Traditionally,  the Company has focused  its  attention  on mid and  large-sized
customers in the telecommunications,  cable/broadband,  and utilities (electric,
gas and water)  markets.  To a lesser  extent,  the  Company has also served the
commercial field service and public safety markets,  though recently the Company
decided to stop pursuing  opportunities in the public safety market. See "Public
Safety" below.  The Company  evaluates new target  markets for mobile  workforce
management based upon their similarity to existing vertical markets in which the
Company has been successful,  and upon the ability of the Company to utilize its
core  competencies and proven technology to meet the needs of companies in these
new markets.  The Company  believes that its markets will grow, both in terms of
number of potential customers and revenues, in the future,  particularly outside
North America. See "Forward-Looking Statements."

     Utilities.  The utilities market targeted by the Company primarily consists
of electric, gas and water companies in the United States, Canada, Europe and to
a lesser  extent  Austral-Asia.  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, electric and water utilities located in the United States,  Canada,
Europe and  Austral-Asia.  MDSI believes that the total number of utilities with
more than 100 mobile workers  (MDSI's  typical target market) exceeds 400 in the
United States alone.

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

     The telecommunications  market consists of wireline providers of local, and
long-distance  services,  wireless  communication  service  providers  and  ISPs
(Internet service providers).  The wireline market in North America is comprised
of IXCs  (Inter-exchange  carriers),  ILECs (Incumbent Local Exchange Carriers),
and CLECs  (Competitive  Local  Exchange  Carriers).  In  Europe,  the  national
telecommunication  providers  are  referred  to  as  PTT's  (Post,  Telephone  &
Telegraph).  MDSI has  installed  or has a contract  to supply its  products  to
numerous telecommunication companies worldwide, including Belgacom S.A., Bravida
A.S.A, Eircom plc, and TDC Tele Danmark A/S. MDSI believes that the total number
of telecommunications companies and cable/broadband companies with more than 100
mobile workers (MDSI's typical target market) exceeds 300 and 100, respectively,
in  the  United   States   alone.   Although,   only  a  small   percentage   of
telecommunications companies have adopted mobile workforce management solutions,
MDSI believes that a number of major telecommunications companies are evaluating
the  need  for such a  system,  and that  this  market  will  grow as  companies
implement  new  technology  to improve  their  competitiveness,  efficiency  and
service levels as the worldwide deregulation of the  telecommunications  markets
continues to unfold. The Company anticipates,  however,  that continued economic
uncertainty in the telecommunications  and cable/broadband  markets will have an
adverse  impact  on  software  and  services  revenues  in the short  term.  See
"Forward-Looking Statements."



                                      -5-
<PAGE>

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

     Changes in the regulatory environment and technological developments,  such
as satellite television have led to the introduction of significant  competition
in the cable market.  MDSI sees this enhanced level of competition as being very
positive  for its  business.  MDSI  believes  that growing  competition  and the
introduction  of new  services  will lead cable  operators  to adopt mobile data
solutions to improve  their  competitiveness,  efficiency  and level of customer
service. See "Forward-Looking Statements."

     Commercial Field Service. The commercial field service market consists of a
large  number of  organizations  who  provide  general  field  services as their
business.  These organizations  include companies engaged in the maintenance and
repair  of  IT/Networking   services,   office   equipment,   medical/scientific
equipment,   industrial  equipment,  and  HVAC  (Heating,  Ventilation  and  Air
Conditioning) systems,  amongst others. To date, the Company has not focused its
primary attention on this market, but it has had some penetration. MDSI believes
that the total  number of such  companies  with  more  than 100  mobile  workers
(MDSI's typical target market) exceeds 3,500 in the United States alone.

     For the  commercial  field  service  industry,  MDSI is in the  process  of
developing  a subset of Advantex  that is  primarily  comprised  of the Advantex
Wireless and Advantex  Mobile  components.  MDSI  anticipates  integrating  this
solution with field service products from other independent software vendors who
serve the commercial field service market, and offering the integrated  solution
to the market through joint sales and marketing efforts.

     Public  Safety.   During  2001,  MDSI  decided  not  to  continue  pursuing
opportunities  in the public safety  market,  consisting  of federal,  state and
local agencies that provide police,  fire, medical and other emergency services.
The Company had installed  solutions for a limited number of customers,  and the
market has not represented a material portion of MDSI's revenues. The Company is
currently in the process of evaluating alternatives for this business, including
divestiture  and wind down of  operations.  The Company  expects to complete the
process in the second half of 2002.


Customers

     For the year ended December 31, 2001, MDSI's software and services revenues
were distributed  approximately as follows: 35% from the telecommunications and,
cable/broadband  market, 55% the utilities (electric,  gas and water) market and
the remaining 10% from other  markets.  During the year ended  December 31, 2001
the  Company  generated  approximately  81% of its revenue  from North  America,
approximately  17% of its  revenue  from  Europe,  and the  remaining  2% of its
revenue from other parts of the world, primarily Austral-Asia.

     The Company's  customers  vary in size from small local  companies to large
regional and  international  organizations.  During the year ended  December 31,
2001 the Company  earned  revenue from one customer that  accounted for 12.7% of
overall  revenue.  The Company  anticipates that revenue from this customer will
account for a smaller  percentage  of the Company's  revenue in the future.  The
Company did not earn revenue from any one customer  that  accounted  for greater
than 10% of overall  revenue  during the year ended December 31, 2000 and during
the year ended December 31, 1999, one U.S.  utility company  accounted for 10.9%
of the Company's  consolidated  revenue.  In the years ended  December 31, 2001,
2000 and 1999,  approximately  35.8%,  25.8%  and  31.0%,  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.



                                      -6-
<PAGE>

In the years ended December 31, 2001, 2000 and 1999,  revenue derived from sales
outside of North America  accounted for 18.3%,  20.0% and 22.1% 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."


Product Development

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

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

     As of December 31, 2001, MDSI's technical and engineering staff, supporting
product development, consisted of 100 employees, including 72 employees based at
its Richmond, British Columbia headquarters and 28 in the United States.

     During the years ended  December 31,  2001,  2000 and 1999,  the  Company's
total expenditures for product  development were $8.1 million,  $9.0 million and
$6.9 million,  respectively,  reflecting 13.9%, 14.7% and 11.8% 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  through a direct sales force as well as
through strategic remarketing and/or joint selling arrangements with independent
software vendors, and systems integrators.

     Direct Sales Force.  MDSI's sales  personnel  are  knowledgeable  about the
technological  components  of wireless  applications  and current  industry  and
enterprise-specific  application issues. As part of its 2001 restructuring,  the
Company organized its sales personnel by geographic  market. The Company's sales
personnel employ their expertise to develop long-term consultative relationships
with  customers  in order to  identify  the needs of the  customer  and  provide
specific and effective  solutions.  To date,  substantially all of the Company's
revenue has been generated by direct sales activities.

     Independent  Software Vendors.  MDSI establishes  relationships  with other
independent software vendors that sell complementary  products,  such as billing
or  customer  relationship  management  solutions,   into  MDSI's  markets.  The
relationships  typically  involve  MDSI  working with the vendors to establish a
standard integration of


                                      -7-
<PAGE>

the companies' products,  and jointly identifying and jointly executing on sales
prospects for the integrated solution.  For example, the Company has established
such a relationship with Siebel Systems Inc. In some cases,  relationships  have
been formalized through written agreements, while others remain informal.

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

     At December 31, 2001, the Company's sales,  marketing and technical support
group  consisted of 58 employees,  with 26 based out of the Company's  Richmond,
British Columbia  facility,  20 based out of its Itasca,  Illinois  facility,  3
based out of its St. Louis, Missouri facility,  and 9 based out of various other
international locations.


Competition

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

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

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

     The  Company  believes  that  in  the  utilities,  telecommunications  and,
cable/broadband industry segments the most important competitive factors are the
reputation of the supplier and its proven record in  implementing  wireless data
solutions.  MDSI  believes  that its long and  successful  track record in these
markets gives it a competitive  advantage in this regard.  The Company primarily
competes in the utilities  market with Utility  Partners,  L.C.  (which recently
filed for bankruptcy  protection under Chapter 11), M3i Systems, Inc. (which was
recently acquired by Cognicase,  Inc.),  Integraph Corporation and iMedeon, Inc.
(which has  recently  merged  with  ViryaNet  Ltd.).  The  Company  has  several
competitors in the telecommunications and cable/broadband markets. The Company's
primary competitor for  telecommunications  customers is Telcordia  Technologies
Inc.  (formerly  Bellcore),  a company which has historical  relationships  with
certain  of  the  large   telecommunications   companies,   and  more   recently
ClickSoftware,  Inc.  (formerly IET) and ViryaNet Ltd., which the Company mostly
sees as competition  for small  accounts.  In the  cable/broadband  market,  the
Company's  primary   competitors  are  Telcordia,   C-Cor.net  Corp.   (formerly
MobileForce Technologies,  Inc.), PointServe Inc.(through its merger with Brazen
Software Inc.),  CSG Systems  International  Inc., and Viryanet Ltd., again only
for small accounts.



                                      -8-
<PAGE>

     The  Company  believes  that  the  principal  competitive  factors  in  the
commercial  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., Metrix Inc., and FieldCentrix  Inc., in addition to several
larger  enterprise  software  companies,  such as Amdocs Limited (which recently
acquired the assets of Clarify), Oracle Corporation,  PeopleSoft Inc, and Siebel
Systems  Inc.  which,  to the  Company's  knowledge,  offer  less  comprehensive
solutions  and which MDSI  currently  sees as potential  partners for  expanding
their penetration in this market.


Hosting and IT Services

Background

     In addition to its core mobile workforce management business,  beginning in
early 2000 MDSI  unveiled  an  eBusiness  strategy  whereby it planned to "rent"
hosted  workforce  management  and  wireless  connectivity  solutions  over  the
Internet from a wirelessly-enabled  Application Service Provider (ASP) site. The
Company's  eBusiness  solutions  included Advantex ASP,  eService  Manager,  and
eService Mobile,  as well as hosted versions of the Company's and third parties'
wireless  middleware  solutions  which  enable  wireless  communications  over a
variety of wireless networks and mobile devices.

     In connection  with this  strategy,  in June 2000 MDSI acquired  Connectria
Corporation,  a provider of managed hosting and IT services to a wide variety of
customers.  Connectria  provided the hosting  infrastructure  for the  Company's
eBusiness  products as well as components of the technology  behind the eService
products.   MDSI  intended  to  offer  its  eBusiness   solutions  either  on  a
subscription  basis where customers would pay a monthly fee for their use, or on
a "per  transaction"  basis  where  customers  would pay each time they used the
solutions.

     Under a new senior  management  team in 2001,  MDSI  decided to put greater
focus on its core mobile workforce  management  business and consequently reduce
focus on the  eBusiness  strategy.  This prompted  corresponding  organizational
changes.  The Company  transferred  Advantex  ASP to its core  mobile  workforce
management  operations,  where the Company's  direct sales force offers it as an
alternative  to an  enterprise-installed  solution.  MDSI also  stopped  further
development  and  marketing  efforts on its eService  suite and hosted  wireless
middleware  solutions,  though MDSI continues to serve existing customers of the
products.  The  eBusiness  Division was then renamed  Hosting and IT Services to
better  reflect  Connectria's  core business,  which  generated and continues to
generate the majority of the Company's Hosting and IT Services revenue.

     As a result of the  Company's  strategy  to focus on its  mobile  workforce
management   operations,   the  Company  is   currently   evaluating   strategic
alternatives with respect to its Hosting and IT Services  business.  The Company
currently expects to make a decision  regarding this business unit by the second
half of 2002.


Services

     The  services of MDSI's  Hosting and IT Services,  essentially  Connectria,
comprise  outsourcing,  hosting  and  consulting,  and can range  from  complete
outsourcing of an IT department to providing turnkey IT projects.

     Outsourcing: Customized IT Outsourcing Solutions leverage Connectria's Data
Centers, Network Operation Centers, and Application Development Centers, as well
as certain services  performed on the customer's  site. Such outsourcing  allows
customers to focus on running their business  instead of designing,  building or
running their IT departments.

     Hosting:  Connectria  provides customized hosting programs for clients that
require  world-class  data center  operations.  Connectria  provides  management
services  for  all  major  hardware  platforms  including  mainframes,  servers,
databases,  application servers,  operating systems, IP-based networks,  storage
area  networks and  wireless  networks.  Connectria  provides  full  operational
support including system and network  monitoring,  problem  resolution,  version
management,  backup and restore, change control, capacity planning,  performance
tuning and system programming.



                                      -9-
<PAGE>

     Consulting:  Connectria  provides  a  variety  of  IT  consulting  services
including,  application development, system and network engineering, and various
operations support services,  such as help desk support,  data center management
and network management.


Customers

     MDSI provides  Hosting and IT Services to numerous third parties  primarily
located in the United  States.  The customers  for these  services are typically
medium  to  large  sized  businesses  spanning  all  types of  industries,  that
outsource their computer hosting needs in order to increase  efficiency,  obtain
increased technical expertise, and reduce cost.

     During the year  ended  December  31,  2001,  one  customer  accounted  for
approximately 54% (2000 - 37%; 1999 - 0%) of Hosting and IT Services revenues.


Competition

     The Company believes that the principal  competitive factors in the Hosting
and IT Services market are the integrity of the Company's  business  model,  and
the financial viability of the organization. The Company again believes that its
track record in this  business  provides it with a  competitive  advantage.  The
Company  will face  competition  from  managed  IT  services  providers  such as
Rackspace and Jamcracker Inc.


Employees

     As of  December  31,  2001,  the Company had 448  full-time  employees  and
contractors,  including 272 in technical and engineering, 58 in sales, marketing
and technical  support,  48 customer  support and 70 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.


Financial Information About Segments and Geographic Markets

     For certain  information  regarding the Company's  reportable  segments and
geographic  markets,  see  Note  12 to  the  consolidated  financial  statements
included in Item 8 of this Annual Report on Form 10-K.


Risk Factors

     The Company's  business is subject to the following risks. These risks 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,   regulatory   and  other
developments in the Company's  vertical  markets,  changes in the demand for the
Company's  products and services,  the cancellation of contracts,  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,  political and economic  uncertainty,  the mix of
international  and  North  American  revenue,  tax  policies,  foreign  currency
exchange rates and general economic and political conditions.

     The  Company  believes  that the events of  September  11,  2001 and recent
economic  developments  and trends have  adversely  affected and may continue to
affect  levels of capital  spending  by  companies  in a variety of  industries,
including companies in the vertical markets that the Company serves. The current
excess of supply in the  telecommunications  industry has adversely affected the
financial condition of many telecommunications companies worldwide. In addition,
current  economic  conditions and developments in the energy markets have had an
adverse


                                      -10-
<PAGE>

affect on the  financial  condition  of energy and utility  companies in certain
geographical  areas of North America.  The Company believes that these and other
factors have adversely  affected demand for products and services offered by the
Company,  as certain prospective and existing customers have delayed or deferred
purchasing  decisions or have sought to  terminate  existing  contracts  for the
Company's  products and services.  The Company  believes that these factors will
continue  to affect  demand for the  Company's  products  and  services in 2002,
particularly  demand for  software and related  services.  Such factors may also
increase the amount of doubtful  accounts or adversely  affect the likelihood of
collection of such accounts.

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

     Because  the Company is unable to forecast  with  certainty  the receipt of
orders for its  products  and  services  and the  Company's  expense  levels are
relatively fixed and are based, in part, upon its expectation of future revenue,
if revenue levels fall below expectations as a result of a delay in completing a
contract, the inability to obtain new contracts, the cancellation of an existing
contract or otherwise, operating results are likely to be adversely affected. As
a result,  net income may be  disproportionately  affected  because a relatively
small amount of the Company's expenses vary with its revenue.

     Based upon all of the  foregoing  factors,  the Company  believes  that its
quarterly  revenue,  direct  expenses and  operating  results are likely to vary
significantly in the future, that period-to-period comparisons of the results of
operations are not necessarily  meaningful and that such comparisons  should not
be relied  upon as an  indication  of future  performance.  The Company may also
choose to reduce prices or increase  spending in response to competition,  or to
pursue  new  market  opportunities.  See  "Forward-Looking  Statements".  If new
competitors, technological advances by existing competitors or other competitive
factors require the Company to reduce its prices or invest significantly greater
resources in research and development  efforts,  the Company's operating results
in the future may be  adversely  affected.  There can be no  assurance  that the
Company  will  be able to  grow  in  future  periods  or that it will be able to
sustain its level of total revenue or achieve  revenue  growth on a quarterly or
annual basis.  In fiscal 2001, the Company's  revenue  declined  compared to the
same period in 2000.  These recent  declines have resulted from an economic slow
down in the vertical industries served by the Company. It is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. See "Forward Looking Statements".  In such
event,  the  market  price  of the  Company's  Common  Shares  would  likely  be
materially adversely affected.


Dependence on Third Party Products and Services

     Since 1996, the Company has been, and anticipates that from time to time it
will be, engaged to provide, in addition to its own products and services, third
party hardware,  software and services, which the Company purchases from vendors
and sells to its  customers.  For the years ended  December 31,  2001,  2000 and
1999,  4.5%,  4.6%,  and  14.1%  respectively,  of  the  Company's  revenue  was
attributable to third party products and services. As the revenue generated from
the supply of third party  products  and services  may  represent a  significant
portion of certain  contracts  and the  installation  and rollout of third party
products is  generally  at the  discretion  of the  customer,  the Company  may,
depending on the level of third party  products and services  provided  during a
period, experience large quarterly fluctuations in revenue. See "Forward Looking
Statements".  In addition,  because the  Company's  gross margins on third party
products  and  services  are  substantially  below  gross  margins  historically
achieved  on  revenue   associated  with  MDSI  products  and  services,   large
fluctuations  in  quarterly  revenue  from the sale of third party  products and
services will result in significant fluctuations in direct costs, gross profits,
operating  results,  cash flows and other items  expressed  as a  percentage  of
revenue.



                                      -11-
<PAGE>

Lengthy Sales Cycles for Advantex Products

     The  purchase  of  a  mobile  workforce  management  solution  is  often  a
significant purchase decision for prospective customers and requires the Company
to engage in sales  efforts  over an  extended  period of time and to  provide a
significant  level of education to prospective  customers  regarding the use and
benefits  of such  systems.  Due in  part to the  significant  impact  that  the
application of mobile workforce  management solutions has on the operations of a
business and the  significant  commitment of capital  required by such a system,
potential  customers tend to be cautious in making acquisition  decisions.  As a
result, the Company's products generally have a lengthy sales cycle ranging from
several  months to  several  years.  Consequently,  if sales  forecasted  from a
specific customer for a particular quarter are not realized in that quarter, the
Company may not be able to generate revenue from 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, due to
economic conditions and developments in the Company's core markets,  the Company
has  experienced an increase in the time  necessary to complete the  negotiation
and signing of contracts with some of its customers.


Dependence on Large Contracts and Concentration of Customers

     The Company's revenue is dependent, in large part, on significant contracts
from a limited  number of customers.  During the years ended  December 31, 2001,
2000, and 1999,  approximately  35.8%,  25.8%,  and 31.0%  respectively,  of the
Company's  consolidated  revenue was  attributable  to five or fewer  customers.
During the years ended December 31, 2001, 2000 and 1999, one customer  accounted
for 12.7%, 5.8%, and 10.9% respectively,  of the Company's consolidated revenue.
The  Company  believes  that  revenue  derived  from  current  and future  large
customers will continue to represent a significant portion of its total revenue.
See "Forward  Looking  Statements".  The inability of the Company to continue to
secure and maintain a sufficient number of large contracts would have a material
adverse effect on the Company's business, financial condition, operating results
and cash flows.  Moreover,  the  Company's  success will depend in part upon its
ability to obtain orders from new customers,  as well as the financial condition
and success of its customers and general economic conditions.

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


Potential Fluctuations in Backlog

     The  Company's  backlog  consists  of a  relatively  small  number of large
contracts  relating to sales of its mobile  workforce  management  and  wireless
connectivity  software and related  equipment and  services,  and sales of third
party products and services.  Due to the long, complex sales process and the mix
of sales of the  Company's  products and  services and third party  products and
services,    the   Company's   backlog   may   fluctuate    significantly   from
period-to-period.  In addition,  under the terms of the Company's contracts, the
Company's customers may elect to

                                      -12-
<PAGE>

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.

     The Company  believes  that  unfavorable  economic  conditions  and reduced
capital  spending by existing and  prospective  customers may  adversely  affect
demand for the Company's  products and services in 2002. In particular,  service
providers,  utilities  companies and  telecommunications  companies in the North
America  were  impacted  during the latter  half of 2000 and  during  2001.  The
September 11, 2001  terrorist  attacks and the  resulting  slow down in the U.S.
economy  is  expected  to  continue  to  delay  purchasing  and   implementation
decisions.  If the economic conditions in the United States and Canada worsen or
if a wider or global  economic  slowdown  occurs,  the  Company  may  experience
reduced  revenues,   increased  costs,   reduced  margins  and  increased  risks
associated with the collection of customer receivables,  any of which may have a
material  adverse  impact on its  business,  operating  results,  cash flows and
financial condition.


Seasonal Variations in Demand

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


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. As of December 31, 2001, the Company had an accumulated deficit of
$23.8 million.  There can be no assurance that the Company will realize  revenue
growth or be  profitable  on a quarterly or annual  basis.  The Company plans to
continue to contribute  significant  resources to its operating expenses related
to sales and marketing  operations,  to fund significant  levels of research and
development,  to broaden its customer  support  capabilities and to maintain its
administrative resources. A relatively high percentage of the Company's expenses
is fixed in the short term and the Company's  expense levels are based, in part,
on its expectations of future revenue.  To the extent that such expenses precede
or are not subsequently  followed by increased revenue,  the Company's business,
financial  condition,  operating  results  and cash  flows  could be  materially
adversely  affected.  In  addition,  due to the rapidly  evolving  nature of its
business and markets,  the Company's  limited  operating  history and its 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  issuance's  of equity  securities,  the
incurrence of debt and contingent liabilities,  amortization of expenses related
to goodwill and other intangible  assets and write-off of acquired  research and
development  costs,  all of which  could  materially  and  adversely  affect the
Company's financial condition, results of operations and cash flows.



                                      -13-
<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,  including  Advantex r7,
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.  For example,  the time
required  for the initial  implementation  and field  testing of Advantex r7 was
greater  than  expected,  which  resulted in delays in  commencement  of certain
installations of the Advantex r7 product.


e-Business Investments

     As part of  MDSI's  e-Business  strategy,  during  2000  the  Company  made
strategic  investments  in two  private  companies  that have  created  Internet
marketplaces in an aggregate  investment of approximately  $2.5 million and made
advances to a third company of $0.5 million. During 2001, the Company recorded a
valuation  allowance  for the full costs of these  investments.  There can be no
assurance that such entities will be  commercially  successful or that MDSI will
be able to recover or realize a return on its investment in such companies.


System Failures Could Lead to Significant Costs

     The Company must protect its hosting services network  infrastructure,  its
equipment and its  customers'  equipment  (including  data) against  damage from
human error,  security breaches,  power loss and other facility failures,  fire,
earthquake,  flood,  telecommunications  failure,  sabotage,  terrorist attacks,
vandalism and similar  events.  Despite the precautions the Company has taken, a
natural  disaster  or other  unanticipated  problems  at one or more of its data
centers could result in  interruptions  in its hosting  services or  significant
damage  to   customer   equipment.   In   addition,   failure   of  any  of  its
telecommunications  providers to provide consistent data communications capacity
or of other network providers to provide interconnection agreements could result
in service interruptions. Any damage to, or failure of, the Company's systems or
service  providers could result in reductions in, or  terminations  of, services
supplied to the Company's customers,  which could have a material adverse effect
on its business.  If the Company incurs significant financial commitments to its
customers  in  connection  with its  failure to meet  service  level  commitment
obligations  as a result of system  downtime or the loss of customer  data,  its
liability insurance may not be adequate to cover those expenses, and its results
of operations and financial condition may be adversely affected.


Litigation

     The Company is a party to a suit filed against  Citizens  Telecom  Services
Co.,  L.L.C.,  generally  alleging that Citizens  breached a series of contracts
dated October 15, 1998. The suit alleges that Citizens has wrongfully terminated
the contracts and failed to pay sums due. The suit seeks  damages,  interest and
attorneys'  fees.  Citizens filed an answer and counter claim alleging that MDSI
breached the contracts,  justifying  Citizens'  termination of the contracts and
entitling  Citizens to repayment of  approximately  $3.5 million paid to MDSI in
addition to interest and attorneys' fees. In its  consolidated  balance sheet as
of December 31, 2001 and 2000,  the Company has  classified  approximately  $3.7
million in amounts due from Citizens,  which amounts are subject to the suit, as
a long term receivable as of December 31, 2001. The Company has not recorded any
amounts due from Citizens as doubtful  accounts and has not recorded any amounts
claimed by Citizens as a  contingent  or other  liability  of the Company as the
Company  believes  that is will recover all amounts owing to it. There can be no
assurance that the Company will be successful in the prosecution of its claim or
in the defense of Citizens' counter claim.



                                      -14-
<PAGE>

Management of Growth and Reduction of Workforce

     Since its inception, the Company has experienced periods of rapid growth in
product  sales,  personnel,  research  and  development  activities,  number and
complexity of products, the number and geographic focus of its targeted vertical
markets and product distribution  channels. The total number of employees of the
Company has grown from 9 employees in Canada in February  1993 to 448  employees
located  in Canada,  the United  States  and other  international  locations  at
December 31, 2001. In addition,  the acquisition of Connectria has increased the
number of products the Company  supports  and markets,  as well as the number of
vertical  markets into which it sells  products and  services.  The Company also
recently expanded the geographical areas in which it operates.

     In March and April, 2001, the Company made several announcements  regarding
its  intention  to reduce  the size of its work  force by  approximately  25% in
anticipation  of reduced demand for its products and services due to the general
economic  slowdown.  If the Company resumes its growth in future  periods,  such
growth may place  strains on its  management,  administrative,  operational  and
financial  resources,  as well as  increased  demands on its  internal  systems,
procedures and controls. There can be no assurance that the Company will be able
to  effectively  manage its  operations or future growth and expansion  into new
markets.  Failure to do so could have a material adverse effect on the Company's
business, financial condition, operating results and cash flows.


Dependence on Key Personnel

     The Company's  performance and future operating  results are  substantially
dependent on the continued  service and performance of its senior management and
key  technical  and sales  personnel.  Competition  for  qualified  personnel is
intense,  and in light of the Company's recent layoffs there can be no assurance
that the Company can retain its key technical, sales and managerial employees or
that it  will  be able to  attract  or  retain  highly-qualified  technical  and
managerial  personnel  in the future if demand for the  Company's  products  and
services  increase.  The loss of the  services  of any of the  Company's  senior
management  or other key  employees  or the  inability  to retain the  necessary
technical,  sales and managerial  personnel could have a material adverse effect
upon the Company's  business,  financial  condition,  operating results and cash
flows.


Dependence on Selected Vertical Markets

     Prior to 1996,  substantially all of the Company's revenue was derived from
the sale of products and services to  customers in the utility  market.  For the
years ended December 31, 1997 and 1996, the utility market accounted for greater
than 50% of the Company's revenue.  In those years, the Company sought to reduce
its  reliance  on the  utility  market by  developing  or  acquiring  compatible
products for organizations with mobile workforces in other vertical markets.  In
1998,  the  utility  market  accounted  for  greater  than 40% of the  Company's
revenue.  In  1999,  the  telecommunications  market  accounted  for  48% of the
Company's revenue. In 2000 the  telecommunications  and cable/broadband  markets
accounted  for greater than 45% of the  Company's  revenue.  In 2001 the utility
market accounted for 55% 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, cable/broadband and utility markets and that
recent economic developments and trends have adversely affected and may continue
to  adversely  affect  levels of capital  spending by  companies in a variety of
industries,  including the vertical  markets MDSI serves.  The Company  believes
that these and other factors may cause potential and existing customers to delay
or defer  purchasing  decisions  or seek to  terminate  or delay  payment  under
existing  contracts  for the Company's  products and services.  Such factors may
also increase the amount of doubtful accounts or adversely affect the likelihood
of collection of such accounts.  See "Forward-Looking  Statements." A decline in
demand for the  Company's  products  in these  markets  as a result of  economic
conditions,  competition,  technological  change  or  otherwise,  would  have  a
material  adverse  effect  on  the  Company's  business,   financial  condition,
operating  results and cash flows.  There can be no  assurance  that the Company
will be able to continue to diversify  its product  offerings or revenue base by
entering into new vertical markets.



                                      -15-
<PAGE>

Dependence on Marketing Relationships

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


Competition

     The  markets  for  mobile  workforce  management   applications,   wireless
connectivity  software,  mobile  data  network  equipment  and mobile  computing
devices are highly  competitive.  Numerous  factors  affect  MDSI's  competitive
position,   including  price,   product   features,   product   performance  and
reliability, ease of use, product scalability,  product availability on multiple
platforms  (server,  wireless  carrier,  and  mobile  workstation),  ability  to
implement mobile workforce management solutions domestically and internationally
while meeting customer schedules,  integration of products with other enterprise
solutions,  availability  of project  consulting  services  and  timely  ongoing
customer service and support.  Within these markets, there are a small number of
new ventures,  either small companies attempting to establish a business in this
market or large companies attempting to diversify their product offerings.  MDSI
expects such competition to intensify as acceptance and awareness of mobile data
communications and technology  continue.  See "Forward Looking  Statements".  In
addition,  a  small  number  of  MDSI's  potential  customers  develop  software
solutions internally,  thereby eliminating the requirement for suppliers such as
MDSI. Current or potential  competitors may establish  cooperative  arrangements
among themselves or with third parties to increase the ability of their products
to  address   customer   requirements.   Certain  of  MDSI's   competitors  have
substantially greater financial, technical, marketing and distribution resources
than  MDSI.  As a result,  they may be able to  respond  more  quickly to new or
emerging technologies and changing customer  requirements,  or to devote greater
resources to the development and distribution of existing products. There can be
no assurance that MDSI will be able to compete  successfully  against current or
future  competitors  or  alliances  of such  competitors,  or  that  competitive
pressures  faced by MDSI will not  materially  adversely  affect  its  business,
financial condition, operating results and cash flows.

     The  Company  primarily  competes  in the  utilities  market  with  Utility
Partners,  L.C.  (which recently filed for bankruptcy  protection  under Chapter
11),  M3i Systems,  Inc.  (which was recently  purchased  by  Cognicase,  Inc.),
Integraph  Corporation and iMedeon, Inc (which has recently merged with ViryaNet
Ltd.).  The  Company  has  several  competitors  in the  telecommunications  and
cable/broadband markets. The Company's primary competitor for telecommunications
customers is Telcordia  Technologies Inc. (formerly  Bellcore),  a company which
has  historical  relationships  with  certain  of the  large  telecommunications
companies,  and more recently  ClickSoftware,  Inc.  (formerly IET) and ViryaNet
Ltd.,  which the Company mostly sees as competition for small  accounts.  In the
cable/broadband   market,  the  Company's  primary  competitors  are  Telcordia,
C-Cor.net  Corp.   (formerly   MobileForce   Technologies,   Inc.),   PointServe
Inc.(through  its merger with Brazen Software Inc.),  CSG Systems  International
Inc., and Viryanet Ltd., again only for small accounts.

     The  Company  believes  that  the  principal  competitive  factors  in  the
commercial  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., Metrix Inc., and FieldCentrix  Inc., in addition to several
larger  enterprise  software  companies,  such as Amdocs  Limited  who  recently
acquired the assets of Clarify, Oracle Corporation,  PeopleSoft Inc., and Siebel
Systems  Inc.  which,  to the  Company's



                                      -16-
<PAGE>

knowledge,  offer less comprehensive  solutions and which MDSI currently sees as
potential partners for expanding their penetration in this market.


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,  Wireless@work  and  Compose  trademarks.  MDSI has also filed  United
States and  international  patent  applications  covering various aspects of its
technology.  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.


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


                                      -17-
<PAGE>

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


Exchange Rate Fluctuations

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


Risks Associated with International Operations

     In the years ended December 31, 2001,  2000, and 1999 revenue  derived from
sales outside of North America  accounted for  approximately  18.3%,  20.0%, and
22.1%,  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 ability to grow
and be  profitable  will  require  additional  expansion of its sales in foreign
markets,  and that revenue derived from  international  sales will account for a
significant percentage of the Company's revenue for the foreseeable future. This
expansion  has  required  and will  continue to require  significant  management
attention  and  financial  resources.  The  inability  of the  Company to expand
international sales in a timely and cost-effective  manner could have a material
adverse effect on the Company's business, financial condition, operating results
and  cash  flows.  There  are a  number  of  risks  inherent  in  the  Company's
international business activities, including changes in regulatory requirements,
tariffs and other trade  barriers,  costs and risks of  localizing  products for
foreign  markets,  longer accounts  receivable  payment cycles,  difficulties in
collecting payments,  reduced protection for intellectual property,  potentially
adverse tax  consequences,  limits on repatriation  of earnings,  the burdens of
complying   with  a  wide  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  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.



                                      -18-
<PAGE>

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  25.8%  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 Canada  Business  Corporations  Act "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, acquired research and
development  costs,  and treatment of business  combinations.  As a result,  the
Company's  Consolidated Financial Statements included in this report will 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


                                      -19-
<PAGE>

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


Item 2:  Properties

     The Company  occupies  approximately  92,000  square feet of leased  office
space  at its  headquarters  in  Richmond,  British  Columbia  for  its  product
development,  marketing, support, administration and sales operations. The lease
expires on November 30, 2008 with two options to renew for five years each.  The
Company  has  sub-let  approximately  22,000  square  feet of this  space  until
December 31, 2003. The Company also maintains an office in Itasca, Illinois. The
Itasca office lease is for  approximately  29,000 square feet and  terminates on
November 30,  2009.  The Company has sub-let  approximately  17,600 feet of this
space until  November  30,  2004.  The Company  also  maintains an office in St.
Louis,  Missouri. The St. Louis office lease is for approximately 7,700 feet and
terminates on December 31, 2006.  Properties  under lease in Richmond and Itasca
are used  for its  Field  Service  segment,  and the  property  in St.  Louis is
utilized by the Company's  Hosting and IT Service segment.  The Company believes
that the current office space under lease less the current subleased portions is
adequate to meet its needs for the foreseeable future.


Item 3:  Legal Proceedings

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

     On November 22, 2000, MDSI filed suit in Texas District Court Collin County
against Citizens Telecom Services Co., L.L.C.,  generally alleging that Citizens
breached a series of contracts  dated  October 15,  1998.  The suit alleges that
Citizens has  wrongfully  terminated the contracts and failed to pay sums due of
approximately  $3.7 million.  The suit seeks  damages,  interest and  attorneys'
fees. In late February 2001, Citizens filed an answer and counter claim alleging
that MDSI  breached  the  contracts,  justifying  Citizens'  termination  of the
contracts  and  entitling  Citizens  to  repayment  of all sums  paid to MDSI of
approximately  $3.5  million in addition to interest  and  attorneys'  fees.  At
Citizens  request the parties held a mediation on April 2, 2001.  Mediation  was
not successful and both parties have begun  discovery.  MDSI disputes  Citizens'
claims and intends to pursue the lawsuit vigorously.

     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.





                                      -20-
<PAGE>

                                     Part II

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

Price Range of Common Shares

     The Company's Common Shares began trading on The Toronto Stock Exchange and
on the Montreal  Exchange  under the symbol "MMD" on December 20, 1995 and began
trading  on the  Nasdaq  National  Market  System  under the  symbol  "MDSIF" on
November 26, 1996. The Company changed its Nasdaq National Market System trading
symbol to "MDSI" in April 1999. In December 1999,  the Company's  listing on the
Montreal Exchange was automatically withdrawn as part of a restructuring plan of
the Canadian stock  exchanges.  Prior to December 20, 1995,  there was no public
market for the Common Shares.  The following  table sets forth,  for the periods
indicated, the high and low sale prices for the Common Shares as reported on The
Toronto  Stock  Exchange  and the  Nasdaq  National  Market  System  with  their
equivalent U.S. dollar amounts where applicable.

<TABLE>
                                                  The Toronto Stock Exchange                Nasdaq National Market
                                           -----------------------------------------      ----------------------------
                                                    US$(1)                CDN$                 US$            US$
                                           ---------------------   -----------------      -------------  -------------
                                              High        Low        High      Low            High           Low
                                           ---------  ----------   --------  -------      -------------  -------------
<S>                                          <C>        <C>        <C>        <C>            <C>            <C>
2000
   First Quarter......................       87.84      18.58      130.00     27.50          90.00          19.00
   Second Quarter.....................       64.00      19.96       93.00     29.00          64.94          18.28
   Third Quarter......................       24.53      10.60       36.35     15.70          24.31          10.31
   Fourth Quarter.....................       13.11       6.59       20.00     10.05          13.13           6.38

2001
   First Quarter......................       11.13       5.07       17.00      7.75          11.25           4.88
   Second Quarter.....................        6.32       4.05        9.75      6.25           6.20           4.00
   Third Quarter......................        5.02       2.26        7.75      3.50           5.29           2.23
   Fourth Quarter.....................        5.03       2.66        7.95      4.20           5.08           2.71
----------
(1)  US dollar amounts have been  translated  using the average noon buying rate
     for Canadian dollars for the relevant quarter. See "Exchange Rates."
</TABLE>

Shareholders

     As of December 31, 2001 the Company had  approximately  305 shareholders of
record (including nominees and brokers holding street accounts), 78 shareholders
of whom had addresses in the United States and who held 5,560,822 Common Shares,
or 64.1 % of the Company's outstanding Common Shares.

Dividends

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


Recent Sales of Unregistered Securities

     The Company  did not issue any  unregistered  securities  during the fiscal
year ended December 31, 2001.



                                      -21-
<PAGE>

Exchange Controls

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

Taxation

     Canadian Federal Income Taxation

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

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

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

     Dividends

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

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



                                      -22-
<PAGE>

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

     (a)  if the shares in respect of which the  dividends  are paid formed part
          of the business property or were otherwise  effectively connected with
          a permanent  establishment or fixed base that the holder has or had in
          Canada within the 12 months preceding the disposition, or

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

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

     Capital Gains

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

     (a)  the non-resident holder,

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

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

     owned  not less  than 25% of the  Company's  issued  shares of any class or
series at any time during the five year period preceding the disposition. In the
case of a non-resident  holder to whom the Company's  shares  represent  taxable
Canadian  property and who is resident in the United  States,  no Canadian taxes
will generally be payable on a capital gain realized on such shares by reason of
the Treaty unless:

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

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

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

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

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



                                      -23-
<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, 2001,  2000 and 1999 and the  consolidated
balance  sheet  data at  December  31,  2001 and 2000 are  derived  from and are
qualified  by  reference  to  the  Company's  audited   consolidated   financial
statements.  Segmented information regarding the Company's two business segments
for the fiscal years ended December 31, 2001,  2000 and 1999 is provided in Note
12  to  such  consolidated  financial  statements.  This  selected  consolidated
financial  data is presented in conformity  with generally  accepted  accounting
principles in the United States.

<TABLE>
                                                                  Years ended December 31,
                                         ---------------------------------------------------------------------
                                            2001           2000           1999          1998          1997
                                         ----------     ----------    ----------     ----------     ----------
                                                          (in thousands, except per share data)
<S>                                       <C>            <C>           <C>            <C>           <C>
 Statement of Operations Data:
 Revenue                                  $ 58,120       $ 61,542      $ 58,571       $ 48,363      $ 38,523
 Gross profit                               26,870         33,487        31,253         24,423        20,290
 Operating income (loss)                   (11,687)           857         7,923          6,079        (1,086)
 Net income (loss) from continuing         (14,107)          (159)        5,019          4,309        (2,517)
   operations for the year
   (1)(2)(3)(4)
 Diluted earnings (loss) per common
   share                                  $  (1.64)       $ (0.07)     $   0.13       $    0.5      $  (1.30)
 Weighted average shares outstanding         8,623          8,527         9,101          7,563         6,754
</TABLE>


<TABLE>
                                                                      As at December 31,
                                         ---------------------------------------------------------------------
<S>                                      <C>             <C>           <C>            <C>           <C>
Balance Sheet Data:                         2001           2000           1999          1998          1997
                                         ----------     ----------    ----------     ----------     ----------
 Cash and cash equivalents               $  13,692       $ 13,238      $ 14,613       $  3,606      $     93
 Working capital                            12,734         25,565        24,084          9,073         6,563
 Total assets                               44,577         60,781        50,443         38,522        28,529
 Non-current liabilities                     1,623          4,380         2,838          2,927         4,224
 Stockholders' equity                       24,475         38,177        35,537         20,596        16,688
-------------
(1)  Net loss for the year  ended  December  31,  1997,  includes  non-recurring
     charges of  $4,585,984,  including  $824,280 with respect to  restructuring
     certain  operations  and $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 Mobile Data Solutions (UK) Ltd. ("MDSI UK").
(2)  Net  loss for the year  ended  December  31,  1997  includes  non-recurring
     charges of  $7,200,146  as a result of acquired  research  and  development
     costs relating to the  acquisitions  of Alliance  Systems,  Incorporated in
     April 1997.
(3)  Operating  income for the year ended  December 31, 2000 includes a one time
     charge  of  $1,691,028  to  account  for  one  time  cost  of  merger  with
     Connectria.
(4)  Net  loss for the year  ended  December  31,  2001  includes  non-recurring
     charges of $6,105,927 with respect to restructuring of certain  operations,
     $2,749,992  for the impairment in valuation of investments in three private
     companies,  $1,558,578 for the impairment in valuation of intangible assets
     acquired on acquisition of Alliance Systems Incorporated,  $165,000 for the
     impairment  in  valuation  of  a  commercial  web  site  domain  name,  and
     $3,189,263 for bad debts with respect to several doubtful accounts.
</TABLE>



                                      -24-
<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  section
entitled  "Restructuring",  the fifth and sixth  paragraphs under "Field Service
Business",   the  sections  entitled  "Recent  Accounting   Pronouncements"  and
"Critical  Accounting  Policies  and  Significant  Estimates",  the  subsections
entitled  "Revenue",  "Sales  and  Marketing",   "General  and  Administrative",
"Provision for Doubtful Accounts" and "Income Taxes" in "Year ended December 31,
2001 Compared to the Year ended  December 31,  2000",  the  subsection  entitled
"Revenue" in "Year ended  December 31, 2000 Compared to the Year ended  December
31, 1999", the third,  fourth,  eighth and ninth paragraphs under "Liquidity and
Capital Resources" and the section entitled "Derivative  Financial  Instruments"
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,  United States dollars. See Item
7A, "Quantitative and Qualitative Disclosure About Market Risk".

Overview

     MDSI develops, markets, implements and supports mobile workforce management
and wireless  connectivity  software for use by a wide variety of companies that
have substantial mobile workforces,  such as utilities,  telecommunications and,
cable/broadband  companies.  MDSI's  products  are  used  by such  companies  in
conjunction  with public and private  wireless data  communications  networks to
provide  comprehensive  solutions  for  the  automation  of  business  processes
associated  with  the  scheduling,   dispatching  and  management  of  a  mobile
workforce.  The  Company's  products  are  designed to provide a  cost-effective
method for  companies  with mobile  workers to utilize  data  communications  to
communicate with such workers,  and for such workers to interface on a real-time
basis with their corporate  information systems.  MDSI also provides hosting and
related professional services.

     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)
hosting and information  technology services such as the provision of consulting
services, the provision of application services, and provision of online service
management solutions; (iii) third party products and services, consisting of the
provision of non-MDSI  products  and services as part of the total  contract and
(iv) maintenance and support,  consisting of the provision of after-sale support
services as well as hourly, annual or extended maintenance contracts.


Restructuring

     The Company  believes that economic  conditions  and trends have  adversely
affected and may continue to affect levels of capital spending by companies in a
variety of  industries,  including  companies in the  vertical  markets that the
Company serves. The current excess supply of capacity in the  telecommunications
industry   has   adversely   affected   the   financial    condition   of   many
telecommunications  companies  worldwide.  In addition,  economic conditions and
developments  in the energy  markets have had an adverse effect on the financial
condition of energy and utility  companies in certain  geographic areas of North
America.  The  Company  believes  that these and other  factors  have  adversely
affected  demand for products and  services  offered by the Company,  as certain
prospective and existing customers have delayed or deferred purchasing decisions
or have sought to terminate  existing  contracts for the Company's  products and
services. The Company believes that these factors will continue to affect demand
for the  Company's  products  and  services in 2002,  particularly  software and
services.  Such  factors may also  increase  the amount of doubtful  accounts or
adversely affect the likelihood of collection of such accounts.

     In order to address the uncertainties caused by these economic trends, MDSI
announced in March 2001 its intention to reduce its operating  expenses  through
workforce  reductions  and other  measures.  These  measures have been gradually
implemented with incremental  reductions in costs each quarter, and are expected
to result in an estimated $2.9 million in cost reductions per quarter by the end
of 2002. The Company had previously announced that



                                      -25-
<PAGE>

it expected to fully  realize the savings from its  restructuring  by the end of
the first  quarter of 2002;  however,  due to delays in the  disposition  of the
Company's public safety  operations,  the Company expects that it will now reach
its cost  reduction  goal by the end of 2002.  A  majority  of the  savings  are
expected to be realized by reduced salary and payroll  costs,  and the remaining
savings are expected to be realized from the  subleasing of excess space,  and a
reduction in discretionary  spending. To date the Company has realized quarterly
savings of  approximately  $2.5 million,  which  represents the reduction in the
Company's quarterly expenses from the first quarter of 2001 to the first quarter
of 2002.  The Company  expects that the remaining  $0.4 million will be realized
through the wind down or sale of the Company's  public safety group, and through
regular  attrition  in the rest of the  organization.  There can be no assurance
that the reduction in work force and related  restructuring  efforts will result
in the anticipated  cost reductions or that the work force  reductions and other
measures  will not have a  material  adverse  affect on the  Company's  business
operations.

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

                                                           Total Restructuring
                                                                  Charge
                                                           -------------------

   Workforce reduction                                         $3,375,000

   Provision for excess office space                            1,861,000

   Non cash writedown of capital assets                           563,780

   Other                                                          306,147
                                                           -------------------
   Total restructuring charges                                  6,105,927

   Cumulative draw-downs                                      (2,972,267)
                                                           -------------------
   Accrued restructuring charges as December 31, 2001          $3,133,660
                                                           ===================

     For the year ended December 31, 2001, the Company  recorded a total of $6.1
million  in  restructuring   charges,  taken  in  connection  with  a  corporate
reorganization  designed to reduce the  Company's  operating  costs and increase
efficiency  by  rationalizing  staffing  levels and  modifying  staff  reporting
relationships.

     Workforce  reduction  charges  of  $3.4  million  were  taken  relating  to
severance and continued benefits for the elimination of 149 positions across all
operating departments and segments of the organization. As of December 31, 2001,
the provision balance has been drawn down by cash payments of approximately $2.0
million.  The remaining  provision of $1.4 million is for  terminated  employees
receiving   payments  over  time,  or  existing   employees  notified  of  their
termination  to occur at a future  date,  and is  expected to be utilized by the
second half of 2002.

     The  provision  for excess  office space of $1.9 million for the year ended
December 31, 2001,  relates to surplus office space under long term lease by the
Company at two  locations,  one of which the Company has entered into fixed cost
lease arrangements expiring in 2004. The Company has incurred approximately $0.4
million  of cash costs  relating  to this  provision  leaving an accrual of $1.5
million  remaining as at December 31, 2001. The Company  expects that the charge
will be fully drawn down not later than the time the lease expires in the fourth
quarter of 2004.

     Due to the elimination of 149 positions,  certain capital assets  belonging
to the Company have been declared  surplus and a charge of $0.6 million has been
recorded to reflect the difference  between the previous  carrying value and the
estimated fair market value, net of disposal costs. As at December 31, 2001, the
full amount of the charge has been  applied to the assets to value them at their
estimated net realizable  value.  These assets are expected to be disposed of by
the end of 2002.



                                      -26-
<PAGE>

     The Company has recorded a $0.3 million  charge for the year ended December
31, 2001 for other items including,  costs of outplacement  services,  and legal
and consulting fees related to the  restructuring.  As at December 31, 2001, the
Company has incurred cash costs of approximately $0.1 million in connection with
these charges, leaving a provision of $0.2 million. The Company expects to fully
draw down this provision by the end of the second half of 2002.

Field Service Business

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

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

     The  Company is  periodically  required  to  provide,  in  addition to MDSI
products and  services,  certain  third party  products,  such as host  computer
hardware and  operating  system  software,  and mobile  computing  devices.  The
Company  recognizes  revenue on the supply of third party hardware upon transfer
of title to the customer.  The Company recognizes revenue on the supply of third
party  services  using a  percentage  of  completion  method  based on the costs
incurred  over the total  estimated  cost to complete  the third party  services
contract.

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

     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.



                                      -27-
<PAGE>

Hosting and Information Technology (IT) Services (formerly e-Business)

     During the year ended December 31, 2001 the Company  realigned its internal
structure.  As a result of this  realignment,  the  Company  now  considers  its
Advantex ASP product line part of its Field Service segment, and has renamed the
segment previously know as "e-Business",  to "Hosting and IT Services" to better
reflect the nature of the business activity in this segment.

     The  Company's  Hosting  and  IT  Services   operations   provide  advanced
application hosting for many third party solutions including advanced e-commerce
Web sites and the Lotus family of advanced  collaboration  and distance learning
applications.  The  Company's  Hosting  and  IT  Services  operations  can  also
outsource a customer's  networking  needs and provide  management  of its office
LAN/WAN  and  Internet  connections.  The  Company's  Hosting  and  IT  Services
facilities and staff provide the physical  environment and  engineering  support
necessary to keep these  technologies  operating  effectively.  The Company also
provides a variety of IT consulting services, including application development,
system and network engineering, and various operations support services, such as
help desk support, data center management and network management.

     As part of its Hosting and IT Services operations, the Company launched its
eService  Manager TM product in the fourth quarter of 2000. The eService Manager
application enables consumers to book appointments with service providers online
and allows the  service  provider's  call-takers  to  schedule  appointments  in
response to orders by consumers via the  telephone.  To date the Company has not
generated  material  revenues  from fees  associated  with its eService  Manager
scheduling  solution  and the  Company  has  announced  that in the  interest of
controlling  costs, it would not expend additional  resources to develop further
functionality for this product.  There can be no assurance that the product will
generate material revenues in future periods.


Effects of Acquisitions

     On June 1, 2000,  the Company  acquired  all of the issued and  outstanding
shares  of  Connectria,   an  application  service  provider,  and  provider  of
information  technology  services.  The Company issued 845,316 common shares and
assumed  583,037  employee stock options in exchange for all of the  outstanding
stock and options of  Connectria.  Merger  related  expenses of  $1,691,028  are
included  in the cost of  merger  for the year  ended  December  31,  2000.  The
transaction is accounted for under the pooling of interest  method of accounting
and all historical financial  information  contained herein has been restated to
include  combined  results of operations,  financial  position and cash flows of
Connectria.

     The Company has a limited  history of operations  on a combined  basis with
Connectria.  In addition,  since the acquisition of Connectria,  the Company has
restructured  certain  aspects of this  operation.  As a result,  the historical
financial  information presented in this report is not indicative of the results
that  would  have  been  obtained  had the  acquisition  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 the  delivery  segment  of its  business  ("Transportation  Business
Unit").  Effective  June  1,  1999,  the  Company  completed  the  sale  of  the
Transportation  Business  Unit to Digital  Dispatch  Systems,  Inc.  ("DDS"),  a
supplier of dispatch systems to the taxi market for proceeds of $3,805,746.  The
proceeds were comprised of common shares of DDS, representing an 11% interest in
DDS, and a promissory note in the principal  amount of $331,455  ($500,000 CDN),
due January 1, 2001,  bearing  interest  at 8% per annum.  During the year ended
December 31, 2000,  DDS exercised its option to buyback the DDS shares that MDSI
received  as  compensation  on the  sale of the  Transportation  Business  Unit.
Proceeds on sale of the DDS shares were $3,273,392. The note, with interest, was
paid in the first quarter of 2001.

     Under the terms of the  agreement  between the Company and DDS, the Company
retained  certain assets and  liabilities of the  discontinued  operations.  The
Company  liquidated  all  remaining  assets  and  liabilities  relating  to  the
Transportation Business Unit as of the second quarter of 2001.



                                      -28-
<PAGE>

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


Recent Accounting Pronouncements

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  No. 141 ("SFAS  141"),  "Business
Combinations."  SFAS 141 requires the purchase method of accounting for business
combinations    initiated    after   June   30,   2001   and    eliminates   the
pooling-of-interests  method.  The Company does not believe that the adoption of
SFAS 141 will have a significant impact on its financial statements.

     In July 2001, the FASB issued Statement of Financial  Accounting  Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires,  among other things,  the  discontinuance of
goodwill  amortization.  In addition,  the standard includes  provisions for the
reclassification  of  certain  existing  recognized   intangibles  as  goodwill,
reassessment   of  the  useful   lives  of  existing   recognized   intangibles,
reclassification  of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments  of  goodwill.  SFAS 142 also  requires  the  Company to  complete a
transitional goodwill impairment test six months from the date of adoption.  The
Company does not believe  that the adoption of SFAS 142 will have a  significant
impact on its financial statements.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets." This statement addresses financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
This statement supersedes FASB Statement No. 121, "Accounting for the Impairment
of  Long-Lived  Assets and for  Long-Lived  Assets to Be  Disposed  Of," and the
accounting  and  reporting  provisions  of APB  Opinion No. 30,  "Reporting  the
Results of  Operations  -  Reporting  the  Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions."  This  Statement also amends ARB No. 7,  "Consolidated  Financial
Statements,"  to eliminate the exception to  consolidation  for a subsidiary for
which  control  is likely to be  temporary.  This  Statement  requires  that one
accounting  model be used  for  long-lived  assets  to be  disposed  of by sale,
whether previously held and used or newly acquired. This Statement also broadens
the   presentation   of   discontinued   operations  to  include  more  disposal
transactions. The provisions of this Statement are required to be adopted by the
Company at the  beginning of fiscal  2002.  The Company has not  determined  the
impact,  if any,  the  adoption  of this  statement  will have on its  financial
position or results of operations.


Critical Accounting Policies and Significant Estimates

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


Restructuring Charges

     As  part  of the  restructuring  charge,  $3.4  million  was  recorded  for
workforce  reduction.  In calculating the total charge, the Company was required
to estimate the timing and amounts to be paid to its  terminated  employees.  As
some  employees have been informed of their planned  termination,  but the final
date is still  uncertain,  should the Company's  assumptions  be incorrect,  the
actual cost may be materially different from the Company's estimates.

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



                                      -29-
<PAGE>

payments,  operating costs until terminated, or the offsetting sublease revenues
may be proven  incorrect  and actual cost may be materially  different  from the
estimates.

Accounts Receivable

     The  Company  periodically  reviews  the  collectability  of  its  accounts
receivable  balances.  Where  significant  doubt  exists  with  regards  to  the
collection  of a certain  receivable  balance,  an  allowance  and charge to the
income  statement is recorded.  At December 31, 2001, the allowance for doubtful
accounts was $3.9 million and a provision for doubtful  accounts of $3.2 million
was  recorded  in the income  statement  for the year.  The  Company  intends to
continue  vigorously   pursuing  these  accounts.   If  future  events  indicate
additional  collection  issues,  the  Company  may  be  required  to  record  an
additional allowance for doubtful accounts.

Revenue Recognition - Percentage Completion

     The Company  uses  estimates  based on inputs to determine  the  percentage
completion of its contracts and thus its revenue  recognition.  These  estimates
and contracts are reviewed regularly and are adjusted to meet the Company's best
estimate at the time. The Company's assumptions used to form these estimates may
be proven to be erroneous and materially different outcomes may result.

Income Taxes

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

Intangible Assets

     As part of the Company's restructuring plan, the Company determined that an
impairment  in the value of  goodwill  that  resulted  from the  acquisition  of
Alliance Systems,  Inc. had occurred. A valuation allowance was recorded of $1.6
million,  equal to the remaining net book value.  The Company also  discontinued
development of its e-Service  Manager  product line during the year. A valuation
allowance of $0.2 million was recorded to remove the  remaining  net book value.
MDSI  estimated  the future cash flows of the above  operations  in light of the
continued weak industry conditions, and lower market growth expectations.

Investments and Advances

     MDSI have  invested in or advanced  funds to private  companies,  which the
Company  reviews  periodically  to determine  if there has been a  non-temporary
decline in the market value of those investments and advances below the carrying
value.  The  assessment  of fair market  value is made based on the market value
trends of similar  public  companies,  the current  business  performance of the
companies in which MDSI has  invested,  and if available,  the estimated  future
market  potential  of  the  companies.   MDSI  recorded  an  impairment  of  the
investments in private  companies and advances of $2.7 million during 2001. This
resulted in a full allowance  against the recorded costs of the  investments and
advances.



                                      -30-
<PAGE>

Results of Operations

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

<TABLE>
                                                  Years ended December 31, (in thousands of dollars)
                                                  --------------------------------------------------
                                                       2001               2000            1999
                                                  -------------      -------------    ------------
<S>                                                  <C>                <C>             <C>
Revenue:
   Software and services.....................        $31,731            $41,338         $39,912
   Hosting & information technology services          13,565              8,463           4,845
   Maintenance and support...................         10,187              8,888           5,566
   Third party products and services ........          2,637              2,853           8,248
                                                  -------------      -------------    ------------
                                                      58,120             61,542          58,571
Direct costs.................................         31,250             28,055          27,318
                                                  -------------      -------------    ------------
Gross profit.................................         26,870             33,487          31,253
                                                  -------------      -------------    ------------
Operating expenses:
   Research and development..................          8,084              9,049           6,902
   Sales and marketing.......................         12,430             12,914           9,370
   General and administrative................          6,924              7,699           6,779
   Restructuring charge......................          6,106                 --              --
   Amortization and provision for valuation
      of intangible assets...................          1,824                292             279
   Costs of merger...........................             --              1,691              --
   Provision for doubtful accounts...........          3,189                985              --
                                                  -------------      -------------    ------------
                                                      38,557             32,630          23,330
Operating (loss) income......................        (11,687)               857           7,923
Valuation allowance on investments...........         (2,750)                --              --
Other expense ...............................           (191)              (525)           (760)
                                                  -------------      -------------    ------------
(Loss) income before provision for income
  taxes......................................        (14,628)               332           7,163
Recovery of (provision for) income taxes.....            521               (492)         (2,144)
                                                  -------------      -------------    ------------
(Loss) income for continuing operations              (14,107)              (159)          5,019
                                                  -------------      -------------    ------------
(Loss) from discontinued operations                       --               (395)         (3,873)
                                                  -------------      -------------    ------------
Net (loss) income for the year...............       $(14,107)           $  (554)        $ 1,146
                                                  =============      =============    ============
</TABLE>





                                      -31-
<PAGE>

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

<TABLE>
                                                               Years ended December 31,
                                                  ------------------------------------------------
                                                       2001               2000            1999
                                                  -------------      -------------    ------------
<S>                                                  <C>                <C>             <C>
Revenue:
Software and services.........................         54.6%             67.2%            68.1%
   Hosting & information technology services .         23.4              13.8              8.3
   Third party products and services..........          4.5               4.6             14.1
   Maintenance and support....................         17.5              14.4              9.5
                                                  -------------      -------------    ------------
                                                      100.0              00.0            100.0
Direct costs..................................         53.8              45.6             46.6
                                                  -------------      -------------    ------------
Gross profit..................................         46.2              54.4             53.4
                                                  -------------      -------------    ------------
Operating expenses:
   Research and development...................         13.9              14.7             11.8
   Sales and marketing........................         21.4              21.0             16.0
   General and administrative.................         11.9              12.5             11.5
   Restructuring charge.......................         10.5                --               --
   Amortization and provision for valuation
     of intangible assets.....................          3.1               0.5              0.5
   Costs of merger............................           --               2.7               --
   Provision for doubtful accounts............          5.5               1.6               --
                                                  -------------      -------------    ------------
                                                       66.3              53.0             39.8
                                                  -------------      -------------    ------------
Operating (loss) income.......................        (20.1)              1.4             13.6
Valuation allowance on investments............         (4.7)               --               --
Other expense.................................         (0.3)             (0.9)            (1.3)
                                                  -------------      -------------    ------------
(Loss) income before provision for income
taxes.........................................        (25.1)              0.5             12.3
Recovery of (provision for) income taxes......          0.9              (0.8)            (3.7)
                                                  -------------      -------------    ------------
(Loss) income from continuing operations......        (24.2)             (0.3)             8.6
(Loss) from discontinued operations...........         --                (0.6)            (6.6)
                                                  -------------      -------------    ------------
Net (loss) income for the year................        (24.2)%            (0.9)%            2.0%
                                                  =============      =============    ============
</TABLE>


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

     Revenue.  Revenue  decreased  by $3.4  million  (5.6%)  for the year  ended
December 31, 2001,  compared to the year ended  December 31, 2000.  The decrease
was  primarily  due to the  decrease in the revenue  earned  from  software  and
services,  which was partially  offset by an increase in the revenue earned from
hosting and information technology (IT) services and maintenance and support.

     Software and  services  revenue  decreased by $9.6 million  (23.2%) for the
year ended December 31, 2001,  compared to the year ended December 31, 2000. The
Company  believes its software and service  revenues were adversely  impacted by
customers postponing purchasing decisions.  Customer delays in making purchasing
decisions and reductions in  expenditures  resulted in fewer customer  contracts
and lower than anticipated  revenues from the  implementation  of those customer
contracts  in the year ended  December  31,  2001 as  compared to the year ended
December 31, 2000. The Company  anticipates that continued economic  uncertainty
in the  telecommunications  and utility markets will continue to have an adverse
impact on software and services revenues in future periods. See "Forward-Looking
Statements".

     Hosting and IT services (formerly e-Business) revenues primarily consist of
sales by the  Company's  subsidiary,  Connectria.  Revenue  for the  year  ended
December  31, 2001 was $13.6  million as  compared to $8.5  million for the year
ended  December  31,  2000,  an increase of 60%.  Connectria's  revenues in both
periods  consisted  primarily of revenues from consulting and hosting  services.
Hosting and IT service  revenues are dependent on a



                                      -32-
<PAGE>

small number of significant contracts.  One contract in particular accounted for
approximately  54% of total hosting and IT services  revenues for the year ended
December  31, 2001 as compared to  approximately  37.8% of total  hosting and IT
services revenues for the year ended December 31, 2000. The Company  anticipates
that continued economic  uncertainty in the hosting and IT services markets will
have an adverse  impact on hosting and IT services  revenues in future  periods.
See "Forward-Looking Statements".

     Maintenance  and  support  revenue  was $10.2  million  for the year  ended
December  31,  2001,  compared to $8.9  million for the year ended  December 31,
2000, an increase of 14.6%. The Company believes maintenance and support revenue
has increased and will continue to increase as the Company's  installed customer
base increases.

     Third party products and services revenue  decreased by $0.2 million (7.6%)
for the year ended  December 31, 2001,  compared to the year ended  December 31,
2000. Third party products and services revenue is primarily earned from certain
customers in the utilities market pursuant to agreements under which the Company
provides  third party products and services,  typically host computer  equipment
and mobile  computing  devices,  as part of the  installation  of  software  and
provision of services. The Company expects that 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.

     Direct  Costs.  Direct  costs  were  53.8% of  revenue  for the year  ended
December  31,  2001,  compared to 45.6% for the year ended  December  31,  2000.
Direct  costs  include  labor  and other  costs  directly  related  to a project
including  those  related to the  provision of services  and support,  and costs
related to equipment  purchased for sale to third  parties.  Labor costs include
direct  payroll,  benefits and overhead  charges.  The increase in proportion of
direct  costs to revenue  relates to the Company  incurring  a certain  level of
fixed  costs.  As a result of such fixed  costs,  the  decrease in software  and
services  revenues  during  2001 was not  completely  offset by the  decrease in
software and services direct costs and the percentage of direct costs increased.
In addition,  a greater portion of the Company's  revenue was derived from lower
margin Hosting and IT Services  revenue during the year ended December 31, 2001,
which results in higher direct costs as a percentage of revenue  compared to the
year ended December 31, 2000.

     Gross  Margins.  Gross  margins  were 46.2% of  revenue  for the year ended
December 31, 2001,  compared to 54.4% for the year ended  December 31, 2000. The
change in profit  margin  relates  to the  change  in the mix in  revenues.  The
proportion  of  revenue  derived  from  lower  margin  Hosting  and IT  services
increased in 2001  compared to 2000.  Gross  margins  were also  impacted by the
Company's  fixed  costs.  As a result,  the  decrease in software  and  services
revenues  during 2001 was not completely  offset by the decrease in software and
service direct costs, and gross margins decreased.

     Research and  Development.  Research  and  development  expenses  were $8.1
million, or 13.9% of revenue,  for the year ended December 31, 2001, compared to
$9.0 million,  or 14.7% of revenue,  for the year ended  December 31, 2000.  The
10.7% decrease in research and development  expenses in 2001 was a result of the
substantial  completion of the  Company's  new version of its Advantex  software
during the year ended  December 31, 2000,  and the  elimination  of research and
development  expenditures  related to its  e-Service  manager  product which was
discontinued in 2001. As a result,  the Company did not expend as many resources
on research and  development in 2001 as in 2000. The Company intends to continue
committing a  significant  portion of its product  revenues to enhance  existing
products and develop new products. See "Forward-Looking Statements".

     Sales and  Marketing.  Sales and  marketing  expenses were $12.4 million or
21.4% of revenue for the year ended December 31, 2001 and $12.9 million or 21.0%
of revenue for the year ended December 31, 2000.  This  represents a decrease of
$0.5 million  (3.8%).  The decrease was due to the Company's  restructuring  and
cost control effort which resulted in a decrease in the  discretionary  spending
surrounding  sales and marketing  activities.  The Company  anticipates that the
dollar amounts of its sales and marketing  expenses will increase as a result of
the  Company's   commitment  to  its   international   marketing   effort.   See
"Forward-Looking Statements".

     General and Administrative.  General and administrative  expenses were $6.9
million,  or 11.9% of  revenue,  for the year ended  December  31, 2001 and $7.7
million,  or 12.5% of  revenue,  for the year  ended  December  31,  2000.  This
decrease was due  primarily to the  Company's  restructuring  and  discretionary
spending  controls  instituted  during the year ended  December  31,  2001.  The
Company expects that its general and administrative  expenses will remain stable



                                      -33-
<PAGE>

in the future as the Company continues to seek efficiencies  while continuing to
support the Company's operations. See "Forward-Looking Statements".

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

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

     Provision for Doubtful Accounts.  The Company has included in its operating
results for the year ended  December 31, 2001, a provision for $3.2 million with
respect  to  doubtful  accounts.   The  Company  intends  to  vigorously  pursue
collection of these  accounts;  however due to uncertainty  with regard to these
customers' financial conditions, the Company determined that it would be prudent
to record an  allowance  to address  the  uncertainty  regarding  collection  of
amounts due.

     Operating  (loss)  Income.  Operating  loss for the year ended December 31,
2001 was ($11.7)  million,  compared to operating income of $0.9 million for the
year ended December 31, 2000. The decrease in operating income was mainly due to
restructuring  charges of $6.1 million,  provision for doubtful accounts of $3.2
million and a write off of  intangible  assets of $1.5  million  taken in fiscal
2001.  The  operating  loss  for  fiscal  2001  was  made up of a loss  from the
Company's  field  service  segment of ($11.4) and a loss from the Hosting and IT
Services  segment of ($0.3)  million.  During the year ended  December 31, 2000,
operating income of $0.9 million was made up of $2.8 million in operating income
from the field service segment, offset by a ($1.9) million operating loss in the
Hosting and IT Services  segment.  The decrease in operating income in the field
service  segment of ($14.6)  million was  primarily  due to the one time charges
referred to previously, and a decrease of revenue in the segment of $7.3 million
in 2001 as compared to 2000. The increase in operating income in the Hosting and
IT Services segment of $1.6 million was primarily due to merger expenses of $1.7
million  incurred in 2000 with respect to the Company's  merger with  Connectria
Corporation.  These costs were not repeated in 2001, resulting in an increase in
operating income.

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

     Other Income  (expense).  Other income (expense) was $(0.2) million for the
year ended  December  31,  2001,  compared to $(0.5)  million for the year ended
December  31,  2000.  Substantially  all of other  income  (expense)  relates to
interest  income on cash and short term  deposits,  interest  expense on capital
leases, and fluctuations in foreign currency denominated assets and liabilities.

     Income Taxes.  The Company  provided for recovery of income taxes on losses
for the year ended  December 31, 2001 at the rate of 4.1%,  after  adjusting for
the amortization and impairment of intangible  assets.  The Company's  effective
tax rate  reflects the  application  of certain  operating  loss carry  forwards
against taxable income and the blended effect of Canadian, US, and other foreign
jurisdictions'  tax rates.  Since the  Company  has  incurred a loss  during the
period  and it is not more  likely  than not  that the  Company  will be able to
utilize the benefits of these losses, the Company did not record a full recovery
of income tax expense during the year ended December 31, 2001.



                                      -34-
<PAGE>

Year ended December 31, 2000 Compared to the Year ended December 31, 1999

     Revenue.  Revenue  increased  by $3.0  million  (5.1%)  for the year  ended
December 31, 2000,  compared to the year ended  December 31, 1999.  The increase
was  primarily  due to the  increase  in  software  and  services,  hosting  and
information  technology services and maintenance which was partially offset by a
decrease in the revenue earned from third party products and services.

     Software and services revenue increased by $1.4 million (3.6%) for the year
ended  December 31,  2000,  compared to the year ended  December  31, 1999.  The
Company  believes  this  increase  was due to the  Company  experiencing  a year
2000-related  slowdown  in 1999 that was not  repeated  in 2000.  The  resulting
revenue growth in the fourth quarter of 2000 substantially accounts for the year
over year increase in revenues.

     Hosting  and  IT  services  revenues  primarily  consist  of  sales  by the
Company's subsidiary,  Connectria.  Hosting and IT services revenue for the year
ended  December 31, 2000 was $8.5 million  compared to $4.8 million for the year
ended  December  31,  1999.  Connectria's  revenues  in both  periods  consisted
primarily of revenues  from  consulting  and hosting  services.  The increase in
period-to-period  revenues  is a result of the  increased  business  growth  and
expansion  within  the  Hosting  and  IT  services  market  segment,  and is not
attributable to one particular contract.

     Maintenance  and  support  revenue  was $8.9  million  for the  year  ended
December  31,  2000,  compared to $5.6  million for the year ended  December 31,
1999,  an increase of 59.7%.  Typically,  maintenance  and support  revenue will
increase  with the  increase in the level of the  Company's  installed  customer
base.

     Third party products and services revenue decreased by $5.4 million (65.4%)
for the year ended  December 31, 2000,  compared to the year ended  December 31,
1999. Third party products and services revenue is primarily earned from certain
customers in the utilities market. 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.  The Company
expects that 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.

     Direct  Costs.  Direct  costs  were  45.6% of  revenue  for the year  ended
December  31,  2000,  compared to 46.6% for the year ended  December  31,  1999.
Direct  costs  include  labor  and other  costs  directly  related  to a project
including  those  related to the  provision of services  and support,  and costs
related to equipment  purchased for sale to third  parties.  Labor costs include
direct  payroll,  benefits and overhead  charges.  The decrease in proportion of
direct  costs to revenue  relates  primarily  to the  decrease  in third  -party
products and services, which have higher direct costs.

     Gross  Margins.  Gross  margins  were 54.4% of  revenue  for the year ended
December 31, 2000,  compared to 53.4% for the year ended  December 31, 1999. 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 2000 compared to 1999.

     Research and  Development.  Research  and  development  expenses  were $9.0
million, or 14.7% of revenue,  for the year ended December 31, 2000, compared to
$6.9 million,  or 11.8% of revenue,  for the year ended  December 31, 1999.  The
31.1% increase in research and development  expenses in 2000 was a result of the
continued  development and enhancement of the Company's  Advantex  products,  as
well as development of the Company's eService manager offering

     Sales and  Marketing.  Sales and  marketing  expenses were $12.9 million or
21.0% of revenue for the year ended  December 31, 2000 and $9.4 million or 16.0%
of revenue for the year ended December 31, 1999.  This represents an increase of
$3.5 million (37.8%) as compared to 1999. The increase was due to an increase in
marketing,  sales and  technical  support  personnel  supporting  the  Company's
increased product  offerings,  including Advantex r7 and Hosting and IT services
initiatives.



                                      -35-
<PAGE>

     General and Administrative.  General and administrative  expenses were $7.7
million,  or 12.5% of  revenue,  for the year ended  December  31, 2000 and $6.8
million,  or 11.5% of  revenue,  for the year  ended  December  31,  1999.  This
increase  was  due  primarily  to  the  hiring  of  additional   accounting  and
administrative personnel to support the Company's growth.

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

     Provision for doubtful accounts.  The Company has included in its operating
results  for the year ended  December  31, 2000 a provision  for  $985,000  with
respect  to a  doubtful  account.  The  Company  intends  to  vigorously  pursue
collection  of  this  account,  however,  due to  uncertainty  with  regards  to
collection  the  Company  determined  that it  would be  prudent  to  record  an
allowance to address this uncertainty.

     Operating  (loss) Income.  Operating income for the year ended December 31,
2000 was $0.9 million, compared to operating income of $7.9 million for the year
ended December 31, 1999.  The decrease in operating  income was mainly due to an
increase  in research  and  development  and sales and  marketing  expenses,  as
described  above,  a provision for doubtful  accounts of $1.0 million and merger
related  expenses of $1.7 million being  incurred in the year ended December 31,
2000. The operating  income for fiscal 2000 was made up of $2.8 million from the
Company's  field  service  segment  and a loss in the  Hosting  and IT  Services
segment of ($1.9)  million.  During the year ended  December 31, 1999  operating
income of $7.9 million was made up of $7.8 million in operating  income from the
field service segment,  and $0.1 million  operating income in the Hosting and IT
Services segment.  The decrease in operating income in the field service segment
of ($5.0) million was primarily due to the increase in research and  development
and sales and  marketing  costs in fiscal 2000  compared  to prior year,  and an
allowance for doubtful  accounts of $1.0 million  recorded in 2000. The decrease
in operating  income in the Hosting and IT Services  segment of $2.0 million was
primarily due to merger  expenses of $1.7 million  incurred in 2000 with respect
to the Company's  merger with  Connectria  Corporation.  No costs of this nature
were recorded in 1999.

     Other Income  (expense).  Other income (expense) was $(0.5) million for the
year ended  December  31,  2000,  compared to $(0.8)  million for the year ended
December  31,  1999.  Substantially  all of other  income  (expense)  relates to
interest  income on cash and short term  deposits,  interest  expense on capital
leases, and fluctuations in foreign currency denominated assets and liabilities.

     Income  Taxes.  The Company  provided  for income taxes on earnings for the
year ended  December  31,  2000 at the rate of 26.9%,  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.





                                      -36-
<PAGE>

Quarterly Results of Operations

     The following  table sets forth certain  unaudited  statement of operations
data for  each of the  eight  quarters  beginning  January  1,  2000 and  ending
December 31, 2001 as well as the percentage of the Company's revenue represented
by each item. The unaudited financial  statements have been prepared on the same
basis as the  audited  financial  statements  contained  herein and  include all
adjustments,  consisting only of normal recurring adjustments,  that the Company
considers  necessary to present fairly this information when read in conjunction
with the Company's audited financial  statements and the notes thereto appearing
elsewhere in this report.  In view of the Company's  recent  restructuring,  its
recent  acquisitions  and other  factors,  the Company  believes that  quarterly
comparisons of its financial  results are not necessarily  meaningful and should
not be relied upon as an indication of future performance.

<TABLE>
                                                                                Three Months Ended
                                                                 2001                                        2000
                                              ------------------------------------    ------------------------------------
                                               Dec. 31  Sep. 30   June 30  Mar. 31    Dec. 31   Sep. 30  June 30   Mar. 31
                                               -------  -------   -------  -------    -------   -------  -------   -------
                                                                   (Unaudited, in thousands of dollars)
<S>                                             <C>      <C>       <C>      <C>      <C>       <C>       <C>       <C>
Statement of Operations Data:
Revenue:
Software and services                           $7,332   $7,282    $7,714   $9,403   $11,729   $ 10,430  $ 9,509   $ 9,669
Hosting & information technology services        2,794    2,782     3,485    4,504     3,574      1,849    1,551     1,489
Third party products and services                  815      295       380    1,147       709        964      653       529
Maintenance and support                          2,649    2,647     2,434    2,457     2,595      2,296    1,973     2,024
                                               ---------------------------------------------------------------------------
                                                13,590   13,006    14,013   17,511    18,607     15,539   13,686    13,711

Direct costs                                     7,267    6,716     7,470    9,797     8,577      7,632    6,297     5,551
                                               ---------------------------------------------------------------------------
Gross profit                                     6,323    6,290     6,543    7,714    10,030      7,907    7,389     8,160
                                               ---------------------------------------------------------------------------
Operating expenses:
Research and development                         1,492    1,899     2,149    2,544     2,481      2,254    2,275     2,039
Sales and marketing                              2,590    2,654     3,721    3,465     3,664      3,059    3,365     2,825
General and administrative                       1,754    1,709     1,758    1,703     1,708      1,806    2,079     2,114
Amortization and provision for valuation of
 intangible assets                                 165       11        11    1,637        89         68       68        70
Cost of Merger/ Restructuring                        -        -     4,906    1,200      (385)         -    2,076         -
Provision for doubtful accounts                  1,987        -         -    1,202       985          -        -         -
                                               ---------------------------------------------------------------------------
                                                 7,988    6,273    12,545   11,751     8,542      7,187    9,863     7,048
                                               ---------------------------------------------------------------------------
Operating (loss) income                         (1,669)      17    (6,002)  (4,037)    1,488        720   (2,474)    1,112
Valuation allowance on investments                   -        -         -   (2,750)        -          -        -         -
                                               ---------------------------------------------------------------------------
Other income (expense)                             109       71    (6,311)     (60)     (214)        89     (177)     (212)
                                               ---------------------------------------------------------------------------
(Loss) income  before income tax provision      (1,556)      87    (6,313)  (6,847)    1,274        809   (2,651)      900
(Provision for) recovery of income taxes          (149)     (45)       23      693      (110)      (263)     172      (291)
                                               ---------------------------------------------------------------------------
(Loss) income from continuing operations        (1,705)      42    (6,290)  (6,154)    1,164        546   (2,479)      609
Loss from discontinued operations                    -        -         -        -      (395)         -        -         -
                                               ---------------------------------------------------------------------------
Net (loss) income for the period               $(1,705)     $42   $(6,290) $(6,154)    $ 769      $ 546  $(2,479)    $ 609
                                               ===========================================================================
</TABLE>



                                      -37-
<PAGE>

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

<TABLE>
                                                                                Three Months Ended
                                                                                ------------------
                                                                 2001                                        2000
                                               ----------------------------------------    ---------------------------------------
                                               Dec. 31    Sep. 30    June 30    Mar. 31    Dec. 31   Sep. 30    June 30    Mar. 31
                                               -------    -------    -------    -------    -------   -------    -------    -------
<S>                                             <C>        <C>        <C>        <C>      <C>       <C>         <C>        <C>

Revenue:
Software and services                            54.0%     56.0%      55.0%      53.7%      63.0%     67.1%       69.5%     70.5%
Hosting & information technology services        20.5      21.4       24.9       25.7       19.2      11.9        11.3      10.8
Third party products and services                 6.0       2.3        2.7        6.6        3.8       6.2         4.8       3.9
Maintenance and support                          19.5      20.3       17.4       14.0       14.0      14.8        14.4      14.8
                                               -----------------------------------------------------------------------------------
                                                100.0     100.0      100.0      100.0      100.0     100.0       100.0     100.0
Direct costs                                     53.5      51.7       53.3       55.9       46.1      49.1        46.0      40.5
                                               -----------------------------------------------------------------------------------
Gross profit                                     46.5      48.3       46.7       44.1       53.9      50.9        54.0      59.5
                                               -----------------------------------------------------------------------------------
Operating expenses:
Research and development                         11.0      14.6       15.3       14.5       13.3      14.5        16.6      14.9
Sales and marketing                              19.1      20.4       26.6       19.8       19.7      19.7        24.6      20.6
General and administrative                       12.9      13.1       12.5        9.7        9.2      11.6        15.2      15.4
Amortization and provision for valuation of
intangible assets                                 1.2       0.1        0.1        9.4        0.5       0.4         0.5       0.5
Cost of merger/restructuring                        -         -       35.0        6.9       (2.1)        -        15.2         -
Allowance for doubtful accounts                  14.6         -          -        6.9        5.3         -           -         -
                                               -----------------------------------------------------------------------------------
                                                 58.8      48.2       89.5       67.2       45.9      46.2        72.1      51.4
                                               -----------------------------------------------------------------------------------
Operating (loss) income                         (12.3)      0.1      (42.8)     (23.1)       8.0       4.7       (18.1)      8.1
Valuation allowance on investments                -           -          -      (15.7)         -         -           -         -
Other income (expense)                            0.8       0.5       (2.2)      (0.3)      (1.2)      0.5        (1.3)     (1.6)
                                               -----------------------------------------------------------------------------------
(Loss) income before income tax provision       (11.5)      0.6      (45.0)     (39.1)       6.8       5.2       (19.4)      6.5
                                               -----------------------------------------------------------------------------------
(Provision for) recovery of income taxes         (1.1)     (0.3)       0.1        4.0       (0.6)     (1.7)        1.3      (2.1)
                                               -----------------------------------------------------------------------------------
(Loss) income from continuing operations        (12.6)      0.3      (44.9)     (35.1)       6.2       3.5       (18.1)      4.4
Loss from discontinued operations                   -         -          -          -       (2.1)        -           -         -
                                               -----------------------------------------------------------------------------------
Net (loss) income for the period                (12.6)%     0.3%     (44.9)%    (35.1)%      4.1%      3.5%      (18.1)%     4.4%
                                               ===================================================================================
</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, 2001, the Company had cash and cash
equivalents of $13.7 million (2000 - $13.2 million) and working capital of $12.7
million (2000 - $25.6 million).

     Cash provided by (used in) operating  activities  was $3.7 million,  $(1.2)
million and $1.6 million,  respectively,  for the years ended December 31, 2001,
2000 and 1999. The $3.7 million of cash provided by operating activities in 2001
was comprised of $14.1 million net loss,  non-cash charges of $8.9 million,  and
$8.9  million of changes to  non-cash  working  capital  items.  The  changes to
working capital items include a $2.3 million  decrease in trade  receivables,  a
$7.9  million  decrease  in unbilled  receivables,  a $0.6  million  increase in
prepaid expenses a $2.1 million increase in accrued liabilities,  a $1.0 million
decrease in trade payables,  a $1.5 million decrease in taxes payable and a $0.2
million decrease in deferred revenue.  Unbilled accounts  receivable arise where
the  Company  has earned  revenue on a project  and has not  completed  specific
billing milestones under the terms of the applicable contract.  Deferred revenue
arises



                                      -38-
<PAGE>

where the Company has achieved a billing milestone under a customer contract but
has  yet to  recognize  all of  the  revenue  billed  due to the  percentage  of
completion under the contract.

     The  Company  has  included  in its  operating  results  for the year ended
December  31,  2001 a  provision  for $3.2  million  with  respect  to  doubtful
accounts. The Company intends to vigorously pursue collection of these accounts,
however,   due  to  uncertainty  with  regards  to  these  customers'  financial
conditions,  the  Company  determined  that it would be  prudent  to  record  an
allowance to address the uncertainty regarding collection of amounts due.

     The Company is currently  involved in a dispute  with a customer,  and as a
result has reclassified $3.7 million in accounts  receivable as long term as the
Company  determined it is not likely to collect the amounts within one year. The
Company is currently involved in litigation to collect the amounts due. See Item
3 "Legal  Proceedings",  for further  discussion.  The Company believes that its
position in the matter is strong and intends to  vigorously  pursue  collection,
but due to  uncertainty  regarding  timing of collection has elected to classify
the  receivable  as long term. If the Company is  unsuccessful  in collection of
amounts  due,  or is  made to  refund  monies  previously  collected  under  the
contract,  the  Company's  liquidity  and  working  capital  would be  adversely
affected.

     Cash (used in) provided by financing  activities was $(2.0)  million,  $5.8
million and $13.8  million,  respectively,  during the years ended  December 31,
2001,  2000 and 1999.  The cash used in financing  activities in 2001  comprised
$(2.0)  million in  repayment  of  capital  leases and  $(28,000)  repayment  of
long-term  debt  partially  offset by $0.1  million  from the issuance of common
shares.

     Cash used in investing activities was $1.7 million,  $6.0 million, and $4.3
million,  respectively,  for the years ended  December 31, 2001,  2000 and 1999.
Total  investing  activity in 2001  primarily  consisted of $2.2 million for the
purchase of capital equipment,  including computer hardware and software for use
in  research  and  development  activities,  the  growth of the  hosting  and IT
services  operations,  and to  support  the  growth of the  Company's  corporate
information systems. In addition,  the Company received $0.3 million in proceeds
on maturity of its note receivable from Digital Dispatch Systems, Inc., and $0.1
million from a customer lease.

     Existing sources of liquidity at December 31, 2001 include $13.7 million of
cash and cash equivalents and funds available under the Company's operating line
of credit. At the year ended December 31, 2001, the Company's borrowing capacity
under the line of credit was $10 CDN million.  Under the terms of the agreement,
borrowings  and  letters of credit  under the line are  limited to 75% to 90% of
eligible  accounts  receivable.  Borrowings  accrue interest at the bank's prime
rate plus 0.5%.  At December  31,  2001,  the Company was not using this line of
credit.

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

     The  Company  believes  that  future  cash  flows from  operations  and its
borrowing capacity under the operating line of credit combined with current cash
balances will provide  sufficient  funds to meet cash  requirements for at least
the next twelve months.  Commensurate  with its past and expected future growth,
the Company may increase,  from time to time,  its borrowing  facility under its
operating line of credit to support its operations.  The Company has no material
additional commitments other than capital and 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.



                                      -39-
<PAGE>

     As  at  December  31,  2001  the  Company  had  the  following  contractual
obligations and commercial commitments:

<TABLE>
                                           Payments Due by Period
        Contractual                        ----------------------
        Obligations
        -----------
                                Total        Less Than One      1-3 Years     4-5 Years      After 5
                                                  Year                                        Years
                            ------------     -------------    ------------   -----------    ----------
      <S>                   <C>                 <C>             <C>           <C>           <C>
       Capital Lease        $ 4,587,504        $2,839,442       $1,748,062             -             -
        Obligations

       Operating Leases     $ 9,225,654         1,476,768       $3,324,835    $2,386,807    $2,037,244

       Total Contractual    $13,813,158        $4,316,210       $5,072,897    $2,386,807    $2,037,244
        Obligations
</TABLE>

     In addition to these commercial  commitments the Company has also provided,
as performance bonds, an irrevocable revolving letter of credit in the amount of
EUR 751,623 ($665,801) expiring May 31, 2003, and an additional letter of credit
in the amount of EUR 75,855  ($66,752)  expiring  February 28, 2003. The Company
has pledged an amount equal to the letters of credit and  guarantee  against its
operating line of credit as security.


Derivative Financial Instruments

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

     The Company's  foreign currency forward  contracts are executed with credit
worthy banks and are denominated in currencies of major industrial countries. As
at December  31,  2001,  and 2000 the Company  had no foreign  currency  forward
contracts outstanding.


Item 7A:  Quantitative and Qualitative Disclosure About Market Risk

     The Company's  primary market risk is foreign currency  exchange rates. The
Company has  established  procedures to manage  sensitivity to foreign  currency
exchange  rate market  risk.  These  procedures  include the  monitoring  of the
Company's net exposure to each foreign  currency and the use of foreign currency
forward contracts to hedge firm exposures to currencies other than United States
dollars.  The  Company  has  operations  in Canada and Europe in addition to its
United States operations and did not hedge these exposures in 2001. However, the
Company may from  time-to-time  hedge any net exposure to currencies  other than
the United States dollar.

     As of December 31, 2001, the potential  reduction in future earnings from a
hypothetical  instantaneous 10% change in quoted foreign currency exchange rates
applied  to the  foreign  currency  sensitive  contracts  and  assets  would  be
approximately $3.4 million. The foreign currency sensitivity model is limited by
the  assumption  that all foreign  currencies,  to which the Company is exposed,
would  simultaneously  change by 10%. Such synchronized  changes are unlikely to
occur. The sensitivity model does not include the inherent risks associated with
anticipated  future  transactions  denominated  in foreign  currencies or future
forward contracts entered into for hedging purposes.



                                      -40-
<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

     The  financial  statements  listed  under  the  heading  "(a)(1)  Financial
Statements" of Item 14 herein, are included immediately following this page.
















                                      -41-
<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, 2001 and 2000 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,  2001.  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, 2001
and 2000 and the results of its  operations and cash flows for each of the years
in the three year period ended December 31, 2001 in conformity  with  accounting
principles generally accepted in the United States of America.

On  February 1, 2002,  we  reported  separately  to the Board of  Directors  and
Shareholders  of MDSI  Mobile Data  Solutions  Inc.  on  consolidated  financial
statements for the same periods  prepared in accordance with generally  accepted
accounting principles in Canada.




/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
February 1, 2002



                                      -42-
<PAGE>

<TABLE>

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


                                                                           As at December 31,
                                                                          2001            2000
                                                                      -----------      -----------
<S>                                                                   <C>              <C>
Assets
Current assets
  Cash and cash equivalents                                           $13,691,714      $13,238,081
  Accounts receivable, net
    Trade (net of allowance for doubtful accounts of
      $3,933,287; 2000 - $985,000)                                     10,764,038       16,821,925
    Unbilled                                                            4,331,924       12,184,446
  Prepaid expenses and other assets (note 10)                           2,059,082        1,411,200
  Income taxes receivable                                                 366,506                -
  Lease receivable (note 3)                                                     -          133,723
                                                                      -----------      -----------
  Total current assets                                                 31,213,264       43,789,375

Investments and advances, at cost (net of valuation allowance:
  2001 - $2,999,992; 2000 - $250,000) (note 4)                                  -        3,081,447
Capital assets, net (note 5)                                            9,249,055       11,097,497
Long term receivable (note 11(c))                                       3,749,860                -
Deferred income taxes (note 9)                                            364,640          347,350
Intangible assets, net (note 6)                                                 -        1,824,057
                                                                      -----------      -----------
                                                                       44,576,819       60,139,726
Assets of discontinued operations (note 16)                                     -          641,405
                                                                      -----------      -----------
Total assets                                                          $44,576,819      $60,781,131
                                                                      ===========      ===========
Liabilities and stockholders' equity
Current liabilities
  Accounts payable                                                     $2,451,853       $3,444,457
  Accrued liabilities (note 15)                                         5,685,905        3,625,591
  Income taxes payable                                                          -        1,091,164
  Deferred revenue                                                      7,713,068        7,901,837
  Current portion of long-term debt (note 7)                               39,041           66,968
  Current obligations under capital lease (note 11(a))                  2,589,320        2,094,637
                                                                      -----------      -----------
  Total current  liabilities                                           18,479,187       18,224,654

Obligations under capital leases (note 11(a))                           1,622,879        4,156,486
                                                                      -----------      -----------
                                                                       20,102,066       22,381,140
Liabilities of discontinued operations (note 16)                                -          223,024
                                                                      -----------      -----------
Total liabilities                                                      20,102,066       22,604,164

Stockholders' equity
  Common stock (note 8)
  Authorized:
    Unlimited common shares with no par value
  Issued:
    2001: 8,676,020 shares; 2000: 8,612,453 shares                     48,519,060       48,416,502
  Additional paid-up capital                                              522,621          220,700
  Treasury stock (13,475 shares)                                          (85,043)         (85,043)
  Accumulated other comprehensive (loss)                                 (690,104)        (690,104)
  Deficit                                                             (23,791,781)      (9,685,088)
                                                                      -----------      -----------
                                                                       24,474,753       38,176,967
                                                                      -----------      -----------
Total liabilities and stockholders' equity                            $44,576,819      $60,781,131
                                                                      ===========      ===========
</TABLE>


Commitments and contingencies (note 11)


              See accompanying notes to the consolidated financial statements


                                      -43-
<PAGE>

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

                                                                      Years ended December 31,
                                                        -----------------------------------------------------
                                                           2001                  2000                1999
                                                        -----------           -----------         -----------
<S>                                                     <C>                   <C>                 <C>
Revenue
  Software and services                                 $31,731,309           $41,338,221         $39,912,480
  Hosting & information technology services              13,564,763             8,463,069           4,845,183
  Maintenance and support                                10,186,907             8,887,737           5,565,499
  Third party products and services                       2,637,314             2,853,452           8,248,264
                                                        -----------           -----------         -----------
                                                         58,120,293            61,542,479          58,571,426
                                                        -----------           -----------         -----------
Direct costs                                             31,250,063            28,055,450          27,317,935
                                                        -----------           -----------         -----------
Gross profit                                             26,870,230            33,487,029          31,253,491
                                                        -----------           -----------         -----------
Operating expenses
  Research and development                                8,084,378             9,048,819           6,902,380
  Sales and marketing                                    12,429,512            12,914,221           9,370,324
  General and administrative                              6,923,713             7,699,019           6,778,503
  Restructuring charge (note 15)                          6,105,927                     -                   -
  Amortization and provision for valuation of
   intangible assets                                      1,824,057               291,916             279,240
  Costs of merger                                                 -             1,691,028                   -
  Provision for doubtful accounts                         3,189,263               985,000                   -
                                                        -----------           -----------         -----------
                                                         38,556,850            32,630,003          23,330,447
                                                        -----------           -----------         -----------
Operating (loss) income                                 (11,686,620)              857,026           7,923,044

Valuation allowance on investments (note 4)              (2,749,992)                    -                   -
Other expense                                              (191,456)             (524,862)           (759,549)
                                                        -----------           -----------         -----------
(Loss) income from continuing operations before
  tax provision                                         (14,628,068)              332,164           7,163,495
                                                        -----------           -----------         -----------

Recovery of (Provision for) income taxes from
  continuing operations (note 9)                            521,375              (491,542)         (2,144,424)
                                                        -----------           -----------         -----------
(Loss) income from continuing operations                (14,106,693)             (159,378)          5,019,071

Loss from discontinued operations (note 16)                       -              (395,022)         (3,872,683)
                                                        -----------           -----------         -----------
Net (loss) income for the year                         ($14,106,693)            ($554,400)         $1,146,388
                                                        ===========           ===========         ===========
(Loss) earnings per common share
  (Loss) earnings from continuing operations
  Basic                                                      ($1.64)               ($0.02)              $0.62
                                                        ===========           ===========         ===========
  Diluted                                                    ($1.64)               ($0.02)              $0.55
                                                        ===========           ===========         ===========
  Net (loss) earnings
  Basic                                                      ($1.64)               ($0.07)              $0.14
                                                        ===========           ===========         ===========
  Diluted                                                    ($1.64)               ($0.07)              $0.13
                                                        ===========           ===========         ===========
Weighted average shares outstanding
  Basic                                                   8,623,296             8,526,723           8,080,022
                                                        ===========           ===========         ===========
  Diluted                                                 8,623,296             8,526,723           9,100,711
                                                        ===========           ===========         ===========
</TABLE>

         See accompanying notes to the consolidated financial statements


                                      -44-
<PAGE>

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


                                                                                       Accumulated
                                     Common Stock            Additional                   Other
                              ------------------------          Paid       Treasury   Comprehensive
                                Shares         Amount        Up Capital      Stock         Loss         Deficit           Total
                              -----------   -----------      ----------    ---------  --------------  ----------       ----------
<S>                          <C>            <C>              <C>          <C>        <C>            <C>              <C>
Balance, January 1, 1999      7,386,853     $32,797,978    $  220,700     $(85,043)   $(2,207,170)   $(10,130,076)    $20,596,389

  Issued on exercise of         215,980       2,112,793             -            -              -               -       2,112,793
   stock options

  Issuance of  share             20,619           7,500             -            -              -               -           7,500
   capital
  Issued under stock             28,144         271,009             -            -              -               -         271,009
   purchase plan (Note 8(b))

  Dividends paid                      -               -             -            -              -        (147,000)       (147,000)
  Change in foreign                   -               -             -            -      1,777,732               -       1,777,732
   exchange fluctuations
  Issued on public              575,000       9,772,479             -            -              -               -       9,772,479
   offering (Note 8(c))

  Net income for the year             -               -             -            -              -       1,146,388       1,146,388
                              ----------------------------------------------------------------------------------------------------
Balance, December 31, 1999    8,226,596      44,961,759       220,700      (85,043)      (429,438)     (9,130,688)     35,537,290

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

  Issued under stock             16,621         185,771             -            -              -               -         185,771
   purchase plan (Note 8(b))

  Change in foreign                   -               -             -            -       (260,666)              -        (260,666)
   exchange fluctuations
  Net loss for the year               -               -             -            -              -        (554,400)       (554,400)
                              ----------------------------------------------------------------------------------------------------
Balance, December 31, 2000    8,612,453      48,416,502       220,700      (85,043)      (690,104)     (9,685,088)     38,176,967

  Issued on exercise of          63,567         102,558             -            -              -               -         102,558
   stock options
  Stock based compensation            -               -       301,921            -              -               -         301,921
   charge
  Net loss for the year               -               -             -            -              -     (14,106,693)    (14,106,693)
                              ----------------------------------------------------------------------------------------------------
Balance, December 31, 2001    8,676,020     $48,519,060     $ 522,621     $(85,043)     $(690,104)   $(23,791,781)    $24,474,753
                              ====================================================================================================
</TABLE>


         See accompanying notes to the consolidated financial statements



                                      -45-
<PAGE>

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


                                                                                              Years ended December 31,
                                                                          ---------------------------------------------------
                                                                               2001               2000             1999
                                                                          --------------     --------------    --------------
<S>                                                                       <C>                  <C>             <C>
Cash flows from operating activities
  Net (loss) income from continuing operations for the year               $ (14,106,693)       $ (159,378)     $  5,019,071
  Items not affecting cash:
    Depreciation, amortization and provision for valuation of                 5,262,704         2,946,950         1,622,927
     intangible assets
    Write down in value of surplus capital assets                               563,780                 -                 -
    Valuation allowance on investments                                        2,749,992                 -                 -
    Deferred income taxes                                                       (17,290)          230,077            84,616
    Stock based compensation charge                                             301,921                 -                 -
    Changes in non-cash operating working capital items (Note 13)             8,933,938        (4,215,903)       (5,147,589)
                                                                          --------------     --------------    --------------
  Net cash provided by (used in) operating activities                         3,688,352        (1,198,254)        1,579,025
                                                                          --------------     --------------    --------------

Cash flows from financing activities
  Issuance of common shares                                                     102,558         3,454,743        12,163,781
  Payment of dividends                                                                -                 -          (147,000)
  Repayment of long-term debt                                                   (27,927)          (17,366)         (293,366)
  (Repayment of) proceeds from capital leases                                (2,038,924)        2,329,509         2,038,965
                                                                          --------------     --------------    --------------
  Net cash provided by (used in) financing activities                        (1,964,293)        5,766,886        13,762,380
                                                                          --------------     --------------    --------------
Cash flows from investing activities
  Repayment of lease receivable                                                 133,723           386,860           395,139
  Acquisition of investments                                                          -        (2,518,225)         (301,143)
  Proceeds on sale of investments                                               331,455         3,273,392                 -
  Acquisition of intangible asset                                                      -         (220,000)                -
  Acquisition of capital assets                                              (2,153,985)       (6,882,460)       (4,443,711)
                                                                          --------------     --------------    --------------
  Net cash used in investing activities                                      (1,688,807)       (5,960,433)       (4,349,715)
                                                                          --------------     --------------    --------------
Net cash provided by (used in) continuing operations                             35,252        (1,391,801)       10,991,690

Net cash provided by (used in) discontinued operations (note 16)                418,381           277,625        (1,762,058)
                                                                          --------------     --------------    --------------
Net cash inflow (outflow)                                                       453,633        (1,114,176)        9,229,632

Effects of foreign exchange fluctuations on cash                                      -          (260,666)        1,777,732

Cash and cash equivalents, beginning of year                                 13,238,081        14,612,923         3,605,559
                                                                          --------------     --------------    --------------
Cash and cash equivalents, end of year                                      $13,691,714      $ 13,238,081      $ 14,612,923
                                                                          ===============    ==============    ==============
Supplemental disclosure of cash flow information
  Cash payments for interest                                                   $387,773        $  363,159      $    148,798
                                                                          ===============    ==============    ==============
  Cash payments for taxes                                                      $326,694        $  649,577      $  2,110,283
                                                                          ===============    ==============    ==============
</TABLE>

         See accompanying notes to the consolidated financial statements



                                      -46-
<PAGE>

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



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  effective  June 1, 1999
     (note 16). The Company  disposed of the  Transportation  Business  Unit for
     proceeds of  $3,839,267  comprised  of common  shares  representing  an 11%
     interest in Digital Dispatch Systems, Inc. ("DDS") and a promissory note in
     the  principal  amount of $331,455  ($500,000  CDN) due January 1, 2001 and
     bearing an interest  rate of 8% per annum.  During the year ended  December
     31,  2000 DDS  exercised  its  option to buyback  the DDS shares  that MDSI
     received as compensation on the sale of the  Transportation  Business Unit.
     Proceeds on sale of the DDS shares were $3,164,350. The promissory note was
     settled for its face value during the first quarter of 2001.










         See accompanying notes to the consolidated financial statements



                                      -47-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000 and 1999
                      (Expressed in United States dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES

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

     (a)  Basis of presentation

          These  consolidated  financial  statements include the accounts of the
          Company and its wholly-owned subsidiaries, and are presented in United
          States dollars.  All intercompany  balances and transactions have been
          eliminated.

     (b)  Nature of operations

          The  Company  develops,  markets  and  supports  wireless  mobile data
          communication   software  products  for  use  in  the  mobile  service
          industry.  The  Company  is also a  provider  of  managed  application
          services through its subsidiary Connectria Corporation (note 2).

     (c)  Research and development

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

     (d)  Revenue recognition

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

          Statement of Position 97-2 (Software Revenue  Recognition) (SOP 97-2),
          was issued in October  1997 by the  American  Institute  of  Certified
          Public  Accountants  (AICPA)  and  was  amended  by the  Statement  of
          Position 98-4  (Deferral of the  Effective  Date of a Provision of SOP
          97-2,  Software  Revenue  Recognition)  (SOP  98-4) and  Statement  of
          Position 98-9 (Modification of SOP 97-2, Software Revenue Recognition,
          With Respect to Certain  Transactions) (SOP 98-9). The Company adopted
          SOP 97-2  effective  for the Company's  year ended  December 31, 1998.
          Based upon our  interpretation of SOP 97-2, SOP 98-4 and SOP 98-9, the
          Company  believes  its  current  revenue   recognition   policies  and
          practices are consistent with SOP 97-2, SOP 98-4, and SOP 98-9.



                                      -48-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000 and 1999
                      (Expressed in United States dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

          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) Hosting and Information Technology Services

               Hosting and Information  Technology  Services revenue consists of
               the  provision  of  managed   services,   which  include  managed
               application  services,  managed  network  services,  managed data
               center services, and managed hosting services. Revenue from these
               services  is  recognized  as the  service is  provided,  where no
               future commitment exists.

          (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, which is generally one to three years.

          (iv) Third party products and services

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

     (e)  Capital assets

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

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

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

     (f)  Intangible Assets

          Intangible  assets consist of goodwill  arising on the  acquisition of
          Alliance  Systems  Inc.,  and the  purchase of a  commercial  web-site
          domain  name.  Goodwill  arising on the  acquisition  of  Alliance  is
          amortized  on a  straight-line  basis over ten years.  The  commercial
          web-site  domain name is being amortized on a straight



                                      -49-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (f)  Intangible Assets (Continued)

          line basis over a five year period.  Management  regularly reviews the
          carrying value of the intangible assets for evidence of any impairment
          in value by reference to expected future cash flows (note 6).

     (g)  Foreign exchange; Reporting and Functional currency

          Foreign exchange

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

          Reporting currency

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

          Comprehensive income for the period can be summarized as follows:

<TABLE>
                                                              Year ended December 31,
                                           --------------------------------------------------------
                                                 2001                2000                 1999
                                           ---------------     ---------------      ---------------
         <S>                               <C>                     <C>                  <C>
          Net income from continuing
           operations                       $(14,106,093)           $(159,378)           $5,019,071

          Other Comprehensive items
              - Translation adjustment                  -            (260,666)            1,777,732
                                           ---------------     ---------------      ---------------
          Comprehensive net income for
           the year                         $(14,106,093)           $(420,044)           $6,796,803
                                         =================   ==================   ==================
</TABLE>

          Functional currency

          As at June 1, 2000 the Company and its subsidiaries adopted the United
          States dollar as their primary currency of measurement.  The change in
          the Company's  currency of  measurement  was made due to the Company's
          business combination with Connectria Corporation  ("Connectria") (note
          2) and  the  resulting  increase  in the  Company's  sales  and  costs
          denominated in United States dollars.  The business  combination  with
          Connectria as well as the Company  incurring an  increasing  amount of
          United  States  dollar  denominated  expenditures  as a percentage  of
          overall  expenditures  and an increase in the generation of cash flows
          from  sales in United  States  dollars  resulted  in the change of the
          Company's currency of measurement to the United States dollar.



                                      -50-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

     (h)  Income taxes

          The Company  accounts for income  taxes using the asset and  liability
          method. Under this method,  deferred income taxes are recorded for the
          temporary  differences  between the financial  reporting basis and tax
          basis of the Company's  assets and  liabilities.  These deferred taxes
          are  measured by the  provisions  of  currently  enacted  tax laws.  A
          valuation  allowance is recognized to the extent the recoverability of
          future income tax assets is not considered likely.

     (i)  Investments

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

     (j)  Earnings (loss) per common share

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

          A  reconciliation  of net  income  (loss)  per  common  share  and the
          weighted  average  shares  used  in the  earnings  per  share  ("EPS")
          calculations for fiscal years 2001, 2000 and 1999 is as follows:

<TABLE>
                                                         Net (Loss)                            (Loss)
                                                           Income             Shares          Earnings
                                                         (Numerator)      (Denominator)      Per Share
                                                    ----------------------------------------------------
         <S>                                         <C>                   <C>              <C>
          2001
          Basic                                       $ (14,106,693)        8,623,296        $   (1.64)
          Effect of stock options                                                   -                -
                                                    ----------------------------------------------------
          Diluted                                     $ (14,106,693)        8,623,296        $   (1.64)
                                                    ====================================================
          2000
          Basic                                       $    (554,400)        8,526,723        $   (0.07)
          Effect of stock options                                                   -                -
                                                    ----------------------------------------------------
          Diluted                                     $    (554,400)        8,526,723        $   (0.07)
                                                    ====================================================
          1999
          Basic                                       $   1,146,388         8,080,022        $    0.14
          Effect of stock options                                           1,020,689            (0.01)
                                                    ----------------------------------------------------
          Diluted                                     $   1,146,388         9,100,711        $    0.13
                                                    ====================================================
</TABLE>


                                      -51-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

          Options  and  warrants to purchase  2,056,361,  2,313,944,  and 63,000
          shares of common stock were  outstanding  during fiscal 2001, 2000 and
          1999 respectively, but were not included in the computation of diluted
          EPS because of either the net loss in fiscal 2001 and 2000, or because
          the options  exercise  prices  were  greater  than the average  market
          prices of the common  stock,  and  therefore,  their  effect  would be
          antidilutive.

     (k)  Use of estimates

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting periods. Estimates are used for, but
          not limited to, the  accounting for doubtful  accounts,  amortization,
          determination of net recoverable value of assets,  revenue  recognized
          on long-term contracts, taxes and contingencies.  Actual results could
          differ from those estimates.

     (l)  Derivatives

          From time to time the Company may attempt to hedge its  position  with
          respect  to  currency  fluctuations  on  specific  contracts.  This is
          generally  accomplished  by entering into forward  contracts.  Related
          costs  are  realized  as the  forward  contracts  are  settled.  As at
          December  31,  2001 and  December  31, 2000 the Company had no forward
          transactions open.

     (m)  Stock-based compensation

          The Company accounts for stock-based  compensation using the intrinsic
          value based  method  whereby  compensation  cost is  recorded  for the
          excess,  if any, of the quoted  market  price of the common share over
          the exercise price of the common stock option at the date granted.

          The following pro forma financial  information presents the net 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>
                                                                  2001             2000            1999
                                                             -------------     ------------    ------------
          <S>                                               <C>               <C>             <C>
           Net income (loss) for the year                    $(16,189,425)     $(6,521,603)    $(2,818,180)
                                                             -------------     ------------    ------------
           Fully diluted income (loss) per common share            $(1.87)          $(0.76)         $(0.35)
                                                             =============     ============    ============
</TABLE>

          Using the fair value method for stock-based  compensation,  additional
          compensation  costs  of  approximately   $2,085,732  would  have  been
          recorded for the year ended  December 31, 2001 (2000 - $5,967,203  and
          1999 - $3,964,568  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 96% (2000 - 81% and 1999 -
          65% respectively) and a weighted average annualized risk free interest
          rate at 3.70% (2000 - 7.00% and 1999 - 5.00% respectively).

          In March 2000,  the  Financial  Accounting  Standards  Board  ("FASB")
          issued   FASB   interpretation   No.  44,   "Accounting   for  Certain
          Transactions  Involving Stock  Compensation - an interpretation of APB
          Opinion No. 25" ("FIN 44").  FIN 44 clarifies the  application  of APB
          Opinion No. 25 and among other issues  clarifies  the  following:  the
          definition of an



                                      -52-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (m)  Stock-based compensation (continued)

          employee for purposes of applying APB Opinion No. 25, the criteria for
          determining  whether a plan qualifies as a  noncompensatory  plan, the
          accounting  consequences of various  modifications to the terms of the
          previously  fixed stock options or awards,  and the  accounting for an
          exchange of stock compensation awards in a business  combination.  FIN
          44 covers specific events that occurred after either December 15, 1998
          or January 12, 2000.  The Company  adopted FIN 44 in the third quarter
          of fiscal  2000 and there was no material  effect on the  consolidated
          financial position, results of operations or cash flows.

     (n)  Comprehensive income

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

     (o)  Segmented information

          SFAS 131,  "Disclosures  About  Segments of an Enterprise  and Related
          Information," established new standards for the reporting of segmented
          information in annual financial  statements and requires the reporting
          of  certain  selected  segmented  information  on  interim  reports to
          shareholders.  In accordance  with SFAS 131 the Company has determined
          that it has two  reportable  segments,  Field  Service and Hosting and
          Information  Technology  Services and has reported in accordance  with
          SFAS 131 in note 12.

     (p)  Accounting for derivative instruments and hedging activities

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



                                      -53-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (q)  Cash and cash equivalents

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

     (r)  Recent accounting pronouncements

          In July 2001, the Financial Accounting Standards Board ("FASB") issued
          Statement  of Financial  Accounting  Standards  No. 141 ("SFAS  141"),
          "Business  Combinations."  SFAS 141 requires  the  purchase  method of
          accounting for business combinations initiated after June 30, 2001 and
          eliminates  the  pooling-of-interests  method.  The  Company  does not
          believe that the adoption of SFAS 141 will have a  significant  impact
          on its financial statements.

          In July  2001,  the FASB  issued  Statement  of  Financial  Accounting
          Standards  No.  142  ("SFAS  142"),  "Goodwill  and  Other  Intangible
          Assets", which is effective January 1, 2002. SFAS 142 requires,  among
          other  things,  the  discontinuance  of  goodwill   amortization.   In
          addition, the standard includes provisions for the reclassification of
          certain existing recognized  intangibles as goodwill,  reassessment of
          the useful lives of existing recognized intangibles,  reclassification
          of certain  intangibles  out of previously  reported  goodwill and the
          identification of reporting units for purposes of assessing  potential
          future impairments of goodwill.  SFAS 142 also requires the Company to
          complete a transitional  goodwill  impairment test six months from the
          date of  adoption.  The Company  does not believe that the adoption of
          SFAS 142 will have a significant impact on its financial statements.

          In October  2001,  the FASB issued SFAS No. 144,  "Accounting  for the
          Impairment or Disposal of Long-Lived Assets." This statement addresses
          financial  accounting  and reporting for the impairment or disposal of
          long-lived assets.  This statement  supersedes FASB Statement No. 121,
          "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
          Assets to Be Disposed Of," and the accounting and reporting provisions
          of APB  Opinion  No.  30,  "Reporting  the  Results  of  Operations  -
          Reporting  the Effects of  Disposal  of a Segment of a  Business,  and
          Extraordinary,   Unusual  and   Infrequently   Occurring   Events  and
          Transactions."  This  Statement  also amends ARB No. 7,  "Consolidated
          Financial Statements," to eliminate the exception to consolidation for
          a  subsidiary  for  which  control  is likely  to be  temporary.  This
          Statement  requires that one  accounting  model be used for long-lived
          assets to be disposed of by sale,  whether previously held and used or
          newly  acquired.  This  Statement  also broadens the  presentation  of
          discontinued  operations  to include more disposal  transactions.  The
          provisions of this Statement are required to be adopted by the Company
          at the beginning of fiscal 2002.  The Company has not  determined  the
          impact,  if any,  the  adoption  of this  statement  will  have on its
          financial position or results of operations.



                                      -54-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



2.   ACQUISITIONS

     Connectria Corporation

     On June 1, 2000 the  Company  acquired  all of the issued  and  outstanding
     shares of Connectria Corporation  ("Connectria"),  a privately held company
     based in St.  Louis  Missouri,  which  operates as an  application  service
     provider  (ASP) and provider of online  service  management  solutions  for
     service  companies.  The Company issued 845,316 common shares,  and 583,037
     employee  stock options to acquire common shares of the Company in exchange
     for all of the outstanding stock and options of Connectria.  Merger related
     expenses  of  $1,691,028  are  included  in the Cost of merger for the year
     ended December 31, 2000. The transaction is accounted for under the pooling
     of interest method of accounting and all historical  financial  information
     contained  herein has been  restated  to include  the  combined  results of
     operations, financial position and cash flows of Connectria.


3.   LEASE RECEIVABLE

     During  the year  ended  December  31,  1999  the  Company  entered  into a
     sales-type lease with a customer.  The lease had an effective interest rate
     of 5.5% and was  payable in equal  monthly  installments  with a term of 36
     months.  As at December  31, 2001 the lease has been settled and no amounts
     remain outstanding (2000 - $133,723).


4.   INVESTMENTS AND ADVANCES

<TABLE>
                                                              2001             2000
                                                          ------------     -----------
        <S>                                                <C>              <C>
        Investment in private companies, at cost            2,499,992        2,499,992
        Promissory note (note 16)                                   -          331,455
        Other advances                                        500,000          500,000
        Less:  Valuation allowance                         (2,999,992)        (250,000)
                                                          ------------     -----------
        Total Investments                                 $         -       $3,081,447
                                                          ============     ===========
</TABLE>

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

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

     During the year ended  December 31,  2001,  Digital  Dispatch  Systems Inc.
     repaid the promissory note received as partial consideration on the sale of
     the Company's Transportation Business Unit to Digital Dispatch Systems Inc.
     (note 16).



                                      -55-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



5.   CAPITAL ASSETS

                                                  2001                2000
                                             -------------      -------------
     Computer hardware and software          $ 14,018,951       $ 12,433,244
     Furniture and fixtures                     2,554,992          2,365,795
     Leasehold improvements                       726,832            708,667
     Vehicles                                      50,905             50,905
                                             -------------      -------------
                                               17,351,680         15,558,611
     Less:  accumulated amortization           (8,102,625)        (4,461,114)
                                             -------------      -------------
                                              $ 9,249,055       $ 11,097,497
                                             =============      =============

     As at  December  31,  2001 the  Company  has  entered  into  capital  lease
     arrangements  for  Capital  Assets  in the  amount of  $13,074,715  (2000 -
     $11,595,272) and recorded  accumulated  amortization of $6,028,756 (2000 -$
     3,326,083) relating to these assets (note 11(a)).

6.   INTANGIBLE ASSETS

<TABLE>
                                                                           2001              2000
                                                                      -------------     -------------
     <S>                                                               <C>              <C>
     Goodwill                                                          $ 2,615,751      $ 2,615,751
     Commerical web site domain name                                       220,000          220,000
     Less:  accumulated amortization and provision for valuation        (2,835,751)      (1,011,694)
                                                                      -------------     -------------
                                                                       $         -      $ 1,824,057
                                                                      =============     =============
</TABLE>

     In connection  with the Company's  announced  restructuring  (note 15), the
     Company  determined  that an impairment in the value of Goodwill that arose
     on acquisition of Alliance Systems Inc., had occurred during the year ended
     December 31, 2001. The Company determined an impairment had occurred due to
     poor current and forecasted performance in the acquired Company's business.
     As a result of this impairment the Company has taken a valuation  allowance
     in its field service  business segment of $1,558,578 which was equal to the
     remaining net book value of the Goodwill.

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

7.   LONG-TERM DEBT

<TABLE>
                                                                         2001            2000
                                                                     ------------     ----------

     <S>                                                             <C>             <C>
     Term loan, secured by general accounts receivable,               $       -       $ 27,927
      inventory and equipment, repayable in blended payments
      of $4,722, bearing interest at 8.25%
     Stockholders (i)                                                    39,041         39,041
      Less: Current Portion of Long Term Debt                           (39,041)       (66,968)
                                                                     ------------     ----------
                                                                      $       -       $      -
                                                                     ============     ==========
</TABLE>

     (i)  Stockholders

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



                                      -56-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States 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  options  typically  vest over a three year period and the term of
          the option is  typically  five  years.  The  maximum  number of common
          shares  reserved for issuance  under the Stock Option Plan,  including
          current  options   outstanding,   is  2,400,000  common  shares.  Upon
          acquisition  of  Connectria  (Note  2)  the  Company  assumed  certain
          obligations  under the  Connectria  Stock Option Plan,  and all future
          option  issuance will occur under the MDSI Plan. The vesting period on
          the Connectria  options is between zero and three years,  and the term
          of the options is 10 years.  The  resulting  position of the two Stock
          Option plans is as follows:


<TABLE>
                                          Connectria Plan     MDSI Plan      Total      Weighted
                                             Number of        Number of    Number of     Average
                                              Shares            Shares       Shares       Price
                                       ---------------------------------------------------------
<S>                                     <C>                  <C>            <C>         <C>
Outstanding at December 31, 1998            492,110           1,655,206     2,147,316    $ 8.15

  Granted                                    55,947             561,500       617,447     12.73
  Exercised                                       -            (215,980)     (215,980)     9.93
  Cancelled                                       -            (102,192)     (102,192)    10.61
                                       --------------------------------------------------------
Outstanding at December 31, 1999            548,057           1,898,534     2,446,591    $ 9.49

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

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

</TABLE>



                                      -57-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000 and 1999
                      (Expressed in United States dollars)



8.   STOCKHOLDERS' EQUITY (Continued)

          The  following  table  summarizes   information   concerning   options
          outstanding at December 31, 2001:

<TABLE>
                                      Options Outstanding              Options Exercisable
                              -----------------------------------    ----------------------
                                            Weighted
                                Number       Average                   Number
                              Outstanding   Remaining    Weighted    Exercisable   Weighted
                                 as of     Contractual    Average       as of      Average
          Range of             December       Life       Exercise     December     Exercise
      Exercise Prices          31, 2001     (months)       Price      31, 2001      Price
      ---------------        -----------   ----------    --------    ----------    --------
      <S>                    <C>             <C>         <C>          <C>          <C>
          $0-$6.75            1,100,692       59.4        $ 2.65       601,117      $ 1.59

        $6.80-$13.35            884,151       30.4         10.61       641,875       10.55

       $13.40-$20.00             54,801       42.9         15.11        50,097       15.04

       $20.05-$36.20             16,717       48.1         26.31        11,870       25.16
                             -----------   ----------    --------    ----------    --------
                              2,056,361       46.4        $ 6.62     1,304,959      $ 6.73
                             ===========   ==========    ========    ==========    ========
</TABLE>

          At December 31, 2000 and 1999 under the combined  MDSI and  Connectria
          option plans,  1,441,280 and 1,405,979  options were  exercisable at a
          weighted average exercise price of $8.31 and $7.21, 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 $6,289 ($10,000
          CDN) 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, 2001,  nil (2000 - 16,621;  1999 - 28,144)  common
          shares were issued under this Plan.

     (c)  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 $18.40 per share
          for net proceeds of $9,772,479 (net of offering costs of $809,279).




                                      -58-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



8.   STOCKHOLDERS' EQUITY (Continued)

     (d)  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.


9.   INCOME TAXES

     The provision for income taxes consists of the following:

<TABLE>
                                                                         2001            2000           1999
                                                                     ------------    ------------   ------------
    <S>                                                               <C>             <C>             <C>
    Current:
      Canada                                                          $       -      $   49,500     $    539,552
      Foreign                                                           504,085        (310,965)      (2,560,256)
                                                                     ------------    ------------   ------------
        Total current recovery of (provision for) income taxes
          from continuing operations                                    504,085        (261,465)      (2,020,704)
                                                                     ------------    ------------   ------------
    Deferred:
      Canada                                                                  -          92,870         (468,896)
      Foreign                                                            17,290        (322,947)         345,176
                                                                     ------------    ------------   ------------
       Total deferred  (recovery of) provision for income taxes
         from continuing operations                                      17,290        (230,077)        (123,720)
                                                                     ------------    ------------   ------------
    Recovery of (provision for) income taxes
         from continuing operations                                   $ 521,375      $ (491,542)    $ (2,144,424)
                                                                     ============    ============   ============
</TABLE>

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

<TABLE>
                                                                   2001                2000              1999
                                                               ------------        ------------      ------------
     <S>                                                       <C>                 <C>               <C>
     Statutory tax rate                                               44.6%               45.6%             45.0%

     Recovery of (provision for) income taxes from
        continuing operations computed at statutory rate       $ 6,524,118          $ (151,466)      $(3,223,573)
     Tax losses and (benefits) not recognized in the period
       that the benefit arose                                   (6,146,297)           (684,949)         (514,328)
     Lower effective rate on earnings of foreign subsidiaries    1,265,093             853,058         1,695,856
     Amortization and write-down of intangible assets
       not deductible for tax                                     (813,529)           (127,333)         (117,710)
     Other permanent differences                                  (308,010)           (380,852)           15,331
                                                               ------------        ------------      ------------
     Recovery of (provision for) income taxes
       from continuing operations                              $   521,375          $ (491,542)      $(2,144,424)
                                                               ============        ============      ============
</TABLE>



                                      -59-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



9.   INCOME TAXES (continued)

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

<TABLE>
                                                       2001             2000           1999
                                                   ------------     ------------   ------------
     <S>                                            <C>              <C>            <C>
     Depreciation                                   $  807,765       $ (349,067)    $ 265,315
     Deferred revenue                                  756,867          969,689      (201,992)
     Operating loss carry forwards                           -         (361,160)     (572,557)
     Other                                          (1,547,342)        (489,539)      385,514
                                                   ------------     ------------   ------------
     Total deferred provision for income taxes      $   17,290       $ (230,077)   $ (123,720)
                                                   ============     ============   ============
</TABLE>

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

                                                    2001                2000
                                               -------------       -------------
     Operating loss carryforwards               $ 4,334,951         $ 1,793,482
     Deferred revenue                             1,254,279             497,412
     Capital assets & intangibles                   341,323            (163,286)
     Reserves and accrued expenses                2,889,075           1,219,172
     Other                                          241,456             347,969
                                               -------------       -------------
                                                  9,061,084           3,694,749
     Less: Valuation allowance                   (8,696,444)         (3,347,399)
                                               -------------       -------------
     Net non current deferred tax asset         $   364,640           $ 347,350
                                               =============       =============


     At December 31, 2001,  the Company has the  following  loss  carry-forwards
     available for tax purposes:

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

        Canada                   $ 8,500,000            2005 through 2008

        US                       $ 1,400,000            2020 through 2021




                                      -60-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



10.  RELATED PARTY TRANSACTIONS

     Related party  transactions  and balances not disclosed  elsewhere in these
     financial  statements  include advisory fees expensed during the year ended
     December  31,  2001  of  $280,000  (2000  -  $45,000;  1999 - $0;)  paid to
     companies controlled by two directors of MDSI.

     The Company issued a promissory  note  receivable to a director and officer
     of the company on June 28, 2000 for $150,000.  The note bears interest at a
     rate of 6.75% and is payable on demand.  As at  December  31, 2001 the full
     amount of the note was outstanding, and is included in prepaid expenses and
     other assets.


11.  COMMITMENTS AND CONTINGENCIES

     (a)  Capital and operating leases

          At December  31,  2001,  future  minimum  payments  under  capital and
          non-cancelable   operating   leases  for  office  space  and  computer
          equipment are as follows:

<TABLE>
                                                           Capital            Operating
                                                           leases               leases
                                                       -------------        -------------
        <S>                                            <C>                  <C>
        2002                                            $ 2,839,442          $ 1,476,768
        2003                                              1,643,060            1,420,492
        2004                                                105,002            1,904,343
        2005                                                      -            1,270,533
        2006                                                      -            1,116,274
        Therafter                                                 -            2,037,244
                                                       -------------        -------------
        Total minimum lease payments                      4,587,504          $ 9,225,654
                                                                            =============
        Less: amount representing interest                 (375,305)
                                                       -------------
        Present value of net minimum lease payments       4,212,199
        Less: current portion                            (2,589,320)
                                                       -------------
                                                        $ 1,622,879
                                                       =============
</TABLE>

          Rent  expense  for the year  ended  December  31,  2001 in  respect of
          operating  leases for office space was $2,076,503  (2000 - $2,148,310;
          1999 - $2,232,448).

     (b)  Line and letters of credit

          The Company has an operating line of credit with a Canadian commercial
          bank to borrow up to  $10,000,000  CDN (2000 -  $8,000,000  CDN) which
          bears  interest  at prime plus 0.5%.  As at  December  31,  2001,  the
          Company was not,  except as noted below,  utilizing the operating line
          of credit.

          The  Company  has  provided,  as  performance  bonds,  an  irrevocable
          revolving letter of credit in the amount of EUR 751,623 (USD $665,801)
          expiring  May 31,  2003,  and an  additional  letter  of credit in the
          amount of EUR 75,855 (USD  $66,752)  expiring  February 28, 2003.  The
          Company  has  pledged  an amount  equal to the  letters  of credit and
          guarantee against its operating line of credit as security.



                                      -61-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



11.  COMMITMENTS AND CONTINGENCIES (continued)

     (c)  Contingency

          The Company is involved in a dispute with a customer.  The Company has
          filed  suit  against  the  customer  alleging  that the  customer  had
          breached  a series of  contracts,  and  failed  to pay sums  due.  The
          customer  has filed an answer and counter  claim  alleging the Company
          breached  the  contracts,  entitling  the customer to repayment of all
          sums paid to the Company of  approximately  $3.5 million.  The Company
          believes  that its  position  in the matter is strong  and  intends to
          vigorously pursue  collection.  The Company expects that collection of
          monies due from the  customer  is not likely to occur  within one year
          and as a result has  reclassified the amounts due from the customer of
          $3,749,860 from current to long term receivable.

          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.


12.  SEGMENTED INFORMATION

     In 1997, the Company adopted  Statement of Financial  Accounting  Standards
     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
     had only one operating segment.

     On  February 1, 2000,  the Company  announced  its  intentions  to sell its
     products  of  mobile   workforce   management  and  wireless   connectivity
     application   software   over  the  internet   from  a   wirelessly-enabled
     Applications  Service  Provider  ("ASP") site. As a result of this decision
     the Company reports its operations in two business segments,  Field Service
     and Hosting and IT services (formerly "e-Business").

     On June 1, 2000 the company  completed its merger with Connectria (note 2).
     As Connectria is considered  part of the Company's  Hosting and Information
     Technology  (IT) Services  operating  segment and the  transaction has been
     treated  using the pooling of interests  method,  the Company has reflected
     the merger by  segregating  the  Hosting  and IT  Services  segment for all
     comparable periods.

     During the year ended December 31, 2001, the Company realigned its internal
     operating  structure.  As a result of this  realignment,  the  Company  now
     considers  its Advantex  and  Wireless ASP product  lines part of its Field
     Service   segment,   and  has  renamed  the  segment   previously  know  as
     "e-Business", "Hosting and IT Services" to better reflect the nature of the
     business activity in this segment. As a result of the realignment,  certain
     figures previously  classified as Hosting and IT Services (e-Business) have
     been reclassified to the Field Service segment. For year ended December 31,
     2000, the reclassification  results in the following changes in Hosting and
     IT  Services  segment  (and  a  corresponding  change  in  Field  Service):
     depreciation  and  amortization  decreased by  $156,280,  long lived assets
     decreased  by $279,965,  capital  expenditures  decreased by $133,515,  and
     operating  earnings  increased  by  $1,529,052.  There is no  effect of the
     reclassification on revenues.



                                      -62-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



12.  SEGMENTED INFORMATION (continued)

     Business Segments

<TABLE>
                                2001                                   2000                                    1999
                   --------------------------------------------------------------------------------------------------------------
                                Hosting                                Hosting                               Hosting
                    Field        and IT                    Field        and IT                   Field        and IT
                   Service     Services(1)    Total       Service     Services(1)  Total        Service     Services(1)     Total
                   -------     -----------    -----       -------     -----------  -----        -------     -----------     -----
<S>              <C>          <C>           <C>          <C>          <C>         <C>          <C>         <C>          <C>
Revenue          $44,705,603  $13,414,690   $58,120,293  $51,999,988  $9,542,491  $61,542,479  52,157,025  $6,414,401   $58,571,426
Operating
 earnings (loss) (11,418,153)    (268,467)  (11,686,620)   2,751,218  (1,894,192)     857,026   7,781,006     142,038     7,923,044
Depreciation
 amortization
 and provision
 for valuation
 of intangible
 asset             4,346,019      916,685     5,262,704    2,755,869     191,081    2,946,950   1,519,305     103,622     1,622,927

Long lived
 assets(2)         7,614,223    1,634,832     9,249,055   11,738,968   4,264,033   16,003,001  12,568,124     472,100    13,040,224

Capital
 Expenditures      1,317,095      836,890     2,153,985    5,396,528   1,485,932    6,882,460   4,404,253      39,458     4,443,711
</TABLE>

(1)  The Hosting and IT Services  operating  segment also includes revenues from
     third-party  products and services.
(2)  Long lived assets consist of the lease receivable, investments, capital and
     intangible assets.


     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>
                                     2001                                  2000                             1999
                         -----------------------------        -----------------------------      -----------------------------
                                            Long-lived                          Long-lived                        Long-lived
                            Revenue           assets            Revenue           assets           Revenue          assets
                         ------------      ------------       ------------      ------------     ------------    ------------
<S>                      <C>               <C>                <C>               <C>              <C>             <C>
Canada                   $ 1,374,365       $ 6,789,712        $ 1,688,704       $ 8,731,563      $ 1,670,098     $ 9,037,747
United States             46,116,595         2,401,255         47,564,765         7,202,636       43,956,585       3,923,429
Europe                     9,594,137            57,416          8,713,390            66,946       11,426,532          73,521
Asia and Other             1,035,196               672          3,575,620             1,856        1,518,211           5,527
                         ------------      ------------       ------------      ------------     ------------    ------------
                         $58,120,293       $ 9,249,055        $61,542,479       $16,003,001      $58,571,426     $13,040,224
                         ============      ============      ============       ============     ============    ============
</TABLE>


     Major customers

          During the year ended  December  31, 2001 the Company  earned  revenue
          from one customer of $7,378,137. For the year ended December 31, 2000,
          the Company did not earn revenue from one customer that  accounted for
          greater than 10% of overall  revenue.  For the year ended December 31,
          1999 the Company earned revenue from one customer of $6,358,798.



                                      -63-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000 and 1999
                      (Expressed in United States dollars)



13.  CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS

<TABLE>
                                                          2001              2000               1999
                                                     -------------      -------------       -------------
     <S>                                              <C>               <C>                 <C>
     Accounts receivable                              $10,160,549       $ (9,263,458)       $ (2,559,073)
     Prepaid expenses and other assets                   (647,882)          (289,619)          1,134,442
     Income taxes payable / receivable                 (1,457,670)          (476,507)            (22,860)
     Accounts payable and accrued liabilities           1,067,710          2,653,882          (3,677,261)
     Deferred revenue                                    (188,769)         3,159,799             (22,837)
                                                     -------------      -------------       -------------
                                                      $ 8,933,938       $ (4,215,903)       $ (5,147,589)
                                                     =============      =============       =============
</TABLE>

14.  FINANCIAL INSTRUMENTS

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

     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,
     concentrations of credit risk are considered to be minimal.


15.  RESTRUCTURING CHARGE

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


                                                            Total Restructuring
                                                                  Charge
                                                            -------------------
      Workforce reduction                                      $ 3,375,000
      Provision for excess office space                          1,861,000
      Non cash writedown of capital assets                         563,780
      Other                                                        306,147
                                                            -------------------
      Total restructuring charges                                6,105,927
      Cumulative draw-downs                                    (2,972,267)
                                                            -------------------
      Accrued restructuring charges included in accrued
      liabilities at December 31, 2001                          $3,133,660
                                                            ===================



                                      -64-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000 and 1999
                      (Expressed in United States dollars)



15.  RESTRUCTURING CHARGE (continued)

     For the year ended  December 31, 2001 the Company  recorded a total of $6.1
     million in  restructuring  charges,  taken in  connection  with a corporate
     reorganization  designed  to  reduce  the  Company's  operating  costs  and
     increase  efficiency by  rationalizing  staffing levels and modifying staff
     reporting relationships.  The Company expects to use existing cash balances
     and cash flow from operations in order to fund these charges.

     Workforce  reduction  charges  of  $3.4  million  were  taken  relating  to
     severance  and  continued  benefits for the  elimination  of 149  positions
     across all operating  departments and segments of the  organization.  As of
     December  31,  2001,  the  provision  balance  has been  drawn down by cash
     payments of  approximately  $2.0 million.  The remaining  provision of $1.4
     million for terminated  employees receiving payments over time, or existing
     employees  notified  of their  termination  to  occur  at a future  date is
     expected to be utilized by the second half of 2002.

     The  provision  for excess  office space of $1.9 million for the year ended
     December 31, 2001, relates to surplus office space under long term lease by
     the Company at two  locations,  one of which the  Company has entered  into
     fixed cost lease  arrangements  expiring in 2004.  The Company has incurred
     approximately $0.4 million of cash costs relating to this provision leaving
     an accrual of $1.5 million  remaining as at December 31, 2001.  The Company
     expects that the charge will be fully drawn down no later than the time the
     lease expires in the fourth quarter of 2004.

     Due to the elimination of 149 positions,  certain capital assets  belonging
     to the Company have been declared  surplus and a charge of $0.6 million has
     been recorded to reflect the difference between the previous carrying value
     and the estimated fair market value,  net of disposal costs. As at December
     31,  2001,  the full amount of the charge has been applied to the assets to
     value  them at their  estimated  net  realizable  value.  These  assets are
     expected to be disposed of by the second half of 2002.

     The Company has recorded a $0.3 million  charge for the year ended December
     31, 2001 for other items  including,  costs of outplacement  services,  and
     legal and  consulting  fees.  As at  December  31,  2001,  the  Company has
     incurred cash costs of approximately  $0.1 million in connection with these
     charges,  leaving a provision of $0.2 million. The Company expects to fully
     draw down this provision by the end of the second half of 2002.


16.  DISCONTINUED OPERATIONS

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

     For the year ended  December  31,  1999,  the  Company  recorded a one-time
     charge of  $3,872,683  concurrent  with the  decision  to  discontinue  the
     Transportation  Business Unit of the Company's business.  Certain contracts
     were retained for  completion  during the year 2000.  The estimated cost to
     complete these  contracts was included in the one-time  charge.  During the
     year ended  December 31, 2000 the Company  recorded an additional  $395,022
     charge in order to account for  additional  costs to complete  the retained
     contracts,  and the loss  realized  on sale of shares in  Digital  Dispatch
     Systems   Inc.,   taken  as   consideration   on  sale  of  the   Company's
     Transportation Business Unit .

     During  the year  ended  December  31,  2001  all  outstanding  assets  and
     liabilities of the discontinued operation have been settled with no further
     charge to earnings.



                                      -65-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2001, 2000, and 1999
                      (Expressed in United States dollars)



16.  DISCONTINUED OPERATIONS (Continued)

     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.

<TABLE>
                                                 December 31, 2001     December 31, 2000     December 31, 1999
                                                 ----------------     -----------------     -----------------
    <S>                                           <C>                   <C>                   <C>
    Revenues                                        $       -             $         -           $  2,652,152

    Loss before income taxes                                                                      (1,571,821)
    Income tax                                              -                       -                      -
                                                 -----------------     -----------------     -----------------
    Operating loss to measurement date                      -                       -             (1,571,821)
    Estimated loss on disposal
         (net of nil income taxes)                          -                (395,022)            (2,300,862)
                                                 -----------------     -----------------     -----------------
    Loss from discontinued operations               $       -             $  (395,022)          $ (3,872,683)
                                                 =================     ==================    =================
</TABLE>

     Financial position of discontinued operations

<TABLE>
                                                 December 31, 2001     December 31, 2000     December 31, 1999
                                                 -----------------     -----------------     -----------------
    <S>                                           <C>                   <C>                   <C>
    Current assets                                  $       -             $   641,405           $    960,610
    Long term assets                                        -                       -                      -
                                                 -----------------     -----------------     -----------------

    Total assets of discontinued operations                 -                 641,405                960,610
                                                 -----------------     -----------------     -----------------

    Current liabilities                                     -                 223,024                173,424
    Long term liabilities                                   -                       -                      -
                                                 -----------------     -----------------     -----------------
    Total liabilities of discontinued operations    $       -             $   223,024           $    173,424
                                                 =================     ==================    =================
</TABLE>


     Cash flow of discontinued operations

<TABLE>
                                                 December 31, 2001     December 31, 2000     December 31, 1999
                                                 -----------------     -----------------     -----------------
    <S>                                           <C>                   <C>                   <C>
     Operating activities                           $ 418,381             $   277,625           $ (1,655,510)
     Investing activities                                   -                       -               (106,548)
     Financing activities                                   -                       -                      -
                                                 -----------------     -----------------     -----------------
     Cash provided by (used for) discontinued
     operations                                     $ 418,381             $   277,625           $ (1,762,058)
                                                 =================     ==================    =================
</TABLE>


                                      -66-
<PAGE>

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,
2001.

<TABLE>
Name                                    Age     Position
-------------------------------------  -------  ------------------------------------------------------------------------
<S>                                     <C>     <C>
Executive Officers
Erik Dysthe(1)......................     64     Chairman of the Board, Director and Chief Executive Officer
Gerald F. Chew(2)...................     41     President and Chief Operating Officer
Peter H. Rankin(3) .................     45     Executive Vice President, Operations
Verne D. Pecho......................     58     Vice President - Finance and Administration and Chief Financial Officer
Richard S.Waidmann..................     40     Executive Vice-President, Hosting and IT Services

Officers and Key Employees
Simon Backer........................     46     Senior Vice President - Wireless Services
Cyril Tordiffe......................     50     Senior Vice President - Project Implementation
Eric Y. Miller ......................    43     Senior Vice President, Hosting and IT Services
Tommy Lee...........................     38     Senior Vice President - Product Development
Gene Mastro ........................     54     Senior Vice President - Worldwide Sales
Warren Cree.........................     42     Senior Vice President - Product Management
M. Greg Beniston....................     44     Vice President - Legal and Corporate Secretary
Glenn Y. Kumoi......................     39     Managing Director -Europe Middle East and Africa
Ronald P. Toffolo...................     50     Vice President - Human Resources
David Haak..........................     40     Vice President - Sales, Americas

Directors
Peter Ciceri (5)(6).................     46     Director
Robert C. Harris, Jr. (4)(5)........     55     Director
Terrence P. McGarty (5)(6)..........     58     Director
Marc Rochefort (4)(5)...............     54     Director
David R. Van Valkenburg(4)(5)(6)....     59     Director
--------------------------------------------------------------------------------
(1)  Mr. Dysthe was appointed  Chief  Executive  Officer on March 26, 2001,  and
     President on March 15, 2002.
(2)  Mr. Chew  resigned as President  and Chief  Operating  Officer on March 15,
     2002.
(3)  Mr. Rankin was appointed Executive Vice President, Operations May 7, 2001.
(4)  Member of Compensation Committee.
(5)  Member of Corporate Governance and Nominating Committee.
(6)  Member of Audit Committee.
</TABLE>


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

     Gerald F. Chew has served as President and Chief  Operating  Officer of the
Company from April 2001 until his  resignation on March 15, 2002. He also served
as a director  of the Company  from  December  1995 to April 2001.  Mr. Chew was
Executive Vice President of Ancora Capital & Management  Group, LLC from 1998 to
2000.  From August  1996 to February  1997,  he was Chief  Operating  Officer of
SpotMagic, Inc. From November 1992 to July



                                      -67-
<PAGE>

1996,  Mr. Chew served as  Executive  Director of Strategy  Development  for U S
WEST, Inc. He also serves as a director of Raining Data  Corporation  (formerly,
Omnis Technology Corp.)

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

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

     Richard S. Waidmann has served as Executive Vice President,  Hosting and IT
Services  of the  Company  from June 1,  2000.  Mr.  Waidmann  also  served as a
director of the  Company  from June 1, 2000 to June 28,  2001.  From 1996 to May
2000, Mr.  Waidmann was President,  Chairman and CEO of Connectria  Corporation.
Mr. Waidmann has over 17 years experience in the information technology industry
where he has held a number  of  executive  management,  marketing  and  business
development  positions with NCR  Corporation,  AT&T, and Maryville  Technologies
prior to founding Connectria.

     Simon Backer has served as Senior Vice President - Wireless Services of the
Company since June 2000.  Prior to that he was Senior Vice President - eBusiness
Operations  since  October  1999.  From  August 1998 to August 1999 he served as
Senior Vice President and General Manager,  Transportation  and from August 1997
to February 1999, Mr. Backer was Vice President - Customer Engineering.  Between
1997 and 1998 he was President and CEO of Retix Wireless Inc. From 1984 to 1996,
Mr. Backer held numerous  positions of progressive  responsibility at Motorola's
Wireless Data Group (formerly  MDI),  culminating in his appointment as Director
of Architecture in 1996.

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

     Eric Y. Miller has served as Senior Vice President, Hosting and IT Services
of the  Company  since June  2000.  From 1998 to May 2000,  Mr.  Miller was Vice
President  Sales  of  Connectria  Corporation.  Mr.  Miller  has  over 20  years
experience in the information  technology industry where he has held a number of
executive sales and management positions with NCR Corporation and AT&T.

     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 - Worldwide  Sales of the
Company since October 1999. From November 1997 to September 1999, Mr. Mastro was
Vice President Sales,  Telecommunications  of the Company. From 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.

     Warren Cree has served as Senior  Vice  President - Products of the Company
since October  2001.  Prior to this he held  numerous  positions of  progressive
responsibility  in product  management for the Company since September 1999. Mr.
Cree also served as Manager,  Application  Engineering  of the Company  from its
inception  to  August  1999.



                                      -68-
<PAGE>

Between 1989 and 1994, he was a member of the scientific and  engineering  staff
at McDonald, Dettwiler and Associates Ltd.

     M. Greg  Beniston  has  served  as Vice  President  - Legal  and  Corporate
Secretary of the Company since March 1996. He also served as General Counsel and
Corporate Secretary of General Hydrogen Corporation from April 1999 to May 2001.
From 1993 to 2000,  Mr.  Beniston  served as Corporate  Counsel and Secretary of
Xillix  Technologies  Corp.  From 1988 to 1993, Mr. Beniston was a lawyer at the
firm of Russell & DuMoulin  (now  Fasken  Martineau  DuMoulin),  Barristers  and
Solicitors in Vancouver, British Columbia.

     Glenn Y. Kumoi has served as  Managing  Director - Europe  Middle  East and
Africa of the  Company  since May 2001.  Prior to that he was Vice  President  -
Chief Legal Officer of the Company  since  October  1999.  From December 1998 to
October  1999,  Mr. Kumoi was Vice  President - General  Counsel of the Company.
From April 1997 to November  1998, Mr. Kumoi served as Vice President - Customer
Contracts of the Company.  From 1994 to 1996, Mr. Kumoi was a lawyer at the firm
of Wedge and Company, Computer Law in Vancouver, British Columbia.

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

     David Haak has served as Vice  President,  Sales - Americas  of the Company
since  November  2000 and as Vice  President,  Sales - North  America since June
1999.  Prior to that he was Vice  President,  Sales - Utilities since January of
1999.  Prior to joining the Company  Mr.  Haak was  employed by IBM  Corporation
where he held a number of sales,  marketing and management  positions during his
11-year tenure.

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

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

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

     Terrence P. McGarty has served as a director of the Company since  December
1995. Mr. McGarty is currently  Chairman and Chief  Executive  Officer of Zephyr
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.




                                      -69-
<PAGE>


Board of Directors

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


Committees of the Board of Directors

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


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

     The  Compensation   Committee   reviews  and  recommends  the  compensation
arrangements  for the  executive  officers of the Company  and  administers  the
Company's stock option and stock purchase plans. The members of the Compensation
Committee are Robert C. Harris, Jr., Marc Rochefort and David Van Valkenburg.


Section 16 (a) Beneficial Ownership Reporting Compliance

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


Item 11:  Executive Compensation

Report of the Compensation Committee

     The  Company's   compensation   program  for  all  executive   officers  is
administered  by the  Compensation  Committee  of the Board of  Directors.  From
January 1, 2001 until June 28, 2001, the Compensation  Committee was composed of
two non-employee directors and Kenneth Miller, who served as the Company's Chief
Executive  Officer  (CEO)  until  March  26,  2001.  Since  June 28,  2001,  the
Compensation Committee has been composed of three non-employee directors. During
fiscal 2001, the  compensation of Erik Dysthe,  the Chairman and since March 26,
2001 the CEO of the Company,  Kenneth Miller, the CEO of the Company until March
26, 2001,  and Gerald Chew, the President and Chief  Operating  Officer (COO) of
the Company was determined by the Compensation  Committee.  Erik Dysthe,  Gerald
Chew and Kenneth  Miller 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  and CEO or the
President  and COO,  the  Board of  Directors  reviews a  compensation  proposal
prepared by the Chairman and 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



                                      -70-
<PAGE>

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


Pension Arrangements

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





                                      -71-
<PAGE>

Summary Compensation Table

     The  following  table sets forth all  compensation  paid  during the fiscal
years ended December 31 2001,  2000 and 1999 in respect of each  individual who,
at any time during fiscal 2001, served as the Company's Chief Executive Officer,
the four most highly  compensated  executive  officers  for fiscal 2001 who were
serving as  executive  officers as at December  31, 2001 and an  individual  who
would have been among the  foregoing but for the fact that such  individual  was
not employed by the Company at December 31, 2001 (collectively  "Named Executive
Officers"):

<TABLE>

                                                                     Annual Compensation                   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>
Erik Dysthe                                   2001         123,011          -              N/A               10,000
Chairman & Chief Executive Officer            2000          25,953(1)       -              N/A                3,000
                                              1999         134,686          -              N/A                 nil

----------------------------------------------------------------------------------------------------------------------------
Kenneth R. Miller (2)                         2001          57,007        15,636           N/A               65,000
Chief Executive Officer                       2000         203,879        24,465           N/A              100,000
                                              1999         185,460        29,674           N/A                Nil
----------------------------------------------------------------------------------------------------------------------------
Robert G. Cruickshank(3)                      2001          65,565        13,646        390,903(4)           25,000
President and Chief Operating Officer         2000         177,931        21,352           N/A               25,000
                                              1999         157,641        25,897           N/A               25,000
----------------------------------------------------------------------------------------------------------------------------
David Haak                                    2001         134,000        81,241           N/A                5,000
Vice President Sales, Americas                2000         120,000        81,568           N/A                Nil
                                              1999         120,000        10,000           N/A               15,000
----------------------------------------------------------------------------------------------------------------------------
Gene Mastro                                   2001         246,090       106,173           N/A               10,000
Senior Vice President, Sales                  2000         190,000        17,100           N/A                Nil
                                              1999         166,397       237,625           N/A               35,000
----------------------------------------------------------------------------------------------------------------------------
Richard S. Waidmann(5)                        2001         140,000         8,400             -                    -
Executive Vice President, Hosting             2000         100,770         8,400             -                    -
and IT Services                               1999          52,000             -             -                    -
----------------------------------------------------------------------------------------------------------------------------
Eric Y. Miller(5)                             2001         140,000         8,400             -                    -
Senior Vice President, Hosting and            2000         108,846         8,400             -                    -
IT Services                                   1999          80,304             -             -                    -
----------------------------------------------------------------------------------------------------------------------------
(1)  Represents  compensation received by Mr. Dysthe in his capacity as Chairman
     of the Board and a director of the Company.
(2)  Excludes  consulting fees paid to a Company  controlled by Mr. Miller.  See
     "Item 13:  Certain  Relationship  and Related  Transactions"  for  details.
     Includes salary earned until Mr. Miller's resignation on March 26, 2001.
(3)  Includes  salary earned until Mr.  Cruickshank's  resignation  on April 20,
     2001.
(4)  Represents severance paid to Mr. Cruickshank in April 2001.
(5)  Includes   compensation  paid  by  Connectria   Corporation  prior  to  its
     acquisition by the Company on June 1, 2000.
</TABLE>


                                      -72-
<PAGE>

Stock Options

     The following  table sets forth stock options granted by the Company during
the fiscal year ended December 31, 2001 to any of the Named Executive Officers:


Option Grants During the Fiscal Year Ended December 31, 2001

<TABLE>
                                                                                        Market Value
                                                      % of Total                        of Securities
                                       Securities      Options                           Underlying
                                         Under        Granted to       Exercise or      Options on the
                                        Options      Employees in       Base Price      Date of Grant    Expiration Date
Name                                    Granted(#)   Fiscal Year      ($/Security)      ($/Security)
-------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>             <C>               <C>              <C>
Erik Dysthe                              10,000          1.7%             $5.43             $5.43         March 19, 2006
Chairman & Chief Executive Officer                                     ($8.40 Cdn)       ($8.40 Cdn)
-------------------------------------------------------------------------------------------------------------------------
Kenneth R. Miller                        65,000         11.0%             $4.32             $4.32         April 30, 2003
Chief Executive Officer                                                ($6.70 Cdn)       ($6.70 Cdn)
-------------------------------------------------------------------------------------------------------------------------
Robert G. Cruickshank                    25,123          4.2%             $4.32             $4.32         April 30, 2003
President and Chief Operating                                          ($6.70 Cdn)       ($6.70 Cdn)
Officer
-------------------------------------------------------------------------------------------------------------------------
David Haak                                5,000          0.8%             $3.00             $3.00         August 22, 2006
Vice President Sales, Americas
-------------------------------------------------------------------------------------------------------------------------
Gene Mastro                              10,000          1.7%             $3.00             $3.00         August 22, 2006
Senior Vice President, Sales
-------------------------------------------------------------------------------------------------------------------------
Richard S. Waidmann                         Nil          Nil                Nil               Nil                     Nil
Executive Vice President, Hosting
and IT Services
----------------------------------------------------------------------------------------------------------------------------
Eric Y. Miller                              Nil          Nil                Nil               Nil                     Nil
Senior Vice President, Hosting and
IT Services
----------------------------------------------------------------------------------------------------------------------------
</TABLE>




                                      -73-
<PAGE>

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

<TABLE>
           Aggregated Options Exercised During the Fiscal Year Ended December 31, 2001 and Fiscal Year-End
                                                Option Values

                                                                      Unexercised Options
                                                                         At FY-End (#)        Value of Unexercised in the
                                      Securities      Aggregate          Exercisable/          Money-Options at FY-End
                                     Acquired on         Value          Unexercisable                ($) Exercisable/
               Name                  Exercise (#)     Realized($)                                    Unexercisable (1)
-------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>              <C>                        <C>
Erik Dysthe                             Nil             Nil           70,124 (exercisable)         $0(exercisable)
Chairman & Chief Executive Officer                                     376 (unexercisable)         $0(unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Kenneth R. Miller                       Nil             Nil           65,000 (exercisable)         $0(exercisable)
Chief Executive Officer                                                nil (unexercisable)         $0(unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Robert G. Cruickshank                   Nil             Nil           25,000 (exercisable)         $0(exercisable)
President and Chief Operating                                          nil (unexercisable)         $0(unexercisable)
Officer
-------------------------------------------------------------------------------------------------------------------------
David Haak                              Nil             Nil           16,944 (exercisable)         $0(exercisable)
Vice President Sales, Americas                                        5,000 (unexercisable)     $2,550 (unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Gene Mastro                             Nil             Nil           40,722 (exercisable)         $0(exercisable)
Senior Vice President, Sales                                          17,778 (unexercisable)    $5,100(unexercisable)
-------------------------------------------------------------------------------------------------------------------------
Richard S. Waidmann                     Nil             Nil          137,450 (exercisable)       $431,593 (exercisable)
Executive Vice President, Hosting                                      nil (unexercisable)          $0(unexercisable)
and It Services
----------------------------------------------------------------------------------------------------------------------------
Eric Y. Miller                          Nil             Nil           68,725 (exercisable)       $215,797 (exercisable)
Senior Vice President, Hosting and                                     nil (unexercisable)          $0(unexercisable)
IT Services                    -
----------------------------------------------------------------------------------------------------------------------------
(1)  Based on Nasdaq closing price of $3.51 on December 31, 2001.
(2)  Includes  options to purchase  common shares within 60 days after  December
     31, 2001.
</TABLE>


Compensation of Directors

     During the latest  fiscal year,  the Company  paid its outside  Directors a
meeting  stipend of $2,500 for each board  meeting  they  attended in person and
$1,000 for certain committee meetings. During the fiscal year ended December 31,
2001,  the directors of the Company  received  aggregate  cash  compensation  of
$55,500  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 March 19, 2001,  two  Directors  were each granted
option to acquire  15,000 common shares and one Director was granted  options to
acquire 30,000 common  shares.  All March 19, 2001 stock options were granted at
an exercise price of $5.31 per share with immediate  vesting.  On June 28, 2001,
two  Directors  were each granted  options to acquire 3,000 common  shares;  one
Director was granted  options to acquire 7,375 common  shares;  one Director was
granted  options to acquire 15,000 common  shares;  and one Director was granted
options to acquire  30,000 common  shares.  All June 28, 2001 stock options were
granted at an exercise  price of $4.39 per share,  vest over three years and are
subject to the grantee being a Director on the date of vesting.



                                      -74-
<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,
2001, by (i) each person known by the Company to be the beneficial owner of more
than 5% of the  outstanding  Common  Shares,  (ii) each director of the Company,
(iii) each Named  Executive  Officer,  and (iv) all  directors and officers as a
group. Except as otherwise  indicated,  the Company believes that the beneficial
owners of the Common Shares listed below, based on information furnished by such
owners,  have sole  investment  and voting  power with  respect to such  shares,
subject to community property laws where applicable.

<TABLE>
                                                                 Number of Shares
Directors, Named Executive Officers and 5% Shareholders(1)         Beneficially          % of total Shares
                                                                     Owned(2)                  Owned
------------------------------------------------------------     -----------------       -----------------
<S>                                                               <C>                      <C>
Erik Dysthe(3) .............................................         445,018                    5.1
Kenneth R. Miller(4)........................................         200,162                    2.3
Robert G. Cruickshank(5) ..................................           25,123                     *
David Haak(6) ..............................................          24,444                     *
Gene Mastro (7) ............................................          40,722                     *
Richard S. Waidmann(8)......................................         687,250                    7.8
Eric Y. Miller(9)...........................................         343,625                    3.9
Robert C. Harris, Jr. (10)..................................          92,620                    1.1
Terrence P. McGarty(11).....................................          28,460                     *
David R. Van Valkenburg(12).................................          21,666                     *
Peter Ciceri(13)............................................           3,333                     *
Marc Rochefort(14)..........................................          10,262                     *
                                                                 -----------------       -----------------
All Directors, Named Executive Officers and Officers as a          2,258,396                   25.8%
group (24 persons) (15).....................................
                                                                 -----------------       -----------------
5% Shareholders:
Kern Capital Management (16)................................       1,182,100                   13.6%
114 West 47th Street, Suite 1926
New York, NY, 10036
-------------------------------
*    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 at December 31, 2001, or exercisable  within 60 days
     after  December  31,  2001,  are  deemed   outstanding  for  computing  the
     percentage ownership of the person holding such options, but are not deemed
     outstanding  for computing the  percentage  ownership for any other person.
     Applicable   percentage   ownership   based  on  aggregate   Common  Shares
     outstanding as of December 31, 2001,  together with the applicable  options
     of such shareholder.
(3)  Includes 326,894 Common Shares held by Erik Dysthe Holdings Co. and options
     to purchase 70,124 Common Shares  exercisable within 60 days after December
     31, 2001 held by Mr. Dysthe individually.
(4)  Includes  37,256  Common  Shares held by 535760 B.C.  Ltd.,  a company 100%
     owned Mr. Miller and options to purchase  65,000 Common Shares  exercisable
     within 60 days of December 31, 2001.
(5)  Includes options to purchase 25,000 Common shares  exercisable  within 60
     days after December 31, 2001.
(6)  Includes  options to purchase  16,944 Common Shares  exercisable  within 60
     days after December 31, 2001.
(7)  Represents  options to purchase 40,722 Common Shares  exercisable within 60
     days of December 31, 2001.
(8)  Includes  options to purchase 137,450 Common Shares  exercisable  within 60
     days after December 31, 2001.
(9)  Includes  options to purchase  68,725 Common Shares  exercisable  within 60
     days after December 31, 2001.
(10) Includes  options to purchase  42,290 Common Shares  exercisable  within 60
     days after December 31, 2001.
(11) Includes  1,170  Common  Shares held by The Telmarc  Group Inc.,  a company
     controlled  by Mr.  McGarty,  and options to purchase  27,290 Common Shares
     exercisable within 60 days after December 31, 2001.
(12) Includes options to purchase 6,666 Common Shares exercisable within 60 days
     after December 31, 2001.
(13) Represents  options to purchase 3,333 Common Shares  exercisable  within 60
     days after December 31, 2001.
(14) Represents  options to purchase 10,262 Common Shares  exercisable within 60
     days after December 31, 2001.
(15) Includes  options to purchase 711,615 Common Shares  exercisable  within 60
     days after December 31, 2001.
(16) Beneficially owned by Robert E. Kern Jr. and David G. Kern.
</TABLE>



                                      -75-
<PAGE>

Item 13:  Certain Relationships and Related Transactions

     In March 2001, the Company  entered into an employment  agreement with Erik
Dysthe, then the Company's Chairman.  In April 2001, the Company entered into an
employment agreement with Gerald F. Chew, then the Company's President and Chief
Operating Officer. In May 2001, the Company entered into an employment agreement
with Peter H. Rankin, the Company's  Executive Vice President - Operations.  See
Item 11 - "Executive Compensation".

     In March 2001, the Company  retained  535760 B.C.  Ltd., a private  company
controlled  by Kenneth R.  Miller,  the  former CEO of the  Company,  to provide
consulting services to the Company related to corporate development  activities.
During the year ended  December 31, 2001,  the Company paid to 535760 B.C.  Ltd.
consulting fees in the amount of $205,000.

     The Company  retained  Gerald Chew,  a director of the Company,  to provide
cosulting services to the Company related to corporate  development  activities.
During the year ended  December 31, 2001,  the Company paid Mr. Chew  consulting
fees in the amount of $75,000.

     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.


     (a)  1. Consolidated Financial Statements

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

                                                                            Page
                                                                            ----

         Report of Independent Auditors ......................................36
         Consolidated Balance Sheets .........................................37
         Consolidated Statements of Operations ...............................38
         Consolidated Statements of Changes in Stockholders' Equity ..........39
         Consolidated Statements of Cash Flows ...............................40
         Notes to the Consolidated Financial Statements ......................42

          2. Financial Statement Schedules

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






                                      -76-
<PAGE>

<TABLE>
                                                           SCHEDULE II

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

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

Year ended December 31, 2001                  985,000         3,189,263               240,976           3,933,287
Year ended December 31, 2000                        -           985,000                     -             985,000
Year ended December 31, 1999                  144,541                --              (144,541)                 --

Provision against investments and
   advances
Year ended December 31, 2001                  250,000         2,749,992                    --           2,999,992
Year ended December 31, 2000                       --           250,000                    --             250,000
Year ended December 31, 1999                       --                --                    --                  --

Deferred income tax valuation
  allowance
Year ended December 31, 2001                1,825,049         6,871,395                    --           8,696,444
Year ended December 31, 2000                       --         1,825,049                    --           1,825,049
Year ended December 31, 1999                  877,891                --              (877,891)                 --
Year ended December 31, 1998                2,929,197                --            (2,051,306)            877,891
</TABLE>


     3.   Exhibits


          The following Exhibits are filed as part of this report:

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

      3.1(1)        Articles of Incorporation of the Company

      3.2(1)        Articles of Amendments of the Company

      3.3(1)        By-laws of the Company

      4.1(1)        Form of Common Share Certificate

     10.1(1)(2)     1996 Stock Option Plan

     10.2(2)(4)     1997 Stock Option Plan

     10.3(2)(4)     1998 Stock Option Plan

     10.4(2)(5)     2000 Stock Purchase Plan

     10.5(2)(5)     1999 Stock Option Plan

     10.6(2)(6)     1998 Stock Option Plan for Connectria Corporation (formerly,
                    Catalyst Solutions Group, Inc.)

     10.7(2)(7)     2000 Stock Option Plan

     10.8(1)        Form of  Indemnification  Agreement  between the Company and
                    certain officers of the Company

     10.9(1)(2)     Employment Agreement dated April 1, 1996 between the Company
                    and Erik Dysthe

     10.10(1)       Lease dated  September  25, 1997 between Sun Life  Assurance
                    Company of Canada and the Company

     10.11(1)       Lease dated April 8, 1993 between Cambridge Scanning Company
                    Limited and Spectronics Micro Systems Limited

     10.12(5)       Master  Purchase  and  Sale  Agreement  dated  June 1,  1999
                    between  Digital  Dispatch  Systems  Inc.  and  the  Company
                    (without schedules or exhibits)*



                                      -77-
<PAGE>

      Exhibit
      Number        Description
      ------        -----------
     10.13(8)       Agreement  and  Plan of  Reorganization,  dated as of May 9,
                    2000, among MDSI, MDSI Acquisition  Corporation,  Connectria
                    and Certain Principal Shareholders*

     10.14(8)       Form of Voting,  Lockup and  Registration  Rights  Agreement
                    among MDSI,  MDSI  Acquisition  Corporation,  Connectria and
                    Certain Principal Shareholders

     10.15(2)(9)    Employment  Agreement  dated  March  26,  2001  between  the
                    Company and Erik Dysthe

     10.16(2)(9)    Employment  Agreement  dated  April  24,  2001  between  the
                    Company and Gerald F. Chew

     10.17(2)(9)    Employment  Agreement  dated May 7, 2001 between the Company
                    and Peter H. Rankin

     10.18          Lease  dated  October  12, 2001  between  Crown  Diversified
                    Industries   Corporation   and   Connectria   Corporation  a
                    subsidiary of the Company

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

     10.20          Amending  Agreement dated December 1, 1998 between Sun Life
                    Assurance Company of Canada and the Company

     10.21(2)       Employment  Agreement  dated May 9, 2001 between the Company
                    and Richard S. Waidmann

     10.22(2)       Employment  Agreement  dated May 9, 2001 between the Company
                    and Eric Y. Miller

     21.1           List of the Company's Subsidiaries

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

(1)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrants' Registration Statement on Form F-1 (Registration No. J33-5872)
     and  amendments  numbers 1 and 2  thereto,  filed with the  Securities  and
     Exchange Commission on October 28, 1996, November 13, 1996 and November 25,
     1996, respectively.
(2)  This document has been identified as a management  contract or compensatory
     plan or arrangement.
(3)  Previously  filed as an exhibit to Registrant's  Registration  Statement on
     Form F-4.
(4)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrant's Form 10-K for the year ended December 31, 1998.
(5)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrant's Form 10-K for the year ended December 31, 1999.
(6)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on July 12, 2000.
(7)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on November 22, 2000.
(8)  Previously filed as exhibits with the  Registrant's  Current Report on Form
     8-K filed on June 15, 2000.
(9)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended September 30, 2001.

*    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.


                                      -78-
<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 26, 2002.

                                    MDSI MOBILE DATA SOLUTIONS INC.

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



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

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


/s/ Erik Dysthe              President and Chief Executive
---------------------------  Officer, Chairman of the Board
Erik Dysthe                  and Director (Principal Executive   March 26, 2002
                               Officer)


/s/ Verne D. Pecho           Vice President - Finance and
---------------------------  Administration and Chief Financial
Verne D. Pecho               Officer (Principal Financial and
                             Accounting Officer)                 March 26, 2002


/s/ Peter Ciceri
---------------------------
Peter Ciceri                 Director                            March 26, 2002


/s/ Robert C. Harris, Jr.
---------------------------
Robert C. Harris, Jr.        Director                            March 26, 2002


/s/ Terrence P. McGarty
---------------------------
Terrence P. McGarty          Director                            March 23, 2002


/s/ Marc Rochefort
---------------------------
Marc Rochefort               Director                            March 26, 2002


/s/ David R. Van Valkenburg
---------------------------
David R. Van Valkenburg      Director (Authorized U.S.
                              Representative)                    March 26, 2002



                                      -79-
<PAGE>


                                  EXHIBIT INDEX

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

      3.1(1)        Articles of Incorporation of the Company

      3.2(1)        Articles of Amendments of the Company

      3.3(1)        By-laws of the Company

      4.1(1)        Form of Common Share Certificate

     10.1(1)(2)     1996 Stock Option Plan

     10.2(2)(4)     1997 Stock Option Plan

     10.3(2)(4)     1998 Stock Option Plan

     10.4(2)(5)     2000 Stock Purchase Plan

     10.5(2)(5)     1999 Stock Option Plan

     10.6(2)(6)     1998 Stock Option Plan for Connectria Corporation (formerly,
                    Catalyst Solutions Group, Inc.)

     10.7(2)(7)     2000 Stock Option Plan

     10.8(1)        Form of  Indemnification  Agreement  between the Company and
                    certain officers of the Company

     10.9(1)(2)     Employment Agreement dated April 1, 1996 between the Company
                    and Erik Dysthe

     10.10(1)       Lease dated  September  25, 1997 between Sun Life  Assurance
                    Company of Canada and the Company

     10.11(1)       Lease dated April 8, 1993 between Cambridge Scanning Company
                    Limited and Spectronics Micro Systems Limited

     10.12(5)       Master  Purchase  and  Sale  Agreement  dated  June 1,  1999
                    between  Digital  Dispatch  Systems  Inc.  and  the  Company
                    (without schedules or exhibits)*

     10.13(8)       Agreement  and  Plan of  Reorganization,  dated as of May 9,
                    2000, among MDSI, MDSI Acquisition  Corporation,  Connectria
                    and Certain Principal Shareholders*

     10.14(8)       Form of Voting,  Lockup and  Registration  Rights  Agreement
                    among MDSI,  MDSI  Acquisition  Corporation,  Connectria and
                    Certain Principal Shareholders

     10.15(2)(9)    Employment  Agreement  dated  March  26,  2001  between  the
                    Company and Erik Dysthe

     10.16(2)(9)    Employment  Agreement  dated  April  24,  2001  between  the
                    Company and Gerald F. Chew

     10.17(2)(9)    Employment  Agreement  dated May 7, 2001 between the Company
                    and Peter H. Rankin

     10.18          Lease  dated  October  12, 2001  between  Crown  Diversified
                    Industries   Corporation   and   Connectria   Corporation  a
                    subsidiary of the Company

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

     10.20          Amending  Agreement dated December 1, 1998 between Sun Life
                    Assurance Company of Canada and the Company

     10.21(2)       Employment  Agreement  dated May 9, 2001 between the Company
                    and Richard S. Waidmann

     10.22(2)       Employment  Agreement  dated May 9, 2001 between the Company
                    and Eric Y. Miller


<PAGE>

      Exhibit
      Number        Description
      ------        -----------
     21.1           List of the Company's Subsidiaries

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

(1)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrants' Registration Statement on Form F-1 (Registration No. J33-5872)
     and  amendments  numbers 1 and 2  thereto,  filed with the  Securities  and
     Exchange Commission on October 28, 1996, November 13, 1996 and November 25,
     1996, respectively.
(2)  This document has been identified as a management  contract or compensatory
     plan or arrangement.
(3)  Previously  filed as an exhibit to Registrant's  Registration  Statement on
     Form F-4.
(4)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrant's Form 10-K for the year ended December 31, 1998.
(5)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrant's Form 10-K for the year ended December 31, 1999.
(6)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on July 12, 2000.
(7)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on November 22, 2000.
(8)  Previously filed as exhibits with the  Registrant's  Current Report on Form
     8-K filed on June 15, 2000.
(9)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended September 30, 2001.

*    The Company agrees to supplementally furnish a copy of any omitted schedule
     or exhibit to the Securities and Exchange Commission upon request.