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, 2003

                                       OR

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

For the transition period from ______________ to ______________

                         Commission file number 0-28968

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

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

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

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

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

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

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

                           Common Shares, no par value
                                (Title of Class)

                        Rights to Purchase Common Shares
                                (Title of Class)

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

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

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

     The aggregate market value of the voting and non-voting  common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold on Nasdaq as of the last  business  day of the  registrant's  most
recently completed second fiscal quarter, which was June 30, 2003: $41,023,330

     The number of shares of the  Registrant's  Common Shares  outstanding as of
March 23, 2004 was 8,226,068.


<PAGE>

                                TABLE OF CONTENTS


<TABLE>
<S>                                                                                                             <C>
Item 1:  Business.................................................................................................2

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 Disclosures About Market Risk.............................................39

Item 8:  Financial Statements and Supplementary Data.............................................................40

Item 9:  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................70

Item 9A:  Controls and Procedures................................................................................70

Item 10:  Directors and Executive Officers of the Registrant.....................................................71

Item 11:  Executive Compensation.................................................................................74

Item 12:  Security Ownership of Certain Beneficial Owners and Management.........................................78

Item 13:  Certain Relationships and Related Transactions.........................................................79

Item 14:  Principal Accountant Fees and Services.................................................................79

Item 15:  Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................80

SIGNATURES.......................................................................................................84
</TABLE>



                                       i
<PAGE>

Forward-Looking Statements

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


Exchange Rates

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

                        U.S. Dollars Per Canadian Dollar

<TABLE>
                               2003              2002             2001              2000             1999
                               ----              ----             ----              ----             ----
<S>                           <C>              <C>               <C>              <C>               <C>
Period End                  US$0.7724        US$0.6342         US$0.6275        US$0.6666         US$0.6925
Average                        0.7138           0.6369            0.6461           0.6740            0.6744
High                           0.7749           0.6656            0.6714           0.6983            0.6925
Low                            0.6329           0.6175            0.6227           0.6397            0.6535
</TABLE>


     On March 25,  2004 the noon  buying  rate was  CDN$1.00  =  US$0.7521.  The
Canadian dollar is convertible  into U.S.  dollars at freely floating rates, and
there are currently no  restrictions  on the flow of Canadian  currency  between
Canada and the United States. Unless stated otherwise, all financial information
is expressed in United States dollars.



                                       1
<PAGE>

                                     Part I

Item 1:  Business

The Company

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

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

Background

     Field  operations,  whether involved in service,  inspection,  maintenance,
repair,  trouble,  installation or construction  work, are confronted on a daily
basis with the  difficult  task of optimally  assigning  work requests to mobile
workforces,  dispatching  the work to the field,  monitoring the progress of the
work,  responding to changing conditions,  and measuring workforce  performance.
Common workforce management problems include:

o    missed appointments;

o    unnecessary overtime;

o    repeat customer visits to get the job done right;

o    jobs that take too long to complete;

o    delayed status reports;

o    inadequate information collected from/supplied to the field;

o    redundant data entry work; and

o    excessive driving time.

     Historically,  these  organizations have managed and supported their mobile
workers by communicating  information on paper, or through wireline solutions or
through  voice radio  systems.  Although  voice radio  systems are mobile,  such
systems rely on heavily used  portions of the radio  spectrum and are subject to
frequent periods of congestion. Mobile data communication systems that addressed
certain limitations of voice  communications  systems were first developed for a
limited  number of vertical  markets,  such as  utility,  public  safety,  taxi,
courier and  commercial  field service.  Businesses in these markets  recognized
certain  productivity  benefits  associated  with  wireless  data  applications.
Although such mobile data communications  systems were introduced in a number of
vertical  markets,  these systems  failed to achieve  widespread  adoption.  The
Company believes that this initial low



                                       2
<PAGE>

rate of adoption was  attributable  to a number of factors,  including  the high
cost of establishing  private radio networks;  the difficulty of obtaining radio
spectrum for such  networks;  the high cost and limited  functionality  of early
mobile computing devices; the regulatory environment in certain industries, such
as utilities and telecommunications, which diminished competitive pressures; and
a lack of industry-specific application software which effectively addressed the
needs of mobile workers.  MDSI was formed to address this last  limitation.  The
Company now provides industry-specific mobile workforce management solutions for
the utility, telecommunications and cable/broadband markets.

     The Company believes that the other  limitations to adoption in its markets
are also being  addressed,  to an increasing  extent.  Trends in the  regulatory
environment,  numerous  technological  advances and  competitive  pressures have
provided  and will  continue to provide a compelling  case for mobile  workforce
management  solutions.  For  example,  deregulation  has exposed the utility and
telecommunications  markets to new  competitive  pressures,  driving  businesses
within  those  markets  to  seek  ways  to  reduce  costs,  improve  operations,
efficiently  allocate resources and increase the quality of customer service. In
addition,  the availability of powerful mobile  computing  devices has permitted
the development of sophisticated  software  applications.  Finally,  public data
networks providing services at lower costs than ever are now widely available in
North America,  and similar  networks are available in Europe,  Austral-Asia and
Africa.  Consequently,  the Company  believes that mobile  workforce  management
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 workforce  management solutions by
companies with large field workforces. 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  operations in targeted  vertical  markets to develop mobile  workforce
management  solutions that address the specific needs of businesses within those
vertical  markets.  MDSI's  products enable these  organizations  to effectively
communicate with, manage and support their mobile workers in their execution and
completion of work orders.

     MDSI's  products  are  designed to  interface  with a variety of public and
private  data  networks,   including  PCS  networks  and  satellite-based   data
transmission networks, and are compatible with a variety of operating platforms,
and can be integrated to a wide variety of  applications,  including those built
in-house.  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  professional  services,  such as
systems  implementation and integration,  training and documentation,  workforce
management  assessments,  consulting,  ongoing  technical  support and  software
maintenance.  Where  appropriate,  MDSI also provides  third party  products and
services as part of a complete mobile workforce management solution.

Advantex r7

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



                                       3
<PAGE>

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

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

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

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

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

o    Advantex Maintenance  Management-- Allows a planner to create a maintenance
     or  inspection  schedule  for an asset.  For example,  a gas company  might
     establish a  bi-annual  inspection  schedule  for its  regulator  stations.
     Maintenance  Management  automatically  creates  corresponding work orders,
     which are assigned and distributed to the field workforce in the usual way.
     Once the work is done, the completion  information  remains associated with
     the asset and is accessible to the planner through the application.

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

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

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

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

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

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



                                       4
<PAGE>


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.

     For  companies  outside of MDSI's  traditional  markets  that employ  field
workforces,  such as security  companies,  office  equipment  companies and home
appliance  companies,  MDSI  offers a wireless  enablement  product  called MDSI
ideligo, which is a subset of Advantex.

Professional and Customer Support Services

     Contracts for the sale of MDSI's software typically require MDSI to provide
certain professional services. Additionally, customers typically sign a separate
customer  support and  maintenance  agreement,  which  requires  MDSI to provide
after-sales  support of its products.  The Company believes that providing these
services  facilitates  effective  implementation  and  use of its  products  and
fosters a strong relationship with the customer that often leads to future sales
of MDSI products and services. See "Forward-Looking Statements."

Professional Services

     A  professional  services  engagement  typically  lasts  for six to  twelve
months,  though the Company has entered into much longer engagements for some of
its larger  customers.  During  this  time,  MDSI  works  with the  customer  in
defining,  configuring,  and installing Advantex,  as well as providing complete
training services and systems  documentation that address the implementation and
operation   of   Advantex.   MDSI's   depth  of   experience   in  the  utility,
telecommunications,   and  cable/broadband  industries  allows  the  Company  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 also offers mobile workforce management practices assessment services,
to help customers  assess where they stand against their peers, as well as other
mobile workforce management  consulting services to enable customers to make the
most  effective  use of  Advantex  in their  organizations  to improve  customer
satisfaction and increase operational efficiency.

Customer Support

     The Company  believes  that its ability to offer a high level of after-sale
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.

Markets

     MDSI has combined its  expertise in software  application  development  and
mobile data communications technology with its understanding of the unique needs
of targeted  vertical markets to develop mobile workforce  management  solutions
that address the specific  needs of businesses  within those  vertical  markets.
Traditionally,  the Company has focused  its  attention  on mid and  large-sized
customers in the utilities (electric,  gas and water),  telecommunications,  and
cable/broadband  markets.  In total,  MDSI believes that there are approximately
1.8  million  mobile  workers  worldwide  in  its  traditional  markets,   split
approximately  evenly amongst North America,  Western Europe,  and certain other
commercially   viable   geographical   markets   in  the  rest  of  the   world.
Traditionally,   the  Company's  products  have  best  addressed  the  needs  of
approximately   one-half  of  these  workers.   The  Company's   recent  product
developments and its' product  development plan are designed to address the full
market opportunity.



                                       5
<PAGE>

     During 2002, the Company launched a product,  MDSI Ideligo,  to serve field
service  workforces  outside the Company's  core markets.  Within these markets,
MDSI believes that there are approximately 6.9 million mobile workers worldwide,
split  approximately  evenly amongst North America,  Western Europe, and certain
other  commercially  viable  geographical  markets in the rest of the world. See
"Other  Markets"  below.  The Company  evaluates  new target  markets for mobile
workforce management based upon their similarity to existing vertical markets in
which the  Company has been  successful,  and upon the ability of the Company to
utilize  its core  competencies  and  proven  technology  to meet  the  needs of
companies  in these new  markets.  During  2002,  the Company  stopped  pursuing
opportunities in the public safety market. See "Public Safety" below.

     Utilities.  The  utilities  market  targeted  by the  Company  consists  of
electric, gas and water companies worldwide,  most notably in the United States,
Canada,  Europe and to a lesser extent South America,  Austral-Asia  and Africa.
The  Company's  solution  for this  market has  primarily  targeted  workers who
provide  intra  day  work,  such as meter  services  (reading,  connections  and
investigations), trouble work and account collections. The Company's new product
features, recently completed or in development, are targeted at the remainder of
field technicians,  who are involved in maintaining,  inspecting or constructing
utilities'  network asset  infrastructure.  Such work typically  involves longer
time frames for  completion,  may involve  multiple  interdependent  tasks,  and
multiple  work  crews.  Accordingly,  MDSI is  adapting  Advantex to handle this
greater complexity.

     The Company believes that the market offers many  opportunities for revenue
growth both from existing and new customers.  See "Forward-Looking  Statements".
MDSI's  products  have  been  implemented  or are being  implemented  in over 70
electric,  gas and water utilities located in the United States,  Canada, Europe
and  Austral-Asia.  MDSI believes  that the total number of utilities  with more
than 100 mobile workers (MDSI's typical target market) exceeds 300 in the United
States alone.

     Telecommunications  and  Cable/Broadband.  MDSI sells its Advantex  product
into the telecommunications, and cable/broadband markets worldwide, most notably
in  the  United  States,  Canada,  Europe  and to a  lesser  extent  in  Africa,
Austral-Asia  and South America.  Recently,  the markets for these services have
been converging.  For example,  companies that used to provide traditional voice
telecommunications  services are now permitted to provide data  services,  basic
cable  and  other  broadband  services.   Similarly,   companies  that  provided
traditional  cable TV service now also  provide  cable  telephony  services  and
Internet services. As with utilities, MDSI's solution for the telecommunications
and cable/broadband  markets has primarily addressed the needs of only a portion
of the mobile workforce,  most notably those  technicians  involved in intra-day
installation  and repair work.  The  Company's  new product  features,  recently
completed or in development, are targeted at the remainder of field technicians,
who are involved in maintaining,  inspecting or constructing the networks' asset
infrastructures. Such work typically involves longer time frames for completion,
may involve multiple interdependent tasks, and multiple work crews. Accordingly,
MDSI is adapting Advantex to handle this greater complexity.

     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 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.
MDSI believes that a number of major telecommunications companies are evaluating
the need for a mobile  workforce  management  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

     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



                                       6
<PAGE>

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." 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  workforce  management
solutions to improve  their  competitiveness,  efficiency  and level of customer
service. See "Forward-Looking Statements."

     While the telecommunications and cable/broadband markets have begun to show
signs of recovery from difficult  economic times,  the Company  anticipates that
continued  economic  uncertainty in these markets will have an adverse impact on
software  and  services  revenues  in  the  short  term.  See   "Forward-Looking
Statements."

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

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

     Public  Safety.  The Public  Safety market  consists of federal,  state and
local agencies that provide police,  fire, medical and other emergency services.
During  2001,  MDSI  ceased  pursuing  opportunities  in the  market and in 2002
reached an agreement with Datamaxx  Applied  Technologies,  Inc. of Tallahassee,
Florida,  granting  Datamaxx  exclusive  license  rights to MDSI's Public Safety
products in the North American  public safety market and  non-exclusive  license
rights for such products outside North America. MDSI had installed solutions for
a limited  number of  customers,  and the market  never  represented  a material
portion of MDSI's revenues.


Customers

     MDSI has sold its  solutions  to  approximately  100  customers  worldwide,
comprising approximately 80,000 user licenses.

     Sample Customers:

<TABLE>
     ------------------------------------------------------------------------------------------------
     UTILITY                              TELCO                             CABLE/BROADBAND
     ------------------------------------------------------------------------------------------------
     <S>      <C>                         <C>      <C>                     <C>    <C>
     o        Consumers Energy            o        Belgacom (Belgium)       o     Cox Communications
     o        Keyspan Energy              o        Eircom (Ireland)         o     Rogers Cable
     o        Pacific Gas & Electric      o        TDC Tele Danmark         o     SureWest
     o        Reliant Energy                       (Denmark)                o     Videotron
     o        Transco (UK)                o        Telkom South Africa
                                          o        TXU Communications
     ------------------------------------------------------------------------------------------------
</TABLE>

     For the year ended December 31, 2003, MDSI's software and services revenues
were distributed approximately as follows: 66% from the utilities (electric, gas
and water) market, 32% from the telecommunications



                                       7
<PAGE>

and cable/broadband  market and the remaining 2% from other markets.  During the
year ended  December  31, 2003 the Company  generated  approximately  55% of its
revenue from North America, approximately 42% of its revenue from Europe, Middle
East and Africa,  and the  remaining  3% of its revenue  from other parts of the
world.

     The Company's  customers  vary in size from small local  companies to large
regional,  national  and  international  organizations.  During  the year  ended
December 31, 2003,  Telkom South Africa  Limited  accounted  for 18.0% of MDSI's
overall  revenue and Transco PLC accounted for 17.1% of MDSI's overall  revenue.
The Company  anticipates  that  revenue  from each of these two  customers  will
account for a lesser  percentage of MDSI's overall revenue in 2004. See "Forward
Looking  Statements".  During the year ended  December  31,  2002,  Telkom South
Africa  Limited  accounted for 9.1% of MDSI's overall  revenue.  During the year
ended  December  31, 2001,  eircom  P.L.C.  accounted  for 11.4% of MDSI overall
revenue.

     In the years ended December 31, 2003, 2002, and 2001,  approximately 44.3%,
29.1%,  and 33.2%,  respectively,  of the  Company's  consolidated  revenue  was
attributable  to five  or  fewer  customers.  The  Company  believes  that  this
percentage will decrease in 2004, but that revenue derived from a limited number
of  customers   will  continue  to  represent  a  significant   portion  of  its
consolidated revenue. See "Forward Looking Statements".

     In the years ended December 31, 2003, 2002, and 2001,  revenue derived from
sales outside of North  America  accounted  for 44.5%,  30.9%,  and 23.9% of the
Company's total revenue,  respectively. See Note 8 to 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

     Mobile workforce management  applications must adapt to 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 or license  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's  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 that can be
implemented  in a timely and  cost-effective  manner.  Management  believes that
timely and continuing  product  development is critical to the Company's success
and plans to continue to allocate significant resources to product development.

     During the fiscal  years ended  December  31,  2003,  2002,  and 2001,  the
Company's  research and  development  expenses  were $5.5  million,  or 11.6% of
revenue,  $5.5  million,  or 14.4% of  revenue  and  $7.3  million,  or 16.2% of
revenue,  respectively. The Company intends to continue committing a significant
portion of its revenues to enhance  existing  products and develop new products.
In  addition  the Company  expects to  increase  its  research  and  development
expenditures during 2004. See "Forward-Looking Statements."



                                       8
<PAGE>

Sales and Marketing

     The Company  markets its  products  through a direct sales force as well as
through strategic marketing  arrangements with independent software vendors, and
systems integrators.

     Direct Sales Force.  MDSI's sales  personnel  are  knowledgeable  about the
Company's  products  and current  industry and  enterprise-specific  application
issues.  The  Company  organizes  its  sales  personnel  by  both  vertical  and
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,
customer relationship  management,  or outage management solutions,  into MDSI's
markets. The relationships typically involve MDSI and the vendors establishing a
standard  integration of their products,  then jointly identifying and executing
on sales  prospects for the integrated  solution.  The Company has established a
variety of such relationships with respect to Advantex and one such relationship
for  its  MDSI  ideligo  product,  with  Siebel  Systems  Inc.  In  some  cases,
relationships  have been  formalized  through written  agreements,  while others
remain informal.

     Systems  Integrators.  MDSI also establishes  strategic  relationships with
systems  integrators  that work in the Company's  markets to provide  end-to-end
solutions on a  customer-by-customer  basis or as an integrated product offering
for the vertical  market.  In either  case,  MDSI works with the  integrator  to
assist in the sales  process and to  integrate  MDSI's  products  with the other
component software applications.  To date, MDSI has worked with Cap Gemini Ernst
& Young LLP, Accenture LLP, IBM Business  Consulting  Services,  CGI Group Inc.,
and Atos Origin (formerly  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 systems integrators in
providing  the  implementation  work  surrounding  customer  installations.  See
"Forward-Looking Statements."

Competition

     The markets for MDSI's  Advantex and MDSI ideligo  applications  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 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.

     MDSI has a number  of  competitors,  both  small  companies  attempting  to
establish a business in the Company's markets and large companies  attempting to
diversify their product offerings.  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.  In general,  the Company  expects  competition  to  intensify  as
acceptance  and  awareness  of the  benefits  of  such  applications  and  their
associated enabling wireless technologies continue.

     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 implementation track record. MDSI



                                       9
<PAGE>


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

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

Hosting and IT Services

     In June 2002,  as part of  management's  strategy to return MDSI's focus to
mobile workforce management in the Company's  traditional markets,  MDSI entered
into an Exchange  Agreement to return  ownership of  Connectria,  a company MDSI
acquired  in June 2000 to its former  principal  shareholders.  The  services of
MDSI's Hosting and IT Services  comprised  outsourcing,  hosting and consulting,
and ranged from complete outsourcing of an IT department to providing turnkey IT
projects.  Connectria's  results of operations for 2002, and 2001 are summarized
in  MDSI's   Consolidated   Statements  of  Operations  as  Income  (Loss)  From
Discontinued  Operations.  See Note 2 of the  Company's  Consolidated  Financial
Statements  for more detail  regarding  this  transaction.  Except as  otherwise
indicated, the financial information in this Annual Report on Form 10-K excludes
the results of  discontinued  operations.  The Company now  operates in a single
business segment.

Employees

     As of December 31, 2003, the Company had 330 full-time employees, including
156 in operations (including project management, customer support, the Company's
solutions  group  and  certain  overhead),  85 in  product  development  and the
Company's product group, 41 in sales and marketing,  including employees working
on  the  Company's  MDSI  ideligo  initiative,  and 48 in  finance,  information
technology,  human resources and general  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 8 to the consolidated financial statements included
in Item 8 of this Annual Report on Form 10-K.



                                       10
<PAGE>

Risk Factors

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

Potential Fluctuations in Quarterly Operating Results

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

     The Company  believes that economic and political  developments  and trends
have adversely affected and may continue to affect levels of capital spending by
companies  in a variety  of  industries,  including  companies  in the  vertical
markets  that  the  Company  serves.   The  current  excess  of  supply  in  the
telecommunications  industry has adversely  affected the financial  condition of
many telecommunications  companies worldwide.  In addition,  economic conditions
and  developments  in the  energy  markets  have had an  adverse  affect  on the
financial  condition  of energy and utility  companies  in certain  geographical
areas of North America.  The Company  believes that these and other factors have
adversely  affected demand for products and services offered by the Company,  as
certain  prospective and existing customers have delayed or deferred  purchasing
decisions  or have sought to  terminate  existing  contracts  for the  Company's
products and  services.  While the Company  believes that economic and political
conditions  in certain of its vertical  markets show signs of  improvement,  the
Company  believes  that  economic  conditions  are likely to  continue to affect
demand for the Company's products and services in 2004,  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.
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



                                       11
<PAGE>

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.  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,  2003,  2002 and
2001,  9.5%,  6.5%,  and  5.5%  respectively,   of  the  Company's  revenue  was
attributable to third party products and services. As the revenue generated from
the supply of third party  products  and services  may  represent a  significant
portion of certain  contracts  and the  installation  and rollout of third party
products is  generally  at the  discretion  of the  customer,  the Company  may,
depending on the level of third party  products and services  provided  during a
period, experience large quarterly fluctuations in revenue. See "Forward Looking
Statements".  In addition,  because the  Company's  gross margins on third party
products  and  services  are  substantially  below  gross  margins  historically
achieved  on  revenue   associated  with  MDSI  products  and  services,   large
fluctuations  in  quarterly  revenue  from the sale of third party  products and
services will result in significant fluctuations in direct costs, gross profits,
operating  results,  cash flows and other items  expressed  as a  percentage  of
revenue.

Lengthy Sales Cycles for Advantex Products

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

Dependence on Large Contracts and Concentration of Customers

     The Company's revenue is dependent, in large part, on significant contracts
from a limited  number of customers.  During the years ended  December 31, 2003,
2002, and 2001,  approximately  44.3%,  29.1%,  and 33.2%  respectively,  of the
Company's  consolidated  revenue was  attributable  to five or fewer  customers.
During the year ended December 31, 2003,  TELKOM South Africa Limited  accounted
for 18.0% of the  Company's  consolidated  revenue and Transco PLC accounted for
17.1% of the Company's consolidated revenue.  During the year ended December 31,
2002  TELKOM  South  Africa  accounted  for 9.1% of the  Company's  consolidated
revenue.  During the year ended December 31, 2001,  eircom P.L.C.  accounted for
11.6% 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



                                       12
<PAGE>

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

Potential Fluctuations in Backlog

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

     The Company  believes  that  unfavorable  economic  conditions  and reduced
capital spending by existing and prospective  customers have and may continue to
adversely  affect  demand for the  Company's  products and services in 2004.  In
particular,   service  providers,  utilities  companies  and  telecommunications
companies  in North  America have been  impacted  since the latter half of 2000.
While the Company  believes that economic  conditions in certain of its vertical
markets show signs of improvement, the Company believes that economic conditions
and general trends are likely to continue to delay purchasing and implementation
decisions.  If the economic conditions in the United States and Canada worsen or
if a 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.



                                       13
<PAGE>

History of Losses and Fixed Operating Expenses

     As of December 31, 2003,  the Company had an  accumulated  deficit of $29.9
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 allocate significant resources to its operating expenses related to sales and
marketing operations, to fund significant levels of research and development, to
broaden its customer  support  capabilities  and to maintain its  administrative
resources.  A relatively high percentage of the Company's  expenses are fixed in
the short term and the  Company's  expense  levels are  based,  in part,  on its
expectations of future revenue.  To the extent that such expenses precede or are
not  subsequently   followed  by  increased  revenue,  the  Company's  business,
financial  condition,  operating  results  and cash  flows  could be  materially
adversely  affected.  In  addition,  due to the rapidly  evolving  nature of its
business and markets, the Company believes that period-to-period  comparisons of
financial  results are not necessarily  meaningful and should not be relied upon
as an indication of future performance.

Integration of Acquisitions

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

New Product Development

     The Company  expects that a significant  portion of its future revenue will
be derived from the sale of newly introduced  products,  including  Advantex r7,
and from enhancement of existing products. See "Forward-Looking 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.

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 330  employees
located  in Canada,  the United  States  and other  international  locations  at
December 31, 2003. The Company also recently expanded the geographical  areas in
which  it  operates.  In  March  and  April,  2001,  the  Company  made  several
announcements  regarding  its  intention to reduce the size of its work force by
approximately  25% in  anticipation  of  reduced  demand  for its  products  and
services  due to the  general  economic  slowdown.  In July  2002,  the  Company
completed the sale of its subsidiary Connectria  Corporation,  reducing the size
of its work force by 71 employees.  If the Company  resumes its growth in future
periods,  such  growth  may place  strains  on its  management,  administrative,
operational and financial



                                       14
<PAGE>

     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  performance  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

     Since its inception,  substantially  all of the Company's  revenue has been
derived  from the sale of products  and  services to  customers  in the utility,
telecommunications  and cable/broadband  markets. The Company anticipates that a
significant  portion of its revenue  will  continue to be  generated by sales of
products and services to these  markets.  Demand for the  Company's  services in
these  markets has  fluctuated  and is likely to  fluctuate  in the  future.  In
additions,  the Company  believes 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 diversify  its product  offerings or
revenue base by entering  into new vertical  markets or continue to earn revenue
in current markets.

Dependence on Marketing Relationships

     The  Company's  products are marketed by the  Company's  direct field sales
force as well as by third  parties that act as lead  generators or with whom the
Company acts together as a  co-marketer  or  co-seller.  The Company's  existing
agreements with such partners are  nonexclusive  and may be terminated by either
party  without  cause.  Such  organizations  are not within  the  control of the
Company,  are not  obligated to purchase  products from the Company and may also
represent  and sell  competing  products.  There  can be no  assurance  that the
Company's  existing  partners 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 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



                                       15
<PAGE>

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
workforce  management solutions continue.  See "Forward Looking Statements".  In
addition,  a  small  number  of  MDSI's  potential  customers  develop  software
solutions internally,  thereby eliminating the requirement for suppliers such as
MDSI. Current or potential  competitors may establish  cooperative  arrangements
among themselves or with third parties to increase the ability of their products
to  address   customer   requirements.   Certain  of  MDSI's   competitors  have
substantially greater financial, technical, marketing and distribution resources
than  MDSI.  As a result,  they may be able to  respond  more  quickly to new or
emerging technologies and changing customer  requirements,  or to devote greater
resources to the development and distribution of existing products. There can be
no assurance that MDSI will be able to compete  successfully  against current or
future  competitors  or  alliances  of such  competitors,  or  that  competitive
pressures  faced by MDSI will not  materially  adversely  affect  its  business,
financial condition, operating results and cash flows.

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

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

Risk of Product Defects and Implementation Failure

     Software  products,   including  those  offered  by  the  Company,  contain
undetected errors or omissions. Software products, when implemented,  installed,
configured  and  customized,  may also fail to  perform  according  to  customer
expectations  due to the failure by the customer to properly  specify its system
requirements,  failure by the customer to properly  operate or interact with the
system,  operator error,  technical problems associated with the customer's host
system,  or the  resistance of the  customer's  workforce to the adoption of new
technology.  In addition,  software  products  may fail to perform  according to
expectations  due to the failure by the Company to properly design the system to
operate in the environment,  infrastructure or  communications  network in which
the product is to be used.  There can be no assurance  that,  despite testing by
the Company and by current and potential customers,  that the Company's products
will be  free of  errors  or  that  such  products  will  perform  according  to
expectations with respect to response time, ability to communicate over multiple
networks, scalability, stability and ease of use. Such errors and failures could
result in loss of or delay in market acceptance of the Company's  products,  the
cancellation  of contracts or the  imposition of substantial  penalties,  any of
which could have a material adverse effect on the Company's business,  financial
condition, operating results and cash flows.



                                       16
<PAGE>

Proprietary Technology

     The  Company's   success  is  dependent  on  its  ability  to  protect  its
intellectual  property rights. The Company relies principally upon a combination
of copyright, trademark, trade secret and patent laws, non-disclosure agreements
and other contractual  provisions to establish and maintain its rights. To date,
the  Company  has been  granted  trademark  registrations  or has  registrations
pending in the United  States,  Canada and the European  Community for the MDSI,
Advantex,  Wireless@work  and Compose  trademarks.  MDSI has also filed  several
patent  applications in the United States and  internationally  covering various
aspects of its  technology,  and has  recently  been  granted a U.S.  patent for
certain aspects of Compose.  The earliest of these applications has been granted
and will be issued as a U.S. patent, and the remainder are pending a substantive
examination.  As part of its confidentiality  procedures,  the Company generally
enters into  nondisclosure and  confidentiality  agreements with each of its key
employees, consultants, distributors, customers and corporate partners, to limit
access to and distribution of its software,  documentation and other proprietary
information. There can be no assurance that the Company's efforts to protect its
intellectual  property rights will be successful.  Despite the Company's efforts
to  protect  its  intellectual  property  rights,  unauthorized  third  parties,
including competitors,  may be able to copy or reverse engineer certain portions
of the Company's  software  products,  and use such copies to create competitive
products.  Policing the unauthorized use of the Company's products is difficult,
and,  while the Company is unable to determine the extent to which piracy of its
software  products  exists,  the risk of  software  piracy  can be  expected  to
continue.  In addition,  the laws of certain  countries  in which the  Company's
products are or may be licensed  may not protect its  products and  intellectual
property  rights  to the same  extent as do the laws of  Canada  and the  United
States.  As a result,  sales of products by the  Company in such  countries  may
increase the likelihood that the Company's  proprietary  technology is infringed
upon by  unauthorized  third  parties.  In addition,  because  third parties may
attempt to develop similar technologies independently,  the Company expects that
software product developers will be increasingly  subject to infringement claims
as the number of products and  competitors  in the Company's  industry  segments
grows 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 or employ subcontractors. The Company believes
that there are a number of acceptable vendors and subcontractors for most of its
required  products,  but in many  cases,  despite the  availability  of multiple
sources,  the  Company may select a single  source in order to maintain  quality
control  and to develop a  strategic  relationship  with the  supplier or may be
directed by a customer to use a particular product. The failure of a third party
supplier or  subcontractor  to provide a sufficient and reliable supply of parts
and components or products and services in a timely manner could have a material
adverse effect on the Company's results of operations. In addition, any increase
in the price of one or more of these products, components or services could have
a  material  adverse  effect on the  Company's  business,  financial  condition,
operating results and cash flows. Additionally, under certain circumstances, the
Company  supplies  products and services to a customer  through a larger company
with a more  established  reputation  acting as a  project  manager  or  systems
integrator. In such circumstances,  the Company has a sub-contract to supply its
products  and services to the customer  through the prime  contractor.  In these
circumstances,  the Company is at risk that  situations may arise outside of its
control that could lead to a delay,  cost over-run or  cancellation of the prime
contract which could also result in a delay,  cost over-run or  cancellation  of
the  Company's  sub-contract.  The failure of a prime  contractor  to supply its
products and services or perform its contractual  obligations to the customer or
MDSI in a timely  manner could have a material  adverse  effect on the Company's
financial condition, results of operations and cash flows.



                                       17
<PAGE>

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 has entered 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  changes  on the
Company's  reporting  in its  financial  statements  of the  results  from  such
operations outside the United States.  During 2003, the relative weakness of the
U.S.  dollar  contributed  to an increase  in direct  costs as a  percentage  of
revenue, as the majority of direct costs are incurred in Canadian dollars.

Risks Associated with International Operations

     In the years ended December 31, 2003,  2002, and 2001 revenue  derived from
sales outside of North America  accounted for  approximately  44.5%,  30.9%, and
23.9%,  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.

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

Product Liability

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



                                       18
<PAGE>

Anti-Takeover Effects; Investment Canada Act

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

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

     In December  1998, the Company  implemented a shareholder  rights plan (the
"Plan").  The Plan had a 5-year  term and was  subsequently  renewed in December
2003 for a further 5-year term.  Pursuant to the renewed Plan,  shareholders  of
record on December 17, 2003  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  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 Plan 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.
Pursuant to  regulatory  requirements,  the renewed Plan must be approved by the
Company's shareholders at a meeting to be held 6 months of implementation of the
renewed Plan.

     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 ("GAAP") as
applied in Canada . Canadian and US GAAP differ in certain  respects,  including
the treatment of certain reorganization costs, acquired research and development
costs,  and  the  expensing  of  stock  options.  As  a  result,  the  Company's
Consolidated  Financial Statements included in this report may differ materially
from the financial statements filed by the Company in Canada.

Market for the Common Shares; Potential Volatility of Stock Price

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



                                       19
<PAGE>

Item 2:  Properties

     The Company  occupies  approximately  96,000  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  16,000  square  feet of this  space  until
November 30, 2008. The Company also maintains an office in Itasca, Illinois. The
Itasca  office lease is for  approximately  29,000  square feet and and has been
terminated  effective  November 30, 2004. The Company has sub-let  approximately
17,600 feet of this space until November 30, 2004. The Company believes that the
current office space under lease less the current subleased portions is adequate
to meet its needs for the foreseeable future.

Item 3:  Legal Proceedings

     Mobile Data Solutions Inc. v. Citizens  Telecom Services Co., L.L.C. - U.S.
District  Court,  Texas  District  Court Collin  County - 366 Judicial  District
(Docket No.  366-01914-00).  On February 2, 2004, MDSI and Citizens settled this
lawsuit.  Under the settlement agreement,  each company has fully discharged the
other from all outstanding legal claims without further financial compensation.

     From time to time,  the Company is a party to other  litigation  and claims
incident to the ordinary course of its business. While the results of litigation
and claims cannot be predicted  with  certainty,  the Company  believes that the
final  outcome of such  matters will not have a material  adverse  effect on the
Company's business, results of operations, financial condition or liquidity.

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

     Not applicable.



                                       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>
     2002
   First Quarter.............         4.29           3.31           6.76           5.22           4.25           3.40
   Second Quarter............         3.93           3.10           6.21           4.87           3.95           3.05
   Third Quarter.............         3.48           2.83           5.50           4.47           3.62           2.87
   Fourth Quarter............         3.55           2.82           5.60           4.44           3.60           2.78

     2003
   First Quarter.............         4.28           3.33           6.00           4.67           3.91           3.00
   Second Quarter............         5.18           3.39           7.25           4.75           5.35           3.00
   Third Quarter.............         6.07           3.88           8.50           5.43           6.33           3.85
   Fourth Quarter............         5.60           4.12           7.85           5.77           6.12           4.25
-----------------
(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, 2003 the Company had  approximately  347 shareholders of
record.

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, 2003.



                                       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  Revenue  Agency (the "CRA").  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 CRA 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  are
          effectively  connected  with a permanent  establishment  or fixed base
          that the holder has in Canada, or

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

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

     Capital Gains

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

     (a)  the non-resident holder,

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

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

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

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

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

     (c)  they formed part of personal property  constituting  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 (unaudited)

     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, 2003,  2002 and 2001 and the  consolidated
balance  sheet  data at  December  31,  2003 and 2002 are  derived  from and are
qualified  by  reference  to  the  Company's  audited   consolidated   financial
statements. This selected consolidated financial data is presented in conformity
with generally accepted accounting principles in the United States.

<TABLE>
                                                                Years ended December 31,
                                         2003             2002             2001             2000             1999
                                    --------------    -------------   --------------    -------------    ------------
                                                         (In thousands, except per share data)
<S>                                    <C>               <C>            <C>              <C>               <C>
 Statement of Operations Data:
 Revenue                              $ 47,385          $ 38,211        $ 44,941         $ 51,852         $ 52,000
 Gross profit                           24,022            21,192          23,894           30,772           29,449
 Operating (loss) income                (2,884)           (2,933)        (11,167)             912            7,624
 (Loss) income from continuing          (3,643)           (2,047)        (13,240)             (24)           4,731
   operations for the year
   (1)(2)(3)
 Diluted (loss) earnings per common
   share                              $  (0.44)         $  (0.23)       $  (1.61)        $  (0.08)        $   0.11
 Weighted average shares outstanding
                                         8,201             8,481           8,623            8,527            9,101
                                    --------------    -------------   --------------    -------------    ------------
Balance Sheet Data:                      2003             2002             2001             2000             1999
                                    --------------    -------------   --------------    -------------    ------------
 Cash and cash equivalents            $ 15,827          $ 11,017        $ 13,176         $ 12,865         $ 14,750
 Working capital                         8,576             8,296          11,374           23,305           23,151
 Total assets                           37,071            37,031          44,263           60,517           50,191
 Non-current liabilities                   982             1,914           3,050            6,738            3,399
 Stockholders' equity                   15,942            19,464          23,916           37,404           34,916
--------------------------
(1)  Net  loss  for the  year  ended  December  31,  2001  includes  charges  of
     $6,105,927 with respect to restructuring of certain operations,  $2,749,992
     for the impairment in valuation of investments in three private  companies,
     $1,558,578 for the impairment in valuation of intangible assets acquired on
     acquisition of Alliance Systems  Incorporated,  $165,000 for the impairment
     in valuation of a commercial  web site domain name,  and $2,938,195 for bad
     debts with respect to several doubtful accounts.
(2)  Net income from continuing  operations for the year ended December 31, 2000
     includes  charges of  $1,691,028  for costs of merger  with  respect to the
     Company's merger with  Connectria,  and $985,000 for bad debts with respect
     to one doubtful account.
(3)  Net loss from  continuing  operations  for the year ended December 31, 2003
     includes  charges  related to the  evaluation of strategic  options for the
     Company of $1,275,120, and $3,069,860 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.  Actual results
could differ materially from those projected in the  forward-looking  statements
as a result of the Company's ability to accelerate or defer operating  expenses,
achieve revenue in a particular period, hire new personnel and other factors set
forth under  "Business-Risk  Factors"  in Item 1 of this  Annual  Report on Form
10-K.  In  particular,   note  the  Business-Risk  Factors  entitled  "Potential
Fluctuations in Quarterly Operating Results", "Lengthy Sales Cycles for Advantex
Products",  "Dependence  on Large  Contracts and  Concentration  of  Customers",
"History  of  Losses  and  Fixed  Expenses",   "Integration  of   Acquisitions,"
"Litigation" and "Competition." Also see "Forward-Looking Statements."

     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 Disclosures About Market Risk".

Overview

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

     The Company's revenue is derived from (i) software and services, consisting
of the  licensing  of software  and  provision  of related  services,  including
project management, installation, integration, configuration,  customization and
training;  (ii)  maintenance  and  support,   consisting  of  the  provision  of
after-sale  support services as well as hourly,  annual or extended  maintenance
contracts;  and (iii) third  party  products  and  services,  consisting  of the
provision of non-MDSI products and services as part of the total contract.

Strategic Alternatives

     The Company has retained Bear,  Stearns & Co. Inc. as financial  advisor to
the Board of Directors. The Board is evaluating potential business combinations,
financing and other  strategic  alternatives  to help the Company offer enhanced
products  and services to its  customers  and maximize  shareholder  value.  The
Company  continues  to conduct  the  strategic  review  process.  The process is
ongoing,  and to date the Company has not entered any transaction as a result of
the strategic review.

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,  have elected not to purchase the Company's products,  or have sought
to terminate existing  contracts for the Company's  products and services.  As a
result,  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
facts,  particularly  the timing and receipt of  significant  orders.  While the
Company  believes  that economic  conditions in certain of its vertical  markets
show signs of improvement, the Company



                                       25
<PAGE>

believes that economic and political conditions are likely to continue to affect
demand for the Company's products and services in 2004 , particularly demand for
software and related services.  See  "Forward-Looking  Statements." 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 2001 its  intention  to  reduce  its  operating  expenses  through
workforce  reductions  and other  measures.  These  measures have been gradually
implemented with incremental reductions in costs each quarter, and were expected
to result in an estimated $2.9 million in cost reductions per quarter by the end
of 2002. A majority of the savings were  realized by reduced  salary and payroll
costs,  and the  remaining  savings have been  realized  from the  subleasing of
excess space, and a reduction in discretionary spending. As a result of the sale
of the public safety  operations  during the second quarter of 2002, the Company
exceeded the estimated  quarterly  savings.  There can be no assurance  that the
workforce  reductions and other measures will not have a material adverse affect
on the Company's business operations.

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

<TABLE>
                                                                          Total Restructuring
                                                                                 Charge
                                                                           ------------------
        <S>                                                                <C>
        Workforce reduction                                                   $  3,375,000
        Provision for excess office space                                        1,861,000
        Non cash write-down of capital assets                                      563,780
        Other                                                                      306,147
                                                                           ------------------
        Total restructuring charges                                              6,105,927
        Cumulative draw-downs                                                   (5,225,145)
                                                                           ------------------
        Accrued restructuring charges as at December 31, 2003                 $    880,782
                                                                           ===================
</TABLE>

     During the year ended  December 31, 2003, the Company made cash payments of
$376,553 relating to the restructuring accruals.

     Provisions relating to workforce reductions,  write-down of capital assets,
and other items have been fully drawn-down, and no further expenditures relating
to these items are expected to be incurred.

     The  Company  has  recorded a $1.9  million  provision  relating to surplus
office  space under long term lease by the Company at two  locations,  including
one location  where the Company has entered  into fixed cost lease  arrangements
expiring in 2004.  The Company has incurred  approximately  $1.0 million of cash
costs relating to this provision leaving an accrual of $0.9 million remaining as
at December 31, 2003. The Company expects that the provision will be fully drawn
down no later than the time the lease expires in the fourth quarter of 2004.

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



                                       26
<PAGE>

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 users are rolled out initially,  with the
balance  implemented over a period that may extend up to one year or more. Where
increases in mobile workforces require or where additional departments of mobile
workers are added,  additional mobile computing devices may be installed,  which
may  result  in  additional  revenue  for  the  Company.   See  "Forward-Looking
Statements."

     Revenue  for  software  and  services  has  historically  accounted  for  a
substantial portion of the Company's revenue. Typically, the Company enters into
a fixed price  contract with a customer for the  licensing of selected  software
products  and the  provision  of specific  services,  which  includes a warranty
period that is generally  ninety days in length.  These  services 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 man days  incurred
over the total estimated man days to complete the contract.

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

     The  Company is  periodically  required  to  provide,  in  addition to MDSI
products and  services,  certain  third party  products,  such as host  computer
hardware and  operating  system  software,  and mobile  computing  devices.  The
Company  recognizes  revenue on the supply of third party  hardware and software
upon transfer of title to the customer.  The Company  recognizes  revenue on the
supply of third party services using a percentage of completion  method based on
the costs  incurred  over the total  estimated  cost to complete the third party
services  contract.  Also included in third party revenue are  reimbursements to
the  Company for out of pocket  expenses  incurred  on  implementation  projects
performed by the  Company.  EITF 01-14  "Income  Statement  Characterization  of
Reimbursements Received for Out of Pocket Expenses" requires characterization of
these  expenses  as  revenue.  An equal  and  offsetting  amount of  expense  is
recognized relating to these reimbursements as direct costs.

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

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

     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>

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

     In June 2002, MDSI adopted a plan for sale and entered into an agreement to
sell its  Hosting  and IT  Services  business  segment,  Connectria  Corporation
(Connectria) to former  Connectria  shareholders who were both  shareholders and
employees of the Company.  The transaction closed in July 2002.  Pursuant to the
terms  of the  agreement,  the  Company  received  from  the  former  Connectria
shareholders  824,700  shares of MDSI that had a market  value of  approximately
$2.8 million and the cancellation of 103,088  previously issued stock options of
MDSI as consideration for Connectria. In addition to the share consideration,  a
wholly-owned  subsidiary of MDSI also received a warrant allowing it to purchase
up to 50,380  shares of Series A Nonvoting  Preferred  Stock of  Connectria at a
price of $50 per share  exercisable  for a period of five  years.  The  Series A
Nonvoting  Preferred  Stock of  Connectria  has a face  value of $100 per share,
bears a dividend of five percent per annum, bears a liquidation preference equal
to the face value, may be redeemed at Connectria's  option at any time, and must
be redeemed by Connectria upon a capital infusion of $10 million or greater.  In
addition  MDSI has advanced  Connectria  $500,000,  consisting  of a loan in the
principal  amount of $250,000 with a two year term,  bearing interest at 5%, and
$250,000  for  prepaid  hosting  services.  The loan was  repaid  subsequent  to
December 31,2003.  On closing,  the Company realized a small gain as a result of
the disposition of Connectria.

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

Recent Accounting Pronouncements

     In May  2003,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of  Financial  Accounting  Standard  (SFAS) No. 150  "Accounting  for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity".  SFAS  150  establishes  standards  for how an  issuer  classifies  and
measures certain financial  instruments with characteristics of both liabilities
and equity.  It requires that an issuer classify a financial  instrument that is
within its scope as a  liability  (or an asset in some  circumstances).  Many of
those  instruments  were  previously  classified  as equity.  This  Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15,  2003.  The  adoption of this  standard did not have a
material impact on the Company's financial statements.

     In April 2003 FASB issued Statement No. 149 ("SFAS 149"), Amendment of SFAS
No. 133 on Derivative  Instruments and Hedging Activities.  The Statement amends
and  clarifies   accounting  for  derivative   instruments,   including  certain
derivative  instruments embedded in other contracts,  and for hedging activities
under SFAS No. 133. In particular,  it (1) clarifies under what  circumstances a
contract with an initial net investment meets the characteristic of a derivative
as  discussed  in SFAS No.  133,  (2)  clarifies  when a  derivative  contains a
financing component, (3) amends the definition of an underlying to conform it to
the  language  used in FASB  Interpretation  No. 45,  Guarantor  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of Others and (4) amends certain other existing pronouncements.

     SFAS 149 is effective for contracts entered into or modified after June 30,
2003, subject to certain exceptions,  for hedging relationships designated after
June 30, 2003.  The adoption of this standard did not have a material  impact on
the Company's financial statements.

     In January 2003, FASB issued Interpretation No. 46 (FIN 46), "Consolidation
of Variable Interest Entities", an Interpretation of ARB No. 51. FIN 46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of  the  entity  if  the  equity  investors  in  the  entity  do  not  have  the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial support from other parties.  FIN 46 is effective for all
new variable  interest  entities created or acquired after January 31, 2003. For
variable  interest  entities  created or acquired prior to February 1, 2003, the
provisions  of FIN 46 must be applied  for the first  interim  or annual  period
beginning  after June 15,  2003.  The  adoption of this  standard did not have a
material impact on the Company's financial statements.



                                       28
<PAGE>

Critical Accounting Policies and Significant Estimates

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

Restructuring Charges

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

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, 2003, the allowance for doubtful
accounts was $2.8 million.  The Company intends to continue  vigorously pursuing
these accounts.  If future events indicate  additional  collection  issues,  the
Company may be required to record an additional allowance for doubtful accounts.
During  the year  ended  December  31,  2003 the  Company  wrote off a long term
receivable of $2.8 million,  as the Company entered into a settlement  agreement
with this  customer  whereby  no further  proceeds  on the  receivable  would be
realized by the Company.

Revenue Recognition

     We recognize revenue in accordance with the American Institute of Certified
Public  Accountants  Statement  of  Position  ("SOP")  97-2,  "Software  Revenue
Recognition,"  as  amended  by SOP 98-9,  "Modification  of SOP  97-2,  Software
Revenue   Recognition,   with  Respect  to  Certain   Transactions,"  SOP  81-1,
"Accounting for  Performance of  Construction-type  and Certain  Production-type
Contracts," the Securities and Exchange  Commission's Staff Accounting  Bulletin
("SAB") No. 101,  "Revenue  Recognition in Financial  Statements,"  SAB No. 104,
"Revenue Recognition," and other authoritative accounting literature.  We derive
revenues  from the  following  sources:  license  fees,  professional  services,
maintenance and support fees and third party products and services.

     We generally  provide  services  with our supply  agreements,  that include
significant production,  modification,  and customisation of the software. These
services  are  not  separable  and are  essential  to the  functionality  of the
software,  and as a result we account for these licence and service arrangements
under SOP 81-1 using the percentage of completion method of contract accounting.

License Fees and Professional Services

     Our supply agreements generally include multiple products and services,  or
"elements."  We use the  residual  method  to  recognize  revenue  when a supply
agreement  includes  one or more  elements to be  delivered at a future date and
vendor specific objective evidence of the fair value of all undelivered elements
exists.  The fair value of the undelivered  elements is determined  based on the
historical  evidence of stand-alone sales, or renewal terms of these elements to
customers. Under the residual method, the fair value of the undelivered elements
is deferred and the remaining  portion of the arrangement  fee, which relates to
the  license  and  implementation  services,  is  recognized  as  revenue  on  a
percentage  of  completion  basis.  If evidence of the fair value of one or more
undelivered elements



                                       29
<PAGE>

does not exist,  the total revenue is deferred and  recognized  when delivery of
those elements occurs or when fair value is established.

     We estimate the  percentage of completion on contracts with fixed fees on a
monthly  basis  utilizing  hours  incurred  to date  as a  percentage  of  total
estimated hours to complete the project. If we do not have a sufficient basis to
measure progress towards completion, revenue is recognized when we receive final
acceptance from the customer. When the total cost estimate for a project exceeds
revenue, we accrue for the estimated losses  immediately.  The complexity of the
estimation   process  and  issues   related  to  the   assumptions,   risks  and
uncertainties  inherent  with the  application  of the  percentage-of-completion
method of accounting affect the amounts of revenue and related expenses reported
in our  consolidated  financial  statements.  A number of internal  and external
factors  can  affect our  estimates,  including  labor  rates,  utilization  and
efficiency variances and specification and testing requirement changes.

     We are engaged on a  continuous  basis in the  production  and  delivery of
software under contractual  agreements.  As a result we have developed a history
of being able to estimate  costs to complete  and the extent of progress  toward
completion of contracts,  which supports the use of the percentage of completion
method of contract accounting.

     Professional services revenue primarily consists of consulting and customer
training  revenues,  which are usually charged on a time and materials basis and
are recognized as the services are  performed.  Revenue from certain fixed price
contracts is recognized on a proportional  performance basis, which involves the
use of estimates  related to total expected  man-days of completing the contract
derived from historical  experience with similar contracts.  If we do not have a
sufficient  basis  to  measure  the  progress  towards  completion,  revenue  is
recognized  when the project is  completed or when we receive  final  acceptance
from the customer.

Maintenance Revenue

     Generally,  maintenance  is initially sold as an element of a master supply
arrangement,  with subsequent annual renewals,  and is priced as a percentage of
new software license fees.  Maintenance  revenue is recognized  ratably over the
term of the maintenance  period,  which  typically is one year.  Maintenance and
support revenue includes  software  license updates that provide  customers with
rights to  unspecified  software  product  upgrades,  maintenance  releases  and
patches released during the term of the support period. Product support services
also include Internet and telephone access to technical support personnel.

     Historically,   we  have  provided  a  warranty  phase  during  the  supply
agreement.  Services  provided  during this warranty  phase include  elements of
maintenance and support. As a result we, defer a portion of the supply agreement
fee, based on Vendor Specific Objective Evidence of the value of these services,
and recognize the deferred amount as revenue over the warranty period.

Third party products and services

     Revenue from sales of third party  products and services is  recognized  on
delivery of the  products.  Services  are  recognized  on a  percentage-complete
basis.

     When software licenses are sold incorporating  third-party products or sold
with third-party products , we recognize as revenue the gross amount of sales of
third-party  product.  The  recognition  of gross revenue is in accordance  with
criteria  established  in Emerging  Issues Task Force  Issue  (EITF) No.  99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent.

     On   occasion,   we   utilize   third-party   consultants   to   assist  in
implementations or installations  originated by the Company.  In these cases, in
accordance  with criteria  established in EITF 99-19 (as described  above),  the
revenue for these implementations and installations is typically recognized on a
gross basis. In these cases we ultimately manage the engagement.



                                       30
<PAGE>

Income Taxes

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

Intangible Assets

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

Investments and Advances

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

Warranty

     The  Company  warrants  to its  customers  that  its  software  will  be in
substantial conformance with its specifications.

Indemnification

     The Company typically  includes  indemnification  provisions within license
and implementation service agreements, which are consistent with those prevalent
in the software industry.  Such provisions  indemnify  customers against actions
arising  from  patent  infringements  that may arise  through  the normal use or
proper  possession  of the  Company's  software.  To date  the  Company  has not
experienced  any   significant   obligations   under  customer   indemnification
provisions  and  accordingly,  no amounts have been  accrued for such  potential
indemnification obligations.



                                       31
<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,
                                                          2003               2002               2001
                                                    ---------------    ---------------    ---------------
                                                                        (In thousands)
<S>                                                 <C>                   <C>              <C>
 Revenue:
    Software and services.....................      $   28,932            $  24,676        $    31,578
    Maintenance and support...................          13,976               11,055             10,910
    Third party products and services ........           4,477                2,480              2,453
                                                    ---------------    ---------------    ---------------
                                                        47,385               38,211             44,941
 Direct costs.................................          23,363               17,019             21,047
                                                    ---------------    ---------------    ---------------
 Gross profit.................................          24,022               21,192             23,894
                                                    ---------------    ---------------    ---------------
 Operating expenses:
    Research and development..................           5,513                5,506              7,258
    Sales and marketing.......................          10,497               12,382             10,859
    General and administrative................           6,551                6,237              6,075
    Restructuring charge......................              --                   --              6,106
    Amortization and provision for valuation
      of intangible assets....................              --                   --              1,824
    Strategic expenses........................           1,275                   --                 --
    Provision for doubtful accounts...........           3,070                   --              2,938
                                                    ---------------    ---------------    ---------------
                                                        26,906               24,125             35,060

 Operating loss...............................          (2,884)              (2,933)           (11,166)
 Valuation allowance on investments...........              --                   --             (2,750)
 Other (expense) income.......................            (307)                 273                177
                                                    ---------------    ---------------    ---------------
 Loss from continuing operations before tax
 provision....................................          (3,191)              (2,660)           (13,739)

 (Provision for) recovery of income taxes
 from continuing operations...................            (452)                 613                499
                                                    ---------------    ---------------    ---------------
 Loss for continuing operations                         (3,643)              (2,047)           (13,240)
                                                    ---------------    ---------------    ---------------
 Income (loss) from discontinued operations                 --                  121               (653)
                                                    ---------------    ---------------    ---------------
 Net loss for the year........................      $   (3,643)           $  (1,926)       $   (13,893)
                                                    ===============    ===============    ===============
</TABLE>



                                       32
<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,
                                                          2003               2002               2001
                                                    ---------------    ---------------    ---------------
<S>                                                 <C>                   <C>              <C>
Revenue:
   Software and services.....................            61.1%              64.6%              70.3%
   Maintenance and support.....................          29.5               28.9               24.2
   Third party products and services...........           9.4                6.5                5.5
                                                    ---------------    ---------------    ---------------
                                                        100.0              100.0              100.0

Direct costs...................................          49.3               44.5               46.8
                                                    ---------------    ---------------    ---------------
Gross profit...................................          50.7               55.5               53.2
                                                    ---------------    ---------------    ---------------
Operating expenses:
   Research and development....................          11.6               14.4               16.1
   Sales and marketing.........................          22.2               32.4               24.2
   General and administrative..................          13.8               16.3               13.5
   Restructuring charge........................            --                 --               13.6
   Amortization and provision for valuation of
      intangible assets........................            --                 --                4.1
   Strategic expenses..........................           2.7                 --                 --
   Provision for doubtful accounts.............           6.5                 --                6.5
                                                    ---------------    ---------------    ---------------
                                                         56.8               63.1               78.0
                                                    ---------------    ---------------    ---------------
Operating loss.................................          (6.1)              (7.6)             (24.8)
Valuation allowance on investments.............            --                 --               (6.1)
Other (expense) income.........................          (0.6)               0.7                0.4
                                                    ---------------    ---------------    ---------------
Loss from continuing operations before tax
provision ........                                       (6.7)              (6.9)             (30.5)

(Provision for) recovery of income taxes from
continuing operations..........................          (1.0)               1.6                1.1
                                                    ---------------    ---------------    ---------------
Loss from continuing operations................          (7.7)              (5.3)             (29.4)
Income (loss) from discontinued operations.....            --                0.3               (1.4)
                                                    ---------------    ---------------    ---------------
Net loss for the year..........................          (7.7)%             (5.0)%            (30.8)%
                                                    ===============    ===============    ===============
</TABLE>


Year ended December 31, 2003 Compared to the Year ended December 31, 2002

     Revenue.  Revenue  increased  by $9.2  million  (24.0%)  for the year ended
December 31, 2003,  compared to the year ended  December 31, 2002.  The increase
was primarily due to increased  software and services  revenue,  and maintenance
and support revenue.

     Software and  services  revenue  increased by $4.3 million  (17.2%) for the
year ended December 31, 2003,  compared to the year ended December 31, 2002. The
increase  in revenue  was  attributable  to several  significant  contracts  the
Company has entered into, representing increased success in the core markets the
Company serves. These contracts continue to generate significant revenue for the
Company.  The Company  expects that these  contracts  will continue to make up a
significant portion of revenues over the next few quarters. "See Forward-Looking
Statements".  While the Company believes that economic  conditions in certain of
its vertical  markets show signs of improvement,  the Company  anticipates  that
economic conditions are likely to continue to have an adverse impact on software
and services revenues in future periods. See "Forward-Looking Statements".

     Maintenance  and  support  revenue  was $14.0  million  for the year  ended
December 31,  2003,  compared to $11.1  million for the year ended  December 31,
2002, an increase of 26.4%. The Company believes maintenance and support revenue
will continue to increase as the Company's  installed  customer base  increases.
See  "Forward-Looking  Statements."  The  primary  reason  for the  increase  in
maintenance  and  support  revenue  during  2003 was  that two of the  Company's
significant  implementation contracts entered the maintenance and support phases
of their agreements during the year.



                                       33
<PAGE>

Year ended December 31, 2003 Compared to the Year ended December 31, 2002
(continued)


     Third party products and services revenue increased by $2.0 million (80.5%)
for the year ended  December 31, 2003,  compared to the year ended  December 31,
2002. 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. Not all customers under contract require the provision of
third party products and services.  Accordingly, there may be large fluctuations
in revenue,  direct  costs,  gross profits and income from  operations  from one
period to  another.  The  Company  has agreed to supply a large  amount of third
party  services at no margin  which is being  recognized  on a gross  basis,  in
connection  with one  particular  contract,  and  therefore  expects that future
revenues from third party products and services will fluctuate in the near term.
For the year  ended  December  31,  2003  approximately  $1.8  million  of these
services were provided,  as compared to $0.1 million for the year ended December
31, 2002.  See "Forward Looking Statements."

     Direct  Costs.  Direct  costs  were  49.3% of  revenue  for the year  ended
December  31,  2003,  compared to 44.5% for the year ended  December  31,  2002.
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 direct costs as a
percentage  of revenue  occurred  primarily  due to the  Company's  agreement to
supply a large amount of third-party  services at no margin,  in connection with
one particular contract.  The relative weakness of the United States dollar also
contributed to the cost increase as the majority of direct costs are incurred in
Canadian  dollars.  As a  result,  direct  costs  as  a  percentage  of  revenue
increased. The Company expects that direct costs as a percentage of revenue will
remain  relatively  consistent  with the  current  period in the near term.  See
"Forward-Looking Statements."

     Gross  Margins.  Gross  margins  were 50.7% of  revenue  for the year ended
December 31, 2002,  compared to 55.5% for the year ended  December 31, 2002. The
decrease in gross  margins as a percentage  of revenue  related  primarily to an
agreement whereby the Company has agreed to supply a large amount of third-party
services  at  no  margin.   During  the  current  year  the  Company  recognized
approximately  $1.8 million in third party  revenues  and costs  related to this
project.  The relative  weakness of the United States dollar also contributed to
the  reduction  in gross margin in the period.  The Company  expects that in the
near term its gross  margins as a percentage  of revenue will remain  consistent
with the current period,  subject to the level of third party services  actually
provided. See "Forward-Looking Statements."

     Research and  Development.  Research  and  development  expenses  were $5.5
million, or 11.6% of revenue,  for the year ended December 31, 2003, compared to
$5.5 million,  or 14.4% of revenue,  for the year ended  December 31, 2002.  The
decrease in research and  development  expenses as a percentage of revenue was a
result of stable research and development  expenses  incurred during a period of
revenue growth. The Company also utilized research and development  personnel on
revenue producing projects in 2003, and corresponding portions of the associated
salary  costs for these  staff are  reflected  as  direct  costs as  opposed  to
research and development expenses.  The Company intends to continue committing a
significant  portion of its revenue to enhance existing products and develop new
products.  In  addition,  the  Company  expects to  increase  its  research  and
development expenditures during 2004. See "Forward-Looking Statements".

     Sales and  Marketing.  Sales and  marketing  expenses were $10.5 million or
22.2% of revenue for the year ended December 31, 2003 and $12.4 million or 32.4%
of revenue for the year ended  December  31,  2002.  Total  sales and  marketing
expenses  represents a decrease of approximately $1.9 million as compared to the
same period of 2002. The decrease in expenditures in 2003 was due to an decrease
in commission costs relating to contracts  entered into during 2002 that did not
reoccur in 2003.  The Company  anticipates  that the dollar amounts of its sales
and  marketing  expenses  will  continue  to be  significant  as a result of the
Company's  commitment  to its  international  marketing  efforts and attempts to
penetrate additional markets for its products. See "Forward-Looking Statements".

     General and Administrative.  General and administrative  expenses were $6.6
million,  or 13.8% of  revenue,  for the year ended  December  31, 2003 and $6.2
million, or 16.3% of revenue,  for the year ended December 31, 2002. General and
administrative  expenses  remained  relatively  consistent  with the comparative
period as a result of a cost control effort initiated by the Company,  offset by
increased legal costs incurred during 2003. The Company expects that in the near
future,   general  and   administrative   expenditures  will  remain  relatively
consistent with current levels. See "Forward-Looking Statements".



                                       34
<PAGE>

Year ended December 31, 2003 Compared to the Year ended December 31, 2002
(continued)

     Provision for Doubtful  Accounts.  During the year ended  December 31, 2003
the Company  determined  that an  additional  allowance  of  approximately  $3.1
million was required  primarily due to a settlement  agreement  being reached in
the legal action against Citizens Communications. This settlement did not result
in the Company  realizing any proceeds on its $2.8 million long term  receivable
from  Citizens  Communications,  and as a result the Company has written off the
entire amount during the year ended December 31, 2003.  The remaining  provision
resulted  from  significant  uncertainty  surrounding  collection of one further
specific  account.  The  Company  intends to  vigorously  pursue  collection  of
accounts  where no  settlement  agreements  have been  reached;  however  due to
uncertainty with regard to ultimate  collection,  the Company determined that it
would be prudent to record an  allowance  to address the  uncertainty  regarding
collection of amounts due.  During the year ended  December 31, 2002 the Company
recovered  approximately  $0.6 million  from a  previously  allowed for doubtful
accounts.  Also during the year ended  December 31, 2002 the Company  determined
that an additional  allowance of approximately  $0.6 million was required due to
significant  uncertainty  surrounding  collection of a specific account. The net
result is that  there was no  charge  recorded  in the  provision  for  doubtful
accounts for the year ended December 31, 2002.

     Strategic expenses.  Strategic expenses were approximately $1.3 million, or
2.7% of revenue, for the year ended December 31, 2003. The Company did not incur
any strategic  expenses in the year ended December 31, 2002.  Strategic expenses
consisted of professional fees associated with investigating potential corporate
transactions  that the Company  considered  during 2003. The Company  expects it
will consider additional strategic opportunities and expects to incur additional
strategic  expenses;  however,  the  Company  cannot  predict  the amount of the
strategic  expenses or whether the Company will be successful  in  negotiating a
successful transaction. See "Forward-Looking Statements."

     Other expense  (income).  Other expense was $0.3 million for the year ended
December 31, 2003,  compared to $(0.3)  million for the year ended  December 31,
2002.  Substantially all of other expense (income) related 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 losses for the year
ended  December  31,  2003.  The  Company's  effective  tax  rate  reflects  the
application of certain  operating loss carry forwards against taxable income and
the blended  effect of Canadian,  U.S.,  and other  foreign  jurisdictions'  tax
rates.  Since the  Company  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, 2003.

     Income (loss) from Discontinued Operations.  During the year ended December
31, 2002 the Company  divested itself of its Hosting and IT services  subsidiary
Connectria  Corporation  ("Connectria").  As a result,  Connectria's  results of
operations have been presented as Discontinued  Operations.  There was no effect
on income from Discontinued  Operations during the year ended December 31, 2003.
Income from  Discontinued  Operations  for the year ended  December 31, 2002 was
$121,000.  Going forward,  the Company  expects no further  financial  statement
impact from this disposition.


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

     Revenue.  Revenue  decreased  by $6.7  million  (15.0%)  for the year ended
December 31, 2002,  compared to the year ended  December 31, 2001.  The decrease
was  primarily  due to the  decrease in the revenue  earned  from  software  and
services,  which was partially  offset by an increase in the revenue earned from
maintenance and support.

     Software and  services  revenue  decreased by $6.9 million  (21.9%) for the
year ended December 31, 2002,  compared to the year ended December 31, 2001. The
Company  believes its software and service revenue was adversely  impacted by an
increase in time taken for the  decision-making  cycle regarding the purchase of
software,  and reduction of capital  expenditures  by customers.  This delay and
reduction in expenditure  caused fewer  contracts to be worked on by the Company
in the year ended  December 31, 2002 as compared to the year ended  December 31,
2001 and as a result caused a reduction in revenue.

     Maintenance  and  support  revenue  was $11.1  million  for the year  ended
December 31,  2002,  compared to $10.9  million for the year ended  December 31,
2001, an increase of 1.3%.  Maintenance and support revenue increased  primarily
due to the increase in the Company's installed customer base.



                                       35
<PAGE>

Year ended December 31, 2002 Compared to the Year ended December 31, 2001
(continued)

     Third party products and services  revenue  increased by $27,000 (1.1%) for
the year ended December 31, 2002,  compared to the year ended December 31, 2001.
Third party  products  and  services  revenue is  primarily  earned from certain
customers in the utilities market pursuant to agreements under which the Company
provides  third party products and services,  typically host computer  equipment
and mobile  computing  devices,  as part of the  installation  of  software  and
provision of services. In addition, not all customers under contract require the
provision of third party products and services.  Accordingly, there may be large
fluctuations in revenue,  direct costs, gross profits and income from operations
from one period to another.

     Direct  Costs.  Direct  costs  were  44.5% of  revenue  for the year  ended
December  31,  2002,  compared to 46.8% for the year ended  December  31,  2001.
Direct  costs  include  labor  and other  costs  directly  related  to a project
including  those  related to the  provision of services  and support,  and costs
related to equipment  purchased for sale to third  parties.  Labor costs include
direct payroll, benefits and overhead charges. The decrease in direct costs as a
percentage of revenue  occurred as the Company  increased its  efficiency due to
its  restructuring,  and as a result of increased  experience  with  Advantex r7
installations.

     Gross  Margins.  Gross  margins  were 55.5% of  revenue  for the year ended
December 31, 2002,  compared to 53.2% for the year ended  December 31, 2001. The
increase in gross margin as a  percentage  of revenue  related  primarily to the
increased efficiencies for the installations of Advantex r7.

     Research and  Development.  Research  and  development  expenses  were $5.5
million, or 14.4% of revenue,  for the year ended December 31, 2002, compared to
$7.3 million,  or 16.2% of revenue,  for the year ended  December 31, 2001.  The
decrease in research  and  development  expenses in 2002 is a result of research
and development  personnel  being  utililized on revenue  producing  projects in
2002, and corresponding  portions of the associated salary costs for these staff
being  reflected  as direct costs as opposed to research  and  development.  The
decrease  is also the result of the  Company's  restructuring  efforts,  and the
completion of a major development project in the first quarter of 2001.

     Sales and  Marketing.  Sales and  marketing  expenses were $12.4 million or
32.4% of revenue for the year ended December 31, 2002 and $10.9 million or 24.2%
of revenue for the year ended  December  31,  2001.  Total  sales and  marketing
expenses represents an increase of approximately $1.5 million as compared to the
same period of 2001. The increase in expenditures in the current year was due to
an increase in commission  costs  relating to contracts  entered into during the
period that are expected to generate significant revenues in future periods. See
"Forward-Looking Statements".

     General and Administrative.  General and administrative  expenses were $6.2
million,  or 16.3% of  revenue,  for the year ended  December  31, 2002 and $6.1
million, or 13.5% of revenue,  for the year ended December 31, 2001. General and
administrative  expenses  remained  relatively  consistent  with the comparative
period as a result of a cost control effort initiated by the Company,  offset by
one-time severance costs expensed during the year.

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

     Provision for Doubtful  Accounts.  During the year ended  December 31, 2002
the Company recovered  approximately  $0.6 million from a previously allowed for
doubtful  account.  Also  during the year ended  December  31,  2002 the Company
determined  that an  additional  allowance  of  approximately  $0.6  million was
required due to  significant  uncertainty  surrounding  collection of a specific
account.  The net result is that there was no charge  recorded in the  provision
for doubtful accounts for the year ended December 31, 2002. The Company included
in its operating  results for the year ended  December 31, 2001, a provision for
$2.9  million  with  respect  to  doubtful  accounts.

     Valuation  Allowance on  Investments.  No charge was recorded for valuation
allowance on investments during the year ended December 31, 2002, as a valuation
allowance  equal to the remaining book value of investments  was recorded during
the year ended December



                                       36
<PAGE>

Year ended December 31, 2002 Compared to the Year ended December 31, 2001
(continued)


31, 2001. As part of its e-Business strategy the Company invested in or advanced
funds to three private companies in 2000. As a result of significant uncertainty
over the future realization of any return on investment or capital,  the Company
recorded a valuation  allowance equal to the full cost of the investments during
the year ended December 31, 2001. Other Income (expense).  Other income was $0.3
million for the year ended  December 31, 2002,  compared to $0.2 million for the
year ended  December  31,  2001.  Substantially  all of other  income  (expense)
relates to interest income on cash and short-term deposits,  interest expense on
capital leases,  and  fluctuations in foreign  currency  denominated  assets and
liabilities.

     Income Taxes.  The Company  provided for recovery of income taxes on losses
for the year ended December 31, 2002 at the rate of 23.0%,  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 was not more  likely  than not that the  Company  would be able to
utilize the benefits of these losses, the Company did not record a full recovery
of income tax expense during the year ended December 31, 2002.

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

Liquidity and Capital Resources

     The  Company  has  financed  its  operations,   acquisitions   and  capital
expenditures with cash generated from operations,  loans, private placements and
public  offerings of its securities.  At December 31, 2003, the Company had cash
and cash equivalents of $15.8 million (2002 - $11.0 million) and working capital
of $8.6 million (2002 - $8.3 million).

     Cash provided by (used in)  operating  activities  was $7.4  million,  $2.3
million and $3.2 million,  respectively,  for the years ended December 31, 2003,
2002 and 2001. The $7.4 million of cash provided by operating activities in 2003
was comprised of $3.6 million net loss,  non-cash  charges of $5.6 million,  and
$5.4  million of changes to  non-cash  working  capital  items.  The  changes to
working capital items include a $1.9 million  increase in trade  receivables,  a
$2.2  million  decrease  in unbilled  receivables,  a $0.3  million  increase in
prepaid  expenses and other assets,  a $1.4 million increase in accounts payable
and accrued  liabilities,  a $0.3 million  increase in taxes  payable and a $3.7
million increase in deferred revenue.  Unbilled accounts  receivable arise where
the  Company  has earned  revenue on a project  and has not  completed  specific
billing milestones under the terms of the applicable contract.  Deferred revenue
arises  where the  Company  has  achieved a billing  milestone  under a customer
contract  but  has  yet  to  recognize  all  of the  revenue  billed  due to the
percentage of completion under the contract.

     The Company  maintains  as at December 31, 2003 a provision of $2.8 million
with respect to doubtful  accounts.  The Company  intends to  vigorously  pursue
collection  of these  accounts;  however,  due to  uncertainty  with  regards to
ultimate collection, the Company determined that it would be prudent to maintain
an allowance to address this uncertainty.

     Cash used in financing  activities was $1.7 million,  $1.7 million and $1.6
million, respectively,  during the years ended December 31, 2003, 2002 and 2001.
The  cash  used in  financing  activities  in 2003  comprised  $1.8  million  in
repayments of capital  leases offset by $0.1 million from the issuance of common
shares.

     Cash used in investing activities was $0.9 million,  $2.2 million, and $0.9
million,  respectively,  for the years ended  December 31, 2003,  2002 and 2001.
Total  investing  activity in 2003  primarily  consisted of $0.9 million for the
purchase of capital equipment,  including computer hardware and software for use
in  research  and  development  activities,  and to  support  the  growth of the
Company's corporate information systems.



                                       37
<PAGE>

Year ended December 31, 2002 Compared to the Year ended December 31, 2001
(continued)

     Existing sources of liquidity at December 31, 2003 include $15.8 million of
cash and cash equivalents and funds available under the Company's operating line
of credit. At the year ended December 31, 2003, the Company's borrowing capacity
under  the line of  credit  was up to $10 CDN  million.  Under  the terms of the
agreement, borrowings and letters of credit under the line are limited to 75% to
90% of eligible  accounts  receivable.  Borrowings accrue interest at the bank's
prime rate plus 0.5%. At December 31, 2003,  the Company was not using this line
of credit, other than to secure performance guarantees.

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

     The  Company  believes  that  future  cash  flows from  operations  and its
borrowing capacity under the operating line of credit combined with current cash
balances will provide  sufficient  funds to meet cash  requirements for at least
the next twelve months.  Commensurate  with its past and expected future growth,
the Company may increase,  from time to time,  its borrowing  facility under its
operating  line of credit to  support  its  operations.  Future  growth or other
investing activities may require the Company to obtain additional equity or debt
financing,  which may or may not be available on attractive terms, or at all, or
may be  dilutive  to  current  or  future  shareholders.  See  "Forward  Looking
Statements".  As at December 31, 2003 the Company had the following  contractual
obligations and commercial commitments:

<TABLE>
---------------------------------------------------------------------------------------------------
Contractual Obligations                             Payments Due by Period
---------------------------------------------------------------------------------------------------
                         Total        Less Than One     1-3 Years        4-5 Years      After 5
                                      Year                                              Years
---------------------------------------------------------------------------------------------------
<S>                    <C>             <C>              <C>              <C>            <C>
  Capital Lease        $2,376,504      $1,345,399       $1,031,105              -             -
   Obligations
---------------------------------------------------------------------------------------------------
  Operating Leases     $6,730,801      $1,954,669       $2,438,876     $2,337,256             -
---------------------------------------------------------------------------------------------------
 Total Contractual     $9,107,305      $3,300,068       $3,469,981     $2,337,256             -
    Obligations
---------------------------------------------------------------------------------------------------
</TABLE>

     The Company has entered into a significant  customer  contract in which the
Company has agreed to utilize a certain  amount of local  services  and create a
certain amount of commercial  activity in South Africa.  The Company is required
to utilize local content or obtain  credits  equivalent  to  approximately  $7.1
million  over a seven year  period.  The  Company has  furnished  a  performance
guarantee  equal to  approximately  5% of such amounts.  The Company  expects to
fulfill  its  obligation   through  a  number  of   activities,   including  the
establishment of a software development center in South Africa, the provision of
technical  services,  and the provision of training to local systems integrators
who  will  be able to  provide  implementations  services  with  respect  to the
Company's software  products.  As the Company expects to fulfill its obligations
through the purchase of services in the normal course of business,  no liability
has been established for these future spending  commitments.  As at December 31,
2003 the Company has generated an estimated $175,000 of credits relating to this
obligation.  The  Company's  obligation  may  increase  as a result of  contract
expansions.

     In addition to these commercial  commitments the Company has also provided,
letters of credit in the amounts of CAD $810,000 (USD  $625,644)  expiring April
4, 2004,  and CAD  $1,864,568  (USD  $1,440,192)  expiring  October 1, 2004. The
Company  has  pledged an amount  equal to the  letters  of credit as  guarantees
against its operating line of credit as security.

Derivative Financial Instruments

     The Company  generates a  significant  portion of its sales from  customers
located  outside the United States,  principally in Canada and Europe.  Canadian
sales are made mostly by the Company and on occasion are denominated in Canadian
dollars.  International  sales are made mostly from a foreign subsidiary and are
typically denominated in either U.S. dollars or Euros. The Company also incurs a
significant portion of expenses outside the United States, principally in Canada
and  Europe,  which are  typically  denominated  in Canadian  dollars,  Euros or
British pounds. The Company's international business



                                       38
<PAGE>

Year ended December 31, 2002 Compared to the Year ended December 31, 2001
(continued)


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,  2003,  and 2002 the Company  had no foreign  currency  forward
contracts outstanding.

Off-Balance Sheet Transactions

     The Company does not have any off-balance  sheet  arrangements that have or
are  reasonably  likely to have a current or future  effect on the  registrant's
financial  condition,  changes in  financial  condition,  revenues or  expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.


Item 7A:  Quantitative and Qualitative Disclosures About Market Risk

     Market  risk  represents  the risk of loss that may  impact  our  financial
position due to adverse changes in financial market prices and rates. Our market
risk exposure is primarily a result of fluctuations in foreign currency exchange
rates and interest  rates.  We do not hold or issue  financial  instruments  for
trading purposes.

Foreign Currency Risk

     We conduct business on a global basis in international currencies. As such,
we are exposed to adverse or beneficial movements in foreign exchange rates. The
majority of our sales are denominated in U.S. dollars,  the functional  currency
of our domestic  operations  and the  currency in which we report our  financial
statements.  We also conduct a portion of our sales in currencies other than the
U.S. dollar, including the British pound and Euro.

     We are exposed to foreign exchange fluctuations as the financial results of
our foreign subsidiaries are translated into U.S. dollars on consolidation.  All
translation  gains and losses are  included in the  determination  of net income
(loss).  As exchange  rates vary,  these results when  translated may impact our
overall expected  financial  results.  We also have exposure to foreign currency
rate  fluctuations when we translate cash from one currency into another to fund
operational  requirements.  In addition, we have exposure to the change in rates
as the result of timing differences between expenses being incurred and paid. As
exchange rates vary, we may experience a negative impact on financial results.

     We have evaluated our exposure to foreign currency risk and have determined
that while we have a degree of exposure to the Euro and British pound,  our most
significant  operating  exposure  to foreign  currencies  at this time is to the
Canadian  dollar.  The  strengthening  of the  Canadian  dollar  has  negatively
affected our operating results.

     As of December 31, 2003, the potential  reduction in future earnings from a
hypothetical  instantaneous 10% change in quoted foreign currency exchange rates
applied  to our  foreign  currency  sensitive  contracts  and  assets  would  be
approximately $3.5 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.

     To  minimize  the risk  associated  with the  effects  of  certain  foreign
currency  exposures,  we  occasionally  use foreign  currency  forward  exchange
contracts.  We do not use forward contracts for trading or speculative purposes.
From time to time we may also purchase  Canadian  dollars in the open market and
hold these  funds in order to satisfy  forecasted  operating  needs in  Canadian
dollars



                                       39
<PAGE>

     At December 31, 2003 and December 31, 2002, we had no outstanding  currency
forward  exchange  contracts,  and during the years ended December 31, 2003, and
December  31,  2002 we did not enter into any  forward  exchange  contracts.  We
therefore did not record any gain or loss as a result of these contracts for the
years ended December 31, 2003 or December 31, 2002.

Interest Rate Risk

     Our  exposure to market rate risk for  changes in  interest  rates  relates
primarily to our  investment  portfolio.  The investment of cash is regulated by
our  investment  policy  of which  the  primary  objective  is the  security  of
principal. Among other selection criteria, the investment policy states that the
term to maturity of investments  cannot exceed one year in length. We invest our
cash in a variety of  short-term  financial  instruments,  including  government
bonds,  commercial  paper  and  money  market  instruments.   Our  portfolio  is
diversified and consists  primarily of investment  grade  securities to minimize
credit risk. These investments are typically  denominated in U.S. dollars.  Cash
balances in foreign  currencies are operating  balances and are only invested in
demand  or  short-term  deposits  of the  local  operating  bank.  We do not use
derivative financial instruments in our investment portfolio.

     Investments  in  both  fixed  rate  and  floating  rate  interest   earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely  impacted because of a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors,  our future investment income may fall
short of  expectations  because of changes  in  interest  rates or we may suffer
losses in  principal  if forced to sell  securities  that have seen a decline in
market value because of changes in interest rates.

     While  interest  income  on our  cash,  cash  equivalents,  and  short-term
investments is subject to interest rate fluctuations, we believe that the impact
of these  fluctuations does not have a material effect on our financial position
due to the short-term nature of these financial instruments. Our interest income
and interest  expense are most  sensitive to the general level of interest rates
in Canada and the United  States.  Sensitivity  analysis  is used to measure our
interest rate risk. Based on analysis of our balances as of December 31, 2003, a
100  basis-point  adverse  change in  interest  rates  would not have a material
effect on our consolidated  financial  position,  results of operation,  or cash
flows.

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


Item 8:  Financial Statements and Supplementary Data

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



                                       40
<PAGE>



Independent Auditors' Report


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. and subsidiaries as of December 31, 2003 and 2002 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the three years in the period ended  December 31, 2003.  Our audits also
included the financial  statement  schedule  listed in the Index at Item 15 (a).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and financial statement schedule 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  the  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,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of the Company and subsidiaries as at
December 31, 2003 and 2002 and the results of its  operations and cash flows for
each of the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.  Also,
in our opinion, the financial statement schedule, when considered in relation to
the basic consolidated  financial statements taken as a whole,  presents fairly,
in all material respects, the information set forth therein.

On March  25,  2004,  we  reported  separately  to the  Board of  Directors  and
Shareholders  of MDSI  Mobile Data  Solutions  Inc.  on  consolidated  financial
statements for the same periods  audited in accordance  with Canadian  generally
accepted auditing  standards and prepared in accordance with Canadian  generally
accepted accounting principles.




/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
March 25, 2004




                                       41
<PAGE>




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

<TABLE>
                                                                                                As at December 31,
                                                                                          --------------------------------
                                                                                                2003             2002
                                                                                          ---------------   --------------
<S>                                                                                         <C>                <C>
Assets
Current assets
  Cash and cash equivalents                                                                $ 15,827,043       $ 11,016,945
  Accounts receivable, net
     Trade (net of allowance for doubtful accounts of $2,792,415 ; 2002 - $2,506,614)         8,610,846          6,705,088
     Unbilled                                                                                 2,446,271          4,675,112
  Prepaid expenses and other assets                                                           1,838,425          1,552,236
                                                                                          ---------------   --------------
  Total current assets                                                                       28,722,585         23,949,381

Capital assets, net (note 3)                                                                  7,990,457          9,798,087

Long term receivable (note 7(c))                                                                      -          2,749,860
Deferred income taxes (note 5)                                                                  357,628            533,628
                                                                                          ---------------   --------------
Total assets                                                                               $ 37,070,670       $ 37,030,956
                                                                                          ===============   ==============

Liabilities and stockholders' equity
Current liabilities
  Accounts payable                                                                         $  1,786,665       $  1,777,465
  Accrued liabilities (note 11)                                                               4,677,980          3,300,113
  Income taxes payable                                                                          917,183            602,717
  Deferred revenue                                                                           11,560,446          7,899,034
  Current obligations under capital lease (note
  7(a))                                                                                       1,204,269          2,073,906
                                                                                          ---------------   --------------
  Total current  liabilities                                                                 20,146,543         15,653,235

Obligations under capital leases (note 7(a))                                                    982,016          1,913,538
                                                                                          ---------------   --------------
Total liabilities                                                                            21,128,559         17,566,773
                                                                                          ---------------   --------------
Stockholders' equity
  Common stock (note 4)
    Authorized:
      Unlimited common shares with no par value
  Issued:  8,218,118 shares; 2002: 8,176,431 shares                                          44,329,182         44,208,511
  Additional paid-up capital                                                                  2,222,128          2,222,128
  Accumulated other comprehensive loss                                                         (690,104)          (690,104)
  Deficit                                                                                   (29,919,095)       (26,276,352)
                                                                                          ---------------   --------------
                                                                                             15,942,111         19,464,183
                                                                                          ---------------   --------------
Total liabilities and stockholders' equity                                                 $ 37,070,670       $ 37,030,956
                                                                                          ===============   ==============
</TABLE>


Commitments and contingencies (note 7)



         See accompanying notes to the consolidated financial statements



                                       42
<PAGE>


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



<TABLE>
                                                                                     Years ended December 31,
                                                                -----------------------------------------------------------
                                                                      2003                   2002                2001
                                                                ----------------       ----------------    ----------------
<S>                                                                  <C>                  <C>                 <C>
Revenue
    Software and services                                        $  28,931,932          $  24,676,534       $  31,577,795
    Maintenance and support                                         13,976,154             11,054,550          10,909,906
    Third party products and services                                4,476,503              2,480,368           2,453,137
                                                                ----------------       ----------------    ----------------
                                                                    47,384,589             38,211,452          44,940,838
                                                                ----------------       ----------------    ----------------
Direct costs                                                        23,362,608             17,019,346          21,047,146
                                                                ----------------       ----------------    ----------------
Gross profit                                                        24,021,981             21,192,106          23,893,692
                                                                ----------------       ----------------    ----------------
Operating expenses
    Research and development                                         5,512,706              5,505,810           7,258,396
    Sales and marketing                                             10,496,644             12,381,679          10,858,596
    General and administrative                                       6,551,205              6,237,194           6,075,396
    Restructuring charge (note 11)                                           -                      -           6,105,927
    Amortization and provision
     for valuation of intangible assets (note 1(h))                          -                      -           1,824,058
    Strategic expenses (note 12)                                     1,275,120                      -                   -
    Provision for doubtful accounts                                  3,069,860                      -           2,938,195
                                                                ----------------       ----------------    ----------------
                                                                    26,905,535             24,124,683          35,060,568
                                                                ----------------       ----------------    ----------------
Operating loss                                                      (2,883,554)            (2,932,577)        (11,166,876)

Valuation allowance on investments (note 1(k))                               -                      -          (2,749,992)
Other (expense) income                                                (307,404)               272,988             177,200
                                                                ----------------       ----------------    ----------------
Loss from continuing operations before tax provision                (3,190,958)            (2,659,589)        (13,739,668)

(Provision for) recovery of income taxes from continuing
continuing operations (note 5)                                        (451,785)               612,952             499,715
                                                                ----------------       ----------------    ----------------
Loss from continuing operations                                     (3,642,743)            (2,046,637)        (13,239,953)

Income (loss) from discontinued operations (note 2)                          -                121,031            (653,165)
                                                                ----------------       ----------------    ----------------
Net loss for the year                                              ($3,642,743)           ($1,925,606)       ($13,893,118)
                                                                ================       ================    ================
Loss per common share
    Loss from continuing operations
     Basic                                                              ($0.44)                ($0.24)             ($1.54)
                                                                ================       ================    ================
     Diluted                                                            ($0.44)                ($0.24)             ($1.54)
                                                                ================       ================    ================
    Net loss
     Basic                                                              ($0.44)                ($0.23)             ($1.61)
                                                                ================       ================    ================
     Diluted                                                            ($0.44)                ($0.23)             ($1.61)
                                                                ================       ================    ================
</TABLE>



         See accompanying notes to the consolidated financial statements




                                       43
<PAGE>

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



<TABLE>

                                                                                      Accumulated
                                     Common Stock           Additional                   Other
                              ---------------------------      Paid       Treasury    Comprehensive
                                 Shares          Amount     Up Capital     Stock          Loss          Deficit          Total
                              -----------    -------------  -----------  -----------  -------------  -------------   --------------
<S>                            <C>           <C>               <C>         <C>          <C>          <C>               <C>
Balance, December 31, 2000     8,612,453     $48,416,502       220,700     (85,043)     (690,104)     (10,457,628)     37,404,427

 Issued on exercise of
 stock options                    63,567         102,558             -           -             -                -         102,558
 Stock based compensation
 charge                                -               -       301,921           -             -                -         301,921
 Net loss for the year                 -               -             -           -             -      (13,893,118)    (13,893,118)
                              -----------    -------------  -----------  -----------  -------------  -------------   --------------
Balance, December 31, 2001     8,676,020     $48,519,060     $ 522,621    $(85,043)    $(690,104)    $(24,350,746)    $23,915,788

 Issued on exercise of
 stock options                   253,181          65,366             -           -             -                -          65,366
 Issued under stock
 purchase plan (Note 4(b))        85,405         212,614             -           -             -                -         212,614
 Redemption of shares
 during year on
 divestiture of                 (824,700)     (4,515,766)    1,711,787           -             -                -      (2,803,979)
 subsidiary (Note 2)
 Redemption of treasury
 shares                          (13,475)        (72,763)      (12,280)     85,043             -                -               -
 Net loss for the year                 -               -             -           -             -       (1,925,606)     (1,925,606)
                              -----------    -------------  -----------  -----------  -------------  -------------   --------------
Balance, December 31, 2002     8,176,431     $44,208,511    $2,222,128     $     -     $(690,104)    $(26,276,352)    $19,464,183

 Issued on exercise of
 stock options                     4,312          14,312                                                                   14,312
 Issued under stock
 purchase plan (Note 4(b))        37,375         106,359                                                                  106,359
 Net loss for the year                                                                                 (3,642,743)     (3,642,743)
                              -----------    -------------  -----------  -----------  -------------  -------------   --------------
Balance, December 31, 2003     8,218,118     $44,329,182    $2,222,128     $     -     $(690,104)    $(29,919,095)    $15,942,111
                              ===========    =============  ===========  ===========  =============  =============   ==============
</TABLE>



         See accompanying notes to the consolidated financial statements


                                       44
<PAGE>

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



<TABLE>
                                                                                           Years ended December 31,
                                                                        -----------------------------------------------------------
                                                                              2003                   2002                2001
                                                                        ----------------       ----------------    ----------------
<S>                                                                  <C>                  <C>                 <C>
Cash flows from operating activities
  Net loss from continuing operations for the year                        $(3,642,743)           $(2,046,637)       $(13,239,953)
  Items not affecting cash:
   Depreciation, amortization and provision for valuation of                2,726,208              2,706,987           4,502,772
   intangible assets
   Write down in value of surplus capital assets                                    -                      -             563,780
   Write down in value of long term receivable                              2,749,860                      -                   -
   Valuation allowance on investments                                               -                      -           2,749,992
   Deferred income taxes                                                      176,000               (183,659)              4,370
   Stock based compensation charge                                                  -                      -             301,921
   Changes in non-cash operating working capital items (Note 9)             5,399,839              1,828,619           8,322,809
                                                                        ----------------       ----------------    ----------------
  Net cash provided by  operating activities                                7,409,164              2,305,310           3,205,691
                                                                        ----------------       ----------------    ----------------
Cash flows from financing activities
  Issuance of common shares                                                   120,671                277,981             102,558
  Repayment of capital leases                                              (1,801,159)            (1,989,664)         (1,727,326)
                                                                        ----------------       ----------------    ----------------
  Net cash used in financing activities                                    (1,680,488)            (1,711,683)         (1,624,768)
                                                                        ----------------       ----------------    ----------------
Cash flows from investing activities
  Repayment of lease receivable                                                     -                      -             133,724
  Proceeds on sale of investments                                                   -                      -             331,458
  Acquisition of capital assets                                              (918,578)            (2,178,732)         (1,346,279)
                                                                        ----------------       ----------------    ----------------
  Net cash used in investing activities                                      (918,578)            (2,178,732)           (881,097)
                                                                        ----------------       ----------------    ----------------
Net cash provided by (used in)  continuing operations                       4,810,098             (1,585,105)            699,826

Net cash used in discontinued operations (note 2)                                   -               (574,030)           (388,727)
                                                                        ----------------       ----------------    ----------------
Net cash inflow (outflow)                                                   4,810,098             (2,159,135)            311,099

Cash and cash equivalents, beginning of year                               11,016,945             13,176,080          12,864,981
                                                                        ----------------       ----------------    ----------------
Cash and cash equivalents, end of year                                   $ 15,827,043           $ 11,016,945        $ 13,176,080
                                                                        ================       ================    ================
Supplemental disclosure of cash flow information
        Cash payments for interest                                       $    300,686           $    174,619        $    387,773
                                                                        ================       ================    ================
        Cash payment (refund) for taxes                                  $    415,251           $ (1,320,664)       $    326,694
                                                                        ================       ================    ================
</TABLE>



         See accompanying notes to the consolidated financial statements




                                       45
<PAGE>

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



SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES

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

     During  the year ended  December  31,  2002 the  Company  entered  into two
capital lease  arrangements for the gross amount of $2,922,078 (2001 - $881,195)
for  newly  purchased  capital  assets.  As a result of these  arrangements  the
Company did not incur cash  outlays to purchase  these assets but will pay lease
obligations with interest accruing at interest rates of up to 9.5% over terms of
up  to  three  years.   Since  these  asset  purchases  in  2002  are  non  cash
transactions,  the gross amount of the leases have been  excluded  from both the
Acquisition of Capital Assets and Proceeds from Capital Leases line items.


         See accompanying notes to the consolidated financial statements





                                       46
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (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 the
          Company's  functional   currency,   the  United  States  dollars.  All
          intercompany balances and transactions have been eliminated.

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

     (b)  Nature of operations

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

     (c)  Research and development

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

     (d)  Revenue recognition

          We recognize  revenue in  accordance  with the  American  Institute of
          Certified  Public  Accountants  Statement  of Position  ("SOP")  97-2,
          "Software Revenue Recognition," as amended by SOP 98-9,  "Modification
          of SOP 97-2,  Software  Revenue  Recognition,  with Respect to Certain
          Transactions,"    SOP   81-1,    "Accounting    for   Performance   of
          Construction-type   and  Certain   Production-type   Contracts,"   the
          Securities and Exchange Commission's Staff Accounting Bulletin ("SAB")
          No. 101, "Revenue  Recognition in Financial  Statements," SAB No. 104,
          "Revenue Recognition," and other authoritative  accounting literature.
          We  derive  revenues  from  the  following   sources:   license  fees,
          professional  services,  maintenance  and support fees and third party
          products and services.

          We generally provide services with our supply agreements, that include
          significant  production,   modification,   and  customisation  of  the
          software.  These  services are not  separable and are essential to the
          functionality  of the  software,  and as a result we account for these
          licence and service  arrangements  under SOP 81-1 using the percentage
          of completion method of contract accounting.

          License Fees and Professional Services

          Our  supply   agreements   generally  include  multiple  products  and
          services,  or  "elements."  We use the  residual  method to  recognize
          revenue when a supply  agreement  includes one or more  elements to be
          delivered at a future date and vendor specific  objective  evidence of
          the fair value of all undelivered  elements exists.  The fair value of
          the  undelivered  elements  is  determined  based  on  the  historical
          evidence of stand-alone sales, or



                                       47
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES

     (d)  Revenue recognition (continued)

          renewal  terms of these  elements  to  customers.  Under the  residual
          method, the fair value of the undelivered elements is deferred and the
          remaining portion of the arrangement fee, which relates to the license
          and implementation  services, is recognized as revenue on a percentage
          of  completion  basis.  If  evidence  of the fair value of one or more
          undelivered elements does not exist, the total revenue is deferred and
          recognized  when delivery of those elements  occurs or when fair value
          is established.

          We estimate the  percentage of completion on contracts with fixed fees
          on a monthly basis utilizing hours incurred to date as a percentage of
          total  estimated  hours to complete the  project.  If we do not have a
          sufficient basis to measure progress  towards  completion,  revenue is
          recognized when we receive final  acceptance  from the customer.  When
          the total cost estimate for a project exceeds  revenue,  we accrue for
          the estimated  losses  immediately.  The  complexity of the estimation
          process and issues related to the assumptions, risks and uncertainties
          inherent with the application of the  percentage-of-completion  method
          of  accounting  affect the  amounts of revenue  and  related  expenses
          reported  in  our  consolidated  financial  statements.  A  number  of
          internal  and  external  factors can affect our  estimates,  including
          labor rates,  utilization and efficiency  variances and  specification
          and testing requirement changes.

          We are engaged on a continuous basis in the production and delivery of
          software under contractual agreements. As a result we have developed a
          history of being able to estimate  costs to complete and the extent of
          progress toward completion of contracts, which supports the use of the
          percentage of completion method of contract accounting.

          Professional  services  revenue  primarily  consists of consulting and
          customer  training  revenues,  which are usually charged on a time and
          materials  basis and are  recognized  as the services  are  performed.
          Revenue  from  certain  fixed  price  contracts  is  recognized  on  a
          proportional  performance  basis,  which involves the use of estimates
          related to total expected  man-days of completing the contract derived
          from historical experience with similar contracts. If we do not have a
          sufficient basis to measure the progress towards  completion,  revenue
          is  recognized  when the project is completed or when we receive final
          acceptance from the customer.

          Maintenance Revenue

          Generally,  maintenance  is  initially  sold as an element of a master
          supply arrangement,  with subsequent annual renewals, and is priced as
          a percentage  of new software  license  fees.  Maintenance  revenue is
          recognized  ratably  over the term of the  maintenance  period,  which
          typically  is one  year.  Maintenance  and  support  revenue  includes
          software  license  updates  that  provide  customers  with  rights  to
          unspecified  software  product  upgrades,   maintenance  releases  and
          patches  released  during  the  term of the  support  period.  Product
          support  services  also  include  Internet  and  telephone  access  to
          technical support personnel.

          Historically,  we have  provided  a warranty  phase  during the supply
          agreement.  Services  provided  during  this  warranty  phase  include
          elements of maintenance  and support.  As a result we, defer a portion
          of the  supply  agreement  fee,  based on  Vendor  Specific  Objective
          Evidence of the value of these  services,  and  recognize the deferred
          amount as revenue over the warranty period.

          Third party products and services

          Revenue from sales of third party  products and services is recognized
          on  delivery  of  the   products.   Services  are   recognized   on  a
          percentage-complete basis.




                                       48
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES

     (d)  Revenue recognition (continued)

          When software licenses are sold incorporating  third-party products or
          sold with  third-party  products,  we  recognize  as revenue the gross
          amount  of sales of  third-party  product.  The  recognition  of gross
          revenue is in accordance with criteria  established in Emerging Issues
          Task  Force  Issue  (EITF) No.  99-19,  Reporting  Revenue  Gross as a
          Principal versus Net as an Agent.

          On  occasion,   we  utilize  third-party   consultants  to  assist  in
          implementations or installations  originated by the Company.  In these
          cases,  in  accordance  with  criteria  established  in EITF 99-19 (as
          described   above),   the  revenue  for  these   implementations   and
          installations  is  typically  recognized  on a gross  basis.  In these
          cases, the we ultimately manage the engagement.

          Warranty

          The Company  warrants to its  customers  that its software  will be in
          substantial conformance with its specifications.

     (e)  Deferred Revenue

          Deferred  revenue is comprised  of deferrals  for software and service
          fees, and  maintenance  and support fees. The principal  components of
          deferred revenue at December 31, 2003 and 2002 were as follows

                                              2003                   2002
                                        ----------------       ----------------
          Software and services            $ 7,313,279             $3,890,260

          Maintenance and support            4,247,167              4,008,774
                                        ----------------       ----------------
          Total Deferred Revenue           $11,560,446             $7,899,034
                                        ================       ================

     (f)  Accounts Receivable and Allowance for Doubtful Accounts

          Accounts  receivable are comprised of billed and unbilled  receivables
          arising from recognized or deferred revenues.  Receivables  related to
          specific deferred revenues are offset for balance sheet  presentation.
          The Company's receivables are unsecured.

          The Company  maintains an allowance for doubtful accounts at an amount
          it estimates to be sufficient to provide adequate  protection  against
          losses  resulting  from  collecting  less  than  full  payment  on its
          receivables.  Individual overdue accounts are reviewed,  and allowance
          adjustments   are  recorded   when   determined   necessary  to  state
          receivables at realizable value.




                                       49
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (g)  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.

     (h)  Intangible Assets

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

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

          The Company  adopted SFAS 142 on a prospective  basis at the beginning
          of fiscal  2002.  Net loss and net loss per share  adjusted to exclude
          goodwill and other intangible  assets that would not have been subject
          to amortization for 2003, 2002 and 2001 are as follows:

<TABLE>
                                                                                    Year ended December 31,
                                                          ---------------------------------------------------------
                                                                 2003                2002                 2001
                                                          -----------------   -----------------    ----------------
          <S>                                             <C>                 <C>                 <C>
          Net loss for the year                             $  (3,642,743)      $  (1,925,606)      $  (13,893,118)
          Adjustments
               Amortization of goodwill                                 -                   -              989,693
               Amortization of other intangible assets                  -                   -               22,000
                                                          -----------------   -----------------    ----------------
          Adjusted net loss                                 $  (3,642,743)      $  (1,925,606)       $ (14,904,811)
                                                          =================   =================    ================
          Basic and diluted net loss per share, as
            reported                                        $       (0.44)      $       (0.23)       $       (1.61)
          Basic and diluted net loss per share, as
            adjusted                                        $       (0.44)      $       (0.23)       $       (1.73)
</TABLE>



                                       50
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (i)  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.

     (j)  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.

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




                                       51
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (l)  Loss per common share

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

          A  reconciliation  of net  (loss) per  common  share  from  continuing
          operations  and the weighted  average  shares used in the earnings per
          share ("EPS")  calculations for fiscal years 2003, 2002 and 2001 is as
          follows:

<TABLE>

                                                          Net Loss                                    Loss Per Share
                                                       from Continuing              Shares           from continuing
                                                   Operations (Numerator)        (Denominator)          operations
                                                  -----------------------      ----------------      -------------------
            <S>                                   <C>                          <C>                    <C>
             2003
             Basic                                    $  (3,642,743)               8,200,676              $   (0.44)
             Effect of stock options                              -                        -                      -
                                                  -----------------------      ----------------      -------------------
             Diluted                                  $  (3,642,743)               8,200,676              $   (0.44)
                                                  =======================      ================      ===================
             2002
             Basic                                    $  (2,046,637)               8,480,866              $   (0.24)
             Effect of stock options                              -                        -                      -
                                                  -----------------------      ----------------      -------------------
             Diluted                                  $  (2,046,637)               8,480,866              $   (0.24)
                                                  =======================      ================      ===================
             2001
             Basic                                    $ (13,239,953)               8,623,296              $   (1.54)
             Effect of stock options                              -                        -                      -
                                                  -----------------------      ----------------      -------------------
             Diluted                                  $ (13,239,953)               8,623,296              $   (1.54)
                                                  =======================      ================      ===================
</TABLE>

          Options to purchase  1,191,248,  1,291,181,  and  2,056,361  shares of
          common stock were  outstanding as at December 31, 2003,  2002 and 2001
          respectively,  but were not included in the computation of diluted EPS
          because of the net loss in fiscal 2003,  2002 and 2001, and therefore,
          their effect would be antidilutive.



                                       52
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (m)  Use of estimates

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

     (n)  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.  As at
          December  31,  2003 and  December  31, 2002 the Company had no forward
          transactions open.

     (o)  Stock-based compensation

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

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

<TABLE>
                                                                      2003                2002                2001
                                                                 --------------      --------------      --------------
         <S>                                                    <C>                 <C>                 <C>
          Net loss for the year                                   $(5,209,143)        $(4,607,505)        $(17,847,308)
                                                                 --------------      --------------      --------------
          Basic and fully diluted loss per common share           $     (0.64)        $     (0.54)        $      (2.07)
                                                                 ==============      ==============      ==============
</TABLE>

          Using the fair value method for stock-based  compensation,  additional
          compensation  costs  of  approximately   $1,566,400  would  have  been
          recorded for the year ended  December 31, 2003 (2002 - $2,681,899  and
          2001 - $3,954,190  respectively).  This amount is determined  using an
          option  pricing model assuming no dividends are to be paid, an average
          vesting period of four years (2002 - 4 years; 2001 - 3 years), average
          life  of the  option  of 5 years  (2002 - 5  years;  2001 5  years)  a
          weighted average annualized volatility of the Company's share price of
          47% (2002 - 73% and 2001 - 96%  respectively)  and a weighted  average
          annualized  risk free interest rate at 1.1% (2002 2.7% and 2001 - 3.7%
          respectively).



                                       53
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (p)  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.  The  Company had no source of other
          comprehensive  income for the years ended  December 31, 2003,  2002 or
          2001.  Tax  effects  of  other  comprehensive  income  or loss are not
          considered material for any period.

     (q)  Segmented information

          SFAS 131,  "Disclosures  About  Segments of an Enterprise  and Related
          Information," established new standards for the reporting of segmented
          information in annual financial  statements and requires the reporting
          of  certain  selected  segmented  information  on  interim  reports to
          shareholders.  In accordance  with SFAS 131 the Company has determined
          that it has one reportable segment,  Field Service and has reported in
          accordance with SFAS 131 in note 8.

     (r)  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).



                                       54
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (s)  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.

     (t)  Recent accounting pronouncements

          In May 2003, the Financial  Accounting  Standards  Board (FASB) issued
          Statement of Financial  Accounting Standard (SFAS) No. 150 "Accounting
          for  Certain  Financial   Instruments  with  Characteristics  of  both
          Liabilities  and Equity".  SFAS 150  establishes  standards for how an
          issuer  classifies and measures  certain  financial  instruments  with
          characteristics  of both  liabilities and equity.  It requires that an
          issuer  classify a financial  instrument that is within its scope as a
          liability  (or  an  asset  in  some  circumstances).   Many  of  those
          instruments  were previously  classified as equity.  This Statement is
          effective for financial instruments entered into or modified after May
          31, 2003,  and  otherwise  is effective at the  beginning of the first
          interim  period  beginning  after June 15, 2003.  The adoption of this
          standard  did not have a material  impact on the  Company's  financial
          statements.

          In April 2003 FASB issued Statement No. 149 ("SFAS 149"), Amendment of
          SFAS No. 133 on Derivative  Instruments  and Hedging  Activities.  The
          Statement amends and clarifies accounting for derivative  instruments,
          including certain derivative  instruments embedded in other contracts,
          and for hedging  activities under SFAS No. 133. In particular,  it (1)
          clarifies  under what  circumstances  a contract  with an initial  net
          investment  meets the  characteristic  of a derivative as discussed in
          SFAS No. 133, (2)  clarifies  when a  derivative  contains a financing
          component, (3) amends the definition of an underlying to conform it to
          the language used in FASB Interpretation No. 45, Guarantor  Accounting
          and  Disclosure   Requirements  for  Guarantees,   Including  Indirect
          Guarantees  of  Indebtedness  of Others and (4) amends  certain  other
          existing pronouncements.

          SFAS 149 is effective  for  contracts  entered into or modified  after
          June  30,   2003,   subject  to  certain   exceptions,   for   hedging
          relationships designated after June 30, 2003.

          The adoption of this  standard  did not have a material  impact on the
          Company's financial statements.



                                       55
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (t)  Recent accounting pronouncements (continued)

          In  January  2003,  the FASB  issued  Interpretation  No. 46 (FIN 46),
          "Consolidation  of Variable Interest  Entities",  an Interpretation of
          ARB No. 51. FIN 46 requires certain variable  interest  entities to be
          consolidated  by the primary  beneficiary  of the entity if the equity
          investors  in  the  entity  do  not  have  the  characteristics  of  a
          controlling  financial  interest or do not have  sufficient  equity at
          risk for the  entity to  finance  its  activities  without  additional
          subordinated financial support from other parties. FIN 46 is effective
          for all new  variable  interest  entities  created or  acquired  after
          January 31, 2003. For variable  interest  entities created or acquired
          prior to February 1, 2003,  the  provisions  of FIN 46 must be applied
          for the first interim or annual period  beginning after June 15, 2003.
          The adoption of this  standard  did not have a material  impact on the
          Company's financial statements.


2.   DISCONTINUED OPERATIONS

     Connectria Corporation

     In June 2002, MDSI adopted a plan for sale and entered into an agreement to
     sell its Hosting and IT Services business segment,  Connectria  Corporation
     (Connectria) to former  Connectria  shareholders who were both shareholders
     and employees of the Company. The transaction closed in July 2002. Pursuant
     to the  terms of the  agreement,  the  Company  received  from  the  former
     Connectria shareholders 824,700 shares that had an approximate market value
     of $2.8 million and the  cancellation  of 103,088  previously  issued stock
     options of MDSI as consideration  for Connectria.  In addition to the share
     consideration,  a  wholly-owned  subsidiary  of  MDSI  received  a  warrant
     allowing it to purchase up to 50,380 shares of Series A Nonvoting Preferred
     Stock of Connectria at a price of $50 per share exercisable for a period of
     five years. The Series A Nonvoting Preferred Stock of Connectria has a face
     value of $100 per share,  bears a dividend of five percent per annum, bears
     a  liquidation  preference  equal to the face  value,  may be  redeemed  at
     Connectria's  option at any time, and must be redeemed by Connectria upon a
     capital  infusion of $10 million or greater.  In addition MDSI has advanced
     to Connectria  $500,000,  consisting  of a loan in the principal  amount of
     $250,000  with a two year term,  bearing  interest at 5%, and  $250,000 for
     prepaid hosting  services.  The loan was repaid  subsequent to December 31,
     2003.  The  Company  recognized  a  gain  of  $12,419  on the  disposal  of
     Connectria.  Connectria  represented a significant segment of the Company's
     business.



                                       56
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)



2.   DISCONTINUED OPERATIONS (Continued)

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

     Summarized  financial  information  of the  discontinued  operations  is as
     follows:

<TABLE>
                                                      December 31, 2003        December 31, 2002    December 31, 2001
                                                      -----------------        -----------------    -----------------
     <S>                                               <C>                      <C>                  <C>
      Revenues from discontinued operations
      (after applicable income taxes of $ - nil)        $           -            $   5,058,101        $ 13,414,690

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

<TABLE>

      Cash flow of discontinued operations
                                                      December 31, 2003        December 31, 2002    December 31, 2001
                                                      -----------------        -----------------    -----------------
     <S>                                               <C>                      <C>                  <C>
      Operating activities                              $           -            $   2,491,158        $    758,508
      Investing activities                                          -                  (43,775)           (807,710)
      Financing activities                                          -               (3,021,413)           (339,525)
                                                      -----------------        -----------------    -----------------
      Cash used in discontinued operations              $           -            $    (574,030)       $   (388,727)
                                                      =================        =================    =================
</TABLE>



                                       57
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


3.   CAPITAL ASSETS

<TABLE>
                                                               2003                  2002
                                                         ---------------        ---------------
        <S>                                              <C>                    <C>
        Computer hardware and software                    $  16,705,813          $  15,830,618
        Furniture and fixtures                                2,557,303              2,532,807
        Leasehold improvements                                  988,712                918,920
        Vehicles                                                      -                 50,905
                                                         ---------------        ---------------
                                                             20,251,828             19,333,250
        Less:  accumulated amortization                     (12,261,371)            (9,535,163)
                                                         ---------------        ---------------
                                                          $   7,990,457          $   9,798,087
                                                         ===============        ===============
</TABLE>

     As at  December  31,  2003 the  Company  has  entered  into  capital  lease
     arrangements  for  computer  hardware in the amount of  $3,540,336  (2002 -
     $7,218,355)  and recorded  accumulated  amortization  of  $1,280,535  (2002
     -$2,489,013) relating to these assets (note 7(a)).




                                       58
<PAGE>



                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


4.   STOCKHOLDERS' EQUITY

     (a)  Stock options

          The  Company  adopted  its Stock  Option  Plan to  provide  options to
          purchase  common  shares of the Company for its  employees,  officers,
          directors and  consultants.  The options granted pursuant to the Stock
          Option  Plan  are  exercisable  at a price  which is equal to the fair
          market value of the common shares at the time the options are granted.
          The  options  typically  vest over a three year period and the term of
          the option is  typically  five  years.  The  maximum  number of common
          shares  reserved for issuance  under the Stock Option Plan,  including
          current  options   outstanding,   is  2,400,000  common  shares.  Upon
          acquisition  of Connectria  the Company  assumed  certain  obligations
          under  the  Connectria  Stock  Option  Plan,  and  all  future  option
          issuances  will  occur  under  the  MDSI  Plan.  As a  result  of  the
          divestiture of Connectria  (note 2) all outstanding  options under the
          Connectria plan were cancelled during 2002. The resulting  position of
          the two Stock Option plans is as follows:


<TABLE>
                                                     Connectria Plan          MDSI Plan           Total          Weighted
                                                        Number of             Number of          Number of        Average
                                                         Shares                Shares             Shares           Price
                                                  --------------------------------------------------------------------------
           <S>                                      <C>                     <C>                <C>               <C>
           Outstanding at December 31, 2000              534,246             1,779,698           2,313,944        $  10.32

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

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

             Granted                                           -               298,755             298,755            4.31
             Exercised                                         -                (4,312)             (4,312)           3.72
             Cancelled                                         -              (394,376)           (394,376)           8.87
                                                  --------------------------------------------------------------------------
           Outstanding at December 31, 2003                    -             1,191,248           1,191,248        $   5.67
                                                  ==========================================================================
</TABLE>



                                       59
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (Expressed in United States dollars)


4.   STOCKHOLDERS' EQUITY (Continued)

     The following table summarizes  information  concerning options outstanding
     at December 31, 2003:


<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, 2003       (months)       Price       31, 2003        Price
      --------------------------  -------------- ------------- ------------ -------------- ------------
       <S>                         <C>            <C>           <C>          <C>            <C>
             $0-$3.95                 483,374        38.7       $  3.45         303,755       $ 3.42
           $4.00-$12.90               443,790        39.6          5.19         318,891         5.35
           $12.95-$28.00              264,084        12.6         13.76         264,084        13.76
                                  -------------- ------------- ------------ -------------- ------------
                                    1,191,248        33.3       $  5.67         886,730       $ 7.19
                                  ============== ============= ============ ============== ============
</TABLE>

     At December 31, 2002 and 2001 under the combined MDSI and Connectria option
     plans, 926,021 and 1,304,959 options were exercisable at a weighted average
     exercise price of $8.02 and $6.73, respectively.

     (b)  Stock purchase plan

          The Company has established a voluntary stock compensation arrangement
          for its full and part-time  employees to purchase common shares of the
          Company by way of payroll  deductions for a maximum of $10,000 CDN for
          each  employee  per year.  The  subscription  price of  common  shares
          purchased under the 2002 Stock Purchase Plan is determined  based upon
          a weighted  average  market price of the Company's  common shares each
          quarter,  less 15%.  During the year ended  December 31, 2003,  37,375
          (2002 - 85,405;  2001 - nil) common shares were issued under the Stock
          Purchase Plan.





                                       60
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)


4.   STOCKHOLDERS' EQUITY (Continued)

     (c)  Shareholder rights plan

          At  the  Annual  General   Meeting  on  May  6,  1999,  the  Company's
          shareholders'  approved  the  adoption of a  Shareholder  Rights Plan,
          similar to those adopted by other Canadian  companies.  The Plan had a
          5-year  term  and was  subsequently  renewed  in  December  2003 for a
          further 5-year term. 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.


5.   INCOME TAXES

     The provision for income taxes consists of the following:


<TABLE>
                                                                 2003                   2002                  2001
                                                            --------------        --------------        --------------
     <S>                                                    <C>                  <C>                   <C>
     Current:
       Canada                                                $         -           $         -           $         -
       Foreign                                                   275,785              (429,293)             (504,085)
                                                            --------------        --------------        --------------
         Total current provision for (recovery
             of) income taxes from continuing operations         275,785              (429,293)             (504,085)
                                                            --------------        --------------        --------------
     Deferred:
       Canada                                                          -                     -                     -
       Foreign                                                   176,000              (183,659)                4,370
                                                            --------------        --------------        --------------
        Total deferred  (recovery of) provision for
            income taxes from continuing operations              176,000              (183,659)                4,370
                                                            --------------        --------------        --------------
     Provision for (recovery of) income taxes from
             continuing operations                           $   451,785           $  (612,952)          $  (499,715)
                                                            ==============        ===============       ==============
</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 from  continuing  operations  before tax  provision  due to the
     following:


<TABLE>
                                                                 2003                   2002                  2001
                                                            --------------        --------------        --------------
     <S>                                                    <C>                  <C>                   <C>
     Statutory tax rate                                             37.6%                39.6%                  44.6%

     Recovery of income taxes from continuing
        operations computed at statutory rate               $ (1,200,438)         $(1,053,197)           $(6,127,892)
     Tax benefits not recognized in the
        period that the benefit arose                          2,409,337              967,215              5,833,010
     Lower effective rate on earnings of foreign
        subsidiaries                                          (1,295,973)            (158,652)            (1,286,297)
     Amortization and write-down of intangible assets
        not deductible for tax                                         -             (393,202)               813,529
     Other                                                       538,859               24,884                267,935
                                                            --------------        --------------        --------------
     Provision for (recovery of) income taxes from
             continuing operations                          $    451,785          $  (612,952)           $  (499,715)
                                                            ==============        ==============        ==============
</TABLE>


                                       61
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)



5.   INCOME TAXES (continued)

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



<TABLE>
                                                                 2003                2002                 2001
                                                           ----------------    ----------------      ----------------
       <S>                                                <C>                 <C>                   <C>
       Depreciation                                          $ (1,961,685)       $ (1,482,694)         $   (807,765)
       Deferred revenue                                           383,204             224,433              (756,867)
       Other                                                    1,754,481           1,074,602             1,569,002
                                                           ----------------    ----------------      ----------------
       Total deferred provision for
         (recovery of) income taxes                          $    176,000        $   (183,659)           $    4,370
                                                           ================    ================      ================
</TABLE>

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


<TABLE>
                                                                    2003               2002
                                                               --------------    --------------
        <S>                                                   <C>                <C>
         Operating loss carry forwards                          $  6,700,056       $ 3,789,394
         Deferred revenue                                            646,642         1,029,846
         Capital assets & intangibles                              4,102,742         2,093,368
         Reserves and accrued expenses                               333,079         2,579,456
         Other                                                       493,398           374,518
                                                               --------------    --------------
                                                                  12,275,917         9,886,582
         Less: Valuation allowance                               (11,918,289)       (9,332,954)
                                                               --------------    --------------
         Net non current deferred tax asset                     $    357,628       $   533,628
                                                               ==============    ===============
</TABLE>


     At December 31, 2003,  the Company has the  following  loss  carry-forwards
     available for tax purposes:

          Country                           Amount                Expiry
          -------                           ------                ------
          Canada                          $6,000,000         2005 through 2010
          US                              $13,000,000        2021 through 2023



                                       62
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)



6.   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, 2003 of $ nil (2002 - $nil; 2001 - $280,000) paid to companies
     controlled by two former directors of MDSI.


7.   COMMITMENTS AND CONTINGENCIES

     (a)  Capital and operating leases

          At December  31,  2003,  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>
          2004                                                        $  1,345,399       $   1,954,669
          2005                                                           1,031,105           1,219,438
          2006                                                                   -           1,219,438
          2007                                                                   -           1,219,438
          2008                                                                   -           1,117,818
          Therafter                                                              -                   -
                                                                    ----------------    ----------------
          Total minimum lease payments                                   2,376,504       $   6,730,801
                                                                                        ================
          Less: amount representing interest                              (190,219)
                                                                    ----------------
          Present value of net minimum lease payments                    2,186,285
          Less: current portion of capital lease obligations            (1,204,269)
                                                                    ----------------
          Long term portion of capital lease obligations              $    982,016
                                                                    ================
</TABLE>

          Rent  expense  for the year  ended  December  31,  2003 in  respect of
          operating  leases for office space was $1,468,887  (2002 - $1,139,352;
          2001 - $1,662,337).

     (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 (2002 - $10,000,000  CDN),  which
          bears  interest  at prime plus 0.5%.  As at  December  31,  2003,  the
          Company was not utilizing the operating line of credit.

          The  Company  has  provided,  letters of credit in the  amounts of CAD
          $810,000 (USD  $625,644)  expiring  April 4, 2004,  and CAD $1,864,568
          (USD $1,440,192)  expiring October 1, 2004. The Company has pledged an
          amount  equal to the  letters  of credit  as  guarantees  against  its
          operating line of credit as security.






                                       63
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)



7.   COMMITMENTS AND CONTINGENCIES (Continued)

     (c)  Contingency

          The  Company  was  involved in a legal  dispute  with a customer.  The
          Company filed suit against the customer alleging that the customer had
          breached  a  series  of  contracts,  and  failed  to pay  sums  due of
          approximately  $3.7 million.  The suit sought  payment of the contract
          balance,  plus  other  damages,  interest  and  attorneys'  fees.  The
          customer  filed  an  answer  and  counterclaim  alleging  the  Company
          breached  the  contracts,  entitling  the customer to repayment of all
          sums paid to the Company of approximately  $3.5 million.  In addition,
          the    customer's     counterclaims    alleged    fraud,     negligent
          misrepresentation,  breach of express  warranty  and breach of implied
          warranties.  The customer sought all actual,  special,  incidental and
          consequential  damages  associated with these claims of  approximately
          $7.2 million in addition to punitive damages,  interest and attorneys'
          fees.

          On February 2, 2004 the customer and the Company settled this lawsuit.
          Under the  settlement  agreement  each company has fully  released and
          discharged the other from all outstanding legal claims without further
          financial compensation. As a result of this settlement the Company has
          written off the remaining  $2.7 million long term  receivable due from
          the customer as no further  consideration  will be received  from this
          customer under terms of the settlement.

          From time to time,  the  Company  is a party to other  litigation  and
          claims  incident to the  ordinary  course of its  business.  While the
          results of litigation and claims cannot be predicted  with  certainty,
          the Company  believes  that the final outcome of such matters will not
          have a material  adverse effect on the Company's  business,  financial
          condition, operating results and cash flows.





                                       64
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002, and 2001
                      (Expressed in United States dollars)



7.   COMMITMENTS AND CONTINGENCIES (Continued)

     (d)  Commitment

          The Company has entered into a significant  customer contract in which
          the Company has agreed to utilize a certain  amount of local  services
          and create a certain  amount of  commercial  activity in South Africa.
          The  Company is required to utilize  local  content or obtain  credits
          equivalent to approximately $7.1 million over a seven year period. The
          Company has furnished a performance  guarantee equal to  approximately
          5% of such  amounts.  The Company  expects to fulfill  its  obligation
          through a number  of  activities,  including  the  establishment  of a
          software   development  center  in  South  Africa,  the  provision  of
          technical  services,  and the  provision of training to local  systems
          integrators who will be able to provide  implementation  services with
          respect to the Company's software products.  As the Company expects to
          fulfill its obligations through the purchase of services in the normal
          course of business, no liability has been established for these future
          spending  commitments.  As  at  December  31,  2003  the  Company  has
          generated   an  estimated   $175,000  of  credits   relating  to  this
          obligation.  The  Company's  obligation  may  increase  as a result of
          contract expansions.

          The  Company  typically  includes  indemnification  provisions  within
          license and implementation  service  agreements,  which are consistent
          with  those  prevalent  in  the  software  industry.  Such  provisions
          indemnify customers against actions arising from patent  infringements
          that may arise  through  the  normal use or proper  possession  of the
          Company's  software.  To date  the  Company  has not  experienced  any
          significant obligations under customer indemnification  provisions and
          accordingly,   no  amounts  have  been  accrued  for  such   potential
          indemnification obligations.


8.   SEGMENTED INFORMATION

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

     Geographic information

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

<TABLE>
                                    2003                              2002                                2001
                        --------------------------------   --------------------------------   --------------------------------
                                           Long-lived                         Long-lived                         Long-lived
                           Revenue           assets           Revenue           assets           Revenue           assets
                        -------------   ----------------   -------------   ----------------   -------------   ----------------
<S>                      <C>             <C>                <C>              <C>               <C>               <C>
Canada                   $ 1,540,258     $ 7,442,217        $   840,388      $ 8,880,084       $  1,374,365      $ 6,789,712
United States             24,749,574         397,485         25,571,679          830,789         32,819,991          787,448
Europe, Middle East
and Africa                20,034,775         150,755         10,999,163           80,991          9,507,404           57,416
Asia and Other             1,059,982               -            800,222            6,223          1,239,078              672
                        -------------   ----------------   -------------   ----------------   -------------   ----------------
                         $47,384,589     $ 7,990,457        $38,211,452      $ 9,798,087       $ 44,940,838      $ 7,635,248
                        =============   ================   =============   ================   ==============  ================
</TABLE>


     Major customer

     During the year ended December 31, 2003 the Company earned revenue from one
     customer of $8,532,086  and revenue from a second  customer of  $8,098,509,
     representing 18.0% and 17.1% of revenue respectively. During the year ended
     December  31,  2002  the  Company  earned  revenue  from  one  customer  of
     $3,472,229  or  approximately  9.1% of total  revenue.  For the year  ended
     December 31, 2001 the Company earned revenue from on customer of $5,211,212
     or approximately 11.6% of total revenue.



                                       65
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (Expressed in United States dollars)



9.   SUPPLEMENTAL CASH FLOW DISCLOSURES

<TABLE>
                                                                   2003               2002                2001
                                                              ---------------    ---------------     ---------------
     <S>                                                       <C>               <C>                  <C>
      Accounts receivable                                       $   323,083       $ 2,882,600          $ 8,396,394
      Prepaid expenses and other assets                            (286,189)          314,223             (595,648)
      Income taxes payable / receivable                             314,467           969,223           (1,457,670)
      Accounts payable and accrued liabilities                    1,387,067        (2,305,884)           1,841,956
      Deferred revenue                                            3,661,411           (31,543)             137,777
                                                              ---------------    ---------------     ---------------
                                                                $ 5,399,839       $ 1,828,619          $ 8,322,809
                                                              ===============    ===============     ===============
</TABLE>


10.  FINANCIAL INSTRUMENTS

     The  carrying  value  of cash and cash  equivalents,  accounts  receivable,
     certain other assets,  accounts payable,  accrued liabilities,  and capital
     lease  obligations  approximate their respective fair values as of December
     31, 2003 and 2002.

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


11.  RESTRUCTURING CHARGE

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

<TABLE>
                                                                        Total Restructuring
                                                                              Charge
                                                                        -------------------
     <S>                                                                  <C>
     Workforce reduction                                                  $   3,375,000
     Provision for excess office space                                        1,861,000
     Non cash writedown of capital assets                                       563,780
     Other                                                                      306,147
                                                                        -------------------
     Total restructuring charges                                              6,105,927
     Cumulative draw-downs                                                   (5,225,145)
                                                                        -------------------
     Accrued    restructuring   charges   included   in   accrued
     liabilities at December 31, 2003 (2002 - $1,257,335)                 $     880,782
                                                                        ===================
</TABLE>



                                       66
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.
                 Notes to the Consolidated Financial Statements
              For the years ended December 31, 2003, 2002 and 2001
                      (Expressed in United States dollars)


11.  RESTRUCTURING CHARGE (continued)

     Provisions relating to workforce reductions,  write-down of capital assets,
     and other  items have been fully  drawn-down,  and no further  expenditures
     relating to these items are expected to be incurred.

     The  Company  has  recorded a $1.9  million  provision  relating to surplus
     office  space  under  long  term  lease by the  Company  at two  locations,
     including one location  where the Company has entered into fixed cost lease
     arrangements expiring in 2004. The Company has incurred  approximately $1.0
     million of cash costs relating to this provision leaving an accrual of $0.9
     million  remaining as at December 31,  2003.  The Company  expects that the
     provision will be fully drawn down no later than the time the lease expires
     in the fourth quarter of 2004.


12.  STRATEGIC EXPENSES

     Strategic   expenses   consist  of   professional   fees   associated  with
     investigating  potential corporate transactions that the Company considered
     during the year ended December 31, 2003.



                                       67
<PAGE>

Selected Quarterly Financial Data (unaudited)

     The following  table sets forth certain  unaudited  statement of operations
     data for each of the eight  quarters  beginning  January 1, 2002 and ending
     December  31,  2003 as  well as the  percentage  of the  Company's  revenue
     represented  by each item.  The unaudited  financial  statements  have been
     prepared on the same basis as the audited  financial  statements  contained
     herein and include all  adjustments,  consisting  only of normal  recurring
     adjustments,  that the Company  considers  necessary to present fairly this
     information when read in conjunction with the Company's  audited  financial
     statements  and the notes thereto  appearing  elsewhere in this report.  In
     view of the Company's  recent  restructuring,  its recent  dispositions and
     other  factors,  the Company  believes that  quarterly  comparisons  of its
     financial  results are not necessarily  meaningful and should not be relied
     upon as an indication of future performance.


<TABLE>
                                                                        Three Months Ended
                                                          2003                                       2002
                                       --------------------------------------------------------------------------------------
                                        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                   $ 7,364     $6,976   $ 7,379     $7,213     $8,017    $6,283    $ 4,723     $5,654
Maintenance and support                   4,230      3,560     3,368      2,818      2,637     2,675      2,907      2,836
Third party products and services           538      1,474       612      1,853        356     1,608        279        236
                                      --------------------------------------------------------------------------------------
                                         12,131     12,010    11,359     11,884     11,010    10,565      7,909      8,727

Direct costs                              5,741      6,055     5,638      5,928      4,897     5,001      3,491      3,630
                                       --------------------------------------------------------------------------------------
Gross profit                              6,390      5,955     5,721      5,956      6,113     5,564      4,418      5,097
                                       --------------------------------------------------------------------------------------
Operating expenses:
Research and development                  1,490      1,324     1,419      1,279      1,269     1,278      1,499      1,460
Sales and marketing                       2,228      2,436     2,884      2,948      3,026     3,030      3,912      2,414
General and administrative                1,503      1,865     1,613      1,570      1,557     1,486      1,529      1,664
Strategic expenses                          450          -       825          -          -         -          -          -
Provision for doubtful accounts           2,960        110         -          -          -         -          -          -
                                       --------------------------------------------------------------------------------------
                                          8,632      5,736     6,741      5,797      5,852     5,794      6,940      5,538
                                       --------------------------------------------------------------------------------------
Operating (loss) income                  (2,242)       219    (1,020)       159        261      (230)    (2,522)      (441)
Other income (expense)                      235        (81)     (208)      (253)        40        70         86         76
                                       --------------------------------------------------------------------------------------
(Loss) income from continuing
   operations before income tax          (2,007)       138    (1,228)       (94)       301      (160)    (2,436)      (365)
   provision
(Provision for) recovery of income
taxes from continuing operations            (59)      (168)     (125)       (99)      (169)       31        689        122
                                       --------------------------------------------------------------------------------------
(Loss) income from continuing            (2,066)       (30)   (1,354)      (193)       132      (191)    (1,747)      (243)
   operations
Income from discontinued operations
                                              -          -         -          -          -        12         22         86
                                       --------------------------------------------------------------------------------------
Net (loss) income  for the period       $(2,066)    $  (30)  $(1,354)    $ (193)    $  132    $ (179)   $(1,725)    $ (157)
                                       ======================================================================================
</TABLE>



                                       68
<PAGE>


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

<TABLE>
                                                                     Three Months Ended
                                       --------------------------------------------------------------------------------
                                                        2003                                    2002
                                        Dec. 31  Sept. 30   June 30   Mar. 31   Dec. 31  Sept. 30   June 30   Mar. 31
                                        -------  --------   -------   -------   -------  --------   -------   -------
<S>                                      <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenue:
Software and services                    60.7%     58.1%     65.0%     60.7%     72.8%     59.5%     59.7%     64.8%
Maintenance and support                  34.9      29.6      29.6      23.7      24.0      25.3      36.8      32.5
Third party products and services         4.4      12.3       5.4      15.6       3.2      15.2       3.5       2.7
                                       --------------------------------------------------------------------------------
                                        100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0
Direct costs                             47.3      50.4      49.6      49.9      44.5      47.3      44.1      41.6
                                       --------------------------------------------------------------------------------
Gross profit                             52.7      49.6      50.4      50.1      55.5      52.7      55.9      58.4
                                       --------------------------------------------------------------------------------
Operating expenses:
Research and development                 12.3      11.0      12.5      10.8      11.5      12.1      19.0      16.7
Sales and marketing                      18.4      20.3      25.4      24.8      27.5      28.7      49.5      27.7
General and administrative               12.4      15.5      14.2      13.2      14.2      14.1      19.3      19.1
Strategic expenses                        3.7         -       7.3       -           -         -         -         -
Allowance for doubtful accounts          24.4       0.9         -         -         -         -         -         -
                                       --------------------------------------------------------------------------------
                                         71.2      47.8      59.4      48.8      53.2      54.8      87.8      63.5
                                       --------------------------------------------------------------------------------
Operating (loss) income                 (18.5)      1.8      (9.0)      1.3       2.4      (2.2)    (31.9)     (5.1)
Other income (expense)                    1.9      (0.7)     (1.8)     (2.1)      0.4       0.7       1.1       0.9
                                       --------------------------------------------------------------------------------
(Loss) income from continuing
   operations before income tax         (16.5)      1.1     (10.8)     (0.8)      2.7      (1.5)    (30.8)     (4.2)
   provision
                                       --------------------------------------------------------------------------------
(Provision for) recovery of income
  taxes from continuing operations       (0.5)     (1.4)     (1.1)      0.8      (1.5)     (0.3)      8.7       1.4
                                       --------------------------------------------------------------------------------
 (Loss) income from continuing
   operations                           (17.0)     (0.3)    (11.9)     (1.6)      1.2      (1.8)    (22.1)     (2.8)
Income from discontinued operations
                                            -         -         -         -         -       0.1       0.3       1.0
                                       ================================================================================
Net (loss) income  for the period       (17.0)%    (0.3)%   (11.9)%    (1.6)%     1.2%     (1.7)%   (21.8)%    (1.8)%
                                       ================================================================================
</TABLE>



                                       69
<PAGE>



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

     None


Item 9A:  Controls and Procedures

     (a)  Evaluation of Disclosure Controls and Procedures

     In  connection  with  this  filing,  the  Company's  management,  with  the
participation  of the  Company's  Chief  Executive  Officer and Chief  Financial
Officer,  evaluated the effectiveness of the Company's  disclosure  controls and
procedures (as defined in Rule  13a-15(e)  under the Exchange Act) as of the end
of the period covered by this report (the "Evaluation Date").

     Based upon the evaluation  described above, the Chief Executive Officer and
Chief Financial Officer concluded that as of the Evaluation Date, subject to the
matters  discussed in the  following  paragraphs  with respect to the  Company's
internal accounting  controls,  the Company's disclosure controls and procedures
were effective in timely alerting them to the material  information  relating to
the  Company  (or its  consolidated  subsidiaries)  required  to be  included in
reports that the Company files or submits under the Exchange Act.

     In  connection   with  the  contract  review   undertaken   concerning  the
restatements  of the Company's  financial  statements for the fiscal years ended
December 31, 1998 to 2002 and for the first three  quarters of fiscal  2003,  as
discussed in previously refiled audited consolidated  financial statements,  the
Company together with its independent auditors identified certain areas in which
the Company could improve its internal  control over  financial  reporting.  The
Company had implemented  internal controls and procedures to review and evaluate
its software and implementation  contracts to determine the appropriate  revenue
recognition  accounting  treatment for such  contracts in  accordance  with U.S.
generally  accepted  accounting   principles.   Notwithstanding  these  internal
controls, the Company, in consultation with its independent auditors, determined
that  its  analysis  of  the  terms  included  in  the  Company's  software  and
implementation  contracts resulted in the Company's revenue recognition for such
contracts  being   inappropriate   under  U.S.  generally  accepted   accounting
principles.


     (b)  Changes in Internal Control

     On November  17, 2003 and  February 26,  2004,  the Company  announced  its
intention to restate the Company's  annual  financial  statements for the fiscal
years ended December 31, 1998 to 2002 and for the first three quarters of fiscal
2003. The restatement related to an inappropriate  allocation of contracted fees
between  software  and  implementation  services  and  maintenance  and  support
services as a result of certain  terms or  provisions  included in software  and
implementation  contracts and a detailed  review of the services being performed
during this period.  Please see the company's  previously  refiled  consolidated
financial statements for further information.

     In connection with this restatement,  senior management  performed a review
of the  circumstances  that resulted in the need for the  restatements  and as a
result,  the Company has  undertaken  certain steps to strengthen  the Company's
internal   control  over   financial   reporting  in  order  to  prevent  future
recurrences. These steps include a thorough review and analysis of the Company's
existing  software  and  implementation  contracts  by  senior  members  of  the
Company's   accounting  group,  a  determination  of  the  appropriate   revenue
recognition  treatment  for each  existing  contract  by senior  members  of the
accounting group and revisions to the Company's  standard  contractual  wording.
The Company plans to take additional steps to strengthen the Company's  internal
control over financial  reporting,  including:  implementing  a formal  contract
review  checklist for each new  contract;  improving  communication  between the
various  functional  groups within the Company  (namely  sales,  implementation,
accounting and legal) at both the contract  negotiation  and execution level and
at the implementation level;  requiring any exceptions to the Company's standard
contractual  wording to be approved at a senior  management level; and review by
management  of any  unusual  terms which may impact its  historical  practice of
accounting for revenue.  The Company's  management  plans to undertake a further
review and assessment of the Company's internal control over financial reporting
in light of the  requirements of Section 404 of the  Sarbanes-Oxley  Act of 2002
and the rules adopted by the SEC  thereunder,  which the SEC currently  plans to
implement for  accelerated  filers for fiscal years ending on or after  November
15, 2004 and for non-accelerated filers for fiscal years ending on or after July
15, 2005. As of the date of this report, the Company is not an accelerated filer
and, accordingly, the Company expects



                                       70
<PAGE>

these additional  requirements to apply to the Company for its fiscal year ended
December 31, 2005.  The Company's  management  may recommend and the Company may
implement  additional  changes in the Company's  internal control over financial
reporting pursuant to this review. In light of these additional SEC requirements
and the Company's  current level of  activities,  the Company is evaluating  the
level of staffing of its finance group

     Except as described in the  foregoing  paragraphs,  no changes were made in
the  Company's  internal  control  over  financial  reporting  during the period
covered by this report that have materially  affected,  or are reasonably likely
to materially affect,  the Company's internal control over financial  reporting.
The  Company's  management,  including  the Chief  Executive  Officer  and Chief
Financial Officer,  does not expect that the Company's  disclosure  controls and
procedures or internal  control over financial  reporting will prevent all error
and all fraud. A control system, no matter how well conceived and operated,  can
provide only  reasonable,  not absolute,  assurance  that the  objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource  constraints,  and the benefits of controls must be
considered relative to their costs.  Because of the inherent  limitations in all
control systems,  no evaluation of controls can provide absolute  assurance that
all control issues and instances of fraud,  if any, within the Company have been
detected.  These  inherent  limitations  include the realities that judgments in
decision-making  can be faulty,  and that breakdowns can occur because of simple
error or  mistake,  such as the error  that led to the  Company's  restatements.
Additionally,  controls  can be  circumvented  by the  individual  acts  of some
persons,  by collusion of two or more people,  or by management  override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future  conditions;  over time, control may become inadequate because of changes
in conditions,  or the degree of compliance  with the policies or procedures may
deteriorate.  Because of the inherent  limitations in a  cost-effective  control
system, misstatements due to error or fraud may occur and not be detected.



                                    Part III


Item 10:  Directors and Executive Officers of the Registrant

     The following table sets forth certain information concerning the Company's
executive officers and directors as of December 31, 2003.

<TABLE>
Name                                    Age     Position
-------------------------------------  -------  ------------------------------------------------------------------------
Executive Officers
<S>                                      <C>    <C>
Erik Dysthe.........................     66     Chairman of the Board, Director, President and Chief Executive Officer
Peter H. Rankin ....................     47     Vice President - Strategy and Performance Improvement
Verne D. Pecho......................     60     Vice President - Finance and Administration and Chief Financial Officer
Simon Backer........................     48     Vice President - Wireless Services
Cyril Tordiffe......................     52     Vice President - Enterprise Solutions
Tommy Lee...........................     40     Vice President - Product Development
Walter Beisheim (4).................     49     Vice President - Worldwide Sales
Warren Cree.........................     44     Vice President - Marketing and Business Development
Glenn Y. Kumoi......................     41     Senior Vice President -Chief Legal Counsel and Corporate Secretary
Paul H.L. Lui.......................     47     Vice President - Customer Support
Poul Kvist..........................     58     Operations Manager EMEA
Ronald P. Toffolo...................     52     Vice President - Human Resources
David Haak..........................     42     Vice President - Sales, Americas

Directors
Peter Ciceri (2)(3).................     48     Director
Robert C. Harris, Jr. (1)(2)........     57     Director
Marc Rochefort (1)(2)...............     56     Director
David R. Van Valkenburg(1)(2)(3)....     61     Director
------------------------------------------------------------------------------------------------------------------------
(1)  Member of Compensation Committee.
(2)  Member of Corporate Governance and Nominating Committee.
(3)  Member of Audit Committee.
(4)  Mr. Beisheim resigned effective January 7, 2004.
</TABLE>




                                       71
<PAGE>

     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 Digital  Dispatch
Systems Inc., Avcan Systems Inc. and several private companies.

     Peter H.  Rankin has served as Vice  President - Strategy  and  Performance
Improvement since 2003. From May 2001 to 2003, he was Executive Vice President -
Operations.  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.

     Simon  Backer  has served as Vice  President  -  Wireless  Services  of the
Company  since  2003.  From  June  2000  to 2003 he was  Senior  Vice  President
-Wireless  Services.  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 Vice President - Enterprise  Solutions  since
2003.   From  July  2001  to  2003  he  was  Senior  Vice  President  -  Project
Implementation of the Company and he was Vice President - Operations,  Australia
between  January 2001 and June 2001.  From 1999 to 2000, he was Vice President -
Implementation Engineering. From 1995 to 1998, Mr. Tordiffe was Vice President -
Project  Implementation  and  Customer  Support,  Utilities  Division.  From the
Company's  inception in 1993 to 1994, he held various senior project  management
positions at the Company.  Mr.  Tordiffe has over 20 years of  experience in the
information technology industry covering operations, project management, systems
analysis and application programming.

     Tommy Lee has served as Vice  President - Product  Development  since 2003.
From March 1999 to 2003 he was Senior Vice President Product  Development.  From
1997 to March 1999he was Vice President - Product Development. From inception of
the Company to 1997, Mr. Lee served in various  technical  positions,  including
Director - Product Development and Software  Development  Manager.  Between 1988
and  1995,  Mr.  Lee was a member of the  scientific  and  engineering  staff at
MacDonald, Dettwiler and Associates Ltd.

     Walter  Beisheim served as Vice President - Worldwide Sales from 2003 until
January 7, 2004.  From July 2002 to 2003 he was Senior Vice President  Worldwide
Sales and Marketing.  Prior to that he was Vice President,  North American Sales
with Click Software, Inc. from 2001 to 2002. From 2000 to 2001, Mr. Beisheim was
Vice President  Worldwide Sales for Inxight Software.  From 1999 to 2000, he was
General Manager,  Software  Products Group for Digital  Microwave Corp. (now DMC
Stratex  Networks)  and from  1997 to 1999 he was  Vice  President  and  General
Manager of SR Datacom.  Mr.  Beishem has over 20 years of  experience  in sales,
marketing and business  development  of enterprise  software with an emphasis on
the utility and telecommunications industries.

     Warren  Cree has served as Vice  President  -  Products  since  2003.  From
October 2001 to 2003 he was Senior Vice  President - Products.  Prior to this he
held numerous positions of progressive  responsibility in product management for
the Company since September  1999. Mr. Cree also served as Manager,  Application
Engineering  of the Company from its inception to August 1999.  Between 1989 and
1994,  he was a member of the  scientific  and  engineering  staff at MacDonald,
Dettwiler and Associates Ltd.

     Glenn Y. Kumoi has  served as Vice  President  - Chief  Legal  Officer  and
 Corporate  Secretary of the Company since 2003.  From September 2002 to 2003 he
was Senior Vice President - Chief Legal  Officer.  Prior to that he was Managing
Director - Europe Middle East and Africa of the Company since May 2001. Prior to
that he was Vice  President - Chief Legal  Officer of the Company  since October
1999. From December 1998 to October 1999, Mr. Kumoi was Vice President - General
Counsel of the Company. From April 1997 to November 1998, Mr. Kumoi



                                       72
<PAGE>

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.

     Poul Kvist has served as Operations  Manager EMEA since 1997. Prior to this
he held various positions with Nokia Corporation.

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

     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 a management  consultant.  From 1999 to
2000, he was Executive Vice President of MediaOne Group,  Inc., and from 1996 to
1999 he was Executive Vice President,  MediaOne  International  and from 1997 to
1999,  CEO/COO  of  Telwest  Communications,  PLC.  From 1994 to 1995,  Mr.  Van
Valkenburg was Senior Vice President,  Multimedia Group,  MediaOne Group Inc. He
also serves as a director of Harmonic, Inc., 360 Networks Inc. and several other
private companies.

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

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

     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.




                                       73
<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 four  committees,  the Audit  Committee,  the Corporate
Governance,   the  Special  Committee  and  the  Nominating  Committee  and  the
Compensation Committee.

Committees of the Board of Directors

     The Audit Committee  recommends  independent  accountants to the Company to
audit the Company's financial statements, discusses the scope and results of the
audit with the  independent  accountants,  reviews  the  Company's  interim  and
year-end  operating  results  with  the  Company's  executive  officers  and the
Company's  independent  accountants,  considers  the  adequacy  of the  internal
accounting  controls,  considers the audit procedures of the Company and reviews
and  approves  the  non-audit  services  to  be  performed  by  the  independent
accountants.  During the fiscal year ended December 31, 2003, non-audit services
were  approved  by  the  Audit  Committee  to  be  performed  by  the  Company's
independent  accountants.  The  members  of the  Audit  Committee  are David Van
Valkenburg,  and Peter Ciceri.  The Board of Directors has determined that David
Van Valkenburg is an audit committee  financial expert within the meaning of the
SEC's rules.  Mr. Van Valkenburg is  independent,  as independence is defined in
the NASD's listing standards.

     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, and David Van Valkenburg.

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

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

Code of Ethics

     The Company's  management  has adopted a code of ethics that applies to the
Company's  principal executive officer,  principal financial officer,  principal
accounting officer or controller and persons  performing  similar  functions.  A
copy of the code of ethics is being filed as an exhibit to this report.

Section 16 (a) Beneficial Ownership Reporting Compliance

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


Item 11:  Executive Compensation

Report of the Compensation Committee

     The  Company's   compensation   program  for  all  executive   officers  is
administered  by the  Compensation  Committee  of the  Board of  Directors.  The
Compensation  Committee  is composed  of three  non-employee  directors.  During
fiscal 2003, the compensation of Erik Dysthe, the Chairman, President and CEO of
the  Company,   Peter  Rankin,  the  Vice  President  Strategy  and  Performance
Improvement  of  the  Company,  Verne  Pecho  the  Vice  President  Finance  and
Administration   and  Chief  Financial  Officer  of  the  Company  had  variable
components to their compensation  based on certain  performance  criteria.  With
respect to compensation for all other executive officers, the Board of Directors
reviewed a compensation proposal prepared by the Chairman, President and CEO.

Objectives

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

Chief Executive Officers, Executive Officers and Key Employees

     There are  currently 13 executive  officers of the Company,  including  the
Chief Executive Officer.  For purposes of this section,  "executive  officer" of
the Company means an individual who at any time during the year was the Chairman
or a Vice-Chairman  of the board of directors,  where such person  performed the
functions of such office on a full-time basis; the President; any Vice-President
in charge of a principal business unit such as sales, finance or production; any
officer or key  employee of the Company or of a subsidiary  of the Company,  and
any other  person  who  performed  a  policy-making  function  in respect of the
Company.

Employment Agreements

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

     The Company may terminate any of its officers for cause without any payment
of any kind of compensation,  except for such compensation earned to the date of
such termination. The Company may terminate any of its officers without cause by
giving notice and upon payment of all salary and bonuses owing up to the date of
termination  and for those  officers  with an employment  agreement,  a lump sum
termination  payment equal to amounts ranging up to two times base annual salary
and current  bonus.  Any officer may  terminate his or her  employment  with the
Company at any time by giving four, or in certain  cases,  eight to twelve 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 one and  one-half  times 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.




                                       74
<PAGE>

Summary Compensation Table

     The  following  table sets forth all  compensation  paid  during the fiscal
years ended December 31 2003,  2002 and 2001 in respect of each  individual who,
at any time during fiscal 2003, served as the Company's Chief Executive Officer,
the four  most  highly  compensated  executive  officers  other  than the  Chief
Executive Officer whose total salary and bonus exceeded $100,000 for fiscal 2003
who were  serving  as  executive  officers  as at  December  31,  2003,  and one
individual  who would  have been among the  foregoing  but for the fact that the
individual  was not employed by the Company at December 31, 2003.  (collectively
"Named Executive Officers") :

<TABLE>
---------------------------------------------------------------------------------------------------------------------------------
                                                                  Annual Compensation                Long Term          Other
                                                                                                    Compensation    Compensation
                                                                                                       Awards
                                                       -------------------------------------------  --------------
                                                                                    Other Annual     Securities
                                        Years Ending      Salary        Bonus       Compensation   Under Options
Name and Principal Position              December 31       ($)           ($)            ($)             (#)
---------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>           <C>          <C>             <C>               <C>
Erik Dysthe                                 2003        $200,561             -          N/A            52,500             -
Chairman, President & Chief Executive       2002         177,632        19,032          N/A           100,000             -
Officer                                     2001         123,011             -          N/A            10,000             -
---------------------------------------------------------------------------------------------------------------------------------
Peter H. Rankin(1)                          2003         157,584             -            -                 -             -
Vice President,  Strategy and               2002         139,568             -          N/A                 -             -
Performance Improvement                     2001          92,668             -          N/A            70,000             -
---------------------------------------------------------------------------------------------------------------------------------
David Haak                                  2003         151,250        39,908          N/A            15,000             -
Vice President Sales, Americas              2002         151,250        72,651          N/A                 -             -
                                            2001         134,000        81,241          N/A             5,000             -
---------------------------------------------------------------------------------------------------------------------------------
Rob Owen(2)                                 2003         151,837        19,891            -                 -             -
General Manager, EMEA                       2002          33,160             -        8,000                 -             -
                                            2001               -             -            -                 -             -
---------------------------------------------------------------------------------------------------------------------------------
Walter Beisheim(3)                          2003         157,584       195,743          N/A                 -             -
Vice President                              2002          58,154        43,487          N/A            15,000             -
Worldwide Sales                             2001               -             -            -                 -             -
---------------------------------------------------------------------------------------------------------------------------------
Poul Kvist                                  2003         149,992             -          N/A             1,670             -
Operations Manager EMEA                     2002         126,304        33,408          N/A                 -             -
                                            2001          92,623        21,634          N/A             1,500             -
---------------------------------------------------------------------------------------------------------------------------------
(1)  Had Mr. Rankin been employed for the full year ended  December 31, 2001 his
     salary would have been $142,146.
(2)  Mr. Owen is the additional officer. Mr. Owen was terminated effective October 31, 2003.
(3)  Mr. Beisheim resigned effective January 7, 2004.
</TABLE>



                                       75
<PAGE>

Stock Options

     The following  table sets forth stock options granted by the Company during
the fiscal year ended December 31, 2003 to any of the Named Executive Officers:

<TABLE>

Option Grants During the Fiscal Year Ended December 31, 2003
------------------------------------------------------------------------------------------------------------------------------

                                               % of Total                                           Potential Realized Value at
                                Securities       Options                                              Assumed Annual Rates of
                                   Under       Granted to      Exercise or                            Stock Price Appreciation
                                  Options     Employees in     Base Price       Expiration Date           for Option Term
Name                            Granted (#)    Fiscal Year    ($/Security)
                                                                                                    ---------------------------
                                                                                                      5% Growth     10% Growth
------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>             <C>          <C>                    <C>           <C>
Erik Dysthe                       45,000          15.1%           $4.89        September 17, 2008      $60,796       $134,343
Chairman, President & Chief                                    ($6.70 CAD)
  Executive Officer                7,500           2.5%           $3.35        February 25, 2008       $ 7,978       $ 17,628
                                                               ($5.00 CAD)
------------------------------------------------------------------------------------------------------------------------------
Peter H. Rankin                      Nil           Nil              Nil                Nil                 Nil            Nil
Vice President, Strategy and
Performance Improvement
------------------------------------------------------------------------------------------------------------------------------
David Haak                        15,000           5.0%           $5.26         November 3, 2008       $21,799        $48,169
Vice President Sales, Americas
------------------------------------------------------------------------------------------------------------------------------
Rob Owen                             Nil           Nil              Nil                Nil                 Nil            Nil
General Manager, EMEA
------------------------------------------------------------------------------------------------------------------------------
Walter Beisheim                      Nil           Nil              Nil                Nil                 Nil            Nil
Vice President
Worldwide Sales
------------------------------------------------------------------------------------------------------------------------------
Poul Kvist                           Nil           Nil              Nil                Nil                 Nil            Nil
Operations Manager
EMEA
------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       76
<PAGE>

     The  following  table sets forth  details of each exercise of stock options
during the fiscal year ended  December  31,  2003 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, 2003 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 Realized       Unexercisable(2)             ($) Exercisable/
               Name                  Exercise (#)         ($)                                        Unexercisable (1)
---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>               <C>                      <C>
Erik Dysthe                             Nil             Nil             109,040 (exercisable)      $ 15,721 (exercisable)
Chairman, President & Chief                                              55,960 (unexercisable)    $ 20,048 (unexercisable)
Executive Officer
---------------------------------------------------------------------------------------------------------------------------
Peter H. Rankin                         Nil             Nil              64,167 (exercisable)      $  nil (exercisable)
Vice President, Strategy and                                              5,833 (unexercisable)    $  nil (unexercisable)
Performance Improvement
---------------------------------------------------------------------------------------------------------------------------
David Haak                              Nil             Nil              12,915 (exercisable)      $  6,457 (exercisable)
Vice President Sales, Americas                                            9,585(unexercisable)     $  1,293 (unexercisable)
---------------------------------------------------------------------------------------------------------------------------
Rob Owen                                Nil             Nil               nil (exercisable)        $  nil (exercisable)
General Manager, EMEA                                                    nil (unexercisable)       $  nil (unexercisable)
---------------------------------------------------------------------------------------------------------------------------
Walter Beisheim                         Nil             Nil               6,249 (exercisable)      $  5,437 (exercisable)
Vice President                                                            8,751 (unexercisable)    $  7,613 (unexercisable)
Worldwide Sales
---------------------------------------------------------------------------------------------------------------------------
Poul Kvist                              Nil             Nil               3,353(exercisable)       $  2,098 (exercisable)
Operations Manager                                                          817(unexercisable)     $    687(unexercisable)
EMEA
---------------------------------------------------------------------------------------------------------------------------
(1)  Based on Nasdaq closing price of $4.55 on December 31, 2003.
(2)  Includes  options to purchase  common shares within 60 days after  December
     31, 2003.
</TABLE>


Compensation of Directors

     During the latest fiscal year, the Company paid its non-employee  directors
a meeting  stipend of $2,500 for each board  meeting  they  attended  in person,
$1,250 for each board meeting they attended by telephone, and $1,000 for certain
committee  meetings.  In the case of the  Special  Committee,  members  received
$2,500 per day. During the fiscal year ended December 31, 2003, the non-employee
directors of the Company  received  aggregate cash  compensation of $241,642 for
their  services.  The  non-employee  directors  were also  reimbursed for actual
expenses  reasonably incurred in connection with the performance of their duties
as directors.

     Non-employee  directors  were also eligible to receive stock options issued
pursuant to the Company's stock option plan in consideration  for their services
as directors  and in  accordance  with rules and  policies of The Toronto  Stock
Exchange.  On June 5, 2003,  the  Company's  four non  employee  directors  were
granted  options to acquire 3,000 common  shares each;  at an exercise  price of
$4.41 per share, vesting over thirty-six months and subject to the grantee being
a director on the date of vesting.

Compensation Committee Interlocks and Insider Participation

     During the fiscal year ended December 31, 2003, the Compensation  Committee
consisted of Robert C. Harris,  Jr., Marc  Rochefort  and David Van  Valkenburg.
None of the members of the Compensation  Committee was an officer or employee of
MDSI during the fiscal year ended  December 31, 2003, or was formerly an officer
of MDSI, or had any relationship  during the fiscal year ended December 31, 2003
that required disclosure under Item 14 below.



                                       77
<PAGE>

     During the fiscal year ended  December  31, 2003,  no executive  officer of
MDSI served as a director  or member of a  committee  of the board of any entity
that had one or more executive  officers  serving as a member of MDSI's Board or
Compensation Committee.

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,
2003, by (i) each person known by the Company to be the beneficial owner of more
than 5% of the  outstanding  Common  Shares,  (ii) each director of the Company,
(iii)  each  Named  Executive  Officer,  and (iv) all  directors  and  executive
officers as a group.  Except as otherwise  indicated,  the Company believes that
the  beneficial  owners of the Common Shares listed below,  based on information
furnished by such owners,  have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.


<TABLE>
                                                                 Number of Shares
Directors, Executive Officers and 5% Shareholders(1)               Beneficially           % of total Shares
                                                                     Owned(2)                   Owned
-------------------------------------------------------------  --------------------- ----------------------
<S>                                                                <C>                         <C>
Erik Dysthe(3) .............................................         483,933                     5.8
Peter Hill Rankin (4).......................................         106,043                     1.2
David Haak(5) ..............................................          20,415                       *
Robert Owen.................................................               -                       *
Walter Beisheim(6)..........................................           6,249                       *
Poul Kvist(7)...............................................           3,363                       *
Robert C. Harris, Jr. (8)...................................         107,744                     1.3
David R. Van Valkenburg(9)..................................          43,998                       *
Peter Ciceri(10)............................................          15,665                       *
Marc Rochefort(11)..........................................          19,317                       *
                                                               --------------------- ----------------------
All Directors and Executive Officers as a group
(17 persons) (12)...........................................       1,050,488                    12.2%
                                                               --------------------- ----------------------
5% Shareholders:
Howson Tattersall Investment Counsel Limited                       1,211,995                    14.7%
20 Queen Street West,
Toronto, Ontario M5H 3R3

Seamark Asset Management Ltd.                                      1,110,500                    13.5%
1801 Hollis Street, Suite 310
Halifax, Nova Scotia B3J 3N4

Natcan Investment Management                                         765,600                     9.3%
1100, rue Universite Suite 400
Montreal, Quebec  H3B 2G7

Guardian Capital Inc.                                                548,775                     6.7%
Commerce Court West
Suite 3100 PO Box 201
Toronto Ontario M5L 1E8
----------
*    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, 2003, or exercisable  within 60 days
     after  December  31,  2003,  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 is based on the  aggregate  Common Shares
     outstanding as of December 31, 2003,  together with the applicable  options
     of such shareholder.
(3)  Includes 326,898 Common Shares held by Erik Dysthe Holdings Co. and options
     to purchase 109.039 Common Shares exercisable within 60 days after December
     31, 2003 held by Mr. Dysthe individually.
(4)  Includes  options to purchase  60,278 Common Shares  exercisable  within 60
     days of December 31, 2003.
(5)  Includes  options to purchase  12,915 Common Shares  exercisable  within 60
     days after December 31, 2003
(6)  Consists of options to purchase 6,249 Common Shares  exercisable  within 60
     days after December 31, 2003.
(7)  Consists of options purchase 3,363 Common Shares exercisable within 60 days
     after December 31, 2003.
(8)  Includes  options to purchase  38,554 Common Shares  exercisable  within 60
     days after December 31, 2003.
(9)  Includes  options to purchase  28,998 Common Shares  exercisable  within 60
     days after December 31, 2003.
(10) Consists of options to purchase 15,665 Common Shares  exercisable within 60
     days after December 31, 2003.
(11) Includes  options to purchase  17,887 Common Shares  exercisable  within 60
     days after December 31, 2003.
(12) Includes  options to purchase 476,182 Common Shares  exercisable  within 60
     days after December 31, 2003.
</TABLE>



                                       78
<PAGE>

<TABLE>
Equity Compensation Plan Information as at December 31, 2003

        Plan Category           Number of securities to be     Weighted-average exercise      Number of securities
                                  issued upon exercise of        price of outstanding       remaining available for
                                   outstanding options,          options, warrants and       future issuance under
                                    warrants and rights                 rights             equity compensation plans
                                                                                             (excluding securities
                                                                                             subject to outstanding
                                                                                             options, warrants and
                                                                                                    rights)
<S>                              <C>                                 <C>                           <C>
Equity compensation plans        1,191,248 (stock option plan)       $   5.67                      1,208,752
approved by security holders
                                     Nil    (employee share               N/A                         62,625
                                             purchase plan)

Equity compensation plans            Nil                                  N/A                            Nil
not approved by security
holders
                               ------------------------------ ---------------------------- ---------------------------
Total                            1,191,248                                N/A                      1,271,377
                               ============================== ============================ ===========================
</TABLE>


Item 13:  Certain Relationships and Related Transactions

     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,  between the Company and its officers, directors, principal
shareholders and their affiliates will be approved by a majority of the Board of
Directors,  including a majority of the independent and disinterested directors,
and will continue to be on terms no less  favorable to the Company than could be
obtained from unaffiliated third parties.


Item 14:  Principal Accountant Fees and Services

     The following table sets forth the aggregate fees billed to the Company for
the years  ended  December  31,  2003 and 2002 by its  independent  accountants,
Deloitte & Touche LLP ("Deloitte"):

<TABLE>
                                                               Year ended December     Year ended December
                                                                     31, 2003                31, 2002
-------------------------------------------------------------  ---------------------   ---------------------
<S>                                                                 <C>                      <C>
Audit Fees..................................................        $260,098                 $113,337
Audit-Related Fees..........................................        $ 87,803                 $ 62,481
Tax Fees ...................................................        $  1,420                 $      -
All Other Fees..............................................        $      -                 $      -
</TABLE>


     The Audit Committee must pre-approve  audit-related and non-audit  services
not  prohibited  by law to be performed by the Company's  independent  certified
public  accountants.  The Audit Committee  pre-approved  all  audit-related  and
non-audit services in 2003.



                                       79
<PAGE>

                                     Part IV


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

     (a)  1. Consolidated Financial Statements

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

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

          2.   Financial Statement Schedules

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





                                       80
<PAGE>


                                   SCHEDULE II

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


<TABLE>

                                         Balance,        Additions,
                                       Beginning of     During Period   Application/Write-off   Balance, End
                                          Period                            During Period         of Period
<S>                                   <C>               <C>                <C>                 <C>
Allowance for doubtful accounts
Year ended December 31, 2003            3,506,614         3,069,860          3,784,059           2,792,415
Year ended December 31, 2002            3,587,303                 -             80,689           3,506,614
Year ended December 31, 2001              985,000         2,938,195            335,892           3,587,303


Provision against investments and
   advances
Year ended December 31, 2003            2,499,992                 -          2,499,992                   -
Year ended December 31, 2002            2,999,992                 -            500,000           2,499,992
Year ended December 31, 2001              250,000         2,749,992                  -           2,999,992


Deferred income tax valuation
  allowance
Year ended December 31, 2003            9,332,954         2,585,335                  -          11,918,289
Year ended December 31, 2002            8,148,680         1,184,274                  -           9,332,954
Year ended December 31, 2001            1,825,049         6,323,631                  -           8,148,680
</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
  4.2(11)           Shareholder  Rights Plan  Agreement  made as of December 17,
                    2003 between the Company and Computershare  Trust Company of
                    Canada
 10.1(2)(3)         2000 Stock Option Plan
 10.2(1)            Form of  Indemnification  Agreement  between the Company and
                    certain   officers  of  the  Company
 10.3(1)            Lease dated  September  25, 1997 between Sun Life  Assurance
                    Company of Canada and the Company
 10.4(4)            Lease  dated  October  12, 2001  between  Crown  Diversified
                    Industries   Corporation   and   Connectria   Corporation  a
                    subsidiary of the Company
 10.5(4)            Amending  Agreement  dated December 1, 1998 between Sun Life
                    Assurance Company of Canada and the Company



                                       81
<PAGE>


 Exhibit
  Number            Description
  ------            -----------
 10.6(2)(5)         Employment  Agreement  dated  January  2, 2002  between  the
                    Company and Verne Pecho
 10.7(2)(6)         2002 Stock Purchase Plan
 10.8(7)            Exchange  Agreement  dated as of June  26,  2002  among  the
                    Company,  Connectria  Corporation,  Richard S.  Waidmann and
                    Eric Y. Miller
 10.9(7)            Amendment  to Exchange  Agreement  dated as of June 30, 2002
                    among  the  Company,  Connectria  Corporation,   Richard  S.
                    Waidmann and Eric Y. Miller
 10.10(7)           Warrant dated as of June 29, 2002 to purchase  50,380 shares
                    of  Series  A  Nonvoting   Preferred   Stock  of  Connectria
                    Corporation
 10.11(7)           $250,000  Promissory  Note dated as of June 30, 2002 made by
                    Connectria Corporation in favor of the Company
 10.12(7)           Security  Agreement  dated  as  of  June  30,  2002  between
                    Connectria Connectria and the Company
 10.13(2)(8)        Employment  Agreement  dated  January  1, 1999  between  the
                    Company and Glenn Y. Kumoi
 10.14(2)(8)        Settlement  Agreement  dated  March  15,  2002  between  the
                    Company and Gerald F. Chew
 10.15(2)(8)        Settlement  Agreement dated May 31, 2002 between the Company
                    and Gene Mastro*
 10.16(2)(9)        Employment  Agreement  dated  September 12, 2001 between the
                    Company and Walter J. Beisheim
 10.17(2)(10)       Employment  Agreement  dated  August  1,  2003  between  the
                    Company and Peter Hill Rankin
 10.18(2)(10)       Employment  Agreement  dated  September  3, 2003 between the
                    Company and Glenn Kumoi
 10.19(2)(10)       Employment  Agreement  dated  September  4, 2003 between the
                    Company and Erik Dysthe
 10.20(2)(10)       Employment  Agreement  dated  August 20,  2003  between  the
                    Company and Joo-Hyung (Tommy) Lee
 10.21(2)           Settlement  Agreement  dated  January  7, 2004  between  the
                    Company and Walter J. Beisheim
 10.22(2)           Employment  Agreement  dated  August 18,  1997  between  the
                    Company and Poul Kvist
 10.23(2)           Employment  Agreement  dated  October 21,  2002  between the
                    Company and Rob Owen
 10.24(2)           Settlement  Agreement  dated  October 30,  2003  between the
                    Company and Rob Owen
 14.1               Code of Ethics
 21.1               List of the Company's Subsidiaries
 23.1               Consent of Deloitte & Touche LLP
 31.1               Section 302 Certification of Chief Executive Officer
 31.2               Section 302 Certification of Chief Financial Officer
 32.1               Section 906 Certification of Chief Executive Officer
 32.2               Section 906 Certification of Chief Financial Officer
--------------------------------
(1)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrants' Registration Statement on Form F-1 (Registration No. J33-5872)
     and  amendments  numbers 1 and 2  thereto,  filed with the  Securities  and
     Exchange Commission on October 28, 1996, November 13, 1996 and November 25,
     1996, respectively.
(2)  This document has been identified as a management  contract or compensatory
     plan or arrangement.
(3)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on November 22, 2000.
(4)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2001.
(5)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2002.
(6)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2002.
(7)  Previously filed as exhibits with the Registrant's Form 8-K filed on August
     14, 2002.
(8)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2002.
(9)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2003.
(10) Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended September 30, 2003.
(11) Previously  filed as  exhibits  with  the  Registrant's  Form 8-K  filed on
     December 18, 2003.

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

     (b)  Reports on Form 8-K

     The Company furnished a Form 8-K to the SEC on October 28, 2003 pursuant to
Items 9 and 12 attaching a press release  regarding  the Company's  earnings for
the third quarter of 2003.

     The Company  furnished a Form 8-K to the SEC on November 17, 2003  pursuant
to Items 9 and 12 attaching a press release  regarding  the Company's  intent to
restate its  consolidated  financial  statements  for the fiscal year 2002,  the
third and fourth quarters of 2002 and the first and second quarters of 2003.



                                       82
<PAGE>

     The Company  filed and furnished a Form 8-K to the SEC on December 18, 2003
pursuant  to  Items  5,  7 and 9  relating  to  the  renewal  of  the  Company's
shareholder rights plan.

     The  information  in a Form 8-K furnished  pursuant to Items 9 and 12 shall
not be deemed to be filed under the Exchange Act.






                                       83
<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 30, 2004.

                                         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 30, 2004
                               Officer)


/s/ Verne D. Pecho           Vice President - Finance and
---------------------------  Administration and Chief Financial
Verne D. Pecho               Officer (Principal Financial and
                             Accounting Officer)                 March 30, 2004


/s/ Peter Ciceri
---------------------------
Peter Ciceri                 Director                            March 30, 2004


/s/ Robert C. Harris, Jr.
---------------------------
Robert C. Harris, Jr.        Director                            March 30, 2004


/s/ Marc Rochefort
---------------------------
Marc Rochefort               Director                            March 30, 2004


/s/ David R. Van Valkenburg
---------------------------
David R. Van Valkenburg      Director (Authorized U.S.
                              Representative)                    March 30, 2004




                                       84
<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
  4.2(11)           Shareholder  Rights Plan  Agreement  made as of December 17,
                    2003 between the Company and Computershare  Trust Company of
                    Canada
 10.1(2)(3)         2000 Stock Option Plan
 10.2(1)            Form of  Indemnification  Agreement  between the Company and
                    certain   officers  of  the  Company
 10.3(1)            Lease dated  September  25, 1997 between Sun Life  Assurance
                    Company of Canada and the Company
 10.4(4)            Lease  dated  October  12, 2001  between  Crown  Diversified
                    Industries   Corporation   and   Connectria   Corporation  a
                    subsidiary of the Company
 10.5(4)            Amending  Agreement  dated December 1, 1998 between Sun Life
                    Assurance Company of Canada and the Company
 10.6(2)(5)         Employment  Agreement  dated  January  2, 2002  between  the
                    Company and Verne Pecho
 10.7(2)(6)         2002 Stock Purchase Plan
 10.8(7)            Exchange  Agreement  dated as of June  26,  2002  among  the
                    Company,  Connectria  Corporation,  Richard S.  Waidmann and
                    Eric Y. Miller
 10.9(7)            Amendment  to Exchange  Agreement  dated as of June 30, 2002
                    among  the  Company,  Connectria  Corporation,   Richard  S.
                    Waidmann and Eric Y. Miller
 10.10(7)           Warrant dated as of June 29, 2002 to purchase  50,380 shares
                    of  Series  A  Nonvoting   Preferred   Stock  of  Connectria
                    Corporation
 10.11(7)           $250,000  Promissory  Note dated as of June 30, 2002 made by
                    Connectria Corporation in favor of the Company
 10.12(7)           Security  Agreement  dated  as  of  June  30,  2002  between
                    Connectria Connectria and the Company
 10.13(2)(8)        Employment  Agreement  dated  January  1, 1999  between  the
                    Company and Glenn Y. Kumoi
 10.14(2)(8)        Settlement  Agreement  dated  March  15,  2002  between  the
                    Company and Gerald F. Chew
 10.15(2)(8)        Settlement  Agreement dated May 31, 2002 between the Company
                    and Gene Mastro*
 10.16(2)(9)        Employment  Agreement  dated  September 12, 2001 between the
                    Company and Walter J. Beisheim
 10.17(2)(10)       Employment  Agreement  dated  August  1,  2003  between  the
                    Company and Peter Hill Rankin
 10.18(2)(10)       Employment  Agreement  dated  September  3, 2003 between the
                    Company and Glenn Kumoi
 10.19(2)(10)       Employment  Agreement  dated  September  4, 2003 between the
                    Company and Erik Dysthe
 10.20(2)(10)       Employment  Agreement  dated  August 20,  2003  between  the
                    Company and Joo-Hyung (Tommy) Lee
 10.21(2)           Settlement  Agreement  dated  January  7, 2004  between  the
                    Company and Walter J. Beisheim
 10.22(2)           Employment  Agreement  dated  August 18,  1997  between  the
                    Company and Poul Kvist
 10.23(2)           Employment  Agreement  dated  October 21,  2002  between the
                    Company and Rob Owen
 10.24(2)           Settlement  Agreement  dated  October 30,  2003  between the
                    Company and Rob Owen
 14.1               Code of Ethics
 21.1               List of the Company's Subsidiaries
 23.1               Consent of Deloitte & Touche LLP
 31.1               Section 302 Certification of Chief Executive Officer
 31.2               Section 302 Certification of Chief Financial Officer
 32.1               Section 906 Certification of Chief Executive Officer
 32.2               Section 906 Certification of Chief Financial Officer
--------------------------------



<PAGE>

(1)  Previously  filed as exhibits with the same  corresponding  number with the
     Registrants' Registration Statement on Form F-1 (Registration No. J33-5872)
     and  amendments  numbers 1 and 2  thereto,  filed with the  Securities  and
     Exchange Commission on October 28, 1996, November 13, 1996 and November 25,
     1996, respectively.
(2)  This document has been identified as a management  contract or compensatory
     plan or arrangement.
(3)  Previously filed as exhibits with the Registrant's  Registration  Statement
     on Form S-8 filed on November 22, 2000.
(4)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2001.
(5)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2002.
(6)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2002.
(7)  Previously filed as exhibits with the Registrant's Form 8-K filed on August
     14, 2002.
(8)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2002.
(9)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2003.
(10) Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended September 30, 2003.
(11) Previously  filed as  exhibits  with  the  Registrant's  Form 8-K  filed on
     December 18, 2003.

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






<PAGE>