Exhibit 99.1

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 -
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward
looking statements made by public companies. This safe harbor protects a company from
securities law liability in connection with forward-looking statements if the company
complies with the requirements of the safe harbor. As a public company, MDSI has relied
and will continue to rely on the protection of the safe harbor in connection with its
written and oral forward-looking statements.

When
evaluating MDSIs business, you should consider:

| |  |  | all
of the information in this quarterly report on Form 10-Q;
| | - |  | -------------------------------------------------------------

| |  |  | the
risk factors described in the Companys annual report for the year ended December
31, 2003 filed with the Securities and Exchange Commission; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the
risk factors described below.
| | - |  | ---------------------------------

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

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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 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 may be adversely affected. There can be no assurance that the Company will be able
to grow 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.

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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 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 some 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 volatile 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.

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History of Losses and
Fixed Operating Expenses

As
of June 30, 2004, the Company had an accumulated deficit of $30.6 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, and from enhancement of existing products including
Advantex r7. 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 has also expanded the
geographical areas in which it operates. Such growth may place strains on its management,
administrative, operational and financial resources, as well as increased demands on its
internal systems, procedures and controls. There can be no assurance that the Company will
be able to effectively manage its operations or future growth and expansion into new
markets. Failure to do so could have a material adverse effect on the Companys
business, financial condition, operating results and cash flows.

Dependence on Key
Personnel

The
Companys performance and future operating results are substantially dependent on the
continued service and performance of its senior management and key technical and sales
personnel. Competition for qualified personnel is intense, 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 additional highly-qualified technical and managerial
personnel. 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.

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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 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 has
recently been acquired by Viryanet Ltd.), CGI Group Inc., Intergraph Corporation, Axiom
Corporation (which is in the process of being acquired by Synergen Inc.), Oracle
Corporation, Itron Inc. Vidus Limited (formerly known as 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

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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, the Companys products will be free of errors or such products
will perform according to expectations with respect to response time, ability to
communicate over multiple networks, scalability, stability and ease of use. Such errors
and failures could result in loss of or delay in market acceptance of the Companys
products, the cancellation of contracts or the imposition of substantial penalties, any of
which could have a material adverse effect on the Companys business, financial
condition, operating results and cash flows.

Proprietary Technology

The
Companys success is dependent on its ability to protect its intellectual property
rights. The Company relies principally upon a combination of copyright, trademark, trade
secret and patent laws, non-disclosure agreements and other contractual provisions to
establish and maintain its rights. To date, the Company has been granted trademark
registrations or has registrations pending in the United States, Canada and the European
Community for the MDSI, Advantex, Wireless@work and Compose trademarks. In addition MDSI
has been granted several patents in the United States and internationally covering various
aspects of its technology, and has filed further patent applications which 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.

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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.

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. 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. 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. 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

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internal compliance and
implementation procedures, as well as external regulatory factors such as investigations,
audits and decisions by tax officials and changes in tax laws, regulations and policies.

Product Liability

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

Anti-Takeover Effects;
Investment Canada Act

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

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

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.

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