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, 2002 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, current
economic conditions and developments in the energy markets have had an adverse effect 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 and general
trends are likely to continue to affect demand for the Companys products and
services in

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2003, particularly demand for
software and related services. Such factors may also increase the amount of doubtful
accounts or adversely affect the likelihood of collection of such accounts.

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

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

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

# Dependence on Third
Party Products and Services

Since
1996, the Company has been, and anticipates that from time to time it will be, engaged to
provide, in addition to its own products and services, third party hardware, software and
services, which the Company purchases from vendors and sells to its customers. For the
years ended December 31, 2002, 2001 and 2000, 6.4%, 5.5%, and 3.4% respectively, of the
Companys revenue was attributable to third party products and services. For the
three months ended June 30, 2003 and 2002, 5.0% and 3.5% respectively of the
Companys revenue was attributable to third party products and services, and for the
six months ended June 30, 2003 and 2002, 10.0% and 3.1% respectively of the Companys
revenue was attributable to third party products and services As the revenue generated
from the supply of third party products and services may represent a significant portion
of certain contracts and the installation and rollout of third party products is generally
at the discretion of the customer, the Company may, depending on the level of third party
products and services provided during a period, experience large quarterly fluctuations in
revenue. See Forward Looking Statements. In addition, because the
Companys gross margins on third party products and services are substantially below
gross margins historically achieved on revenue associated with MDSI products and services,
large fluctuations in quarterly revenue from the sale of third party products and services
will result in significant fluctuations in direct costs, gross profits, operating results,
cash flows and other items expressed as a percentage of revenue.

# 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

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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, 2002, 2001, and 2000, approximately 30.7%, 29.8%, and
30.6% respectively, of the Companys consolidated revenue was attributable to five or
fewer customers. During the year ended December 31, 2002, TELKOM South Africa Limited
accounted for 10.1% of the Companys consolidated revenue. During the year ended
December 31, 2001, Eircom P.L.C. accounted for 11.9% of the Companys consolidated
revenue. During the year ended December 31, 2000, no single customer accounted for 10% or
more of the Companys consolidated revenue. During the three months ended June 30,
2003 revenue from TELKOM South Africa Limited, and Transco PLC accounted for approximately
19.8% and 17.5%, respectively, of total revenue. During the six months ended June 30, 2003
revenue from Transco PLC, and TELKOM South Africa Limited, accounted for approximately
20.1% and 19.6%, respectively, of total revenue. For the three and six months ended June
30, 2002 one customer did not account for greater than 10% of total revenue. The Company
believes that revenue derived from current and future large customers will continue to
represent a significant portion of its total revenue. See Forward Looking
Statements. The inability of the Company to continue to secure and maintain a
sufficient number of large contracts would have a material adverse effect on the
Companys business, financial condition, operating results and cash flows. Moreover,
the Companys success will depend in part upon its ability to obtain orders from new
customers, as well as the financial condition and success of its customers and general
economic conditions.

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

# Potential Fluctuations
in Backlog

The
Companys backlog consists of a relatively small number of large contracts relating
to sales of its mobile workforce management and wireless connectivity software and related
equipment and services, and sales of third party products and services. Due to the long,
complex sales process and the mix of sales of the Companys products and services and
third party products and services, the Companys backlog may fluctuate significantly
from period-to-period. In addition, under the terms of the Companys contracts, the
Companys customers may elect to terminate their contracts with the Company at any
time after notice to the Company or to delay certain aspects of

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

# Seasonal Variations in
Demand

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

# History of Losses and
Fixed Operating Expenses

As
of June 30, 2003, the Company had an accumulated deficit of $25.5 million. There can be no
assurance that the Company will realize revenue growth or be profitable on a quarterly or
annual basis. The Company plans to continue to contribute significant resources to its
operating expenses related to sales and marketing operations, to fund significant levels
of research and development, to broaden its customer support capabilities and to maintain
its administrative resources. A relatively high percentage of the Companys expenses
are fixed in the short term and the Companys expense levels are based, in part, on
its expectations of future revenue. To the extent that such expenses precede or are not
subsequently followed by increased revenue, the Companys business, financial
condition, operating results and cash flows could be materially adversely affected. In
addition, due to the rapidly evolving nature of its business and markets, the Company
believes that period-to-period comparisons of financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.

# Integration of
Acquisitions

The
Company may, when and if the opportunity arises, acquire other products, technologies or
businesses involved in activities, or having product lines, that are complementary to the
Companys business. Acquisitions involve numerous risks, including difficulties in
the assimilation of the operations, technologies and products of the acquired companies,
the diversion of managements attention from other business concerns, risks
associated with entering markets or conducting operations with which the Company has no or
limited direct prior experience and the potential loss of key employees of the acquired
company. Moreover, there can be no assurance that any anticipated benefits of an
acquisition will be realized. Future acquisitions by the Company could result in
potentially dilutive 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

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customer needs, new competitive
product offerings and enhanced technology. There can be no assurance that the Company
will be successful in developing and marketing on a timely and cost-effective basis new
products and enhancements that respond to such changing market conditions. If the Company
is unable to anticipate or adequately respond on a timely or cost-effective basis to
changing market conditions, to develop new software products and enhancements to existing
products, to correct errors on a timely basis or to complete products currently under
development, or if such new products or enhancements do not achieve market acceptance,
the Companys business, financial condition, operating results and cash flows could
be materially adversely affected. In light of the difficulties inherent in software
development, the Company expects that it will experience delays in the completion and
introduction of new software products. For example, the time required for the initial
implementation and field testing of Advantex r7 was greater than expected, which resulted
in delays in commencement of certain installations of the Advantex r7 product.

# Litigation

On
November 22, 2000, the Company filed a suit against Citizens Telecom Services Co., L.L.C.,
generally alleging that Citizens breached a series of contracts dated October 15, 1998.
The suit alleged that Citizens wrongfully terminated the contracts and failed to pay sums
due. The suit sought damages, interest and attorneys fees. Citizens filed an answer
and counterclaim alleging that MDSI breached the contracts, justifying Citizens
termination of the contracts and entitling Citizens to repayment of approximately $3.5
million paid to MDSI in addition to interest and attorneys fees. In addition,
Citizens counterclaims alleged fraud, negligent misrepresentation, breach of express
warranty and breach of implied warranties. Citizens sought actual, special, incidental and
consequential damages associated with these counterclaims, in addition to punitive
damages, interest and attorneys fees. On April 16, 2003 the Company received notice
that Citizens reached a settlement on its breach of contract and warranty claims with
MDSIs insurer as discussed below, which settles Citizens claims for refunds under
the contact and any contractual or consequential damages. This settlement will not result
in the Company recording any charge to earnings.

On
March 5, 2003, the court granted Citizens motion for summary judgment, dismissing
MDSIs claims for lack of sufficient evidence of damages. MDSI filed a motion for
reconsideration of this ruling. On March 26, 2003, the court denied MDSIs motion for
reconsideration. On March 26, 2003, the court granted the Companys motion for
partial summary judgment, finding that Citizens wrongfully terminated the professional
services agreement. On April 8, 2003, the court granted the Companys motion for
summary judgment on the Citizens counterclaims for fraud and negligent
misrepresentation.

On
April 16, 2003, the Company was informed that its insurer reached an agreement with
Citizens to settle Citizens breach of contract and breach of warranty counterclaims
for $1 million. The Company is not a party to the settlement agreement and the settlement
amount is to be paid by the insurance company. The settlement agreement preserved the
Companys right to appeal the courts ruling that dismissed the Companys
claims on summary judgment for lack of sufficient evidence of damages and Citizens
right to appeal the courts ruling that dismissed Citizens claims of fraud and
negligent misrepresentation. On May 14, 2003, the Company filed its Notice of Appeal, and
on May 28, 2003 the Citizens appealed the courts motion for summary judgment, that
dismissed Citizens counterclaims for fraud and negligent misrepresentation. Both
parties are awaiting a court date as to when the appeals will be heard.

The
Company intends to expense the costs of ongoing attorneys fees and costs incurred in
connection with the appeal and any subsequent trial, and any counterclaims asserted by the
customer for fraud and negligent misrepresentation, as incurred.

In
its consolidated balance sheet as of June 30, 2003, MDSI has classified approximately $3.7
million in amounts due from Citizens, which amounts are subject to the suit, as a long
term receivable, as it is not expected to be realized within one year. MDSI has, in a
prior period, recorded $1.0 million of such amounts as doubtful accounts and has not
recorded any amounts claimed by Citizens as a contingent or other liability of MDSI. If
MDSI is not

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successful in its claims against
Citizens, MDSI may need to take a $2.7 million dollar charge to earnings. If Citizens is
successful in any fraud or negligent misrepresentation counterclaims, the Company may
need to take an additional charge to earnings to the extent of the judgment. Although the
amount of any such judgment against the Company for fraud or negligent misrepresentation
cannot be determined, if Citizens is successful in any appeal and subsequent trial, the
Companys financial condition and results of operations would be materially
adversely affected. There is currently no provision in MDSIs financial statements
to address any refund or other payment to Citizens in respect of these counterclaims, as
MDSI views this to be an unlikely event.

# 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 334 employees located in Canada, the United States and other
international locations at June 30, 2003. The Company has also further expanded the
geographical areas in which it operates. In March and April 2001, the Company made several
announcements regarding its intention to reduce the size of its work force by
approximately 25% in anticipation of reduced demand for its products and services due to
the general economic slowdown. In July 2002, the Company completed the sale of its
subsidiary Connectria Corporation, reducing the size of its work force by 71 employees. If
the Company resumes its growth in future periods, such growth may place strains on its
management, administrative, operational and financial resources, as well as increased
demands on its internal systems, procedures and controls. There can be no assurance that
the Company will be able to effectively manage its operations or future growth and
expansion into new markets. Failure to do so could have a material adverse effect on the
Companys business, financial condition, operating results and cash flows.

# Dependence on Key
Personnel

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

# Dependence on Selected
Vertical Markets

Prior
to 1996, substantially all of the Companys revenue was derived from the sale of
products and services to customers in the utility market. In 2000 the telecommunications
and cable/broadband markets accounted for greater than 53% of the Companys revenue.
In 2002 and 2001 the utility market accounted for 65% and 70% respectively of the
Companys revenue. The Company anticipates that a significant portion of its future
revenue will be generated by sales of products to the utility, telecommunications, and
cable/broadband markets and that recent economic developments and trends have adversely
affected and may continue to adversely affect levels of capital spending by companies in a
variety of industries, including the vertical markets MDSI serves. The Company believes
that these and other factors may cause potential and existing customers to delay or defer
purchasing decisions or seek to terminate or delay payment under existing contracts for
the Companys products and services. Such factors may also increase the amount of
doubtful accounts or adversely affect the likelihood of collection of such accounts. See
Forward-Looking Statements. A decline in demand for the Companys
products in these markets as a result of economic conditions, competition, technological
change or otherwise, would have a material adverse effect on the Companys business,
financial condition, operating results and cash flows. There can be no assurance that the
Company will be able to continue to diversify its product offerings or revenue base by
entering into new vertical markets or continue to earn revenue in current markets.

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# Dependence on Marketing
Relationships

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

# Competition

The
markets for mobile workforce management applications, wireless connectivity software,
mobile data network equipment and mobile computing devices are highly competitive.
Numerous factors affect MDSIs competitive position, including price, product
features, product performance and reliability, ease of use, product scalability, product
availability on multiple platforms (server, wireless carrier, and mobile workstation),
ability to implement mobile workforce management solutions domestically and
internationally while meeting customer schedules, integration of products with other
enterprise solutions, availability of project consulting services and timely ongoing
customer service and support. Within these markets, there are a small number of new
ventures, either small companies attempting to establish a business in this market or
large companies attempting to diversify their product offerings. MDSI expects such
competition to intensify as acceptance and awareness of mobile data communications and
technology continue to spread. 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., which owned MDSI competitor M3i Systems, Inc.), Intergraph Corporation,
Axiom Corporation, Oracle Corporation, Itron Inc. (via its acquisition of e-Mobile Data
Inc.), Accenture FFE 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 in the telecommunications market include ClickSoftware, Inc., and ViryaNet
Ltd., which the Company mostly sees competing for small accounts. 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 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

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Incorporated and IBM, as well as a
variety of other newer competitors. Also serving the commercial field service market are
enterprise application solution providers, such as Astea International Inc., Metrix Inc.,
and FieldCentrix Inc., in addition to several larger enterprise software companies, such
as Amdocs Limited (which recently acquired the assets of Clarify), Oracle Corporation,
PeopleSoft Inc., and Siebel Systems Inc. MDSI believes that these enterprise application
vendors offer less comprehensive wireless enablement solutions than MDSI, and are
consequently potential partners for expanding MDSIs penetration in this market.

# Risk of Product Defects
and Implementation Failure

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

# Proprietary Technology

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

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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 in a timely manner could
have a material adverse effect on the Companys financial condition, results of
operations and cash flows.

# Exchange Rate
Fluctuations

Because
the Companys reporting and functional currency is the United States dollar, its
operations outside the United States face additional risks, including fluctuating currency
values and exchange rates, hard currency shortages and controls on currency exchange. The
Company has operations outside the United States and is hedged, to some extent, from
foreign exchange risks because of its ability to purchase, develop and sell in the local
currency of those jurisdictions. In addition, the Company does enter into foreign currency
contracts under certain circumstances to reduce the Companys exposure to foreign
exchange risks. There can be no assurance, however, that the attempted matching of foreign
currency receipts with disbursements or hedging activities will adequately moderate the
risk of currency or exchange rate fluctuations, which could have a material adverse effect
on the Companys business, financial condition, operating results and cash flows. In
addition, to the extent the Company has operations outside the United States, the Company
is subject to the impact of foreign currency fluctuations and exchange rate charges on the
Companys reporting in its financial statements of the results from such operations
outside the United States. During the period covered by this report, 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, 2002, 2001, and 2000 revenue derived from sales outside of
North America accounted for approximately 31.7%, 23.8%, and 23.6%, respectively, of the
Companys total revenue. In the three and six months ended June 30, 2003
approximately 46.7% (2002  27.0%) and 50.4% (2002  24.6%) respectively of the
Companys total revenue was derived from sales outside North America. 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 revenue 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

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exchange rates could adversely
affect sales denominated in foreign currencies and cause a reduction in revenue derived
from sales in a particular country. In addition, revenue of the Company earned abroad may
be subject to taxation by more than one jurisdiction, thereby adversely affecting the
Companys earnings. There can be no assurance that such factors will not materially
adversely affect the Companys future international sales and, consequently, the
Companys business, financial condition, operating results and cash flows.

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

# Product Liability

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

# Anti-Takeover Effects;
Investment Canada Act

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

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

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

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

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# 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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