---

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

_________________

# FORM 10-Q

||X| |  | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ---------------------------------------------------------------------------------------

| | For
the quarterly period ended June 30, 2004
| | --------------------------------------------

# OR

||_| |  | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ----------------------------------------------------------------------------------------

| | For
the transition period from ___________________ to ______________________.
| | -----------------------------------------------------------------------------

Commission file number
0-28968

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

|CANADA(Jurisdiction of incorporation) |  | NOT APPLICABLE(I.R.S. Employer Identification No.)
|------------------------------------- |  | --------------------------------------------------

10271 Shellbridge Way 
Richmond, British Columbia, 
Canada V6X 2W8 
(604) 207-6000(Address and telephone number of registrants principal executive offices)

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

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

The number of outstanding shares of
the Registrants common stock, no par value, at August 9, 2004 was 8,335,886

---

---

# MDSI Mobile Data
Solutions Inc.
INDEX TO THE FORM 10-Q 

For the quarterly period ended June 30, 2004

|                             |                                                                                       |                                                      |    | Page No.
|---------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------- | -- | --------
|Part IFINANCIAL INFORMATION |                                                                                       |                                                     
|ITEM 1.                      | FINANCIAL STATEMENTS                                                                  |                                                      |   
|                             |                                                                                       | Condensed Consolidated Balance Sheets                |    | 1       
|                             |                                                                                       | Condensed Consolidated Statements of Operations      |    | 2       
|                             |                                                                                       | Condensed Consolidated Statements of Cash Flows      |    | 3       
|                             |                                                                                       | Notes to Condensed Consolidated Financial Statements |    | 4       
|ITEM 2.                      | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                      | 10
|ITEM 3.                      | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |                                                      | 21
|ITEM 4.                      | CONTROLS AND PROCEDURES                                                               |                                                      | 23
|Part IIOTHER INFORMATION    |                                                                                       |                                                     
|ITEM 1.                      | LEGAL PROCEEDINGS                                                                     |                                                      | 24
|ITEM 4.                      | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |                                                      | 24
|ITEM 5.                      | OTHER INFORMATION                                                                     |                                                      | 24
|ITEM 6.                      | EXHIBITS AND REPORTS ON FORM 8-K                                                      |                                                      | 25
|SIGNATURES                   |                                                                                       | 27                                                  

---

Part I  FINANCIAL INFORMATIONITEM 
ITEM 1.   FINANCIAL STATEMENTS

MDSI MOBILE DATA SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars)
(Unaudited)

|                                                                                    | As at
|----------------------------------------------------------------------------------- | -----
|
|                                                                                    |      
|
|                                                                                    |      
|ASSETS                                                                              |      
|CURRENT ASSETS                                                                      |      
|Cash and cash equivalents                                                           |      
|Accounts receivable, net                                                            |      
|Trade (net of allowance for doubtful accounts $284,086; 
        2003 - $2,792,415) |      
|Unbilled                                                                            |      
|Prepaid expenses and other assets                                                   |      
|                                                                                    |      
|                                                                                    |      
|                                                                                   
|CAPITAL ASSETS, NET                                                                 |      
|                                                                                   
|LONG TERM DEFERRED TAXES                                                            |      
|                                                                                    |      
|                                                                                    |      
|TOTAL ASSETS                                                                        |      
|                                                                                    |      
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                |      
|CURRENT LIABILITIES                                                                 |      
|Accounts payable                                                                    |      
|Accrued liabilities (note 4)                                                        |      
|Income taxes payable                                                                |      
|Deferred revenue                                                                    |      
|Current obligations under capital lease                                             |      
|                                                                                    |      
|                                                                                    |      
|                                                                                   
|OBLIGATIONS UNDER CAPITAL LEASES                                                    |      
|                                                                                    |      
|TOTAL LIABILITIES                                                                   |      
|                                                                                   
|Commitments and Contingencies (note 5)                                              |      
|                                                                                   
|STOCKHOLDERS' EQUITY                                                                |      
|Common stock                                                                        |      
|Additional paid-up capital                                                          |      
|Deficit                                                                             |      
|Accumulated other comprehensive loss                                                |      
|                                                                                    |      
|                                                                                    |      
|                                                                                    |      
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          |      
|                                                                                    |      

See Notes to
Condensed Consolidated Financial Statements

-1-

---

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

|                                          | Three months ended June 30, | Six months ended June 30,
|----------------------------------------- | --------------------------- | -------------------------
|                                          |                             |                          
|
|                                          |                             |                          
|REVENUE                                   |                             |                          
|Software and services                     |                             | $   7,250,212            
|Maintenance and support                   |                             | 4,357,923                
|Third party products and services         |                             | 192,727                  
|                                          |                             |                          
|                                          |                             | 11,800,862               
|                                          |                            
|DIRECT COSTS                              |                             | 4,822,554                
|                                          |                             |                          
|GROSS PROFIT                              |                             | 6,978,308                
|                                          |                             |                          
|OPERATING EXPENSES                        |                            
|Research and development                  |                             | 1,597,346                
|Sales and marketing                       |                             | 2,317,201                
|General and administrative                |                             | 1,971,260                
|Bad Debts Expense                         |                             | 73,586                   
|Strategic Expenses                        |                             | 1,770,299                
|                                          |                             |                          
|                                          |                             | 7,729,692                
|                                          |                             |                          
|OPERATING LOSS                            |                             | (751,384                 
|                                          |                            
|OTHER (EXPENSE) INCOME                    |                             | (11,220                  
|                                          |                             |                          
|LOSS FROM OPERATIONS BEFORE TAX PROVISION |                             | (762,604                 
|                                          |                            
|PROVISION FOR INCOME TAXES                |                             | 300,946                  
|                                          |                             |                          
|NET LOSS FOR THE PERIOD                   |                             | (1,063,550               
|                                          |                            
|DEFICIT, BEGINNING OF PERIOD              |                             | (29,575,512              
|                                          |                             |                          
|DEFICIT, END OF PERIOD                    |                             | $(30,639,062             
|                                          |                             |                          
|Loss per common share                     |                            
|Net Loss                                  |                            
|Basic                                     |                             | $         (0.13          
|                                          |                             |                          
|Diluted                                   |                             | $         (0.13          
|                                          |                             |                          

See Notes to
Condensed Consolidated Financial Statements

-2-

---

# MDSI MOBILE DATA
SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Expressed in United States dollars)
(Unaudited)

|                                         | Three months ended June 30, | Six months ended June 30,
|---------------------------------------- | --------------------------- | -------------------------
|                                         |                             |                          
|
|                                         |                             |                          
|CASH FLOWS FROM OPERATING ACTIVITIES     |                             |                          
|Net loss                                 |                             | $(1,063,550              
|Items not affecting cash:                |                            
|Depreciation                             |                             | 695,915                  
|Deferred income taxes                    |                             | --                       
|Stock based compensation charge          |                             | --                       
|Changes in non-cash operating            |                            
|working capital items (note 6)           |                             | 2,359,729                
|                                         |                             |                          
|Net cash provided by operating           |                            
|activities                               |                             | 1,992,094                
|                                         |                             |                          
|CASH FLOWS FROM FINANCING ACTIVITIES     |                            
|Issuance of Common Shares                |                             | 354,739                  
|Repayment of capital leases              |                             | (282,211                 
|                                         |                             |                          
|Net cash provided by (used in)           |                            
|financing activities                     |                             | 72,528                   
|                                         |                             |                          
|CASH FLOWS FROM INVESTING ACTIVITIES     |                            
|Acquisition of capital assets            |                             | (187,437                 
|                                         |                             |                          
|Net cash used in investing activities    |                             | (187,437                 
|                                         |                             |                          
|NET CASH INFLOW                          |                             | 1,877,185                
|                                         |                            
|CASH AND CASH EQUIVALENTS,               |                            
|BEGINNING OF PERIOD                      |                             | 16,873,805               
|                                         |                             |                          
|CASH AND CASH EQUIVALENTS, END OF PERIOD |                             | $ 18,750,990             
|                                         |                             |                          

See Notes to
Condensed Consolidated Financial Statements

-3-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

Notes to the Condensed Consolidated Financial Statements 
(Expressed in United States dollars) 
(Unaudited)

|1. |  | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

| | (a) |  | Basis
of presentation
| | --- |  | ---------------------

| | These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial reporting and
pursuant to the instructions of the United States Securities and Exchange Commission Form
10-Q and Article 10 of Regulation S-X.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | While
these financial statements reflect all normal recurring adjustments which are, in the
opinion of management, necessary for fair presentation of the results of the interim
period, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the financial statements and footnotes thereto included in the
Annual Report of MDSI Mobile Data Solutions Inc. (the Company or MDSI)
filed on Form 10-K for the year ended December 31, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Use
of estimates
| | --- |  | ----------------

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

| | (c) |  | Revenue
Recognition
| | --- |  | -------------------

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

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

| | License
Fees and Professional Services
| | --------------------------------------

| | Our
supply agreements generally include multiple products and services, or elements. We
use the residual method to recognize revenue when a supply agreement includes one or more
elements to be delivered at a future date and vendor specific objective evidence of the
fair value of all undelivered elements exists. The fair value of the undelivered elements
is determined based on the historical evidence of stand-alone sales, or renewal terms of
these elements to customers. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the arrangement fee, which relates to
the license and implementation services, is recognized as revenue on a percentage of
completion basis. If evidence of the fair value of one or more undelivered elements does
not exist, the total revenue is deferred and recognized when delivery of those elements
occurs or when fair value is established.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-4-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

Notes to the Condensed Consolidated Financial Statements 
(Expressed in United States dollars) 
(Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

| | (c) |  | Revenue
recognition (continued)
| | --- |  | -------------------------------

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

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

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

| | Maintenance
Revenue
| | -------------------

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

| | Historically,
we have provided a warranty phase during the supply agreement. Services provided during
this warranty phase include elements of maintenance and support. As a result we defer a
portion of the supply agreement fee, based on vendor specific objective evidence of the
value of these services, and recognize the deferred amount as revenue pro rata over the
warranty period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Third
party products and services
| | ---------------------------------

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

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

-5-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

Notes to the Condensed Consolidated Financial Statements 
(Expressed in United States dollars) 
(Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

| | (d) |  | Recently
issued accounting standards
| | --- |  | ------------------------------------

| | In
June 2004, the FASB issued an exposure draft of a proposed Statement, Fair Value
Measurements to provide guidance on how to measure the fair value of financial and
non-financial assets and liabilities when required by other authoritative accounting
pronouncements. The proposed statement attempts to address concerns about the ability to
develop reliable estimates of fair value and inconsistencies in fair value guidance
provided by current US GAAP, by creating a framework that clarifies the fair value
objective and its application in GAAP. In addition, the proposal expands disclosures
required about the use of fair value to remeasure assets and liabilities. The standard
would be effective for financial statements issued for fiscal years beginning after June
15, 2005. The Company is currently assessing the impact this standard will have on the
Companys consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2004, the FASB ratified consensuses reached by the Emerging Issues Task Force (EITF)
with respect to EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments. EITF Issue No. 03-1 addresses
recognition, measurement and disclosure of other-than-temporary impairment evaluations
for securities within the scope of SFAS 115, Accounting for Certain Investments in
Debt and Equity Securities, and equity securities that are not subject to the scope
of SFAS No. 115 and are not accounted for under the equity method according to Accounting
Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock. The recognition and measurement guidance is effective for reporting
periods beginning after June 15, 2004. Disclosures for cost method investments are
required to be included in annual financial statements prepared for fiscal years ending
after June 15, 2004. The Company does not have any significant cost method investments
and therefore adoption is not expected to have a significant impact on its consolidated
financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 104 (SAB 104), Revenue Recognition,
which supercedes Staff Accounting Bulletin No. 101 (SAB 101), Revenue
Recognition in Financial Statements. The primary purpose of SAB 104 is to rescind
accounting guidance contained in SAB 101 related to multiple element revenue
arrangements, which was superceded as a result of the issuance of Emerging Issues Task
Force 00-21 (EITF 00-21), Accounting for Revenue Arrangements with
Multiple Deliverables. SAB 104 also incorporated certain sections of the SECs
Revenue Recognition in Financial Statements  Frequently Asked Questions and
Answers document. While the wording of SAB 104 has changed to reflect the issuance
of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by
the issuance of SAB 104. The adoption of SAB 104 did not have an impact on the
consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) |  | Stock-based
compensation
| | --- |  | ------------------------

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

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

|                             | Three months ended June 30, | Six months ended June 30,
|---------------------------- | --------------------------- | -------------------------
|                             |                             |                          
|
|                             |                             |                          
|Net loss for the period      |                             | $   (1,259,301           
|                             |                             |                          
|Basic and fully diluted loss |                            
|per common share             |                             | $            (0.15       
|                             |                             |                          

-6-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

Notes to the Condensed Consolidated Financial Statements 
(Expressed in United States dollars) 
(Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

| | (e) |  | Stock-based
compensation (continued)
| | --- |  | ------------------------------------

| | Using
the fair value method for stock-based compensation, additional compensation costs of
approximately $195,751 would have been recorded for the three months ended June 30, 2004
(2003  $351,674), and $435,832 would have been recorded for the six months ended
June 30, 2004 (2003  $696,130). This amount is determined using an option pricing
model assuming no dividends are to be paid, an average vesting period of four years,
average life of the option of 5 years, a weighted average annualized expected volatility
of the Companys share price of 47% and a weighted average annualized risk free
interest rate at 1.1%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | SEGMENTED
INFORMATION
|-- |  | ---------------------

| | The
Company operates in a single business segment, the Field Service business segment.
| | --------------------------------------------------------------------------------------

| | The
Company earned revenue from sales to customers in the following geographic locations:
| | -----------------------------------------------------------------------------------------

|                               | Three months ended June 30, | Six months ended June 30,
|------------------------------ | --------------------------- | -------------------------
|                               |                             |                          
|
|                               |                             |                          
|Canada                         |                             | $     482,454            
|United States                  |                             | 6,585,757                
|Europe, Middle East and Africa |                             | 4,605,520                
|Asia and other                 |                             | 127,131                  
|                               |                             |                          
|                               |                             | $11,800,862              
|                               |                             |                          

| | Major
customers
| | ---------------

| | During
the three months ended June 30, 2004 revenue from two customers accounted for
approximately 17.3% and 13.9% (2003  13.5% and 16.7%), respectively, of total
revenue. During the six months ended June 30, 2004 revenue from two customers accounted
for approximately 17.7% and 13.5% (2003  17.1% and 13.1%), respectively, of total
revenue.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | LOSS
PER COMMON SHARE
|-- |  | ---------------------

| | Basic
loss per common share is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted earnings (loss) per share
is calculated by dividing net income (loss) by the sum of the weighted average number of
common shares outstanding plus all additional common shares that would have been
outstanding if potentially dilutive common shares had been issued. In periods for which
there is a reported net loss, potentially dilutive securities have been excluded from the
calculation, as their effect would be anti-dilutive.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-7-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

Notes to the Condensed Consolidated Financial Statements 
(Expressed in United States dollars) 
(Unaudited)

|3. |  | LOSS
PER COMMON SHARE (continued)
|-- |  | ---------------------------------

| | The
following table reconciles the number of shares utilized in the loss per common share
calculations for the periods indicated:
| | ---------------------------------------------------------------------------------------------------------------------------------

|                                            | Three months ended June 30, | Six months ended June 30,
|------------------------------------------- | --------------------------- | -------------------------
|                                            |                             |                          
|
|                                            |                             |                          
|Basic weighted average shares outstanding   |                             | 8,280,528                
|Effect of dilutive securities;              |                            
|Stock options                               |                             | --                       
|                                            |                             |                          
|Diluted weighted average shares outstanding |                             | 8,280,528                
|                                            |                             |                          

|4. |  | RESTRUCTURING
CHARGE
|-- |  | --------------------

| | During
2001, in response to uncertain economic conditions and poor financial performance, the
Company announced a restructuring plan approved by the Companys Board of Directors
designed to reduce operating costs. In connection with the restructuring the Company
recorded a charge of $6.1 million. A breakdown of the nature of the charges and the costs
incurred to date is as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Total Restructuring Charge
|---------------------------------------------------- | --------------------------
|                                                     |                           
|Workforce reduction                                  |                           
|Provision for excess office space                    |                           
|Non cash write-down of capital assets                |                           
|Other                                                |                           
|                                                     |                           
|Total restructuring charges                          |                           
|Cumulative draw-downs                                |                           
|                                                     |                           
|Accrued  restructuring  charges  included in accrued |                           
|liabilities at June 30, 2004                         |                           
|                                                     |                           

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

| | The
Company has recorded a $1.9 million provision relating to surplus office space under
long-term leases by the Company at two locations. The Company has incurred approximately
$1.5 million of cash costs relating to this provision leaving an accrual of $0.4 million
remaining as at June 30, 2004. The Company expects that the charge will be substantially
drawn down no later than the fourth quarter of 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | COMMITMENTS
AND CONTINGENCIES
|-- |  | -----------------------------

| | (a) |  | Contingency
| | --- |  | -----------

| | From
time to time, the Company is a party to other litigation and claims incident to the
ordinary course of its business. While the results of litigation and claims cannot be
predicted with certainty, the Company is not aware of any claims that would have a
material adverse effect on the Companys business, financial condition, operating
results and cash flows.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-8-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

Notes to the Condensed Consolidated Financial Statements 
(Expressed in United States dollars) 
(Unaudited)

|5. |  | COMMITMENTS
AND CONTINGENCIES (continued)
|-- |  | -----------------------------------------

| | (b) |  | Commitment
| | --- |  | ----------

| | The
Company has entered into a significant customer contract in which the Company has agreed
to utilize a certain amount of local services and create a certain amount of commercial
activity in South Africa. The Company is required to utilize local content or obtain
credits equivalent to approximately $7.1 million over a seven-year period ending May
2010. The Company has furnished a performance guarantee equal to approximately 5% of such
amounts. The Company expects to fulfill its obligation through a number of activities,
including the establishment of a software development center in South Africa, the
provision of technical services, and the provision of training to local systems
integrators who will be able to provide implementation services with respect to the
Companys software products. As the Company expects to fulfill its obligations
through the purchase of services in the normal course of business, no liability has been
established for these future spending commitments. The Companys obligation may
increase as a result of contract expansions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | Indemnifications
| | --- |  | ----------------

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

|6. |  | CHANGES
IN NON-CASH OPERATING WORKING CAPITAL ITEMS
|-- |  | ---------------------------------------------------

|                             | Three months ended June 30, | Six months ended June 30,
|---------------------------- | --------------------------- | -------------------------
|                             |                             |                          
|
|                             |                             |                          
|Accounts Receivable          |                             | $ 3,454,168              
|Prepaid expenses             |                             | 205,518                  
|Income taxes payable         |                             | 222,576                  
|Accounts payable and accrued |                            
|liabilities                  |                             | 569,534                  
|Deferred revenue             |                             | (2,092,067               
|                             |                             |                          
|                             |                             | $ 2,359,729              
|                             |                             |                          

|7. |  | STRATEGIC
EXPENSES
|-- |  | ------------------

| | Strategic
expenses consist of professional fees and expenses associated with investigating
potential corporate transactions.
| | ----------------------------------------------------------------------------------------------------------------------------

|8. |  | SUBSEQUENT
EVENTS
|-- |  | -----------------

| | On
July 27, 2004 the Company announced that the Company and At Road Inc. had mutually agreed
to terminate the acquisition agreement signed in April 2004 that would have resulted in
At Road Inc. acquiring the Company. The termination of the agreement will not result in
any penalty or termination fee being payable by either party.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-9-

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# ITEM 2.     
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

# Forward-Looking
Statements

Certain
statements in this Quarterly Report on Form 10-Q constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of MDSI, or
developments in MDSIs industry, to differ materially from the anticipated results,
performance or achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to: lengthy sales cycles, the Companys
dependence upon large contracts and relative concentration of customers, the failure of
MDSI to successfully execute its business strategies, the effect of volatile United States
and international economies generally, the threat or reality of war, as well as economic
trends and conditions in the vertical markets that MDSI serves, the effect of the risks
associated with technical difficulties or delays in product introductions and
improvements, product development, product pricing or other initiatives of MDSIs
competitors, the possibility that our potential customers will defer purchasing decisions
due to economic or other conditions or will purchase products offered by our competitors,
and the other risks and uncertainties described in the risk factors attached as Exhibit
99.1 hereto and in other Securities and Exchange Commission filings, including the
Companys Annual Report on Form 10-K for the year ended December 31, 2003.

Unless
otherwise noted, all financial information in this report is expressed in the
Companys functional currency, United States dollars. See Item 3, Quantitative
and Qualitative Disclosures About Market Risk.

# Overview

MDSI
develops, markets, implements and supports mobile workforce management and wireless
connectivity software for use by a wide variety of companies that have substantial mobile
workforces, such as utilities, telecommunications and cable/broadband companies. The
current version of the Companys software is known as Advantex r7. MDSIs
products are used by such companies in conjunction with public and private wireless data
communications networks to provide comprehensive solutions for the automation of business
processes associated with the scheduling, dispatching and management of a mobile
workforce. The Companys products are designed to provide a cost-effective method for
companies with mobile workers to utilize data communications to communicate with such
workers, and for such workers to interface on a real-time basis with their corporate
information systems.

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

# Strategic Transaction

During
2003, the Company retained Bear, Stearns & Co. Inc. as financial advisor to the Board
of Directors, to assist the Board in evaluating potential business combinations,
financings and other strategic alternatives to help the Company offer enhanced products
and services to its customers and maximize shareholder value. As a result of this process,
on April 12, 2004, the Company signed a definitive combination agreement with At Road Inc.
(At Road) providing for the acquisition of the Company by At Road. On July 27,
2004 the Company announced that the Company and At Road had mutually agreed to terminate
the agreement. The termination of the agreement will not result in any penalty or
termination fee being payable by either party. Given the Companys fiduciary
responsibilities to its shareholders, it will consider possible future strategic
transactions. See Forward-Looking Statements and the risk factors in Exhibit
99.1.

# Restructuring

The
Company believes that economic conditions and trends have adversely affected and may
continue to affect levels of capital spending by companies in a variety of industries,
including companies in the vertical markets that the Company serves. The current excess
supply of capacity in the telecommunications industry has adversely affected the financial
condition of many telecommunications companies worldwide. In addition, economic conditions
and developments in the energy markets have had an adverse effect on the financial
condition of energy and utility companies in certain geographic areas of North America.
The Company believes that these and other factors have adversely affected demand for
products and services offered by the Company, as certain prospective and existing
customers have delayed or deferred purchasing decisions, have elected not to purchase the
Companys products, or have sought to terminate existing contracts for the
Companys products and services. As a result, the Companys results of
operations have fluctuated in the past and are likely to continue to fluctuate from period
to period depending on a number of facts, particularly the timing and receipt of
significant orders. While the Company believes that economic conditions in certain of its
vertical markets show signs of

-10-

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improvement, the Company believes
that economic and political conditions are likely to continue to affect demand for the
Companys products and services in 2004, particularly demand for software and related
services. See Forward-Looking Statements. Such factors may also increase the
amount of doubtful accounts or adversely affect the likelihood of collection of such
accounts.

In
order to address the uncertainties caused by these economic trends, MDSI announced in 2001
its intention to reduce its operating expenses through workforce reductions and other
measures. These measures have been gradually implemented with incremental reductions in
costs each quarter, and were expected to result in an estimated $2.9 million in cost
reductions per quarter by the end of 2002. A majority of the savings were realized by
reduced salary and payroll costs, and the remaining savings have been realized from the
subleasing of excess space and a reduction in discretionary spending. As a result of the
sale of the Companys public safety operations during the second quarter of 2002, the
Company exceeded the estimated quarterly savings. There can be no assurance that the
workforce reductions and other measures will not have a material adverse affect on the
Companys business operations.

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

|                                                     | Total Restructuring Charge
|---------------------------------------------------- | --------------------------
|                                                     |                           
|Workforce reduction                                  |                           
|Provision for excess office space                    |                           
|Non cash write-down of capital assets                |                           
|Other                                                |                           
|                                                     |                           
|Total restructuring charges                          |                           
|Cumulative draw-downs                                |                           
|                                                     |                           
|Accrued  restructuring  charges  included in accrued |                           
|liabilities at June 30, 2004                         |                           
|                                                     |                           

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

The
Company has recorded a $1.9 million provision relating to surplus office space under long
term leases by the Company at two locations. The Company has incurred approximately $1.5
million of cash costs relating to this provision leaving an accrual of $0.4 million
remaining as at June 30, 2004. The Company expects that the provision will be
substantially drawn down no later than the fourth quarter of 2004.

# Field Service Business

The
implementation of a complete mobile data solution requires a wireless data communications
network, mobile computing devices integrated with wireless data communication modems, host
computer equipment, industry specific application software such as MDSIs Advantex
products, wireless connectivity software and a variety of services to manage and install
these components, integrate them with an organizations existing computer systems and
configure or customize the software to meet customer requirements. Frequently, in the
Companys larger contracts only a limited number of the users are rolled out
initially, with the balance implemented over a period that may extend up to one year or
more. Where increases in mobile workforces require or where additional departments of
mobile workers are added, additional mobile computing devices may be installed, which may
result in additional revenue for the Company. See Forward-Looking Statements.

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

-11-

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

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

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

The
Companys revenue is dependent, in large part, on significant contracts from a
limited number of customers. As a result, any substantial delay in the Companys
completion of a contract, the inability of the Company to obtain new contracts or the
cancellation of an existing contract by a customer could have a material adverse effect on
the Companys results of operations. Some of the Companys contracts are
cancelable upon notice by the customer. The loss of certain contracts could have a
material adverse effect on the Companys business, financial condition, operating
results and cash flows. As a result of these and other factors, the Companys results
of operations have fluctuated in the past and may continue to fluctuate from
period-to-period.

# Recent Accounting
Pronouncements

In June
2004, the FASB issued an exposure draft of a proposed Statement, Fair Value
Measurements to provide guidance on how to measure the fair value of financial and
non-financial assets and liabilities when required by other authoritative accounting
pronouncements. The proposed statement attempts to address concerns about the ability to
develop reliable estimates of fair value and inconsistencies in fair value guidance
provided by current US GAAP, by creating a framework that clarifies the fair value
objective and its application in GAAP. In addition, the proposal expands disclosures
required about the use of fair value to remeasure assets and liabilities. The standard
would be effective for financial statements issued for fiscal years beginning after June
15, 2005. The Company is currently assessing the impact this standard will have on the
Companys consolidated financial statements.

In
March 2004, the FASB ratified consensuses reached by the Emerging Issues Task Force
(EITF) with respect to EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF
Issue No. 03-1 addresses recognition, measurement and disclosure of other-than-temporary
impairment evaluations for securities within the scope of SFAS 115, Accounting for
Certain Investments in Debt and Equity Securities, and equity securities that are
not subject to the scope of SFAS No. 115 and are not accounted for under the equity method
according to Accounting Principles Board Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock. The recognition and measurement guidance
is effective for reporting periods beginning after June 15, 2004. Disclosures for cost
method investments are required to be included in annual financial statements prepared for
fiscal years ending after June 15, 2004. The company does not have any significant cost
method investments and therefore adoption is not expected to have a significant impact on
its consolidated financial statements.

In
December 2003, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, which
supercedes Staff Accounting Bulletin No. 101 (SAB 101), Revenue
Recognition in Financial Statements. The primary purpose of SAB 104 is to rescind
accounting guidance contained in SAB 101 related to multiple element revenue arrangements,
which was superceded as a result of the issuance of Emerging Issues Task Force 00-21
(EITF 00-21), Accounting for Revenue Arrangements with Multiple
Deliverables. SAB 104 also incorporated certain sections of the SECs
Revenue Recognition in Financial Statements  Frequently Asked Questions and
Answers document. While the wording of SAB 104 has changed to reflect the issuance
of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by
the issuance of SAB 104. The adoption of SAB 104 did not have an impact on the
consolidated financial statements.

-12-

---

# Critical Accounting
Policies and Significant Estimates

The
significant accounting policies are outlined within Note 1 to the Condensed Consolidated
Financial Statements and the significant accounting policies disclosed in the Consolidated
Financial Statements for the year ended December 31, 2003. Some of those accounting
policies require the Company to make estimates and assumptions that affect the amounts
reported by the Company. The following items require the most significant judgment and
involve complex estimation:

# Restructuring Charges

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

# Accounts Receivable

The
Company periodically reviews the collectability of its accounts receivable balances. Where
significant doubt exists with regards to the collection of a certain receivable balance,
an allowance and charge to the income statement is recorded. At June 30, 2004, the
allowance for doubtful accounts was $0.3 million. The Company intends to continue
vigorously pursuing these accounts. If future events indicate additional collection
issues, the Company may be required to record an additional allowance for doubtful
accounts.

# Revenue Recognition

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

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

| | License
Fees and Professional Services
| | --------------------------------------

Our
supply agreements generally include multiple products and services, or
elements. We use the residual method to recognize revenue when a supply
agreement includes one or more elements to be delivered at a future date and vendor
specific objective evidence of the fair value of all undelivered elements exists. The fair
value of the undelivered elements is determined based on the historical evidence of
stand-alone sales, or renewal terms of these elements to customers. Under the residual
method, the fair value of the undelivered elements is deferred and the remaining portion
of the arrangement fee, which relates to the license and implementation services, is
recognized as revenue on a percentage of completion basis. If evidence of the fair value
of one or more undelivered elements does not exist, the total revenue is deferred and
recognized when delivery of those elements occurs or when fair value is established.

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

-13-

---

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

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

| | Maintenance
Revenue
| | -------------------

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

Historically,
we have provided a warranty phase during the supply agreement. Services provided during
this warranty phase include elements of maintenance and support. As a result, we defer a
portion of the supply agreement fee, based on vendor specific objective evidence of the
value of these services, and recognize the deferred amount as revenue pro rata over the
warranty period.

| | Third
party products and services
| | ---------------------------------

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

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

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

# Income Taxes

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

# Warranty

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

# Indemnification

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

-14-

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# Commitment

The
Company has entered into a significant customer contract in which the Company has agreed
to utilize a certain amount of local services and create a certain amount of commercial
activity in South Africa. The Company is required to utilize local content or obtain
credits equivalent to approximately $7.1 million over a seven-year period ending May 2010.
The Company has furnished a performance guarantee equal to approximately 5% of such
amounts. The Company expects to fulfill its obligation through a number of activities,
including the establishment of a software development center in South Africa, the
provision of technical services, and the provision of training to local systems
integrators who will be able to provide implementation services with respect to the
Companys software products. As the Company expects to fulfill its obligations
through the purchase of services in the normal course of business, no liability has been
established for these future spending commitments. The Companys obligation may
increase as a result of contract expansions.

# Results of Operations

The
Companys net loss was $1.1 million for the three months ended June 30 , 2004. This
compares to a net loss of $1.4 million for the three months ended June 30, 2003. Net loss
decreased primarily due to an increase in revenue and a decrease in direct costs,
partially offset by an increase in strategic expenses.

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

|                                                         | Three months ended June 30, | Six months ended June 30,
|-------------------------------------------------------- | --------------------------- | -------------------------
|                                                         |                             |                          
|
|                                                         |                             |                          
|REVENUE                                                  |                             |                          
|Software and services                                    |                             | 61                       
|Maintenance and support                                  |                             | 36                       
|Third party products and services                        |                             | 1                        
|                                                         |                             |                          
|                                                         |                             | 10                       
|DIRECT COSTS                                             |                             | 40                       
|                                                         |                             |                          
|                                                         |                            
|GROSS PROFIT                                             |                             | 59                       
|                                                         |                             |                          
|OPERATING EXPENSES                                       |                            
|Research and development                                 |                             | 13                       
|Sales and marketing                                      |                             | 19                       
|General and administrative                               |                             | 16                       
|Bad Debts Expense                                        |                             | 0                        
|Strategic expenses                                       |                             | 15                       
|                                                         |                             |                          
|                                                         |                             | 65                       
|                                                         |                             |                          
|OPERATING LOSS                                           |                             | (6                       
|                                                         |                            
|OTHER (EXPENSE) INCOME                                   |                             | (0                       
|                                                         |                             |                          
|LOSS FROM CONTINUING OPERATIONS 
BEFORE TAX PROVISION    |                             | (6                       
|                                                         |                            
|INCOME TAX EXPENSE (RECOVERY) FROM CONTINUING OPERATIONS |                             | 2                        
|                                                         |                             |                          
|NET LOSS FOR THE PERIOD                                  |                             | (9                       
|                                                         |                             |                          

# Three Months Ended June
30, 2004 Compared to the Three Months Ended June 30, 2003

Revenue:
Revenue increased by $0.4 million or 3.9% for the three months ended June 30, 2004 as
compared to the three months ended June 30, 2003. This increase was primarily due to
increases in revenue from maintenance and support services, partially offset by a decrease
in revenue from third party products and services.

Software
and services revenue decreased by $0.1 million or 1.7% for the three months ended June 30,
2004 as compared to the three months ended June 30, 2003. The relatively small decrease in
revenue was attributable to several significant contracts the

-15-

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Company entered into in 2002,
generating less revenue in the current quarter than in the previous year. These decreases
were partially offset by an increased number of contracts the Company was working on in
the three months ended June 30, 2004 as compared to the three months ended June 30, 2003.
The Company expects that these significant contracts will continue to make up a material
portion of revenues over the next several quarters. See Forward-Looking
Statements. While the Company believes that economic conditions in certain of its
vertical markets show signs of improvement, the Company anticipates that economic
conditions and general trends are likely to continue to have an adverse impact on software
and services revenues in future periods. See Forward-Looking Statements.

Maintenance
and support revenue was $4.4 million for the three months ended June 30, 2004 as compared
to $3.4 million for the three months ended June 30, 2003. Maintenance and support revenue
increased primarily due to the initiation of several large maintenance contracts in the
past year resulting from growth in the Companys installed customer base. Such
revenue is expected to fluctuate as it corresponds to the level of services that the
Company is engaged to provide in support of its installations.

Third
party products and services revenue decreased by $0.4 million (68.5%) for the three months
ended June 30, 2004, compared to the three months ended June 30, 2003. Third party
products and services revenue is primarily earned from certain customers in the utilities
market pursuant to agreements under which the Company provides third party products and
services, typically host computer equipment and mobile computing devices, as part of the
installation of software and provision of services. Not all customers under contract
require the provision of third party products and services. As third party product and
services historically have lower margins than the Companys other sources of revenue,
there may be large fluctuations in revenue, direct costs, gross profits and income from
operations from one period to another. The Company has agreed to supply a large amount of
third party services at no margin which is being recognized on a gross basis, in
connection with one particular contract, and therefore expects that future revenues from
third party products and services will fluctuate in the near term. For the three months
ended June 30, 2004 the Company did not earn any revenue from these no margin services, as
compared to $0.3 million for the three months ended June 30, 2003. See Forward
Looking Statements.

Direct
Costs. Direct costs were 40.9% of revenue for the three months ended June 30,
2004, compared to 49.6% for the three months ended June 30, 2003. Direct costs include
labor and other costs directly related to a project including those related to the
provision of services and support, and costs related to equipment purchased for sale to
third parties. Labor costs include direct payroll, benefits and overhead charges. Direct
costs as a percentage of revenue has decreased over the comparative period partly as a
result of the Company negotiating and receiving a one-time reimbursement of costs incurred
under a project where the costs were expensed in the past. The recovery amounted to
approximately $0.5 million or 4.2% of revenue in the period. The remaining decline in
direct costs during the period was due to a favorable mix of higher margin projects during
the three months ended June 30, 2004 as compared to the three months ended June 30, 2003.
The Company has entered into an agreement whereby it has agreed to supply a large amount
of third-party services at no margin, in connection with one particular contract. This
agreement was in effect for both the three months ended June 30, 2004 and the three months
June 30, 2003. For the three months ended June 30, 2004 no revenue or cost was recognized
under this agreement. For the three months ended June 30, 2003 $0.3 million was recognized
as both revenue and cost under this agreement. In the near term the Company expects that
direct costs as a percentage of revenue will increase relative to the current period, as
the one time recovery of costs is not expected to reoccur. See Forward-Looking
Statements.

Gross
Margins. Gross margins were 59.1% of revenue for the three months ended June 30, 2004,
compared to 50.4% for the three months ended June 30, 2003. Gross margins were higher
during the current period due to lower direct costs as a result of a one time cost
recovery on one specific contract during the current period. The Company expects in the
near term that its gross margin as a percentage of revenue will decrease as described
under direct costs. See Forward-Looking Statements.

Research
and Development. Research and development expenses were $1.6 million, or 13.5% of
revenue, for the three months ended June 30, 2004, compared to $1.4 million, or 12.5% of
revenue, for the three months ended June 30, 2003. The increase in research and
development expenses was a result of the Companys commitment to enhance and develop
additional functionality in its Advantex r7 product including the hiring of additional
development staff. The Company intends to continue committing a significant portion of its
product revenues to enhance existing products and develop new products. See
Forward-Looking Statements.

Sales
and Marketing. Sales and marketing expenses were $2.3 million, or 19.6% of revenue,
for the three months ended June 30, 2004, compared to $2.9 million, or 25.4% of
revenue, for the three months ended June 30, 2003. Sales and marketing expenses in the
second quarter of 2004 decreased by approximately $0.6 million compared to the same period
of 2003. The decrease in expenditures in the current period was due to the Companys
user conference in the current year being held locally which decreased costs, and
personnel reductions and reductions to related expenses in the current year as compared to
the prior year. See Forward-Looking Statements. The Company anticipates that
its sales and marketing expenses will continue to be significant as a result of the
Companys commitment to its international marketing efforts and attempts to penetrate
additional markets for its products. See Forward-Looking Statements.

-16-

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General
and Administrative. General and administrative expenses were $2.0 million, or 16.7% of
revenue, for the three months ended June 30, 2004, compared to $1.6 million, or 14.2% of
revenue, for the three months ended June 30, 2003. General and administrative increased
during the three months ended June 30, 2004 as compared to the three months ended June 30,
2003 as a result of an increase in professional services fees incurred by the Company. The
Company expects that in the near future, general and administrative expenditures will
decrease as a result of the reduction in the amount of professional fees incurred. See
Forward-Looking Statements.

Strategic
expenses. Strategic expenses were approximately $1.8 million, or 15.0% of revenue, for
the three months ended June 30, 2004, compared to $0.8 million, or 7.3% of revenue, for
the three months ended June 30, 2003. Strategic expenses consist of professional fees and
expenses associated with investigating potential corporate transactions. On April 12,
2004, as a result of the strategic review process, the Company entered into a definitive
agreement to be acquired by At Road, Inc. On July 27, 2004, the Company announced that the
Company and At Road had mutually agreed to terminate the agreement. The termination of the
agreement will not result in any penalty or termination fee being payable by either party.
The Company expects it will from time to time consider new strategic opportunities;
however, the Company cannot predict the amount or timing of strategic expenses associated
with such opportunities or whether the Company will be successful in negotiating a
successful transaction. See Forward-Looking Statements.

Other
Income (Expense).Other income (expense) was ($11,000) for the three months ended June
30, 2004 as compared to $(208,000) for the three months ended June 30, 2003. Substantially
all of other income (expense) relates to fluctuations in the currencies of the
Companys foreign operations, interest income on cash and short term deposits, and
interest expense on short-term borrowings under the line of credit and capital lease
obligations.

Income
Taxes.The Company provided for income tax recovery on income (losses) for the three
months ended June 30, 2004 and 2003 at rates of 29.5% and (31.0%) respectively after
adjusting for strategic expenses incurred in the respective periods. The Companys
effective tax rate reflects the blended effect of Canadian, U.S., and other foreign
jurisdictions tax rates. No provision has been made for the recovery of taxes on the
strategic expenses as the Company has significant tax losses in Canada where there is no
certainty of realization.

# Six Months Ended June
30, 2004 Compared to the Six Months Ended June 30, 2003

Revenue. Revenue
increased by $1.2 million or 5.2% for the six months ended June 30,           2004 as
compared to the six months ended June 30, 2003. This increase was           primarily due
to increases in revenue from maintenance and support and software           and services
partially offset by a decline in third party products and services           revenue.

Software
and services revenue increased by $0.1 million or 1.0% for the six months ended June 30,
2004 as compared to the six months ended June 30, 2003. The relatively small increase in
revenue was attributable to an increase in the number of projects the Company was
undertaking in the current year, partially offset by several significant contracts the
Company entered into in 2002, generating less revenue in the current six month period than
in the previous years comparable period. These contracts continue to generate
significant revenue for the Company. The Company expects that these contracts will
continue to make up a significant portion of revenues over the next several quarters. See
Forward-Looking Statements. While the Company believes that economic
conditions in certain of its vertical markets show signs of improvement, the Company
anticipates that economic conditions and general trends are likely to continue to have an
adverse impact on software and services revenues in future periods. See
Forward-Looking Statements.

Maintenance
and support revenue was $8.6 million for the six months ended June 30, 2004 as compared to
$6.2 million for the six months ended June 30, 2003. Maintenance and support revenue
increased primarily due to the initiation of several large maintenance contracts in the
past year resulting from growth in the Companys installed customer base. Such
revenue is expected to fluctuate as it corresponds to the level of services that the
Company is engaged to provide in support of its installations.

Third
party products and services revenue decreased by $1.4 million (57.1%) for the six months
ended June 30, 2004 as compared to the six months ended June 30, 2003. Third party
products and services revenue decreased primarily due to the Company agreeing to supply a
large amount of third party services at no margin in connection with one particular
contract. For the six months ended June 30, 2004 approximately $0.3 million of these third
party services were provided, as compared to $1.4 million for the six months ended June
2003. See Forward Looking Statements.

Direct
Costs. Direct costs were 46.7% of revenue for the six months ended June 30, 2004,
compared to 49.8% for the six months ended June 30, 2003. Direct costs as a percentage of
revenue has decreased over the comparative period partly as a result of the Company
negotiating and receiving a one-time reimbursement of costs incurred under a project where
the costs were expensed in the past. The recovery amounted to approximately $0.5 million
or 1.9% of revenue in the period. As a result, direct costs as a percentage of revenue
have decreased, and the Company expects that direct costs as a percentage of revenue will
increase relative with the current period, as the one time recovery of costs in not
expected to reoccur. See Forward-Looking Statements.

-17-

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Gross
margins were 53.3% of revenue for the six months ended June 30, 2004, compared to 50.2%
for the six months ended June 30, 2003. The increase in gross margins as a percentage of
revenue relates partly to an agreement whereby the Company negotiated and received a one
time reimbursement of costs incurred under a project where the costs were expensed in the
past. The Company expects that in the near term that its gross margins as a percentage of
revenue will decrease as described under direct costs. See Forward-Looking
Statements.

Research
and Development. Research and development expenses were $3.1 million, or 12.8% of
revenue, for the six months ended June 30, 2004, compared to $2.7 million, or 11.6% of
revenue, for the six months ended June 30, 2003. The increase in research and development
expenses is a result of the Companys commitment to enhance and develop additional
functionality in its Advantex r7 product including the hiring of additional development
staff. The Company intends to continue committing a significant portion of its revenue to
enhance existing products and develop new products. See Forward-Looking
Statements.

Sales
and Marketing. Sales and marketing expenses were $4.5 million, or 18.2% of revenue,
for the six months ended June 30, 2004, compared to $5.8 million, or 25.1% of revenue, for
the six months ended June 30, 2003. The decrease in expenditures in the current period was
due to the Companys user conference in the current year being held locally which
decreased costs, and personnel reductions and reductions to related expenses in the
current year as compared to the prior year. The Company anticipates that the dollar
amounts of its sales and marketing expenses will continue to be significant as a result of
the Companys commitment to its international marketing efforts and attempts to
penetrate additional markets for its products. See Forward-Looking Statements.

General
and Administrative. General and administrative expenses were $3.7 million, or 15.2% of
revenue, for the six months ended June 30, 2004, as compared to $3.2 million, or 13.7% of
revenue, for the six months ended June 30, 2003. General and administrative expenses
increased in relation to the comparative period as a result of an increase in professional
fees incurred by the Company. The Company expects that in the near future, general and
administrative expenditures will decrease as a result of a decrease in the amount of
professional fees incurred.. See Forward-Looking Statements.

Strategic
expenses. Strategic expenses were approximately $2.1 million, or 8.7% of revenue, for
the six months ended June 30, 2004, compared to $0.8 million or 3.6% of revenue, for the
three months ended June 30, 2003. Strategic expenses consist of professional fees
associated with investigating potential corporate transactions. On April 12, 2004, as a
result of the strategic review process, the Company entered into a definitive agreement to
be acquired by At Road, Inc. On July 27, 2004, the Company announced that the Company and
At Road had mutually agreed to terminate the agreement. The termination of the agreement
will not result in any penalty or termination fee being payable by either party. The
Company expects it will from time to time consider new strategic opportunities; however,
the Company cannot predict the amount or timing of strategic expenses associated with such
opportunities or whether the Company will be successful in negotiating a successful
transaction. See Forward-Looking Statements.

Other
(Expense) Income.Other (expense) income was $215,000 for the six months ended June
30, 2004 as compared to ($461,000) for the six months ended June 30, 2003. Substantially
all of other income (expense) relates to fluctuations in the currencies of the
Companys foreign operations, interest income on cash and short term deposits, and
interest expense on short-term borrowings under the line of credit and capital lease
obligations.

Income
Taxes.The Company provided for income tax expense (recovery) on income
(losses) for the six months ended June 30, 2004 and 2003 at rates of 24.6% and
(44.5%) respectively, after adjusting for strategic expenses incurred in the respective
periods. The Companys effective tax rate reflects the blended effect of Canadian,
U.S., and other foreign jurisdictions tax rates. No provision has been made for
recovery of taxes on the strategic expenses as the Company has significant tax losses in
Canada where there is no certainty of realization.

# Liquidity and Capital
Resources

The
Company has financed its operations, acquisitions and capital expenditures with cash
generated from operations, loans, private placements and public offerings of its
securities. At June 30, 2004, the Company had cash and cash equivalents of $18.8 million
and working capital of $8.5 million.

Cash
provided by operating activities was $2.0 million for the three months ended June 30, 2004
compared to $1.7 million for the three months ended June 30, 2003. The net inflow of cash
from operating activities, after adding back depreciation and amortization of $0.7, is due
to a net decrease in non-cash working capital items of $2.5 million and net loss of $1.2
million for the three months ending June 30, 2004. The net decrease in non-cash operating
working capital items is due primarily to a net decrease in unbilled and trade
receivables, partially offset by an decrease in deferred revenue. The decrease in unbilled
and trade receivables and deferred revenue is due to timing differences arising between
revenue recognition and billing milestones in multiphase projects.

-18-

---

The
Company maintains as at June 30, 2004 a provision of $0.3 million with respect to doubtful
accounts. The Company intends to vigorously pursue collection of these accounts; however,
due to uncertainty with regards to ultimate collection, the Company determined that it
would be prudent to maintain an allowance to address this uncertainty.

Cash
provided by financing activities of $73,000 during the three months ended June 30, 2004
primarily relates to $355,000 in proceeds from the issuance of shares on the exercise of
employee stock options, partially offset by $282,000 in repayments of capital leases made
during the quarter. The capital leases are to be repaid over a 36 month period ending
December 22, 2006, bear interest at various interest rates to a maximum of approximately
9% and are secured by certain computer hardware and software assets of the Company.

Cash
used in investing activities was $0.2 million for the three months ended June 30, 2004 as
compared to $0.2 million for the three months ended June 30, 2003. Total investing
activity during the three months ended June 30, 2004 consisted of $0.2 million in
purchases of capital assets. Purchases of capital assets include computer hardware and
software for use in implementation activities. Investing activities in 2003 also related
to purchases of capital assets.

Existing
sources of liquidity at June 30, 2004 include $18.8 million of cash and cash equivalents
and additional funds available under the Companys operating line of credit. At June
30, 2004, the Companys borrowing capacity under the line of credit was up to $10 CAD
million. Under the terms of the agreement, borrowings and letters of credit under the line
are limited to 75% to 90% of eligible accounts receivable. Borrowings accrue interest at
the banks prime rate plus 0.5%. At June 30, 2004, the Company was not using this
line of credit, other than to secure performance guarantees.

The
Company believes that the principal source of its liquidity is operating cash flow.
Certain circumstances including a reduction in the demand for the Companys products,
an increase in the length of the sales cycle for the Companys products, an increase
in operating costs, unfavorable results of litigation, or general economic slowdowns could
have a material impact on the Companys operating cash flow and liquidity. See
Forward Looking Statements and the risk factors in Exhibit 99.1.

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

As
at June 30, 2004, the Company had the following contractual obligations and commercial
commitments:

|                 
|-----------------
|
|                 
|
|                 
|Capital Lease    
|Obligations      
|                 
|Operating Leases 
|                 
|                 
|Total Contractual
|Obligations      
|                 

The
Company has entered into a significant customer contract in which the Company has agreed
to utilize a certain amount of local services and create a certain amount of commercial
activity in South Africa. The Company is required to utilize local content or obtain
credits equivalent to approximately $7.1 million over a seven year period ending May 2010.
The Company has furnished a performance guarantee equal to approximately 5% of such
amounts. The Company expects to fulfill its obligation through a number of activities,
including the establishment of a software development center in South Africa, the
provision of technical services, and the provision of training to local systems
integrators who will be able to provide implementations services with respect to the
Companys software products. As the Company expects to fulfill its obligations
through the purchase of services in the normal course of business, no liability has been
established for these future spending commitments. The Companys obligation may
increase as a result of contract expansions.

In
addition to these commercial commitments the Company has also provided a letter of credit
in the amount of CAD $1,864,568 (USD $1,440,192) expiring October 1, 2004. The
Company has pledged an amount equal to the letter of credit as a guarantee against its
operating line of credit as security.

-19-

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# Derivative Financial
Instruments

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

The
Companys foreign currency forward contracts are executed with credit worthy banks
and are denominated in currencies of major industrial countries. As at June 30, 2004 and
June 30, 2003, the Company had no foreign currency forward contracts outstanding.

# Off-Balance Sheet
Transactions

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

-20-

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# ITEM 3.    QUANTITIATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

# Foreign Currency Risk

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

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

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

As
of June 30, 2004, the potential reduction in future earnings from a hypothetical
instantaneous 10% change in quoted foreign currency exchange rates applied to our foreign
currency sensitive contracts and assets would be approximately $3.9 million. The foreign
currency sensitivity model is limited by the assumption that all foreign currencies, to
which the Company is exposed, would simultaneously change by 10%. Such synchronized
changes are unlikely to occur. The sensitivity model does not include the inherent risks
associated with anticipated future transactions denominated in foreign currencies or
future forward contracts entered into for hedging purposes.

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

At
June 30, 2004 and June 30, 2003, we had no outstanding currency forward exchange
contracts, and during the three months ended June 30, 2004 and June 30, 2003, we did not
enter into any forward exchange contracts. We therefore did not record any gain or loss as
a result of these contracts for the three months ended June 30, 2004 or June 30, 2003.

# Interest Rate Risk

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

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

-21-

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While
interest income on our cash, cash equivalents, and short-term investments is subject to
interest rate fluctuations, we believe that the impact of these fluctuations will not have
a material effect on our financial position due to the short-term nature of these
financial instruments. Our interest income and interest expense are most sensitive to the
general level of interest rates in Canada and the United States. Sensitivity analysis is
used to measure our interest rate risk. Based on analysis of our balances as of June 30,
2004, a 100 basis-point adverse change in interest rates would not have a material effect
on our consolidated financial position, results of operation, or cash flows.

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

-22-

---

# ITEM 4.    CONTROLS AND
PROCEDURES

# Changes in Internal
Control Over Financial Reporting

As
disclosed in the Companys quarterly report on Form 10-Q for the quarter ended March
31, 2004, the Company has undertaken certain steps to strengthen the Companys
internal control over financial reporting. These steps include implementing a formal
contract review checklist for each new contract, a thorough review and analysis of new
software and implementation contracts by senior members of the Companys accounting
group, a determination of the appropriate revenue recognition treatment for each new
contract by senior members of the accounting group, revisions to the Companys
standard contractual wording, improving communication between the various functional
groups within the Company (namely sales, implementation, accounting and legal) at both the
contract negotiation and execution level and at the implementation level, requiring any
exceptions to the Companys standard contractual wording to be approved at a senior
management level and review by management of any unusual terms which may impact its
historical practice of accounting for revenue. The Companys management plans to
undertake a further review and assessment of the Companys internal control over
financial reporting in light of the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002 and the rules adopted by the SEC thereunder, which the SEC currently plans to
implement for accelerated filers for fiscal years ending on or after November 15, 2004 and
for non-accelerated filers for fiscal years ending on or after July 15, 2005. As of the
date of this report, the Company is not an accelerated filer and, accordingly, the Company
expects these additional requirements to apply to the Company for its fiscal year ended
December 31, 2005. The Companys management may recommend and the Company may
implement additional changes in the Companys internal control over financial
reporting pursuant to this review. In light of these additional SEC requirements and the
Companys current level of activities, the Company is evaluating the level of
staffing of its finance group.

Except
as described in the foregoing paragraphs, no changes were made in the Companys
internal control over financial reporting during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

# Evaluation of Disclosure
Controls and Procedures

In
connection with the filing of this quarterly report on Form 10-Q, the Companys
management, with the participation of the Companys Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Companys disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the
period covered by this report (the Evaluation Date).

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

# Note Regarding Control
Limitations

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

-23-

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# Part II  OTHER
INFORMATION

# ITEM 1.    LEGAL PROCEEDINGS

From
time to time, the Company is a party to other litigation and claims incident to the
ordinary course of its business. While the results of litigation and claims cannot be
predicted with certainty, the Company is not aware of any claims that would have a
material adverse effect on the Companys business, financial condition, operating
results and cash flows.

For Items 2 and 3 there was no
reportable information for the three months ended June 30, 2004.

# ITEM 4.        SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

The
Companys 2003 Annual General Meeting of Shareholders was held on June 14, 2004. A
total of 6,068,096 common shares of the Company were represented in person or by proxy at
the meeting, consisting of 73.2% of the total number of common shares of the Company
outstanding on May 12, 2004, the record date for the meeting.

At
the meeting, the following directors of the Company were re-elected to serve as directors
until the 2004 Annual General Meeting or until their earlier retirement, resignation, or
removal. The following table sets forth the voting in the election for directors:

|Nominee              | Votes Cast For | Votes Cast Against | Votes Withheld | Abstentions | Not Voted
|-------------------- | -------------- | ------------------ | -------------- | ----------- | ---------
|                     |               
|Erik Dysthe          |                | 5,959,208          |                | --          |          
|Robert C. Harris, Jr |                | 5,699,541          |                | --          |          
|Mark Rochefort       |                | 5,960,708          |                | --          |          
|Peter Ciceri         |                | 5,914,943          |                | --          |          
|David Van Valkenberg |                | 5,914,943          |                | --          |          

The
shareholders also ratified the appointment of Deloitte & Touche LLP as the
Companys auditors. The following table sets forth information regarding the voting
on the proposal:

|Proposal                  | Votes Cast For | Votes Cast Against | Votes Withheld | Abstentions | Not Voted
|------------------------- | -------------- | ------------------ | -------------- | ----------- | ---------
|                          |               
|Appointment of Deloitte & |                | 6,020,309          |                | 1,230       |          
|Touche LLP                |               

The
shareholders also defeated the motion to ratify the Companys shareholder protection
rights plan. The following table sets forth information regarding the voting on the
motion:

|Motion                 | Votes Cast For | Votes Cast Against | Votes Withheld | Abstentions | Not Voted
|---------------------- | -------------- | ------------------ | -------------- | ----------- | ---------
|                       |               
|Ratify the Company's   |                | 989,775            |                | 2,726,405   |          
|shareholder protection |               
|rights plan            |               

# ITEM 5.    OTHER INFORMATION

On
April 12, 2004, the Company entered into a definitive agreement to be acquired by At Road.
On July 27, 2004 the Company announced that the Company and At Road had mutually agreed to
terminate the Agreement. The termination of the agreement will not result in any penalty
or termination fee being payable by either party.

-24-

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# ITEM 6.    EXHIBITS AND
REPORTS ON FORM 8-K

(a)     Exhibits

|Exhibit 
      Number | Description
|--------------------- | -----------
|2.1                   | (3)        
|3.1                   | (1)        
|3.2                   | (1)        
|3.3                   | (1)        
|4.1                   | (1)        
|4.2                   | (9)        
|10.1                  | (2)(3)     
|10.2                  | (1)        
|10.3                  | (1)        
|10.4                  | (4)        
|10.5                  | (4)        
|10.6                  | (2)(5)     
|10.7                  | (2)(6)     
|10.8                  | (7)        
|10.9                  | (7)        
|10.10                 | (7)        
|10.11                 | (2)(8)     
|10.12                 | (2)(8)     
|10.13                 | (2)(8)     
|10.14                 | (2)(8)     
|10.15                 | (2)(10)    
|10.16                 | (2)(10)    
|10.17                 | (2)(10)    
|10.18                 | (2)(10)    
|10.19                 | (11)       
|10.20                 | (12)       
|14.1                  | (10)       
|31.1                  |            
|31.2                  |            
|32.1                  |            
|32.2                  |            
|99.1                  |            

|(1) |  | Previously
filed as exhibits with the same corresponding number with the                Registrants Registration
Statement on Form F-1 (Registration No. J33-5872)                and amendments numbers 1
and 2 thereto, filed with the Securities and Exchange                Commission on
October 28, 1996, November 13, 1996 and November 25, 1996,                respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | This
document has been identified as a management contract or compensatory plan
               or arrangement.
|--- |  | --------------------------------------------------------------------------------------------------------------

|(3) |  | Previously
filed as exhibits with the Registrants                Registration Statement on
Form S-8 filed on November 22, 2000.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Previously
filed as exhibits with the Registrants Form 10-K for the year           ended
December 31, 2001.
|--- |  | ------------------------------------------------------------------------------------------------------------

|(5) |  | Previously
filed as exhibits with the           Registrants Form 10-Q for the quarterly period
ended March 31, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(6) |  | Previously
filed as exhibits with the Registrants Form 10-Q for the                quarterly
period ended June 30, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

|(7) |  | Previously
filed as exhibits with the Registrants Form 8-K filed on August                14,
2002.
|--- |  | ----------------------------------------------------------------------------------------------------

|(8) |  | Previously
filed as exhibits with the Registrants Form 10-Q for the                quarterly
period ended September 30, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Previously
filed as exhibits with the Registrants Form 8-K filed on                December
18, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------

|(10) |  | Previously
filed as exhibits with the Registrants                Form 10-K for the year ended
December 31, 2003.
|---- |  | -----------------------------------------------------------------------------------------------------------------

|(11) |  | Previously
filed as                exhibits with the Registrants Form 10-Q for the quarterly
period ended                March 31, 2003.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Previously
filed as exhibits with the Registrants Form 8-K filed on June           22, 2004.
|---- |  | ---------------------------------------------------------------------------------------------

-25-

---

(b)    
          Reports on Form 8-K

| | On
April 13, 2004, the Company filed a Form 8-K under Item 5 announcing the definitive
combination agreement between the Company and At Road, Inc.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 27, 2004, the Company filed a Form 8-K under Item 5 enclosing a material change
report relating to the proposed transaction with At Road.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 25, 2004, the Company filed a Form 8-K under Items 5 and 7 enclosing the management
proxy circular and related documentation being submitted to the Companys
shareholders in connection with the annual general meeting of shareholders held on June
14, 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
June 22, 2004, the Company filed a Form 8-K under Items 5 and 7 enclosing the management
proxy circular and related documentation being submitted to the Companys
shareholders in connection with the special meeting of the Companys shareholders
that was to be held on August 4, 2004 in relation to the proposed transaction with At
Road. This meeting was canceled upon the termination of the Companys agreement with
At Road.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-26-

---

# SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.

| | MDSI MOBILE DATA SOLUTIONS INC.
| | -------------------------------

|Date:  August 13, 2004 | By:       
/s/ Erik Dysthe
Name:   Erik Dysthe
Title:     President, Chief Executive Officer,
              Chairman of the Board and Director
|---------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------

|Date:  August 13, 2004 | By:       
/s/ Verne D. Pecho
Name:    Verne D. Pecho
Title:    Vice President, Finance & Administration
              and Chief Financial Officer
              (Principal Financial and Accounting Officer)
|---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-27-

---