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

                                    FORM 10-Q/A


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

     For the quarterly period ended June 30, 2003

                                       OR

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

     For the transition period from _______________ to ________________.

                         Commission file number 0-28968


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

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


                              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 13, 2003 was 8,204,666.


================================================================================

<PAGE>

                         MDSI Mobile Data Solutions Inc.

                            INDEX TO THE FORM 10-Q/A
                  For the quarterly period ended June 30, 2003


                                                                           Page
                                                                           ----
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 the Condensed Consolidated Financial Statements......4

         ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS..........................14

         ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...30

         ITEM 4. CONTROLS AND PROCEDURES .....................................31

Part II - OTHER INFORMATION

         ITEM 1.    LEGAL PROCEEDINGS ....................................... 32

         ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K..........................34

SIGNATURES ...................................................................36


                                       i

<PAGE>


INTRODUCTORY NOTE


We issued press releases on November 17, 2003 and February 26, 2004, included as
exhibits to Form 8-Ks filed with the Securities  and Exchange  Commission on the
same dates, relating to our intention to restate our annual financial statements
for the fiscal years 1998 to 2002 inclusive,  and our quarterly  results for the
2003 fiscal year.  This amendment on Form 10-Q/A amends our Quarterly  Report on
Form 10-Q for the three and six month  periods ended June 30, 2003 as filed with
the Securities and Exchange  Commission on August 14, 2003 and is being filed to
reflect the restatement of the condensed consolidated financial statements.  The
effects  of  this  restatement  on  the  condensed   consolidated  statement  of
operations  and cash  flows for the three and six month  periods  ended June 30,
2003 and 2002, and the condensed consolidated balance sheets as at June 30, 2003
and December 31, 2002 are presented in Item 1 (Condensed  Consolidated Financial
Statements)  and Item 2  (Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations)  in Part I of this Form  10-Q/A for the
quarterly period ended June 30, 2003.

This amendment  incorporates  certain revisions to historical financial data and
related  descriptions but is not intended to update other information  presented
in this Quarterly Report as originally filed, except where specifically noted.

We did not amend our Annual  Reports on Form 10-K or  Quarterly  Reports on Form
10-Q for periods affected by the  restatements  that ended prior to December 31,
2002 and the  financial  statements,  auditors'  reports and  related  financial
information for the affected periods  contained in such reports should no longer
be relied upon. We are concurrently  filing an amendment to our Annual Report on
Form  10-K/A for the year ended  December  31,  2002,  initially  filed with the
Securities  and  Exchange  Commission  on March 31,  2003,  which  includes  the
following (audited) restated financial  statements:  consolidated  statements of
operations,  stockholders'  equity,  and cash flows for the years ended December
31, 2002, 2001 and 2000 and consolidated  balance sheets as at December 31, 2002
and 2001. We are also  concurrently  filing an amendment to our Quarterly Report
on Form 10-Q/A for the  quarterly  period ended March 31, 2003,  which  contains
(unaudited) restated  consolidated  statements of operations for the three month
periods  ended  March 31,  2003 and  2002,  respectively,  (unaudited)  restated
condensed  consolidated  statements  of  operations  and cash flow for the three
month  periods  ended March 31,  2003 and 2002,  respectively,  and  (unaudited)
restated condensed consolidated balance sheets as at March 31, 2003 and December
31, 2002.

See Notes 1(a) and 9 to the  Condensed  Consolidated  Financial  Statements  for
Fdiscussion of the details  surrounding the restatement  and  reconciliation  of
previously reported amounts.

For a discussion of events and developments subsequent to June 30, 2003, see our
amended Quarterly Report on Form 10-Q/A for the quarterly period ended September
30, 2003, which contains (unaudited) restated condensed consolidated  statements
of  operations  and cash  flows  for the  three  and nine  month  periods  ended
September 30, 2003 and 2002,  respectively,  and (unaudited)  restated condensed
consolidated  balance  sheets as at  September  30, 2003 and  December 31, 2002,
which are being filed concurrently with this amendment on Form 10-Q/A.



                                       ii

<PAGE>

Part I - FINANCIAL INFORMATION

         ITEM 1. FINANCIAL STATEMENTS

The  (unaudited)  restated  condensed   consolidated  financial  statements  and
supplementary data,  including the notes to the restated condensed  consolidated
financial statements, set forth in this Item 1 have been restated to reflect the
restatements  and,  except for those  revisions,  and an update  for  subsequent
events  affecting  the status of  contingencies,  do not  reflect new events and
developments.


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


<TABLE>
                                                                                              As at
                                                                                   June 30,          December 31,
                                                                               -------------------------------------
                                                                                     2003                2002
                                                                               ------------------  -----------------
ASSETS                                                                           (As restated,      (As restated,
                                                                                  see note 9)        see note 9)
                                                                               ------------------  -----------------
<S>                                                                             <C>                 <C>
CURRENT ASSETS
   Cash and cash equivalents                                                    $   13,705,616      $   11,016,945
   Accounts receivable, net
      Trade (net of allowance for doubtful accounts $2,483,764;
        2002 - $2,506,614)                                                           9,984,143           6,705,088
      Unbilled                                                                       2,518,098           4,675,112
   Prepaid expenses and other assets                                                 1,013,275           1,552,236
                                                                               ------------------  -----------------
                                                                                    27,221,132          23,949,381

CAPITAL ASSETS, NET                                                                  8,921,549           9,798,087
LONG TERM RECEIVABLE (note 6(a))                                                     2,749,860           2,749,860
DEFERRED INCOME TAXES                                                                  363,628             533,628
                                                                               ------------------  -----------------
                                                                                $   39,256,169      $   37,030,956
                                                                               ==================  =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                                             $    1,479,692      $    1,777,465
   Accrued liabilities (note 5)                                                      4,101,023           3,300,113
   Income taxes payable                                                                622,463             602,717
   Deferred revenue                                                                 11,860,607           7,899,034
   Current obligations under capital lease                                           1,896,817           2,073,906
                                                                               ------------------  -----------------
                                                                                    19,960,602          15,653,235

OBLIGATIONS UNDER CAPITAL LEASES                                                     1,301,155           1,913,538
                                                                               ------------------  -----------------
                                                                                    21,261,757          17,566,773

STOCKHOLDERS' EQUITY
   Common stock                                                                     44,285,544          44,208,511
   Additional paid-up capital                                                        2,222,128           2,222,128
   Deficit                                                                         (27,823,156)        (26,276,352)
   Accumulated other comprehensive loss                                               (690,104)           (690,104)
                                                                               ------------------  -----------------
                                                                                    17,994,412          19,464,183
                                                                               ------------------  -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $   39,256,169      $   37,030,956
                                                                               ==================  =================
</TABLE>

Commitments and Contingencies (note 6)


            See Notes to Condensed Consolidated Financial Statements



                                      -1-

<PAGE>

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


<TABLE>
                                                    Three months ended June 30,            Six months ended June 30,
                                                -----------------------------------   -----------------------------------
                                                      2003              2002                2003               2002
                                                ----------------   ----------------   ----------------  -----------------
                                                 (As restated,      (As restated,       (As restated,     (As restated,
                                                  see Note 9)        see Note 9)         see Note 9)       see Note 9)
                                                ----------------   ----------------   ----------------  -----------------
<S>                                             <C>                 <C>                  <C>               <C>
REVENUE
   Software and services                        $   7,379,187       $   4,722,871        $  14,592,620     $  10,377,294
   Maintenance and support                          3,368,101           2,906,770            6,185,895         5,742,905
   Third party products and services                  611,937             279,431            2,464,682           515,821
                                                ----------------   ----------------   ----------------  -----------------
                                                   11,359,225           7,909,072           23,243,197        16,636,020

DIRECT COSTS                                        5,638,356           3,490,743           11,566,460         7,121,062
                                                ----------------   ----------------   ----------------  -----------------
GROSS PROFIT                                        5,720,869           4,418,329           11,676,737         9,514,958
                                                ----------------   ----------------   ----------------  -----------------
OPERATING EXPENSES
   Research and development                         1,418,925           1,498,948            2,697,951         2,958,983
   Sales and marketing                              2,884,236           3,912,177            5,832,179         6,326,070
   General and administrative                       1,612,857           1,529,565            3,182,923         3,194,007
   Strategic expenses (note 8)                        825,120                   -              825,120                 -
                                                ----------------   ----------------   ----------------  -----------------
                                                    6,741,138           6,940,690           12,538,173        12,479,060
                                                ----------------   ----------------   ----------------  -----------------
OPERATING LOSS                                     (1,020,269)         (2,522,361)            (861,436)       (2,964,102)
OTHER (EXPENSE) INCOME                               (208,491)             86,031             (461,110)          162,264
                                                ----------------   ----------------   ----------------  -----------------
LOSS FROM CONTINUING OPERATIONS BEFORE
   TAX PROVISION                                   (1,228,760)         (2,436,330)          (1,322,546)       (2,801,838)
INCOME TAX EXPENSE (RECOVERY) FROM
   CONTINUING OPERATIONS                              124,996            (690,831)             224,258          (812,570)
                                                ----------------   ----------------   ----------------  -----------------
NET LOSS FROM CONTINUING OPERATIONS                (1,353,756)         (1,745,499)          (1,546,804)       (1,989,268)
INCOME FROM DISCONTINUED OPERATIONS (note 2)                -              22,196                    -           108,612
                                                ----------------   ----------------   ----------------  -----------------
NET LOSS FOR THE PERIOD                            (1,353,756)         (1,723,303)          (1,546,804)       (1,880,656)
DEFICIT, BEGINNING OF PERIOD                      (26,469,400)        (24,508,099)         (26,276,352)      (24,350,746)
                                                ----------------   ----------------   ----------------  -----------------
DEFICIT, END OF PERIOD                          $ (27,823,156)     $  (26,231,402)       $ (27,823,156)    $ (26,231,402)
                                                ================   ================   ================  =================
Loss per common share

Loss from continuing operations
   Basic                                        $       (0.17)      $       (0.20)       $       (0.19)    $       (0.23)
                                                ================   ================   ================  =================
   Diluted                                      $       (0.17)      $       (0.20)       $       (0.19)    $       (0.23)
                                                ================   ================   ================  =================
Net Loss
   Basic                                        $       (0.17)      $       (0.19)       $       (0.19)    $       (0.21)
                                                ================   ================   ================  =================
   Diluted                                      $       (0.17)      $       (0.19)       $       (0.19)    $       (0.21)
                                                ================   ================   ================  =================
</TABLE>


            See Notes to Condensed Consolidated Financial Statements


                                      -2-


<PAGE>

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


<TABLE>
                                                              Three months ended June 30,             Six months ended June 30,
                                                          -----------------------------------     ----------------------------------
                                                                2003              2002                 2003              2002
                                                          ----------------   ----------------     ----------------  ----------------
CASH FLOWS FROM OPERATING ACTIVITIES                       (As restated,      (As restated,        (As restated,    (As restated,
                                                            see Note 9)        see Note 9)         see Note 9)       see Note 9)
                                                          ----------------   ----------------     ----------------  ----------------
<S>                                                       <C>                 <C>                 <C>                <C>
   Net loss from continuing operations                    $ (1,353,756)       $  (1,745,499)      $  (1,546,804)     $  (1,989,268)
   Items not affecting cash:
      Depreciation                                             771,853              763,613           1,502,614          1,437,204
      Deferred income taxes                                    170,000             (171,912)            170,000           (167,951)
      Changes in non-cash operating working
        capital items  (note 7)                              2,087,207             (179,453)          3,901,376           (180,560)
                                                          ----------------   ----------------     ----------------  ----------------
   Net cash provided by (used in) operating activities       1,675,304           (1,333,251)          4,027,186           (900,575)
                                                          ----------------   ----------------     ----------------  ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Issuance of Common Shares                                     3,966               26,912              77,033            239,076
   Repayment of capital leases                                (318,915)            (466,096)           (789,472)          (974,896)
                                                          ----------------   ----------------     ----------------  ----------------
    Net cash used by financing activities                     (314,949)            (439,184)           (712,439)          (735,820)
                                                          ----------------   ----------------     ----------------  ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Acquisition of capital assets                             (203,983)            (474,516)           (626,076)          (685,410)
                                                          ----------------   ----------------     ----------------  ----------------
   Net cash used in investing activities                      (203,983)            (474,516)           (626,076)          (685,410)
                                                          ----------------   ----------------     ----------------  ----------------
   Net cash provided by (used for) Continuing operations     1,156,372           (2,246,951)          2,688,671         (2,321,805)
   Net cash used for discontinued operations (note 2)                -              (58,941)                  -           (312,709)
                                                          ----------------   ----------------     ----------------  ----------------
NET CASH INFLOW (OUTFLOW)                                    1,156,372           (2,305,892)          2,688,671         (2,634,514)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD              12,549,244           12,847,458          11,016,945         13,176,080
                                                          ----------------   ----------------     ----------------  ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                  $ 13,705,616        $  10,541,566       $  13,705,616      $  10,541,566
                                                          ================   ================     ================  ================
</TABLE>


     SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES

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

            See Notes to Condensed Consolidated Financial Statements



                                      -3-
<PAGE>

                         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 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.

          As  discussed  in Note 9, the  condensed  consolidated  statements  of
          operations  and cash flows for the three and six months ended June 30,
          2003,  and the condensed  consolidated  balance  sheets as at June 30,
          2003 and December 31, 2002,  including the applicable notes, have been
          restated.  Following the  Company's  decision to restate the condensed
          consolidated  financial  statements,  the Company also determined that
          the  pro-forma  disclosures  of stock  based  compensation  costs were
          improperly  calculated  and  disclosed.   Accordingly,  the  pro-forma
          disclosures  for  stock  based  compensation  in note  1(e)  have been
          restated.

          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.
          Operating  results for the three and six month  periods ended June 30,
          2003,  are not  necessarily  indicative  of the  results  that  may be
          expected  for  the  year  ending   December  31,  2003.   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/A for the year ended  December
          31, 2002.

     (b)  Use of estimates

          The preparation of financial  statements in conformity with accounting
          principles generally accepted in the United States 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)  Reporting currency and other comprehensive income

          The  Company  changed  its  reporting  currency  to  the  U.S.  dollar
          effective  January 1, 2000. The change in reporting  currency was made
          to improve  investors'  ability to compare the Company's  results with
          those of most other publicly traded businesses in the industry.  These
          consolidated   financial   statements  and  those  amounts  previously
          reported  in  Canadian  dollars  have been  translated  from  Canadian
          dollars to U.S.  dollars by translating  assets and liabilities at the
          rate in effect at the  respective  balance sheet date and revenues and
          expenses at the average rate for the reporting  period.  Any resulting
          foreign exchange gains and losses are recorded as a separate component
          of shareholder equity and described as accumulated other comprehensive
          income (loss).  There was no other comprehensive income (loss) for any
          of the periods presented in this report.

     (d)  Recently issued accounting standards

          In May 2003, the Financial  Accounting  Standards  Board (FASB) issued
          Statement of Financial  Accounting Standard (SFAS) No. 150 "Accounting
          for  Certain  Financial   Instruments  with  Characteristics  of  both
          Liabilities  and Equity".  SFAS 150  establishes  standards for how an
          issuer  classifies and measures  certain  financial  instruments  with
          characteristics  of both  liabilities and equity.  It requires that an
          issuer


                                      -4-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     (d)  Recently issued accounting standards (continued)

          classify  a  financial  instrument  that  is  within  its  scope  as a
          liability  (or  an  asset  in  some  circumstances).   Many  of  those
          instruments  were previously  classified as equity.  This Statement is
          effective for financial instruments entered into or modified after May
          31, 2003,  and  otherwise  is effective at the  beginning of the first
          interim  period  beginning  after June 15, 2003.  The Company does not
          anticipate  that  this will have a  material  impact on the  Company's
          financial statements.

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

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

          The Company will adopt the  provisions  of SFAS 149 for any  contracts
          entered into after June 30, 2003 and is not affected by Implementation
          Issues that would require earlier  adoption.  The Company is currently
          evaluating  the effect that the  adoption of SFAS 149 will have on its
          results of operations and financial condition.

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

          In June 2002,  the FASB issued SFAS No. 146 ("SFAS 146"),  "Accounting
          for Costs  Associated  with  Exit or  Disposal  Activities".  SFAS 146
          requires  that the  liability  for a cost  associated  with an exit or
          disposal  activity be  recognized at its fair value when the liability
          is incurred.  Under  previous  guidance,  a liability for certain exit
          costs was recognized at the date that management  committed to an exit
          plan,  which  was  generally  before  the  actual  liability  had been
          incurred.  Adoption  of this  statement  did not impact the  Company's
          financial  statements for the three or six month period ended June 30,
          2003.

          In  November  2002,  the  FASB  issued  FASB  Interpretation  No.  45,
          "Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,
          Including Indirect Guarantees of Indebtedness of Others" (FIN45).  FIN
          45 requires  that upon  issuance  of a  guarantee,  a  guarantor  must
          recognize  a  liability  for the fair value of an  obligation  assumed
          under a guarantee.  FIN 45 also requires  additional  disclosures by a
          guarantor  in its interim and annual  financial  statements  about the
          obligations   associated   with  guarantees   Fissued.   Although  the
          disclosure  provisions  of  FIN  45  previously  were  adopted  by the
          Company,  the recognition  provisions of FIN 45 became effective as of
          January 1, 2003. The adoption of the recognition  provisions of FIN 45
          did not have a material impact on the Company's  results of operations
          or financial position.



                                      -5-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     (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 the
          fair value  method  pursuant  to  Statement  of  Financial  Accounting
          Standard No. 123 (SFAS 123) Accounting for Stock-based Compensation.


<TABLE>
                                                     Three months ended June 30,         Six months ended June 30,
                                                  ----------------------------------  ---------------------------------
                                                       2003              2002              2003              2002
                                                  ----------------  ----------------  ---------------   ---------------
                                                   (As restated,     (As restated,     (As restated,    (As restated,
                                                    see Note 9)       see Note 9)        see note 9)     see Note 9)
                                                  ----------------  ----------------  ---------------   ---------------
         <S>                                      <C>              <C>                <C>               <C>
           Net loss for the period                 $ (1,705,430)    $  (2,393,778)     $  (2,242,934)    $ (3,221,606)
                                                  ----------------  ----------------  ---------------   ---------------
           Basic and fully diluted loss per
           common share                            $      (0.21)    $       (0.27)     $       (0.27)    $      (0.37)
                                                  ================  ================  ===============   ===============
</TABLE>

          Using the fair value method for stock-based  compensation,  additional
          compensation costs of approximately  $351,674 would have been recorded
          for the three  months  ended  June 30,  2003  (2002 -  $670,475),  and
          $696,130  would have been  recorded  for the six months ended June 30,
          2003 (2002 -  $1,340,950).  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 volatility of the Company's share price of
          73% and a weighted average annualized risk free interest rate at 2.7%.


2.   DISCONTINUED OPERATIONS

     During  June  2002,  MDSI  adopted  a plan  for sale  and  entered  into an
     agreement to sell its Hosting and IT Services business segment,  Connectria
     Corporation  (Connectria),  to former Connectria shareholders who were both
     shareholders and employees of the Company.  The transaction  closed in July
     2002. Pursuant to the terms of the agreement, the Company received from the
     former  Connectria   shareholders  824,700  shares  of  MDSI  that  had  an
     approximate  market value of $2.8 million and the  cancellation  of 103,088
     previously issued stock options of MDSI as consideration for Connectria. In
     addition to the share  consideration,  a  wholly-owned  subsidiary  of MDSI
     received a warrant  allowing it to purchase up to 50,380 shares of Series A
     Nonvoting  Preferred  Stock  of  Connectria  at a price  of $50  per  share
     exercisable  for a period of five years.  The Series A Nonvoting  Preferred
     Stock of Connectria has a face value of $100 per share, bears a dividend of
     five percent per annum,  bears a liquidation  preference  equal to the face
     value,  may be redeemed  at  Connectria's  option at any time,  and must be
     redeemed by Connectria  upon a capital  infusion of $10 million or greater.
     In addition MDSI has advanced to Connectria $500,000,  consisting of a loan
     in the principal amount of $250,000 with a two year term,  bearing interest
     at 5%, and $250,000 for prepaid hosting  services.  As at June 30, 2003 the
     entire amount of the prepaid hosting services has been amortized to income.
     The Company  recognized  a gain of $12,419 on the  disposal  of  Connectria
     during  the  quarter  ended  June  30,  2002.   Connectria   represented  a
     significant segment of the Company's business.



                                      -6-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


2.   DISCONTINUED OPERATIONS (continued)

     Summarized  financial  information  of the  discontinued  operations  is as
     follows:

<TABLE>
           Results of discontinued operations                                             Three months ended,
           ----------------------------------------------------------------------------------------------------------------
                                                                              June 30, 2003                June 30, 2002
                                                                         ------------------------     ---------------------
           <S>                                                           <C>                          <C>
              Revenues                                                     $                -           $      2,417,890
              Income before income taxes                                                    -                     22,196
              Income tax                                                                    -                          -
                                                                         ------------------------     ---------------------
                                                                                            -                      2,196
              Income on disposal
                 net of income taxes                                                        -                          -
                                                                         ------------------------     ---------------------
              Income from discontinued operations                          $                -           $         22,196
                                                                         ========================     =====================
</TABLE>

<TABLE>

           Results of discontinued operations                                              Six months ended,
           ----------------------------------------------------------------------------------------------------------------
                                                                              June 30, 2003                June 30, 2002
                                                                         ------------------------     ---------------------
            <S>                                                          <C>                          <C>
              Revenues                                                     $                -           $      5,058,101
              Income before income taxes                                                    -                    108,612
              Income tax                                                                    -                          -
                                                                         ------------------------     ---------------------
                                                                                            -                    108,612
              Income on disposal
                 net of income taxes                                                        -                          -
                                                                         ------------------------     ---------------------
              Income from discontinued operations                          $                -           $        108,612
                                                                         ========================     =====================
</TABLE>


<TABLE>
           Cash flows of discontinued operations                                          Three months ended,
           ----------------------------------------------------------------------------------------------------------------
                                                                              June 30, 2003                June 30, 2002
                                                                         ------------------------     ---------------------

           <S>                                                            <C>                          <C>
              Operating activities                                         $                -           $        162,441
              Investing activities                                                          -                   (144,882)
              Financing activities                                                          -                    (76,501)
                                                                         ------------------------     ---------------------
              Cash used for discontinued operations                        $                -           $        (58,942)
                                                                         ========================     =====================
</TABLE>

<TABLE>

           Cash flows of discontinued operations                                           Six months ended,
           ----------------------------------------------------------------------------------------------------------------
                                                                              June 30, 2003                June 30, 2002
                                                                         ------------------------     ---------------------
           <S>                                                            <C>                          <C>
              Operating activities                                         $                -           $        (51,500)
              Investing activities                                                          -                    (43,775)
              Financing activities                                                          -                   (217,434)
                                                                         ------------------------     ---------------------
              Cash used for discontinued operations                        $                -           $        (312,709)
                                                                         ========================     =====================
</TABLE>




                                      -7-

<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


3.   SEGMENTED INFORMATION

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

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

<TABLE>
                                                      Three months ended June 30,         Six months ended June 30,
                                                   ----------------------------------  ---------------------------------
                                                        2003               2002             2003              2002
                                                   ----------------   ---------------  ---------------   ---------------
                                                    (As restated,     (As restated,    (As restated,     (As restated,
                                                     see note 9)       see Note 9)      see note 9)       see Note 9)
                                                   ----------------   ---------------  ---------------   ---------------
          <S>                                      <C>                <C>              <C>               <C>
          Canada..................................  $    539,429       $   243,774      $    812,866      $     494,904
          United States..........................      5,975,850         5,586,174        11,281,187         12,075,316
          Europe, Middle East and Africa..........     4,698,362         1,909,723        10,722,178          3,896,399
          Asia and other..........................       145,584           169,401           426,966            169,401
                                                   ----------------   ---------------  ---------------   ---------------
                                                    $ 11,359,225       $ 7,909,072      $ 23,243,197      $  16,636,020
                                                   ================   ===============  ===============   ===============
</TABLE>

     Major customers

     During the three  months  ended June 30, 2003  revenue  from two  customers
     accounted  for  approximately  13.5%  and  16.7%,  respectively,  of  total
     revenue.  During  the six  months  ended  June 30,  2003  revenue  from two
     customers  accounted for approximately  17.1% and 13.1%,  respectively,  of
     total  revenue.  For the  three  and six  months  ended  June 30,  2002 one
     customer did not account for greater than 10% of total revenue.


4.   EARNINGS (LOSS) PER COMMON SHARE

     Basic earnings (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.

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

<TABLE>
                                                           Three months ended June 30,          Six months ended June 30,
                                                        ----------------------------------   ---------------------------------
                                                              2003              2002              2003             2002
                                                        -----------------  ---------------   ---------------  ----------------
         <S>                                             <C>              <C>               <C>               <C>
          Basic weighted average shares outstanding...         8,202,814        8,843,392         8,194,129         8,784,657
          Effect of dilutive securities;
          Stock options...............................                 -                -                 -                 -
                                                        -----------------  ---------------   ---------------  ----------------

          Diluted weighted average shares outstanding          8,202,814        8,843,392         8,194,129         8,784,657
                                                        =================  ===============   ===============  ================
</TABLE>



                                      -8-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


5.   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:

<TABLE>
                                                                   Total Restructuring
                                                                          Charge
                                                                   --------------------
      <S>                                                          <C>
       Workforce reduction                                            $   3,375,000
       Provision for excess office space                                  1,861,000
       Non cash write-down of capital assets                                563,780
       Other                                                                306,147
                                                                   --------------------
       Total restructuring charges                                        6,105,927
       Cumulative draw-downs                                             (5,071,166)
                                                                   --------------------
       Accrued   restructuring  charges  included  in  accrued
       liabilities at June 30, 2003                                   $   1,034,761
                                                                   ====================
</TABLE>


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

     The  Company  has  recorded a $1.9  million  provision  relating to surplus
     office  space  under  long  term  lease by the  Company  at two  locations,
     including one location  where the Company has entered into fixed cost lease
     arrangements expiring in 2004. The Company has incurred  approximately $0.9
     million of cash costs relating to this provision leaving an accrual of $1.0
     million  remaining  as at June  30,  2003.  The  Company  expects  that the
     provision will be fully drawn down no later than the time the lease expires
     in the fourth quarter of 2004.


6.   COMMITMENTS AND CONTINGENCIES

     (a)  Contingency

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

          On March 5, 2003, the court granted the customer's  motion for summary
          judgment,  dismissing  the  Company's  claims  for lack of  sufficient
          evidence of damages. The Company filed a motion for reconsideration of
          this ruling. On March 26, 2003, the court denied the Company's motion.
          On March 26, 2003, the court granted the Company's  motion for partial
          summary judgment,  finding that the customer wrongfully terminated the
          professional services agreement. On April 8, 2003,


                                      -9-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


6.   COMMITMENTS AND CONTINGENCIES (continued)

     (a)  Contingency (continued)

          the  court  granted  the  Company's   motion  for  summary   judgment,
          dismissing  the  customer's  counterclaims  for  fraud  and  negligent
          misrepresentation.

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

          The Company  intends to expense as incurred  costs in connection  with
          the appeal and any  subsequent  trial,  and any  amounts  which may be
          payable in respect to counterclaims asserted by the customer for fraud
          and negligent misrepresentation.  The Company believes that collection
          of monies due from the customer is not likely to occur within one year
          and as a result has  classified  the amounts due from the  customer of
          approximately  $3.7  million  as a long  term  receivable.  Due to the
          uncertain  nature of the receivable the Company  recorded an allowance
          in a prior  period of $1.0 million  against the amounts due.  There is
          currently  no  provision  in the  Company's  financial  statements  to
          address any payment to the customer if the customer is  successful  in
          any  appeal  and   subsequent   trial  on  its  fraud  and   negligent
          misrepresentation  counterclaims,  as the Company,  after consultation
          with counsel,  views this to be an unlikely event.  Should the Company
          not be successful in its claims against the customer,  the Company may
          be required to take a $2.7 million  dollar charge to earnings.  If the
          customer is  successful  in any fraud or  negligent  misrepresentation
          counterclaims,  the  Company  may be  required  to take an  additional
          charge to earnings to the extent of the judgment.  Although the amount
          of any such  judgment  against  the  Company  for  fraud or  negligent
          misrepresentation cannot be determined,  if the customer is successful
          in any appeal and subsequent trial, the Company's  financial condition
          and results of operations would be materially adversely affected.

          On February 2, 2004, MDSI and Citizens settled this lawsuit. Under the
          settlement agreement, each company has fully discharged the other from
          all outstanding legal claims without further  financial  compensation.
          As a result,  the Company recorded a charge to income in the amount of
          $2.7 million during the fourth quarter of 2003.

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

     (b)  Guarantee

          As part of the  disposition  agreement  with  Connectria  Corporation,
          Connectria  is to use its best  efforts  to  terminate,  or obtain the
          release of MDSI from approximately $0.2 million in loan guarantees and
          equipment  leases  made by  MDSI  on  behalf  of  Connectria.  To date
          termination or release from these obligations has not occurred, and as
          a result MDSI could  potentially  be liable  under  these  obligations
          should  Connectria  default  on  a  payment.   Based  on  management's
          estimates,  the Company does not anticipate having to make payments in
          connection with these  guarantees and accordingly no amounts have been
          accrued as a liability in the financial statements.



                                      -10-

<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


6.   COMMITMENTS AND CONTINGENCIES (continued)

     (c)  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 million over a seven year period.  The
          Company is also required to furnish a performance  guarantee  equal to
          approximately  5% of such amount.  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  and  support
          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.


7.   CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS

<TABLE>
                                                          Three months ended June 30,      Six months ended June 30,
                                                             2003             2002            2003           2002
                                                        ---------------  --------------- --------------- --------------
                                                         (As restated,    (As restated,   (As restated,   (As restated,
                                                          see Note 9)      see Note 9)     see Note 9)     see Note 9)
                                                        ---------------  --------------- --------------- --------------
             <S>                                        <C>              <C>              <C>           <C>
              Accounts Receivable                         $(2,262,125)     $(1,553,338)     (1,122,041)   $   847,783
              Prepaid expenses                                112,976          279,847         538,961        332,181
              Income taxes payable                             23,418           13,077          19,746       (216,064)
              Accounts payable and accrued liabilities      1,306,286           46,230         503,137     (1,175,935)
              Deferred revenue                              2,906,652        1,034,731       3,961,573         31,475
                                                        ---------------  --------------- --------------- --------------
                                                          $ 2,087,207      $  (179,453)      3,901,376    $  (180,560)
                                                        ===============  =============== =============== ==============
</TABLE>

8.   STRATEGIC EXPENSES

     Strategic   expenses   consist  of   professional   fees   associated  with
     investigating a potential corporate transaction that the Company considered
     and then abandoned during the three months ended June 30, 2003.


9.   RESTATEMENT

     Subsequent  to  the  issuance  of  the  Company's  condensed   consolidated
     financial  statements  for the period  ended June 30, 2003,  the  Company's
     management  determined  that  the  Company  had  inappropriately  allocated
     contracted   fees  between   software  and   implementation   services  and
     maintenance  and support  services such that fees  allocated to maintenance
     and support were understated. In accordance with



                                      -11-

<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


9.   RESTATEMENT (continued)

     Statement of Position  97-2  Software  Revenue  Recognition  ("SOP  97-2"),
     contracted fees are required to be allocated to the various  elements of an
     arrangement based on  vendor-specific  objective evidence of fair value for
     each element,  regardless  of the prices  stated within the contract.  This
     resulted  in an error with  respect to  maintenance  and  support  services
     provided  during the warranty  period.  In  accordance  with SOP 97-2,  the
     Company  should  have  initially  deferred  a portion of the  software  and
     services  contract  value  equal to the fair value of the  maintenance  and
     support  services to be provided  during the warranty period and recognized
     the related  revenue  ratably during the warranty  period.  The Company had
     previously  included this amount as part of the software and implementation
     fee and  recognized  revenue under the  percentage of completion  method in
     accordance with its stated policy.  As a result of management's  subsequent
     review and  analysis,  the Company  announced  its intention to restate its
     annual financial statements for the fiscal years 1998 to 2002 inclusive and
     its quarterly results for the 2003 fiscal year. Accordingly,  the condensed
     consolidated financial statements as at June 30, 2003 and December 31, 2002
     and for the three and six month  periods  ended June 30,  2003 and June 30,
     2002 have been restated from amounts previously reported. The net effect of
     these adjustments was to increase the accumulated  deficit at June 30, 2003
     and June 30, 2002 by approximately $2,335,000 and $557,000, respectively. A
     summary of the significant effects of the restatement is as follows:

                                                         As at
                                                     June 30, 2003
                                        ------------------- -- -----------------
                                                As
                                            Previously                As
                                             Reported              Restated
                                        -------------------    -----------------

           Unbilled Receivables             $  3,415,088         $  2,518,098
           Total Current Assets               28,118,122           27,221,132
           Deferred Income Taxes                 364,640              363,628
           Total Assets                       40,154,171           39,256,169
           Income Taxes Payable                  641,597              622,463
           Deferred Revenue                   10,404,850           11,860,607
           Total Current Liabilities          18,523,979           19,960,602
           Total Liabilities                  19,825,134           21,261,757
           Deficit                           (25,488,531)         (27,823,156)
           Stockholders' Equity               20,329,037           17,994,412
           Total Liabilities and
           Stockholders' Equity             $ 40,154,171         $ 39,256,169


<TABLE>
                                                  Three months ended                         Three months ended
                                                    June 30, 2003                               June 30, 2002
                                         ------------------------------------     --------------------------------------
                                                As                                         As
                                            Previously              As                 Previously                As
                                             Reported            Restated               Reported              Restated
                                         -----------------    ----------------     -------------------    -----------------
           <S>                           <C>                 <C>                    <C>                   <C>
           Software and Services
           Revenue                         $   8,341,170       $   7,379,187          $   4,885,062         $   4,722,871
           Maintenance and Support
           Revenue                             3,268,744           3,368,101              2,866,478             2,906,770
           Total Revenue                      12,221,851          11,359,225              8,030,971             7,909,072
           Gross Profit                        6,583,495           5,720,869              4,540,228             4,418,329
           Operating Loss                       (157,643)         (1,020,269)            (2,400,462)           (2,522,361)
           Loss From Continuing
           Operations Before Tax
           Provision                            (366,134)         (1,228,760)            (2,314,431)           (2,436,330)
           Income Tax Expense
           (Recovery) From Continuing
           Operations                            137,644             124,996               (688,919)             (690,831)

           Net Loss from  Continuing
           Operations                           (503,778)         (1,353,756)            (1,625,511)           (1,745,499)


           Net Loss for the Period              (503,778)         (1,353,756)            (1,603,315)           (1,723,303)
           Deficit, Beginning of Period      (24,984,753)        (26,469,400)           (24,071,566)          (24,508,099)
           Deficit, End of Period          $ (25,488,531)      $ (27,823,156)         $ (25,674,881)        $ (26,231,402)

           Net Loss per share basic        $       (0.08)      $       (0.17)         $       (0.18)        $       (0.19)
           Net Loss per share diluted      $       (0.08)      $       (0.17)         $       (0.18)        $       (0.19)
</TABLE>



                                      -12
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


9.   RESTATEMENT (continued)

<TABLE>
                                                   Six months ended                           Six months ended
                                                    June 30, 2003                               June 30, 2002
                                         ----------------- -- ----------------     ------------------- -- -----------------
                                                As                                         As
                                            Previously              As                 Previously                As
                                             Reported            Restated               Reported              Restated
                                         -----------------    ----------------     -------------------    -----------------
           <S>                           <C>                 <C>                     <C>                  <C>
           Software and Services
           Revenue                         $  16,191,829       $  14,592,620           $  10,692,155        $  10,377,294
           Maintenance and Support
           Revenue                             5,871,131           6,185,895               5,423,551            5,742,905
           Total Revenue                      24,527,642          23,243,197              16,631,527           16,636,020
           Gross Profit                       12,961,182          11,676,737               9,510,465            9,514,958
           Operating Income (Loss)               423,009            (861,436)             (2,968,595)          (2,964,102)
           Loss From Continuing
           Operations Before Tax
           Provision                             (38,101)         (1,322,546)             (2,806,331)          (2,801,838)
           Income Tax Expense
           (Recovery) From Continuing
           Operations                            243,392             224,258                (814,619)            (812,570)
           Net Loss from  Continuing
           Operations                           (281,493)         (1,546,804)             (1,991,712)          (1,989,268)
           Net Loss for the Period              (281,493)         (1,546,804)             (1,883,100)          (1,880,656)
           Deficit, Beginning of Period      (25,207,038)        (26,276,352)            (23,791,781)         (24,350,746)
           Deficit, End of Period          $ (25,488,531)      $ (27,823,156)          $ (25,674,881)       $ (26,231,402)

           Net Loss per share basic        $       (0.03)      $       (0.19)          $       (0.21)       $       (0.21)
           Net Loss per share diluted      $       (0.03)      $       (0.19)          $       (0.21)       $       (0.21)
</TABLE>



                                      -13-

<PAGE>


ITEM 2:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

Management's  discussion  and  analysis of  financial  condition  and results of
operations  presented  below  reflects  the  effects of the  restatement  of our
condensed consolidated financial statements as at June 30, 2003 and December 31,
2002 and for the three and six month periods  ended June 30, 2003 and 2002.  See
"Restatements" below for further discussion of this matter.

Apart from the revisions  described above,  and an update for subsequent  events
affecting the status of contingencies,  this Item 2 has not been revised for new
events and developments.


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 effectively control levels of operating expenses, the failure
of MDSI to  successfully  execute its  business  strategies,  the effect of slow
United States and international  economies generally, as well as economic trends
and conditions in the vertical markets that MDSI serves, the effect of the risks
associated with technical  difficulties or delays in product  introductions  and
improvements,  product  development,  product  pricing or other  initiatives  of
MDSI's  competitors,  the  possibility  that our potential  customers will defer
purchasing  decisions  due to  economic  or other  conditions  or will  purchase
products  offered by our  competitors,  risks associated with litigation and the
other risks and uncertainties  described 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/A for the year ended December 31, 2002.

     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.  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.

Restatements

     Subsequent  to  the  issuance  of  the  Company's  condensed   consolidated
financial  statements  for  the  period  ended  June  30,  2003,  the  Company's
management determined that the Company had inappropriately  allocated contracted
fees between  software and  implementation  services and maintenance and support
services such that fees allocated to maintenance  and support were  understated.
In accordance with Statement of Position 97-2 Software Revenue Recognition ("SOP
97-2"),  contracted fees are required to be allocated to the various elements of
an



                                      -14-
<PAGE>

arrangement based on  vendor-specific  objective evidence of fair value for each
element,  regardless of the prices stated within the contract.  This resulted in
an error with respect to maintenance  and support  services  provided during the
warranty period.  In accordance with SOP 97-2, the Company should have initially
deferred a portion of the software and services contract value equal to the fair
value of the maintenance and support services to be provided during the warranty
period and recognized the related  revenue  ratably during the warranty  period.
The Company had  previously  included  this amount as part of the  software  and
implementation  fee and  recognized  revenue under the  percentage of completion
method  in  accordance  with its  stated  policy.  As a result  of  management's
subsequent  review and analysis,  the Company announced its intention to restate
its annual financial  statements for the fiscal years 1998 to 2002 inclusive and
its  quarterly  results for the 2003 fiscal  year.  Accordingly,  the  condensed
consolidated  financial statements as at June 30, 2003 and December 31, 2002 and
for the three and six month  periods  ended June 30, 2003 and June 30, 2002 have
been  restated  from  amounts  previously  reported.  The net  effect  of  these
adjustments  was to increase the  accumulated  deficit at June 30, 2003 and June
30, 2002 by approximately  $2,335,000 and $557,000,  respectively.  A summary of
the significant effects of the restatement is as follows:

                                                    As at
                                                June 30, 2003
                                   ----------------- -- --------------------
                                          As
                                      Previously                As
                                       Reported              Restated
                                   -----------------    --------------------
           Unbilled Receivables       $   3,415,088           $   2,518,098
           Total Current Assets          28,118,122              27,221,132
           Deferred Income Taxes            364,640                 363,628
           Total Assets                  40,154,171              39,256,169
           Income Taxes Payable             641,597                 622,463
           Deferred Revenue              10,404,850              11,860,607
           Total Current
           Liabilities                   18,523,979              19,960,602
           Total Liabilities             19,825,134              21,261,757
           Deficit                      (25,488,531)            (27,823,156)
           Stockholders' Equity          20,329,037              17,994,412
           Total Liabilities and
           Stockholders' Equity       $  40,154,171           $  39,256,169



                                      -15-
<PAGE>


Restatements (continued)

<TABLE>
                                                  Three months ended                         Three months ended
                                                    June 30, 2003                               June 30, 2002
                                         ----------------- -- ----------------     ------------------- -- -----------------
                                                As                                         As
                                            Previously              As                 Previously                As
                                             Reported            Restated               Reported              Restated
                                         -----------------    ----------------     -------------------    -----------------
          <S>                            <C>                  <C>                     <C>                  <C>
           Software and Services
           Revenue                        $   8,341,170        $  7,379,187            $  4,885,062         $  4,722,871
           Maintenance and Support
           Revenue                            3,268,744           3,368,101               2,866,478            2,906,770
           Total Revenue                     12,221,851          11,359,225               8,030,971            7,909,072
           Gross Profit                       6,583,495           5,720,869               4,540,228            4,418,329
           Operating Loss                      (157,643)         (1,020,269)             (2,400,462)          (2,522,361)
           Loss From Continuing
           Operations Before Tax
           Provision                           (366,134)         (1,228,760)             (2,314,431)          (2,436,330)
           Income Tax Expense
           (Recovery) From Continuing
           Operations                           137,644             124,996                (688,919)            (690,831)

           Net Loss from  Continuing
           Operations                         (503,778)          (1,353,756)             (1,625,511)          (1,745,499)
           Net Loss for the Period            (503,778)          (1,353,756)             (1,603,315)          (1,723,303)
           Deficit, Beginning of Period    (24,984,753)         (26,469,400)            (24,071,566)         (24,508,099)
           Deficit, End of Period         $(25,488,531)        $(27,823,156)           $(25,674,881)        $(26,231,402)

           Net Loss per share basic       $      (0.08)        $      (0.17)           $      (0.18)        $      (0.19)

           Net Loss per share diluted     $      (0.08)        $      (0.17)           $      (0.18)        $      (0.19)
</TABLE>

<TABLE>
                                                   Six months ended                           Six months ended
                                                    June 30, 2003                               June 30, 2002
                                         ----------------- -- ----------------     ------------------- -- -----------------
                                                As                                         As
                                            Previously              As                 Previously                As
                                             Reported            Restated               Reported              Restated
                                         -----------------    ----------------     -------------------    -----------------
           <S>                            <C>                  <C>                     <C>                  <C>
           Software and Services
           Revenue                        $ 16,191,829         $ 14,592,620            $ 10,692,155         $ 10,377,294
           Maintenance and Support
           Revenue                           5,871,131            6,185,895               5,423,551            5,742,905
           Total Revenue                    24,527,642           23,243,197              16,631,527           16,636,020
           Gross Profit                     12,961,182           11,676,737               9,510,465            9,514,958
           Operating Income (Loss)             423,009             (861,436)             (2,968,595)          (2,964,102)
           Loss From Continuing
           Operations Before Tax
           Provision                           (38,101)          (1,322,546)             (2,806,331)          (2,801,838)
           Income Tax Expense
           (Recovery) From Continuing
           Operations                          243,392              224,258                (814,619)            (812,570)
           Net Loss from  Continuing
           Operations                         (281,493)          (1,546,804)             (1,991,712)          (1,989,268)
           Net Loss for the Period            (281,493)          (1,546,804)             (1,883,100)          (1,880,656)
           Deficit, Beginning of Period    (25,207,038)         (26,276,352)            (23,791,781)         (24,350,746)
           Deficit, End of Period         $(25,488,531)        $(27,823,156)           $(25,674,881)        $(26,231,402)

           Net Loss per share basic       $      (0.03)        $      (0.19)           $      (0.21)        $      (0.21)
           Net Loss per share diluted     $      (0.03)        $      (0.19)           $      (0.21)        $      (0.21)
</TABLE>



                                      -16-
<PAGE>

     The following  presents a summary of the impact of the restatements for the
periods presented in the accompanying unaudited condensed consolidated financial
statements.


Condensed  consolidated  statement of operations for the three months ended June
30, 2003 as restated

     Software and services  revenue was reduced by $962,000 from $8.3 million to
$7.4 million for the three months ended June 30, 2003.  Maintenance  and support
revenue was increased by $99,000 from $3.3 million to $3.4 million for the three
months ended June 30, 2003.  After accounting for the decrease in the associated
tax  provision,  net loss as previously  reported of $504,000 was increased to a
net loss of $1.4 million for the three months ended June 30, 2003.


Condensed  consolidated  statement of operations for the three months ended June
30, 2002 as restated

     Software and services  revenue was reduced by $162,000 from $4.9 million to
$4.7 million for the three months ended June 30, 2002.  Maintenance  and support
revenue was increased by $40,000 from $2.9 million to $2.9 million for the three
months ended June 30, 2002.  After accounting for the decrease in the associated
tax provision,  net loss as previously reported of $1.6 million was increased to
a net loss of $1.7 million for the three months ended June 30, 2002.


Condensed consolidated statement of operations for the six months ended June 30,
2003 as restated

     Software and services  revenue was reduced by $1,599,000 from $16.2 million
to $14.6 million for the six months ended June 30, 2003. Maintenance and support
revenue was  increased by $315,000 from $5.9 million to $6.2 million for the six
months ended June 30, 2003.  After accounting for the decrease in the associated
tax provision,  net loss as previously  reported of $0.3 million  increased to a
net loss of $1.5 million for the six months ended June 30, 2003.


Condensed consolidated statement of operations for the six months ended June 30,
2002 as restated

     Software and services revenue was reduced by $315,000 from $10.7 million to
$10.4  million for the six months ended June 30, 2002.  Maintenance  and support
revenue was  increased by $320,000 from $5.4 million to $5.7 million for the six
months ended June 30, 2002.  After accounting for the increase in the associated
tax provision,  net loss as previously reported of $1.9 million was reduced to a
net loss of $1.9 million for the three months ended June 30, 2002.


Condensed consolidated balance sheet as at June 30, 2003 as restated

     The above table illustrates the restatements identified and their impact on
the condensed  consolidated balance sheet as at June 30, 2003. The impact of the
restatement  reflects  adjustments to the amount of revenue recognized and their
associated impact on unbilled receivables and deferred revenues.  The adjustment
to the related tax  provision is reflected in the restated  Income Taxes Payable
and Deferred Income Taxes balances.

     Following management's  determination to restate the consolidated financial
statements noted above, management also determined that pro-forma disclosures of
stock-based   compensation  costs  were  improperly  calculated  and  disclosed.
Accordingly,  the pro-forma  disclosures  included in the notes to the condensed
consolidated financial statements have been restated.

     For further  information  regarding the impact of the  restatements  on the
condensed  consolidated  statements of  operations  for the three months and six
months  ended June 30, 2003 and June 30,  2002 and the balance  sheet as at June
30,  2003,  see  notes  1(a) and 9 to the  accompanying  condensed  consolidated
financial statements.



                                      -17-
<PAGE>

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 to not 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
factors,  particularly the timing and receipt of significant  orders.  While the
Company  believes  that economic  conditions in certain of its vertical  markets
show signs of  improvement,  the Company  believes  that  economic and political
conditions  and general  trends are likely to continue to affect  demand for the
Company's products and services  throughout the remainder of 2003,  particularly
demand for  software  and related  services.  See the risk  factors  attached to
Exhibit  99.1 hereto and  "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 were  realized from the  subleasing of excess
space, and a reduction in discretionary spending. As a result of the sale of the
public safety operations during the second quarter of 2002, the Company exceeded
the estimated quarterly savings.

     In connection with the  restructuring the Company recorded a charge of $6.1
million in 2001. A breakdown of the nature of the charges and the costs incurred
to date is as follows:

<TABLE>
                                                                   Total Restructuring
                                                                          Charge
                                                                   --------------------
      <S>                                                          <C>
       Workforce reduction                                            $   3,375,000
       Provision for excess office space                                  1,861,000
       Non cash write-down of capital assets                                563,780
       Other                                                                306,147
                                                                   --------------------
       Total restructuring charges                                        6,105,927
       Cumulative draw-downs                                             (5,071,166)
                                                                   --------------------
       Accrued   restructuring  charges  included  in  accrued
       liabilities at June 30, 2003                                   $   1,034,761
                                                                   ====================
</TABLE>


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

     The Company's  remaining  restructuring  accruals  relate to surplus office
space  under long term  lease by the  Company at two  locations,  including  one
location  where the  Company  has  entered  into fixed  cost lease  arrangements
expiring in 2004.  The Company has incurred  approximately  $0.9 million of cash
costs relating to this provision leaving an accrual of $1.0 million remaining as
at June 30, 2003.  The Company  expects that the  provision  will be fully drawn
down no later than the time the lease expires in the fourth quarter of 2004.



                                      -18-
<PAGE>

Field Service Business

     The  implementation  of a complete mobile data solution requires a wireless
data communications  network,  mobile computing devices integrated with wireless
data  communication   modems,   host  computer   equipment,   industry  specific
application  software such as MDSI's Advantex  products,  wireless  connectivity
software  and a variety of  services  to manage and  install  these  components,
integrate them with an organization's existing computer systems and configure or
customize  the  software  to  meet  customer  requirements.  Frequently,  in the
Company's larger contracts only a limited number of the mobile computing devices
and in-vehicle equipment are installed  initially,  with the balance implemented
over a rollout period that may extend up to one year or more. Where increases in
mobile 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  that are  generally  performed
within six to twelve months.  Pricing for these contracts  includes license fees
as well as a fee for professional  services.  The Company  generally  recognizes
total  revenue for  software  and services  associated  with a contract  using a
percentage of completion method based on the total costs incurred over the total
estimated costs to complete the contract.

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

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

     During 2001,  MDSI decided not to continue  pursuing  opportunities  in the
Public Safety market. These opportunities  consisted of federal, state and local
agencies that provide police,  fire, medical and other emergency  services.  The
Company had  installed  solutions for a limited  number of  customers,  and this
market did not represent a material portion of MDSI's revenues.  On May 24, 2002
the Company entered into an agreement with Datamaxx  Applied  Technologies  Inc.
("Datamaxx"),  granting  exclusive  license to Datamaxx for MDSI's Public Safety
products in North America,  and non exclusive  license rights for these products
outside North America.  The Company also assigned its existing  contracts in the
Public Safety market to Datamaxx.  MDSI will receive royalty  payments under the
agreement  for any  license  and  implementation  revenue  earned by Datamaxx in
relation  to the  licensed  products,  subject  to a maximum  royalty  payout of
$1,500,000.  As a result of this licensing agreement, the Company has now exited
the Public Safety market,  and all employees related to the Public Safety market
were terminated prior to June 30, 2002.

     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.



                                      -19-
<PAGE>

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

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

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


Recent Accounting Pronouncements

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

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

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

     The Company will adopt the provisions of SFAS 149 for any contracts entered
into after June 30, 2003 and is not affected by Implementation Issues that would
require earlier  adoption.  The Company is currently  evaluating the effect that
the adoption of SFAS 149 will have on its results of  operations  and  financial
condition.

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

     In June 2002,  the FASB issued SFAS No. 146 ("SFAS 146"),  "Accounting  for
Costs Associated with Exit or Disposal  Activities".  SFAS 146 requires that the
liability for a cost associated with an exit or disposal  activity be recognized
at its fair value when the liability is incurred.  Under  previous  guidance,  a
liability  for certain  exit costs was  recognized  at the date that  management
committed to an exit plan,  which was generally  before the actual liability had
been incurred. Adoption of this statement did not impact the Company's financial
statements for the three or six month period ended June 30, 2003.


                                      -20-
<PAGE>


     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others"  (FIN45).  FIN 45  requires  that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements about the obligations associated with guarantees issued. Although the
disclosure  provisions  of FIN 45  previously  were adopted by the Company,  the
recognition  provisions  of FIN 45 became  effective as of January 1, 2003.  The
adoption of the recognition  provisions of FIN 45 did not have a material impact
on the Company's results of operations or financial position.


Critical Accounting Policies and Significant Estimates

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


Restructuring Charges

     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  regard  to  the
collection  of a certain  receivable  balance,  an  allowance  and charge to the
income  statement is  recorded.  At June 30, 2003,  the  allowance  for doubtful
accounts was $3.5  million,  composed of $2.5 million  relating to current trade
receivables  and $1.0 million  relating to a long term  receivable.  The Company
intends  to  continue  vigorously  pursuing  these  accounts.  If future  events
indicate additional  collection issues, the Company may be required to record an
additional allowance for doubtful accounts.

Revenue Recognition - Percentage Completion

     The Company  uses  estimates  based on inputs to determine  the  percentage
completion  of its software and service  implementation  contracts  and thus its
revenue recognition. Under the percentage-of-completion  method, sales and gross
profit are recognized as the work is performed based on the relationship between
costs incurred and the total estimated costs of completion.  These estimates and
contracts are reviewed  regularly and are adjusted  prospectively to reflect the
Company's best estimate at the time. Provision for estimated losses on contracts
are recorded when  identifiable.  The Company's  assumptions  used to form these
estimates may be proven to be erroneous and  materially  different  outcomes may
result.

Income Taxes

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

Product Warranties

     The  Company  generally  provides a limited  warranty of ninety days on its
products and holds back a portion of revenue related to the warranty period from
its  software and services  contract as deferred  revenue  based on the value of
these  services.  The  deferred  revenue  is then  recognized  ratably  over the
warranty period.




                                      -21-
<PAGE>

Contingencies

     The Company is involved in a dispute with  Citizens  Telcom  Services  Co.,
L.L.C.  The Company  filed suit  against  Citizens  alleging  that  Citizens had
breached a series of contracts,  and failed to pay sums due.  Citizens  filed an
answer and counterclaim  alleging the Company breached the contracts,  entitling
Citizens  to  repayment  of all sums paid to the Company of  approximately  $3.5
million.  In  addition,   Citizens'   counterclaims  alleged  fraud,   negligent
misrepresentation,  breach of express warranty and breach of implied warranties.
Citizens  sought all  actual,  special,  incidental  and  consequential  damages
associated with these counterclaims,  in addition to punitive damages,  interest
and attorneys' fees.

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

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

     The Company  intends to expense as incurred  costs in  connection  with the
appeal and any subsequent trial, and any amounts which may be payable in respect
to counterclaims asserted by Citizens for fraud and negligent misrepresentation.
The Company has classified the $3.7 million  receivable  from Citizens as a long
term receivable on its  consolidated  balance sheet as of June 30, 2003, and due
to the uncertain  nature of the  receivable has recorded an allowance in a prior
period of $1.0 million  against the amounts due. There is currently no provision
in the Company's financial  statements to address any payment to the customer if
Citizens  is  successful  in any  appeal and  subsequent  trial on its fraud and
negligent  misrepresentation  counterclaims,  as the Company, after consultation
with  counsel,  views this to be an  unlikely  event.  Should the Company not be
successful in its claims  against the  customer,  the Company may be required to
take a $2.7 million dollar charge to earnings.  If the customer is successful in
any fraud or  negligent  misrepresentation  counterclaims,  the  Company  may be
required to take an additional charge to earnings to the extent of the judgment.
Although  the  amount of any such  judgment  against  the  Company  for fraud or
negligent  misrepresentation cannot be determined, if the customer is successful
in any appeal and  subsequent  trial,  the  Company's  financial  condition  and
results  of  operations  would  be  materially   adversely  affected.   See  the
"Litigation"  risk  factor  in  Exhibit  99.1  hereto  and see  "Forward-Looking
Statements".

     On February 2, 2004,  MDSI and  Citizens  settled this  lawsuit.  Under the
settlement  agreement,  each  company  has fully  discharged  the other from all
outstanding  legal claims without further financial  compensation.  As a result,
the Company recorded a charge to income in the amount of $2.7 million during the
fourth quarter of 2003.



                                      -22-
<PAGE>

Results of Operations

     The Company's net loss was $1.4 million for the three months ended June 30,
2003.  This  compares to a net loss of $1.7  million for the three  months ended
June 30, 2002. For the six months ended June 30, 2003 the Company had a net loss
of $1.5 million, compared to a net loss of $1.9 million for the six months ended
June 30, 2002.  The  reduction in net loss for both  comparative  periods is due
primarily to increased  revenues  derived  from several  significant  contracts,
partially   offset  by  increased  direct  costs  relating  to  the  significant
contracts, and strategic expenses incurred in the second quarter of 2003.

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

<TABLE>
                                                 Three months ended June 30,     Six months ended June 30,
                                                 ----------------------------    ---------------------------
                                                     2003           2002             2003          2002
                                                 -------------- -------------    ------------- -------------
                                                 (As restated)   (As restated)    (As restated) (As restated)
<S>                                                    <C>           <C>              <C>           <C>
REVENUE
   Software and services                               65.0%         59.7%            62.8%         62.4%
   Maintenance and support                             29.6%         36.8%            26.6%         34.5%
   Third party products and services                    5.4%          3.5%            10.6%          3.1%
                                                 -------------- -------------    ------------- -------------
                                                        100%          100%             100%          100%

DIRECT COSTS                                           49.6%         44.1%            49.8%         42.8%
                                                 -------------- -------------    ------------- -------------
GROSS PROFIT                                           50.4%         55.9%            50.2%         57.2%
                                                 -------------- -------------    ------------- -------------
OPERATING EXPENSES
   Research and development                            12.5%         19.0%            11.6%         17.8%
   Sales and marketing                                 25.4%         49.5%            25.1%         38.0%
   General and administrative                          14.2%         19.3%            13.7%         19.2%
   Strategic expenses                                   7.3%            -              3.6%            -
                                                 -------------- -------------    ------------- -------------
                                                       59.4%         87.8%            54.0%         75.0%
                                                 -------------- -------------    ------------- -------------
OPERATING LOSS                                         (9.0)%       (31.9)%           (3.8)%       (17.8)%

OTHER (EXPENSE) INCOME                                 (1.8)%         1.1%            (2.0)%         1.0%
                                                 -------------- -------------    ------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAX            (10.8)%       (30.8)%           (5.8)%       (16.8)%
PROVISION

INCOME TAX EXPENSE (RECOVERY) FROM CONTINUING
OPERATIONS                                              1.1%         (8.7)%            1.0%         (4.9)%
                                                 -------------- -------------    ------------- -------------
NET LOSS FROM CONTINUING OPERATIONS                   (11.9)%       (22.1)%           (6.8%)       (11.9)%

INCOME FROM DISCONTINUED OPERATIONS                       -           0.3%               -           0.7%
                                                 -------------- -------------    ------------- -------------
NET LOSS FOR THE PERIOD                               (11.9)%       (21.8)%           (6.8)%       (11.2)%
                                                 ============== =============    ============= =============
</TABLE>


Three  Months  Ended June 30, 2003  Compared to the Three  Months Ended June 30,
2002

     Revenue.  Revenue  increased  by $3.5 million or 43.6% for the three months
ended June 30, 2003 as compared to the three months  ended June 30,  2002.  This
increase was  primarily  due to increases in revenue from  software and services
and third party products and services during the second quarter of 2003 relative
to the same period in 2002.



                                      -23-
<PAGE>

Three  Months  Ended June 30, 2003  Compared to the Three  Months Ended June 30,
2002 (continued)


     Software  and services  revenue  increased by $2.7 million or 56.2% for the
three  months ended June 30, 2003 as compared to the three months ended June 30,
2002. The increase in revenue is attributable to several  significant  contracts
the Company has entered into over the last year,  representing increased success
in the core markets the Company  serves.  These  contracts  continue to generate
significant   revenue  for  the  Company.   The  Company   recognized   only  an
insignificant amount of revenue from one of these contracts for the three months
ended June 30, 2002 and therefore the  Company's  Software and Service  revenues
have  significantly  increased  for the  three  months  ended  June 30,  2003 as
compared to the three months ended June 30, 2002. The Company expects that these
contracts  will continue to make up a  significant  portion of revenues over the
next few quarters. "See Forward Looking Statements".  While the Company believes
that  economic  conditions  in certain  of its  vertical  markets  show signs of
improvement, the Company anticipates that economic conditions 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 $3.4 million for the three months ended
June 30, 2003 as compared to $2.9  million for the three  months  ended June 30,
2002.  Maintenance  and  support  revenue  has  increased  primarily  due  to an
agreement  being reached with a customer  during the three months ended June 30,
2003 that  resulted in past  support  revenues  deferred due to  uncertainty  of
collection being recognized  during the current period.  Maintenance and support
revenue has also increased due to the growth in the Company's installed customer
base.  Such revenue is expected to fluctuate as it  corresponds  to the level of
software support and services which the Company is engaged to provide in support
of its installations.

     Third party products and services revenue increased by $0.3 million for the
three  months  ended June 30, 2003  compared to the three  months ended June 30,
2002. Third party products and services revenue is primarily earned from certain
customers in the utilities market pursuant to agreements under which the Company
provides  third party products and services,  typically host computer  equipment
and mobile  computing  devices,  as part of the  installation  of  software  and
provision of services. In addition, not all customers under contract require the
provision of third party products and services.  Accordingly, there may be large
fluctuations in revenue,  direct costs, gross profits and income from operations
from one period to another.  The Company has agreed to supply a large  amount of
third party services at no margin,  in connection with one particular  contract,
and  therefore  expects  that  future  revenues  from third party  products  and
services  will  increase in the near term.  For the three  months ended June 30,
2003 approximately $0.3 million of these third party services were provided,  as
compared to $ nil for the three months ended June 30, 2002. See "Forward-Looking
Statements."

     Direct Costs. Direct costs were 49.6% of revenue for the three months ended
June 30,  2003,  compared  to 44.1% for the three  months  ended June 30,  2002.
Direct  costs  include  labor  and other  costs  directly  related  to a project
including  those related to the ongoing  provision of services and support,  and
costs  related to equipment  purchased  for sale to third  parties.  Labor costs
include direct payroll,  benefits and overhead  charges.  The increase in direct
costs as a percentage of revenue  occurred as the Company has recently agreed to
supply a large amount of third-party  services at no margin,  in connection with
one particular contract.  The relative weakness of the United States dollar also
contributed to the cost increase as the majority of direct costs are incurred in
Canadian  dollars.  As a result,  direct costs as a  percentage  of revenue have
increased. The Company expects that direct costs as a percentage of revenue will
remain  relatively  consistent  with the  current  period in the near term.  See
"Forward-Looking Statements."

     Gross  Margins.  Gross  margins  were 50.4% of revenue for the three months
ended June 30, 2003, compared to 55.9% for the three months ended June 30, 2002.
The decrease in gross margins as a percentage of revenue relates  primarily to a
agreement whereby the Company has agreed to supply a large amount of third-party
services  at no  margin.  During  the  current  period  the  Company  recognized
approximately  $0.3 million in third party  revenues  and costs  related to this
project  and as a  result  of  this  work,  the  Company's  gross  margins  as a
percentage  of revenue  decreased.  The relative  weakness of the United  States
dollar also  contributed  to the  reduction in gross  margin in the period.  The
Company  expects  that in the near term its gross  margins  as a  percentage  of
revenue will remain consistent with the current period,  subject to the level of
third party services actually provided. See "Forward-Looking Statements."



                                      -24-
<PAGE>


Three  Months  Ended June 30, 2003  Compared to the Three  Months Ended June 30,
2002 (continued)

     Research and  Development.  Research  and  development  expenses  were $1.4
million, or 12.5% of revenue, for the three months ended June 30, 2003, compared
to $1.5 million, or 19.0% of revenue,  for the three months ended June 30, 2002.
The  decrease in research and  development  expenses is a result of research and
development  personnel  being  utililized on revenue  producing  projects in the
current period,  and  corresponding  portions of the associated salary costs for
these  staff  being  reflected  as  direct  costs as  opposed  to  research  and
development  expenses.  The Company intends to continue committing a significant
portion of its revenue to enhance  existing  products and develop new  products.
See "Forward-Looking Statements".

     Sales and  Marketing.  Sales and  marketing  expenses  were $2.9 million or
25.4% of revenue,  for the three  months  ended June 30,  2003  compared to $3.9
million,  or 49.5% of revenue,  for the three months  ended June 30,  2002.  The
decrease in expenses was a result of a lower  commission  expense being incurred
by the Company,  as several large contract  signings that occurred in the second
quarter  of 2002  did not  reoccur  in the  current  period  resulting  in fewer
commissions being paid out in the current period.  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 $1.6
million, or 14.2% of revenue,  for the three months ended June 30, 2003 compared
to $1.5 million, or 19.3% of revenue,  for the three months ended June 30, 2002.
General and  administrative  expenses  remained  relatively  consistent with the
comparative period as a result of cost control efforts initiated by the Company.
The  Company  expects  that  in the  near  future,  general  and  administrative
expenditures  will  remain  relatively   consistent  with  current  levels.  See
"Forward-Looking Statements".

     Strategic expenses.  Strategic expenses were approximately $0.8 million, or
7.3% of revenue,  for the three months ended June 30, 2003.  The Company did not
incur any strategic expenses in the three months ended June 30, 2002.  Strategic
expenses   consisted  of  professional  fees  associated  with  investigating  a
potential  corporate  transaction that the Company considered and then abandoned
during the  quarter.  The  Company  expects  it will from time to time  consider
strategic  opportunities;  however,  the  Company  cannot  predict the amount or
timing of  strategic  expenses  or whether  the Company  will be  successful  in
negotiating a successful  transaction.  See  "Forward-Looking  Statements."  The
Company has received an initial request for  reimbursement  of expenses from the
other party involved in the transaction.  The Company strongly  believes that it
is not obligated to reimburse these  expenses,  and the Company has not provided
for any  reimbursement  of the  other  party's  expenses  in its  own  financial
statements.

     Other (Expense) Income. Other (expense) income was ($208,000) for the three
months  ended June 30, 2003 as compared to  approximately  $86,000 for the three
months ended June 30, 2002.  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.   In
particular, the U.S. dollar weakened during the current period and the Company's
foreign denominated net liabilities  increased in value which, when reflected in
U.S. dollars, caused an unrealized foreign exchange loss.

     Income  Taxes.  The Company  provided for income tax expense  (recovery) on
income  (losses)  for the three  months ended June 30, 2003 and 2002 at rates of
30.0% and (29.8%) respectively,  after adjusting for strategic expenses incurred
in the current  period.  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 of the benefit.

     Income (loss) from Discontinued  Operations.  During the three months ended
June 30, 2002 the Company  announced  its intention to divest its Hosting and IT
services  subsidiary  Connectria  Corporation  (Connectria).  As a  result,  the
historical   results  of  operations  for  Connectria  have  been  presented  as
Discontinued  Operations.  Income  from  Discontinued  Operations  for the three
months ended June 30, 2002 was $22,000. As the transaction was completed in July
of 2002, all assets and  liabilities of Connectria were liquidated by the end of
July 2002 and no income or loss was incurred from Discontinued Operations during
the current period.


                                      -25-
<PAGE>

Six Months Ended June 30, 2003 Compared to the Six Months Ended June 30, 2002

     Revenue.  Revenue  increased  by $6.6  million  or 39.7% for the six months
ended June 30,  2003 as  compared to the six months  ended June 30,  2002.  This
increase was  primarily  due to increases in revenue from  software and services
and third  party  products  and  services  during  the first six  months of 2003
relative to the same period in 2002.

     Software  and services  revenue  increased by $4.2 million or 40.6% for the
six months  ended June 30,  2003 as  compared  to the six months  ended June 30,
2002. The increase in revenue is attributable to several  significant  contracts
the  Company  has  entered  into  during  the  year  ended   December  31,  2002
representing  increased  success in the core markets the Company  serves.  These
contracts continue to generate  significant revenue for the Company. The Company
earned only an  insignificant  amount of revenue from one of these contracts for
the six months  ended June 30, 2002 and  therefore  the  Company's  software and
service  revenue has  significantly  increased for the six months ended June 30,
2003 as compared to the six months ended June 30, 2002. The Company expects that
these contracts will continue to make up a significant  portion of revenues over
the next few  quarters.  See  "Forward  Looking  Statements".  While the Company
believes that economic  conditions in certain of its vertical markets show signs
of improvement,  the Company  anticipates  that economic  conditions and general
trends are likely to continue to have an adverse impact on software and services
revenue in future periods. See "Forward-Looking Statements".

     Maintenance and support revenues were $6.2 million for the six months ended
June 30,  2003 as compared  to $5.7  million  for the six months  ended June 30,
2002. Maintenance and support revenues have increased primarily due to growth in
the Company's  installed  customer base.  Maintenance and support  revenues have
also  increased  due to an agreement  being  reached with a customer  during the
current  period  that  resulted  in  past  support  revenues   deferred  due  to
uncertainty of collection being recognized as revenue during the current period.
Such revenue is expected to fluctuate as it corresponds to the level of software
support and  services  which the Company is engaged to provide in support of its
installations.

     Third party products and services revenue increased by $1.9 million for the
six months  ended June 30,  2003 as  compared  to the six months  ended June 30,
2002. Third party products and services revenue  increased  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,
2003 approximately $1.4 million of these third party services were provided,  as
compared  to $ nil for the six  months  ended June 2002.  See  "Forward  Looking
Statements."

     Direct  Costs.  Direct costs were 49.8% of revenue for the six months ended
June 30, 2003,  compared to 42.8% for the six months  ended June 30,  2002.  The
increase in direct costs as a percentage of revenue  occurred as the Company has
recently  agreed to supply a large amount of third-party  services at no margin,
in connection with one particular contract.  The relative weakness of the United
States  dollar also  contributed  to the cost increase as the majority of direct
costs  are  incurred  in  Canadian  dollars.  As a  result,  direct  costs  as a
percentage of revenue have increased,  and the Company expects that direct costs
as a percentage of revenue will remain  relatively  consistent  with the current
period in the near term. See "Forward-Looking Statements."

     Gross Margins. Gross margins were 50.2% of revenue for the six months ended
June 30, 2003,  compared to 57.2% for the six months  ended June 30,  2002.  The
decrease in gross  margins as a  percentage  of revenue  relates  primarily to a
agreement whereby the Company has agreed to supply a large amount of third-party
services  at no  margin.  During  the  current  period  the  Company  recognized
approximately  $1.4 million in third party  revenues  and costs  related to this
project  and as a  result  of  this  work,  the  Company's  gross  margins  as a
percentage  of revenue  decreased.  The relative  weakness of the United  States
dollar also  contributed  to the  reduction in gross  margin in the period.  The
Company  expects that in the near term that its gross margins as a percentage of
revenue will remain consistent with the current period,  subject to the level of
third party services actually provided. "See "Forward-Looking Statements."



                                      -26-
<PAGE>

Six Months  Ended June 30, 2003  Compared to the Six Months  Ended June 30, 2002
(continued)

     Research and  Development.  Research  and  development  expenses  were $2.7
million,  or 11.6% of revenue,  for the six months ended June 30, 2003, compared
to $3.0  million,  or 17.8% of revenue,  for the six months ended June 30, 2002.
The  decrease in research and  development  expenses is a result of research and
development  personnel  being  utililized on revenue  producing  projects in the
current period,  and  corresponding  portions of the associated salary costs for
these  staff  being  reflected  as  direct  costs as  opposed  to  research  and
development  expenses.  The Company intends to continue committing a significant
portion of its revenue to enhance  existing  products and develop new  products.
See "Forward-Looking Statements".

     Sales and  Marketing.  Sales and marketing  expenses were $5.8 million,  or
25.1% of  revenue,  for the six months  ended June 30,  2003,  compared  to $6.3
million,  or 38.0% of  revenue,  for the six  months  ended June 30,  2002.  The
decrease  in  expenditures  in  the  current  period  was a  result  of a  lower
commission  expense being  incurred by the Company,  as several  large  contract
signings that occurred in 2002 did not reoccur in the current  period  resulting
in  fewer  commissions  being  paid  out  in the  current  period.  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 $3.2
million,  or 13.7% of  revenue,  for the six  months  ended  June 30,  2003,  as
compared to $3.2 million, or 19.2% of revenue, for the six months ended June 30,
2002. General and administrative  expenses remained  relatively  consistent with
the  comparative  period as a result of cost  control  efforts  initiated by the
Company. The Company expects that in the near future, general and administrative
expenditures  will  remain  relatively   consistent  with  current  levels.  See
"Forward-Looking Statements".

     Strategic expenses.  Strategic expenses were approximately $0.8 million, or
3.6% of revenue,  for the six months  ended June 30,  2003.  The Company did not
incur any  strategic  expenses in the six months ended June 30, 2002.  Strategic
expenses   consisted  of  professional  fees  associated  with  investigating  a
potential  corporate  transaction that the Company considered and then abandoned
during  the  period.  The  Company  expects  it will from time to time  consider
strategic  opportunities;  however,  the  Company  cannot  predict the amount or
timing of  strategic  expenses  or whether  the Company  will be  successful  in
negotiating a successful  transaction.  See  "Forward-Looking  Statements."  The
Company has received an initial request for  reimbursement  of expenses from the
other party involved in the transaction.  The Company strongly  believes that it
is not obligated to reimburse these  expenses,  and the Company has not provided
for any  reimbursement  of the  other  party's  expenses  in its  own  financial
statements.

     Other (Expense)  Income.  Other (expense) income was ($461,000) for the six
months  ended June 30, 2003 as compared to  approximately  $162,000  for the six
months ended June 30, 2002.  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.   In
particular, the U.S. dollar weakened during the current period and the Company's
foreign denominated net liabilities  increased in value which, when reflected in
U.S. dollars, caused an unrealized foreign exchange loss.

     Income  Taxes.  The Company  provided for income tax expense  (recovery) on
income  (losses)  for the six months  ended  June 30,  2003 and 2002 at rates of
32.0% and (29.0%) respectively,  after adjusting for strategic expenses incurred
in the current  period.  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 of the benefit.

     Income  (loss) from  Discontinued  Operations.  During the six months ended
June 30, 2002 the Company  announced  its intention to divest its Hosting and IT
services  subsidiary  Connectria  Corporation  (Connectria).  As a  result,  the
historical   results  of  operations  for  Connectria  have  been  presented  as
Discontinued Operations.  Income from Discontinued Operations for the six months
ended June 30, 2002 was $109,000.  As the  transaction  was completed in July of
2002,  all assets and  liabilities of Connectria  were  liquidated by the end of
July 2002 and no income or loss was incurred from Discontinued Operations during
the current period.



                                      -27-
<PAGE>

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, 2003, the Company had cash and
cash equivalents of $13.7 million and working capital of $7.2 million.

     Cash provided by operating  activities was  $4.0million  for the six months
ended June 30, 2003 compared to $(0.9) million for the six months ended June 30,
2002.  The net  inflow of cash from  operating  activities,  after  adding  back
depreciation  and  amortization  of $1.5  million,  is due to a net  decrease in
non-cash working capital items of $3.9 million and a decrease in deferred income
tax  receivable  of $0.2  million  offset by a net loss for the six months ended
June 30, 2003 of $1.5 million.  The net decrease in non-cash  operating  working
capital items is due primarily to a net decrease in unbilled trade  receivables,
and an increase in deferred  revenue,  partially  offset by an increase in trade
accounts receivable.  The decrease in unbilled trade receivables and increase in
deferred  revenue  are  due  to  timing  differences   arising  between  revenue
recognition and billing milestones in multiphase projects. The increase in trade
receivables is a result of increased  billings  during the six months ended June
30, 2003.

     The Company  maintains as at June 30, 2003 a provision of $3.5 million with
respect to doubtful accounts,  including $1.0 million classified as non-current.
The Company intends to vigorously pursue collection of these accounts;  however,
due to uncertainty with regard to ultimate  collection,  the Company  determined
that it would be prudent to maintain an allowance to address this uncertainty.

     The Company is currently involved in a dispute with a customer,  and as the
Company had  determined it is not likely to collect the amounts within one year,
it had previously reclassified $3.7 million in accounts receivable as long term.
As part of its total  $3.5  million  dollar  doubtful  accounts  provision,  the
Company has, in a prior period,  recorded an allowance of $1.0 million,  against
this  receivable  given the  uncertain  nature of  collection.  The  Company  is
currently  involved in  litigation  to collect the amounts  due.  The nature and
amount  of  the  Company's  claims,  the  customer's  counterclaims  and  recent
developments in the litigation are described more fully under Part II, Item 1 of
this  Quarterly  Report.  The Company  intends to expense the costs  incurred in
connection  with the  appeal and any  subsequent  trial,  and any  counterclaims
asserted by the customer for fraud and negligent misrepresentation, as incurred.
Should the Company not be  successful in its claims  against the  customer,  the
Company may be required to take a $2.7 million dollar charge to earnings. If the
customer   is   successful   in  any   fraud  or   negligent   misrepresentation
counterclaims,  the  Company may be  required  to take an  additional  charge to
earnings to the extent of the judgment. Although the amount of any such judgment
against  the  Company  for  fraud  or  negligent   misrepresentation  cannot  be
determined,  if the customer is successful in any appeal and  subsequent  trial,
the Company's  financial condition and results of operations could be materially
adversely  affected.  There is currently no provision in the Company's financial
statements  to  address  any  payment  to the  customer  with  respect  to these
counterclaims as the Company,  after consultation with counsel, views this to be
an unlikely  event.  The  Company  believes  that its  position in the matter is
strong and  intends  to  vigorously  pursue  collection.  If the  Company is not
successful in the  litigation,  the  Company's  financial  position,  results of
operations,  and  liquidity  would be  materially  adversely  affected.  See the
"Litigation"  risk  factor  in  Exhibit  99.l  hereto  and see  "Forward-Looking
Statements".

     On February 2, 2004,  MDSI and  Citizens  settled this  lawsuit.  Under the
settlement  agreement,  each  company  has fully  discharged  the other from all
outstanding  legal claims without further financial  compensation.  As a result,
the Company recorded a charge to income in the amount of $2.7 million during the
fourth quarter of 2003.

     Cash used by financing  activities of $712,000  during the six months ended
June 30, 2003 primarily relates to $789,000 in repayments of capital leases made
during the six months, partially offset by proceeds of $77,000 from the issuance
of shares under the employee  share purchase plan and exercise of employee stock
options.  The capital leases are to be repaid over a 36 month period ending June
2005, 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 $0.6 million for the six months ended
June 30,  2003 as compared  to $0.7  million  for the six months  ended June 30,
2002.  Total  investing  activity  during  the six months  ended  June 30,  2003
consisted of $0.6 million in purchases of capital  assets.  Purchases of capital
assets  include  computer  hardware  and  software  for  use  in  implementation
activities.  Investing  activities  in 2002 also related to purchases of capital
assets.



                                      -28-
<PAGE>

     Existing  sources of liquidity at June 30, 2003  included  $13.7 million of
cash and cash  equivalents  and additional  funds  available under the Company's
operating  line of credit.  At June 30, 2003, the Company's  borrowing  capacity
under  the line of  credit  was up to $10 CDN  million.  Under  the terms of the
agreement, borrowings and letters of credit under the line are limited to 75% to
90% of eligible  accounts  receivable.  Borrowings accrue interest at the bank's
prime rate plus 0.5%.  At June 30, 2003,  the Company was not using this line of
credit, other than to secure performance guarantees.

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

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

     As at June 30, 2003 the Company had the following  contractual  obligations
and commercial commitments:

<TABLE>
             ----------------------------------------------------------------------------------------------------
                  Contractual                                   Payments Due by Period
                  Obligations
             ----------------------------------------------------------------------------------------------------
                                          Total        Less Than One      1-3 Years     4-5 Years      After 5
                                                            Year                                        Years
             ----------------------------------------------------------------------------------------------------
             <S>                      <C>              <C>              <C>             <C>           <C>
                 Capital Lease        $ 3,501,839      $ 1,874,710      $ 1,627,129               -            -
                  Obligations
             ----------------------------------------------------------------------------------------------------
                Operating Leases      $ 7,281,090       $ 1,549,820      $ 2,871,612    $ 2,366,614    $ 493,044
             ----------------------------------------------------------------------------------------------------
               Total Contractual      $10,782,929       $ 3,424,530      $ 4,498,741    $ 2,366,614    $ 493,044
                  Obligations
             ----------------------------------------------------------------------------------------------------
</TABLE>

     In addition to these  commercial  commitments the Company has provided,  as
performance  bonds, an irrevocable  revolving letter of credit in the amount of,
$1,381,161 (CDN $1,864,568) expiring October 1, 2003. The Company has pledged an
amount equal to the letter of credit as guarantees against its operating line of
credit as security.

     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  will be
required to utilize local content or obtain credits  equivalent to approximately
$7 million  over a seven year  period.  The  Company  is  required  to furnish 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 and support 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.


                                      -29-
<PAGE>

Derivative Financial Instruments

     The  Company  generates  a  significant  portion  of  sales  from  sales to
customers  located outside the United States,  principally in Canada and Europe.
Canadian sales are made mostly by the Company and on occasion are denominated in
Canadian dollars.  International sales are made mostly from a foreign subsidiary
and are typically  denominated in either U.S. dollars,  Euros or British pounds.
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,  2003,  the  Company  had no  foreign  currency  forward  contracts
outstanding.


ITEM 3: QUANTITIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's  primary market risk is foreign currency  exchange rates. The
Company has  established  procedures to manage  sensitivity to foreign  currency
exchange  rate market  risk.  These  procedures  include the  monitoring  of the
Company's net exposure to each foreign  currency and the use of foreign currency
forward contracts to hedge firm exposures to currencies other than United States
dollars.  The  Company  has  operations  in Canada and Europe in addition to its
United States  operations and did not hedge these exposures as at June 30, 2003.
However,  the Company may from time-to-time hedge any net exposure to currencies
other than the United States dollar.

     As of June 30, 2003,  the  potential  reduction in future  earnings  from a
hypothetical  instantaneous 10% change in quoted foreign currency exchange rates
applied to the Company's 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.

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



                                      -30-
<PAGE>

ITEM 4: CONTROLS AND PROCEDURES

     This Item 4 has been  updated to reflect  the  restatements  as well as for
events and developments subsequent to June 30, 2003.


(a)  Evaluation of Disclosure Controls and Procedures

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

     In  connection   with  the  contract  review   undertaken   concerning  the
restatements  of the Company's  financial  statements for the fiscal years ended
December  31,  1998 to 2002 and for the first  three  quarters  of fiscal  2003,
described in notes 1(a) and 9 to the audited  consolidated  financial statements
and in the "Restatements" section of the Management's Discussion and Analysis of
Financial  Condition and Results of  Operations,  the Company  together with its
independent auditors identified certain areas in which the Company could improve
its  internal  control over  financial  reporting.  The Company had  implemented
internal  controls  and  procedures  to review and  evaluate  its  software  and
implementation  contracts  to  determine  the  appropriate  revenue  recognition
accounting  treatment  for such  contracts  in  accordance  with U.S.  generally
accepted accounting  principles.  Notwithstanding  these internal controls,  the
Company,  in  consultation  with its independent  auditors,  determined that its
analysis of the terms  included in the  Company's  software  and  implementation
contracts resulted in the Company's revenue recognition for such contracts being
inappropriate under U.S. generally accepted accounting principles.


(b) Changes in Internal Control

     Although  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,  certain changes have been
made in the Company's  internal control over financial  reporting  subsequent to
the end of the period, as set forth below.

     On November  17, 2003 and  February 26,  2004,  the Company  announced  its
intention to restate the Company's  annual  financial  statements for the fiscal
years ended December 31, 1998 to 2002 and for the first three quarters of fiscal
2003. The restatement related to an inappropriate  allocation of contracted fees
between  software  and  implementation  services  and  maintenance  and  support
services as a result of certain  terms or  provisions  included in software  and
implementation  contracts and a detailed  review of the services being performed
during this period.  Please see notes 1(a) and 9 to the  consolidated  financial
statements and  "Restatements"  in the  Management's  Discussion and Analysis of
Financial Condition and Results of Operations for further information.

     In connection with this restatement,  senior management  performed a review
of the  circumstances  that resulted in the need for the  restatements  and as a
result,  the Company has  undertaken  certain steps to strengthen  the Company's
internal   control  over   financial   reporting  in  order  to  prevent  future
recurrences. These steps include a thorough review and analysis of the Company's
existing  software  and  implementation  contracts  by  senior  members  of  the
Company's   accounting  group,  a  determination  of  the  appropriate   revenue
recognition  treatment  for each  existing  contract  by senior  members  of the
accounting group and revisions to the Company's  standard  contractual  wording.
The Company plans to take additional steps to strengthen the Company's  internal
control over financial  reporting,  including:  implementing  a formal  contract
review  checklist for each new  contract;  improving  communication  between the
various  functional  groups within the Company  (namely  sales,  implementation,
accounting and legal) at both the contract  negotiation  and execution level and
at the implementation level;  requiring any exceptions to the Company's standard
contractual  wording to be approved at a senior  management level; and reviewing
with the Company's  management 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

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



                                      -31-
<PAGE>

Part II -  OTHER INFORMATION

     ITEM 1. LEGAL PROCEEDINGS

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

     On November 22, 2000, MDSI filed suit in Texas District Court Collin County
against Citizens Telecom Services Co., L.L.C.,  generally alleging that Citizens
breached a series of contracts  dated  October 15,  1998.  The suit alleged that
Citizens has  wrongfully  terminated the contracts and failed to pay sums due of
approximately  $3.7 million.  The suit sought  payment of the contract  balance,
plus other  damages,  interest  and  attorneys'  fees.  In late  February  2001,
Citizens  filed an answer  and  counterclaim  alleging  that MDSI  breached  the
contracts,  justifying  Citizens'  termination  of the  contracts  and entitling
Citizens to repayment of all sums paid to MDSI of approximately  $3.5 million in
addition to interest and attorneys' fees. At Citizens' request, the parties held
a mediation  on April 2, 2001.  Mediation  was not  successful  and both parties
began discovery.  In October 2002, Citizens filed amended counterclaims alleging
fraud,  negligent  misrepresentation,  breach of express  warranty and breach of
implied  warranties.   Citizens  sought  all  actual,  special,  incidental  and
consequential  damages  associated  with these  counterclaims,  in  addition  to
punitive  damages,  interest  and  attorneys'  fees.  In  March  2003,  Citizens
submitted an expert report  estimating that Citizens had incurred  approximately
$6.1  million in damages due to lost  productivity  and direct  costs,  and that
Citizens  may be  entitled  to  additional  contractual  penalties  from MDSI of
approximately $1.1 million.  MDSI disputed these counterclaims and believes them
to be without merit.

     On March 5, 2003, the court granted  Citizens' motion for summary judgment,
dismissing MDSI's claims for lack of sufficient evidence of damages.  MDSI filed
a motion for reconsideration of this ruling. On March 26, 2003, the court denied
MDSI's motion.

     On March 26, 2003,  the court  granted  MDSI's  motion for partial  summary
judgment,  finding that Citizens wrongfully terminated the professional services
agreement.  On  April 8 2003,  the  court  granted  MDSI's  motion  for  summary
judgment,   dismissing   Citizens'   fraud   and   negligent   misrepresentation
counterclaims.

     MDSI  tendered  the  prosecution  of its claim and the defense of Citizens'
counterclaims  to its  insurance  company.  The insurance  company  accepted the
claims  under a  reservation  of rights.  The trial  started on April 7, 2003 in
Texas  District Court Collin County.  On April 16, 2003,  during the trial,  the
Company was informed  that its insurer,  reached an agreement  with  Citizens to
settle Citizens' breach of contract and breach of warranty  counterclaims for $1
million.  The  Company  is not a  party  to the  settlement  agreement  and  the
settlement  amount  is to be  paid  by the  insurance  company.  The  settlement
agreement  preserved  the  Company's  right to appeal the  court's  ruling  that
dismissed  the  Company's  claims on  summary  judgment  for lack of  sufficient
evidence  of damages  and  Citizens'  right to appeal the  court's  ruling  that
dismissed Citizens' counterclaims of fraud and negligent  misrepresentation.  On
May 14,  2003,  the  Company  filed its  Notice of Appeal,  and on May 29,  2003
Citizens  appealed  the court's  motion for  summary  judgment,  that  dismissed
Citizens' counterclaims for fraud and negligent misrepresentation.  Both parties
are awaiting a court date as to when the appeals will be heard.

     The Company  intends to expense as incurred  costs in  connection  with the
appeal and any subsequent trial, and any amounts which may be payable in respect
to   counterclaims   asserted   by  the   customer   for  fraud  and   negligent
misrepresentation.

     MDSI believes that its claims against Citizens are strong and it intends to
vigorously  pursue its claims for  damages  on appeal.  If,  contrary  to MDSI's
expectations, MDSI is not successful in its claims against Citizens, the Company
may be required to take a $2.7 million dollar charge to earnings. If Citizens is
successful  in any  fraud  or  negligent  misrepresentation  counterclaims,  the
Company may be required to take an  additional  charge to earnings to the extent
of the judgment.  Although the amount of any such  judgment  against the Company
for fraud or negligent  misrepresentation  cannot be determined,  if Citizens is
successful in any appeal and subsequent trial, the Company's financial condition
and  results of  operations  could be  materially  adversely  affected.  See the
"Litigation" risk factor in Exhibit 99.1 and see "Forward-Looking Statements".

     On February 2, 2004,  MDSI and  Citizens  settled this  lawsuit.  Under the
settlement  agreement,  each  company  has fully  discharged  the other from all
outstanding  legal claims without further financial  compensation.  As a result,
the Company recorded a charge to income in the amount of $2.7 million during the
fourth quarter of 2003.



                                      -32-
<PAGE>

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

     For Items 2 and 3 there was no reportable  information for the three months
ended June 30, 2003.


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

     The Company's 2002 Annual General Meeting of Shareholders  was held on June
5, 2003. A total of 4,240,780  common shares of the Company were  represented in
person or by proxy at the  meeting,  consisting  of 51.7% of the total number of
common shares of the Company  outstanding on April 22, 2003, the record date for
the meeting.

     At the meeting,  the following  directors of the Company were re-elected to
serve as directors  until the 2003 Annual General Meeting or until their earlier
retirement,  resignation,  or removal. The following table sets forth the voting
in the election for directors:

<TABLE>
Nominee                         Votes Cast For     Votes Cast Against    Votes Withheld      Abstentions      Not Voted
-------                       -------------------- ------------------- ------------------- ----------------- -------------
<S>                                <C>                   <C>                 <C>             <C>              <C>
Erik Dysthe                        4,235,397             1,133               4,250                -                 -
Terrence P. McGarty                4,235,345             1,033               4,402                -                 -
Robert C. Harris, Jr.              4,234,395             1,933               4,452                -                 -
Mark Rochefort                     4,234,395             1,933               4,452                -                 -
Peter Ciceri                       4,233,895             2,433               4,452                -                 -
David Van Valkenberg               4,234,395             1,933               4,452                -                 -
</TABLE>


     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:

<TABLE>

Proposal                        Votes Cast For     Votes Cast Against    Votes Withheld      Abstentions      Not Voted
--------                      -------------------- ------------------- ------------------- ----------------- -------------
<S>                                <C>                   <C>                 <C>             <C>              <C>
Appointment of Deloitte &          4,234,024              1,233              5,523                -                 -
Touche LLP
</TABLE>


ITEM 5. OTHER INFORMATION

     Subsequent to June 30, 2003,  Terrence P. McGarty resigned as a director of
the Company.



                                      -33-
<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

    Exhibit
     Number         Description
     ------         -----------
      2.1(3)        Agreement  and Plan of Merger dated April 17, 1997 among the
                    Company, MDSI Acquisition Corp., Alliance, Geoffrey Engerman
                    and Doug Engerman
      3.1(1)        Articles of Incorporation of the Company
      3.2(1)        Articles of Amendments of the Company
      3.3(1)        By-laws of the Company
      4.1(1)        Form of Common Share Certificate
     10.1(2)(3)     2000 Stock Option Plan
     10.2(1)        Form of  Indemnification  Agreement  between the Company and
                    certain officers of the Company
     10.3(1)        Lease dated  September  25, 1997 between Sun Life  Assurance
                    Company of Canada and the Company
     10.4(2)(4)     Employment  Agreement  dated  March  26,  2001  between  the
                    Company and Erik Dysthe
     10.5(2)(4)     Employment  Agreement  dated May 7, 2001 between the Company
                    and Peter H. Rankin
     10.6(5)        Lease  dated  October  12, 2001  between  Crown  Diversified
                    Industries   Corporation   and   Connectria   Corporation  a
                    subsidiary of the Company
     10.7(5)        Lease  dated  May  14,  1999   between   California   Public
                    Employees'  Retirement System and Mobile Data Solutions Inc.
                    a subsidiary of the Company
     10.8(5)        Amending  Agreement  dated December 1, 1998 between Sun Life
                    Assurance Company of Canada and the Company
     10.9(2)(6)     Employment  Agreement  dated  January  2, 2002  between  the
                    Company and Verne Pecho
     10.10(2)(7)    2002 Stock Purchase Plan
     10.11(8)       Exchange  Agreement  dated as of June  26,  2002  among  the
                    Company,  Connectria  Corporation,  Richard S.  Waidmann and
                    Eric Y. Miller
     10.12(8)       Amendment  to Exchange  Agreement  dated as of June 30, 2002
                    among  the  Company,  Connectria  Corporation,   Richard  S.
                    Waidmann and Eric Y. Miller
     10.13(8)       Warrant dated as of June 29, 2002 to purchase  50,380 shares
                    of  Series  A  Nonvoting   Preferred   Stock  of  Connectria
                    Corporation
     10.14(8)       $250,000  Promissory  Note dated as of June 30, 2002 made by
                    Connectria Corporation in favor of the Company
     10.15(8)       Security  Agreement  dated  as  of  June  30,  2002  between
                    Connectria Connectria and the Company
     10.16(2)(9)    Employment  Agreement  dated  January  1, 1999  between  the
                    Company and Glenn Y. Kumoi
     10.17(2)(9)    Settlement  Agreement  dated  March  15,  2002  between  the
                    Company and Gerald F. Chew
     10.18(2)(9)    Settlement  Agreement dated May 31, 2002 between the Company
                    and Gene Mastro*
     10.19(2)(10)   Employment  Agreement  dated  September 12, 2001 between the
                    Company and Walter J. Beisheim
     31.1           Section 302 Certification of Chief Executive Officer
     31.2           Section 302 Certification of Chief Financial Officer
     32.1           Section 906 Certification of Chief Executive Officer
     32.2           Section  906   Certification  of  Chief  Financial   Officer
     99.1(11)       Risk Factors
---------------------

(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-Q for the
     quarterly period ended June 30, 2001.
(5)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2001.
(6)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2002.
(7)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2002.
(8)  Previously filed as exhibits with the Registrant's Form 8-K filed on August
     14, 2002.
(9)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2002.
(10) Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2003.
(11) Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly  period ended June 30, 2003,  which is being amended by this Form
     10-Q/A.

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



                                      -34-
<PAGE>

(b)  Reports on Form 8-K

     The Company filed a Form 8-K on April 15, 2003 pursuant to Item 7 attaching
a press release regarding the Citizens litigation.

     The Company  furnished a Form 8-K on April 30, 2003 pursuant to Items 9 and
12 attaching a press release  regarding the Company's  operating  results in the
first quarter of 2003, a contract  signing and  settlement of certain  claims in
the Citizens  litigation.  The  information in a Form 8-K furnished  pursuant to
Items 9 and 12 shall not be deemed to be filed under the Exchange Act.






                                      -35-
<PAGE>


                                   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:  March 30, 2004     By:  /s/ Erik Dysthe
                               --------------------------------------------
                               Name:   Erik Dysthe
                               Title:  President, Chief Executive Officer,
                                       Chairman of the Board and Director




Date:  March 30, 2004     By:  /s/ Verne D. Pecho
                               --------------------------------------------
                               Name:   Verne D. Pecho
                               Title:  Vice President Finance & Administration
                                       and Chief Financial Officer
                                       (Principal Financial and Accounting
                                        Officer)