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

                                    FORM 10-Q


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

     For the quarterly period ended September 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 November 13, 2003 was 8,206,914.

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


                         MDSI Mobile Data Solutions Inc.

                             INDEX TO THE FORM 10-Q
                For the quarterly period ended September 30, 2003


                                                                            Page

Part I -  FINANCIAL INFORMATION

          ITEM 1.    FINANCIAL STATEMENTS (AS RESTATED)

                     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....................16

          ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                          ABOUT MARKET RISK.................................32

          ITEM 4.    CONTROLS AND PROCEDURES ...............................33

Part II - OTHER INFORMATION

          ITEM 1.    LEGAL PROCEEDINGS .....................................34

          ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.......................35

SIGNATURES .................................................................37


<PAGE>


INTRODUCTORY NOTE


We issued a press release on November 17, 2003, included as an exhibit to a Form
8-K filed with the Securities and Exchange  Commission ("SEC") on the same date,
relating to our intention to restate our consolidated  financial  statements for
fiscal year 2002, the third and fourth quarters of fiscal 2002 and the first and
second quarters of fiscal 2003. The effects of this restatement on the condensed
consolidated  statement of operations for the three months and nine months ended
September 30, 2002, the  consolidated  balance sheet as at December 31, 2002 and
the  consolidated  statement  of cash flow for the three and nine  months  ended
September  30, 2003 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  for the
quarterly period ended September 30, 2003. At the earliest  possible time in the
fourth  quarter  of 2003,  the  Company  expects to file with the SEC an amended
Annual Report on Form 10-K/A for the year ended  December 31, 2002. In addition,
the  condensed   consolidated   statements  of  operations   and  the  condensed
consolidated  statements of cash flows for the three months and six months ended
March 31, 2003 and June 30, 2003,  respectively  as reflected in the  statements
for the nine months  ended  September  30, 2003 were  restated.  At the earliest
possible time in the fourth  quarter of 2003,  the Company  expects to file with
the SEC amended Quarterly Reports on Form 10-Q/A for the quarterly periods ended
September 30, 2002, March 31, 2003 and June 30, 2003.

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



<PAGE>



Part I - FINANCIAL INFORMATION
         ITEM 1. FINANCIAL STATEMENTS



                         MDSI MOBILE DATA SOLUTIONS INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (Expressed in United States dollars)
                                   (Unaudited)



<TABLE>

                                                                                      As at
                                                                         September 30,      December 31,
                                                                       -----------------------------------
                                                                              2003              2002
                                                                                            (As restated,
                                                                                             see note 9)
                                                                       ---------------     ---------------
<S>                                                                     <C>                <C>
ASSETS
CURRENT ASSETS
    Cash and cash equivalents                                           $  14,700,688      $  11,016,945
    Accounts receivable, net
       Trade (net of allowance for doubtful accounts $2,593,789;
         2002 - $2,506,614)                                                 6,127,073          6,705,088
       Unbilled                                                             4,554,609          4,778,865
    Prepaid expenses and other assets                                       1,400,014          1,552,236
                                                                       ---------------     ---------------
                                                                           26,782,384         24,053,134

CAPITAL ASSETS, NET                                                         8,472,227          9,798,087

LONG TERM RECEIVABLE (note 6(a))                                            2,749,860          2,749,860

DEFERRED INCOME TAXES                                                         535,375            705,375
                                                                       ---------------     ---------------
TOTAL ASSETS                                                            $  38,539,846      $  37,306,456
                                                                       ===============     ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
    Accounts payable                                                    $   1,710,904          1,777,465
    Accrued liabilities (note 5)                                            4,683,480          3,300,113
    Income taxes payable                                                      480,922            602,717
    Deferred revenue                                                        9,161,741          7,503,613
    Current obligations under capital lease                                 1,594,703          2,073,906
                                                                       ---------------     ---------------
                                                                           17,631,750         15,257,814

OBLIGATIONS UNDER CAPITAL LEASES                                            1,006,281          1,913,538
                                                                       ---------------     ---------------
                                                                           18,638,031         17,171,352
STOCKHOLDERS' EQUITY
    Common stock                                                           44,288,411         44,208,511
    Additional paid-up capital                                              2,222,128          2,222,128
    Deficit                                                               (25,918,620)       (25,605,431)
    Accumulated other comprehensive loss                                     (690,104)          (690,104)
                                                                       ---------------     ---------------
                                                                           19,901,815         20,135,104
                                                                       ---------------     ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $  39,539,846      $  37,306,456
                                                                       ===============     ===============
</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 September 30,           Nine months ended September 30,
                                                -------------------------------------     ------------------------------------
                                                    2003                  2002                 2003                  2002
                                                                      (As restated,                             (As restated,
                                                                       see note 9)                               see note 9)
                                                ----------------     ----------------     ----------------    ----------------
<S>                                              <C>                   <C>                  <C>                 <C>
REVENUE
    Software and services                        $  7,692,584          $  6,303,947         $ 23,461,715        $ 16,996,102
    Maintenance and support                         3,130,842             2,604,604            9,001,973           8,028,155
    Third party products and services               1,474,247             1,608,091            3,938,929           2,123,912
                                                ----------------     ----------------     ----------------    ----------------
                                                   12,297,673            10,516,642           36,402,617          27,148,169

DIRECT COSTS                                        6,102,959             5,001,027           17,669,419          12,122,089
                                                ----------------     ----------------     ----------------    ----------------
GROSS PROFIT                                        6,194,714             5,515,615           18,733,198          15,026,080
                                                ----------------     ----------------     ----------------    ----------------
OPERATING EXPENSES
    Research and development                        1,324,314             1,277,972            4,022,265           4,236,955
    Sales and marketing                             2,436,260             3,029,914            8,268,439           9,355,984
    General and administrative                      1,865,251             1,485,729            5,048,174           4,679,736
    Provision for doubtful accounts                   110,000                     -              110,000                   -
    Strategic expenses (note 8)                             -                     -              825,120                   -
                                                ----------------     ----------------     ----------------    ----------------
                                                    5,735,825             5,793,615           18,273,998          18,272,675
                                                ----------------     ----------------     ----------------    ----------------
OPERATING INCOME (LOSS)                               458,889              (278,000)             459,200          (3,246,595)
OTHER (EXPENSE) INCOME                                (81,283)               70,509             (542,393)            232,773
                                                ----------------     ----------------     ----------------    ----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
  BEFORE TAX PROVISION                                377,606              (207,491)             (83,193)         (3,013,822)

INCOME TAX EXPENSE (RECOVERY) FROM
  CONTINUING OPERATIONS                               113,374               (53,795)             229,996            (868,414)
                                                ----------------     ----------------     ----------------    ----------------
NET INCOME (LOSS) FROM CONTINUING
   OPERATIONS                                         264,232              (153,696)            (313,189)         (2,145,408)

INCOME FROM DISCONTINUED OPERATIONS
   (note 2)                                                 -                12,419                    -             121,031
                                                ----------------     ----------------     ----------------    ----------------
NET INCOME (LOSS) FOR THE PERIOD                      264,232              (141,277)            (313,189)         (2,024,377)

DEFICIT, BEGINNING OF PERIOD                      (26,182,852)          (25,674,881)         (25,605,431)        (23,791,781)
                                                ----------------     ----------------     ----------------    ----------------
DEFICIT, END OF PERIOD                           $(25,918,620)         $(25,816,158)        $(25,918,620)       $(25,816,158)
                                                 ===============     ================     ================    ================
Earnings (Loss) per common share
Earnings (Loss) from continuing operations
    Basic                                        $      (0.03)         $      (0.02)        $      (0.04)       $      (0.25)
                                                 ===============     ================     ================    ================
    Diluted                                      $      (0.03)         $      (0.02)        $      (0.04)       $      (0.25)
                                                 ===============     ================     ================    ================

Net Earnings (Loss)
    Basic                                        $      (0.03)         $      (0.02)        $      (0.04)       $      (0.24)
                                                 ===============     ================     ================    ================
    Diluted                                      $      (0.03)         $      (0.02)        $      (0.04)       $      (0.24)
                                                 ===============     ================     ================    ================
</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 September 30,          Nine months ended September 30,
                                                 -------------------------------------     ------------------------------------
                                                      2003                2002                 2003                 2002
                                                                      (As restated,                            (As restated,
                                                                       see note 9)                              see note 9)
                                                 ----------------   ----------------     ----------------   ----------------
<S>                                               <C>                 <C>                  <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) from continuing operations    $    264,232        $  (153,696)        $   (313,189)       $ (2,145,408)
   Items not affecting cash:
     Depreciation                                       647,405            512,543            2,150,019           1,949,747
     Deferred income taxes                                    -            (93,235)             170,000            (263,235)
     Changes in non-cash operating working
        capital items (note 7)                          875,639          1,923,499            3,807,632           1,747,432
                                                 ----------------   ----------------     ----------------   ----------------
   Net cash provided by operating activities          1,787,276          2,189,111            5,814,462           1,288,536
                                                 ----------------   ----------------     ----------------   ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Issuance of Common Shares                              2,867             38,142               79,900             277,218
   Repayment of capital leases                         (596,988)          (550,733)          (1,386,460)         (1,525,629)
                                                 ----------------   ----------------     ----------------   ----------------
   Net cash used by financing activities               (594,121)          (512,591)          (1,306,560)         (1,248,411)
                                                 ----------------   ----------------     ----------------   ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Acquisition of capital assets                       (198,083)          (677,208)            (824,159)         (1,362,618)
                                                 ----------------   ----------------     ----------------   ----------------
   Net cash used in investing activities               (198,083)          (677,208)            (824,159)         (1,362,618)
                                                 ----------------   ----------------     ----------------   ----------------
   Net cash provided by (used for) Continuing
     operations                                         995,072            999,312            3,683,743          (1,322,493)

   Net cash used for discontinued operations
     (note 2)                                                 -           (261,321)                   -            (574,030)
                                                 ----------------   ----------------     ----------------   ----------------
NET CASH INFLOW (OUTFLOW)                               995,072            737,991            3,683,743          (1,896,523)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       13,705,616         10,541,566           11,016,945          13,176,080
                                                 ----------------   ----------------     ----------------   ----------------

CASH AND CASH EQUIVALENTS, END OF PERIOD           $ 14,700,688        $ 11,279,557        $ 14,700,688        $ 11,279,557
                                                 ================    ===============     ================   ================
</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 consolidated  statements of operations for
          the three and nine months ended  September 30, 2002, the  consolidated
          balance sheet as at December 31, 2002 and the  consolidated  statement
          of cash flows for the three and nine months ended  September 30, 2002,
          including  the  applicable  notes,  were  restated.  At  the  earliest
          possible time in the fourth  quarter of 2003,  the Company  expects to
          file with the SEC an amended Annual Report on Form 10-K/A for the year
          ended  December 31,  2002.  In addition,  the  condensed  consolidated
          statements of operations and the condensed consolidated  statements of
          cash flows for the three  months and six months  ended  March 31, 2003
          and June 30, 2003,  respectively,  as reflected in the  statements for
          the nine  months  ended  September  30,  2003  were  restated.  At the
          earliest  possible  time in the fourth  quarter of 2003,  the  Company
          expects to file with the SEC amended  Quarterly Reports on Form 10-Q/A
          for the quarterly periods ended September 30, 2002, March 31, 2003 and
          June 30, 2003.

          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 nine month periods ended September
          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 for the year ended  December
          31, 2002,  subject to the  restated  financial  information  described
          above and the Company's Form 10K/A.

     (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.



                                      -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)  Revenue Recognition

          In December  1999,  the  Securities  and Exchange  Commission  ("SEC")
          issued Staff Accounting  Bulletin ("SAB") 101, Revenue  Recognition in
          Financial  Statements  which  provides  guidance  related  to  revenue
          recognition  based on  interpretations  and practices  followed by the
          SEC.  SAB 101  requires  companies  to report  any  changes in revenue
          recognition as a cumulative change in accounting principle at the time
          of  implementation  in accordance  with  Accounting  Principles  Board
          Opinion 20 "Accounting  Changes." The Company  adopted SAB 101 for the
          Company's  year  ended  December  31,  2000.  Based  on the  Company's
          interpretation   of  SAB  101,   the  Company   believes  its  revenue
          recognition policies are consistent with SAB 101 and as a result there
          has been no material  impact on the  Company's  financial  position or
          results of operations.

          Statement of Position 97-2 (Software Revenue  Recognition) (SOP 97-2),
          was issued in October  1997 by the  American  Institute  of  Certified
          Public  Accountants  (AICPA)  and  was  amended  by the  Statement  of
          Position 98-4  (Deferral of the  Effective  Date of a Provision of SOP
          97-2,  Software  Revenue  Recognition)  (SOP  98-4) and  Statement  of
          Position 98-9 (Modification of SOP 97-2, Software Revenue Recognition,
          With Respect to Certain  Transactions) (SOP 98-9). The Company adopted
          SOP 97-2  effective  for the Company's  year ended  December 31, 1998.
          Based upon our  interpretation of SOP 97-2, SOP 98-4 and SOP 98-9, the
          Company  believes  its  current  revenue   recognition   policies  and
          practices are consistent with SOP 97-2, SOP 98-4, and SOP 98-9.

          The Company's revenue is derived primarily from the following sources:

          (i)  Software and services

               Revenue  related to software  and  services,  including  software
               licenses,  is generally  recognized on a percentage of completion
               basis,  representing  costs incurred  relative to total estimated
               costs.  These estimates and contracts are reviewed on a quarterly
               basis and are  adjusted  prospectively  to reflect the  Company's
               best  estimate at the time.  Where the Company has  contracted to
               deliver software without significant production,  modification or
               customization  required,  revenue is recognized  upon delivery if
               persuasive  evidence of an arrangement  exists,  the fee is fixed
               and determinable,  vendor specific  objective  evidence exists to
               allocate the total fee to elements of the  arrangement  and there
               is reasonable  assurance of collection.  Provisions for estimated
               losses on contracts are recorded when identifiable.

          (ii) Maintenance and support

               Revenue  related to  maintenance  agreements  for  supporting and
               maintaining the Company's  products are recognized  rateably over
               the term of the agreement, which is generally one to three years.

          (iii) Third party products and services

               Revenue  from  sales of third  party  products  and  services  is
               recognized on delivery of the products and services.

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



                                      -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)  Recently issued accounting standards

          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  adopted  provisions  of SFAS 149 during the three  months
          ended  September  30,  2003 and the  adoption  did not have a material
          impact 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 adopted FIN 46 during the three months ended September 30,
          2003  and it did  not  have  an  material  impact  on the  results  of
          operations and financial condition of the Company.

          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.



                                      -6-
<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)

     (f)  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 September 30,        Nine months ended September 30,
                                              ---------------------------------------  -------------------------------------
                                                     2003                2002                2003                2002
                                                                     (As Restated,                          (As Restated,
                                                                      see Note 9)                            see Note 9)
                                              -------------------  ------------------  ------------------  -----------------
          <S>                                    <C>              <C>                  <C>               <C>
           Net income (loss) for the period         $    20,658      $   (255,902)        $ (997,658)       $ (2,446,886)
                                              -------------------  ------------------  ------------------  -----------------
           Basic and fully diluted earnings
           (loss) per common share                  $      0.00      $      (0.03)        $    (0.12)       $      (0.29)
                                              ===================  ==================  ==================  =================
</TABLE>

          Using the fair value method for stock-based  compensation,  additional
          compensation costs of approximately  $243,574 would have been recorded
          for the three months ended  September 30, 2003 (2002 - $114,625),  and
          $684,469 would have been recorded for the nine months ended  September
          30, 2003 (2002 - $422,509).  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 September 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.



                                      -7-
<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,
     ---------------------------------------------------------------------------------------------------
                                                        September 30, 2003            September 30, 2002
                                                        ------------------            ------------------
     <S>                                                <C>                           <C>
        Revenues                                         $             -               $             -
        Income before income taxes                                     -                             -
        Income tax                                                     -                             -
                                                        ------------------            ------------------
                                                                       -                             -
        Income on disposal
           net of income taxes                                         -                        12,419
                                                        ------------------            ------------------
        Income from discontinued operations              $             -               $        12,419
                                                        ==================            ==================


     Results of discontinued operations                                Nine months ended,
     ---------------------------------------------------------------------------------------------------
                                                        September 30, 2003            September 30, 2002
                                                        ------------------            ------------------
        Revenues                                         $             -               $    5,058,101
        Income before income taxes                                     -                      108,612
        Income tax                                                     -                            -
                                                        ------------------            ------------------
                                                                       -                      108,612
        Income on disposal
           net of income taxes                                         -                       12,419
                                                        ------------------            ------------------
        Income from discontinued operations              $             -               $      121,031
                                                        ==================            ==================


     Cash flows of discontinued operations                            Three months ended,
     ---------------------------------------------------------------------------------------------------
                                                        September 30, 2003            September 30, 2002
                                                        ------------------            ------------------
        Operating activities                             $             -               $    2,542,658
        Investing activities                                           -                            -
        Financing activities                                           -                   (2,803,979)
                                                        ------------------            ------------------
        Cash used for discontinued operations            $             -               $     (261,321)
                                                        ==================            ==================


     Cash flows of discontinued operations                            Nine months ended,
     ---------------------------------------------------------------------------------------------------
                                                        September 30, 2003            September 30, 2002
                                                        ------------------            ------------------
        Operating activities                             $             -               $    2,491,158
        Investing activities                                           -                      (43,775)
        Financing activities                                           -                   (3,021,413)
                                                        ------------------            ------------------
        Cash used for discontinued operations            $             -               $     (574,030)
                                                        ==================            ==================
</TABLE>


                                      -8-
<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 September 30,        Nine months ended September 30,
                                             ---------------------------------------  -------------------------------------
                                                    2003                2002                2003                2002
                                                                    (As Restated,                          (As Restated,
                                                                     see Note 9)                            see Note 9)
                                             -------------------  ------------------  ------------------  -----------------
<S>                                             <C>                 <C>                 <C>                  <C>
     Canada.................................    $     439,108       $     195,362       $  1,265,374         $   690,266
     United States..........................        6,691,781           7,311,997         17,980,844          19,362,030
     Europe, Middle East and Africa.........        5,057,396           2,670,143         16,620,045           6,587,332
     Asia and other.........................          109,388             339,140            536,354             508,541
                                             -------------------  ------------------  ------------------  -----------------
                                                $  12,297,673       $  10,516,642       $ 36,402,617         $27,148,169
                                             ===================  ==================  ==================  =================
</TABLE>

     Major customers

     During the three months ended September 30, 2003 revenue from two customers
     accounted  for  approximately  17.9%  (2002  14.4%) and 18.7% (2002 - nil),
     respectively,  of total revenue. During the nine months ended September 30,
     2003 revenue  from two  customers  accounted  for  approximately  18.2% and
     21.5%, respectively,  of total revenue. For the nine months ended September
     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 September, 30,      Nine months ended September, 30,
                                                   ------------------------------------  -----------------------------------
                                                         2003               2002               2003              2002
                                                                        (As restated,                        (As restated,
                                                                         see Note 9)                          see Note 9)
                                                   -----------------   ----------------  -----------------  ----------------
<S>                                                       <C>              <C>               <C>               <C>
     Basic weighted average shares outstanding...         8,204,691        8,170,330         8,197,650         8,582,379
     Effect of dilutive securities;
     Stock options...............................           222,966                                  -                 -
                                                   -----------------   ----------------  -----------------  ----------------

     Diluted weighted average shares outstanding          8,427,657        8,170,330         8,197,650         8,582,379
                                                   =================   ================  =================  ================
</TABLE>



                                      -9-
<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:

                                                           Total Restructuring
                                                                  Charge
                                                           -------------------
        Workforce reduction                                  $    3,375,000
        Provision for excess office space                         1,861,000
        Non cash writedown of capital assets                        563,780
        Other                                                       306,147
                                                           -------------------
        Total restructuring charges                               6,105,927
        Cumulative draw-downs                                    (5,153,304)
                                                           -------------------
        Accrued restructuring charges included in
        accrued liabilities at September 30, 2003            $      952,623
                                                           ===================


     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 September 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,



                                      -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)

     (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.

          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.



                                      -11-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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


6.   COMMITMENTS AND CONTINGENCIES (continued)

     (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 $0.1 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.

     (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  has also  furnished  a  performance  guarantee  for  $356,369
          payable if the Company  does not fulfill  its  obligations  within the
          seven year  period.  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.

     (d)  Indemnification

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


7.   CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS

<TABLE>
                                                    Three months ended September, 30,      Nine months ended September, 30,
                                                    ---------------------------------      --------------------------------
                                                           2003               2002               2003              2002
                                                                         (As restated,                         (As restated,
                                                                          see Note 9)                           see Note 9)
                                                     ---------------    --------------     ---------------     --------------
       <S>                                                <C>              <C>               <C>               <C>
       Accounts Receivable                             $ 1,725,723         3,478,577          $   802,271       $ 4,625,145
       Prepaid expenses                                   (386,739)         (138,267)             152,222           193,911
       Income taxes payable                                (33,905)          918,672             (121,795)          702,608
       Accounts payable and accrued liabilities            813,669          (452,802)           1,316,806        (1,628,736)
       Deferred revenue                                 (1,243,109)       (1,882,681)           1,658,128        (2,145,496)
                                                     ---------------    --------------     ---------------     --------------
                                                       $   875,639       $ 1,923,499          $ 3,807,632       $ 1,747,432
                                                     ===============    ==============     ===============     ==============
</TABLE>



                                      -12-
<PAGE>

                         MDSI MOBILE DATA SOLUTIONS INC.

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



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 nine months ended September 30, 2003.



9.   RESTATEMENT

     On  November  17,  2003,  the  Company   announced  it  would  restate  its
     consolidated  financial statements for the year ended December, 31 2002 and
     for the quarters  ended  September  30,  2002,  March 31, 2003 and June 30,
     2003. Based on a comprehensive review of customer contracts,  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  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,  predominantly with respect to one contract, whereby maintenance and
     support  services were required to be provided during the warranty  period.
     In accordance  with SOP 97-2, the Company should have initially  deferred a
     portion of the  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.  The net effect of
     these adjustments was to increase the accumulated  deficit at June 30, 2003
     by approximately $695,000.


     Restated Accumulated Deficit

     The  following  presents the  Company's  accumulated  deficit as previously
     reported and after giving effect to the cumulative  $695,000 of restatement
     adjustments  as at June 30,  2003,  March 31,  2003,  December 31, 2002 and
     September 30, 2002.


<TABLE>
                                                  June 30,       March 31,     December 31,   September 30,
                                                    2003           2003            2002           2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Accumulated Deficit
         As previously reported                  $25,488,531    $24,984,753    $25,207,038      $25,598,609
         As restated                              26,182,852     25,499,939     25,605,431       25,816,158
         --------------------------------------------------------------------------------------------------
         Cumulative Adjustment                     $ 694,321      $ 515,186      $ 398,393        $ 217,549
         --------------------------------------------------------------------------------------------------
</TABLE>



                                      -13-
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.

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


9.   RESTATEMENT (continued)

     Restated Revenues and Earnings (Loss)

     The  following  presents the impact on revenues and earnings  (loss) of the
     restatements for the quarterly periods ended June 30, 2003, March 31, 2003,
     December 31, 2002 and September 30, 2002.


<TABLE>
                                                  June 30,       March 31,     December 31,   September 30,
                                                    2003           2003            2002           2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Software and services revenue
         As previously reported                   $8,341,170     $7,850,659     $8,447,919       $6,614,731
         Adjustments                                (255,905)      (166,793)      (258,344)        (310,784)
         --------------------------------------------------------------------------------------------------
         As restated                              $8,085,265     $7,683,866     $8,189,575       $6,303,947
         --------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
                                                  June 30,       March 31,     December 31,   September 30,
                                                    2003           2003            2002           2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Earnings (loss)
         As previously reported                   $(503,778)       $222,285       $391,571          $76,272
         Adjustments                               (179,135)      (116,793)      (180,844)        (217,549)
         --------------------------------------------------------------------------------------------------
         As restated                              $(682,913)       $105,492        210,727       $(141,277)
         --------------------------------------------------------------------------------------------------

</TABLE>


     Restated Balance Sheet Accounts

     The following  presents  details by category of assets and  liabilities and
     related account movements resulting from the restatement  adjustments as at
     June 30, 2003, March 31, 2003, December 31, 2002 and September 30, 2002


<TABLE>
                                                  June 30,       March 31,     December 31,   September 30,
                                                    2003           2003            2002           2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Accounts Receivable - Unbilled
         As previously reported                   $3,415,088     $3,130,912     $5,347,993       $4,344,738
         Adjustments                               (991,826)      (735,921)      (569,128)        (202,784)
         --------------------------------------------------------------------------------------------------
         As restated                              $2,423,262     $2,394,991     $4,778,865       $4,141,954
         --------------------------------------------------------------------------------------------------
         Deferred Income Taxes
         As previously reported                     $364,640       $534,640       $534,640         $534,640
         Adjustments                                 170,735        170,735        170,735           93,235
         --------------------------------------------------------------------------------------------------
         As restated                                $535,375       $705,375       $705,375         $627,875
         --------------------------------------------------------------------------------------------------
         Deferred Revenue
         As previously reported                  $10,404,850     $8,254,604     $7,503,613       $5,431,572
         Adjustments                                       -              -              -          108,000
         --------------------------------------------------------------------------------------------------
         As restated                             $10,404,850     $8,254,604     $7,503,613       $5,539,572
         --------------------------------------------------------------------------------------------------
         Income Taxes Payable
         As previously reported                     $641,597       $605,531       $602,717         $336,102
         Adjustments                               (126,770)       (50,000)              -                -
         --------------------------------------------------------------------------------------------------
         As restated                                $514,827       $555,531       $602,717         $336,102
         --------------------------------------------------------------------------------------------------
         Net adjustment to accumulated
         deficit end of period                    $(694,321)      $(515,186)     $(398,393)       $(217,549)
         --------------------------------------------------------------------------------------------------
</TABLE>


                                      -14-
<PAGE>


                         MDSI MOBILE DATA SOLUTIONS INC.

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


9.   RESTATEMENT (continued)

     Impacts  of  the  restatements  on  the  accompanying  unaudited  condensed
     consolidated financial statements

                                                       As at
                                                 December 31, 2002
                                       ---------------------------------------
                                               As
                                           Previously               As
                                            Reported             Restated
                                       -------------------   -----------------

          Unbilled Receivables                $ 5,347,993         $ 4,778,865
          Total Current Assets                 24,622,262          24,053,134
          Deferred Income Taxes                   534,640             705,375
          Total Assets                         37,704,849          37,306,456
          Deficit                            (25,207,038)        (25,605,431)
          Stockholders Equity                 $20,533,497        $ 20,135,104


<TABLE>
                                                 Three months ended                          Nine months ended
                                                 September 30, 2002                         September 30, 2002
                                        -------------------------------------     ----------------------------------------
                                               As                                          As
                                           Previously               As                 Previously                As
                                            Reported             Restated               Reported              Restated
                                        ----------------    -----------------     -------------------    -----------------
         <S>                            <C>                  <C>                    <C>                  <C>
          Software and Services
          Revenue                           $ 6,614,731          $ 6,303,947            $ 17,306,886         $ 16,996,102
          Total Revenue                      10,827,426           10,516,642              27,458,953           27,148,169
          Gross Profit                        5,826,399            5,515,615              15,336,864           15,026,080
          Operating Income (Loss)                32,784            (278,000)             (2,935,811)          (3,246,595)
          Income (Loss) From
          Continuing Operations                 103,293            (207,491)             (2,703,038)          (3,013,822)
          Income Tax Expense
          (Recovery)                             39,440             (53,795)               (775,179)            (868,414)
          Net Income (Loss) for the
          period From Continuing
          Operations                             63,853            (153,696)             (1,927,859)          (2,145,408)
          Net Income (Loss) for the
          period                                 76,272            (141,277)             (1,806,828)          (2,024,377)
          Deficit, End of Period           $(25,598,609)       $(25,816,158)           $(25,598,609)        $(25,816,158)

          Earnings (Loss) per share
          basic                                   $0.01              $(0.02)                 $(0.21)              $(0.24)
          Earnings (Loss) per share
          diluted                                 $0.01              $(0.02)                 $(0.21)              $(0.24)
</TABLE>

     At the earliest  possible time in the fourth  quarter of 2003,  the Company
     expects to file with the SEC the  Company's  Form 10-K/A for the year ended
     December  31,  2002 and  amended  Quarterly  Reports on Form 10-Q/A for the
     quarterly  periods ended  September  30, 2002,  March 31, 2003 and June 30,
     2003 containing restated financial statements for the relevant periods.



                                      -15-

<PAGE>

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

     The  management's  discussion  and analysis of the financial  condition and
results of operations presented below reflects the effects of the restatement of
our  condensed  consolidated  financial  statement  for the three and nine month
periods  ended  September  30,  2002.  See  "Restatements"   below  for  further
discussion of this matter.


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 for the year ended  December 31, 2002,
subject to the restated  financial  information as described  below and in notes
1(a) and 9 of the accompanying  unaudited condensed financial  statements and in
the amended  Annual Report on Form 10K/A for the year ended December 31, 2002 to
be filed with the SEC.

     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.



                                      -16-
<PAGE>

Restatements

     On  November  17,  2003,  the  Company   announced  it  would  restate  its
consolidated  financial  statements for the year ended December 31, 2002 and for
the quarters ended September 30, 2002,  March 31, 2003 and June 30, 2003.  Based
on a  comprehensive  review of  customer  contracts,  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 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, predominantly with respect to one contract, whereby maintenance and
support  services were required to be provided  during the warranty  period.  In
accordance  with SOP 97-2, the Company should have initially  deferred a portion
of the  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.  The net effect of these  adjustments  was to increase  the  accumulated
deficit at June 30, 2003 by approximately $695,000.

Restated Accumulated Deficit

     The  following  presents the  Company's  accumulated  deficit as previously
reported  and after  giving  effect to the  cumulative  $695,000 of  restatement
adjustments as at June 30, 2003, March 31, 2003, December 31, 2002 and September
30, 2002.

<TABLE>
                                                  June 30,       March 31,    December 31,    September 30,
                                                    2003           2003           2002            2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Accumulated Deficit
                  As previously reported         $25,488,531    $24,984,753    $25,207,038      $25,598,609
                  As restated                     26,182,852     25,499,939     25,605,431       25,816,158
         --------------------------------------------------------------------------------------------------
         Cumulative Adjustment                     $ 694,321      $ 515,186      $ 398,393        $ 217,549
         --------------------------------------------------------------------------------------------------
</TABLE>

Restated Revenues and Earnings (Loss)

     The  following  presents the impact on revenues and earnings  (loss) of the
restatements  for the  quarterly  periods  ended June 30, 2003,  March 31, 2003,
December 31, 2002 and September 30, 2002.

<TABLE>
                                                  June 30,       March 31,    December 31,    September 30,
                                                    2003           2003           2002            2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Software and services revenue
                  As previously reported          $8,341,170     $7,850,659     $8,447,919       $6,614,731
                  Adjustments                       (255,905)      (166,793)      (258,344)        (310,784)
         --------------------------------------------------------------------------------------------------
                  As restated                     $8,085,265     $7,683,866     $8,189,575       $6,303,947
         --------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
                                                  June 30,       March 31,    December 31,    September 30,
                                                    2003           2003           2002            2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Earnings (loss)
                  As previously reported          $(503,778)       $222,285       $391,571          $76,272
                  Adjustments                      (179,135)      (116,793)      (180,844)        (217,549)
         --------------------------------------------------------------------------------------------------
                  As restated                     $(682,913)       $105,492        210,727       $(141,277)
         --------------------------------------------------------------------------------------------------
</TABLE>



                                      -17-
<PAGE>

Restated Balance Sheet Accounts

     The following  presents  details by category of assets and  liabilities and
related account movements resulting from the restatement  adjustments as at June
30, 2003, March 31, 2003, December 31, 2002 and September 30, 2002

<TABLE>
                                                  June 30,       March 31,    December 31,    September 30,
                                                    2003           2003           2002            2002
         --------------------------------------------------------------------------------------------------
         <S>                                    <C>            <C>            <C>              <C>
         Accounts Receivable - Unbilled
                  As previously reported          $3,415,088     $3,130,912     $5,347,993       $4,344,738
                  Adjustments                       (991,826)      (735,921)      (569,128)        (202,784)
         --------------------------------------------------------------------------------------------------
                  As restated                     $2,423,262     $2,394,991     $4,778,865       $4,141,954
         --------------------------------------------------------------------------------------------------
         Deferred Income Taxes
                  As previously reported            $364,640       $534,640       $534,640         $534,640
                  Adjustments                        170,735        170,735        170,735           93,235
         --------------------------------------------------------------------------------------------------
                  As restated                       $535,375       $705,375       $705,375         $627,875
         --------------------------------------------------------------------------------------------------
         Deferred Revenue
                  As previously reported         $10,404,850     $8,254,604     $7,503,613       $5,431,572
                  Adjustments                              -              -              -          108,000
         --------------------------------------------------------------------------------------------------
                  As restated                    $10,404,850     $8,254,604     $7,503,613       $5,539,572
         --------------------------------------------------------------------------------------------------
         Income Taxes Payable
                  As previously reported            $641,597       $605,531       $602,717         $336,102
                  Adjustments                       (126,770)       (50,000)             -                -
         --------------------------------------------------------------------------------------------------
                  As restated                       $514,827       $555,531       $602,717         $336,102
         --------------------------------------------------------------------------------------------------
         Net adjustment to accumulated
         deficit end of period                     $(694,321)     $(515,186)     $(398,393)       $(217,549)
         --------------------------------------------------------------------------------------------------
</TABLE>


Impacts of the restatements on the accompanying unaudited condensed consolidated
financial statements

                                                       As at
                                                 December 31, 2002
                                      ----------------------------------------
                                              As
                                          Previously                As
                                           Reported              Restated
                                      -------------------    -----------------

         Unbilled Receivables                $ 5,347,993          $ 4,778,865
         Total Current Assets                 24,622,262           24,053,134
         Deferred Income Taxes                   534,640              705,375
         Total Assets                         37,704,849           37,306,456
         Deficit                            (25,207,038)         (25,605,431)
         Stockholders Equity                 $20,533,497         $ 20,135,104



<TABLE>
                                                Three months ended                          Nine months ended
                                                September 30, 2002                         September 30, 2002
                                      -------------------------------------     ----------------------------------------
                                             As                                          As
                                         Previously               As                 Previously                As
                                          Reported             Restated               Reported              Restated
                                      ----------------    -----------------     -------------------    -----------------
         <S>                            <C>                  <C>                    <C>                  <C>
        Software and Services
        Revenue                         $ 6,614,731          $ 6,303,947            $ 17,306,886         $ 16,996,102
        Total Revenue                    10,827,426           10,516,642              27,458,953           27,148,169
        Gross Profit                      5,826,399            5,515,615              15,336,864           15,026,080
        Operating Income (Loss)              32,784             (278,000)             (2,935,811)          (3,246,595)
          Income (Loss) From
          Continuing Operations             103,293             (207,491)             (2,703,038)          (3,013,822)
        Income Tax Expense                                                                                  (868,414)
        (Revcovery)                          39,440             (53,795)               (775,179)
        Net Income (Loss) for the
        period From Continuing
        Operations                           63,853            (153,696)             (1,927,859)          (2,145,408)
        Net Income (Loss) for the
        period                               76,272            (141,277)             (1,806,828)          (2,024,377)
        Deficit, End of Period         $(25,598,609)       $(25,816,158)           $(25,598,609)        $(25,816,158)
        Earnings (Loss) per share
        basic                                 $0.01              $(0.02)                 $(0.21)              $(0.24)
        Earnings (Loss) per share
        diluted                               $0.01              $(0.02)                 $(0.21)              $(0.24)
</TABLE>



                                      -18-
<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
September 30, 2002 as restated

     Software and services  revenue was reduced by $310,000 from $6.6 million to
$6.3 million for the three months ended September 30, 2002. After accounting for
the decrease in the associated tax provision,  net income as previously reported
of $76,000  was  reduced to a net loss of $141,000  for the three  months  ended
September 30, 2002.


Condensed  consolidated  statement  of  operations  for the  nine  months  ended
September 30, 2002 as restated

     Software and services revenue was reduced by $310,000 from $17.3 million to
$17.0 million for the nine months ended September 30, 2002. After accounting for
the decrease in the associated tax provision, net loss as previously reported of
$1.8  million  increased to a net loss of $2.0 million for the nine months ended
September 30, 2002.


Condensed consolidated balance sheet as at December 31, 2002 as restated

     The above table illustrates the restatements identified and their impact on
the condensed  consolidated balance sheet as at the end of each period presented
as restated.  The impact of the  restatement  adjustments in each period reflect
adjustments  to the  amount  of  revenue  recognized  in each  period  and their
associated  impact  on  unbilled  receivables  and/or  deferred  revenues.   The
adjustments  to the related tax  provision  in each period are  reflected in the
restated Deferred Income Taxes and Income Taxes Payable balances.


Filing of Restated Financial Statements

     At the earliest time in the fourth  quarter of 2003, we expect to file with
the SEC the  Company's  Form  10-K/A for the year ended  December  31,  2002 and
amended  Quarterly  Reports  on Form  10-Q/A  for the  quarterly  periods  ended
September  30,  2002,  March  31,  2003 and June 30,  2003  containing  restated
financial statements for the relevant periods.

     For further  information of the impact of the restatements on the condensed
consolidated statements of operations for the three months and nine months ended
September 30, 2002 and the balance sheet as at December 31, 2002, see notes 1(a)
and 9 of the accompanying condensed consolidated financial statements.


Strategic Alternatives

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



                                      -19-
<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:

                                                           Total Restructuring
                                                                  Charge
                                                           -------------------
        Workforce reduction                                  $    3,375,000
        Provision for excess office space                         1,861,000
        Non cash writedown of capital assets                        563,780
        Other                                                       306,147
                                                           -------------------
        Total restructuring charges                               6,105,927
        Cumulative draw-downs                                    (5,153,304)
                                                           -------------------
        Accrued restructuring charges included in
        accrued liabilities at September 30, 2003            $      952,623
                                                           ===================



     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 September  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.


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



                                      -20-
<PAGE>

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,  which  includes a warranty
period that is generally  ninety days in length.  These  services are  generally
performed  within six to twelve  months.  Pricing for these  contracts  includes
license fees as well as a fee for professional  services.  The Company generally
recognizes  total revenue for software and services  associated  with a contract
using a percentage of completion  method based on the total 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.  Also included in third party revenue are  reimbursements to
the  Company for out of pocket  expenses  incurred  on  implementation  projects
performed by the  Company.  EITF 01-14  "Income  Statement  Characterization  of
Reimbursements Received for Out of Pocket Expenses" requires characterization of
these  expenses  as  revenue.  An equal  and  offsetting  amount of  expense  is
recognized relating to these reimbursements as direct costs.

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

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



                                      -21-
<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  adoption of this  standard did not have a
material impact on the Company's financial statements.

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

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

     The Company  adopted  the  provisions  of SFAS 149 during the three  months
ended  September 30, 2003 and the adoption did not have a material impact 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  adopted FIN 46
during the three months ended  September 30, 2003 and it did not have a material
impact on the results of operations and financial condition of the Company.



                                      -22-
<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
Condensed Consolidated  Financial Statements.  Some of those accounting policies
require the Company to make  estimates and  assumptions  that affect the amounts
reported by the  Company.  The  following  items  require  the most  significant
judgment and involve complex estimation:


Restructuring Charges

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

Accounts Receivable

     The  Company  periodically  reviews  the  collectability  of  its  accounts
receivable  balances.   Where  significant  doubt  exists  with  regard  to  the
collection  of a certain  receivable  balance,  an  allowance  and charge to the
income statement is recorded.  At September 30, 2003, the allowance for doubtful
accounts was $3.6  million,  composed of $2.6 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.



                                      -23-
<PAGE>

Product Warranties

     The  Company  generally  provides a limited  warranty of ninety days on its
software and implementation  services.  As the types of services provided during
the warranty  period are essential and  inseparable  to the software and service
agreement,  associated  costs  are  budgeted  for as  part of the  software  and
implementation serice and revenue recognized as part of the overall software and
implemtation contract using the percentage of completion.  The Company typically
includes  indemnification  provisions within license and implementation  service
agreements  which are consistent with those prevalent in the software  industry.
Such  provisions   indemnify  customers  against  actions  arising  from  patent
infringements which may arise through the normal use or proper possession of the
Company's  software.  To date that Company has not  experienced  any significant
obligations under customer indemnification  provisions and accordingly,  no such
amounts have been accrued for such potential indemnification obligations.


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 September 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".



                                      -24-
<PAGE>

Results of Operations

     The  Company's  net  income was $0.3  million  for the three  months  ended
September  30, 2003.  This  compares to a net loss of $0.1 million for the three
months ended  September 30, 2002.  For the nine months ended  September 30, 2003
the  Company  had a net  loss of $0.3  million,  compared  to a net loss of $2.0
million for the nine months ended September 30, 2002. The increase in net income
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,  weakness in the U.S. dollar which causes
Canadian dollar denominated expenses to rise, 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 September 30,     Nine months ended September 30,
                                                   --------------------------------     --------------------------------
                                                        2003              2002               2003              2002
                                                                      (As restated,                        (As restated,
                                                                       see note 9)                          see note 9)
                                                   --------------    --------------     --------------    --------------
<S>                                                 <C>                <C>               <C>              <C>
REVENUE
   Software and services                                   62.5%            59.9%             64.5%            62.6%
   Maintenance and support                                 25.5%            24.8%             24.7%            29.6%
   Third party products and services                       12.0%            15.3%             10.8%             7.8%
                                                   --------------    --------------     --------------    --------------
                                                            100%             100%              100%             100%

DIRECT COSTS                                               49.6%            47.6%             48.5%            44.7%
                                                   --------------    --------------     --------------    --------------
GROSS PROFIT                                               50.4%            52.4%             51.5%            55.3%
                                                   --------------    --------------     --------------    --------------
OPERATING EXPENSES
   Research and development                                10.8%            12.2%             11.0%            15.6%
   Sales and marketing                                     19.8%            28.8%             22.7%            34.5%
   General and administrative                              15.1%            14.1%             13.9%            17.2%
   Provision for doubtful accounts                          0.9%                -              0.3%                -
   Strategic expenses                                          -                -              2.3%                -
                                                   --------------    --------------     --------------    --------------
                                                           46.6%            55.1%             50.2%            67.3%
                                                   --------------    --------------     --------------    --------------
OPERATING INCOME (LOSS)                                     3.8%            (2.7)%             1.3%           (12.0)%

OTHER (EXPENSE) INCOME                                     (0.7)%            0.7%             (1.5)%            0.9%
                                                   --------------    --------------     --------------    --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE             3.1%            (2.0)%            (0.2)%          (11.1)%
TAX PROVISION

INCOME TAX EXPENSE (RECOVERY) FROM CONTINUING
OPERATIONS                                                  0.9%            (0.5)%            (0.6)%           (3.2)%
                                                   --------------    --------------     --------------    --------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS                2.2%            (1.5)%            (0.8)%           (7.9)%

INCOME FROM DISCONTINUED OPERATIONS                            -             0.1%                -              0.4%

                                                   --------------    --------------     --------------    --------------
NET INCOME (LOSS) FOR THE PERIOD                            2.2%            (1.4)%            (0.8)%           (7.5)%
                                                   ==============    ==============     ==============    ==============
</TABLE>


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

     Revenue.  Revenue  increased  by $1.8 million or 16.9% for the three months
ended  September  30, 2003 as compared to the three months ended  September  30,
2002.  This increase was primarily due to increases in revenue from software and
services and  maintenance  and support  revenue during the third quarter of 2003
relative to the same period in 2002.



                                      -25-
<PAGE>

     Software  and services  revenue  increased by $1.4 million or 22.0% for the
three  months  ended  September  30, 2003 as compared to the three  months ended
September  30,  2002.  The  increase  in  revenue  was  attributable  to several
significant  contracts  the  Company has entered  into,  representing  increased
success in the core  markets the Company  serves.  These  contracts  continue to
generate  significant  revenue for the Company.  The Company  only  recognized a
significant  amount of revenue from one of these  contracts for the three months
ended September 30, 2002, where during the three months ended September 30, 2003
there  were  significant  amounts of revenue  being  recognized  on all of these
contracts  and  therefore  the  Company's  Software  and Service  revenues  have
significantly  increased  for the  three  months  ended  September  30,  2003 as
compared to the three months ended  September 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 $3.1 million for the three months ended
September  30,  2003 as  compared to $2.6  million  for the three  months  ended
September 30, 2002.  Maintenance and support revenue has increased primarily 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
that the Company is engaged to provide in support of its installations.

     Third party products and services revenue decreased by $0.1 million for the
three  months  ended  September  30,  2003  compared to the three  months  ended
September  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 fluctuate in the near term.
For the three months ended September 30, 2003 approximately $0.4 million (2002 -
$  nil)  of  these  no  margin  third  party   services   were   provided.   See
"Forward-Looking Statements."

     Direct Costs. Direct costs were 49.6% of revenue for the three months ended
September 30, 2003,  compared to 47.6% for the three months ended  September 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  primarily  due to the  Company's
agreement  to supply a large  amount of  third-party  services at no margin,  in
connection  with one particular  contract.  The relative  weakness of the United
States  dollar also  contributed  to the cost increase as the majority of direct
costs  are  incurred  in  Canadian  dollars.  As a  result,  direct  costs  as a
percentage of revenue 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 September 30, 2003, compared to 52.4% for the three months ended September
30, 2002.  The  decrease in gross  margins as a  percentage  of revenue  related
primarily  to an  agreement  whereby  the  Company  has agreed to supply a large
amount of  third-party  services  at no margin.  During the  current  period the
Company recognized  approximately $0.4 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 its  gross  margins  as a
percentage of revenue will remain consistent with the current period, subject to
the  level of third  party  services  actually  provided.  See  "Forward-Looking
Statements."

     Research and  Development.  Research  and  development  expenses  were $1.3
million,  or 10.8% of revenue,  for the three months ended  September  30, 2003,
compared  to $1.3  million,  or 12.2% of  revenue,  for the three  months  ended
September  30,  2002.  The decrease in research  and  development  expenses as a
percentage of revenue was a result of stable research and  development  expenses
incurred  during a period of  revenue  growth.  The  Company  has also  utilized
research and development  personnel 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



                                      -26-
<PAGE>


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

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 $2.4,  million or
19.8% of revenue, for the three months ended September 30, 2003 compared to $3.0
million, or 28.8% of revenue, for the three months ended September 30, 2002. The
decrease in expenses was a result of a lower  commission  expense being incurred
by the Company,  as several contract signings that occurred in the third quarter
of 2002 did not reoccur in the current  period  resulting  in fewer  commissions
being incurred 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 $1.9
million,  or 15.2% of revenue,  for the three  months ended  September  30, 2003
compared  to $1.5  million,  or 14.1% of  revenue,  for the three  months  ended
September 30, 2002. General and administrative  expenses increased for the three
months ended  September 30, 2003 as compared to the three months ended September
30, 2003 due to increased  professional  advisory  services  required during the
current  period.  The  Company  expects  that in the near  future,  general  and
administrative  expenditures  will remain  relatively  consistent  with  current
levels. See "Forward-Looking Statements".

     Provision for doubtful  accounts.  During the three months ended  September
30,  2003 the  Company  recorded  a charge of $0.1  million as a  provision  for
doubtful accounts. Due to significant  uncertainty surrounding collection of one
specific  account  from the  Company's  previously  disposed  of  public  safety
business,  the Company took a charge of $0.2 million to value the account at the
most likely amount to be collected. Also during the quarter the Company received
notification that it would recover  approximately  $0.1 million for a previously
fully  allowed for  receivable as a result of a bankruptcy  settlement.  The net
effect of the $0.2 million dollar charge,  partially  offset by the $0.1 million
recovery of a  previously  allowed for account  resulted in the net $0.1 million
provision for doubtful  accounts  being  recorded  during the three months ended
September 30, 2003.

     Other (Expense) Income.  Other (expense) income was $(81,000) for the three
months ended  September  30, 2003 as compared to  approximately  $71,000 for the
three  months  ended  September  30,  2002.  Substantially  all of other  income
(expense)  related 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 on income for the
three  months  ended  September  30,  2003 and 2002 at rates of 30.0%  and 25.9%
respectively.  The Company's  effective tax rate reflects the blended  effect of
Canadian, U.S., and other foreign jurisdictions' tax rates.

     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 September 30, 2002 was $12,000. 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>


Nine Months Ended September 30, 2003 Compared to the Nine Months Ended September
30, 2002

     Revenue.  Revenue  increased  by $9.3  million or 34.1% for the nine months
ended  September  30, 2003 as compared to the nine months  ended  September  30,
2002.  This increase was primarily due to increases in revenue from software and
services and third party  products and services  during the first nine months of
2003 relative to the same period in 2002.

     Software  and services  revenue  increased by $6.5 million or 38.0% for the
nine months  ended  September  30,  2003 as  compared  to the nine months  ended
September  30,  2002.  The  increase  in  revenue  was  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  significant  revenues  from  only  one of  these
contracts  for the nine  months  ended  September  30,  2002 and  therefore  the
Company's  software and service  revenue  significantly  increased  for the nine
months ended  September 30, 2003 as compared to the nine months ended  September
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 revenue was $9.0 million for the nine months ended
September  30,  2003 as  compared  to $8.0  million  for the nine  months  ended
September 30, 2002.  Maintenance and support revenue has increased primarily due
to 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 $1.8 million for the
nine months  ended  September  30,  2003 as  compared  to the nine months  ended
September  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 nine
months ended  September  30, 2003  approximately  $1.8 million (2002 - $ nil) of
these no margin  third  party  services  were  provided.  See  "Forward  Looking
Statements."

     Direct Costs.  Direct costs were 48.5% of revenue for the nine months ended
September  30, 2003,  compared to 44.7% for the nine months ended  September 30,
2002. The increase in direct costs as a percentage of revenue occurred primarily
due to the Company's agreement to supply a large amount of third-party  services
at no margin, in connection with one particular contract.  The relative weakness
of the  United  States  dollar  also  contributed  to the cost  increase  as the
majority of direct costs are incurred in Canadian dollars.  As a result,  direct
costs as a percentage of revenue 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 51.5% of revenue  for the nine months
ended September 30, 2003,  compared to 55.3% for the nine months ended September
30, 2002.  The  decrease in gross  margins as a  percentage  of revenue  related
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 $1.8 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."



                                      -28-
<PAGE>

Nine Months Ended September 30, 2003 Compared to the Nine Months Ended September
30, 2002 (continued)

     Research and  Development.  Research  and  development  expenses  were $4.0
million,  or 11.0% of revenue,  for the nine months  ended  September  30, 2003,
compared  to $4.2  million,  or 15.6% of  revenue,  for the  nine  months  ended
September  30,  2002.  The decrease in research  and  development  expenses as a
percentage of revenue was a result of stable research and  development  expenses
incurred  during a period of  revenue  growth.  The  Company  has also  utilized
research and development  personnel 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 $8.3 million,  or
22.7% of revenue, for the nine months ended September 30, 2003, compared to $9.4
million, or 34.5% of revenue,  for the nine months ended September 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 $5.0
million,  or 13.9% of revenue,  for the nine months ended September 30, 2003, as
compared  to $4.7  million,  or 17.2% of  revenue,  for the  nine  months  ended
September 30, 2002. General and administrative expenses increased in the current
period as a result  of an  increased  need for  professional  advisory  services
during the nine months ended  September  30, 2003 as compared to the nine months
ended September 30, 2002. The Company  expects that in the near future,  general
and administrative  expenditures will remain relatively  consistent with current
levels. See "Forward-Looking Statements".

     Provision for doubtful accounts. During the nine months ended September 30,
2003 the Company  recorded a charge of $0.1 million as a provision  for doubtful
accounts. Due to significant  uncertainty surrounding collection of one specific
account  the Company  took a charge of $0.2  million to value the account at the
most likely amount to be collected.  Also during the nine months ended September
30, 2003 the Company received  notification that it would recover  approximately
$0.1  million for a previously  fully  allowed for  receivable  as a result of a
bankruptcy  settlement.  The net  effect  of the  $0.2  million  dollar  charge,
partially  offset by the $0.1  million  recovery  of a  previously  allowed  for
account resulted in the net $0.1 million  provision for doubtful  accounts being
recorded during the nine months ended September 30, 2003.

     Strategic expenses.  Strategic expenses were approximately $0.8 million, or
2.2% of revenue,  for the nine months ended  September 30, 2003. The Company did
not incur any  strategic  expenses in the nine months ended  September 30, 2002.
Strategic  expenses consisted of professional fees associated with investigating
a potential corporate transaction that the Company considered and then abandoned
during  the  second  quarter  of 2003.  The  Company  expects  it will  consider
additional  strategic  opportunities during the remainder of 2003 and expects to
incur additional  strategic  expenses during this period;  however,  the Company
cannot predict the amount of the strategic  expenses or whether the Company will
be successful  in  negotiating a successful  transaction.  See  "Forward-Looking
Statements."  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 ($0.5) million for the
nine months ended September 30, 2003 as compared to  approximately  $0.2 million
for the nine months ended September 30, 2002.  Substantially all of other income
(expense)  related 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 nine months ended  September 30, 2003 and 2002 at rates
of 31.0% and  (28.9%)  respectively,  after  adjusting  for  strategic  expenses
incurred in the current  period.  The Company's  effective tax rate reflects the
blended effect of Canadian,



                                      -29-
<PAGE>

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 nine months ended
September 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 nine months
ended September 30, 2002 was $121,000.  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.


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 September 30, 2003, the Company had cash
and cash equivalents of $14.7 million and working capital of $9.2 million.

     Cash provided by operating  activities was $5.8 million for the nine months
ended  September  30, 2003  compared to $1.3  million for the nine months  ended
September  30, 2002.  The net inflow of cash from  operating  activities,  after
adding back  depreciation  and  amortization  of $2.2 million,  was due to a net
decrease  in  non-cash  working  capital  items of $3.8  million,  a decrease in
deferred  income  tax  receivable  of $0.2  million  and a net loss for the nine
months ended  September 30, 2003 of $0.3  million.  The net decrease in non-cash
operating working capital items was due primarily to a net decrease in trade and
unbilled receivables,  an increase in deferred revenue, and an increase in trade
accrued liabilities.  The decrease in trade receivables and increase in deferred
revenue were due to timing differences  arising between revenue  recognition and
billing milestones in multiphase  projects.  The increase in accrued liabilities
was a result of strategic  expenses,  and embedded  software  expenses  incurred
during the nine months ended  September 30, 2003,  for which the Company had yet
to be invoiced.

     The Company maintained as at September 30, 2003 a provision of $3.6 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  $3.6  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".

     Cash used by financing  activities  of $1.3 million  during the nine months
ended  September  30, 2003  primarily  related to $1.4 million in  repayments of
capital  leases made  during the nine  months,  partially  offset by proceeds of
$80,000 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  September 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.



                                      -30-
<PAGE>

     Cash used in  investing  activities  was $0.8  million  for the nine months
ended  September  30, 2003 as compared to $1.4 million for the nine months ended
September  30,  2002.  Total  investing  activity  during the nine months  ended
September  30, 2003  consisted of $0.8  million in purchases of capital  assets.
Purchases of capital  assets include  computer  hardware and software for use in
implementation  activities,  research and development and for general  corporate
purposes.  Investing  activities  in 2002 also  related to  purchases of capital
assets.

     Existing  sources of liquidity at September 30, 2003 included $14.7 million
of cash and cash  equivalents and additional funds available under the Company's
operating  line of credit.  At  September  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 0.25%.  At September 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  September  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        $ 2,903,579        $1,574,031      $1,329,548              -            -
       Obligations
    --------------------------------------------------------------------------------------------------
     Operating Leases      $ 7,130,704        $1,649,202      $2,859,402     $2,420,400     $201,700
    --------------------------------------------------------------------------------------------------
    Total Contractual      $10,034,283        $3,223,233      $4,188,950     $2,420,400     $201,700
       Obligations
    --------------------------------------------------------------------------------------------------
</TABLE>


     In addition to these  commercial  commitments the Company has provided,  as
performance bonds, under its operating line of credit, an irrevocable  revolving
letter of credit in the amount of, $1,381,161 (CDN $1,864,568)  expiring October
1, 2003, and a performance  guarantee of $600,000 (CDN $810,000)  expiring April
4, 2004. The Company has pledged an amount equal to the letter of credit and the
guarantee 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 has  furnished a  performance
guarantee for $356,369  payable if the Company does not fulfill its  obligations
within the seven year  period..  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



                                      -31-
<PAGE>

through the purchase of services in the normal course of business,  no liability
has been established for these future spending commitments.


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 September 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 September 30,
2003.  However,  the Company  may from  time-to-time  hedge any net  exposure to
currencies other than the United States dollar.

     As of September 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.



                                      -32-
<PAGE>

ITEM 4: CONTROLS AND PROCEDURES

     (a)  Evaluation of Disclosure Controls and Procedures

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

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

     In  connection   with  the  contract  review   undertaken   concerning  the
restatements of the Company's  financial  statements for the year ended December
31, 2002 and the quarters ended September 30, 2002,  March 31, 2003 and June 30,
2003,  described  in notes 1(a) and 9 to the  unaudited  condensed  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  controls 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 certain of the Company's software and
implementation  contracts resulted in the Company's revenue recognition for such
contracts  being   inappropriate   under  U.S.  generally  accepted   accounting
principles.

     (b)  Changes in Internal Control

     On November 17, 2003,  the Company  announced  its intention to restate the
Company's  annual  financial  statements  for the fiscal year ended December 31,
2002 and the quarterly financial  statements for the periods ended September 30,
2002,  March  31,  2003  and  June  30,  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  a  limited  number  of  software  and  implementation
contracts.  Please see notes 1(a) and 9 to the condensed  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 taken 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   software  and
implementation  contracts by senior members of the Company's accounting group, a
determination of the appropriate revenue recognition treatment for each contract
by the senior members of the accounting group and implementing a formal contract
review checklist for each new contract.

     The Audit Committee and senior management are currently considering whether
additional  measures or  modifications  to the above  measures are  necessary in
order to improve the Company's internal control over financial reporting.

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



                                      -33-
<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".



                                      -34-
<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.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (TO BE UPDATED)

     (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(4)       Lease dated May 14, 1999  between  California  Public  Employees'
               Retirement  System and Mobile Data Solutions Inc. a subsidiary of
               the Company
 10.5(4)       Amending  Agreement  dated  December  1,  1998  between  Sun Life
               Assurance Company of Canada and the Company
 10.6(2)(5)    Employment  Agreement  dated  January 2, 2002 between the Company
               and Verne Pecho
 10.7(2)(6)    2002 Stock Purchase Plan
 10.8(7)       Exchange  Agreement  dated as of June 26, 2002 among the Company,
               Connectria Corporation, Richard S. Waidmann and Eric Y. Miller
 10.19(7)      Amendment to Exchange  Agreement  dated as of June 30, 2002 among
               the Company, Connectria Corporation, Richard S. Waidmann and Eric
               Y. Miller
 10.10(7)      Warrant  dated as of June 29, 2002 to purchase  50,380  shares of
               Series A Nonvoting Preferred Stock of Connectria Corporation
 10.11(7)      $250,000  Promissory  Note  dated  as of June  30,  2002  made by
               Connectria Corporation in favor of the Company
 10.12(7)      Security  Agreement dated as of June 30, 2002 between  Connectria
               Connectria and the Company
 10.13(2)(8)   Employment  Agreement  dated  January 1, 1999 between the Company
               and Glenn Y. Kumoi
 10.14(2)(8)   Settlement Agreement dated March 15, 2002 between the Company and
               Gerald F. Chew
 10.15(2)(8)   Settlement  Agreement  dated May 31, 2002 between the Company and
               Gene Mastro*
 10.16(2)      Employment Agreement dated September 12, 2001 between the Company
               and Walter J. Beisheim
 10.17         Employment Agreement dated August 1, 2003 between the Company and
               Peter Hill Rankin
 10.18         Employment  Agreement dated September 3, 2003 between the Company
               and Glenn Kumoi
 10.19         Employment  Agreement dated September 4, 2003 between the Company
               and Erik Dysthe
 10.20         Employment  Agreement  dated  August 20, 2003 between the Company
               and Joo-Hyung (Tommy) Lee
 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          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-K for the year
     ended December 31, 2001.
(5)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended March 31, 2002.
(6)  Previously  filed as  exhibits  with  the  Registrant's  Form  10-Q for the
     quarterly period ended June 30, 2002.
(7)  Previously filed as exhibits with the Registrant's Form 8-K filed on August
     14, 2002.
(8)  Previously filed as exhibits with the  Registrant's  Form 10-K for the year
     ended December 31, 2002.

*    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.


                                      -35-
<PAGE>


     (b)  Reports on Form 8-K

The Company  furnished  a Form 8-K on July 29,  2003  pursuant to Items 9 and 12
attaching a press  release  regarding  the  Company's  operating  results in the
second  quarter of 2003, and the  resignation of a director of the Company.  The
Company  furnished a Form 8-K on September 22, 2003 pursuant to Item 9 attaching
a press  release  regarding the  retention of a financial  advisor.  The Company
furnished a Form 8-K on September  23, 2003 pursuant to Item 9 attaching a press
release clarifying certain media reports regarding the Company.  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.

The Company  filed a Form 8-K on  September  25, 2003  pursuant to Items 5 and 7
attaching  copies of the  materials  mailed  to the  Company's  shareholders  in
connection with the annual general meeting held on June 5, 2003.

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


                                      -36-
<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:  November 19, 2003         By   /s/ Erik Dysthe
                                      ---------------------------------
                                      Name:  Erik Dysthe
                                      Title: President, Chief Executive Officer,
                                             Chairman of the Board and Director




Date:  November 19, 2003         By:  /s/ Verne D. Pecho
                                      ---------------------------------
                                      Name:  Verne D. Pecho
                                      Title: Vice President Finance &
                                             Administration and Chief Financial
                                             Officer
                                             (Principal Financial and Accounting
                                              Officer





                                      -37-


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