# EXHIBIT 99.1

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

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

When evaluating
MDSIs business, you should consider:

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

|o |  | the
risk factors described in the Companys annual report on Form 10-K for the year
ended December 31, 2001 filed with the Securities and Exchange Commission; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# Risk Factors

The Companys
business is subject to the following risks. These risks also could cause actual results to
differ materially from results projected in any forward-looking statement in this report.

Discontinued
operations have been excluded from all historical data included in the following risk
factors.

# Potential Fluctuations
in Quarterly Operating Results

The Companys
results of operations have fluctuated in the past and are likely to continue to fluctuate
from period to period depending on a number of factors, including the timing and receipt
of significant orders, the timing of completion of contracts, increased competition,
regulatory and other developments in the Companys vertical markets, changes in the
demand for the Companys products and services, the cancellation of contracts, the
timing of new product announcements and introductions, changes in pricing policies by the
Company and its competitors, delays in the introduction of products or enhancements by the
Company, expenses associated with the acquisition of products or technology from third
parties, the mix of sales of the Companys products and services and third party
products, seasonality of customer purchases, personnel changes, political and economic
uncertainty, the mix of international and North American revenue, tax policies, foreign
currency exchange rates and general economic and political conditions.

The Company believes
that the events of September 11, 2001 and recent economic developments and trends have
adversely affected and may continue to affect levels of capital spending by companies in a
variety of industries, including companies in the vertical markets that the Company
serves. The current excess of supply in the telecommunications industry has adversely
affected the financial condition of many telecommunications companies worldwide. In
addition, current economic conditions and developments in the energy markets have had an
adverse affect on the financial condition of energy and utility companies in certain
geographical areas of North America. The Company believes that these and other factors
have adversely affected demand for products and services offered by the Company, as
certain prospective and existing customers have delayed or deferred purchasing decisions
or have sought to terminate existing contracts for the Companys products and
services. While the Company believes that economic conditions in certain of its
vertical markets show signs of improvement, the Company believes that economic
conditions and general trends are likely to continue to affect demand for the
Companys products and services in 2002, particularly demand for software
and related services.  Such factors may also increase the amount of doubtful
accounts or adversely affect the likelihood of collection of such accounts.

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

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

Based upon all of the
foregoing factors, the Company believes that its quarterly revenue, direct expenses and
operating results are likely to vary significantly in the future, that period-to-period
comparisons of the results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as an indication of future performance. The Company
may also choose to reduce prices or increase spending in response to competition, or to
pursue new market opportunities. See Forward-Looking Statements. If new
competitors, technological advances by existing competitors or other competitive factors
require the Company to reduce its prices or invest significantly greater resources in
research and development efforts, the Companys operating results in the future may
be adversely affected. There can be no assurance that the Company will be able to grow in
future periods or that it will be able to sustain its level of total revenue or achieve
revenue growth on a quarterly or annual basis. In fiscal 2001, the Companys revenue
declined compared to the same period in 2000. During the nine month period ended September
30, 2002, the Companys revenue declined compared to the same period in 2001. These
recent declines have resulted from an economic slow down in the vertical industries served
by the Company. It is likely that in some future quarter the Companys operating
results will be below the expectations of public market analysts and investors. See
Forward Looking Statements. In such event, the market price of the
Companys Common Shares would likely be materially adversely affected.

# Dependence on Third
Party Products and Services

Since 1996, the
Company has been, and anticipates that from time to time it will be, engaged to provide,
in addition to its own products and services, third party hardware, software and services,
which the Company purchases from vendors and sells to its customers. For the years ended
December 31, 2001, 2000 and 1999, 5.5%, 3.4%, and 12.8% respectively, of the
Companys revenue was attributable to third party products and services. For the
three-month periods ended September 30, 2002 and 2001, 14.9% and 2.6%, respectively, of
the Companys revenue was attributable to third-party projects and services. As the
revenue generated from the supply of third party products and services may represent a
significant portion of certain contracts and the installation and rollout of third party
products is generally at the discretion of the customer, the Company may, depending on the
level of third party products and services provided during a period, experience large
quarterly fluctuations in revenue. See Forward Looking Statements. In
addition, because the Companys gross margins on third party products and services
are substantially below gross margins historically achieved on revenue associated with
MDSI products and services, large fluctuations in quarterly revenue from the sale of third
party products and services will result in significant fluctuations in direct costs, gross
profits, operating results, cash flows and other items expressed as a percentage of
revenue.

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# Lengthy Sales Cycles for
Advantex Products

The purchase of a
mobile workforce management solution is often a significant purchase decision for
prospective customers and requires the Company to engage in sales efforts over an extended
period of time and to provide a significant level of education to prospective customers
regarding the use and benefits of such systems. Due in part to the significant impact that
the application of mobile workforce management solutions has on the operations of a
business and the significant commitment of capital required by such a system, potential
customers tend to be cautious in making acquisition decisions. As a result, the
Companys products generally have a lengthy sales cycle ranging from several months
to several years. Consequently, if sales forecasted from a specific customer for a
particular quarter are not realized in that quarter, the Company may not be able to
generate revenue from alternative sources in time to compensate for the shortfall. The
loss or delay of a large contract could have a material adverse effect on the
Companys quarterly financial condition, operating results and cash flows, which may
cause such results to be less than analysts expectations. Moreover, to the extent
that significant contracts are entered into and required to be performed earlier than
expected, operating results for subsequent quarters may be adversely affected. In
particular, due to economic conditions and developments in the Companys core
markets, the Company has experienced an increase in the time necessary to complete the
negotiation and signing of contracts with some of its customers.

# Dependence on Large
Contracts and Concentration of Customers

The Companys
revenue is dependent, in large part, on significant contracts from a limited number of
customers. During the years ended December 31, 2001, 2000, and 1999, approximately 46.5%,
30.5%, and 34.8% respectively, of the Companys consolidated revenue was attributable
to five or fewer customers. During the years ended December 31, 2001, 2000 and 1999, one
customer accounted for 16.5%, 6.9%, and 12.2% respectively, of the Companys
consolidated revenue. The Company believes that revenue derived from current and future
large customers will continue to represent a significant portion of its total revenue. See
Forward Looking Statements. The inability of the Company to continue to secure
and maintain a sufficient number of large contracts would have a material adverse effect
on the Companys business, financial condition, operating results and cash flows.
Moreover, the Companys success will depend in part upon its ability to obtain orders
from new customers, as well as the financial condition and success of its customers and
general economic conditions.

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

# Potential Fluctuations
in Backlog

The Companys
backlog consists of a relatively small number of large contracts relating to sales of its
mobile workforce management and wireless connectivity software and related equipment and
services, and sales of third party products and services. Due to the long, complex sales
process and the mix of sales of the Companys products and services and third party
products and services, the Companys backlog may fluctuate significantly

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from period-to-period. In addition,
under the terms of the Companys contracts, the Companys customers may elect to
terminate their contracts with the Company at any time after notice to the Company or to
delay certain aspects of installation. Due to the relative size of a typical contract
compared to the Companys annual and quarterly revenue, a termination or installation
delay of one or more contracts could have a material adverse effect on the Companys
business, financial condition, operating results and cash flows. Contracts for software
maintenance and support are generally renewable every year and are subject to
renegotiation upon renewal. There can be no assurance that the Companys customers
will renew their maintenance contracts or that renewal terms will be as favorable to the
Company as existing terms.

The Company believes
that unfavorable economic conditions and reduced capital spending by existing and
prospective customers have and may continue to adversely affect demand for the
Companys products and services in 2002. In particular, service providers, utilities
companies and telecommunications companies in the North America were impacted during the
latter half of 2000 and during 2001. While the Company believes that economic
conditions in certain of its vertical markets show signs of improvement, the Company
believes that economic conditions and general trends are likely to continue
to delay purchasing and implementation decisions. If the economic conditions in the United
States and Canada worsen or if a wider or global economic slowdown occurs, the Company may
experience reduced revenues, increased costs, reduced margins and increased risks
associated with the collection of customer receivables, any of which may have a material
adverse impact on its business, operating results, cash flows and financial condition.

# Seasonal Variations in
Demand

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

# Limited Operating
History; History of Losses; Increased Expenses

The Company commenced
operations in February 1993 and therefore has only a limited operating history upon which
an evaluation of its business and prospects can be based. As of September 30, 2002, the
Company had an accumulated deficit of $25.6 million. There can be no assurance that the
Company will realize revenue growth or be profitable on a quarterly or annual basis. The
Company plans to continue to contribute significant resources to its operating expenses
related to sales and marketing operations, to fund significant levels of research and
development, to broaden its customer support capabilities and to maintain its
administrative resources. A relatively high percentage of the Companys expenses is
fixed in the short term and the Companys expense levels are based, in part, on its
expectations of future revenue. To the extent that such expenses precede or are not
subsequently followed by increased revenue, the Companys business, financial
condition, operating results and cash flows could be materially adversely affected. In
addition, due to the rapidly evolving nature of its business and markets, the
Companys limited operating history and its recent acquisitions, the Company believes
that period-to-period comparisons of financial results are not necessarily meaningful and
should not be relied upon as an indication of future performance.

# Integration of
Acquisitions

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

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all of which could materially and
adversely affect the Companys financial condition, results of operations and cash
flows.

# New Product Development

The Company expects
that a significant portion of its future revenue will be derived from the sale of newly
introduced products, including Advantex r7, and from enhancement of existing products. See
Forward-Looking Statements. The Companys success will depend in part
upon its ability to enhance its current products on a timely and cost-effective basis and
to develop new products that meet changing market conditions, including changing customer
needs, new competitive product offerings and enhanced technology. There can be no
assurance that the Company will be successful in developing and marketing on a timely and
cost-effective basis new products and enhancements that respond to such changing market
conditions. If the Company is unable to anticipate or adequately respond on a timely or
cost-effective basis to changing market conditions, to develop new software products and
enhancements to existing products, to correct errors on a timely basis or to complete
products currently under development, or if such new products or enhancements do not
achieve market acceptance, the Companys business, financial condition, operating
results and cash flows could be materially adversely affected. In light of the
difficulties inherent in software development, the Company expects that it will experience
delays in the completion and introduction of new software products. For example, the time
required for the initial implementation and field testing of Advantex r7 was greater than
expected, which resulted in delays in commencement of certain installations of the
Advantex r7 product.

# Litigation

The Company is a party
to a suit filed against Citizens Telecom Services Co., L.L.C., generally alleging that
Citizens breached a series of contracts dated October 15, 1998. The suit alleges that
Citizens has wrongfully terminated the contracts and failed to pay sums due. The suit
seeks damages, interest and attorneys fees. Citizens filed an answer and counter
claim alleging that MDSI breached the contracts, justifying Citizens termination of
the contracts and entitling Citizens to repayment of approximately $3.5 million paid to
MDSI in addition to interest and attorneys fees. In its consolidated balance sheet
as of December 31, 2001 and 2000, the Company has classified approximately $3.7 million in
amounts due from Citizens, which amounts are subject to the suit, as a long term
receivable as of December 31, 2001. The Company has recorded approximately $1.0 million
due from Citizens as doubtful accounts and has not recorded any amounts claimed by
Citizens as a contingent or other liability of the Company as the Company believes that is
will recover a substantial amount of monies owing to it. There can be no assurance that
the Company will be successful in the prosecution of its claim or in the defense of
Citizens counter claim.

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# Management of Growth and
Reduction of Workforce

Since its inception,
the Company has experienced periods of rapid growth in product sales, personnel, research
and development activities, number and complexity of products, the number and geographic
focus of its targeted vertical markets and product distribution channels. The total number
of employees of the Company has grown from 9 employees in Canada in February 1993 to 448
employees located in Canada, the United States and other international locations at
December 31, 2001. The Company also recently expanded the geographical areas in which it
operates. In March and April, 2001, the Company made several announcements regarding its
intention to reduce the size of its work force by approximately 25% in anticipation of
reduced demand for its products and services due to the general economic slowdown. In July
2002, the Company completed the sale of its subsidiary Connectria Corporation, reducing
the size of its work force by 71 employees. If the Company resumes its growth in future
periods, such growth may place strains on its management, administrative, operational and
financial resources, as well as increased demands on its internal systems, procedures and
controls. There can be no assurance that the Company will be able to effectively manage
its operations or future growth and expansion into new markets. Failure to do so could
have a material adverse effect on the Companys business, financial condition,
operating results and cash flows.

# Dependence on Key
Personnel

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

# Dependence on Selected
Vertical Markets

Prior to 1996,
substantially all of the Companys revenue was derived from the sale of products and
services to customers in the utility market. For the years ended December 31, 1997 and
1996, the utility market accounted for greater than 50% of the Companys revenue. In
those years, the Company sought to reduce its reliance on the utility market by developing
or acquiring compatible products for organizations with mobile workforces in other
vertical markets. In 1998, the utility market accounted for greater than 40% of the
Companys revenue. In 1999, the telecommunications market accounted for 54% of the
Companys revenue. In 2000 the telecommunications and cable/broadband markets
accounted for greater than 53% of the Companys revenue. In 2001 the utility market
accounted for over 70% of the Companys revenue. The Company anticipates that a
significant portion of its future revenue will be generated by sales of products to the
telecommunications, cable/broadband and utility markets and that recent economic
developments and trends have adversely affected and may continue to adversely affect
levels of capital spending by companies in a variety of industries, including the vertical
markets MDSI serves. The Company believes that these and other factors may cause potential
and existing customers to delay or defer purchasing decisions or seek to terminate or
delay payment under existing contracts for the Companys products and services. Such
factors may also increase the amount of doubtful accounts or adversely affect the
likelihood of collection of such accounts. See Forward-Looking Statements. A
decline in demand for the Companys products in these markets as a result of economic
conditions, competition, technological change or otherwise, would have a material adverse
effect on the Companys business, financial condition, operating results and cash
flows. There can be no assurance that the Company will be able to continue to diversify
its product offerings or revenue base by entering into new vertical markets.

# Dependence on Marketing
Relationships

The Companys
products are marketed by the Companys direct field sales force as well as by third
parties that act as lead generators or with whom the Company acts together as a
co-marketer or co-seller. The Companys

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

# Competition

The markets for mobile
workforce management applications, wireless connectivity software, mobile data network
equipment and mobile computing devices are highly competitive. Numerous factors affect
MDSIs competitive position, including price, product features, product performance
and reliability, ease of use, product scalability, product availability on multiple
platforms (server, wireless carrier, and mobile workstation), ability to implement mobile
workforce management solutions domestically and internationally while meeting customer
schedules, integration of products with other enterprise solutions, availability of
project consulting services and timely ongoing customer service and support. Within these
markets, there are a small number of new ventures, either small companies attempting to
establish a business in this market or large companies attempting to diversify their
product offerings. MDSI expects such competition to intensify as acceptance and awareness
of mobile data communications and technology continue. See Forward Looking
Statements. In addition, a small number of MDSIs potential customers develop
software solutions internally, thereby eliminating the requirement for suppliers such as
MDSI. Current or potential competitors may establish cooperative arrangements among
themselves or with third parties to increase the ability of their products to address
customer requirements. Certain of MDSIs competitors have substantially greater
financial, technical, marketing and distribution resources than MDSI. As a result, they
may be able to respond more quickly to new or emerging technologies and changing customer
requirements, or to devote greater resources to the development and distribution of
existing products. There can be no assurance that MDSI will be able to compete
successfully against current or future competitors or alliances of such competitors, or
that competitive pressures faced by MDSI will not materially adversely affect its
business, financial condition, operating results and cash flows.

The Company primarily
competes in the utilities market with Utility Partners, L.C. (which recently emerged
from Chapter 11 bankruptcy), M3i Systems, Inc. (which was
recently purchased by Cognicase, Inc.), Integraph Corporation, Axiom Corporation, Oracle,
e-Mobile Data Inc. (which was recently purchased by Itron) and iMedeon, Inc (which has
recently merged with ViryaNet Ltd.). The Company has several competitors in the
telecommunications and cable/broadband markets. The Companys primary competitor for
telecommunications customers is Telcordia Technologies Inc. (formerly Bellcore), a company
which has historical relationships with certain of the large telecommunications companies,
and more recently ClickSoftware, Inc. (formerly IET), Accenture FFE  and ViryaNet Ltd.,
which the Company mostly sees as competition for small accounts. In the
cable/broadband market, the Companys primary competitors are Telcordia,
C-Cor.net Corp. (formerly MobileForce Technologies, Inc.), PointServe Inc.
(through its merger with Brazen Software Inc.), CSG Systems International Inc.,
Accenture FFE  and Viryanet Ltd., again only for small accounts.

The Company believes
that the principal competitive factors in the commercial field service market are the
ability to improve the customer service aspects of an organizations business and
increase the productivity of service representatives. In this market, MDSI
sells a wireless establishment product, called MDSI ideligo, that is a subset of
Advantex.  MDSI ideligo provides a mobile extension of selected field service
application vendors' solutions.  The initial implementation has been with Siebel
Systems' full service offering.

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

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# Risk of Product Defects and
Implementation Failure

Software  products,  including those offered by the Company,  from  time-to-time
contain undetected errors or ommissions.  Software  products,  when implemented,
installed,  configured  and  customized,  may also fail to perform  according to
customer  expectations  due to the failure by the  customer to properly  specify
its system  requirements,  failure by the  customer  to  properly  operate or
interact with the system, operator error, technical problems associated with the
customer's  host system,  or the resistance of the  customer's  workforce to the
adoption of new technology.  In addition,  software products may fail to perform
according to  expectations  due to the failure by the Company to properly design
the system to  operate  in the  environment,  infrastructure  or  communications
network in which the  product  is to be used.  There can be no  assurance  that,
despite  testing by the Company and by current and potential  customers,  errors
will not be found in the  Company's  products  or that  such  products  will not
perform  according to  expectations  with respect to response  time,  ability to
communicate over multiple networks, scalability, stability and ease of use. Such
errors and failures could result in loss of or delay in market acceptance of the
Company's  products,   the  cancellation  of  contracts  or  the  imposition  of
substantial  penalties,  any of which could have a material adverse effect on the
Company's business, financial condition, operating results and cash flows

# Proprietary Technology

The Companys
success is dependent on its ability to protect its intellectual property rights. The
Company relies principally upon a combination of copyright, trademark, trade secret and
patent laws, non-disclosure agreements and other contractual provisions to establish and
maintain its rights. To date, the Company has been granted trademark registrations or has
registrations pending in the United States, Canada and the European Community for the
MDSI, Advantex, Wireless@work and Compose trademarks. MDSI has also filed United States
and international patent applications covering various aspects of its technology. As part
of its confidentiality procedures, the Company generally enters into nondisclosure and
confidentiality agreements with each of its key employees, consultants, distributors,
customers and corporate partners, to limit access to and distribution of its software,
documentation and other proprietary information. There can be no assurance that the
Companys efforts to protect its intellectual property rights will be successful.
Despite the Companys efforts to protect its intellectual property rights,
unauthorized third parties, including competitors, may be able to copy or reverse engineer
certain portions of the Companys software products, and use such copies to create
competitive products. Policing the unauthorized use of the Companys products is
difficult, and, while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to continue. In addition, the
laws of certain countries in which the Companys products are or may be licensed do
not protect its products and intellectual property rights to the same extent as do the
laws of Canada and the United States. As a result, sales of products by the Company in
such countries may increase the likelihood that the Companys proprietary technology
is infringed upon by unauthorized third parties. In addition, because third parties may
attempt to develop similar technologies independently, the Company expects that software
product developers will be increasingly subject to infringement claims as the number of
products and competitors in the Companys industry segments grow and the
functionality of products in different industry segments overlaps. See
Forward-Looking Statements. Although the Company believes that its products do
not infringe on the intellectual property rights of third parties, there can be no
assurance that third parties will not bring infringement claims (or claims for
indemnification resulting from infringement claims) against the Company with respect to
copyrights, trademarks, patents and other proprietary rights. Any such claims, whether
with or without merit, could be time consuming, result in costly litigation and diversion
of resources, cause product shipment delays or require the Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all. A claim of product infringement
against the Company and failure or inability of the Company to license the infringed or
similar technology could have a material adverse effect on the Companys business,
financial condition, operating results and cash flows.

# Dependence on Third
Parties

Certain contracts
require the Company to supply, coordinate and install third party products and services.
The Company believes that there are a number of acceptable vendors and subcontractors for
most of its required products, but in many cases, despite the availability of multiple
sources, the Company may select a single source in order to maintain quality control and
to develop a strategic relationship with the supplier or may be directed by a customer to
use a particular product. The failure of a third party supplier to provide a sufficient
and reliable supply of parts and components or products and services in a timely manner could have a
material adverse effect on the Companys results of operations. In addition, any
increase in the price of one or more of these products, components or services could have
a material adverse effect on the Companys business, financial condition, operating
results and cash flows. Additionally, under certain circumstances, the Company supplies
products and services to a customer through a larger company with a more established
reputation acting as a project manager or systems integrator. In

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such circumstances, the Company has a
sub-contract to supply its products and services to the customer through the prime
contractor. In these circumstances, the Company is at risk that situations may arise
outside of its control that could lead to a delay, cost over-run or cancellation of the
prime contract which could also result in a delay, cost over-run or cancellation of the
Companys sub-contract. The failure of a prime contractor to supply its products and
services or perform its contractual obligations to the customer in a timely manner could
have a material adverse effect on the Companys financial condition, results of
operations and cash flows.

# Exchange Rate
Fluctuations

Because the
Companys reporting and functional currency is the United States dollar, its
operations outside the United States face additional risks, including fluctuating currency
values and exchange rates, hard currency shortages and controls on currency exchange. The
Company has operations outside the United States and is hedged, to some extent, from
foreign exchange risks because of its ability to purchase, develop and sell in the local
currency of those jurisdictions. In addition, the Company does enter into foreign currency
contracts under certain circumstances to reduce the Companys exposure to foreign
exchange risks. There can be no assurance, however, that the attempted matching of foreign
currency receipts with disbursements or hedging activities will adequately moderate the
risk of currency or exchange rate fluctuations which could have a material adverse effect
on the Companys business, financial condition, operating results and cash flows. In
addition, to the extent the Company has operations outside the United States, the Company
is subject to the impact of foreign currency fluctuations and exchange rate charges on the
Companys reporting in its financial statements of the results from such operations
outside the United States.

# Risks Associated with
International Operations

In the years ended
December 31, 2001, 2000, and 1999 revenue derived from sales outside of North America
accounted for approximately 23.8%, 23.7%, and 24.8%, respectively, of the Companys
total revenue. Because the Companys revenue is dependent, in large part, on
significant contracts with a limited number of customers, the percentage of the
Companys revenues that is derived from sales outside of North America has
fluctuated, and may continue to fluctuate, from period-to-period. The Company believes
that its ability to grow and be profitable will require additional expansion of its sales
in foreign markets, and that revenue derived from international sales will account for a
significant percentage of the Companys revenue for the foreseeable future. This
expansion has required and will continue to require significant management attention and
financial resources. The inability of the Company to expand international sales in a
timely and cost-effective manner could have a material adverse effect on the
Companys business, financial condition, operating results and cash flows. There are
a number of risks inherent in the Companys international business activities,
including changes in regulatory requirements, tariffs and other trade barriers, costs and
risks of localizing products for foreign markets, longer accounts receivable payment
cycles, difficulties in collecting payments, reduced protection for intellectual property,
potentially adverse tax consequences, limits on repatriation of earnings, the burdens of
complying with a wide variety of foreign laws, nationalization, war, insurrection,
terrorism and other political risks and factors beyond the Companys control.
Fluctuations in currency exchange rates could adversely affect sales denominated in
foreign currencies and cause a reduction in revenue derived from sales in a particular
country. In addition, revenue of the Company earned abroad may be subject to taxation by
more than one jurisdiction, thereby adversely affecting the Companys earnings. There
can be no assurance that such factors will not materially adversely affect the
Companys future international sales and, consequently, the Companys business,
financial condition, operating results and cash flows.

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

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# Product Liability

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

# Anti-Takeover Effects; Investment Canada Act

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

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

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

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

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# Market for the Common
Shares; Potential Volatility of Stock Price

The
trading prices of the Common Shares have been subject to wide fluctuations since trading
of the Companys shares commenced in December 1995. There can be no assurance that
the market price of the Common Shares will not significantly fluctuate from its current
level. The market price of the Common Shares may be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in financial
estimates by securities analysts, or other events or factors. In addition, the financial
markets have experienced significant price and volume fluctuations for a number of
reasons, including the failure of the operating results of certain companies to meet
market expectations that have particularly affected the market prices of equity
securities of many high-technology companies that have often been unrelated to the
operating performance of such companies. These broad market fluctuations, or any
industry-specific market fluctuations, may adversely affect the market price of the
Common Shares. In the past, following periods of volatility in the market price of a
companys securities, securities class action litigation has often been instituted
against such a company. Such litigation, whether with or without merit, could result in
substantial costs and a diversion of managementattention and resources, which would
have a material adverse effect on the Companys business, financial condition,
operating results and cash flows.