EXHIBIT 99.1


                   Safe Harbor for Forward Looking Statements

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

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

     When evaluating MDSI's business, you should consider:

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

     |_|  the risk factors described in the Company's Annual report for the year
          ended  December  31,  1999  filed  with the  Securities  and  Exchange
          Commission; and

     |_|  the risk factors described below.

Risk Factors

     The Company's  business is subject to the following risks. These risks also
could cause actual results to differ  materially  from results  projected in any
forward-looking statement in this report. 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,  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,  the mix of  international  and  North  American
revenue,  tax policies,  foreign  currency  exchange rates and general  economic
conditions.

     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 and delays  caused by  customers.  Because the  Company  currently
recognizes revenue on a percentage of completion method, delays in completion of
certain contracts has caused delays in recognition of revenue and, consequently,
unanticipated  fluctuations in quarterly results. 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 effected.


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As a result, net income may be disproportionately  affected because a relatively
small amount of the Company's expenses vary with its revenue. In particular, the
Company  plans to increase its operating  expenses to implement  its  e-Business
strategy,  expand its sales and marketing  operations,  expand its  distribution
channels, fund greater levels of research and development,  broaden its customer
support capabilities and increase its administrative  resources.  The Company is
in the process of implementing its e-Business strategy,  which it anticipates it
will receive revenues on a month-to-month or per-transaction  basis. The Company
anticipates that costs associated with implementing its e-Business strategy will
increase  the  Company's  operating  expenses and may not be offset by increased
revenue until the Company  successfully  penetrates the market for its ASP-based
service.  There can be no assurance that the Company will effectively compete in
this market or receive  sufficient  revenues from its  e-Business to offset such
costs.

         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 its rate of revenue  growth on a quarterly
or  annual  basis.  It is  likely  that in some  future  quarter  the  Company's
operating  results will be below the  expectations of public market analysts and
investors.  See "Forward  Looking  Statements".  In such event, the price of the
Company's Common Shares would likely be materially adversely affected.

         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, 1999, 1998 and 1997, 12.9%, 27.7% and 28.6%, respectively,  of the Company's
revenue was  attributable  to third party  products and services.  For the three
month periods ended September 30, 2000 and 1999,  6.2% and 10.7%,  respectively,
of the Company's  revenue was attributable to third party products and services.
Because  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.

         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.

Lengthy Sales Cycles for Advantex Products

         The  purchase  of a mobile  workforce  management  solution is often an
enterprise-wide  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


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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,  the Company has recently experienced
an increase in the time  necessary  to complete the  negotiation  and signing of
certain contracts with some of its larger 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, 1999,
1998 and 1997,  approximately  36.6%,  32.6%  and  42.5%,  respectively,  of the
Company's  consolidated  revenue was  attributable  to five or fewer  customers.
During the years ended December 31, 1999, 1998 and 1997, one customer  accounted
for 12.2%, 9.1% and 14.4%, 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,  properly manage a
project or efficiently  allocate  resources among several  projects could have a
material  adverse  effect  on  the  Company's  business,   financial  condition,
operating results and cash flows.

Potential Fluctuations in Backlog

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

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. Due to non-recurring charges of $4.6 million,


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including  $795,000 with respect to  restructuring  certain  operations and $3.8
million due to changes in  estimates  to complete  certain  contracts  in the UK
operations taken in September 1997,  restructuring and reorganization charges of
$1.5  million  and  $503,000,   respectively,   taken  in  connection  with  the
reorganization  of the Company and the  acquisition of TelSoft in December 1995,
and  write-offs  of $6.2  million and $7.2  million for  acquired  research  and
development  taken in connection  with the  acquisitions of MDSI UK in September
1996 and Alliance effective April 1997,  respectively,  the Company incurred net
losses of $8.4  million,  $4.4  million,  and $1.1  million  in the years  ended
December 31, 1997,  1996 and 1995,  respectively.  As of December 31, 1999,  the
Company had an  accumulated  deficit of $9.1  million,  and as of September  30,
2000, the Company had an accumulated deficit of $10.5 million.

     Although the Company was profitable in its most recently  completed  fiscal
year,  there can be no assurance  that, in the future,  the Company will realize
revenue growth or be profitable on a quarterly or annual basis. In addition, the
Company  plans to increase its operating  expenses to implement  its  e-Business
strategy,  expand its sales and  marketing  operations,  fund greater  levels or
research and development, broaden its customer support capabilities and increase
its  administration  resources.  A relatively  high  percentage of the Company's
expenses is typically  fixed in the short term as 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 would
be materially adversely affected.  In addition,  in view of the Company's recent
revenue growth,  the rapidly  evolving  nature of its business and markets,  the
Company's  limited operating  history and the 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 restructuring costs and
acquired  research and  development  costs,  all of which could  materially  and
adversely affect the Company's  financial  condition,  results of operations and
cash flows.

New Product Development

     The Company  expects that a significant  portion of its future revenue will
be derived from the sale of newly  introduced  products 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.  See  "Forward-Looking
Statements."



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e-Business Development

     The Company  intends to provide access to its mobile  workforce  management
and wireless connectivity application software products over the Internet from a
wirelessly-enabled  ASP  site  on a  subscription  or "per  transaction"  basis.
Currently the Company  dervives  e-Business  revenue from consulting and hosting
services;  the Company  anticipates  it will not realize  revenues  from its new
e-Business products prior to the first quarter of 2001. The Company's e-Business
products  are  targeted  at  Internet  intermediaries  who offer a wide range of
services,  including  home  services  to  consumers  and small and  medium-sized
businesses. The Company anticipates that its operating expenses will increase as
the Company  establishes a comprehensive 7 day, 24 hour customer service support
center  to  provide  various  levels  of  customer  support  for its  e-Business
customers and increases its development and marketing efforts.  The Company does
not currently have any  e-Business  customers,  operating on a commercial  basis
although  field trials have  commenced,  and there can be no assurance  that the
Company will successfully  implement its e-Business strategy.  There also can be
no  assurance  that the  Company  will be able to compete  successfully  against
current  or  future  competitors  or  alliances  of  such  competitors,  or that
competitive  pressures faced by the Company will not materially adversely affect
its business, financial condition, operating results and cash flows.

Management of Growth

     Since its inception,  the Company has  experienced  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 nine employees in Canada in February 1993 to 556 employees located in
Canada,  the United  States and other  international  locations at September 30,
2000. In addition, the recent acquisition of Connectria has increased the number
of products the Company supports and markets,  as well as the number of vertical
markets into which it sells products. The Company has also recently expanded the
geographical  areas in which it operates.  The Company  believes that  continued
growth in the number and  complexity  of products and in the number of personnel
will be required to maintain the Company's competitive  position.  The Company's
rapid growth,  coupled with the rapid  evolution of the Company's  markets,  has
placed,  and  is  likely  to  continue  to  place,  significant  strains  on its
management,  administrative,  operational  and financial  resources,  as well as
increased  demands  on  its  internal  systems,  procedures  and  controls.  The
Company's ability to manage recent and future growth will require the Company to
continue to improve its financial and management controls, reporting systems and
procedures  on a timely  basis,  to implement  new systems as  necessary  and to
expand, train, motivate and manage its sales and technical personnel.  There can
be no assurance that the Company will be able to manage its growth successfully.
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.  The Company  intends to hire a significant
number  of  additional  technical  and sales  personnel  in the next  year.  See
"Forward-Looking  Statements."  Competition  for such personnel is intense,  and
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. The loss of
the services of any of the Company's senior management or other key employees or
the  inability  to  attract  and  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


<PAGE>


telecommunications  market  accounted  for  48% 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   market.   See
"Forward-Looking  Statements." A decline in demand for the Company's products in
the  utility  or   telecommunications   markets  as  a  result  of  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 resellers.  The Company's existing agreements with resellers
of its products 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
resellers  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 resellers,  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.

     The  Company  intends to market its  e-Business  products  through a direct
sales force, and through  marketing  relationships  with ASP's that are offering
end-to-end  suites of operating  solutions to MDSI's targeted  vertical markets,
wireless carriers and operators of Internet sites that aggregate smaller service
providers  for home  services.  The  Company  anticipates  that these  marketing
relationships will be nonexclusive and may be terminated by either party without
cause. There can be no assurance that the Company's e-Business solutions will be
compatible with these  marketing  partners or that they will not emphasize their
own or  third-party  products to the  detriment of the Company's  products.  The
Company's  failure to enter into  marketing  relationships,  the  failure of the
parties to perform  under these  agreements  or the  inability of the Company to
provide  effective  e-Business  solutions  successfully  could  have 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  the  Company'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.  The
Company  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 the Company's  potential customers
develop software solutions  internally,  thereby eliminating the requirement for
suppliers such as the Company.  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 the
Company's competitors have substantially greater financial, technical, marketing
and distribution  resources than the Company.  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 the Company will be able to
compete  successfully against current or future competitors or alliances of such
competitors,  or that  competitive  pressures  faced  by the  Company  will  not
materially


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adversely affect its business,  financial condition,  operating results and cash
flows.  The  Company  primarily  competes in the  utility  market  with  Utility
Partners,  L.C.,  M3i Systems,  Inc.  and iMedeon,  Inc. The Company has several
competitors in the  telecommunications  market,  a few of which have  historical
relationships  with  certain  of the  large  telecommunications  companies.  The
Company's primary competitor for telecommunications  customers are is Telcordia.
The  Company's  principal  competitors  in the  cable  market  are  Telcordia  ,
MobileForce  Technologies,  Inc. and ClickSoftware,  Inc. (formerly IET). In the
general field service  market,  the Company's  principal  competitors  are Astea
International  Inc. and Metrix Inc. In the public safety  market,  the Company's
principal competitors are Cerulean,  PRC, Tiberon Systems and New World Systems.
The  Company's  e-Business  will  face  competition  from a number  of  existing
competitors  and  emerging   Internet-based   competitors,   including  iMedeon,
ClickSoftware, Inc., FieldCentrix, eDispatch, PointServe, ServeClick and X-Time.

Risk of Product Defects

     Software   products,   including   those  offered  by  the  Company,   from
time-to-time  contain  undetected errors or failures.  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.  Such errors could result in
loss of or delay in market  acceptance  of the Company's  products,  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  and  Compose  marks.   Other  than  one  patent  pending  for  certain
technology,  MDSI has not sought patent protection for its products.  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.



<PAGE>


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  supply of parts and  components or products and services in a timely
manner  could  have a  material  adverse  effect  on the  Company's  results  of
operations.  In  addition,  any  increase  in the  price of one or more of these
products,  components or services  could have a material  adverse  effect on the
Company's  business,  financial  condition,  operating  results  and cash flows.
Additionally,  under certain  circumstances,  the Company supplies  products and
services  to a  customer  through  a  larger  company  with a  more  established
reputation  acting  as  a  project  manager  or  systems  integrator.   In  such
circumstances,  the  Company  has a  sub-contract  to supply  its  products  and
services to the customer through the prime contractor.  In these  circumstances,
the Company is at risk that  situations  may arise  outside of its control  that
could lead to a delay, cost over-run or cancellation of the prime contract which
could also result in a delay,  cost  over-run or  cancellation  of the Company's
sub-contract.  The  failure of a prime  contractor  to supply its  products  and
services  or perform its  contractual  obligations  to the  customer in a timely
manner  could  have  a  material  adverse  effect  on  the  Company's  financial
condition, results of operations and cash flows.

Exchange Rate Fluctuations

     Because the Company's  reporting  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, 1999,  1998 and 1997 revenue  derived from
sales  outside of North  America  accounted for  approximately  24.8%,  3.4% and
10.1%,  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 continued growth
and  profitability  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.



<PAGE>


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.

Concentration of Stock Ownership; Anti-Takeover Effects; Investment Canada Act

     The Company's directors,  officers and their respective affiliates,  in the
aggregate,  beneficially  own  approximately  24.6%  of the  outstanding  Common
Shares.  As a result,  these  shareholders,  if acting together,  may be able to
exercise  significant  influence  over the  Company and many  matters  requiring
shareholder  approval,  including  the  election of  directors  and  approval of
significant  corporate  transactions.  Such concentration of ownership may under
certain circumstances also have the effect of delaying,  deferring or preventing
a change in control of the Company.

     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 "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 may differ
materially from the financial statements filed by the Company in Canada.

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


<PAGE>


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's attention and resources, which
would  have a  material  adverse  effect on the  Company's  business,  financial
condition, operating results and cash flows.