EXHIBIT 99.1


                           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.

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. 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



<PAGE>

     development,  broaden its customer  support  capabilities  and increase its
administrative  resources.  The  Company  has also  implemented  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 June 30, 2000 and 1999,  4.8% and 12.0%,  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  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.



                                      -2-
<PAGE>

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,  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 June 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 June 30, 2000, the Company had an accumulated deficit of
$11 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,



                                      -3-
<PAGE>

the Company plans to increase its operating expenses to implement its e-Business
strategy,  expand its sales and  marketing  operations,  fund greater  levels of
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  issuances  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."

e-Business Development

     The  Company  intends  to sell its  Advantex  family  of  mobile  workforce
management  and wireless  connectivity  application  software  products over the
Internet from a wirelessly-enabled ASP site on subscription or "per transaction"
basis. The Company's e-Business products are targeted at Internet intermediaries
who offer a wide range of services,  including  home  services that 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,
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



                                      -4-
<PAGE>

markets and product distribution  channels. The total number of employees of the
Company  has  grown  from nine  employees  in  Canada  in  February  1993 to 453
employees located in Canada, the United States and other international locations
at December  31,  1999.  In  addition,  the recent  acquisition  of Alliance 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  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.



                                      -5-
<PAGE>

     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  (both server 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 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 Alterra Corp.  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 Lucent
Technologies,  Inc. and Telcordia.  The Company's  principal  competitors in the
cable market are Telcordia  and  MobileForce  Technologies,  Inc. 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  iMedion,
ClickService (formerly IET), 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



                                      -6-
<PAGE>

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  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.



                                      -7-
<PAGE>

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.

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  21.0%  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 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



                                      -8-
<PAGE>

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  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.





                                      -9-