---

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

_________________

# FORM 10-Q

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

| | For
the quarterly period ended September 30, 2004
| | -------------------------------------------------

# OR

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

| | For
the transition period from ___________________ to ______________________.
| | -----------------------------------------------------------------------------

Commission file number
0-28968

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

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

10271 Shellbridge Way 
Richmond, British Columbia, 
Canada V6X 2W8 
(604) 207-6000(Address and telephone number of registrants principal executive offices)

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    
Yes  X       No

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act.
Yes         No  
X

The number of
outstanding shares of the Registrants
common stock, no par value, at November 9, 2004 was 8,349,721

---

# MDSI Mobile Data
Solutions Inc.
INDEX TO THE FORM 10-Q 

For the quarterly period ended September 30, 2004

|                             |                                                                                       |                                                      |    | Page
|---------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------- | -- | ----
|Part IFINANCIAL INFORMATION |                                                                                       |                                                     
|ITEM 1.                      | FINANCIAL STATEMENTS (UNAUDITED)                                                      |                                                      |   
|                             |                                                                                       | Condensed Consolidated Balance Sheets                |    | 1   
|                             |                                                                                       | Condensed Consolidated Statements of Operations      |    | 2   
|                             |                                                                                       | Condensed Consolidated Statements of Cash Flows      |    | 3   
|                             |                                                                                       | Notes to Condensed Consolidated Financial Statements |    | 4   
|ITEM 2.                      | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                      | 11
|ITEM 3.                      | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |                                                      | 23
|ITEM 4.                      | CONTROLS AND PROCEDURES                                                               |                                                      | 25
|Part IIOTHER INFORMATION    |                                                                                       |                                                     
|ITEM 6.                      | EXHIBITS                                                                              |                                                      | 27
|SIGNATURES                   |                                                                                       | 29                                                  

---

Part I  FINANCIAL INFORMATIONITEM 
ITEM 1.   FINANCIAL STATEMENTS

MDSI MOBILE DATA SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
(Unaudited)

|                                                              | As at
|------------------------------------------------------------- | -----
|
|                                                              |      
|ASSETS                                                        |      
|CURRENT ASSETS                                                |      
|Cash and cash equivalents                                     |      
|Accounts receivable, net trade (net of allowance for doubtful |      
|accounts of $302,284; 2003 - $2,792,415)                      |      
|Unbilled                                                      |      
|Prepaid expenses and other assets                             |      
|                                                              |      
|                                                              |      
|                                                              |      
|CAPITAL ASSETS, NET                                           |      
|DEFERRED TAXES                                                |      
|                                                              |      
|TOTAL ASSETS                                                  |      
|                                                              |      
|LIABILITIES AND STOCKHOLDERS' EQUITY                          |      
|CURRENT LIABILITIES                                           |      
|Accounts payable                                              |      
|Accrued liabilities                                           |      
|Accrued restructuring charges (note 4)                        |      
|Income taxes payable                                          |      
|Deferred revenue                                              |      
|Current obligations under capital lease                       |      
|                                                              |      
|                                                              |      
|                                                              |      
|OBLIGATIONS UNDER CAPITAL LEASES                              |      
|                                                              |      
|TOTAL LIABILITIES                                             |      
|                                                              |      
|Commitments and Contingencies (note 5)                        |      
|                                                              |      
|STOCKHOLDERS' EQUITY                                          |      
|Common Stock                                                  |      
|Additional paid-up capital                                    |      
|Deficit                                                       |      
|Accumulated other comprehensive loss                          |      
|                                                              |      
|                                                              |      
|                                                              |      
|TOTAL LIABILIES AND STOCKHOLDERS' EQUITY                      |      
|                                                              |      

See Notes to
Condensed Consolidated Financial Statements

-1-

---

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

|                                  | Three months ended September 30, | Nine months ended September 30,
|--------------------------------- | -------------------------------- | -------------------------------
|                                  |                                  |                                
|
|                                  |                                  |                                
|REVENUE                           |                                  |                                
|Software and services             |                                  | $   7,604,844                  
|Maintenance and support           |                                  | 4,466,617                      
|Third party products and services |                                  | 624,800                        
|                                  |                                  |                                
|                                  |                                  | 12,696,261                     
|                                  |                                 
|DIRECT COSTS                      |                                  | 5,867,101                      
|                                  |                                  |                                
|GROSS PROFIT                      |                                  | 6,829,160                      
|                                  |                                  |                                
|                                  |                                 
|OPERATING EXPENSES                |                                 
|Research and development          |                                  | 1,924,431                      
|Sales and marketing               |                                  | 2,209,246                      
|General and administrative        |                                  | 1,639,836                      
|Bad Debts expense                 |                                  | --                             
|Strategic expenses (note 7)       |                                  | 220,000                        
|Restructuring charge (note 4)     |                                  | 1,500,000                      
|                                  |                                  |                                
|                                  |                                  | 7,493,513                      
|                                  |                                  |                                
|                                  |                                 
|OPERATING LOSS                    |                                  | (664,353                       
|                                  |                                 
|OTHER EXPENSES                    |                                  | (265,100                       
|                                  |                                  |                                
|LOSS FROM OPERATIONS              |                                 
|BEFORE TAX PROVISION              |                                  | (929,453                       
|                                  |                                 
|PROVISION FOR INCOME TAXES        |                                  | 248,875                        
|                                  |                                  |                                
|NET LOSS FOR THE PERIOD           |                                  | (1,178,328                     
|                                  |                                 
|DEFICIT, BEGINNING OF PERIOD      |                                  | (30,639,062                    
|                                  |                                  |                                
|DEFICIT, END OF PERIOD            |                                  | $(31,817,390                   
|                                  |                                  |                                
|Loss per common share (note 3)    |                                 
|                                  |                                 
|Net Loss per common share         |                                 
|Basic and diluted                 |                                  | $         (0.14                
|                                  |                                  |                                

See Notes to
Condensed Consolidated Financial Statements

-2-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Expressed in United States Dollars)
(Unaudited)

|                                              | Three months ended September 30, | Nine months ended September 30,
|--------------------------------------------- | -------------------------------- | -------------------------------
|                                              |                                  |                                
|
|                                              |                                  |                                
|CASH FLOWS FROM OPERATINGACTIVITIES           |                                  |                                
|Net Loss                                      |                                  | $(1,178,328                    
|Items not affecting cash:                     |                                 
|Depreciation                                  |                                  | 412,170                        
|Deferred taxes                                |                                  | --                             
|Stock based compensation charge               |                                  | 48,921                         
|Changes in non-cash operating working capital |                                 
|items (note 6)                                |                                  | 1,335,877                      
|                                              |                                  |                                
|Net cash provided by operating activities     |                                  | 618,640                        
|                                              |                                  |                                
|                                              |                                 
|CASH FLOWS FROM FINANCINGACTIVITIES           |                                 
|Issuance of common shares                     |                                  | 25,983                         
|Repayment of capital leases                   |                                  | (240,132                       
|                                              |                                  |                                
|                                              |                                  | (214,149                       
|                                              |                                 
|CASH FLOWS FROM INVESTINGACTIVITIES           |                                 
|Acquisition of capital assets                 |                                  | (275,101                       
|                                              |                                  |                                
|Net cash used in investing activity           |                                  | (275,101                       
|                                              |                                  |                                
|NET CASH INFLOW                               |                                  | 129,390                        
|                                              |                                 
|CASH AND CASH EQUIVALENTS,BEGINNING OF PERIOD |                                  | 18,750,990                     
|                                              |                                  |                                
|CASH AND CASH EQUIVALENTS,END OF PERIOD       |                                  | $ 18,880,380                   
|                                              |                                  |                                

See Notes to
Condensed Consolidated Financial Statements

-3-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

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

|1. |  | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

| | (a) |  | Basis
of presentation
| | --- |  | ---------------------

| | These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial reporting and
pursuant to the instructions of the United States Securities and Exchange Commission (SEC)
Form 10-Q and Article 10 of Regulation S-X.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | While
these financial statements reflect all normal recurring adjustments which are, in the
opinion of management, necessary for fair presentation of the results of the interim
period, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the financial statements and footnotes thereto included in the
Annual Report of MDSI Mobile Data Solutions Inc. (the Company or MDSI)
filed on Form 10-K for the year ended December 31, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Use
of estimates
| | --- |  | ----------------

| | The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting periods. Estimates are used for, but not limited to, the accounting for
doubtful accounts, amortization, determination of the net recoverable value of assets,
revenue recognized on long term contracts, taxes and contingencies. Actual results could
differ from those estimates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | Revenue
recognition
| | --- |  | -------------------

| | We
recognize revenue in accordance with the American Institute of Certified Public
Accountants Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions, SOP 81-1,
Accounting for Performance of Construction-type and Certain Production-type
Contracts, the SECs Staff Accounting Bulletin (SAB) No. 104 (SAB
104), Revenue Recognition, and other authoritative accounting
literature. We derive revenues from the following sources: license fees, professional
services, maintenance and support fees and third party products and services.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
generally provide services with our supply agreements that include significant
production, modification, and customisation of the software. These services are not
separable and are essential to the functionality of the software, and as a result we
account for these licence and service arrangements under SOP 81-1 using the percentage of
completion method of contract accounting.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | License
Fees and Professional Services
| | --------------------------------------

| | Our
supply agreements generally include multiple products and services, or elements. We
use the residual method to recognize revenue when a supply agreement includes one or more
elements to be delivered at a future date and vendor specific objective evidence of the
fair value of all undelivered elements exists. The fair value of the undelivered elements
is determined based on the historical evidence of stand-alone sales, or renewal terms of
these elements to customers. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the arrangement fee, which relates to
the license and implementation services, is recognized as revenue on a percentage of
completion basis. If evidence of the fair value of one or more undelivered elements does
not exist, the total revenue is deferred and recognized when delivery of those elements
occurs or when fair value is established.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-4-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

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

|1. |  | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------

| | (c) |  | Revenue
recognition (continued)
| | --- |  | -------------------------------

| | We
estimate the percentage of completion on contracts with fixed fees on a monthly basis
utilizing hours incurred to date as a percentage of total estimated man-days to complete
the project. If we do not have a sufficient basis to measure progress towards completion,
revenue is recognized when we receive final acceptance from the customer. When the total
cost estimate for a project exceeds revenue, we accrue for the estimated losses
immediately. The complexity of the estimation process and issues related to the
assumptions, risks and uncertainties inherent with the application of the
percentage-of-completion method of accounting affect the amounts of revenue and related
expenses reported in our consolidated financial statements. A number of internal and
external factors can affect our estimates, including labor rates, utilization and
efficiency variances and specification and testing requirement changes.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
are engaged on a continuous basis in the production and delivery of software under
contractual agreements. As a result we have developed a history of being able to estimate
costs to complete and the extent of progress toward completion of contracts, which
supports the use of the percentage of completion method of contract accounting.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Professional
services revenue primarily consists of consulting and customer training revenues, which
are usually charged on a time and materials basis and are recognized as the services are
performed. Revenue from certain fixed price contracts is recognized on a proportional
performance basis, which involves the use of estimates related to total expected man-days
of completing the contract derived from historical experience with similar contracts. If
we do not have a sufficient basis to measure the progress towards completion, revenue is
recognized when the project is completed or when we receive final acceptance from the
customer.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Maintenance
Revenue
| | -------------------

| | Generally,
maintenance is initially sold as an element of a master supply arrangement, with
subsequent annual renewals, and is priced as a percentage of new software license fees.
Maintenance revenue is recognized ratably over the term of the maintenance period, which
typically is one year. Maintenance and support revenue includes software license updates
that provide customers with rights to unspecified software product upgrades, maintenance
releases and patches released during the term of the support period. Product support
services also include Internet and telephone access to technical support personnel.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Historically,
we have provided a warranty phase during the supply agreement. Services provided during
this warranty phase include elements of maintenance and support. As a result we defer a
portion of the supply agreement fee, based on vendor specific objective evidence of the
value of these services, and recognize the deferred amount as revenue pro rata over the
warranty period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Third
party products and services
| | ---------------------------------

| | Revenue
from sales of third party products and services is recognized on delivery of the
products. Services are recognized on a percentage-complete basis. When software licenses
are sold incorporating third-party products or sold with third-party products, we
recognize as revenue the gross amount of sales of third-party product. The recognition of
gross revenue is in accordance with criteria established in Emerging Issues Task Force
Issue (EITF) No. 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
occasion, we utilize third-party consultants to assist in implementations or
installations originated by the Company. In these cases, in accordance with criteria
established in EITF No. 99-19 (as described above), the revenue for these implementations
and installations is typically recognized on a gross basis. In these cases, we ultimately
manage the engagement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-5-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

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

|1. |  | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------

| | (d) |  | Recently
issued accounting standards
| | --- |  | ------------------------------------

| | In
June 2004, the Financial Accounting Standards Board (FASB) issued an exposure
draft of a proposed Statement, Fair Value Measurements, to provide guidance
on how to measure the fair value of financial and non-financial assets and liabilities
when required by other authoritative accounting pronouncements. The proposed statement
attempts to address concerns about the ability to develop reliable estimates of fair
value and inconsistencies in fair value guidance provided by current US GAAP, by creating
a framework that clarifies the fair value objective and its application in GAAP. In
addition, the proposal expands disclosures required about the use of fair value to
remeasure assets and liabilities. The standard would be effective for financial
statements issued for fiscal years beginning after June 15, 2005. The Company is
currently assessing the impact this standard will have on the Companys consolidated
financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2004, the FASB ratified consensuses reached by the EITF with respect to EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments. EITF Issue No. 03-1 addresses recognition, measurement and
disclosure of other-than-temporary impairment evaluations for securities within the scope
of Statement of Financial Accounting Standard (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities, and equity securities that
are not subject to the scope of SFAS No. 115 and are not accounted for under the equity
method according to Accounting Principles Board Opinion No. 18, The Equity Method
of Accounting for Investments in Common Stock. The recognition and measurement
guidance is effective for reporting periods beginning after June 15, 2004. Disclosures
for cost method investments are required to be included in annual financial statements
prepared for fiscal years ending after June 15, 2004. The Company does not have any
significant cost method investments and therefore adoption is not expected to have a
significant impact on its consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, the SEC issued SAB No. 104, Revenue Recognition, which
supercedes SAB No. 101, Revenue Recognition in Financial Statements. The
primary purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related
to multiple element revenue arrangements, which was superceded as a result of the
issuance of EITF No. 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. SAB 104 also incorporated certain sections of the SECs Revenue
Recognition in Financial Statements  Frequently Asked Questions and Answers document.
While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the
revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB
104. The adoption of SAB 104 did not have an impact on the consolidated financial
statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) |  | Stock-based
compensation
| | --- |  | ------------------------

| | The
Company accounts for stock-based compensation using the intrinsic value based method
whereby compensation cost is recorded for the excess, if any, of the quoted market price
of the common share over the exercise price of the common stock option at the date
granted.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following pro forma financial information presents the net loss for the quarter and loss
per common share had the Company adopted SFAS No. 123 Accounting for Stock-based
Compensation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | Three months ended September 30, | Nine months ended September 30,
|-------------------------- | -------------------------------- | -------------------------------
|                           |                                  |                                
|
|                           |                                  |                                
|Net loss for the period    |                                  | $   (1,251,162                 
|                           |                                  |                                
|Basic and diluted loss per |                                 
|common share               |                                  | $            (0.15             
|                           |                                  |                                

-6-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

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

|1. |  | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------

| | Using
the fair value method for stock-based compensation, additional compensation costs of
approximately $72,834 would have been recorded for the three months ended September 30,
2004 (2003  $371,192), and $508,666 would have been recorded for the nine months
ended September 30, 2004 (2003  $1,067,322). This amount is determined using an
option pricing model assuming no dividends are to be paid, an average vesting period of
four years, average life of the option of 5 years, a weighted average annualized expected
volatility of the Companys share price of 47% and a weighted average annualized
risk free interest rate at 1.1%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | SEGMENTED
INFORMATION
|-- |  | ---------------------

| | The
Company operates in a single business segment, the Field Service business segment.
| | --------------------------------------------------------------------------------------

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

|                               | Three months ended September 30, | Nine months ended September 30,
|------------------------------ | -------------------------------- | -------------------------------
|                               |                                  |                                
|
|                               |                                  |                                
|Canada                         |                                  | $     269,528                  
|United States                  |                                  | 8,182,654                      
|Europe, Middle East and Africa |                                  | 4,159,947                      
|Asia and other                 |                                  | 84,132                         
|                               |                                  |                                
|                               |                                  | $12,696,261                    
|                               |                                  |                                

| | Major
customers
| | ---------------

| | During
the three months ended September 30, 2004 revenue from two customers accounted for
approximately 20.9% and 5.4% (2003  15.6% and 15.1%), respectively, of total
revenue. During the nine months ended September 30, 2004 revenue from two customers
accounted for approximately 18.8% and 10.7% (2003  16.8% and 13.8%), respectively,
of total revenue.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | LOSS
PER COMMON SHARE
|-- |  | ---------------------

| | Basic
loss per common share is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted earnings (loss) per share
is calculated by dividing net income (loss) by the sum of the weighted average number of
common shares outstanding plus all additional common shares that would have been
outstanding if potentially dilutive common shares had been issued. In periods for which
there is a reported net loss, potentially dilutive securities have been excluded from the
calculation, as their effect would be anti-dilutive.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                | Three months ended September 30, | Nine months ended September 30,
|------------------------------- | -------------------------------- | -------------------------------
|                                |                                  |                                
|
|                                |                                  |                                
|Basic weighted average shares   |                                  | 8,325,147                      
|outstanding                     |                                 
|Effect of dilutive securities;  |                                 
|Stock options                   |                                  | --                             
|Diluted weighted average shares |                                  | 8,325,147                      
|outstanding                     |                                 
|                                |                                  |                                

-7-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

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

|4. |  | RESTRUCTURING
CHARGE
|-- |  | --------------------

| | During
the three months ended September 30, 2004 the Company announced a restructuring plan
approved by the Companys Board of Directors to enable the Company to operate in a
more effective and efficient manner and reduce costs. The Company recorded a charge of
$1.5 million in connection with this restructuring. The $1.5 million charge relates to
costs of workforce reduction for approximately 30 affected employees, stock based
compensation charges and other related costs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at September 30, 2004 a provision of approximately $290,000 remained from a restructuring
charge taken in 2001. The remaining provision relates to excess space the Company has
under lease.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
breakdown of the nature of the restructuring charges and the costs incurred to date is as
follows:
| | ----------------------------------------------------------------------------------------------------

|                                                              | Total Restructuring Charge
|------------------------------------------------------------- | --------------------------
|                                                              |                           
|Workforce reduction                                           |                           
|Stock based compensation                                      |                           
|Other                                                         |                           
|                                                              |                           
|Total 2004 restructuring charges                              |                           
|Cumulative draw-down on 2004 charge                           |                           
|                                                              |                           
|2004 restructuring charge in accrued liabilities as at        |                           
|September 30, 2004                                            |                           
|Remaining accrual from 2001 restructuring charge relating to  |                           
|excess office space                                           |                           
|                                                              |                           
|Accrued restructuring charges included in current liabilities |                           
|at September 30, 2004                                         |                           
|                                                              |                           

| | The
Company recorded a charge of $1,385,000 related to employee separation costs as a result
of the elimination of approximately 30 positions made in an effort to increase efficiency
and reduce costs. As at September 30, 2004 cash disbursements of approximately $200,000
had been made related to this charge leaving an accrual of approximately $1,185,000
relating to workforce reduction.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has recorded a charge of $50,000 related to the changing of vesting conditions on
one employees stock options as a result of termination.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
restructuring costs of $65,000 relate to outplacement and related expenses the Company
expects to incur as a result of the September 2004 restructuring. As at September 30,
2004 no amounts had been paid in relation to these costs resulting in an accrual of
$65,000 as at September 30, 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company recorded a $1.9 million provision in 2001 relating to surplus office space under
long-term leases held by the Company at two locations. The Company has incurred
approximately $1.6 million of cash costs relating to this provision leaving an accrual of
$290,000 remaining as at September 30, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company expects that the restructuring charges will be substantially drawn down no later
than the second quarter of 2005.
| | -----------------------------------------------------------------------------------------------------------------------------

-8-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

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

|5. |  | COMMITMENTS
AND CONTINGENCIES
|-- |  | -----------------------------

| | (a) |  | Contingency
| | --- |  | -----------

| | From
time to time, the Company is a party to litigation and claims incident to the ordinary
course of its business. While the results of litigation and claims cannot be predicted
with certainty, the Company is not aware of any litigation or claims that would have a
material adverse effect on the Companys business, financial condition, operating
results and cash flows.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Commitment
| | --- |  | ----------

| | The
Company has entered into a significant customer contract in which the Company has agreed
to utilize a certain amount of local services and create a certain amount of commercial
activity in South Africa. The Company is required to utilize local content or obtain
credits equivalent to approximately $7.1 million over a seven-year period ending in May
2010. The Company has furnished a performance guarantee equal to approximately 5% of such
amounts. The Company expects to fulfill its obligation through a number of activities,
including the establishment of a software development center in South Africa, the
provision of technical services, and the provision of training to local systems
integrators who will be able to provide implementation services with respect to the
Companys software products. As the Company expects to fulfill its obligations
through the purchase of services in the normal course of business, no liability has been
established for these future spending commitments. The Companys obligations to
utilize local services and obtain related credits are expected to increase as a result of
recent contract expansions. However negotiations related to this increase have yet to be
completed.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | Letter
of credit
| | --- |  | ----------------

| | The
Company has also provided a letter of credit in the amount of CAD $1,400,000 (USD
$1,102,000) expiring October 1, 2005. The Company has pledged an amount equal to the
letter of credit as a guarantee against its operating line of credit as security.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) |  | Indemnification
| | --- |  | ---------------

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

|6. |  | CHANGES
IN NON-CASH OPERATING WORKING CAPITAL ITEMS
|-- |  | ---------------------------------------------------

|                                         | Three months ended September 30, | Nine months ended September 30,
|---------------------------------------- | -------------------------------- | -------------------------------
|                                         |                                  |                                
|
|                                         |                                  |                                
|Accounts receivable                      |                                  | $(2,439,846                    
|Prepaid expenses and other assets        |                                  | (254,995                       
|Income taxes payable                     |                                  | 152,171                        
|Accounts payable and accrued liabilities |                                  | 1,641,445                      
|Accrued restructuring charges            |                                  | 1,185,360                      
|Deferred revenue                         |                                  | 1,051,742                      
|                                         |                                  |                                
|                                         |                                  | $ 1,335,877                    
|                                         |                                  |                                

-9-

---

# MDSI MOBILE DATA
SOLUTIONS INC.

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

|7. |  | STRATEGIC
EXPENSES
|-- |  | ------------------

| | Strategic
expenses consist of professional fees and expenses associated with investigating
potential corporate transactions.
| | ----------------------------------------------------------------------------------------------------------------------------

| | A
member of the Companys board of directors is a managing director of Bear Stearns
& Co., the investment bank which has provided the Company with services regarding the
At Road Inc. transaction.  During the nine month period ended September 30, 2004,
the Company paid Bear Stearns & Co. expenses in the amount of $0.8 million.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-10-

---

|ITEM
2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|------- | -------------------------------------------------------------------------------------

# Forward-Looking
Statements

Certain
statements in this Quarterly Report on Form 10-Q constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of MDSI, or
developments in MDSIs industry, to differ materially from the anticipated results,
performance or achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to: lengthy sales cycles, the Companys
dependence upon large contracts and relative concentration of customers, the failure of
MDSI to successfully execute its business strategies, the effect of volatile United States
and international economies generally, the threat or reality of war, as well as economic
trends and conditions in the vertical markets that MDSI serves, the effect of the risks
associated with technical difficulties or delays in product introductions and
improvements, product development, product pricing or other initiatives of MDSIs
competitors, the possibility that our potential customers will defer purchasing decisions
due to economic or other conditions or will purchase products offered by our competitors,
and the other risks and uncertainties described in the risk factors attached as Exhibit
99.1 hereto and in other SEC filings, including the Companys Annual Report on Form
10-K for the year ended December 31, 2003.

Unless
otherwise noted, all financial information in this report is expressed in the
Companys functional currency, United States dollars. See Item 3, Quantitative
and Qualitative Disclosures About Market Risk.

# Overview

MDSI
develops, markets, implements and supports mobile workforce management and wireless
connectivity software for use by a wide variety of companies that have substantial mobile
workforces, such as utilities, telecommunications and cable/broadband companies. The
current version of the Companys software is known as Advantex r7. MDSIs
products are used by such companies in conjunction with public and private wireless data
communications networks to provide comprehensive solutions for the automation of business
processes associated with the scheduling, dispatching and management of a mobile
workforce. The Companys products are designed to provide a cost-effective method for
companies with mobile workers to utilize data communications to communicate with such
workers, and for such workers to interface on a real-time basis with their corporate
information systems.

The
Companys revenue is derived from (i) software and services, consisting of the
licensing of software and provision of related services, including project management,
installation, integration, configuration, customization and training; (ii) maintenance and
support, consisting of the provision of after-sale support services as well as hourly,
annual or extended maintenance contracts; and (iii) third party products and
services, consisting of the provision of non-MDSI products and services as part of the
total contract.

# Strategic Transaction

During
2003, the Company retained Bear, Stearns & Co. Inc. as financial advisor to the Board
of Directors, to assist the Board in evaluating potential business combinations,
financings and other strategic alternatives to help the Company offer enhanced products
and services to its customers and maximize shareholder value. As a result of this process,
on April 12, 2004, the Company signed a definitive combination agreement with At Road Inc.
(At Road) providing for the acquisition of the Company by At Road. On July 27,
2004 the Company announced that the Company and At Road had mutually agreed to terminate
the agreement. The termination of the agreement has not resulted in any penalty or
termination fee being payable by either party. Given the Companys fiduciary
responsibilities to its shareholders, it will consider possible future strategic
transactions. See Forward-Looking Statements and the risk factors in Exhibit
99.1.

# Restructuring

The
Company operates in a competitive industry that is consolidating and has several vendors
offering competitive solutions. As a result, the Company must closely scrutinize costs in
order to maintain its competitive position in the market place. As part of these efforts,
the Company initiated a review of its internal structure during the three months ended
September 30, 2004 and determined that operations could be streamlined and capital
resources could be better deployed. As a result, the Board of Directors of the Company
approved a restructuring plan that was designed to reduce costs by approximately $3
million on an annual basis. As part of this plan, the Company eliminated approximately 30
positions and intends to minimize other discretionary costs such as travel and
professional fees. In order to account for the restructuring plan, the Company recorded a
charge in the three months ended September

-11-

---

30, 2004 of $1.5 million related to
employee separation costs, stock based compensation and other related costs. There can be
no assurance that the workforce reductions and other measures will not have a material
adverse affect on the Companys business operations.

A summary of the nature and amounts
of the components of the restructuring charge is provided in the following table:

|                                                              | Total Restructuring Charge
|------------------------------------------------------------- | --------------------------
|                                                              |                           
|Workforce reduction                                           |                           
|Stock based compensation                                      |                           
|Other                                                         |                           
|                                                              |                           
|Total 2004 restructuring charges                              |                           
|Cumulative draw-down on 2004 charge                           |                           
|                                                              |                           
|2004 restructuring charge in accrued liabilities as at        |                           
|September 30, 2004                                            |                           
|Remaining accrual from 2001 restructuring charge relating to  |                           
|excess office space                                           |                           
|                                                              |                           
|Accrued restructuring charges included in current liabilities |                           
|at September 30, 2004                                         |                           
|                                                              |                           

The
Company recorded a charge of $1,385,000 related to employee separation costs as a result
of the elimination of approximately 30 positions made in an effort to increase efficiency
and reduce costs. As at September 30, 2004, cash disbursements of approximately $200,000
had been made related to this charge leaving an accrual of approximately $1,185,000
relating to workforce reduction.

The
Company has recorded a charge of $50,000 related to the changing of vesting conditions on
one employees stock options as a result of termination.

Other
restructuring costs of $65,000 relate to outplacement and related expenses the Company
expects to incur as a result of the September 2004 restructuring. As at September 30,
2004, no amounts had been paid in relation to these costs resulting in an accrual of
$65,000 as at September 30, 2004.

The
Company recorded a $1.9 million provision in 2001 relating to surplus office space under
long-term leases held by the Company at two locations. The Company has incurred
approximately $1.6 million of cash costs relating to this provision leaving an accrual of
$290,000 remaining as at September 30, 2004.

The
Company expects that the restructuring charges will be substantially drawn down no later
than the second quarter of 2005.

# Field Service Business

The
implementation of a complete mobile data solution requires a wireless data communications
network, mobile computing devices integrated with wireless data communication modems, host
computer equipment, industry specific application software such as MDSIs Advantex
products, wireless connectivity software and a variety of services to manage and install
these components, integrate them with an organizations existing computer systems and
configure or customize the software to meet customer requirements. Frequently, in the
Companys larger contracts only a limited number of the users are rolled out
initially, with the balance implemented over a period that may extend up to one year or
more. Where increases in mobile workforces require or where additional departments of
mobile workers are added, additional mobile computing devices may be installed, which may
result in additional revenue for the Company. See Forward-Looking Statements.

Revenue
for software and services has historically accounted for a substantial portion of the
Companys revenue. Typically, the Company enters into a fixed price contract with a
customer for the licensing of selected software products and the provision of specific
services, which historically has included a warranty period that is generally ninety days
in length. These services are generally performed within six to twelve months. Pricing for
these contracts includes license fees as well as a fee for professional services. The
Company generally recognizes total
revenue for software and services associated with a contract using a percentage of
completion method based on the total man-days incurred over the total estimated man days
to complete the contract.

-12-

---

The
Companys customers typically enter into ongoing maintenance agreements that provide
for maintenance and technical support services for a period commencing at delivery, or
after expiration of any warranty period. Maintenance agreements typically have a term of
one year and are invoiced either annually, quarterly, or monthly. Revenue for these
services is recognized ratably over the term of the contract.

The
Company is periodically required to provide, in addition to MDSI products and services,
certain third party products, such as host computer hardware and operating system
software, and mobile computing devices. The Company recognizes revenue on the supply of
third party hardware and software upon transfer of title to the customer. The Company
recognizes revenue on the supply of third party services using a percentage of completion
method based on the costs incurred over the total estimated cost to complete the third
party services contract. Also included in third party revenue are reimbursements to the
Company for out of pocket expenses incurred on implementation projects performed by the
Company. EITF Issue No. 01-14, Income Statement Characterization of Reimbursements
Received for Out of Pocket Expenses, requires characterization of these expenses as
revenue. An equal and offsetting amount of expense is recognized relating to these
reimbursements as direct costs.

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

The
Companys revenue is dependent, in large part, on significant contracts from a
limited number of customers. As a result, any substantial delay in the Companys
completion of a contract, the inability of the Company to obtain new contracts or the
cancellation of an existing contract by a customer could have a material adverse effect on
the Companys results of operations. Some of the Companys contracts are
cancelable upon notice by the customer. The loss of certain contracts could have a
material adverse effect on the Companys business, financial condition, operating
results and cash flows. As a result of these and other factors, the Companys results
of operations have fluctuated in the past and may continue to fluctuate from
period-to-period.

# Recent Accounting
Pronouncements

In June
2004, the FASB issued an exposure draft of a proposed Statement, Fair Value
Measurements to provide guidance on how to measure the fair value of financial and
non-financial assets and liabilities when required by other authoritative accounting
pronouncements. The proposed statement attempts to address concerns about the ability to
develop reliable estimates of fair value and inconsistencies in fair value guidance
provided by current US GAAP, by creating a framework that clarifies the fair value
objective and its application in GAAP. In addition, the proposal expands disclosures
required about the use of fair value to remeasure assets and liabilities. The standard
would be effective for financial statements issued for fiscal years beginning after June
15, 2005. The Company is currently assessing the impact this standard will have on the
Companys consolidated financial statements.

In
March 2004, the FASB ratified consensuses reached by the EITF with respect to EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments. EITF Issue No. 03-1 addresses recognition, measurement and
disclosure of other-than-temporary impairment evaluations for securities within the scope
of SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and equity securities that are not subject to the scope of SFAS No. 115
and are not accounted for under the equity method according to Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for Investments in Common
Stock. The recognition and measurement guidance is effective for reporting periods
beginning after June 15, 2004. Disclosures for cost method investments are required to be
included in annual financial statements prepared for fiscal years ending after June 15,
2004. The Company does not have any significant cost method investments and therefore
adoption is not expected to have a significant impact on its consolidated financial
statements.

In
December 2003, the SEC issued SAB 104, Revenue Recognition, which supercedes
SAB 101, Revenue Recognition in Financial Statements. The primary purpose of
SAB 104 is to rescind accounting guidance contained in SAB 101 related to multiple element
revenue arrangements, which was superceded as a result of the issuance of EITF No. 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. SAB 104 also
incorporated certain sections of the SECs Revenue Recognition in Financial Statements 
Frequently Asked Questions and Answers document. While the wording of SAB 104 has
changed to reflect the issuance of EITF No. 00-21, the revenue recognition principles of
SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did
not have an impact on the consolidated financial statements.

-13-

---

# Critical Accounting
Policies and Significant Estimates

The
significant accounting policies are outlined within Note 1 to the Condensed Consolidated
Financial Statements and the significant accounting policies disclosed in the Consolidated
Financial Statements for the year ended December 31, 2003. Some of those accounting
policies require the Company to make estimates and assumptions that affect the amounts
reported by the Company. The following items require the most significant judgment and
involve complex estimation:

# Restructuring Charges

In
calculating the restructuring charge related to the costs to eliminate approximately 30
positions the Company was required to estimate the amount of severance pay required to
terminate the employment, as well as the cost of any benefit continuity provided to the
employee. The Companys assumptions on either the amount of severance or the cost of
benefits or other expenses may be proven incorrect and the actual cost may be materially
different from the estimates.

In
calculating the cost to dispose of excess facilities the Company was required to estimate
for each location the amount to be paid in lease termination payments, the future lease
and operating costs to be paid until the lease is terminated, and the amount, if any, of
sublease revenues. This required estimating the timing and costs of each lease to be
terminated, the amount of operating costs, and the timing and rate at which the Company
might be able to sublease the site. From the estimates for these costs the Company
performed an assessment of the affected facilities and considered the current market
conditions for each site. A charge of $1.9 million was recorded for the restructuring of
excess facilities as part of the 2001 restructuring plan. The Companys assumptions
on either the lease termination payments, operating costs until terminated, or the
offsetting sublease revenues may be proven incorrect and actual cost may be materially
different from the estimates.

# Accounts Receivable

The
Company periodically reviews the collectability of its accounts receivable balances. Where
significant doubt exists with regards to the collection of a certain receivable balance,
an allowance and charge to the income statement is recorded. At September 30, 2004, the
allowance for doubtful accounts was $0.3 million. The Company intends to continue
vigorously pursuing these accounts. If future events indicate additional collection
issues, the Company may be required to record an additional allowance for doubtful
accounts.

# Revenue Recognition

We
recognize revenue in accordance with the American Institute of Certified Public
Accountants Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions, SOP 81-1,
Accounting for Performance of Construction-type and Certain Production-type
Contracts, SAB No. 101, Revenue Recognition in Financial
Statements, SAB 104, Revenue Recognition, and other authoritative
accounting literature. We derive revenues from the following sources: license fees,
professional services, maintenance and support fees and third party products and services.

We
generally provide services with our supply agreements that include significant production,
modification, and customisation of the software. These services are not separable and are
essential to the functionality of the software, and as a result we account for these
licence and service arrangements under SOP 81-1 using the percentage of completion method
of contract accounting.

| | License
Fees and Professional Services
| | --------------------------------------

Our
supply agreements generally include multiple products and services, or
elements. We use the residual method to recognize revenue when a supply
agreement includes one or more elements to be delivered at a future date and vendor
specific objective evidence of the fair value of all undelivered elements exists. The fair
value of the undelivered elements is determined based on the historical evidence of
stand-alone sales, or renewal terms of these elements to customers. Under the residual
method, the fair value of the undelivered elements is deferred and the remaining portion
of the arrangement fee, which relates to the license and implementation services, is
recognized as revenue on a percentage of completion basis. If evidence of the fair value
of one or more undelivered elements does not exist,
the total revenue is deferred and recognized when delivery of those elements occurs or
when fair value is established.

-14-

---

We
estimate the percentage of completion on contracts with fixed fees on a monthly basis
utilizing man-days incurred to date as a percentage of total estimated man-days to
complete the project. If we do not have a sufficient basis to measure progress towards
completion, revenue is recognized when we receive final acceptance from the customer. When
the total cost estimate for a project exceeds revenue, we accrue for the estimated losses
immediately. The complexity of the estimation process and issues related to the
assumptions, risks and uncertainties inherent with the application of the
percentage-of-completion method of accounting affect the amounts of revenue and related
expenses reported in our consolidated financial statements. A number of internal and
external factors can affect our estimates, including labor rates, utilization and
efficiency variances and specification and testing requirement changes.

We
are engaged on a continuous basis in the production and delivery of software under
contractual agreements. As a result we have developed a history of being able to estimate
costs to complete and the extent of progress toward completion of contracts, which
supports the use of the percentage of completion method of contract accounting.

Professional
services revenue primarily consists of consulting and customer training revenues, which
are usually charged on a time and materials basis and are recognized as the services are
performed. Revenue from certain fixed price contracts is recognized on a proportional
performance basis, which involves the use of estimates related to total expected man-days
of completing the contract derived from historical experience with similar contracts. If
we do not have a sufficient basis to measure the progress towards completion, revenue is
recognized when the project is completed or when we receive final acceptance from the
customer.

| | Maintenance
Revenue
| | -------------------

Generally,
maintenance is initially sold as an element of a master supply arrangement, with
subsequent annual renewals, and is priced as a percentage of software license fees.
Maintenance revenue is recognized ratably over the term of the maintenance period, which
typically is one year. Maintenance and support revenue includes software license updates
that provide customers with rights to unspecified software product upgrades, maintenance
releases and patches released during the term of the support period. Product support
services also include Internet and telephone access to technical support personnel.

Historically,
we have provided a warranty phase during the supply agreement. Services provided during
this warranty phase include elements of maintenance and support. As a result, we defer a
portion of the supply agreement fee, based on vendor specific objective evidence of the
value of these services, and recognize the deferred amount as revenue pro rata over the
warranty period.

| | Third
party products and services
| | ---------------------------------

Revenue
from sales of third party products and services is recognized on delivery of the products.
Services are recognized on a percentage-complete basis.

When
software licenses are sold incorporating third-party products or sold with third-party
products, we recognize as revenue the gross amount of sales of third-party product. The
recognition of gross revenue is in accordance with criteria established in
EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent.

On
occasion, we utilize third-party consultants to assist in implementations or installations
originated by the Company. In these cases, in accordance with criteria established in EITF
No. 99-19 (as described above), the revenue for these implementations and installations is
typically recognized on a gross basis. In these cases we ultimately manage the engagement.

# Income Taxes

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

# Warranty

The
Company warrants to its customers that its software will be in substantial conformance
with its specifications. If the Company is unable to deliver solutions that substantially
conform to specifications, warranty claims could have an adverse effect on the
Companys financial results.

-15-

---

# Indemnification

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

# Commitment

The
Company has entered into a significant customer contract in which the Company has agreed
to utilize a certain amount of local services and create a certain amount of commercial
activity in South Africa. The Company is required to utilize local content or obtain
credits equivalent to approximately $7.1 million over a seven-year period ending May 2010.
The Company has furnished a performance guarantee equal to approximately 5% of such
amounts. The Company expects to fulfill its obligation through a number of activities,
including the establishment of a software development center in South Africa, the
provision of technical services, and the provision of training to local systems
integrators who will be able to provide implementation services with respect to the
Companys software products. As the Company expects to fulfill its obligations
through the purchase of services in the normal course of business, no liability has been
established for these future spending commitments. The Companys obligations to
utilize local services and obtain related credits are expected to increase as a result of
recent contract expansions. However negotiations related to this increase have yet to be
completed.

# Results of Operations

The
Companys net loss was $1.2 million for the three months ended September 30, 2004.
This compares to a net loss of $30,000 for the three months ended September 30, 2003. Net
loss increased primarily due to restructuring and strategic expense charges, partially
offset by an increase in revenues.

-16-

---

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

|                                         | Three months ended September 30, | Nine months ended September 30,
|---------------------------------------- | -------------------------------- | -------------------------------
|                                         |                                  |                                
|
|                                         |                                  |                                
|REVENUE                                  |                                  |                                
|Software and services                    |                                  | 59                             
|Maintenance and support                  |                                  | 35                             
|Third party products and services        |                                  | 4                              
|                                         |                                  |                                
|                                         |                                  | 100                            
|DIRECT COSTS                             |                                  | 46                             
|                                         |                                  |                                
|GROSS PROFIT                             |                                  | 53                             
|                                         |                                  |                                
|OPERATING EXPENSES                       |                                 
|Research and development                 |                                  | 15                             
|Sales and marketing                      |                                  | 17                             
|General and administrative               |                                  | 12                             
|Bad Debts Expense                        |                                  |                               
|Strategic expenses                       |                                  | 1                              
|Restructuring charge                     |                                  | 11                             
|                                         |                                  |                                
|                                         |                                  | 59                             
|                                         |                                  |                                
|OPERATING LOSS                           |                                  | (5                             
|OTHER EXPENSE                            |                                  | (2                             
|                                         |                                  |                                
|LOSS FROM OPERATIONSBEFORE TAX PROVISION |                                  | (7                             
|INCOME TAX EXPENSE                       |                                  | 2                              
|NET LOSS FOR THE PERIOD                  |                                  | (9                             
|                                         |                                  |                                

# Three Months Ended
September 30, 2004 Compared to the Three Months Ended September 30, 2003

Revenue. Revenue
increased by $0.7 million or 5.7% for the three months ended September           30, 2004
as compared to the three months ended September 30, 2003. This increase           was
primarily due to increases in revenue from maintenance and support and           software
and services, partially offset by a decrease in revenue from third           party
products and services.

Software
and services revenue increased by $0.6 million or 9.0% for the three months ended
September 30, 2004 as compared to the three months ended September 30, 2003. The increase
in revenue was attributable to an increase in the number of projects the Company was
undertaking in the current year, partially offset by lower revenues from two existing
significant contracts the Company entered into in 2002. These contracts continue to
generate significant revenue for the Company. The Company expects that one of these
contracts will continue to make up a significant portion of revenues over the next several
quarters. See Forward-Looking Statements.

Maintenance
and support revenue was $4.5 million for the three months ended September 30, 2004 as
compared to $3.6 million for the three months ended September 30, 2003. Maintenance and
support revenue increased primarily due to the initiation of several large maintenance
contracts in the past year resulting from growth in the Companys installed customer
base. Such revenue is expected to fluctuate as it corresponds to the number and relative
size of customers that engage the Company to support installed systems. Historically the
renewal rate of maintenance and support contracts has been relatively high.

Third
party products and services revenue decreased by $0.8 million 57.6% for the three months
ended September 30, 2004, compared to the three months ended September 30, 2003. Third
party products and services revenue is primarily earned from certain customers in the
utilities market pursuant to agreements under which the Company provides third party
products and services, typically host computer equipment and mobile computing devices, as
part of the installation of software and provision of services. Not all customers under
contract require the provision of third party products and services. As third party
products and services historically have lower margins than the Companys other
sources of revenue, there may be large fluctuations in revenue, direct costs, gross
profits

-17-

---

and income from operations from one
period to another. The Company has agreed to supply a large amount of third party services
at no margin which is being recognized on a gross basis, in connection with one particular
contract, and therefore expects that future revenues from third party products and
services will fluctuate in the near term. For the three months ended September 30, 2004
the Company did not earn any revenue from these no margin services, as compared to $0.4
million for the three months ended September 30, 2003. See Forward Looking
Statements.

Direct
Costs.  Direct costs were 46.2% of revenue for the three months ended September
30, 2004, compared to 50.4% for the three months ended September 30, 2003. Direct costs
include labor and other costs directly related to a project including those related to the
provision of services and support, and costs related to equipment purchased for sale to
third parties. Labor costs include direct payroll, benefits and overhead charges. Direct
costs as a percentage of revenue has decreased over the comparative period due to a
favorable mix of higher margin projects, which had less embedded software costs, during
the three months ended September 30, 2004 as compared to the three months ended September
30, 2003. The Company has entered into an agreement whereby it has agreed to supply a
large amount of third-party services at no margin, in connection with one particular
contract. This agreement was in effect for both the three months ended September 30, 2004
and the three months ended September 30, 2003. For the three months ended September 30,
2004 no revenue or cost was recognized under this agreement. For the three months ended
September 30, 2003 $0.4 million was recognized as both revenue and cost under this
agreement. In the near term the Company expects that direct costs as a percentage of
revenue will be consistent with the current period. See Forward-Looking
Statements.

Gross
Margins.  Gross margins were 53.8% of revenue for the three months ended September 30,
2004, compared to 49.6% for the three months ended September 30, 2003. Gross margins were
higher during the current period due to lower direct costs as a result of fewer embedded
software costs being incurred, and a smaller amount of zero margin third party services
being supplied during the period. The Company expects in the near term that its gross
margin as a percentage of revenue will remain consistent as described under direct costs.
See Forward-Looking Statements.

Research
and Development.  Research and development expenses were $1.9 million, or 15.2% of
revenue, for the three months ended September 30, 2004, compared to $1.3 million, or 11.0%
of revenue, for the three months ended September 30, 2003. The increase in research and
development expenses was a result of the Companys commitment to enhance and develop
additional functionality in its Advantex r7 product including the hiring of additional
development staff. The Company intends to continue committing a significant portion of its
product revenues to enhance existing products and develop new products. See
Forward-Looking Statements.

Sales
and Marketing.  Sales and marketing expenses were $2.2 million, or 17.4% of revenue,
for the three months ended September 30, 2004, compared to $2.4 million, or 20.3% of
revenue, for the three months ended September 30, 2003. Sales and marketing expenses in
the third quarter of 2004 decreased by approximately $0.2 million compared to the same
period of 2003. The marginal decrease in expenditures in the current period was due to
reductions in personnel and related expenses. See Forward-Looking Statements.
The Company anticipates that its sales and marketing expenses will continue to be
significant as a result of the Companys commitment to its international sales
efforts and attempts to penetrate additional markets for its products. See
Forward-Looking Statements.

General
and Administrative.  General and administrative expenses were $1.6 million, or 12.9% of
revenue, for the three months ended September 30, 2004, compared to $1.9 million, or 15.3%
of revenue, for the three months ended September 30, 2003. General and administrative
decreased during the three months ended September 30, 2004 as compared to the three months
ended September 30, 2003 as a result of a decrease in legal and professional fees incurred
by the Company. The Company expects that in the near future, general and administrative
expenditures will be consistent with the current period. See Forward-Looking
Statements.

Strategic
expenses.  Strategic expenses were approximately $0.2 million, or 1.7% of revenue, for
the three months ended September 30, 2004. There were no strategic expenses incurred
during three months ended September 30, 2003. Strategic expenses consist of professional
fees and expenses associated with investigating potential corporate transactions. On April
12, 2004, as a result of the strategic review process, the Company entered into a
definitive agreement to be acquired by At Road, Inc. On July 27, 2004, the Company
announced that the Company and At Road had mutually agreed to terminate the agreement. The
termination of the agreement will not result in any penalty or termination fee being
payable by either party. The Company expects it will from time to time consider new
strategic opportunities; however, the Company cannot predict the amount or timing of
strategic expenses associated with such opportunities or whether the Company will be able
to negotiate and effect a successful transaction. See Forward-Looking
Statements.

-18-

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Restructuring
Expenses. During three months ended September 30, 2004 the Company announced a
restructuring plan approved by the Companys Board of Directors designed to enable
the Company to operate in a more effective and efficient manner and to reduce costs. In
connection with the restructuring the Company recorded a charge of $1.5 million. There
were no restructuring expenses incurred during three months ended September 30, 2003. The
restructuring charge relates to costs of employee separation, legal, outplacement and
stock based compensation charges related to the reduction of approximately 30 positions.
The Company does not expect to incur further restructuring expenses in the near term. See
Forward-Looking Statements.

Other
(Expense) Income. Other (expense) income was ($265,000) for the three months ended
September 30, 2004 as compared to $(81,000) for the three months ended September 30, 2003.
Substantially all of other (expense) income relates to fluctuations in the currencies of
the Companys foreign operations, interest income on cash and short term deposits,
and interest expense on short-term borrowings under the line of credit and capital lease
obligations.

Income
Taxes. The Company provided for income tax expense on income (losses) for the three
months ended September 30, 2004 and 2003 at rates of 29.6% and 121.4% respectively after
adjusting for strategic and restructuring expenses incurred in the respective periods. The
Companys effective tax rate reflects the blended effect of Canadian, U.S., and other
foreign jurisdictions tax rates. No provision has been made for the recovery of
taxes on the strategic or restructuring expenses as the Company has significant tax losses
in Canada where there is no certainty of realization.

# Nine Months Ended
September 30, 2004 Compared to the Nine Months Ended September 30, 2003

Revenue.
 Revenue
increased by $1.9 million or 5.4% for the nine months ended           September 30, 2004
as compared to the nine months ended September 30, 2003. This           increase was
primarily due to increases in revenue from maintenance and support           and software
and services partially offset by a decline in third party products           and services
revenue.

Software
and services revenue increased by $0.8 million or 3.6% for the nine months ended September
30, 2004 as compared to the nine months ended September 30, 2003. The increase in revenue
was attributable to an increase in the number of projects the Company was undertaking in
the current year, partially offset by lower revenues from two existing significant
contracts the Company entered into in 2002. These contracts continue to generate
significant revenue for the Company. The Company expects that one of these contracts will
continue to make up a significant portion of revenues over the next several quarters. See
Forward-Looking Statements. While the Company believes that economic
conditions in certain of its vertical markets show signs of improvement, the Company
anticipates that economic conditions and general trends are likely to continue to have an
adverse impact on software and services revenues in future periods. See
Forward-Looking Statements.

Maintenance
and support revenue was $13.1 million for the nine months ended September 30, 2004 as
compared to $9.7 million for the nine months ended September 30, 2003. Maintenance and
support revenue increased primarily due to the initiation of several large maintenance
contracts in the past year resulting from growth in the Companys installed customer
base. Such revenue is expected to fluctuate as it corresponds to the number and relative
size of customers that engage the Company to support installed systems. Historically the
renewal rate of maintenance and support contracts has been relatively high.

Third
party products and services revenue decreased by $2.3 million 57.1% for the nine months
ended September 30, 2004 as compared to the nine months ended September 30, 2003. Third
party products and services revenue decreased primarily due to the Company supplying a
large amount of third party services at no margin in connection with one particular
contract during the nine months ended September 30, 2003. For the nine months ended
September 30, 2004 approximately $0.3 million of these third party services were provided,
as compared to $1.8 million for the nine months ended September 2003. See Forward
Looking Statements.

Direct
Costs.  Direct costs were 46.5% of revenue for the nine months ended September 30,
2004, compared to 50.0% for the nine months ended September 30, 2003. Direct costs as a
percentage of revenue has decreased over the comparative period partly as a result of the
Company negotiating and receiving a one-time reimbursement of costs incurred under a
project where the costs were expensed in the past, and partly due to a favorable mix of
higher margin projects, which had less embedded software costs during the nine months
ended September 30, 2004 as compared to the nine months ended September 30, 2003. The cost
reimbursement amounted to approximately $0.5 million or 1.3% of revenue in the period. As
a result, direct costs as a percentage of revenue have decreased, and the Company expects
that direct costs as a percentage of revenue will remain relatively consistent with the
current period. See Forward-Looking Statements.

Gross
margins were 53.5% of revenue for the nine months ended September 30, 2004, compared to
50.0% for the nine months ended September 30, 2003. The increase in gross margins as a
percentage of revenue relates partly to an agreement whereby

-19-

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the Company negotiated and received a
one time reimbursement of costs incurred under a project where the costs were expensed in
the past, and partly due to a decrease in embedded software costs during the period. The
Company expects that in the near term that its gross margins as a percentage of revenue
will decrease as described under direct costs. See Forward-Looking Statements.

Research
and Development.  Research and development expenses were $5.1 million, or 13.6% of
revenue, for the nine months ended September 30, 2004, compared to $4.0 million, or 11.4%
of revenue, for the nine months ended September 30, 2003. The increase in research and
development expenses is a result of the Companys commitment to enhance and develop
additional functionality in its Advantex r7 product including the hiring of additional
development staff. The Company intends to continue committing a significant portion of its
revenue to enhance existing products and develop new products. See Forward-Looking
Statements.

Sales
and Marketing.  Sales and marketing expenses were $6.7 million, or 17.9% of revenue,
for the nine months ended September 30, 2004, compared to $8.3 million, or 23.5% of
revenue, for the nine months ended September 30, 2003. The decrease in expenditures in the
current period was due to the Companys user conference in the current year being
held locally which decreased costs, and personnel reductions and reductions to related
expenses in the current year as compared to the prior year. The Company anticipates that
the dollar amounts of its sales and marketing expenses will continue to be significant as
a result of the Companys commitment to its international marketing efforts and
attempts to penetrate additional markets for its products. See Forward-Looking
Statements.

General
and Administrative.  General and administrative expenses were $5.4 million, or 14.4% of
revenue, for the nine months ended September 30, 2004, as compared to $5.0 million, or
14.3% of revenue, for the nine months ended September 30, 2003. General and administrative
expenses increased in relation to the comparative period as a result of an increase in
professional fees incurred by the Company. The Company expects that in the near future,
general and administrative expenditures will decrease as compared to the nine months ended
September 30, 2004 as a result of a decrease in the amount of professional fees incurred.
See Forward-Looking Statements.

Strategic
expenses.  Strategic expenses were approximately $2.3 million, or 6.3% of revenue, for
the nine months ended September 30, 2004, compared to $0.8 million or 2.3% of revenue, for
the nine months ended September 30, 2003. Strategic expenses consist of professional fees
associated with investigating potential corporate transactions. On April 12, 2004, as a
result of the strategic review process, the Company entered into a definitive agreement to
be acquired by At Road, Inc. On July 27, 2004, the Company announced that the Company and
At Road had mutually agreed to terminate the agreement. The termination of the agreement
will not result in any penalty or termination fee being payable by either party. The
Company expects it will from time to time consider new strategic opportunities; however,
the Company cannot predict the amount or timing of strategic expenses associated with such
opportunities or whether the Company will be able to negotiate and effect successful
transaction. See Forward-Looking Statements.

Other
(Expense) Income. Other (expense) income was ($50,000) for the nine months ended
September 30, 2004 as compared to ($542,000) for the nine months ended September 30, 2003.
Substantially all of other (expense) income relates to fluctuations in the currencies of
the Companys foreign operations, interest income on cash and short term deposits,
and interest expense on short-term borrowings under the line of credit and capital lease
obligations.

Income
Taxes. The Company provided for income tax expense on income (losses) for the
nine months ended September 30, 2004 and 2003 at rates of 27.0% and 109.3%
respectively, after adjusting for strategic and restructuring expenses incurred in the
respective periods. The Companys effective tax rate reflects the blended effect of
Canadian, U.S., and other foreign jurisdictions tax rates. No provision has been
made for recovery of taxes on the strategic and restructuring expenses as the Company has
significant tax losses in Canada where there is no certainty of realization.

# Liquidity and Capital
Resources

The
Company has financed its operations, acquisitions and capital expenditures with cash
generated from operations, loans, private placements and public offerings of its
securities. At September 30, 2004, the Company had cash and cash equivalents of $18.9
million and working capital of $7.2 million.

Cash
provided by operating activities was $0.6 million for the three months ended September 30,
2004 compared to $1.8 million for the three months ended September 30, 2003. The net
inflow of cash from operating activities, after adding back depreciation and amortization
of $0.4, is due to a net decrease in non-cash working capital items of $1.3 million and
net loss of $1.2

-20-

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million for the three months ending
September 30, 2004. The net decrease in non-cash operating working capital items is due
primarily to a net increase in accounts payable and accrued liabilities and deferred
revenue, partially offset by an increase in unbilled and trade accounts receivables. The
increase in unbilled and trade receivables and deferred revenue is due to timing
differences arising between revenue recognition and billing milestones in multiphase
projects.

The
Company maintains as at September 30, 2004 a provision of $0.3 million with respect to
doubtful accounts. The Company intends to vigorously pursue collection of these accounts;
however, due to uncertainty with regards to ultimate collection, the Company determined
that it would be prudent to maintain an allowance to address this uncertainty.

Cash
used by financing activities of $214,000 during the three months ended September 30, 2004
primarily relates to $26,000 in proceeds from the issuance of shares on the exercise of
employee stock options, offset by $240,000 in repayments of capital leases made during the
quarter. The capital leases are to be repaid over the period ending October 1, 2005, bear
interest at various interest rates to a maximum of approximately 9% and are secured by
certain computer hardware and software assets of the Company.

Cash
used in investing activities was $0.3 million for the three months ended September 30,
2004 as compared to $0.2 million for the three months ended September 30, 2003. Total
investing activity during the three months ended September 30, 2004 consisted of $0.3
million in purchases of capital assets. Purchases of capital assets include computer
hardware and software for use in development and implementation activities. Investing
activities in 2003 also related to purchases of capital assets.

Existing
sources of liquidity at September 30, 2004 include $18.9 million of cash and cash
equivalents and additional funds available under the Companys operating line of
credit. At September 30, 2004, the Companys borrowing capacity under the line of
credit was up to $10 CAD million. Under the terms of the agreement, borrowings and letters
of credit under the line are limited to 75% to 90% of eligible accounts receivable.
Borrowings accrue interest at the banks prime rate plus 0.5%. At September 30, 2004,
the Company was not using this line of credit, other than to secure performance guarantees
of CAD$1.4 million.

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

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

As
at September 30, 2004, the Company had the following contractual obligations and
commercial commitments:

|Contractual Obligations       | Payments Due by Period
|----------------------------- | ----------------------
|                             
|
|                             
|Capital Lease Obligations     |                       
|                             
|Operating Leases              |                       
|                             
|Total Contractual Obligations |                       
|                             

The
Company has entered into a significant customer contract in which the Company has agreed
to utilize a certain amount of local services and create a certain amount of commercial
activity in South Africa. The Company is required to utilize local content or obtain
credits equivalent to approximately $7.1 million over a seven year period ending May 2010.
The Company has furnished a performance guarantee equal to approximately 5% of such
amounts. The Company expects to fulfill its obligation through a number of activities,
including the establishment of a software development center in South Africa, the
provision of technical services, and the provision of training to local systems
integrators who will be able to provide implementations services with respect to the
Companys software products. As the Company expects to fulfill its obligations
through the purchase of services in the normal course of business,

-21-

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no liability has been established for
these future spending commitments. The Companys obligation may increase as a result
of contract expansions.

In
addition to these commercial commitments the Company has also provided a letter of credit
in the amount of CAD $1400,000 (USD $1,102,000) expiring October 1, 2005. The Company
has pledged an amount equal to the letter of credit as a guarantee against its operating
line of credit as security.

# Derivative Financial
Instruments

The
Company generates a significant portion of its sales from customers located outside the
United States, principally in Canada and Europe. Canadian sales are made mostly by the
Company and on occasion are denominated in Canadian dollars. International sales are made
mostly from a foreign subsidiary and are typically denominated in either U.S. dollars or
Euros. The Company also incurs a significant portion of expenses outside the United
States, principally in Canada and Europe, which are typically denominated in Canadian
dollars, Euros or British pounds. The Companys international business is subject to
risks typical of an international business including, but not limited to: differing
economic conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly, the
Companys future results could be materially adversely impacted by changes in these
or other factors. The Company may enter into foreign exchange forward contracts to offset
the impact of currency fluctuations on certain nonfunctional currency assets and
liabilities, primarily denominated in the Canadian dollar, Euro and British pound. The
foreign exchange forward contracts the Company enters into generally have original
maturities ranging from three to eighteen months. The Company does not enter into foreign
exchange forward contracts for trading or speculative purposes, and does not expect gains
or losses on these contracts to have a material impact on the Companys financial
results.

The
Companys foreign currency forward contracts are executed with credit worthy banks
and are denominated in currencies of major industrial countries. As at September 30, 2004
and September 30, 2003, the Company had no foreign currency forward contracts outstanding.

# Off-Balance Sheet
Transactions

The
Company does not have any off-balance sheet arrangement that has or is reasonably likely
to have a current or future effect on the registrants financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.

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# ITEM 3.  QUANTITIATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk
represents the risk of loss that may impact our financial position due to adverse changes
in financial market prices and rates. Our market risk exposure is primarily a result of
fluctuations in foreign currency exchange rates and interest rates. We do not hold or
issue financial instruments for trading purposes.

# Foreign Currency Risk

We
conduct business on a global basis in international currencies. As such, we are exposed to
adverse or beneficial movements in foreign exchange rates. The majority of our sales are
denominated in U.S. dollars, the functional currency of our domestic operations and the
currency in which we report our financial statements. We also conduct a portion of our
sales in currencies other than the U.S. dollar, including the British pound and Euro.

We
are exposed to foreign exchange fluctuations as the financial results of our foreign
subsidiaries are translated into U.S. dollars on consolidation. All translation gains and
losses are included in the determination of net income (loss). As exchange rates vary,
these results when translated may impact our overall expected financial results. We also
have exposure to foreign currency rate fluctuations when we translate cash from one
currency into another to fund operational requirements. In addition, we have exposure to
the change in rates as the result of timing differences between expenses being incurred
and paid. As exchange rates vary, we may experience a negative impact on financial
results.

We
have evaluated our exposure to foreign currency risk and have determined that while we
have a degree of exposure to the Euro and British pound, our most significant operating
exposure to foreign currencies at this time is to the Canadian dollar. In certain
historical periods, the strengthening of the Canadian dollar has negatively affected our
operating results.

As
of September 30, 2004, the potential reduction in future earnings from a hypothetical
instantaneous 10% change in quoted foreign currency exchange rates applied to our foreign
currency sensitive contracts and assets would be approximately $4.7 million. The foreign
currency sensitivity model is limited by the assumption that all foreign currencies, to
which the Company is exposed, would simultaneously change by 10%. Such synchronized
changes are unlikely to occur. The sensitivity model does not include the inherent risks
associated with anticipated future transactions denominated in foreign currencies or
future forward contracts entered into for hedging purposes.

To
minimize the risk associated with the effects of certain foreign currency exposures, we
occasionally use foreign currency forward exchange contracts. We do not use forward
contracts for trading or speculative purposes. From time to time we may also purchase
Canadian dollars in the open market and hold these funds in order to satisfy forecasted
operating needs in Canadian dollars

At
September 30, 2004 and September 30, 2003, we had no outstanding currency forward exchange
contracts, and during the three months ended September 30, 2004 and September 30, 2003, we
did not enter into any forward exchange contracts. We therefore did not record any gain or
loss as a result of these contracts for the three months ended September 30, 2004 or
September 30, 2003.

# Interest Rate Risk

Our
exposure to market rate risk for changes in interest rates relates primarily to our
investment portfolio. The investment of cash is regulated by our investment policy of
which the primary objective is the security of principal. Among other selection criteria,
the investment policy states that the term to maturity of investments cannot exceed one
year in length. We invest our cash in a variety of short-term financial instruments,
including government bonds, commercial paper and money market instruments. Our portfolio
is diversified and consists primarily of investment grade securities to minimize credit
risk. These investments are typically denominated in U.S. dollars. Cash balances in
foreign currencies are operating balances and are only invested in demand or short-term
deposits of the local operating bank. We do not use derivative financial instruments in
our investment portfolio.

Investments
in both fixed rate and floating rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value adversely
impacted because of a rise in interest rates, while floating rate securities may produce
less income than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations because of changes in interest rates or
we may suffer losses in principal if forced to sell securities that have seen a decline in
market value because of changes in interest rates.

-23-

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While
interest income on our cash, cash equivalents, and short-term investments is subject to
interest rate fluctuations, we believe that the impact of these fluctuations will not have
a material effect on our financial position due to the short-term nature of these
financial instruments. Our interest income and interest expense are most sensitive to the
general level of interest rates in Canada and the United States. Sensitivity analysis is
used to measure our interest rate risk. Based on analysis of our balances as of September
30, 2004, a 100 basis-point adverse change in interest rates would not have a material
effect on our consolidated financial position, results of operation, or cash flows.

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

-24-

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# ITEM 4.  CONTROLS AND
PROCEDURES

# Changes in Internal
Control Over Financial Reporting

As
disclosed in the Companys quarterly report on Form 10-Q for the quarter ended March
31, 2004, the Company has undertaken certain steps to strengthen the Companys
internal control over financial reporting. These steps have included implementing a formal
contract review checklist for each new contract, a thorough review and analysis of new
software and implementation contracts by senior members of the Companys accounting
group, a determination of the appropriate revenue recognition treatment for each new
contract by senior members of the accounting group, revisions to the Companys
standard contractual wording, improving communication between the various functional
groups within the Company (namely sales, implementation, accounting and legal) at both the
contract negotiation and execution level and at the implementation level, requiring any
exceptions to the Companys standard contractual wording to be approved at a senior
management level and review by management of any unusual terms which may impact its
historical practice of accounting for revenue. The Companys management is in the
process of a further review and assessment of the Companys internal control over
financial reporting in light of the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002 and the rules adopted by the SEC thereunder, which the SEC currently plans to
implement for accelerated filers for fiscal years ending on or after November 15, 2004 and
for non-accelerated filers for fiscal years ending on or after July 15, 2005. As of the
date of this report, the Company is not an accelerated filer and, accordingly, the Company
expects these additional requirements to apply to the Company for its fiscal year ended
December 31, 2005. The Companys management may recommend and the Company may
implement additional changes in the Companys internal control over financial
reporting pursuant to this review. In light of these additional SEC requirements and the
Companys current level of activities, the Company is evaluating the level of
staffing of its finance group.

Except
as described in the foregoing paragraphs, no changes were made in the Companys
internal control over financial reporting during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

# Evaluation of Disclosure
Controls and Procedures

In
connection with the filing of this quarterly report on Form 10-Q, the Companys
management, with the participation of the Companys Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Companys disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the
period covered by this report (the Evaluation Date).

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

# Note Regarding Control
Limitations

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

-25-

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# Part II    OTHER
INFORMATION

For Items 1 through 5 there was no
reportable information for the three months ended September 30, 2004.

-26-

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# ITEM 6.  EXHIBITS

|Exhibit
 Number |  | Description
|--------------- |  | -----------

|2.1(3) |  | Agreement and Plan of Merger dated April 17, 1997 among the Company, MDSI
               Acquisition Corp., Alliance, Geoffrey Engerman and Doug Engerman
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1(1) |  | Articles of Incorporation of the Company
|------ |  | ----------------------------------------

|3.2(1) |  | Articles
of Amendments of the                Company
|------ |  | ----------------------------------------------------

|3.3(1) |  | By-laws
of the Company
|------ |  | ----------------------

|4.1(1) |  | Form
of Common Share Certificate
|------ |  | --------------------------------

|4.2(9) |  | Shareholder Rights Plan Agreement made as of December 17, 2003 between the
               Company and Computershare Trust Company of Canada
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------

|10.1(2)(3) |  | 2000 Stock Option Plan
|---------- |  | ----------------------

|10.2(1) |  | Form
of Indemnification Agreement between the Company and certain officers of
               the Company
|------- |  | --------------------------------------------------------------------------------------------------------

|10.3(1) |  | Lease
dated September 25, 1997 between Sun Life Assurance                Company of Canada and
the Company
|------- |  | ----------------------------------------------------------------------------------------------------------

|10.4(4) |  | Lease
dated October 12, 2001 between                Crown Diversified Industries Corporation
and Connectria Corporation a subsidiary of the Company
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|10.5(4) |  | Amending
Agreement dated December 1, 1998 between Sun Life Assurance Company of Canada and the
                     Company
|------- |  | ---------------------------------------------------------------------------------------------------------------------------

|10.6(2)(5) |  | Employment
Agreement dated January 2, 2002 between the Company and Verne Pecho
|---------- |  | ------------------------------------------------------------------------------

|10.7(2)(6) |  | 2002
Stock Purchase Plan
|---------- |  | ------------------------

|10.8(7) |  | Exchange
Agreement dated as of June           26, 2002 among the Company, Connectria Corporation,
Richard S. Waidmann and Eric Y. Miller
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|10.9(7) |  | Amendment to Exchange Agreement dated as of June 30, 2002 among the Company,
               Connectria Corporation, Richard S. Waidmann and Eric Y. Miller
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10(7) |  | Warrant dated as of June 29, 2002 to purchase 50,380 shares of Series A
               Nonvoting Preferred Stock of Connectria Corporation
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|10.11(2)(8) |  | Employment Agreement dated August 1, 2003 between the Company and Peter Hill Rankin
|----------- |  | -----------------------------------------------------------------------------------

|10.12(2)(8) |  | Employment
Agreement dated September 3, 2003 between the Company and Glenn Kumoi
|----------- |  | --------------------------------------------------------------------------------

|10.13(2)(8) |  | Employment
Agreement dated September 4, 2003 between the Company and Erik Dysthe
|----------- |  | --------------------------------------------------------------------------------

|10.14(2)(8) |  | Employment
Agreement dated August 20, 2003 between the Company and Joo-Hyung (Tommy) Lee
|----------- |  | ----------------------------------------------------------------------------------------

|10.15(2)(10) |  | Settlement
Agreement dated January 7, 2004 between the Company and Walter J. Beisheim
|------------ |  | -------------------------------------------------------------------------------------

|10.16(2)(10) |  | Employment
Agreement dated August 18, 1997 between the Company and Poul Kvist
|------------ |  | -----------------------------------------------------------------------------

|10.17(2)(10) |  | Employment
Agreement dated October 21, 2002 between the Company and Rob Owen
|------------ |  | ----------------------------------------------------------------------------

|10.18(2)(10) |  | Settlement
Agreement dated October 30, 2003 between the Company and Rob Owen
|------------ |  | ----------------------------------------------------------------------------

|10.19(11) |  | Combination
Agreement dated as of April 12, 2004 among At Road, Inc., Orion Exchange Co. Ltd. and the
Company
|--------- |  | -------------------------------------------------------------------------------------------------------------

|10.20(12) |  | Amendment
No. 1 to the Combination Agreement dated June 15, 2004 among At Road                Inc.,
Orion Exchange Co. Ltd., and the Company
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|10.21(2)(13) |  | Employment
Agreement dated December 20, 2003 between the Company and Neil                McDonnell
|------------ |  | --------------------------------------------------------------------------------------------------

|14.1(10) |  | Code
of Ethics
|-------- |  | --------------

|31.1 |  | Section
302 Certification of Chief                Executive Officer
|---- |  | -------------------------------------------------------------------

|31.2 |  | Section
302 Certification of Chief Financial Officer
|---- |  | ----------------------------------------------------

|32.1 |  | Section
906 Certification of Chief Executive Officer
|---- |  | ----------------------------------------------------

|32.2 |  | Section
906                Certification of Chief Financial Officer
|---- |  | -------------------------------------------------------------------

|99.1 |  | Risk
Factors
|---- |  | ------------

|(1) |  | Previously filed as exhibits with the same corresponding number with the
               Registrants Registration Statement on Form F-1 (Registration No. J33-5872)
               and amendments numbers 1 and 2 thereto, filed with the Securities and Exchange
               Commission on October 28, 1996, November 13, 1996 and November 25, 1996,
               respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | This
document has been identified as a management contract or compensatory plan
               or arrangement.
|--- |  | --------------------------------------------------------------------------------------------------------------

|(3) |  | Previously
filed as exhibits with the Registrants                Registration Statement on
Form S-8 filed on November 22, 2000.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Previously
               filed as exhibits with the Registrants Form 10-K for the year ended
               December 31, 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Previously
filed as exhibits with the Registrants                Form 10-Q for the quarterly
period ended March 31, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------

|(6) |  | Previously
filed as                exhibits with the Registrants Form 10-Q for the quarterly
period ended                June 30, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Previously
filed as exhibits with the Registrants Form                8-K filed on August 14,
2002.
|--- |  | ----------------------------------------------------------------------------------------------------

-27-

---

|(8) |  | Previously
filed as exhibits with the Registrants Form 10-Q for the           quarterly period
ended September 30, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

|(9) |  | Previously
filed as exhibits with           the Registrants Form 8-K filed on December 18,
2003.
|--- |  | -------------------------------------------------------------------------------------------------

|(10) |  | Previously
filed           as exhibits with the Registrants Form 10-K for the year ended
December 31,           2003.
|---- |  | ----------------------------------------------------------------------------------------------------------------------

|(11) |  | Previously
filed as exhibits with the Registrants Form 10-Q for           the quarterly period
ended March 31, 2003.
|---- |  | ---------------------------------------------------------------------------------------------------------------------

|(12) |  | Previously
filed as exhibits           with the Registrants Form 8-K filed on June 22, 2004.
|---- |  | ---------------------------------------------------------------------------------------------

|(13) |  | Previously
          filed as exhibits with the Registrants Form 8-K filed on September 28,
          2004.
|---- |  | ------------------------------------------------------------------------------------------------------------

-28-

---

# SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.

| | MDSI MOBILE DATA SOLUTIONS INC.
| | -------------------------------

|Date:  November 15, 2004 | By:       
/s/ Erik Dysthe
Name:   Erik Dysthe
Title:     President, Chief Executive Officer,
              Chairman of the Board and Director
|------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------

|Date:  November 15, 2004 | By:       
/s/ Verne D. Pecho
Name:    Verne D. Pecho
Title:    Vice President, Finance & Administration
              and Chief Financial Officer
              (Principal Financial and Accounting Officer)
|------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-29-

---