10-Q

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 March 31, 2005

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 May 10, 2005 was 8,402,413

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

For the quarterly period ended March 31, 2005

		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	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
ITEM 4.	CONTROLS AND PROCEDURES	25
Part II—OTHER INFORMATION
ITEM 6.	EXHIBITS	27
SIGNATURES		29

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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
	March 31,		December 31
	2005		2004
Assets
Current assets
Cash and cash equivalents	$ 20,674,430		$ 19,842,920
Accounts receivable
Trade (net of allowance for doubtful accounts of $220,591; 2004 - $288,246)	11,547,826		10,139,104
Unbilled	1,140,696		822,323
Prepaid expenses and other assets	775,626		1,118,143
Current deferred income taxes	148,107		171,451
	34,286,685		32,093,941
Capital assets, net	6,398,440		6,694,021
	$ 40,685,125		$ 38,787,962
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$   1,125,346		$   1,929,785
Accrued liabilities	4,066,223		3,686,527
Accrued restructuring charges (note 4)	593,859		921,052
Income taxes payable	1,377,544		1,382,017
Deferred revenue	14,987,085		12,653,199
Current obligations under capital lease	838,786		1,073,883
	22,988,843		21,646,463
Long term deferred income taxes	44,263		43,273
	23,033,106		21,689,736
Commitments and Contingencies (note 5)
Stockholders’ equity
Common stock	45,003,189		44,793,898
Authorized: unlimited common shares with no par value
Issued: 8,402,163 shares; December 31, 2004 – 8,353,179 shares
Additional paid-up capital	2,406,049		2,406,049
Accumulated other comprehensive loss	(690,104	)	(690,104	)
Deficit	(29,067,115	)	(29,411,617	)
	17,652,019		17,098,226
	$ 40,685,125		$ 38,787,962

See Notes to Condensed Consolidated Financial Statements

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

	Three months ended March 31,
	2005		2004
Revenue
Software and professional services	$   6,404,270		$   7,481,714
Maintenance and support	4,740,229		4,302,727
Third party products and services	582,721		866,257
	11,727,220		12,650,698
Direct costs	5,342,604		6,589,989
Gross profit	6,384,616		6,060,709
Operating Expenses
Research and development	1,985,420		1,535,344
Sales and marketing	2,010,725		2,135,051
General and administrative	1,877,854		1,753,061
Strategic expenses	--		350,000
	5,873,999		5,773,456
Operating income	510,617		287,253
Other (expense) income	(50,566	)	226,118
Income from operations before tax provision	460,051		513,371
Provision for income taxes	115,549		169,788
Net income for the period	344,502		343,583
Deficit, beginning of the period	(29,411,617	)	(29,919,095	)
Deficit, end of period	$(29,067,115	)	$(29,575,512	)
Earnings per common share (note 3)
Basic	$             0.0		$            0.04
Diluted	$             0.0		$            0.04
Weighted average shares outstanding
Basic	8,384,287		8,226,068
Diluted	8,604,420		8,369,954

See Notes to Condensed Consolidated Financial Statements

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

	Three months ended March 31,
	2005		2004
Cash flows from operating activities
Net income for the period	$      344,502		$      343,583
Items not affecting cash:
Depreciation	543,522		579,061
Deferred income taxes	24,334		(1,012	)
Stock-based compensation charge	--		135,000
Changes in non-cash operating working capital items:
Accounts receivable	(1,727,095	)	(325,828	)
Prepaid expenses and other assets	342,517		542,714
Income taxes payable	(4,473	)	(1,272	)
Accounts payable, accrued liabilities, and accrued restructuring charge	(751,936	)	639,090
Deferred revenue	2,333,886		(203,570	)
Net cash provided by operating activities	1,105,257		1,707,766
Cash flows from investing activity
Acquisition of capital assets	(247,941	)	(324,761	)
Net cash used in investing activity	(247,941	)	(324,761	)
Cash flows from financing activities
Issuance of common shares	209,291		27,957
Repayment of capital leases	(235,097	)	(364,200	)
Net cash used in financing activities	(25,806	)	(336,243	)
Net cash inflow	831,510		1,046,762
Cash and cash equivalents, beginning of period	19,842,920		15,827,043
Cash and cash equivalents, end of the period
	$ 20,674,430		$ 16,873,805
Supplemental disclosure of cash flow information
Cash payment for interest	44,749		48,863
Cash payment (refund) for taxes	74,121		(6,722	)

See Notes to Condensed Consolidated Financial Statements

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

1. Significant accounting policies

(a) Basis of presentation

These condensed consolidated 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, 2004.

The results of operations for the interim periods are not necessarily indicative of results to be expected in future periods.

(b) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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, accrual for restructuring charges, amortization, determination of 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 Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, SAB No. 104, “Revenue Recognition”, Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” 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. The recognition of gross revenue is in accordance with criteria established in Emerging Issues Task Force Issue (EITF) No. 99-19.

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 contract accounting. We use the percentage of completion method when we can reliably estimate the cost to complete and extent of progress toward completion. If we do not have a sufficient basis to measure progress towards completion, revenue is recognized when we receive final acceptance from the customer.

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

1. Significant accounting policies (continued)

(c) Revenue recognition (continued)

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.

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 hours to complete the project. 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.

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.

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.

Periodically, we provide 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 over the warranty period.

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

1. Significant accounting policies (continued)

(c) Revenue recognition (continued)

Third party products and services

Revenue from sales of third party products is recognized upon transfer of title to the customer. 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. When supply agreements include third-party products we recognize the gross amount of revenue from the third-party product as revenue. On occasion, we utilize third-party consultants to assist in implementations or installations originated by the Company. The revenue for these implementations and installations is typically recognized on a gross basis as we ultimately manage the engagement.

(d) Recent accounting pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R “Share-Based Payment” (“SFAS 123R”). This Statement is a revision of SFAS 123 “Accounting for Stock-Based Compensation”. SFAS 123R establishes standards for the accounting for transactions in which an entity receives employee services in exchange for an award of equity instruments. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees.

In March 2005, the SEC staff issued guidance on SFAS 123(R). Staff Accounting Bulletin No. 107 (“SAB 107”) was issued to assist preparers by simplifying some of the implementation challenges of SFAS 123(R) while enhancing the information that investors receive. SAB 107 creates a framework that is premised on two overarching themes: (a) considerable judgment will be required by preparers to successfully implement SFAS 123(R), specifically when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 include: (a) valuation models – SAB 107 reinforces the flexibility allowed by SFAS 123(R) to choose an option-pricing model that meets the standard’s fair value measurement objective; (b) expected volatility – SAB 107 provides guidance on when it would be appropriate to rely exclusively on either historical or implied volatility in estimating expected volatility; and (c) expected term – the new guidance includes examples and some simplified approaches to determining the expected term under certain circumstances. The Company will apply the principles of SAB 107 in conjunction with its adoption of SFAS 123(R).

On April 14, 2005, the Securities Exchange Commission announced the adoption of a new rule that amends the compliance date for SFAS 123R. This Statement is now effective for all awards granted, modified, repurchased, or cancelled after the beginning of the next fiscal year beginning after June 15, 2005. Therefore, the Company intends to adopt this standard commencing January 1, 2006, on a prospective basis.

(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.

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

1. Significant accounting policies (continued)

(e) Stock-based compensation (continued)

The following pro forma financial information presents the net income for the three months ended March 31, 2005 and 2004 and earnings per common share had the Company adopted Statement of Financial Accounting Standard No. 123 (SFAS 123) Accounting for Stock-based Compensation.

	Three months ended March 31,
	2005		2004
Net income (as reported)	$ 344,502		$ 343,583
Stock-based compensation costs, net of related tax effects, that would have
been included in net income for the period if the fair value based method
had been applied	(93,112	)	(240,081	)
Pro forma net income from continuing operations	$ 251,390		$ 103,502
Basic and fully diluted earnings per common share	$       0.04		$       0.04
Pro forma basic and fully diluted earnings per common share	$       0.03		$       0.01

The fair value of the Company’s stock-based compensation awards to employees was estimated using an option pricing model recognizing forfeitures as they occur, assuming no expected dividends, using the following weighted average assumptions: expected life of 5 years (2004 – 5 years), expected annualized volatility of the Company’s share price of 43% (2004 – 43%) and an expected annualized risk free interest rate at 2.2% (2004 – 2.2%).

2. Segmented information

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

The Company earned revenue from sales to customers and has long-lived assets in the following geographic locations:

	Three months ended March 31,
	2005		2004
	Revenue	Long-lived assets	Revenue	Long-lived assets
Canada	$     562,107	$  5,827,506	$     484,167	$7,023,958
United States	6,220,381	494,261	6,931,318	583,293
Europe, Middle East and Africa	4,732,645	76,673	5,055,657	128,907
Asia and other	212,087	--	179,556	--
	$11,727,220	$  6,398,440	$12,650,698	$7,736,158

Major customers and concentration of credit risk

During the three months ended March 31, 2005 revenue from two customers accounted for approximately 24.1% (2004 – 18.1%) and 8.4% (2004 – 13.1%) of revenue, respectively.

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

3. Earnings per share

Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income 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.

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

	Three months ended March 31,
	2005	2004
Weighted average shares outstanding	8,384,287	8,226,068
Effect of dilutive securities - stock options	220,133	143,886
Diluted weighted average shares outstanding	8,604,420	8,369,954

4. Restructuring charge

Fiscal  2001

On March 30, 2001, the Company, in response to uncertain economic conditions and poor financial performance, announced a restructuring plan approved by the Company’s Board of Directors designed to reduce operating costs that resulted in the elimination of 34 full time and contractor positions. On May 11, 2001, the Company announced an update to this plan, approved by the Board of Directors, which resulted in the elimination of an additional 115 positions. As part of this restructuring, the Company recorded a charge to earnings of $6.1 million in the year ended December 31, 2001, which includes a $1.9 million provision 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 $249,760 remaining as at March 31, 2005:

	Provision for excess office space
Reserve balance at December 31, 2004	$ 255,800
Cash payments	(6,040	)
Reserve balance at March 31, 2005	$ 249,760

Fiscal 2004

During the year ended 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 $1.6 million in connection with this restructuring. The $1.6 million charge relates to costs of workforce reduction for approximately 30 affected employees, stock-based compensation charges and other related costs.

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

4. Restructuring charge (continued)

Fiscal 2004 (continued)

A breakdown of the remaining restructuring reserves and the costs incurred to date as at March 31, 2005 are as follows:

	Workforce Reduction		Other	Total
Reserve balance at December 31, 2004	$ 582,924		$82,328	$ 665,252
Cash payments	(321,153	)	--	(321,153	)
Reserve balance at March 31, 2005	$ 261,771		$82,328	$ 344,099

Other restructuring costs of $82,328 relate to outplacement and related expenses the Company expects to incur as a result of the 2004 restructuring. As at March 31, 2005 no amounts have been paid in relation to these costs.

5. Commitments and contingencies

(a) Contingency

From time to time, the Company is party to litigation and claims incidental to the ordinary course of its business. While the results of litigation and claims cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a material adverse effect on the Company’s business, financial condition, operating results and cash flows.

(b) Commitment

During the year ended December 31, 2002, the Company entered into a significant customer contract in which the Company 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. As at March 31, 2005 the Company has generated an estimated $1.1 million of credits relating to this obligation. The Company’s obligation is expected to increase as a result of contract expansions. In the event that the Company determines that it will be unable to meet this commitment in the normal course of operations it will record a liability in the period such circumstances are determinable.

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

5. Commitments and contingencies (continued)

(c) Line and letters of credit

The Company has provided a letter of credit, to support a capital leasing project, in the amount of CDN $1.4 million (USD $1.2 million) expiring October 1, 2005. The Company has pledged an amount equal to the letter of credit against its operating line of credit as security for the letter of credit.

(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. Differences between United States generally accepted accounting principles (“US GAAP”) and Canadian generally accepted accounting principles (“Canadian GAAP”)

At December 31, 2004, as permitted by Canadian securities regulations, the Company adopted US GAAP reporting for Canadian regulatory purposes. As a result, the Company filed annual audited consolidated and interim unaudited condensed consolidated financial statements for fiscal 2004 in accordance with US GAAP and provided an explanation and quantification of material differences between Canadian and US GAAP relating to recognition, measurement, and presentation.

These condensed consolidated financial statements have been prepared in accordance with US GAAP, which differ in some respects from Canadian GAAP.

Material differences between Canadian and US GAAP and their effect on the condensed consolidated financial statements for the three months ended March 31, 2005 and 2004 are summarized below. There are no material differences between Canadian and US GAAP which affect the consolidated balance sheets as at March 31, 2005 and December 31, 2004 and the statements of cash flows for the three months ended March 31, 2005 and 2004.

Results of operations	Three months ended March 31,
	2005		2004
Net income for the period under US GAAP	$    344,502		$    343,583
Stock based compensation charge (a)	(68,106	)	(41,070	)
Net income for the period under Canadian GAAP	$    276,396		$    302,513
Earnings per common share under Canadian GAAP
Basic	$          0.03		$          0.04
Diluted	$          0.03		$          0.04
Weighted average shares outstanding under Canadian GAAP
Basic	8,384,287		8,226,068
Diluted	8,604,420		8,369,954

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

6. Difference between US GAAP and Canadian GAAP (continued)

(a) Stock-based compensation

Effective January 1, 2003, the Company adopted the new amended provisions of the Canadian Institute of Chartered Accountants Handbook Section 3870 — Stock based Compensation and Other Stock-based Payments which required entities to account for employee stock options using the fair value based method under Canadian GAAP. In accordance with the transitional options permitted under amended Section 3870, the Company prospectively applied the fair value based method to all employee stock options granted on or after January 1, 2003, using the fair value based method.

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model using the following weighted average assumptions:

	Three months ended March 31,
	2005	2004
Risk-free interest rate	2.2%	1.1%
Dividend yield	0%	0%
Expected life	5 years	5 years
Volatility	43%	47%

As a result of the differing methods of recognizing stock based compensation under Canadian GAAP and US GAAP, a charge of $68,106 (2004 — $41,070) would have been or has been recognized in the Canadian GAAP statement of operations and the same amount was recorded as other stockholder’s equity, while no corresponding amount for stock based compensation has been recognized in the US GAAP condensed consolidated financial statements.

Section 3870 further requires pro forma disclosure of the effect on net income under Canadian GAAP if the fair value based method had been applied to all options awarded on or after January 1, 2002. This is presented in the following table.

Results of operations	Three months ended March 31,
	2005		2004
Net income for the period under Canadian GAAP	$ 276,396		$ 302,513
Add:
Stock-based employee compensation expense included in net income, net of related tax effects	68,106		41,070
Deduct:
Stock-based employee compensation expense determined under the fair value based
method for all awards from the original effective date of January 1, 2002, net of
related tax effects	(93,112	)	(69,834	)
Pro forma net income under Canadian GAAP	$ 251,390		$ 273,749
Earnings per share under Canadian GAAP
Basic and diluted	$       0.03		$       0.04
Pro forma earnings per share under Canadian GAAP
Basic and diluted	$       0.03		$       0.03

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MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)

(b) Comprehensive income

For US GAAP purposes, the Company reports comprehensive income or loss in accordance with the provisions of SFAS 130, Reporting Comprehensive Income. Under Canadian GAAP, companies do not report comprehensive income or loss.

For the three months ended March 31, 2005 and 2004, there was no comprehensive income or loss under US GAAP.

(c) Future income taxes

Under US GAAP tax rates applied in the calculation of deferred income taxes are those rates that are passed into law. Under Canadian GAAP substantially enacted rates are used in the calculation of future income taxes. The Company determined that there is no material effect on the consolidated financial statements.

(d) Stockholders’equity

While there is no net difference between stockholders’ equity as reported under US GAAP and under Canadian GAAP, the various components within stockholders’ equity are affected by the acquisition in fiscal 2000 and disposition in fiscal 2002 of Connectria, which was accounted for using the pooling method under US GAAP and using the purchase method under Canadian GAAP and by the change in reporting and functional currency from Canadian dollars to US dollars during the year ended December 31, 2000.

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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 Mobile Data Solutions Inc. (“MDSI” or the “Company” or “We”), or developments in the our 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, our dependence upon large contracts and relative concentration of customers, our failure to maintain anticipated levels of expenses in future periods and the risk that cost reduction efforts adversely affect our ability to achieve our business objectives, our failure to successfully execute our 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 we serve, the effect of the risks associated with technical difficulties or delays in product introductions, improvements, implementations, product development, product pricing or other initiatives of our competitors, the possibility that our potential customers will defer purchasing decisions due to economic or other conditions or will purchase products offered by our competitors, risks associated with litigation and the protection of intellectual property, risks associated with the collection of accounts receivable, and the other risks and uncertainties described in the risk factors attached as Exhibit 99.1 hereto and in other SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2004.

        Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates”, or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements.

        Unless otherwise noted, all financial information in this report is expressed in our functional currency, United States dollars. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk.”

Overview

        We are a leading provider of mobile workforce management solutions. Our suite of software applications improve customer service and relationships and reduces operating costs by empowering service companies to effectively manage their mobile field resources. We also provide professional services necessary to implement and support its solutions. Founded in 1993, we have over 100 major customers worldwide, with operations and support offices in the United States, Canada, Europe and Africa. We market our solution to a variety of companies that have substantial field workforces and focus primarily upon utilities (electric, gas and water companies), telecommunications and cable/broadband companies. Our products are used by such companies in conjunction with various public and private wireless data communications networks, mobile devices and server hardware to provide comprehensive solutions for the automation of business processes associated with the scheduling, dispatching and management of a mobile workforce.

        Our revenue is derived from (i) software and professional 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 quarterly, 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.

Restructuring

        We operate in a competitive industry that is consolidating and has several vendors offering competitive solutions. As a result, we must closely scrutinize costs in order to maintain our competitive position in the market place.

        On March 30, 2001, in response to uncertain economic conditions and poor financial performance, we announced a restructuring plan approved by our Board of Directors designed to reduce operating costs that resulted in the elimination of 34 full time and contractor positions. On May 11, 2001, we announced an update to this plan, approved by the Board of Directors, which resulted in the elimination of an additional 115 positions. As part of this restructuring, we recorded a charge to earnings of $6.1 million in the year ended December 31, 2001, which included a $1.9 million provision relating to surplus office space under long-term leases at two locations.

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        In 2004, we further determined that operations could be streamlined and capital resources could be better deployed. As a result, our Board of Directors approved a restructuring plan that was designed to reduce costs by approximately $3 million on an annual basis. As part of this plan, we eliminated approximately 30 positions and sought to minimize other discretionary costs including travel and professional fees among others. We recorded a charge in the year ended December 31, 2004 of $1.6 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 our business operations.

Fiscal 2001

        We have incurred approximately $1.6 million of cash costs relating to the provision for surplus office space under long-term leases at two locations, leaving an accrual of $249,760 remaining as at March 31, 2005.

	Provision for excess office space
Reserve balance at December 31, 2004	$ 255,800
Cash payments	(6,040	)
Reserve balance at March 31, 2005	$ 249,760

Fiscal 2004

A breakdown of our remaining restructuring reserves and the costs incurred to date as at March 31, 2005 are as follows:

	Workforce Reduction		Other	Total
Reserve balance at December 31, 2004	$ 582,924		$82,328	$ 665,252
Cash payments	(321,153	)	--	(321,153	)
Reserve balance at March 31, 2005	$ 261,771		$82,328	$ 344,099

        Other restructuring costs of $82,328 relate to outplacement and related expenses we expect to incur as a result of the 2004 restructuring. As at March 31, 2005, no amounts had been paid with respect to these costs.

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 Advantex, 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 our 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, we may be asked to supply additional user licenses and professional services, which may result in additional revenue for us.

        Revenue for software and services has historically accounted for a substantial portion of our revenue. Typically, we enter 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 usually performed within six to twelve months. Pricing for these contracts includes license fees as well as a fee for professional services. We generally recognize total revenue for software and services associated with a contract using a percentage of completion method based on the total hours incurred to date as a percentage of total hours estimated to complete the contract.

        Our customers usually 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 or more and are invoiced annually, quarterly, or monthly. Revenue for these services is recognized ratably over the term of the contract.

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        We are periodically required to provide, in addition to our products and services, certain third party products, such as host computer hardware, operating system software and mobile computing devices. We recognize revenue on the supply of third party hardware and software upon transfer of title to the customer. We recognize revenue on the supply of third party services using a proportional performance basis based on the costs incurred over the total estimated cost to complete the third party services contract or on a pro-rata basis in the case of maintenance services. Also included in third party revenue are reimbursements to us for out of pocket expenses incurred on implementation projects that we perform. EITF 01-14 “Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses” requires characterization of the reimbursement of these expenses as revenue. An equal and offsetting amount of expense is recognized, relating to the payment of these expenses, as direct costs.

        We believe that we will periodically supply third party products and services to customers where we are successful in selling our own products and services. There can be no assurance, however, that any contracts entered into by us to supply third party products and services in the future will represent a substantial portion of revenue in any future period. Since the revenue generated from the supply of third party products and services may represent a significant portion of certain contracts and the installation and rollout of third party products is generally at the discretion of the customer, we may, depending on the level of third party products and services provided during a period, experience large fluctuations in revenue, direct costs, and gross profit.

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

Recent Accounting Pronouncements

        In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R “Share-Based Payment” (“SFAS 123R”). This Statement is a revision of SFAS 123 “Accounting for Stock-Based Compensation”. SFAS123R establishes standards for the accounting for transactions in which an entity receives employee services in exchange for an award of equity instruments. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees.

        In March 2005, the SEC staff issued guidance on SFAS 123(R). Staff Accounting Bulletin No. 107 (“SAB 107”) was issued to assist preparers by simplifying some of the implementation challenges of SFAS 123(R) while enhancing the information that investors receive. SAB 107 creates a framework that is premised on two overarching themes: (a) considerable judgment will be required by preparers to successfully implement SFAS 123(R), specifically when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 include: (a) valuation models – SAB 107 reinforces the flexibility allowed by SFAS 123(R) to choose an option-pricing model that meets the standard’s fair value measurement objective; (b) expected volatility – SAB 107 provides guidance on when it would be appropriate to rely exclusively on either historical or implied volatility in estimating expected volatility; and (c) expected term – the new guidance includes examples and some simplified approaches to determining the expected term under certain circumstances. We will apply the principles of SAB 107 in conjunction with its adoption of SFAS 123(R).

        On April 14, 2005, the Securities Exchange Commission announced the adoption of a new rule that amends the compliance date for SFAS 123R. This Statement is now effective for all awards granted, modified, repurchased, or cancelled after the beginning of our next fiscal year. Therefore, we intend to adopt this standard commencing January 1, 2006 on a prospective basis.

Differences Between US and Canadian GAAP

        The MD&A has been prepared in accordance with US GAAP. There are differences between our consolidated financial statements under US GAAP and our consolidated financial statements under Canadian GAAP, with the exception of our consolidated statements of cash flows, for the three months ended March 31, 2005 and 2004.

        Under our consolidated statements of operations, direct costs, research and development expense, sales and marketing expense, and general and administrative expense for the period ended March 31, 2005 is different under Canadian GAAP due to the prospective adoption on January 1, 2003 of the recommendations of the Canadian Institute of Chartered Accountants related to stock-based compensation. The amended standard requires recognition of an estimate of the fair value of employee stock-based awards in earnings and the same amount is recorded as other stockholder’s equity. Under US GAAP, only note disclosure is required for the pro forma net income using a fair value based method for employee stock-based awards. The impact of the application of the

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recommendations on our net income under Canadian GAAP for the period ended March 31, 2005 is a reduction of $68,104 (2004 — $41,070) and a reduction of our basic and diluted earnings per share of $0.01 (2003 — $nil), respectively.

        While there is no net difference between stockholders’ equity as reported under US GAAP and under Canadian GAAP on our consolidated balance sheets, the various components within stockholders’ equity are affected by the acquisition in 2000 and disposition in 2002 of Connectria, which was accounted for using the pooling method under US GAAP and using the purchase method under Canadian GAAP and by the change in reporting and functional currency from Canadian dollars to US dollars during the year ended December 31, 2000.

Critical Accounting Policies and Significant Estimates

        The significant accounting policies are outlined within Note 1 to the Condensed Consolidated Financial Statements. Some of those accounting policies require us to make estimates and assumptions that affect the amounts reported by us. The following items require the most significant judgment and involve complex estimation:

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 Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, SAB No. 104, “Revenue Recognition”, Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” 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.

        The recognition of gross revenue is in accordance with criteria established in Emerging Issues Task Force Issue (EITF) No. 99-19.

        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 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.

        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 Condensed 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.

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        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. On occasion, we utilize third-party consultants to assist in implementations or installations originated by the Company. The revenue for these implementations and installations is recognized on a gross basis as we ultimately manage the engagement.

Income Taxes

        Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenue and expense that qualify for preferential tax treatment and segregation of foreign and domestic income and expense to avoid double taxation. Although we believe that our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.

        We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, there is no assurance that the valuation allowance will not need to be increased to cover additional deferred tax assets that may not be realizable. Any increase in the valuation allowance could have a material adverse impact on our income tax provision and net income in the period in which such determination is made.

Restructuring Charges

        In calculating the restructuring charge in 2004 related to the costs to eliminate approximately 30 positions we were 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. Our 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 relating to the restructuring charge originally recorded in 2001, we were 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 we might be able to sublease the site. From the estimates for these costs we 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. Our

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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 – Allowance for Doubtful Accounts

        We periodically review the collectability of our accounts receivable balances. Where doubt exists with regards to the collection of a certain receivable balance, an allowance and charge to the income statement is recorded. At March 31, 2005, our allowance for doubtful accounts was $220,591. We intend to continue to vigorously pursue these accounts. If future events indicate additional collection issues, we may be required to record an additional allowance for doubtful accounts.

Commitment

        We previously entered into a significant customer contract in which we have agreed to utilize a certain amount of local services and create a certain amount of commercial activity in South Africa. We are required to utilize local content or obtain credits equivalent to approximately $7.1 million over a seven-year period ending May 2010. We have furnished a performance guarantee equal to approximately 5% of such amounts. We expect to fulfill our 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 our software products. As we expect to fulfill our obligations through the purchase of services in the normal course of business, no liability has been established for these future-spending commitments. If we determine that we will be unable to meet the minimum performance obligations, a liability for such obligations will be accrued. Our 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.

Warranty

        We warrant to our customers that our software will be in substantial conformance with our specifications. If we are unable to deliver solutions that substantially conform to specifications, warranty claims could have an adverse effect on the our financial results.

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Results of Operations

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

	Three months ended March 31,
	2005		2004
Revenue:
Software and services	54	.6%	59	.1%
Maintenance and support	40	.4	34	.0
Third party products and services	5	.0	6	.9
	100	.0	100	.0
Direct costs	45	.6	52	.1
Gross profit	54	.4	47	.9
Operating expenses:
Research and development	16	.9	12	.1
Sales and marketing	17	.1	16	.9
General and administrative	16	.0	13	.9
Strategic expenses	0	.0	2	.8
	50	.0	45	.7
Operating income	4	.4	2	.2
Other income (expense)	(0	.4)	1	.8
Income before tax provision	4	.0	4	.0
Provision for income taxes	1	.0	1	.3
Net income for the period	3	.0%	2	.7%

Three months ended March 31, 2005 compared to the three months ended March 31, 2004

All numbers in ‘000s unless otherwise noted.

Revenue
Three months ended March 31,		Change
2005	2004	Amount		Percentage
$11,727	$12,651	$(924	)	(7.	3%)

        Revenue decreased by $0.9 million (7.3%) for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. The decrease was primarily due to a decrease in software and professional services revenue, partially offset by maintenance contract revenues.

Software and Professional Services Revenue
Three months ended March 31,		Change
2005	2004	Amount		Percentage
$6,404	$7,482	$(1,078	)	(14.	4%)

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        Software and professional services revenue decreased by $1.1 million (14.4%) for the three months ended March 31, 2005 as compared to three months ended March 31, 2004. We entered into two significant contracts in 2002. While these contracts continue to generate significant revenue for us, revenue from one of these contracts decreased in 2005 because the project is winding down. The remainder of the decrease is attributable to the timing and size of new contracts.

Maintenance and Support Revenue
Three months ended March 31,		Change
2005	2004	Amount	Percentage
$4,740	$4,303	$437	10.	2%

        Maintenance and support revenue was $4.7 million for the three months ended March 31, 2005 as compared to $4.3 million for the three months ended March 31, 2004, an increase of 10.2%. Maintenance and support revenue increased primarily due to the growth in our installed customer base. Such revenue is expected to fluctuate as it corresponds to the number and relative size of customers that engage us to support installed systems. Historically the renewal rate of maintenance and support contracts has been high.

Third Party Products and Services Revenue
Three months ended March 31,		Change
2005	2004	Amount		Percentage
$583	$866	$(283	)	(32.	7%)

        Third party products and services revenue decreased by $0.3 million (32.7%) for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. Third party products and services revenue is primarily earned from certain customers pursuant to agreements under which we provide third party products and services. Not all customers under contract require the provision of third party products and services. Accordingly, there may be large fluctuations in revenue, direct costs, gross profits and income from operations from one period to another. We have 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 we expect that future revenues from third party products and services will fluctuate in the near term. For the period ended March 31, 2005, a substantial portion of third party products and services revenue was comprised of these services at approximately $0.5 million, as compared to $0.7 million for the period ended March 31, 2004.

Direct Costs
Three months ended March 31,		Change
2005	2004	Amount		Percentage
$5,343	$6,590	$(1,247	)	(18.	9%)

        Direct costs were 45.6% of revenue for the three months ended March 31, 2005 as compared to 52.1% for the three months ended March 31, 2004. 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 and services purchased for sale to third parties. Labor costs include direct payroll, benefits and overhead charges. The decrease in direct costs as a percentage of revenue occurred due to cost cutting efforts initiated in the third quarter of 2004, offset by the relative weakness of the United States dollar in the comparative quarters which caused direct costs to increase in the current period as a large component of the direct costs are denominated in Canadian dollars. We expect that direct costs as a percentage of revenue will remain relatively consistent with the current period in the near term.

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Gross Margin
Three months ended March 31,		Change
2005	2004	Amount	Percentage
$6,385	$6,061	$324	5.	3%

        Gross margins were 54.4% of revenue for the three months ended March 31, 2005 as compared to 47.9% for the three months ended March 31, 2004. The increase in gross margins as a percentage of revenue occurred due to cost cutting efforts initiated in the third quarter of 2004. We expect that in the near term our gross margins as a percentage of revenue will remain consistent with the current year, subject to the level of third party services actually provided.

Research and Development
Three months ended March 31,		Change
2005	2004	Amount	Percentage
$1,985	$1,535	$450	29.	3%

        Research and development expenses were $2.0 million, or 16.9% of revenue, for the three months ended March 31, 2005 as compared to $1.5 million, or 12.1% of revenue, for the three months ended March 31, 2004. The increase in research and development expenses is a result of our commitment to enhance and develop additional functionality in its Advantex r7 product including the hiring of additional development staff. The relative weakness of the United States dollar also contributed to the increase in research and development expenses in the current period as the majority of research and development expenses are denominated in Canadian dollars. We intend to continue committing a significant portion of our revenue to enhance existing products and develop new products.

Sales and Marketing
Three months ended March 31,		Change
2005	2004	Amount		Percentage
$2,011	$2,135	$(124	)	(5.	8%)

        Sales and marketing expenses were $2.0 million or 17.1% of revenue for the three months ended March 31, 2005 and $2.1 million or 16.9% of revenue for the three months ended March 31, 2004. The overall decrease in expenditures in 2005 was due to cost saving initiatives, including personnel reductions. We anticipate that the dollar amounts of our sales and marketing expenses will continue to be significant as a result of our commitment to our international marketing efforts and attempts to penetrate additional markets for our products.

General and Administrative
Three months ended March 31,		Change
2005	2004	Amount	Percentage
$1,878	$1,753	$125	7.	1%

        General and administrative expenses were $1.9 million, or 16.0% of revenue, for the three months ended March 31, 2005 and $1.8 million, or 13.9% of revenue, for the three months ended March 31, 2004. General and administrative expenses increased relative to the comparative period primarily as a result of costs incurred by us for third party professional fees during the current quarter relating to the proposed acquisition of a company with a complementary technology. After completion of our due diligence review, we elected not to proceed with the transaction. In addition, the relative weakness of the United States dollar also contributed to the increase in general and administrative expenses in the current period as the majority of these expenses are denominated in Canadian dollars. We expect that in the near future, general and administrative expenditures will remain relatively consistent with current levels.

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Strategic Expenses
Three months ended March 31,		Change
2005	2004	Amount		Percentage
$   0	$350	$(350	)	(100.	%)

        There were no strategic expenses for the three months ended March 31, 2005 as compared to $0.4 million, or 2.8% of revenue for the three months ended March 31, 2004. Strategic expenses in 2004 consisted primarily of expenses incurred by us in connection with a definitive agreement entered into on April 12, 2004, which would have resulted in the Company being acquired by At Road Inc. On July 27, 2004, we announced that the Company and At Road Inc. had mutually agreed to terminate the agreement.

Other Income (Expense)
Three months ended March 31,			Change
2005		2004	Amount		Percentage
$(51	)	$226	$(277	)	(122.	4%)

        Other expense was $0.05 million for the three months ended March 31, 2005 as compared to other income of $0.2 million for the three months ended March 31, 2004. Substantially all of other income (expense) related to fluctuations in the currencies of our foreign operations, interest income on cash and short-term deposits, and interest expense on capital lease obligations. Included in other expense for the three months ended March 31, 2005 is income of $125,000 related to the recovery of an investment previously written off.

Income Taxes
Three months ended March 31,		Change
2005	2004	Amount		Percentage
$116	$170	$(54	)	(31.	9%)

        Our effective tax rate for the three months ended March 31, 2005 was a provision of 25.1% (2004 – 33.1%) compared to a Canadian federal statutory tax rate of 35.6%.  Our effective tax rate represents a rate that is applicable to all of our operations crossing multiple tax jurisdictions with tax rates that are different than the Canadian federal statutory tax rate. We also operate in tax jurisdictions that have regulations that permit the carry back of current period tax losses and credits to prior periods when income taxes were paid. Our effective tax rate in the years presented reflects recoveries and refunds of prior year taxes paid and tax credits received offset by valuation allowances on losses carried forward.

Liquidity and Capital Resources

        We have financed our operations, acquisitions and capital expenditures with cash generated from operations, loans, private placements and public offerings of our securities. At March 31, 2005, we had cash and cash equivalents of $20.7 million and working capital of $11.3 million.

        Cash provided by operating activities was $1.1 million for the three months ended March 31, 2005 as compared to $1.7 million for the three months ended March 31, 2004. The $1.1 million of cash provided by operating activities in 2005 was comprised of $0.3 million net income, non-cash charges of $0.6 million and $0.2 million of changes to non-cash working capital items. Depreciation accounted for $0.5 million of the non-cash charge in the period. Trade accounts receivable increased $1.4 million in the period due to strong billing milestones achievement during the quarter. Unbilled accounts receivable arise where we have earned revenue on a project and have not completed specific billing milestones under the terms of the applicable contract. The $0.3 million increase in unbilled accounts receivable reflected increased progress towards completion during the quarter. Deferred revenue arises where we have achieved a billing milestone under a customer contract but have yet to recognize all of the revenue billed due to the percentage of completion under the contract. The $2.3 million increase in deferred revenue was due to strong billing milestones achievement and annual maintenance billings during the quarter for which we have billed in advance of work being completed on the projects. The $0.3 million decrease in prepaid expenses and other assets was due to the draw down of the prepaid expenses during the

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normal course of operations. The $0.4 million decrease in accounts payable and accrued liabilities reflected the timing of payments at the quarter-end relative to the year-end, partially offset by an increase in accruals for third-party embedded software.

        We maintain, as at March 31, 2005, a provision of $0.2 million with respect to doubtful accounts. We intend to vigorously pursue collection of these accounts; however, due to uncertainty with regards to ultimate collection, we determined that it would be prudent to maintain an allowance to address this uncertainty.

        Cash used in financing activities was $0.03 million comprised of $0.2 million in repayments of capital leases offset by a similar amount from the issuance of common shares.

        Cash used in investing activities was $0.2 million for the three months ended March 31, 2005 as compared to $0.3 million for the same period in 2004 for the purchase of capital equipment, including computer hardware and software for use in research and development activities, and to support the growth of our corporate information systems.

        Existing sources of liquidity at March 31, 2005 include $20.7 million of cash and cash equivalents and funds available under our operating line of credit. As at March 31, 2005, our borrowing capacity under the line of credit was up to CDN$10 million (US$8.3 million). Under the terms of the agreement, borrowings and letters of credit under the line are limited to 75% to 90% of eligible accounts receivable. Borrowings accrue interest at the bank’s prime rate plus 0.25%. As at March 31, 2005, we were not using this line of credit, except as security for an outstanding letter of credit, to support a capital leasing project, in the amount of CDN$1.4 million (US$1.2 million) expiring October 1, 2005.

        We have a revolving, demand term loan facility available by way of floating rate advances or Cost of Funds loans (“COF”) with a Canadian commercial bank to finance up to 75% of the cost of the capital expenditures (“Capex”), to a maximum of CDN$1.5 million (US$1.2 million). Floating rate advances bear interest at prime plus 0.25% and COF loans bear interest at COF+ 2%. As at March 31, 2005, we were not utilizing the loan facility.

        We have a letter of credit facility with a Canadian commercial bank for issuance of letters of credit in support of contracts for up to CDN$10 million (US$8.3 million), which bears interest at the bank’s prime rate plus 0.50% per annum. As at March 31, 2005, we have not issued any letters of credit under this facility.

        We believe that the principal source of our liquidity is operating cash flow. Certain circumstances including a reduction in the demand for our products, an increase in the length of the sales cycle for our products, an increase in operating costs, unfavorable results of litigation, or general economic slowdowns could have a material impact on the our operating cash flow and liquidity.

        We believe that future cash flows from operations and our 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 our past and expected future growth, we may increase, from time to time, our borrowing facility under our operating line of credit to support its operations. Future growth or other investing activities may require us 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. As at March 31, 2005 we had the following contractual obligations and commercial commitments:

	Payments Due by Period ended March 31,
	Total	Less Than One Year	1-3 Years	4-5 Years	After 5 Years
Capital Lease Obligations	$868,610	$868,610	$           --	$           --	$           --
Operating Leases	5,367,459	1,504,672	3,785,722	77,065	--
Purchase Commitments	1,154,478	1,154,478	--	--	--
Total Contractual Obligations	$7,390,547	$3,527,760	$3,785,722	$77,065	$      --

        We have entered into a significant customer contract in which we have agreed to utilize a certain amount of local services and create a certain amount of commercial activity in South Africa. We are required to utilize local content or obtain credits

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equivalent to approximately $7.1 million over a seven-year period ending May 2010. We have furnished a performance guarantee equal to approximately 5% of such amounts. We expect to fulfill our 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 our software products. Because we expect to fulfill our obligations through the purchase of services in the normal course of business, no liability has been established for these future-spending commitments. If we determine that we will be unable to meet the minimum performance obligations, a liability for such obligations will be accrued. As at March 31, 2005 we have generated an estimated $1.1 million of credits relating to this obligation. Our 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.

Indemnification

        We typically include 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 our software. To date we have not experienced any significant obligations under customer indemnification provisions and accordingly, no amounts have been accrued for such potential indemnification obligations.

Derivative Financial Instruments

        We generate a significant portion of our sales from customers located outside the United States. International sales are made mostly from a foreign subsidiary and are typically denominated in U.S. dollars, Euros or British pounds. We also incur a significant portion of expenses outside the United States, principally in Canada, which are typically denominated in Canadian dollars. Our 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, our future results could be materially adversely impacted by changes in these or other factors. We 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 we enter into generally have original maturities ranging from three to eighteen months. We do not enter into foreign exchange forward contracts for trading or speculative purposes, and do not expect gains or losses on these contracts to have a material impact on our financial results.

        Our foreign currency forward contracts are executed with credit worthy banks and are denominated in currencies of major industrial countries. As at March 31, 2005 and 2004 we had no foreign currency forward contracts outstanding.

Off-Balance Sheet Transactions

        We do not have any off-balance sheet arrangements.

ITEM 3.   QUANTITATIVE 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, Euro and Canadian dollar.

        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.

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        We have evaluated our exposure to foreign currency risk and have determined that while we have a degree of exposure to the Euro, the Danish kroner 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 March 31, 2005, 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 $3.0 million. The foreign currency sensitivity model is limited by the assumption that all foreign currencies, to which we are 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 March 31, 2005 and 2004, we had no outstanding currency forward exchange contracts and during the three months ended March 31, 2005 and 2004, 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 these periods.

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.

        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 does 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 December 31, 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.

        We do not have any material exposure to commodity risks. We are exposed to economic and political changes in international markets where we compete such as inflation rates, recession, foreign ownership restrictions and other external factors over which we have no control; domestic and foreign government spending, budgetary and trade policies.

ITEM 4.    CONTROLS AND PROCEDURES

Changes in Internal Control Over Financial Reporting

        As disclosed in our quarterly report on Form 10-Q for the quarter ended March 31, 2004, we have undertaken certain steps to strengthen our 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 our accounting group, a determination of the appropriate revenue recognition treatment for each new contract by senior members of the accounting group, revisions to our 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 our standard contractual wording to be approved at a senior management level and review by management of any unusual terms which may impact our historical practice of accounting for revenue. Management is

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in the process of a further review and assessment of our 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 non-accelerated and foreign filers for fiscal years ending on or after July 15, 2006. As of the date of this report, we are not an accelerated filer and, accordingly, we expect these additional requirements to apply to us for our fiscal year ended December 31, 2006. Management may recommend and we may implement additional changes in our internal control over financial reporting pursuant to this review. In light of these additional SEC requirements and our current level of activities, we are evaluating the level of staffing of our finance group.

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

Evaluation of Disclosure Controls and Procedures

        In connection with the filing of this quarterly report on Form 10-Q, our management, with the participation of our 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

        Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our 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.

Part II — OTHER INFORMATION

For Items 1 through 5 there was no reportable information for the three months ended March 31, 2005.

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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)	Amending Agreement dated December 1, 1998 between Sun Life Assurance Company of Canada and the Company
10	.5(2)(5)	Employment Agreement dated January 2, 2002 between the Company and Verne Pecho
10	.6(2)(6)	2002 Stock Purchase Plan
10	.7(7)	Exchange Agreement dated as of June 26, 2002 among the Company, Connectria Corporation, Richard S. Waidmann and Eric Y. Miller
10	.8(7)	Amendment to Exchange Agreement dated as of June 30, 2002 among the Company, Connectria Corporation, Richard S. Waidmann and Eric Y. Miller
10	.9(7)	Warrant dated as of June 29, 2002 to purchase 50,380 shares of Series A Nonvoting Preferred Stock of Connectria Corporation
10	.10(2)(8)	Employment Agreement dated August 1, 2003 between the Company and Peter Hill Rankin
10	.11(2)(8)	Employment Agreement dated September 3, 2003 between the Company and Glenn Kumoi
10	.12(2)(8)	Employment Agreement dated September 4, 2003 between the Company and Erik Dysthe
10	.13(2)(8)	Employment Agreement dated August 20, 2003 between the Company and Joo-Hyung (Tommy) Lee
10	.14(10)	Combination Agreement dated as of April 12, 2004 among At Road, Inc., Orion Exchange Co. Ltd. and the Company
10	.15(11)	Amendment No. 1 to the Combination Agreement dated June 15, 2004 among At Road Inc., Orion Exchange Co. Ltd., and the Company
10	.16(2)(12)	Employment Agreement dated December 20, 2003 between the Company and Neil McDonnell
10	.17(2)	Employment Agreement dated August 20, 2003 between the Company and Simon Backer
10	.18(2)	Employment Agreement dated August 20, 2003 between the Company and Warren C. Cree
10	.19(2)	Employment Agreement dated August 20, 2003 between the Company and Cy Tordiffe
10	.20(2)	Termination of Employment Agreement dated September 27, 2004 among the Company, Peter Hill Rankin and Blue Citrus Ventures Inc.
10	.21(2)	Termination of Employment and Severance Agreements and Release dated September 22, 2004 and September 23, 2004 between the Company and Joo-Hyung (Tommy) Lee
10	.22(2)	Termination of Employment and Severance Agreements and Release dated September 22, 2004, amended October 15, 2004, and October 18, 2004 between the Company and Simon Backer
10	.23(2)	Termination of Employment and Severance Agreements and Release dated September 22, 2004, September 23, 2004 and September 24, 2004 between the Company and Warren C. Cree

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Exhibit Number		Description
10	.24(2)	Termination of Employment and Severance Agreements and Release dated October 1, 2004 and October 7, 2004 between the Company and Cy Tordiffe
31	.1	Section 302 Certification of Chief Executive Officer
31	.2	Section 302 Certification of Chief Financial Officer
32	.1	Section 906 Certification of Chief Executive Officer
32	.2	Section 906 Certification of Chief Financial Officer
99	.1	Risk Factors

_________________

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

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

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

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

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

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

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

(8) Previously filed as exhibits with the Registrant’s Form 10-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-Q for the quarterly period ended March 31, 2004.

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

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

* Confidential portions of this exhibit have been omitted and filed separately with the Commission pursuant to an application for Confidential Treatment under Rule 24b -2 promulgated under the Securities Exchange act of 1934, as amended.

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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: May 16, 2005 By:        /s/ Erik Dysthe                                       
Name:   Erik Dysthe
Title:     President, Chief Executive Officer,
              Chairman of the Board and Director

Date: May 16, 2005 By:        /s/ Verne D. Pecho                               
Name:    Verne D. Pecho
Title:    Vice President, Finance & Administration
              and Chief Financial Officer
              (Principal Financial and Accounting Officer)

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

        I, ERIK DYSTHE, Chief Executive Officer, President & Chairman of the Board and Director of MDSI Mobile Data Solutions Inc., certify that:

1.        I have reviewed this Quarterly Report on Form 10-Q of MDSI Mobile Data Solutions Inc.;

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.        The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   May 16, 2005

/s/ Erik Dysthe                             
ERIK DYSTHE
Chief Executive Officer, President &
Chairman of the Board and Director

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

        I, VERNE D. PECHO, Chief Financial Officer of MDSI Mobile Data Solutions Inc., certify that:

1.        I have reviewed this Quarterly Report on Form 10-Q of MDSI Mobile Data Solutions Inc.;

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.        The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   May 16, 2005

/s/ Verne D. Pecho                             
VERNE D. PECHO
Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MDSI Mobile Data Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, ERIK DYSTHE, the Chief Executive Officer, President & Chairman of the Board and Director of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Erik Dysthe                             
ERIK DYSTHE
Chief Executive Officer, President &
Chairman of the Board and Director

May 16, 2005

EX-32.2

EXHIBIT 32.2

In connection with the Quarterly Report of MDSI Mobile Data Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, VERNE D. PECHO, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Verne D. Pecho                             
VERNE D. PECHO
Chief Financial Officer

May 16, 2005

EX-99.1

EXHIBIT 99.1

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

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

        When evaluating MDSI’s business, you should consider:

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

• the risk factors described in the Company’s annual report for the year ended December 31, 2004 filed with the Securities and Exchange Commission; and

• the risk factors described below.

Risk Factors

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

Potential fluctuations in revenues and/or costs affect quarterly operating results.

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

        We believe that economic and political developments and trends have adversely affected levels of capital spending by companies in a variety of industries, including companies in the vertical markets that we serve. While such economic and political conditions are likely to continue to affect demand for our products and services in 2005, we believe that the telecommunications and cable/broadband markets have begun to show signs of recovery from such difficult times and that these trends will benefit us. However, these markets have also shown a recent trend toward consolidation, particularly in the United States, which we believe could postpone purchase decisions within the industry and could have an adverse impact on our software and services revenues from these markets in the short term.

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

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

        Based upon all of the foregoing factors, we believe that our quarterly revenue, direct expenses and operating results are likely to vary significantly in the future, that period-to-period comparisons of the results of operations are not necessarily meaningful and that such comparisons should not be relied upon as an indication of future performance. We may also choose to reduce prices or increase spending in response to competition, or to pursue new market opportunities. If new competitors, technological advances by existing competitors or other competitive factors require us to reduce our prices or invest significantly greater resources in research and development efforts, our operating results in the future may be adversely affected. There can be no assurance that we will be able to grow in future periods or that we will be able to sustain our level of total revenue or achieve revenue growth on a quarterly or annual basis. It is likely that in some future quarter our operating results will be below published Company forecasts and/or the expectations of public market analysts and investors. In such event, the market price of our Common Shares would likely be materially adversely affected.

Dependence on third party products and services may cause fluctuations in operating results.

        Since 1996, we have been, and anticipate that from time to time we will be, engaged to provide, in addition to our own products and services, third party hardware, software and services, which we purchase from vendors and sells to our customers. For the years ended December 31, 2004, 2003 and 2002, 4.7%, 9.5% and 6.5%, respectively, of our revenue was attributable to third party products and services. As the revenue generated from the supply of third party products and services may represent a significant portion of certain contracts and the installation and rollout of third party products is generally at the discretion of the customer, we may, depending on the level of third party products and services provided during a period, experience large quarterly fluctuations in revenue. In addition, because our gross margins on third party products and services are substantially below gross margins historically achieved on revenue associated with our products and services, large fluctuations in quarterly revenue from the sale of third party products and services will result in significant fluctuations in direct costs, gross profits, operating results, cash flows and other items expressed as a percentage of revenue.

        Certain functionality of our software solutions rely on software developed, provided and licensed by third party vendors. If we fail to reach a commercially acceptable agreement with respect to the licensing of such software, or reach an agreement under commercially onerous terms, or such third-party software fails to operate effectively, our products, reputation and/or financial results could be materially affected.

We experience various non-recurring costs.

        Over the past few years we have recorded material strategic expenses in connection with due diligence related to investigations of potential business combinations, restructuring costs in connection with downsizing, as well as a large write-off of an account receivable balance with respect to a legal dispute with a former customer. We anticipate approximately $0.3 million to be incurred in the second quarter of 2005 in investigating potential acquisitions. While we do not currently foresee any legal disputes or restructuring costs in 2005, there can be no assurance that costs of this nature will not arise again nor that such charges will not be material. Significant nonrecurring changes could have an adverse effect on our business, financial condition, operating results and cash flow.

Lengthy sales cycles for Advantex products may affect operating results.

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

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may be adversely affected. In particular, due to economic conditions and developments in our core markets, we have experienced an increase in the time necessary to complete the negotiation and signing of contracts with some of our customers.

A significant portion of our revenue is derived from significant contracts from a limited number of customers.

        Our revenue is dependent, in large part, on significant contracts from a limited number of customers. During the years ended December 31, 2004, 2003 and 2002, approximately 47%, 44% and 29%, respectively, of our consolidated revenue was attributable to five or fewer customers. During the year ended December 31, 2004, Telkom South Africa Limited accounted for 19.3% of our consolidated revenue and Transco PLC accounted for 10.6% of our consolidated revenue. During the year ended December 31, 2003, Telkom South Africa Limited accounted for 18.0% of our consolidated revenue and Transco PLC accounted for 17.1% of our consolidated revenue. During the year ended December 31, 2002, no individual customer accounted for 10% or more of our overall revenue. We believe that revenue derived from current and future large customers will continue to represent a significant portion of its total revenue. The inability to continue to secure and maintain a sufficient number of large contracts would have a material adverse effect on our business, financial condition, operating results and cash flows. Moreover, our success will depend in part upon our ability to obtain orders from new customers, as well as the financial condition and success of our customers and general economic conditions.

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

A large portion of our backlog is derived from a limited number of customers.

        A large portion of our backlog consists of a relatively small number of large contracts relating to sales of our software and related equipment and services, and sales of third party products and services. Due to the long, complex sales process and the mix of sales of our products and services and third party products and services, our backlog may fluctuate significantly from period to period. In addition, under the terms of some of our contracts, our customers may elect to terminate their contracts with us at any time after notice to us or to delay certain aspects of installation. Due to the relative size of a typical contract compared to our annual and quarterly revenue, a termination or installation delay of one or more contracts could have a material adverse effect on our business, financial condition, operating results and cash flows. Contracts for software maintenance and support are generally renewable every year and are subject to renegotiation upon renewal. There can be no assurance that our customers will renew their maintenance contracts or that renewal terms will be as favorable to us as existing terms.

        We believe that volatile economic conditions and reduced capital spending by existing and prospective customers have and may continue to adversely affect demand for our products and services in 2005. In particular, service providers, utilities companies, cable/broadband and telecommunications companies in North America have been impacted since the latter half of 2000. While we believe that economic conditions in certain of our vertical markets show signs of improvement, we believe that economic conditions and general trends are likely to continue to delay purchasing and implementation decisions. If the economic conditions in the United States and Canada worsen or if a global economic slowdown occurs, we may experience reduced revenues, increased costs, reduced margins and increased risks associated with the collection of customer receivables, any of which may have a material adverse impact on its business, operating results, cash flows and financial condition.

Demand for our product varies on a seasonal basis.

        Certain of the vertical markets targeted by us include industries with implementation requirements that vary seasonally. For example, utility companies in North America generally have decreased implementation activity in winter months when such utilities

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face their greatest consumer demand. As a result, our results of operations may also vary seasonally, and such variation may be significant.

We have a history of losses and fixed operating expenses.

        As of March 31, 2005, we had an accumulated deficit of $29.1 million. There can be no assurance that we will realize revenue growth or be profitable on a quarterly or annual basis. We plan to continue to allocate significant resources to our operating expenses related to sales and marketing operations, to fund significant levels of research and development, to broaden our customer support capabilities and to maintain our administrative resources. A relatively high percentage of our expenses are fixed in the short term and our expense levels are based, in part, on our expectations of future revenue. To the extent that such expenses precede or are not subsequently followed by increased revenue, our business, financial condition, operating results and cash flows could be materially adversely affected. In addition, due to the rapidly evolving nature of its business and markets, we believe that period-to-period comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

We may undertake an acquisition or other business transaction.

        We may, when and if the opportunity arises, acquire other products, technologies or businesses involved in activities, or having product lines, that are complementary to our business. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management’s attention from other business concerns, risks associated with entering markets or conducting operations with which we have no or limited direct prior experience and the potential loss of key employees of the acquired company. Moreover, there can be no assurance that any anticipated benefits of an acquisition will be realized. Future acquisitions by us could result in potentially dilutive issuances of equity securities, the use of cash, the incurrence of debt and contingent liabilities, and write-off of acquired research and development costs, all of which could materially and adversely affect our financial condition, results of operations and cash flows.

Future revenue streams will be derived from newly developed products.

        We expect that a significant portion of our future revenue will be derived from the sale of newly introduced products and from enhancement of existing products, including Advantex r7 and Advantex r7.7, “Advantex in a Box”. Our success will depend in part upon our ability to enhance our current products on a timely and cost-effective basis and to develop new products that meet changing market conditions, including changing customer needs, new competitive product offerings and enhanced technology. There can be no assurance that we will be successful in developing and marketing on a timely and cost-effective basis new products and enhancements that respond to such changing market conditions. If we are unable to anticipate or adequately respond on a timely or cost-effective basis to changing market conditions, to develop new software products and enhancements to existing products, to correct errors on a timely basis or to complete products currently under development, or if such new products or enhancements do not achieve market acceptance, our business, financial condition, operating results and cash flows could be materially adversely affected. In light of the difficulties inherent in software development, we expect that we may experience delays in the completion and introduction of new software products.

We have experienced significant growth.

        Since our inception, we have experienced periods of rapid growth in product sales, personnel, research and development activities, number and complexity of products, the number and geographic focus of our targeted vertical markets and product distribution channels. The total number of employees of the Company has grown from 9 employees in Canada in February 1993 to 333 employees located in Canada, the United States and other international locations at December 31, 2004. We have also expanded the geographical areas in which we operate. Such growth may place strains on our management, administrative, operational and financial resources, as well as increased demands on our internal systems, procedures and controls. There can be no assurance that we will be able to effectively manage our operations or future growth and expansion into new markets. Failure to do so could have a material adverse effect on our business, financial condition, operating results and cash flows.

We are dependent upon certain key personnel.

        Our performance and future operating results are substantially dependent on the continued service and performance of our senior management and key technical and sales personnel. Competition for qualified personnel is intense, and there can be no assurance that we can retain our key technical, sales and managerial employees or that we will be able to attract or retain additional highly qualified technical and managerial personnel. The loss of the services of any of our senior management or other key employees

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or the inability to retain the necessary technical, sales and managerial personnel could have a material adverse effect upon the our business, financial condition, operating results and cash flows.

We are dependent upon selected vertical markets.

        Since our inception, substantially all of our revenue has been derived from the sale of products and services to customers in the utility, telecommunication and cable/broadband markets. We anticipate that a significant portion of our revenue will continue to be generated by sales of products and services to these markets. Demand for our services in these markets has fluctuated and is likely to fluctuate in the future. In addition, we believe that recent economic developments and trends have adversely affected and may continue to adversely affect levels of capital spending by companies in a variety of industries, including the vertical markets we serve. We believe that these and other factors may cause potential and existing customers to delay or defer purchasing decisions or seek to terminate or delay payment under existing contracts for our products and services. Such factors may also increase the amount of doubtful accounts or adversely affect the likelihood of collection of such accounts. A decline in demand for our products in these markets as a result of economic conditions, competition, technological change or otherwise, would have a material adverse effect on our business, financial condition, operating results and cash flows. There can be no assurance that we will be able to diversify our product offerings or revenue base by entering into new vertical markets or continue to earn revenue in current markets.

We are dependent upon our marketing relationships.

        Our products are marketed by our direct field sales force as well as by third parties that act as lead generators or with whom we act together as a co-marketer or co-seller. Our existing agreements with such partners are nonexclusive and may be terminated by either party without cause. Such organizations are not within our control, are not obligated to purchase products from us and may also represent and sell competing products. There can be no assurance that our existing partners will continue to provide the level of services and technical support necessary to provide a complete solution to our customers or that they will not emphasize their own or third-party products to the detriment of the our products. The loss of these partners, the failure of such parties to perform under agreements with us or our inability to attract and retain new resellers with the technical, industry and application experience required to market our products successfully could have a material adverse effect on our business, financial condition, operating results and cash flows. We may enter into certain joint ventures in order to facilitate our expansion into other vertical markets and geographic areas. To the extent that such joint ventures are not successful, there could be a material adverse effect on our business, financial condition, operating results and cash flows.

We operate in a competitive environment.

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

        We primarily compete in the utilities market with, Intergraph Corporation, Accenture (through its FFE Workforce Management solution), SPL WorldGroup, ViryaNet Inc. and ClickSoftware, Inc. Our primary competitors for telecommunications customers are Telcordia Technologies, Inc., a company that has historical relationships with certain of the large telecommunications companies, and ClickSoftware, Inc. Less frequently, we encounter Vidus Ltd., a company recently acquired by At Road Inc. In the cable/broadband market, our primary competitors are Telcordia Technologies Inc., C–Cor Inc. and CSG Systems International Inc.

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        We believe that the principal competitive factors in other field service markets are the ability to improve the customer service aspects of an organization’s business and reduce its costs through increased productivity of field service representatives. We compete in these markets with other suppliers of wireless enablement products, such as Antenna Software, Inc., Dexterra, Everypath Inc and Extended Systems, enterprise application solution providers, such as Astea, Metrix and Fieldcentrix, and larger enterprise software companies, such as Oracle Corporation and Siebel Systems.

We carry the risk of product defects and implementation failure.

        Software products, including those offered by us, contain undetected errors or omissions. Software products, when implemented, installed, configured and customized, may also fail to perform according to customer expectations due to the failure by the customer to properly specify its system requirements, failure by the customer to properly operate or interact with the system, operator error, technical problems associated with the customer’s host system, or the resistance of the customer’s workforce to the adoption of new technology. In addition, software products may fail to perform according to expectations due to our failure to properly design the system to operate in the environment, infrastructure or communications network in which the product is to be used. There can be no assurance that, even after testing by us and by current and potential customers, our products will be free of errors or will perform according to expectations with respect to response time, ability to communicate over multiple networks, scalability, stability and ease of use. Such errors and failures could result in loss of or delay in market acceptance of our products, the cancellation of contracts or the imposition of substantial penalties, any of which could have a material adverse effect on our business, financial condition, operating results and cash flows.

We are dependent on our ability to protect our intellectual property rights.

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

We are dependent on certain third parties.

        Certain contracts require us to supply, coordinate and install third party products and services or employ subcontractors. We believe that there are a number of acceptable vendors and subcontractors for most of our required products, but in many cases, despite the availability of multiple sources, we may select a single source in order to maintain quality control and to develop a strategic relationship with the supplier or may be directed by a customer to use a particular product. The failure of a third party supplier or subcontractor to provide a sufficient and reliable supply of parts and components or products and services in a timely manner could have a material adverse effect on our results of operations. In addition, any increase in the price of one or more of these products, components or services could have a material adverse effect on our business, financial condition, operating results and cash flows.

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Additionally, under certain circumstances, we supply products and services to a customer through a larger company with a more established reputation acting as a project manager or systems integrator. In such circumstances, we have a sub-contract to supply our products and services to the customer through the prime contractor. In these circumstances, we are at risk that situations may arise outside of our control that could lead to a delay, cost over-run or cancellation of the prime contract which could also result in a delay, cost over-run or cancellation of our sub-contract. The failure of a prime contractor to supply its products and services or perform its contractual obligations to the customer or to us in a timely manner could have a material adverse effect on our financial condition, results of operations and cash flows.

Exchange rate fluctuations affect our results of operations.

        Because our reporting and functional currency is the United States dollar, our operations outside the United States face additional risks, including fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. To the extent we have operations outside the United States, we are subject to the impact of foreign currency fluctuations and exchange rate changes on our reporting in our financial statements of the results from such operations outside the United States. We are hedged, to some extent, from foreign exchange risks because of our ability to purchase and sell in the local currency of the jurisdictions in which we operate. In addition, we have entered into foreign currency contracts under certain circumstances to reduce our exposure to foreign exchange risks. There can be no assurance, however, that the attempted matching of foreign currency receipts with disbursements or hedging activities will adequately moderate the risk of currency or exchange rate fluctuations which could have a material adverse effect on our business, financial condition, operating results and cash flows. In certain historical periods, the relative weakness of the U.S. dollar has contributed to an increase in direct costs as a percentage of revenue, as the majority of our direct costs are incurred in Canadian dollars. During the year ended December 31, 2004, we did not enter into any foreign currency contracts.

We have international operations.

        In the years ended December 31, 2004, 2003 and 2002, revenue derived from sales outside of North America accounted for approximately 39.3%, 44.5% and 30.9%, respectively, of our total revenue. Because our revenue is dependent, in large part, on significant contracts with a limited number of customers, the percentage of our revenues that is derived from sales outside of North America has fluctuated, and may continue to fluctuate, from period to period. We believe that our ability to grow and be profitable will require additional expansion of our sales in foreign markets, and that revenue derived from international sales will account for a significant percentage of our revenue for the foreseeable future. This expansion has required and will continue to require significant management attention and financial resources. Our inability to expand international sales in a timely and cost-effective manner could have a material adverse effect on our business, financial condition, operating results and cash flows. There are a number of risks inherent in our international business activities, including changes in regulatory requirements, tariffs and other trade barriers, costs and risks of localizing products for foreign markets, longer accounts receivable payment cycles, difficulties in collecting payments, reduced protection for intellectual property, potentially adverse tax consequences, limits on repatriation of earnings, the burdens of complying with a wide variety of foreign laws, nationalization, war, insurrection, terrorism and other political risks and factors beyond our control. Fluctuations in currency exchange rates could adversely affect sales denominated in foreign currencies and cause a reduction in revenue derived from sales in a particular country. In addition, our revenue earned abroad may be subject to taxation by more than one jurisdiction, thereby adversely affecting our earnings. There can be no assurance that such factors will not materially adversely affect our future international sales and, consequently, our business, financial condition, operating results and cash flows.

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

We are exposed to product liability claims.

        The license and support of products by us may entail the risk of exposure to product liability claims. A product liability claim brought against us or a third party that we are required to indemnify, whether with or without merit, could have a material adverse effect on our business, financial condition, operating results and cash flows. We carry insurance coverage for product liability claims, which we believe to be adequate for our operations.

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We are subject to Canadian laws and regulations which may have anti-takeover effects.

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

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

        As a result of being a reporting issuer in certain provinces of Canada, we are required to file certain reports in such jurisdictions. As part of such reports, we are required to file consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) as applied in Canada. Canadian and US GAAP differ in certain respects, including the treatment of certain reorganization costs, acquired research and development costs, and the expensing of stock options. As a result, our Condensed Consolidated Financial Statements included in this report may differ materially from our financial statements filed in Canada.

Our share price may be subject to price volatility and related risks.

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

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