----

| Management’s Report                                                                                          | 82 |
|--------------------------------------------------------------------------------------------------------------------|----|
| Report of Independent Registered Public Accounting Firm                                                            | 83 |
| Consolidated Balance Sheets as at December 31, 2010 and 2009                                                       | 84 |
| Consolidated Statements of Operations and Comprehensive loss for the years ended December 31, 2010, 2009, and 2008 | 85 |
| Consolidated Statements of Deficit for the years ended December 31, 2010, 2009 and 2008                            | 86 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009, and 2008                        | 87 |
| Notes to Consolidated Financial Statements                                                                         | 88 |

----

| Duncan Copeland   CEO | Jim MoskosCOO |
|--------------------------------------|---------------|

----

----

| CONSOLIDATED BALANCE SHEETSDecember 31, 2010 and 2009(in thousands ofCanadian dollars) |   |
|----------------------------------------------------------------------------------------|--------|
|                                                                                   |   |   |   |
|                                                                                   |   | 2010 |   |   | 2009 |   |
|                                                                                   |   |   |   |   |   |   |
| ASSETS                                                                                 |   |   |   |   |   |   |
| CURRENT                                                                                |   |   |   |   |   |   |
| Cash                                                                                   |   | $ | 90 |   |   | $ | 226 |   |
| Accounts receivable                                                                    |   |   | 157 |   |   |   | 253 |   |
| Deposits and prepaid expenses                                                          |   |   | 36 |   |   |   | 35 |   |
|                                                                                   |   |   | 283 |   |   |   | 514 |   |
| INVESTMENT IN SOUTHCORE (Note 4)                                                       |   |   | - |   |   |   | 544 |   |
| CAPITAL ASSETS (Note 5)                                                                |   |   | 31 |   |   |   | 47 |   |
|                                                                              |   | $ | 314 |   |   | $ | 1,105 |   |
|                                                                                   |   |   |   |   |   |   |   |   |
| LIABILITIES                                                                            |   |   |   |   |   |   |   |   |
| CURRENT                                                                                |   |   |   |   |   |   |   |   |
| Accounts payable                                                                       |   | $ 404 |   |   | $ 331 |   |
| Accrued liabilities                                                                    |   |   | 219 |   |   |   | 161 |   |
| Deferred revenue                                                                       |   |   | 29 |   |   |   | 27 |   |
| Notes payable (Note 7)                                                                 |   |   | 530 |   |   |   | 156 |   |
| Current portion of secured subordinated notes (Note 8)                                 |   |   | 412 |   |   |   | - |   |
|                                                                                   |   |   | 1,594 |   |   |   | 675 |   |
| SECURED SUBORDINATED NOTES (Note 8)                                                    |   | 149 |   |   | 446 |   |
|                                                                                   |   |  1,743 |   |   |  1,121 |   |
| SHAREHOLDERS’ DEFICIENCY                                                         |   |   |   |   | (i) |   |
| Share capital (Note 10)                                                                |   |   | 110,762 |   |   |   | 110,238 |   |
| Contributed surplus (Note 11)                                                          |   |   | 3,462 |   |   |   | 3,071 |   |
| Warrants (Note 12)                                                                     |   |   | 839 |   |   |   | 492 |   |
| Stock options (Note 13)                                                                |   |   | 1,780 |   |   |   | 1,425 |   |
| Conversion feature on secured subordinated notes (Note 8)                              |   |   | 667 |   |   |   | 779 |   |
| Deficit                                                                                |   |   | (118,939 | ) |   |   | (116,021 | ) |
|                                                                                   |   |   | (1,429 | ) |   |   | (16 | ) |
|                                                                                   |   | $ | 314 |   |   | $ | 1,105 |   |

| Duncan Copeland   Director |   Christopher BulgerDirector |
|-------------------------------------------|-----------------------------------|

----

| CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSYears ended December 31, 2010, 2009 and 2008(in thousands ofCanadian dollars, except per share amounts) |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                           |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|--------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                                                           |   |   |    |   |   |   |    |   |   |
| Revenues (Note 15)                                                             |   | $      | 636     |   |   | $      | 759     |   |   | $ | 741 |   |
|  Operating expenses:                                                      |   |   |    |   |   |   |    |   |   |   |   |   |
| General and administrative                                                     |   |   | 1,451   |   |   |   | 1,269   |   |   |   | 1,485 |   |
| Customer service and technology                                                |   |   | 734     |   |   |   | 738     |   |   |   | 689 |   |
| Sales and marketing                                                            |   |   | 188     |   |   |   | 181     |   |   |   | 117 |   |
| Stock-based compensation (Note 13 (b))                                         |   |   | 358     |   |   |   | 183     |   |   |   | 43 |   |
| Depreciation                                                                   |   |   | 22      |   |   |   | 29      |   |   |   | 33 |   |
|    Total operating expenses                                     |   |   | 2,753   |   |   |   | 2,400   |   |   |   | 2,367 |   |
| Loss from operations before the under-noted                                    |   |   | (2,117  | )      |   |   | (1,641  | )      |   |   | (1,626 | ) |
|                                                                           |   |   |    |   |   |   |    |   |   |   |   |   |
| Interest expense:                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
|    Cash interest expense                                        |   |   | 154     |   |   |   | 260     |   |   |   | 335 |   |
|    Accretion of secured subordinated notes                      |   |   | 160     |   |   |   | 508     |   |   |   | 394 |   |
| Total interest expense                                                         |   |   | 314     |   |   |   | 768     |   |   |   | 729 |   |
| Other expenses (income):                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
|    Gain on settlement of debt (Note 7 (b))                      |   |   | (57     | )      |   |   | -       |   |   |   | - |   |
|    Provision for impaired investment (Note 4)                   |   |   | 544     |   |   |   | -       |   |   |   | - |   |
| Total other expenses                                                           |   |   | 487     |   |   |   | -       |   |   |   | - |   |
| LOSS AND COMPREHENSIVE LOSS FOR THE YEAR                                       |   | $      | (2,918  | )      |   | $      | (2,409  | )      |   | $ | (2,355 | ) |
| LOSS PER SHARE, BASIC AND DILUTED (Note 10 (e))                                |   | $      | (0.018  | )      |   | $      | (0.017  | )      |   | $ | (0.022 | ) |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED (000’s) |   |   | 162,899 |   |   |   | 140,434 |   |   |   | 108,861 |   |

----

| CONSOLIDATED STATEMENTS OF DEFICITYears ended December 31, 2010, 2009 and 2008(in thousands of Canadian dollars) |
|------------------------------------------------------------------------------------------------------------------|

|                       |   | 2010   |     |   | 2009   |   |     | 2008   |   |
|----------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
| DEFICIT, BEGINNING OF YEAR |   |   | (116,021 | )      |   |   | (113,612 | )      |   |   | (111,257 | ) |
|                       |   |   |     |   |   |   |     |   |   |   |   |   |
| LOSS FOR THE YEAR          |   |   | (2,918   | )      |   |   | (2,409   | )      |   |   | (2,355 | ) |
|                       |   |   |     |   |   |   |     |   |   |   |   |   |
| DEFICIT, END OF YEAR       |   | $      | (118,939 | )      |   | $      | (116,021 | )      |   | $ | (113,612 | ) |

----

| CONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December 31, 2010, 2009 and 2008(in thousands of Canadian dollars) |
|---------------------------------------------------------------------------------------------------------------------|

|                                                                     |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|--------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|  NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES   |   |   |   |   |   |   |   |   |   |
|                                                                     |   |   |   |   |   |   |   |   |   |
| OPERATING                                                                |   |   |   |   |   |   |   |   |   |
| Loss for the year                                                        |   | $      | (2,918 | )      |   | $      | (2,409 | )      |   | $ | (2,355 | ) |
| Items not affecting cash:                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock-based compensation                                                 |   |   | 358    |   |   |   | 183    |   |   |   | 43 |   |
| Depreciation                                                             |   |   | 22     |   |   |   | 29     |   |   |   | 33 |   |
| Accretion of secured subordinated notes                                  |   |   | 160    |   |   |   | 508    |   |   |   | 394 |   |
| Gain on settlement of debt                                               |   |   | (57    | )      |   |   | -      |   |   |   | - |   |
| Provision for impaired investment                                        |   |   | 544    |   |   |   | -      |   |   |   | - |   |
|                                                                     |   |   | (1,891 | )      |   |   | (1,689 | )      |   |   | (1,885 | ) |
| Changes in non-cash operating working capital (Note 19)                  |   |   | 314    |   |   |   | (224   | )      |   |   | 394 |   |
|                                                                     |   |   | (1,577 | )      |   |   | (1,913 | )      |   |   | (1,491 | ) |
|                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| INVESTING                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital assets                                                           |   |   | (6     | )      |   |   | (57    | )      |   |   | - |   |
|                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| FINANCING                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
|     Repayment of notes payable (Note 7)              |   |   | (465   | )      |   |   | (233   | )      |   |   | (330 | ) |
|     Proceeds from issuance of notes payable (Note 7) |   |   | 859    |   |   |   | -      |   |   |   | - |   |
|     Warrants exercised (Note 12 (b))                 |   |   | 170    |   |   |   | 1,320  |   |   |   | - |   |
|     Options exercised (Notes 13 (d) and 14)          |   |   | 4      |   |   |   | 154    |   |   |   | - |   |
|     Issuance of common shares and warrants (Notes 10 (d)) |   |   | 1,008  |   |   |   | 495    |   |   |   | - |   |
|     Share issuance costs (Note 7 (d))                     |   |   | (129   | )      |   |   | -      |   |   |   | - |   |

|     Issuance of secured subordinated notes (Note 8) |   |   | -         |   |   |   | -         |   |   |   | 1,803     |   |
|-------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|
|     Advances from related parties (Note 6)          |   |   | -         |   |   |   | -         |   |   |   | 59        |   |
|     Repayment to related parties (Note 6)           |   |   | -         |   |   |   | -         |   |   | (59)   |      |
|                                                                    |   |   | 1,447     |   |   |   | 1,736     |   |   |   | 1,473     |   |
| NET CASH OUTFLOW DURING THE YEAR                                        |   |   | (136      | )      |   |   | (234      | )      |   |   | (18       | )      |
| CASH, BEGINNING OF YEAR                                                 |   |   |  226 |   |   |   |  460 |   |   |   |  478 |   |
| CASH, END OF YEAR                                                       |   | $      | 90        |   |   | $      | 226       |   |   | $      | 460       |   |

|  Interest paid |   | $ | 80 |   |   | $ | 213 |   |   | $ | 250 |   |
|---------------------|--------|---|----|--------|--------|---|-----|--------|--------|---|-----|--------|

----

----

|   | 1. | DESCRIPTION OF BUSINESS |
|--------|----|-------------------------|

|   | 2. | GOING CONCERN |
|--------|----|---------------|

|   | 3. | SIGNIFICANT ACCOUNTING POLICIES |
|--------|----|---------------------------------|

----

----

----

----

|   | · | Persuasive evidence of an arrangement exists; |
|--------|--------|-----------------------------------------------|

|   | · | Delivery has occurred; |
|--------|--------|------------------------|

|   | · | Fee is fixed or determinable; and |
|--------|--------|-----------------------------------|

|   | · | Collectibility is probable. |
|--------|--------|-----------------------------|

----

----

----

----

----

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|   | 4. | INVESTMENT IN SOUTHCORE |
|--------|----|-------------------------|

|   | 5. | CAPITAL ASSETS |
|--------|----|----------------|

|                             |   |                  |   |
|----------------------------------|--------|-----------------------|--------|
|                             |   |                  |   |   |   |   |   |   |
|                             |   |                  | 2010   |   |   |   | 2009 |   |
|                             |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |   |                  | Cost   |   |  AccumulatedDepreciation |   |   |   | Net Book Value |   |   |   | Cost |   |  AccumulatedDepreciation |   |   |   | Net Book Value |   |
|                             |   |   (in thousands) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Computer hardware                |   | $                     | 139    |   |   | $ | 114 |   |   | $ | 25 |   |   | $ | 133 |   |   | $ | 100 |   |   | $ | 33 |   |
| Computer software                |   |                  | 15     |   |   |   | 9 |   |   |   | 6 |   |   |   | 15 |   |   |   | 1 |   |   |   | 14 |   |
| (jj) Leasehold improvements |   | 27                    |   |   |   | 27 |   |   |   | - |   |   |   | 27 |   |   |   | 27 |   |   |   | - |   |
|                             |   | $                     | 181    |   |   | $ | 150 |   |   | $ | 31 |   |   | $ | 175 |   |   | $ | 128 |   |   | $ | 47 |   |

|   | 6. | TRANSACTIONS WITH RELATED PARTIES |
|--------|----|-----------------------------------|

----

----

|   | 7. | TRANSACTIONS WITH RELATED PARTIES |
|--------|----|-----------------------------------|

|   | a) | The Series H secured subordinated notes with a principal balance of $170,000 matured on October 21, 2007.  The Company entered into an agreement with the debt holders in December 2007 to repay the accrued interest of $60,000 in cash in January 2008 and the principal of $170,000 over a two year term at an interest rate of 11 percent, in blended quarterly interest and principal payments of $24,000.  As of the date of refinancing, the total amount to be repaid was $230,000.  The notes payable were issued to private investors including an amount totaling $20,000 issued to a director/officer of the Company.  The notes payable matured on December 31, 2009 and were secured as per the Series H security terms; however, the final installment has not been remitted and the Company is currently in negotiation with the note holders over the timing of the final settlement amount. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | During the year ended December 31, 2008, the Company entered into an agreement with the remaining Series G debt holders to repay the accrued interest of $113,000 and the principal of $240,000 over a two year term at an interest rate of 12 percent in blended interest and principal quarterly payments of $40,000.  As of the date of refinancing, the total refinanced amount was $353,000.  The notes payable matured on December 31, 2009 and were secured as per the Series G security terms. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | During the year ended December 31, 2010, the Company received operating loans from private investors in the amount of $359,000.  The loans were unsecured, bore interest at 12 percent and were due on demand. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | During the year ended December 31, 2008, the Company entered into an agreement to assign $50,000 face value of the Series K secured subordinated notes held by a shareholder of the Company to a Canadian financial institution.  The Company agreed to repay the accrued interest and related costs of $30,000 and the principal of $50,000 over a two year term at an interest rate of 11 percent in blended interest and principal quarterly payments of $11,000.  The total refinanced amount was $80,000.  The note payable matured on December 31, 2009 and was secured as per the Series K security terms. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | 8. | SECURED SUBORDINATED NOTES |
|--------|----|----------------------------|

|   | a) | The following summarizes the face and carrying values of the secured subordinated notes. |
|--------|----|------------------------------------------------------------------------------------------|

| Secured Subordinated Notes |   | 2010           |   |   | 2009           |   |
|----------------------------|--------|----------------|--------|--------|----------------|--------|
|                       |   | Face Value     |   |   | Carrying Value |   |   | Face Value |   |   | Carrying Value |   |
|                       |   | (in thousands) |   |
| Series N (Note 8 (b))      |   | $              | 600    |   |           | $      | 412 |   |   | $ | 600 |   |   | $ | 289 |   |
| Series L (Note 8 (d))      |   |           | 360    |   |           |   | 149 |   |   |   | 505 |   |   |   | 157 |   |
| Closing balance            |   | $              | 960    |   |           | $      | 561 |   |   | $ | 1,105 |   |   | $ | 446 |   |
| Current portion of notes   |   | $              | 600    |   |           | $      | 412 |   |   | $ | - |   |   | $ | - |   |
| Long-term portion of notes |   | $              | 360    |   |           | $      | 149 |   |   | $ | 1,105 |   |   | $ | 446 |   |

|   | b) | During the year ended December 31, 2008, the Company issued Series N secured subordinated notes with a face value of $600,000.  The Series N notes mature on December 12, 2011, have an annual interest rate of 10 percent and are convertible into equity units at a price of $0.10 per unit.  Interest is payable in cash upon the earlier of each quarter end, conversion, or maturity of the notes.   Each equity unit consists of one common share and one share-purchase warrant with an exercise price of $0.15 per warrant.  The warrants expire on December 12, 2011.  Dundee Securities Corporation received a brokerage commission of four percent on a portion of the private placement.  The afore-mentioned conversion provisions were subject to a four month and one day hold period.  The Series N notes are secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | c) | During the year ended December 31, 2008, the Company issued Series M secured subordinated notes with a face value of $678,000.  The Series M notes had a maturity date of July 11, 2013, an annual interest rate of 10 percent and were convertible into equity units at a price of $0.05 per unit.  Interest was payable in cash upon the earlier of conversion or maturity of the notes.   Each equity unit consisted of one common share and one share-purchase warrant with an exercise price of $0.10 per warrant.  The warrants expire on the earlier of (i) July 11, 2013 and (ii) the date which is twenty days following the issuance of a notice by the Company to holders confirming that the closing price of the Company’s common shares on the TSX was greater than or equal to $0.20 for the preceding 10 consecutive trading days.  Dundee Securities Corporation received a brokerage commission of four percent on a portion of the private placement.  The afore-mentioned conversion provisions were subject to a four month and one day hold period.  The Series M notes were secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | During the year ended December 31, 2008, the Company issued Series L secured subordinated notes with a face value of $525,000.  The Series L notes mature on March 31, 2013, have an annual interest rate of 10 percent and are convertible into equity units at a price of $0.10 per unit.  Interest for the first two years is payable in shares upon the earlier of conversion or each anniversary date of the closing date.  Interest payable for the remaining term of the notes is payable in cash upon the earlier of conversion, each anniversary date of the closing date, or maturity.   Each equity unit consisted of one common share and one share-purchase warrant with an exercise price of $0.15 per warrant.  The warrants expire on the earlier of (i) March 31, 2013 and (ii) the date which is sixty days following the issuance of a notice by the Company to holders confirming that the closing price of the Company’s common shares, on the TSX was greater than or equal to $0.36 for any 10 consecutive trading days.  Dundee Securities Corporation received a brokerage commission of four percent on a portion of the private placement.  The afore-mentioned conversion provisions are subject to a four month and one day holding period.  The Series L notes are secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | e) | During the year ended December 31, 2007, the Company issued Series K secured subordinated notes with a face value of $1,360,000.  The Series K notes were issued to private investors including an amount totaling $60,000 issued to two directors and officers of the Company.  The Series K notes matured on June 15, 2009, had an annual interest rate of 11 percent and were convertible into common shares of the Company at a price of $0.12 per common share.  Interest on the Series K notes is payable in common shares upon the earlier of each quarter end, maturity or conversion of the notes.  At any time after the closing, the Series K notes, including any accrued interest thereon, will be automatically converted into common shares at the Conversion Price when the volume weighted average trading price of the common shares through its principal trading market for a 10 consecutive trading day period is $0.30 or more.  The Series K notes were secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | f) | During the year ended December 31, 2006, the Company issued Series J secured subordinated notes with a face value of $755,000.  The Series J notes were issued to private investors including an amount totaling $105,000 issued to three directors and officers of the Company. The Series J notes had a maturity date of February 8, 2011, an annual interest rate of 11 percent and were convertible into equity units at a price of $0.15 per unit.  Interest for the first year was payable in shares of the Company with the provision that the total number of shares issued as interest payment cannot exceed 6,529,959 shares.  Interest payable for the remaining term of the notes was payable in cash upon the earlier of maturity and conversion.   Each equity unit consisted of one common share and one share-purchase warrant with an exercise price of $0.20 per warrant.  The warrants expire on the earlier of (i) February 8, 2009 and (ii) the date which is sixty days following the issuance of a notice by the Company to holders confirming that the closing price of the Company’s common shares, on the TSX was greater than or equal to $0.35 for any 10 consecutive trading days.  The afore-mentioned conversion provisions were subject to a four month and one day holding period.  The Series J notes wer secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g) | During the year ended December 31, 2005, the Company issued Series I secured subordinated notes with a face value of $1,200,000.  The Series I notes were issued to private investors including an amount totaling $110,000 issued to four directors and officers of the Company. The Series I notes had a maturity date of |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | September 12, 2010, an annual interest rate of 11 percent and were convertible into equity units at a price of $0.15 per unit.  Interest for the first year was payable in shares with the provision that the total number of shares issued as interest payment cannot exceed 974,000 shares.  Any of the first year interest not paid through the issuance of shares shall be paid in cash.  Interest payable for the remaining term of the notes was payable in cash upon the earlier of maturity and conversion.   Each equity unit consisted of one common share and one share-purchase warrant with an exercise price of $0.20.  The warrants expired on September 12, 2010.  The Series I notes are secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | h) | During the year ended December 31, 2010, the Company recorded cash interest expense aggregating $154,000 (2009 - $260,000, 2008 - $335,000) and interest accretion of $160,000 (2009 - $508,000, 2008 - $394,000). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | i) | As at December 31, 2010, accrued liabilities include $62,000 (2009 - $53,000) of unpaid interest payable relating to the secured subordinated notes. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                |   |           |   |
|---------------------------------------------------------------------|--------|----------------|--------|
|                                                                |   |           |   |
|   Secured Subordinated Notes (liability component)             |   | 2010           |   |   | 2009 |   |
|                                                                |   | Face Value     |   |   | Carrying Value |   |   | Face Value |   |   | Carrying Value |   |
|                                                                |   | (in thousands) |   |
|                                                                |   |           |   |   |   |   |   |   |   |   |   |   |
| Opening balance                                                     |   | $              | 1,105  |   |   | $ | 446 |   |   | $ | 3,638 |   |   | $ | 1,855 |   |
| Accreted (non-cash) interest                                        |   |           | -      |   |   |   | 161 |   |   |   | - |   |   |   | 508 |   |
| Issuance of notes:                                                  |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       Series K-Extension (Note 8 (e)) |   |           | -      |   |   |   | - |   |   |   | 1,020 |   |   |   | 625 |   |
| Conversion of notes:                                                |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series M (Note 8 (c))                                               |   |           | -      |   |   |   | - |   |   |   | (678 | ) |   |   | (127 | ) |
|       Series L (Note 8 (d))           |   |           | (145   | ) |   |   | (46 | ) |   |   | (20 | ) |   |   | (6 | ) |
| Series K-Extension (Note 8 (e))                                     |   |           | -      |   |   |   | - |   |   |   | (1,020 | ) |   |   | (797 | ) |
| Series K (Note 8 (e))                                               |   |           | -      |   |   |   | - |   |   |   | (290 | ) |   |   | (271 | ) |
| Series J (Note 8 (f))                                               |   |           | -      |   |   |   | - |   |   |   | (225 | ) |   |   | (124 | ) |
| Series I (Note 8 (g))                                               |   |           | -      |   |   |   | - |   |   |   | (300 | ) |   |   | (197 | ) |
| Maturity of notes:                                                  |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       Series K (Note 8 (e))           |   |           | -      |   |   |   | - |   |   |   | (1,020 | ) |   |   | (1,020 | ) |
| Closing balance                                                     |   | $              | 960    |   |   | $ | 561 |   |   | $ | 1,105 |   |   | $ | 446 |   |

|                                                                                        |   |                                 |   |   |           |   |   |                   |   |   |           |   |
|---------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|----------------|--------|--------|------------------------|--------|--------|----------------|--------|
| Conversion Features on Secured Subordinated Notes Including Conversion of Attached Warrants |   | 2010                                 |   |   | 2009           |   |
|                                                                                        |   | Common Shares Issuable               |   |   | Carrying Value |   |   | Common Shares Issuable |   |   | Carrying Value |   |
|                                                                                        |   | (in thousands of shares and dollars) |   |
|                                                                                        |   |                                 |   |   |           |   |   |                   |   |   |           |   |
| Opening balance                                                                             |   |                                 | 22,100 |   |           | $      | 779    |                   |   |   | 67,537         |   |   | $ | 2,280 |   |
| Issuance of notes:                                                                          |   |                                 |   |   |           |   |   |                   |   |   |           |   |   |   |   |   |
|       Series K-Extension (Note 8 (e))                         |   |                                 | -      |   |           |   | -      |                   |   |   | 8,500          |   |   |   | 395 |   |
| Conversion of notes:                                                                        |   |                                 |   |   |           |   |   |                   |   |   |           |   |   |   |   |   |
| Series M (Note 8 (c))                                                                       |   |                                 | -      |   |           |   | -      |                   |   |   | (26,760        | )      |   |   | (554 | ) |
| Series L (Note 8 (d))                                                                       |   |                                 | (2,900 | )      |           |   | (112   | )                      |   |   | (400           | )      |   |   | (15 | ) |
| Series K-Extension (Note 8 (e))                                                             |   |                                 | -      |   |           |   | -      |                   |   |   | (8,500         | )      |   |   | (395 | ) |
| Series K (Note 8 (e))                                                                       |   |                                 | -      |   |           |   | -      |                   |   |   | (2,417         | )      |   |   | (131 | ) |
| Series J (Note 8 (f))                                                                       |   |                                 | -      |   |           |   | -      |                   |   |   | (1,500         | )      |   |   | (105 | ) |
| Series I (Note 8 (g))                                                                       |   |                                 | -      |   |           |   | -      |                   |   |   | (4,000         | )      |   |   | (167 | ) |
| Expiry of conversion features:                                                              |   |                                 |   |   |           |   |   |                   |   |   |           |   |   |   |   |   |
|       Series M (Note 8 (c))                                   |   |                                 | -      |   |           |   | -      |                   |   |   | (360           | )      |   |   | (7 | ) |
|       Series K (Note 8 (e))                                   |   |                                 | -      |   |           |   | -      |                   |   |   | (8,500         | )      |   |   | (462 | ) |
|       Series J (Note 8 (f))                                   |   |                                 | -      |   |           |   | -      |                   |   |   | (1,500         | )      |   |   | (60 | ) |
|                                                                                        |   |                                 |   |   |           |   |   |                   |   |   |           |   |   |   |   |   |
| Closing balance                                                                             |   |                                 | 19,200 |   |           | $      | 667    |                   |   |   | 22,100         |   |   | $ | 779 |   |

----

----

|                                                       |   | 2010           |   |   | 2009   |   |
|------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|
|                                                       |   | (in thousands) |   |
| FUTURE TAX ASSET                                           |   |           |   |   |   |   |
| Tax losses carried forward                                 |   | $              | 6,465  |   |   | $      | 7,348 |   |
| Difference in tax and accounting valuations                |   |           |   |   |   |   |   |   |
|     for capital assets and investments |   |           | 124    |   |   |   | 53 |   |
|                                                       |   |           | 6,589  |   |   |   | 7,401 |   |
| Valuation allowance                                        |   |           | (6,589 | )      |   |   | (7,401 | ) |
| Future tax asset                                           |   | $              | -      |   |   | $      | - |   |

|                                            |   | 2010           |   |   | 2009   |   |
|-------------------------------------------------|--------|----------------|--------|--------|--------|--------|
|                                            |   | (in thousands) |   |
| PROVISION FOR INCOME TAXES                      |   |           |   |   |   |   |
| Income taxes at statutory rate                  |   | $              | (905   | )      |   | $      | (795 | ) |
| Change in enacted rates                         |   |           | 123    |   |   |   | 1,258 |   |
| Non-deductible interest on subordinated notes   |   |           | 50     |   |   |   | 167 |   |
| Stock-based compensation not deductible for tax |   |           | 111    |   |   |   | 60 |   |
| Write-down of investment                        |   |           | 169    |   |   |   | - |   |
| Expiry of tax loss carry-forwards               |   |           | 1,297  |   |   |   | - |   |
| Other                                           |   |           | (33    | )      |   |   | 41 |   |
|                                            |   |           | 812    |   |   |   | 731 |   |
| Change to valuation allowance                   |   |           | (812   | )      |   |   | (731 | ) |
| Provision for income taxes                      |   | $              | -      |   |   | $      | - |   |

| Year                                               |   |    Amount                                     |   |
|----------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                               |   | (in thousands)                                               |   |
| 2014                                               |   | $         3,047 |   |
| 2015                                               |   | 3,351                                                        |   |
| 2026                                               |   | 2,588                                                        |   |
| 2027                                               |   | 2,050                                                        |   |
| 2028                                               |   | 1,969                                                        |   |
| 20292030Tax loss carry-forwards that do not expire |   | 1,7001,8979,259                                              |   |
|                                               |   | $       25,861            |   |

----

----

|   | a) | Authorized |
|--------|----|------------|

| Unlimited number of common shares                                |
|------------------------------------------------------------------|
| Unlimited number of preference shares – issuable in series |

|                                        |   |                                       |    |   |   |   |    |   |   |
|---------------------------------------------|--------|--------------------------------------------|---------|--------|--------|--------|---------|--------|--------|
|                                        |   | 2010                                       |    |   | 2009   |   |    | 2008   |   |
|                                        |   | Number                                     |    |   | Amount |   |    | Number |   |   | Amount |   |   | Number |   |   | Amount |   |
|                                        |   |  (in thousands of shares and dollars) |    |
|  Opening balance                       |   |                                       | 159,353 |   |   | $      | 110,238 |   |   |   | 109,527 |   |   | $ | 104,676 |   |   |   | 108,287 |   |   | $ | 104,495 |   |
| Shares issued pursuant to:                  |   |                                       |    |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of debentures (Note 8)           |   |                                       | 1,450   |   |   |   | 107     |   |   |   | 28,177 |   |   |   | 2,561 |   |   |   | 400 |   |   |   | 55 |   |
| Payment of interest (Note 10 (c))           |   |                                       | 232     |   |   |   | 48      |   |   |   | 1,068 |   |   |   | 184 |   |   |   | 979 |   |   |   | 147 |   |
| Warrants exercised  (Note 12 (b)) |   |                                       | 1,083   |   |   |   | 209     |   |   |   | 13,200 |   |   |   | 1,560 |   |   |   | - |   |   |   | - |   |
| Stock options exercised (Note 13 (d))       |   |                                       | 45      |   |   |   | 7       |   |   |   | 280 |   |   |   | 73 |   |   |   | - |   |   |   | - |   |
| Other options exercised (Note 14)           |   |                                       | -       |   |   |   | -       |   |   |   | 747 |   |   |   | 233 |   |   |   | - |   |   |   | - |   |
| Issuance of treasury shares (Note 4)        |   |                                       | -       |   |   |   | -       |   |   |   | 3,750 |   |   |   | 544 |   |   |   | - |   |   |   | - |   |
| Equity private placements (Note 10 (d))     |   |                                       | 10,007  |   |   |   | 153     |   |   |   | 2,604 |   |   |   | 407 |   |   |   | - |   |   |   | - |   |
| Shares cancelled (Note 7 (d))               |   |                                       | -       |   |   |   | -       |   |   |   | - |   |   |   | - |   |   |   | (139 | )  |   |   | (21 | )  |
| Closing balance                             |   |                                       | 172,170 |   |   | $      | 110,762 |   |   |   | 159,353 |   |   | $ | 110,238 |   |   |   | 109,527 |   |   | $ | 104,676 |   |

|   | c) | Payment of Interest |
|--------|----|---------------------|

|   | d) | Equity Private Placements |
|--------|----|---------------------------|

----

----

|   | e) | Loss Per Share |
|--------|----|----------------|

|                                                             |   | 2010                                     |    |   | 2009   |   |    | 2008   |   |
|------------------------------------------------------------------|--------|------------------------------------------|---------|--------|--------|--------|---------|--------|--------|
|                                                             |   | (in thousands, except per share amounts) |    |
| Numerator:Loss for the year                                      |   | $                                        | (2,918  | )      |   | $      | (2,409  | )      |   | $ | (2,355 | ) |
| Denominator:                                                     |   |                                     |    |   |   |   |    |   |   |   |   |   |
| Weighted average number of shares outstanding, basic and diluted |   |                                     | 162,899 |   |   |   | 140,434 |   |   |   | 108,861 |   |
|                                                             |   |                                     |    |   |   |   |    |   |   |   |   |   |
| Loss per share, basic and diluted                                |   | $                                        | (0.018  | )      |   | $      | (0.017  | )      |   | $ | (0.022 | ) |

----

----

|   | a) | The following table summarizes the transactions within contributed surplus. |
|--------|----|-----------------------------------------------------------------------------|

|                                                                                                    |   | 2010           |   |   | 2009   |   |
|---------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|
|                                                                                                    |   | (in thousands) |   |
| Opening balance                                                                                         |   | $              | 3,071  |   |   | $      | 2,161 |   |
| Allocation of recorded value of expired warrants (Note 11 (b))                                          |   |           | 391    |   |   |   | 266 |   |
| Allocation of recorded value of expired conversion features on secured subordinated notes (Note 11 (c)) |   |           | -      |   |   |   | 528 |   |
| Allocation of recorded value of expired stock options (Note 13 (c))                                     |   |           | -      |   |   |   | 116 |   |
| Closing balance                                                                                         |   | $              | 3,462  |   |   | $      | 3,071 |   |

|   | b) | During the year ended December 31, 2010, $391,000 (2009 - $266,000) related to expired warrants was allocated from warrants to contributed surplus (See Note 12 (c)). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | During the year ended December 31, 2009, $528,000 related to expired conversion features on secured subordinated notes was allocated to contributed surplus (See Note 8). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12. | WARRANTS |
|--------|-----|----------|

|   | a) | The following table summarizes the transactions within warrants. |
|--------|----|------------------------------------------------------------------|

|                                   |   | 2010                                   |   |   | 2009   |   |
|----------------------------------------|--------|----------------------------------------|--------|--------|--------|--------|
|                                   |   | Number                                 |   |   | Amount |   |   | Number |   |   | Amount |   |
|                                   |   | (in thousands of warrants and dollars) |   |
| Opening balance                        |   |                                   | 10,249 |   |   | $      | 492 |   |   |   | 10,783 |   |   | $ | 510 |   |
| Warrants issued pursuant to:           |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of debentures (Note 8)      |   |                                   | 1,450  |   |   |   | 51 |   |   |   | 15,400 |   |   |   | 328 |   |
| Equity private placement (Note 10 (d)) |   |                                   | 13,816 |   |   |   | 726 |   |   |   | 1,302 |   |   |   | 88 |   |
| Exercise of other options (Note 14)    |   |                                   | -      |   |   |   | - |   |   |   | 747 |   |   |   | 72 |   |
| Warrants exercised (Note 12 (b))       |   |                                   | (1,083 | )      |   |   | (39 | ) |   |   | (13,200 | ) |   |   | (240 | ) |
| Warrants expired (Note 12 (c))         |   |                                   | (8,614 | )      |   |   | (391 | ) |   |   | (4,783 | ) |   |   | (266 | ) |
| Closing balance                        |   |                                   | 15,818 |   |   | $      | 839 |   |   |   | 10,249 |   |   | $ | 492 |   |

|   | b) | Warrants Exercised |
|--------|----|--------------------|

----

----

|   | c) | Warrants Expired |
|--------|----|------------------|

|   | 13. | STOCK OPTIONS |
|--------|-----|---------------|

|   | a) | Stock options included in shareholders’ deficiency are comprised of the following components: |
|--------|----|-----------------------------------------------------------------------------------------------------|

|                    |   | 2010           |   |   | 2009   |   |
|-------------------------|--------|----------------|--------|--------|--------|--------|
|                    |   | (in thousands) |   |
| Employees (Note 13 (b)) |   | $              | 1,780  |   |   | $      | 1,425 |   |

|   | b) | Employee Stock Options |
|--------|----|------------------------|

|                     |   | 2010                            |   |   | 2009                            |   |   | 2010   |   |   | 2009 |   |
|--------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|--------|--------|--------|--------|------|--------|
|                     |   | Number of Options(in thousands) |   |   | Weighted Average Exercise Price |   |
| Opening balance          |   |                            | 5,036  |   |                            |   | 3,446  |   |   | $      | 0.15 |   |   | $ | 0.14 |   |
| Granted                  |   |                            | 7,515  |   |                            |   | 1,870  |   |   |   | 0.15 |   |   |   | 0.16 |   |
| Exercised (Note 13 (d))  |   |                            | (45    | )      |                            |   | (280   | )      |   |   | 0.10 |   |   |   | 0.15 |   |
| Cancelled                |   |                            | (1,560 | )      |                            |   | -      |   |   |   | 0.17 |   |   |   | - |   |
| Closing balance          |   |                            | 10,946 |   |                            |   | 5,036  |   |   | $      | 0.15 |   |   | $ | 0.15 |   |
| Exercisable, end of year |   |                            | 6,446  |   |                            |   | 4,466  |   |   | $      | 0.16 |   |   | $ | 0.16 |   |

|   Exercise Prices |  Number of Options Outstanding   (in thousands) |   Remaining Contractual Life(in years) | Number of Options Exercisable(in thousands) |
|-----------------------------|---------------------------------------------------------------------|--------------------------------------------------|---------------------------------------------|
| $   0.10     | 3,888                                                               | 4.7                                              | 972                                         |
| $   0.12     | 1,800                                                               | 2.1                                              | 1,530                                       |
| $   0.15     |  258                                                           | 0.6                                              | 258                                         |
| $   0.20     | 5,000                                                               | 4.1                                              | 3,686                                       |
|                        | 10,946                                                              |                                             | 6,446                                       |

----

----

|                    |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Fair value              |   | $      | 0.09   |   |   | $      | 0.11   |   |   | $ | 0.07 |   |
| Dividend yield          |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Risk free interest rate |   |   | 2.63   | %      |   |   | 2.32   | %      |   |   | 1.82 | % |
| Volatility              |   |   | 89.10  | %      |   |   | 79.30  | %      |   |   | 73.27 | % |
| Expected term, in years |   |   | 5      |   |   |   | 5      |   |   |   | 5 |   |

|   | c) | During the year ended December 31, 2009, recorded value of $116,000 related to expired non-employee stock options was allocated from stock options to contributed surplus. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | During the year ended December 31, 2010, total proceeds of $4,000 were realized from the exercise of 45,000 stock options (book value of $3,000) at an average exercise price of $0.10. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | 15. | REVENUES |
|--------|-----|----------|

|         |   | 2010           |   |   | 2009   |   |   | 2008   |   |
|--------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|
|         |   | (in thousands) |   |
| Services     |   | $              | 332    |   |   | $      | 444    |   |   | $ | 454 |   |
| Hosting fees |   |           | 294    |   |   |   | 298    |   |   |   | 249 |   |
| Royalty fees |   |           | 10     |   |   |   | 17     |   |   |   | 38 |   |
|         |   | $              | 636    |   |   | $      | 759    |   |   | $ | 741 |   |

| 16. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS |
|-----|--------------------------------------------------|

|   | a) | Financial Instruments |
|--------|----|-----------------------|

|                                                                                                        |   |           |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------------|--------|
|                                                                                                        |   | 2010           |   |   | 2009 |   |
|                                                                                                        |   | (in thousands) |   |
| Financial Assets:                                                                                           |   |           |   |
| Held for trading, measured at fair value                                                                    |   |           |   |
|    Cash                                                                                      |   | $              | 90     |   |   | $ | 226 |   |
| Loans and receivables, recorded at amortized cost                                                           |   |           |   |   |   |   |   |   |
|    Accounts receivable                                                                       |   | $              | 157    |   |   | $ | 253 |   |
| Financial Liabilities:                                                                                      |   |           |   |   |   |   |   |   |
| Other financial liabilities, recorded at amortized cost                                                     |   |           |   |   |   |   |   |   |
|     Accounts payable, accrued liabilities, notes payable and secured subordinated notes |   | $              | 1,714  |   |   | $ | 1,094 |   |

|   | b) | Financial Risk Factors |
|--------|----|------------------------|

----

----

|                     |   | 2010           |   |   | 2009   |   |
|--------------------------|--------|----------------|--------|--------|--------|--------|
|                     |   | (in thousands) |   |
| Current                  |   | $              | 100    |   |   | $      | 102 |   |
| Past due (61-120 days)   |   |           | 45     |   |   |   | 91 |   |
| Past due (> 120 days) |   |           | 12     |   |   |   | 60 |   |
|                     |   | $              | 157    |   |   | $      | 253 |   |

----

----

|                                             |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|--------------------------------------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| (in thousands)                                   |   | Carrying Value |   |   | Total  |   |   | 2011   |   |   | 2012   |   |   | 2013   |   |   | 2014   |   |   | 2015   |   |
| Notes payable                                    |   | $              | 530    |   |   | $      | 530    |   |   | $      | 530    |   |   | $      | -      |   |   | $      | -      |   |   | $ | - |   |   | $ | - |   |
| Secured subordinated notes - principal repayment |   |           | 561    |   |   |   | 960    |   |   |   | 600    |   |   |   | -      |   |   |   | 360    |   |   |   | - |   |   |   | - |   |
| Secured subordinated notes - interest payments   |   |           | -      |   |   |   | 136    |   |   |   | 91     |   |   |   | 36     |   |   |   | 9      |   |   |   | - |   |   |   | - |   |
| Accounts payable                                 |   |           | 404    |   |   |   | 404    |   |   |   | 404    |   |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Accrued liabilities                              |   |           | 219    |   |   |   | 219    |   |   |   | 219    |   |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |
|                                             |   | $              | 1,714  |   |   | $      | 2,249  |   |   | $      | 1,844  |   |   | $      | 36     |   |   | $      | 369    |   |   | $ | - |   |   | $ | - |   |

|   | 17. | CAPITAL DISCLOSURES |
|--------|-----|---------------------|

|   | 18. | COMMITMENTS AND CONTINGENCIES |
|--------|-----|-------------------------------|

|   | (a) | Minimum payments under operating leases are as follows: |
|--------|-----|---------------------------------------------------------|

|   | Year |                               Amount                          (in thousands) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 2011 | $       156                                                                                                                                                                                                                                                                                                                       |   |
|   | 2012 | 156                                                                                                                                                                                                                                                                                                                                                                  |   |
|   | 2013 | 156                                                                                                                                                                                                                                                                                                                                                                  |   |
|   | 2014 | 130                                                                                                                                                                                                                                                                                                                                                                  |   |

|   | (b) | During the year ended December 31, 2009, the Company entered into a technology licensing agreement with a Fortune 500 company that provides Northcore with access to a portfolio of intellectual property patents over a six year period for a minimum fee of US $260,000 over the term of the agreement. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 19. | SUPPLEMENTAL CASH FLOW INFORMATION |
|--------|-----|------------------------------------|

|                          |   | 2010                 |   |   | 2009   |   |   | 2008   |   |
|-------------------------------|--------|----------------------|--------|--------|--------|--------|--------|--------|--------|
|                          |   |  (in thousands) |   |
| Accounts receivable           |   | $                    | 96     |   |   | $      | 52     |   |   | $ | (186 | ) |
| Deposits and prepaid expenses |   |                 | (1     | )      |   |   | (7     | )      |   |   | 11 |   |
| Accounts payable              |   |                 | 73     |   |   |   | (239   | )      |   |   | 249 |   |
| Accrued liabilities           |   |                 | 144    |   |   |   | (27    | )      |   |   | 342 |   |
| Deferred revenue              |   |                 | 2      |   |   |   | (3     | )      |   |   | (22 | ) |
|                          |   | $                    | 314    |   |   | $      | (224   | )      |   | $ | 394 |   |

----

----

|                                                                                       |   | 2010           |   |   | 2009   |   |   | 2008   |   |
|--------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                       |   | (in thousands) |   |
| Issuance of common shares in settlement of interest payments (Note 10 (c))                 |   | $              | 48     |   |   | $      | 184    |   |   | $ | 147 |   |
| Reduction in debt from conversion of secured subordinated notes (Note 8 (j))               |   |           | (46    | )      |   |   | (1,522 | )      |   |   | (27 | ) |
| Reduction in conversion feature from conversion of secured subordinated notes (Note 8 (j)) |   |           | (112   | )      |   |   | (1,367 | )      |   |   | (44 | ) |
| Issuance of common shares for investment in Southcore (Note 4)                             |   |           | -      |   |   |   | 544    |   |   |   | - |   |

|   | 20. | INVESTMENT IN JOINTLY CONTROLLED COMPANY |
|--------|-----|------------------------------------------|

| For the years ended December 31,             |   | 2010           |   |   | 2009   |   |   | 2008   |   |
|----------------------------------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|
|                                         |   | (in thousands) |   |
| Consolidated Balance Sheets                  |   |           |   |   |   |   |   |   |   |
|     Current assets       |   | $              | 79     |   |   | $      | 60     |   |   | $ | 49 |   |
|     Current liabilities  |   |           | (65    | )      |   |   | (26    | )      |   |   | (31 | ) |
| Net investment                               |   | $              | 14     |   |   | $      | 34     |   |   | $ | 18 |   |
|  Consolidated Statements of Operations  |   |           |   |   |   |   |   |   |   |   |   |   |
|    Operating revenue          |   | $              | 53     |   |   | $      | 86     |   |   | $ | 80 |   |
|    Operating expenses (1)     |   |           | (9     | )      |   |   | (44    | )      |   |   | (5 | ) |
| Net income                                   |   | $              | 44     |   |   | $      | 42     |   |   | $ | 75 |   |
| Consolidated Statements of Cash Flows        |   |           |   |   |   |   |   |   |   |   |   |   |
|     Operating activities |   | $              | 25     |   |   | $      | 8      |   |   | $ | (27 | ) |
|     Investing activities |   |           | -      |   |   |   | -      |   |   |   | - |   |
|     Financing activities |   |           | -      |   |   |   | -      |   |   |   | - |   |
| Net cash inflow (outflow)                    |   | $              | 25     |   |   | $      | 8      |   |   | $ | (27 | ) |

|   | (1) | For the year ended December 31, 2010, operating expenses include a provision for bad debts in the amount of $nil (2009 - $43,000, 2008 - $nil). |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 21. | CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES |
|--------|-----|----------------------------------------------------------|

|   | (a) | Consolidated Financial Statements |
|--------|-----|-----------------------------------|

|   |   Consolidated Balance Sheets |
|--------|-----------------------------------------|

|                                                        |   | 2010CDN.GAAP |   |   | 2010U.S. GAAP |   |   | 2009CDN.GAAP |   |   | 2009U.S. GAAP |   |
|-------------------------------------------------------------|--------|--------------|--------|--------|---------------|--------|--------|--------------|--------|--------|---------------|--------|
| (in thousands)                                              |   |
| Cash                                                        |   | $            | 90     |   |          | $      | 90     |         |   | $      | 226           |   |   | $ | 226 |   |
| Accounts receivable                                         |   |         | 157    |   |          |   | 157    |         |   |   | 253           |   |   |   | 253 |   |
| Deposits and prepaid expense                                |   |         | 36     |   |          |   | 36     |         |   |   | 35            |   |   |   | 35 |   |
| Capital assets                                              |   |         | 31     |   |          |   | 31     |         |   |   | 47            |   |   |   | 47 |   |
| Other assets                                                |   |         | -      |   |          |   | -      |         |   |   | 544           |   |   |   | 544 |   |
| Deferred charges (Note 21 (b))                              |   |         | -      |   |          |   | 9      |         |   |   | -             |   |   |   | 19 |   |
| Accounts payable and accrued liabilities                    |   |         | (623   | )      |          |   | (623   | )            |   |   | (492          | )      |   |   | (492 | ) |
| Deferred revenue                                            |   |         | (29    | )      |          |   | (29    | )            |   |   | (27           | )      |   |   | (27 | ) |
| Current portion of notes payable                            |   |         | (530   | )      |          |   | (530   | )            |   |   | (156          | )      |   |   | (156 | ) |
| Current portion of secured subordinated notes (Note 21 (b)) |   |         | (412   | )      |          |   | (519   | )            |   |   | -             |   |   |   | - |   |
| Secured subordinated notes (Note 21 (b))                    |   |         | (149   | )      |          |   | (335   | )            |   |   | (446          | )      |   |   | (880 | ) |
| Shareholders’ deficiency (Note 21 (b))                |   |         | 1,429  |   |          |   | 1,712  |         |   |   | 16            |   |   |   | 431 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 2010                                         | 2009                             | 2008                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|----------------------------------|----------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | (in thousands, except per share amounts)     |
|  Loss for the year as reported under Canadian GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |    $   (2,918) |   $  (2,409) |   $  (2,355) |
|  Adjustments:   Accretion of interest on secured subordinated notes         (Note 21 (b))                                                                                    | 160                                          | 508                              | 394                              |
| Amortization of deferred charges relating to secured subordinated notes under U.S. GAAP (Note 21 (b))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (10)                                         | (42)                             | (21)                             |
|    Amortization of beneficial conversion feature (Note 21 (b))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | (119)                                        | (971)                            | (303)                            |
| Loss and comprehensive loss for the year as reported under U.S. GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | $   (2,887)                   | $   (2,914)       | $   (2,285)       |
| Basic and diluted loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | $   (0.018)                   | $   (0.021)       | $   (0.021)       |

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|   (b) |   Financial Instruments with Liability and Equity Elements |
|------------|----------------------------------------------------------------------|

|   (c)   | Investment in Jointly Controlled Company |
|------------------------|------------------------------------------|

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|   (d)   | Additional Disclosures as Required in Accordance with U.S. GAAP |
|------------------------|-----------------------------------------------------------------|

|   |  (e)  Recent United States Accounting Pronouncements |
|--------|---------------------------------------------------------------------|

|   | 22. | SUBSEQUENT EVENT |
|--------|-----|------------------|

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| DIRECTORS T. Christopher Bulger (1), (2), (3)CFA, MBAChairman of the Board Duncan CopelandDBAChief Executive Officer Jim MoskosChief Operating Officer Rick Robertson (1), (2)PhD, CA, MBAAssociate Professor of BusinessRichard Ivey School of Business,The University of Western Ontario  OFFICERS Duncan CopelandChief Executive Officer Jim MoskosChief Operating Officer                    (1)Member of the Audit Committee(2)Member of the Management Resources and Compensation Committee(3)Member of the Corporate Governance Committee | CORPORATE OFFICE Northcore Technologies Inc.302 The East Mall, Suite 300Toronto, Ontario M9B 6C71 888 287 7467  AUDITORS Collins Barrow Toronto LLPToronto, Ontario, Canada      | SHARES OUTSTANDING Issued: 172,169,836December 31, 2010  REGISTRAR & TRANSFER AGENT Equity Financial Trust Company200 University Avenue, Suite 400Toronto, ON M5H 4H11-866-393-4891   STOCK EXCHANGE LISTINGS Toronto Stock Exchange    Symbol: NTIOTC Bulletin Board Symbol: NTLNF  ADDITIONAL SHAREHOLDER INFORMATION Website:www.northcore.com Email:investor-relations@northcore.com               © 2010 Northcore Technologies Inc. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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