THE TORONTO STOCK EXCHANGE

High

Low

(Cdn $)

(Cdn $)

ANNUAL MARKET PRICES

1999 Calendar Year

67.30

7.30

2000 Calendar Year

26.20

1.94

2001 Calendar Year

3.40

0.29

2002 Calendar Year

0.93

0.07

2003 Calendar Year

0.85

0.17

QUARTERLY MARKET PRICES

2002 CALENDAR YEAR

First Quarter

0.50

0.28

Second Quarter

0.45

0.22

Third Quarter

0.25

0.09

Fourth Quarter

0.93

0.07

2003 CALENDAR YEAR

First Quarter

0.85

0.17

Second Quarter

0.41

0.19

Third Quarter

0.55

0.31

Fourth Quarter

0.54

0.37

2004 CALENDAR YEAR

First Quarter

0.52

0.34

MONTHLY MARKET PRICES

November 2003

0.53

0.37

December 2003

0.48

0.39

January 2004

0.45

0.39

February 2004

0.52

0.39

March 2004

0.42

0.34

April 2004

0.38

0.32

May 2004

0.38

0.25

	High		Low
	(Cdn $)		(Cdn $)
ANNUAL MARKET PRICES

2002 Calendar Year		0.93		0.07
2003 Calendar Year		0.85		0.17
2004 Calendar Year		0.52		0.16
2005 Calendar Year		0.36		0.14
2006 Calendar Year		0.25		0.13


QUARTERLY MARKET PRICES

2004 CALENDAR YEAR
First Quarter		0.52		0.34
Second Quarter		0.38		0.25
Third Quarter		0.36		0.19
Fourth Quarter		0.28		0.16

2005 CALENDAR YEAR
First Quarter		0.36		0.19
Second Quarter		0.29		0.15
Third Quarter		0.23		0.16
Fourth Quarter		0.23		0.14

2006 CALENDAR YEAR
First Quarter		0.19		0.14
Second Quarter		0.24		0.15
Third Quarter		0.25		0.14
Fourth Quarter		0.19		0.13


MONTHLY MARKET PRICES

December 2006		0.17		0.13
January 2007		0.17		0.13
February 2007		0.20		0.15
March 2007		0.20		0.15
April 2007		0.18		0.14
May 2007		0.16		0.13

NASDAQ AND OTCBB

High

Low

High

Low

(Cdn $)

(Cdn $)

(U.S. $)

(U.S. $)

ANNUAL MARKET PRICES

1999 Calendar Year

57.12

11.18

38.62

7.50

2000 Calendar Year

26.60

1.60

19.26

1.06

2001 Calendar Year

3.30

0.30

2.18

0.19

2002 Calendar Year

0.93

0.06

0.59

0.04

2003 Calendar Year

QUARTERLY MARKET PRICES

2002 CALENDAR YEAR

First Quarter

0.53

0.27

0.34

0.17

Second Quarter

0.42

0.22

0.27

0.16

Third Quarter

0.25

0.06

0.16

0.04

Fourth Quarter

0.93

0.08

0.59

0.05

2003 CALENDAR YEAR

First Quarter

0.79

0.16

0.54

0.11

Second Quarter

0.39

0.16

0.29

0.12

Third Quarter

0.57

0.27

0.42

0.20

Fourth Quarter

0.58

0.34

0.45

0.26

2004 CALENDAR YEAR

First Quarter

0.54

0.34

0.41

0.26

MONTHLY MARKET PRICES

November 2003

0.52

0.38

0.40

0.29

December 2003

0.45

0.36

0.35

0.28

January 2004

0.48

0.40

0.36

0.28

February 2004

0.55

0.40

0.41

0.30

March 2004

0.42

0.34

0.32

0.26

April 2004

0.44

0.34

0.32

0.25

May 2004

0.38

0.27

0.28

0.20

United States dollar amounts are converted to Canadian dollars at the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York for the date of such sales prices.

High Low
(U.S. $) (U.S. $)
ANNUAL MARKET PRICES

2002 Calendar Year 0.59 0.04
2003 Calendar Year 0.54 0.11
      2004 Calendar Year 0.41 0.12
     2005 Calendar Year
0.29 0.11
     2006 Calendar Year
0.27 0.10

QUARTERLY MARKET PRICES

2004 CALENDAR YEAR

First Quarter 0.41 0.26
Second Quarter 0.29 0.18
Third Quarter 0.27 0.15
Fourth Quarter 0.22 0.12

2005 CALENDAR YEAR

First Quarter 0.29 0.15
Second Quarter 0.25 0.16
Third Quarter 0.28 0.13
Fourth Quarter 0.18 0.11

2006 CALENDAR YEAR

First Quarter 0.15 0.12
Second Quarter 0.27 0.13
Third Quarter 0.24 0.12
Fourth Quarter 0.20 0.10

MONTHLY MARKET PRICES

December 2006 0.15 0.11
January 2007 0.15 0.11
February 2007 0.20 0.10
March 2007 0.16 0.10
April 2007 0.16 0.10
May 2007 0.15 0.11

ITEM 10 - ADDITIONAL INFORMATION

A. ~~Share Capital~~

A.	Share Capital

Not applicable.

B. ~~Memorandum and Articles of Association~~

B.	Memorandum and Articles of Association

The Articles of Arrangement for ~~ADB~~the Company are on file with the Ministry of Consumer and Commercial Relations for the Province of Ontario under Ontario Corporation Number 1539169. Our articles do not include a stated purpose.

Directors

~~Directors~~

Directors of our ~~company~~Company need not be shareholders. In accordance with our by-laws and the ~~Ontario~~ Business Corporations Act (Ontario), a majority of our directors must be residents of Canada, subject to certain exceptions. In addition, directors must be at least 18 years of age, of sound mind, and not bankrupt. Neither our articles or by-laws, nor the ~~Ontario~~ Business Corporations Act (Ontario), impose any mandatory retirement age for directors.

A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with our ~~company~~Company shall disclose to our ~~company~~Company the nature and extent of his interest at the time and in the manner provided by the ~~Ontario Business Corporations Act. The Ontario~~ Business Corporations Act (Ontario). The Business Corporations Act (Ontario) prohibits such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction:

•

is an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of our ~~company~~Company or an affiliate;

•

relates primarily to his or her remuneration as a director, officer, employee or agent of our ~~company~~Company or an affiliate;

•

is for indemnity or insurance; or

•

is with an affiliate.

Our Board of Directors may, on behalf of our ~~company~~Company and without authorization of our shareholders:

•

borrow money upon the credit of our ~~company;~~

•Company;

issue, reissue, sell or pledge bonds, debentures, notes or other evidences or indebtedness or guarantees of our ~~company,~~Company, either secured or unsecured;

• subject to certain disclosure requirements of the Ontario Business Corporations Act, give, directly or indirectly, financial assistance to any person by means of a loan, a guarantee or otherwise on behalf of our company to secure performance or any present or future indebtedness, liability or obligation of any person; and

•

subject to certain disclosure requirements of the Business Corporations Act (Ontario), give, directly or indirectly, financial assistance to any person by means of a loan, a guarantee or otherwise on behalf of our Company to secure performance or any present or future indebtedness, liability or obligation of any person; and

mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal property of our ~~company,~~Company, movable or immovable, including without limitation book debts, rights, powers, franchises and undertakings, to secure any bonds, debentures, notes or other evidences of indebtedness or guarantee or any other obligation of our ~~company.~~

Company.

Common Shares

Our articles authorize the issuance of an unlimited number of common shares. The holders of the common shares of our ~~company~~Company are entitled to receive notice of and to attend all meetings of the shareholders of our ~~company~~Company and have one vote for each common share held at all meetings of the shareholders of our ~~company,~~Company, except for meetings at which only holders of another specified class or series of shares of our ~~company~~Company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of preference shares of our ~~company~~Company and to any other shares ranking senior to the common shares with respect to priority in the payment of dividends, the holders of common shares are entitled to receive dividends and our ~~company~~Company will pay dividends, as and when declared by our Board of Directors, out of moneys properly applicable to the payment of dividends, in such amount and in such form as our Board of Directors may from time to time determine, and all dividends which our Board of Directors may declare on the common shares shall be declared and paid in equal amounts per share on all common shares at the time outstanding. In the event of the dissolution, liquidation or winding-up of our ~~company,~~Company, whether voluntary or involuntary, or any other distribution of assets of our ~~company~~Company among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of preference shares and to any other shares ranking senior to the common shares with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the common shares will be entitled to receive the remaining property and assets of our ~~company.~~Company. There

are no redemption or sinking-fund provisions that attach to the common shares, nor are there any provisions that discriminate against existing or prospective holders of common shares as a result of owning a substantial number of shares. The holders of our common shares are not liable to further capital calls by our ~~company.~~

Company.

Preference Shares

Our articles of incorporation authorize the issuance of an unlimited number of preference shares, in one or more series. The Ontario Business Corporations Act does not impose restrictions upon our Board of Directors issuing preference shares of the type authorized by our articles of incorporation. Our Board of Directors may fix, before issuing, the number of preference shares of each series, the designation, rights, privileges, restrictions and conditions attaching to the preference shares of each series, including any voting rights, any right to receive dividends (which may be cumulative or non-cumulative and variable or fixed) or the means of determining the dividends, the dates of payment, any terms and conditions of redemption or purchase, any conversion rights, and any rights on the liquidation, dissolution or winding-up of our ~~company,~~Company, any sinking fund or other provisions, the whole to be subject to the issue of a Certificate of Amendment setting forth the designation, rights, privileges, restrictions and conditions attaching to the preference shares of the series. Our articles of incorporation require that preference shares of each series must, with respect to the payment of dividends and the distribution of assets or the return of capital in the event of the liquidation, dissolution or winding-up of our ~~company,~~Company, whether voluntary or involuntary, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares ranking junior to the preference shares. The preference shares of one series shall participate ratably with the preference shares of every other series in respect of all dividends and similar amounts. The holders of our preference shares are not liable to further capital calls by our ~~company.~~Company. None of our preference shares are currently issued or outstanding.

Action Necessary to Change the Rights of Shareholders

In order to change the rights of our shareholders, we would need to amend our articles of incorporation to effect the change. Such an amendment would require the approval of holders of two-thirds of the shares cast at a duly called special meeting. If we wish to amend the rights of holders of a specific class of shares, such approval would also be required from the holders of that class. A shareholder is entitled to dissent in respect of such a resolution and, if the resolution is adopted and our ~~company~~Company implements such changes, demand payment of the fair value of its shares.

Meetings of Shareholders

An annual meeting of shareholders is held each year for the purpose of considering the financial statements and reports, electing directors, appointing auditors and for the transaction of other business as may be brought before the meeting. The President, the Chairman of the Board or the Board of Directors has the power to call a special meeting of shareholders at any time. Notice of the time and place of each meeting of shareholders must be given not less than 21 days, nor more than 50 days, before the date of each meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any other purpose other than consideration of financial statements and auditors’ report, election of directors and reappointment of the incumbent auditor, must state the nature of the business in sufficient detail to permit the shareholder to form a reasoned judgment on, and must state the text of, any special resolution or by-law to be submitted to the meeting. The only persons entitled to be present at a meeting of shareholders are those entitled to vote thereat, the directors of our ~~company,~~Company, the auditor of our ~~company~~Company and others who although not entitled to vote are entitled or required to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. If a corporation is winding-up, the ~~Ontario~~ Business Corporations Act (Ontario) permits a liquidator appointed by the shareholders, during the continuance of a voluntary winding-up, to call and attend meetings of the shareholders. In circumstances where a court orders a meeting of shareholders, the court may direct how the meeting may be held, including the parties entitled, or required, to attend the meeting.

Limitations on Rights to Own Securities

There is no limitation imposed by Canadian law or by the articles or other charter documents on the right of a non-resident to hold or vote common shares or preference shares with voting rights, other than as provided in the

Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act. The Investment Canada Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian,” as defined in the Investment Canada Act (a “non-Canadian”), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be a net benefit to Canada.

An investment in our voting shares by a non-Canadian (other than a “World Trade Organization Investor,” as defined below) would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our ~~company,~~Company, and the value of our assets were $5.0 million or more. An investment in our voting shares by a World Trade Organization Investor would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our ~~company,~~Company, and the value of our assets equaled or exceeded $209 million. A non-Canadian, whether a World Trade Organization Investor or otherwise, would acquire control of us for purposes of the Investment Canada Act if he or she acquired a majority of our voting shares. The acquisition of less than a majority, but at least one-third of our voting shares, would be presumed to be an acquisition of control of our ~~company,~~Company, unless it could be established that we were not controlled in fact by the acquirer through the ownership of voting shares. In general, an individual is a World Trade Organization Investor if he or she is a “national” of a country (other than Canada) that is a member of the World Trade Organization (“World Trade Organization Member”) or has a right of permanent residence in a World Trade Organization Member. A corporation or other entity will be a World Trade Organization investor if it is a “World Trade Organization investor-controlled entity” pursuant to detailed rules set out in the Investment Canada Act. The United States is a World Trade Organization Member.

Certain transactions involving our voting shares would be exempt from the Investment Canada Act, including: (a) an acquisition of our voting shares if the acquisition were made in connection with the person’s business as a trader or dealer in securities; (b) an acquisition of control of our ~~company~~Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and (c) an acquisition of control of our ~~company~~Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our ~~company,~~Company, through the ownership of voting interests, remains unchanged.

Change of Control

Our authorized capital consists of an unlimited number of common shares and an unlimited number of preference shares. The Board of Directors, without any further vote by the common shareholders, has the authority to issue preference shares and to determine the price, preferences, rights and restrictions, including voting and dividend rights, of these shares. The rights of the holders of common shares are subject to the rights of holders of any preference shares that the Board of Directors may issue in the future. That means, for example, that we can issue preference shares with more voting rights, higher dividend payments or more favorable rights upon dissolution, than the common shares. If we issued certain types of preference shares in the future, it may also be more difficult for a third-party to acquire a majority of our outstanding voting shares.

Our articles do not contain any provisions that govern the ownership threshold above which shareholder ownership must be disclosed.

C.C.Material Contracts ~~Material Contracts~~

The following is a summary of our ~~company’s~~Company’s material contracts entered into since January 1, ~~2002.~~

~~1. Subscription Agreement, dated as of April 25, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership, whereby we agreed to issue 3.3 million common shares at~~2004.

EQUITY PRIVATE PLACEMENT: On February 23, 2005, the Company competed a transaction resulting in the issuance of 2,500,000 units (“Units”) of the Company, each Unit consisting of one common share of the Company and one half of one non-transferable Common Share purchase Warrant, at a price of $0.23 per Unit, each whole Warrant entitling the holder to acquire one Common Share at an exercise price of $0.40. The Warrants comprising part of the Units were issued for a term of 4 years and will expire on February 23, 2009. The aggregate consideration in money received by our Company from the subscribers for Units was $575,000.

SERIES I NOTES: On September 12, 2005, the Company issued Series I secured subordinated notes with a face value of $1,200,000 for net proceeds of $1,063,000. The Series I notes were issued to private investors including an amount totaling $110,000 issued to four directors/officers of the Company. The Series I notes mature September 12, 2010, have an annual interest rate of 11 percent and are convertible into equity units at a

price of ~~US $0.21~~$0.15 per ~~share, and warrants exercisable into 1,050,000 common~~unit. Interest for the first year is payable in shares ~~at an exercise price~~with the provision that the total number of ~~US $0.35 per share. The warrants have a~~shares issued as interest payment cannot exceed 974,000 shares. Any of the first year interest not paid through the issuance of shares will be paid in cash. Interest payable for the remaining term of ~~three years. We agreed to register~~ the ~~shares~~notes is payable in cash upon the earlier of maturity and ~~warrants with the Securities and Exchange Commission.~~ ~~The purchase price was determined in the context of the market.~~

2. Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc. entitling the holder to acquire 1 million common shares of ADB at an exercise price of US $0.35 per share. The warrant had a term of three years and was exercised in full on December 17, 2002.

3. Warrant issued April 25, 2002 to Stonestreet Limited Corporation by ADB Systems International Inc. entitling the holder to acquire 50,000 common shares of ADB at an exercise price of US $0.35 per share. The warrant has a term of three years and as of June 18, 2004 have not been exercised.

4. As part of the Arrangement and pursuant to a general conveyance and assumption agreement (the “General Conveyance and Assumption Agreement”) dated as of August 30, 2002 between Old ADB and ADB, Old ADB transferred all of its assets (excluding only the assets of the Retail Business) to ADB and ADB assumed all of the liabilities of Old ADB (excluding only specified liabilities in connection with the Retail Business), including Old ADB’s liabilities under the Loan Agreement.

5. Under the terms of a supply, services and licensing agreement (the “Supply Services and Licensing Agreement”) dated as of August 23, 2002 between ADB Systems International Inc. (“Bid.Com”) and The Brick Warehouse Corporation (“The Brick”), ADB will provide administrative and technical services to Old ADB for the Bid.Com online retailing activities.

6. Pursuant to subscription agreements dated August 30, 2002, ADB issued a total of CDN$1,120,000 principal amount of secured subordinated convertible notes in four series, Series A, B, C, and D. For a description of the material terms and conditions attaching to each series, see part I – Item 5 under the heading ‘OPERATING AND FINANCIAL REVIEW AND PROSPECTS – MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and see Note 7(b) to Notes to Consolidated Financial Statements.

7. On May 19, 2004, the Company issued Series F secured subordinated notes with a face value of C$500,000 to a private investor. The Series F notes mature May 19, 2007, have an annual rate of interest of 7% paid quarterly in arrears, and are convertible into equity units at a price of $0.31 per unit.conversion. Each equity unit consists of one common share and one ~~half of a~~ share-purchase warrant with an exercise price of ~~$0.50.~~$0.20. The warrants ~~have an expiry date of May 19, 2007.~~expire on September 12, 2010. The Series FI notes are secured by a general security agreement ~~granting a security interest in all of~~on the ~~Company’s property and~~ assets and by a direction to pay proceeds under the Company’s receivable insurance policy with Export Development Canada. Holders may convert the notes into units at anytime following a four-month hold period. These notes will automatically convert into units when the share price of the Company, ~~closes above $0.70 for five consecutive trading days during~~subordinated to the ~~term, following~~security claims provided to the ~~hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash.~~

8. ~~On May 11, 2004, ADB entered into an Agreeement with First Associates Investments Inc. (“FAI”) as sole agent and exclusive financial advisor for an offering~~holders of securities of ADB of up to C$5 million on a best efforts basis. If an offering is completed with gross proceeds of C$1 million or more, ADB will grant a right of first refusal to provide services to lead any future Canadian-led financing for a period set out as follows; a) one year if gross proceeds are at least C$1 million but less than $2 million and b) two years if gross proceeds are at least C$2 million.

9. ~~On June 15, 2004, the Company~~previously issued Series G secured subordinated notes with a face value of $1,600,000 through their agent, First Associates Investments Inc. (“FAI”). The Series G notes mature June 15, 2007 and have an interest rate of 7% calculated annually and paid on the earlier of conversion or maturity. The notes are convertible into equity units at a price of $0.31 per unit. Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The warrants have an expiry date of May 19, 2008. The Series G notes are secured by a general security agreement granting a security interest in all of the Company’s property and assets. Holders may convert the notes into units at anytime following a four-month hold period. These notes will automatically convert into units when the weighted average trading price of the Company’s common shares reaches $0.70 for ten consecutive trading days during the term, following the hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash.

notes.

Issuance costs associated with the Series G notes include a commission payable to FAI equal to eight percent of the gross proceeds from non-designated purchasers and four percent of the gross proceeds from designated purchasers. Additionally, FAI received an option to purchase 139,500 equity units, as described above, at a price of $0.31 per unit.

~~The Series G notes were issued to private investors, including an amount totaling $170,000 issued to directors and/or senior officers of the Company.~~

D. ~~Exchange Controls~~

SERIES J NOTES: On February 8, 2006, the Company completed a transaction resulting in the issuance of 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/officers of the Company. The Series J notes mature February 8, 2011, have an annual interest rate of 11 percent and are convertible into equity units at a price of $0.15 per unit. Interest for the first year is payable in shares of the Company with interest payable for the remaining term of the notes payable in cash upon the earlier of maturity and conversion. Each equity unit consists of one common share and one share-purchase warrant with an exercise price of $0.20. 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 Toronto Stock Exchange, was greater than or equal to $0.35 for any 10 consecutive trading days. The afore-mentioned conversion provisions are subject to a four month and one day hold period. The Series J 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.

SHARE PURCHASE AGREEMENT: On May 18, 2006, the Company entered into a share purchase agreement with ADB Systemer Holdings Inc. to sell 100 percent of its shares in its Norwegian subsidiary ADB Systemer AS, (“ADB Systemer”) for NOK 15,000,000, or approximately Canadian $2,687,000 in cash (the “Share Sale”).

C.	Exchange Controls

There is no law, government decree or regulation in Canada restricting the export or import of capital or affecting the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements.

E. ~~Taxation~~

~~Canadian Federal Income Tax Considerations~~

D.	Taxation

The following summary describes material Canadian federal income tax consequences generally applicable to a holder of our common shares who is not a resident of Canada, and who, for purposes of the Income Tax Act (Canada), (i) holds such shares as capital property and (ii) deals at arm’s length with us. Generally, common shares will be considered capital property to a holder provided that such holder does not hold such securities in the course of carrying on a business and has not acquired such securities in a transaction or transactions considered to be an adventure or concern in the nature of trade which includes a transaction or transactions of the same kind and carried on in the same manner as a transaction or transactions of an ordinary trader or dealer in property of the same kind.

This summary is based upon the current provisions of the Income Tax Act and the regulations thereunder and on an understanding of the published administrative practices of the Canadian Customs and Revenue Agency. This summary does not take into account or anticipate any possible changes in law, or the administration thereof, whether by legislative, governmental or judicial action, except proposals for specific amendment thereto which have been publicly announced by the Canadian Minister of Finance prior to the date hereof.

This summary does not address all aspects of Canadian federal income tax law that may be relevant to shareholders based upon their particular circumstances, and does not deal with provincial, territorial or foreign income tax consequences, which might differ significantly from the consequences under Canadian federal income tax law.

Shareholders are advised to consult their tax advisors regarding the application of the Canadian federal income tax law to their particular circumstances, as well as any Canadian provincial, territorial or other tax consequences or any U.S. federal, state or local tax consequences or other foreign income tax consequences of the acquisition, ownership and disposition of our common shares.

Taxation of Dividends.

A holder of a common share who is not resident in Canada for purposes of the Income Tax Act will be subject to Canadian withholding tax on dividends paid or credited, or deemed under the Income Tax Act to be paid or credited, to the holder of the common share. The rate of withholding tax under the Income Tax Act on dividends is 25% of the amount of the dividend. Such rate may be reduced under the provisions of an applicable international tax treaty to which Canada is a party. Under the tax treaty that Canada has entered into with the United States, the rate of Canadian withholding tax applicable in respect of dividends paid or credited by a Canadian corporation to a shareholder resident in the United States, is generally reduced to 15%, or 5% in the case of a corporate holder which owns 10% or more of the voting shares. A foreign tax credit for the tax withheld may be available under applicable US tax law to a US holder against U.S. federal income tax liability. Moreover, pursuant to Article XXI of the Canada-U.S. Treaty, an exemption from Canadian withholding tax generally is available in respect of dividends

received by certain trusts, companies and other organizations whose income is exempt from tax under the laws of the United States.

Disposition of common shares.

A non-resident holder of a common share will not be subject to tax under the Income Tax Act in respect of a capital gain realized on the disposition of a common share unless the common share constitutes or is deemed to constitute “taxable Canadian property” as defined in the Income Tax Act. Shares of a corporation that are listed on a prescribed stock exchange (which includes shares traded on certain U.S. stock exchanges, including the Nasdaq National Market), are generally not considered to be taxable Canadian property. However, such shares are considered taxable Canadian property in the hands of a non-resident holder if, at any time during the 60-month period immediately preceding disposition by the holder, 25% or more of our issued shares of any class were owned by the non-resident holder together with persons with whom the non-resident did not deal at arm’s length.

An interest in or option in respect of common shares or other securities convertible into or exchangeable for common shares could constitute taxable Canadian property if the common shares that could be acquired upon the exercise of the option, the conversion or exchange rights or in which there is such interest are themselves taxable Canadian property. Taxable Canadian property also includes any common share held by a non-resident if the non-resident used the common share in carrying on a business (other than an insurance business) in Canada, or, if the non-resident is a non-resident insurer, any common share that is its “designated insurance property” for the year. A non-resident whose common shares constitute or are deemed to constitute taxable Canadian property will realize upon the disposition or deemed disposition of a common share, a capital gain (or a capital loss) to the extent that the proceeds of disposition are greater than (or less than) the aggregate of the adjusted cost base to the holder of a common share and any reasonable costs of disposition.

One-half of any capital gain realized by a holder (a taxable capital gain) will be included in computing the holder’s income. One-half of any capital loss realized by a holder may, subject to certain restrictions applicable to holders that are corporations, normally be deducted from the holder’s taxable capital gains realized in the year of disposition, the three preceding taxation years or any subsequent taxation years, subject to detailed rules contained in the Income Tax Act.

A purchase by us of our common shares (other than a purchase of our common shares on the open market in a manner in which shares would normally be purchased by any member of the public in the open market) will give rise to a deemed dividend under the Income Tax Act equal to the difference between the amount we paid on the purchase and the paid-up capital of such shares determined in accordance with the Income Tax Act. The paid-up capital of such shares may be less than the cost of such shares to the holder. Any such dividend deemed to have been received by a non-resident holder will be subject to non-resident withholding tax as described above. The amount of any such deemed dividend will reduce the proceeds of disposition of the common share to the non-resident holder for the purpose of computing the amount of the non-resident holder’s capital gain or loss under the Income Tax Act.

Even if the common shares constitute taxable Canadian property to a non-resident holder and their disposition would give rise to a capital gain, an exemption from tax under the Income Tax Act may be available under the terms of an applicable international tax treaty to which Canada is a party. A holder resident in the United States for purposes of the Canada-U.S. Treaty will generally be exempt from Canadian tax in respect of a gain on the disposition of common shares provided that the value of the common shares is not derived principally from real property situated in Canada. Our common shares would qualify for this exemption, however Article XIII paragraph 5 of the Canada-U.S. Treaty provides that the treaty exemption does not apply where the U.S. resident holder was an individual who was a Canadian resident for 120 months during any period of 20 consecutive years preceding the time of the sale and was resident in Canada at any time during the ten years immediately preceding the sale and owned the shares at the time he/she ceased to be resident in Canada. If the exemption from such Canadian tax in respect of such gain is not available under the Canada-U.S. Treaty, a foreign tax credit may be available under applicable US tax law for U.S. federal income tax purposes. Non-residents are advised to consult their tax advisers with regard to the availability of a treaty exemption.

U.S. Federal Income Tax Considerations

The following summary describes certain material United States federal income tax consequences arising to U.S. Holders (as defined below) from the purchase, ownership and sale of common shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, final, temporary and proposed United States Treasury Regulations, revenue rulings and ~~the~~ administrative ~~and judicial interpretations~~pronouncements of the ~~regulations,~~Internal Revenue Service, and court decisions, all as in effect as of the date of this Annual Report and all of which are subject to change, possibly on a retroactive basis. ~~The consequences to any particular shareholder may differ from those described below by reason of that shareholder’s particular circumstances.~~

This summary does not address the considerations that may be applicable to any particular ~~shareholder~~U.S. Holder based on such ~~shareholder’s~~U.S. Holder's particular circumstances ~~(including potential application of the alternative minimum tax),~~nor to particular classes of shareholders (including but not limited to financial institutions, broker-dealers, insurance companies, ~~shareholders~~real estate investment trusts, regulated investment companies, persons who have elected mark-to-market accounting, tax-exempt organizations, ~~shareholders~~persons who hold ordinary shares as part of a straddle, ~~“hedge”~~"hedge" or ~~“conversion transaction”~~"conversion transaction" with other investments, ~~shareholders~~persons who own (directly, indirectly or through attribution) 10% or more of our ~~company’s~~Company's outstanding voting shares, ~~shareholders~~persons whose functional currency is not the U.S. dollar, persons who are not citizens or residents of the United States, ~~or persons which are~~ foreign corporations, foreign partnerships or foreign estates or trusts, asor persons who acquired their common shares pursuant to the ~~United States,~~exercise of employee stock options or ~~any aspect of state, local~~rights or ~~non-United States tax laws.~~otherwise as compensation). Additionally, the discussion does not consider the tax treatment of persons who hold common shares through a partnership or other pass-through ~~entity~~entity. The summary does not discuss United States federal alternative minimum tax; foreign, state, or local taxes; nor the possible application of United States federal non-income taxes (e.g., gift or estate ~~tax.~~ tax). This summary considers only U.S. Holders that will own their common shares as capital assets.

This summary is addressed only to a holder of common shares who is (i) a citizen or resident of the United States who owns less than 10% of our ~~company’s~~Company's outstanding voting shares, (ii) a corporation organized in the United States or under the laws of the United States or any state thereof, (iii) an estate, the income of which is includable in gross income for United States federal income tax purposes regardless of source, or (iv) a trust, if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under applicable United States Treasury Regulations to be treated as a U.S. person ~~(a “U.S. Holder”~~(each, a "U.S. Holder"). This summary is for general information purposes only and does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase common shares. ~~This summary generally considers only U.S. Holders that will own their common shares as capital assets.~~

Each shareholder should consult with such ~~shareholder’s~~shareholder's own tax advisor as to the particular tax consequences to such shareholder of the purchase, ownership and sale of their common shares, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.

Circular 230 Disclosure

Any tax statement made herein regarding any U.S. federal tax is not intended or written to be used, and cannot be used, by any taxpayer for purposes of avoiding any penalties. Any such statement herein is written in connection with the marketing or promotion of the transaction to which the statement relates. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Treatment of Dividend Distributions

Subject to the discussion below under ~~“Tax~~"Tax Status Of The ~~Company –~~ ~~Passive Foreign Investment Companies~~Company”,” a distribution by our ~~company~~Company to a U.S. Holder in respect of the common shares (including the amount of any Canadian taxes withheld thereon) will generally be treated for United States federal income tax purposes as a dividend to the extent of our ~~company’s~~Company's current and accumulated earnings and profits, as determined under United States federal income tax principles. To the extent, if any, that the amount of any such distribution exceeds our ~~company’s~~Company's current and accumulated earnings and profits, as so computed, it will first reduce the U.S. ~~Holder’s~~Holder's tax basis in the common shares owned by him, and to the extent it exceeds such tax basis, it will be treated as capital gain from the sale of common shares.

While it is not anticipated that our ~~company~~Company will pay dividends in the foreseeable future, the gross amount of any distribution from our ~~company~~Company received by a U.S. Holder which is treated as a dividend for United States federal income tax purposes (before reduction for any Canadian tax withheld at source) will be included in such U.S. ~~Holder’s~~Holder's gross income as ordinary income and generally will not qualify for the dividends received deduction applicable in certain cases to United States corporations. ~~Pursuant to recently enacted legislation, if~~If you are an individual, dividends that we pay you through ~~2008~~2010 will be subject to tax at long-term capital gain rates, provided certain holding period and other requirements are satisfied and provided that in the year such dividends are paid, or the preceding taxable year, we are not a ~~foreign personal holding company, a~~passive foreign investment company ~~or a passive foreign investment company.~~ (as discussed below).

For United States federal income tax purposes, the amount of any dividend paid in Canadian dollars by our ~~company~~Company to a U.S. Holder will equal the U.S. dollar value of the amount of the dividend paid in Canadian dollars, at the exchange rate in effect on the date of the distribution, regardless of whether the Canadian dollars are actually converted into ~~United States~~U.S. dollars at that time. Canadian dollars received by a U.S. Holder will have a tax basis equal to the U.S. dollar value thereof determined at the exchange rate on the date of the distribution. Currency exchange gain or loss, if any, recognized by a U.S. Holder on the conversion of

Canadian dollars into U.S. dollars will generally be treated as U.S. source ordinary income or loss to such holder. U.S. Holders should consult their own tax advisors concerning the treatment of foreign currency gain or loss, if any, on any Canadian dollars received ~~which are converted into dollars subsequent to~~as a distribution.

A U.S. Holder generally will be entitled to deduct any Canadian taxes withheld from dividends in computing United States taxable income, or to credit such withheld taxes against the United States federal income tax imposed on such U.S. ~~Holder’s~~Holder's dividend income. No deduction for Canadian taxes may be claimed, however, by an individual (noncorporate) U.S. Holder that does not itemize deductions. The amount of foreign taxes for which a U.S. Holder may claim a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual ~~basis by each shareholder.~~basis. Distributions with respect to common shares that are taxable as dividends will generally constitute foreign source income for purposes of the foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by our company with respect to the common shares will generally constitute “passive income.” Foreign income taxes exceeding a shareholder’s credit limitation for the year of payment or accrual of such tax can be carried back for two taxable years and forward for five taxable years, subject to the credit limitation applicable in each of such years. Additionally, the foreign tax credit in any taxable year may not offset more than 90% of a shareholder’s liability for United States individual or corporate alternative minimum tax. The total amount of allowable foreign tax credits in any year generally cannot exceed regular U.S. tax liability for the year attributable to foreign source taxable income. ~~A U.S. Holder will be denied a~~The limitation on foreign ~~tax~~taxes eligible for credit is calculated separately with respect to ~~Canadian income tax withheld from~~specific classes of income. For this purpose, dividends ~~received on~~distributed by our Company with respect to the common shares will generally constitute "passive income." Foreign income taxes exceeding a shareholder's credit limitation for the year of payment or accrual of such tax can be carried back for one taxable year and forward for ten taxable years, subject to the ~~extent~~credit limitation applicable in each of such U.S. Holder has not held the ordinary shares for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make certain related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the common shares are not counted toward meeting the 16 day holding period required by the statute.

years.

Sale or Exchange of a Common Share

Subject to the discussion below under ~~“Tax~~"Tax Status Of The ~~Company –~~ ~~Passive Foreign Investment Companies~~Company",” the sale or exchange by a U.S. Holder of a common share generally will result in the recognition of gain or loss by the U.S. Holder in an amount equal to the difference between the amount realized and the U.S. ~~Holder’s~~Holder's basis in the common share sold. Such gain or loss will be capital gain or loss provided that the common share is a capital asset in the hands of the holder. The gain or loss realized by an individual (noncorporate) U.S. Holder on the sale or exchange of a common share will be long-term capital gain or loss subject to a ~~reduced~~preferential rate of tax if the common share had been held for more than one year. If the common share had been held by such individual U.S. Holder for not more than one year, such gain will be short-term capital gain. Gains recognized by a U.S. Holder on a sale, exchange or other disposition of common shares generally will be treated as United States source income for United States foreign tax credit purposes. A loss recognized by a U.S. Holder on the sale, exchange or other disposition of common shares generally is allocated to U.S. source income. However, such loss must be allocated to foreign source income to the extent certain dividends were received by the U.S. Holder within the 24-month period preceding the date on which the U.S. Holder recognized the loss. The deductibility of a capital loss recognized on the sale, exchange or other disposition of common shares is subject to limitations. A U.S. Holder that receives foreign currency upon disposition of common shares and subsequently converts the foreign currency into U.S. dollars generally will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar. U.S. Holders should consult their own tax advisors regarding treatment of any foreign currency gain or loss on any Canadian dollars received in respect of the sale, exchange or other disposition of common shares.

Tax Status of the Company

~~Personal Holding Companies.~~Controlled Foreign Corporations. A ~~non-U.S. corporation may~~company generally will be ~~classified~~a “controlled foreign corporation” under Section 957 of the Internal Revenue Code (a “CFC”) if more than 50% of its total voting power or the total value of its outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., domestic partnerships, domestic corporations, domestic estates, or domestic trusts (each as defined in Section 7701(a)(30) of the Internal Revenue Code), each of which own, directly or indirectly, 10% or more of the total voting power of the outstanding shares of the company (a “10% Shareholder”).

If our Company is a ~~personal holding company for United States~~CFC, a 10% Shareholder generally will be subject to current U.S. federal income tax ~~purposes if both~~with respect to (a) such 10% Shareholder’s pro rata share of the ~~following two tests are satisfied: (i) if~~“subpart F income” (as defined in Section 952 of the Internal Revenue Code) of our Company and (b) such 10% Shareholder’s pro rata share of the earnings of our Company invested in “United States property” (as defined in Section 956 of the Internal Revenue Code). In addition, under Section 1248 of the Internal Revenue Code, any gain recognized on the sale or other taxable disposition of the common shares by a U.S. Holder that was a 10% Shareholder at any time during the ~~last half~~five-year period ending with such sale or other taxable disposition generally will be treated as a dividend to the extent of the ~~company’s taxable year, five or fewer individuals (without regard to their citizenship or residency) own or are deemed to own (under certain attribution rules) more than 50%~~“earnings and profits” of the stock of the corporation by value and (ii) 60% or more of such non-U.S. corporation’s gross income derived from U.S. sources or effectively connected with a U.S. trade or business, as specifically adjusted, is from certain passive sources such as dividends

~~and royalty payments. Such a corporation generally is taxed on the amounts of such passive source income, after making adjustments such as deducting dividends paid and income taxes,~~our Company that are ~~not distributed~~attributable to ~~shareholders. We~~such common shares.

The Company does not believe that ~~our company was not~~it currently is a ~~personal holding company in 2003 and is not currently a personal holding company.~~CFC. However, ~~no assurance~~there can be ~~given~~no assurances that ~~either test~~our Company will not be ~~satisfied in~~a CFC for the ~~future.~~

~~Foreign Personal Holding Companies.~~ ~~A non-U.S. corporation will be classified as a foreign personal holding company for United States federal income tax purposes if both of the two following tests are satisfied: (i) five~~current or fewer individuals who are United States citizens or residents own or are deemed to own (under certain attribution rules) more than 50% of all classes of the corporation’s stock measured by voting power or value and (ii) the corporation receives at least 60% (50% if previously an foreign personal holding company) of its gross income (regardless of source), as specifically adjusted, from certain passive sources. If such a corporation is classified as a foreign personal holding company, a portion of its “undistributed foreign personal holding company income” (as defined for United States federal income tax purposes) would be imputed to all of its shareholders who are U.S. Holders on the lastany future taxable day of the corporation’s taxable year, or, if earlier, the last day on which it is classifiable as a foreign personal holding company. Such income would be taxable as a dividend, even if no cash dividend is actually paid. U.S. Holders who dispose of their shares prior to such date would not be subject to tax under these rules. We believe that our company was not a foreign personal holding company in 2003 and is not currently a foreign personal holding company. However, no assurance can be given that our company will not qualify as a foreign personal holding company in the future.

year.

Passive Foreign Investment Companies. A non-U.S. company will be a passive foreign investment company if 75% or more of its gross income (including the pro rata share of the gross income of any company (United States or foreign) in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year is passive income. Alternatively, the company will be considered to be a passive foreign investment company if at least 50% of the value of the ~~company’s~~company's assets (averaged over the year) (including the pro rata share of the value of the assets of any company in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year are held for the production of, or produce, passive income. ~~For these purposes, the value of our assets is calculated based on our market capitalization.~~ Passive income generally includes, among others, interest, dividends, royalties, rents and annuities.

If our ~~company~~Company is a passive foreign investment company for any taxable year, a U.S. Holder, in the absence of an election by such U.S. Holder to treat our ~~company~~Company as a ~~“qualified~~"qualified electing ~~fund”~~fund" (a ~~“QEF election”~~"QEF election"), as discussed below, would, upon certain distributions by our ~~company~~Company and upon disposition of the common shares at a gain, be liable to pay tax at the highest tax rate on ordinary income in effect for each period to which the income is allocated, plus interest on the tax, as if the distribution or gain had been recognized ratably over the days in the U.S. ~~Holder’s~~Holder's holding period for the common shares during which our ~~company~~Company was a passive foreign investment company. Additionally, if our ~~company~~Company is a passive foreign investment company, U.S. Holders who acquire ~~ordinary~~ shares from U.S. decedents would be denied the normally available step-up of the income tax basis for such common shares to fair market value at the date of death and instead would have a tax basis equal to the ~~decedent’s~~U.S. decedent's basis, if lower.

If our ~~company~~Company is treated as a passive foreign investment company for any taxable year, U.S. Holders should consider whether to make a QEF election for United States federal income tax purposes. If a U.S. Holder has a QEF election in effect for all taxable years that such U.S. Holder has held the common shares and our ~~company~~Company was a passive foreign investment company, distributions and gain will not be recognized ratably over the U.S. ~~Holder’s~~Holder's holding period or subject to an interest charge, gain on the sale of common shares will be characterized as capital gain and the denial of basis step-up at death described above would not apply. Instead, each such U.S. Holder is required for each taxable year that our ~~company~~Company is a qualified electing fund to include in income a pro rata share of the ordinary earnings of our ~~company~~Company as ordinary income and a pro rata share of the net capital gain of our ~~company~~Company as ~~long-term~~ capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. ~~Consequently, in~~In order to comply with the requirements of a QEF election, a U.S. Holder must receive from our ~~company~~

Company certain information. We intend to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election in the event our ~~company~~Company is classified as a passive foreign investment company. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service. A shareholder makes a QEF election by attaching a completed IRS Form 8621 (including the passive foreign investment company annual information statement) to a timely filed

United States federal income tax return and by filing such form with the IRS Service Center ~~in Philadelphia, Pennsylvania.~~listed on IRS Form 8621. Even if a QEF election is not made, a shareholder in a passive foreign investment company who is a U.S. Holder must file a completed IRS Form 8621 every year.

As an alternative to making a QEF election, a U.S. Holder may elect to make a mark-to-market election with respect to the common shares owned by ~~him.~~him if such stock qualifies as “marketable stock.” To qualify as “marketable stock,” the stock must be regularly traded on a qualified exchange. Under applicable Treasury regulations, a “qualified exchange” includes a national securities exchange that is registered with the SEC or the national market system established under the Securities Exchange Act of 1934 and certain foreign securities exchanges. Under applicable Treasury Regulations, PFIC stock traded on a qualified exchange is regularly traded on such exchange for any calendar year during which such stock is traded, other than in deminimis quantities, on at least 15 days during each calendar quarter. We cannot assure U.S. Holders that our common shares will be treated as regularly traded stock on a qualified exchange. If the mark-to-market election were made, then the rules set forth above would not apply for periods covered by the election. Under such election, a U.S. Holder includes in income each year an amount equal to fair market value of the common shares owned by such U.S. Holder as of the close of the taxable year over the U.S. ~~Holder’s~~Holder's adjusted basis in such shares. The U.S. Holder would be entitled to a deduction for the excess, if any, of such U.S. ~~Holder’s~~Holder's adjusted basis in his common shares over the fair market value of such shares as of the close of the taxable year; provided, however, that such deduction would be limited to the extent of any net mark-to-market gains with respect to the common shares included by the U.S. Holder under the election for prior taxable years. The U.S. ~~Holder’s~~Holder's basis in his common shares is adjusted to reflect the amounts included or deducted pursuant to this election. Amounts included in income pursuant to the mark-to-market election, as well as gain on the sale or exchange of the common shares, will be treated as ordinary income. Ordinary loss treatment applies to the deductible portion of any mark-to-market loss, as well as to any loss realized on the actual sale or exchange of the common shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect to such common shares.

The mark-to-market election applies to the tax year for which the election is made and all later tax years, unless the common shares cease to be marketable or the IRS consents to the revocation of the election.

We dohave not ~~believe~~determined whether our ~~company was~~Company may have been a passive foreign investment company during ~~2003. However, there~~2006. There can be no assurance that our ~~company~~Company will not be classified as a passive foreign investment company in ~~2004~~2006, or thereafter, because the tests for determining passive foreign investment company status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. U.S. Holders who hold common shares during a period when our ~~company~~Company is a passive foreign investment company will be subject to the foregoing rules, even if our ~~company~~Company ceases to be a passive foreign investment company, subject to certain exceptions for U.S. Holders who made a QEF election. U.S. Holders are urged to consult with their own tax advisors about making a QEF election or mark-to-market election and other aspects of the passive foreign investment company rules.

Back-Up Withholding and Information Reporting

U.S. Holders generally are subject to information reporting requirements and back-up withholding with respect to dividends paid ~~in the United States~~ on common shares, or proceeds paid from the disposition of common shares, unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption.

The amount of any back-up withholding will be allowed as a credit against a U.S. Holder’s federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the IRS.

F. Dividends and Paying Agents

Not applicable.

G. ~~Statements by Experts~~

G.	Statements by Experts

Not applicable.

H. ~~Documents on display.~~

H.	Documents on display.

We have filed this Annual Report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Statements made in this Annual Report as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete

description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information which we file with the Securities and Exchange Commission, including this Annual Report on Form 20-F, may be inspected and copied at the public reference facilities of the Securities and Exchange Commission at:

~~450 Fifth~~ 100F Street, ~~N.W.~~ ~~Room 1024~~ N.F Washington D.C. 20549
	~~500 West Madison Street~~ ~~Suite 1400~~ ~~Chicago, Illinois 60661~~

You can also obtain copies of this material by mail from the Public Reference Section of the Securities and Exchange Commission, ~~450 Fifth~~100F Street, ~~N.W.~~N.F., Washington, D.C. 20549, at prescribed rates. Additionally, copies of this material may also be obtained from the Securities and Exchange Commission’s Internet site at http://www.sec.gov. The Commission’s telephone number is 1-800-SEC-0330.

I. ~~Subsidiary Information.~~

I.	Subsidiary Information.

Not applicable.

ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

(a) Quantitative Information about Market Risk

See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk.

(b) Qualitative Information about Market Risk

See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk.

ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN ~~DEBT~~EQUITY SECURITIES

Not applicable.

PART II

ITEM 13 - - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES

~~None.~~

There were no material defaults, and no dividend arrearages or delinquencies during the fiscal year ended December 31, 2006.

ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

There were no material modifications to the rights of our security holders during the fiscal year ended December 31, ~~2003.~~

2006.

ITEM 15 –- CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and its ~~Chief Financial Officer~~Corporate Controller and the Chairman of the Board has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, ~~2003.~~2006. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the ~~Chief Financial Officer,~~Chairman of the Board, concluded that the Company’s disclosure controls and procedures were effective.

~~The Company’s~~

Although the Company continues to refine its disclosure controls and procedures from time to time, the CEO and Chairman of the Board have concluded that, as of December 31, 2006, the process was effective enough to ensure material information relating to the Company and its consolidated subsidiaries was accumulated and communicated up to management ~~did~~in sufficient time for management to make decisions regarding the Company's disclosure as required by securities legislation.

Internal Controls Over Financial Reporting

Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general, administrative and financial matters. However, management has decided that considering the employees involved and the compensating control procedures in place, including substantive periodic review of financial statements to ensure that disclosure controls and procedures are effective, the risks associated with segregation are insignificant and the potential benefits of adding employees to more clearly segregate duties do not ~~identify any~~justify the expenses associated with such increase.

There has been no change in the ~~Company’s~~Company's internal ~~control~~controls over financial

reporting ~~that occurred~~ during the ~~Company’s last fiscal~~ year ended December 31, 2006, that has materially affected, or is reasonably likely to materially affect, the ~~Company’s~~Company's internal ~~control~~controls over financial reporting.

ITEM 16 - [RESERVED]

ITEM 16A –- AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s Board of Directors has determined that it has at least one audit committee financial expert serving on its audit committee. The Board of Directors has determined that Darroch Robertson is an audit committee financial expert. The Board of directors has determined that Mr. Robertson is independent, as that term is defined under Rule 4200-1(a)(14) of the Nasdaq Stock Market Rules.Mr. Robertson has been an Associate Professor of Business at the Richard Ivey School of Business, The University of Western Ontario, for the past five years. He is ~~also~~currently the Director of the MBA program and was the Director of the undergraduate HBA program at the Ivey School. Mr. Robertson iswas also a director and chair of the audit committee of Stackpole Ltd., a TSX-listed company. Mr. Robertson ishas also served as an elected member of council for the Institute of Chartered Accountants of Ontario, where he ~~currently serves on~~was chair of the audit committee and by-laws ~~committee~~

committee.

ITEM 16B –- CODE OF ETHICS

The Company has adopted a Code of Business Conduct and Ethics that applies to ~~its principal executive officer, principal financial officer, principal accounting officer, controller~~all directors, officers and ~~persons performing similar functions.~~employees. The Code of Business Conduct and Ethics is attached as an exhibit to this report.

We did not amend, modify or grant any waiver from any provision of our Code of Business Conduct and Ethics during the last fiscal year.

ITEM 16C –- PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services rendered by our auditors for the audit of our annual financial statements and other services.

FEES OF AUDITORS

Year

Audit Fees(1)

Review Fees(2)

Tax Fees(3)

Other Fees(4)

2002

$
184,500

$
54,000

$
31,203

$
18,190

2003

$
160,000

$
66,000

$
71,450

$
18,750

~~(1)~~

Year	Audit Fees⁽¹⁾	Audit Related Fees⁽²⁾	Tax Fees⁽³⁾	Other Fees⁽⁴⁾
2005	$185,000	$54,700	-	-
2006	$110,000	$56,000	$3,000	$10,000

(1)	Audit Fees represent costs associated with the audit of the Company’s consolidated financial statements including review of securities filings.

(2)	Audit Related Fees represent costs associated with reviews of the Company’s interim financial statements.

(3)	Tax Fees represent costs associated with the preparation of the Company’s annual tax filings, tax planning and advice.

(4)	Other Fees represent costs associated with the review and recommended accounting treatment related to complicated contracts or arrangements.

Before the Company’s auditor is engaged by the Company to render audit or non-audit services, the engagement is approved by the Audit Committee. 100% of the audit ofand non-audit services provided by the Company’s ~~financial statements including U.S. GAAP and U.S. GAAS.~~

~~(2)~~ ~~Review Fees represent costs associated with reviews of~~auditor were pre-approved by the ~~Company’s quarterly financial press releases and shareholders reports.~~

~~(3)~~ ~~Tax Fees represent costs associated with~~Audit Committee pursuant to the ~~preparation of the Company’s annual tax filings.~~

Audit Committee’s pre-approval policy.

~~(4)~~ ~~Other fees represent costs associated with the review and recommended accounting treatment related to complicated contracts or arrangements.~~

ITEM 16D –- EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the last fiscal year, there were no purchases by or on behalf of the Company or any affiliated purchaser of any class of the Company’s equity securities registered under Section 12 of the Securities Exchange Act.

PART III

ITEM 17- FINANCIAL STATEMENTS

Not applicable.

ITEM 18 - FINANCIAL STATEMENTS

See the Index to Consolidated Financial Statements accompanying this report on page F-1.

ITEM 19 - - EXHIBITS

Exhibits filed as part of this Annual Report.

1.1		Articles of Arrangement of the Company filed with the Ontario Ministry of Consumer and Business Services on October 31, 2002.⁽¹⁾~~(1)~~

1.2		By-laws of the Company.⁽²⁾

2.1		Form of ~~Series D~~Convertible Secured Note.⁽⁶⁾

2.2		Registration Rights Agreement, dated as of June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd.⁽⁴⁾

2.3
~~2.3~~		Form of Series G Convertible Secured Note.*

~~2.4~~		~~Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc. (5)~~

~~2.5~~		~~Warrant issued April 25, 2002 to Stonestreet Corporation by ADB Systems International Inc. (5)~~

~~2.6~~		~~Form of Warrant issued or issuable upon the exercise of the Series A Notes, Series B Notes, Series C Notes and Series D Notes. (6)~~

~~2.7~~		Series F Convertible Secured Note dated May 19, 2004 between ADB Systems International Ltd. and Stonestreet Limited Partnership.*

~~2.8~~		Form of Warrant issued or issuable upon exercise of ~~the Series F~~Convertible Secured Notes.* ⁽⁶⁾

4.1		Salary Protection Letter, dated February 12, 1997, between the Company and Jeffrey Lymburner.⁽³⁾

4.2		Option Agreement dated February 19, 2001 between Bid.Com International Inc. and Wendell Willick.⁽⁵⁾

4.3		Amendment to Option Agreement dated May 2, 2001 between Bid.Com International Inc. and Wendell Willick.⁽⁵⁾

4.4		Board Support Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and ADB Systemer ASA.⁽⁵⁾

4.5		Board Representation Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and LimeRock Partners LLC, Jan Pedersen, Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik.⁽⁵⁾

4.6		Employment Agreement, dated as of September 18, 2001 between Bid.Com International Inc. and Jan Pedersen.⁽⁵⁾

4.7		Subscription Agreement, dated as of April 25, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership.⁽⁵⁾

4.8		Arrangement Agreement, dated as of August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd.⁽¹⁾

4.9		General Conveyance and Assumption Agreement, dated August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd.⁽²⁾

4.10		Loan Agreement, dated August 23, 2002, and Loan Agreement Amending Agreement entered into as of August 30, 2002 among The Brick Warehouse Corporation, ADB Systems International Inc., and ADB Systems International Ltd.⁽⁶⁾

4.11		Form of Supply Services and Licensing Agreement, dated August 23, 2002, among The Brick Warehouse Corporation, ADB Systems International Inc., and ADB Systems International Ltd.⁽⁶⁾

4.12		Form of General Security Agreement, dated as of April 30, 2002, between ADB Systems International Inc. and each of Stonestreet Limited Partnership and Greenwich Growth Fund Ltd.⁽⁶⁾

~~4.13~~
4.13	Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership.⁽⁶⁾

4.14		Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Greenwich Growth Fund Ltd.⁽⁶⁾

4.15		Co-operation Agreement made as of August 23, 2002 between ADB Systems International Inc., ADB Systems International Ltd. and The Brick Warehouse Corporation.⁽⁶⁾

4.16		Agency Agreement dated June 15, 2004 between ADB Systems International Ltd. and First Associates Investments Inc.* ⁽⁷⁾

4.17		General Security Agreement dated as of May 19, 2004 between ADB Systems International Ltd. and Stonestreet Limited Partnership.* ⁽⁷⁾

4.18		Form of Subscription Agreement ~~dated June 3, 2004,~~ between ADB Systems International Ltd. and First Associates Investments Inc.* ⁽⁷⁾

4.19		Subscription Agreement, dated June 1, 2004, between ADB Systems International and First Associates Investments Inc.*

~~4.20~~		Subscription Agreement dated May 19, 2004 between ADB Systems International Ltd. and Stonestreet Limited Partnership.* ⁽⁷⁾

~~8.1~~ 4.20	Formof Subscription Agreement for Equity Private Placements⁽⁸⁾

4.21	Form of Subscription Agreement for Series I Convertible Secured Debenture.⁽¹¹⁾

4.22	Form of Series I Convertible Secured Debenture.⁽¹¹⁾

4.23	Form of Subscription Agreement for Series J Convertible Secured Debenture.⁽¹¹⁾

4.24	Form of Series J Convertible Secured Debenture.⁽¹¹⁾

4.25	Share Purchase Agreement between ADB Systems International Ltd. and ADB Systemer Holding as, dated May 18, 2006.⁽⁹⁾

8.1	List of Subsidiaries.*

~~10.1~~ 11.1	Code of Business Conduct and Ethics of Northcore Technologies Inc.⁽¹⁰⁾

12.1	CEO Certification.*

12. 2	Corporate Controller Certification.*

13.1	Certification pursuant to 18 U.S.C. Section 1350.*

~~11.1~~ 13.2		~~Code Of Ethics for ADB Systems International Ltd.~~Certification pursuant to 18 U.S.C. Section 1350.*

*	_________________________________________________________________________

See accompanying notes to consolidated financial statements.

Northcore Technologies Inc. 2006 Annual Report F-4

Consolidated Statements of Deficit

Years ended December 31, 2006, 2005 and 2004

(in thousands of Canadian dollars)


	2006			2005			2004

DEFICIT, BEGINNING OF YEAR	$	(108,367	)	$	(104,866	)	$	(99,762	)

NET LOSS FOR THE YEAR		(648	)		(3,501	)		(5,104	)

DEFICIT, END OF YEAR	$	(109,015	)	$	(108,367	)	$	(104,866	)

See accompanying notes to consolidated financial statements.

Northcore Technologies Inc. 2006 Annual Report

F-5

Consolidated Statements of Cash Flows
Years ended December 31, 2006, 2005 and 2004
(in thousands of Canadian dollars)

2006

2005

2004

(Restated - Note 4

(Restated - Note 4

NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES

OPERATING

Net loss for the year from continuing operations $ (2,770 ) $ (3,493 ) $ (3,599 )
Items not affecting cash:
  Employee stock options 137 105 27
Depreciation and amortization 92 95 149
Accretion of secured subordinated notes 454 405 266
(2,087 ) (2,888 ) (3157 )
Changes in non cash operating working capital (Note 17) 50 827 597
(2,037 ) (2,061 ) (2,560 )

INVESTING

Capital assets
(65 ) (36 ) (40 )
Proceeds from disposal of capital assets
- 4 -
Marketable securities 13 - -
(52 ) (32 ) (40 )

FINANCING

Advances from (repayment to) related parties (Note 7)
(137 ) 137 -
Issuance of secured subordinated notes, net (Note 8)
750 1,095 2,598
    Repayment of secured subordinated notes (Note 8) (435 ) - -
Deferred charges (Note 6)
- (32 ) (167 )
Issuance of common shares (Note 10 (b))
- 570 903
178 1,770
3,334

CASH FLOWS FROM DISCONTINUED OPERATIONS (Note 4)

    Operating activities (317 ) 141 (673 )
    Investing activities - Net proceeds from disposition of discontinued operations
2,643

-

-

2,326 141 (673 )

NET CASH INFLOW (OUTFLOW) DURING THE YEAR 415 (182 ) 61
CASH, BEGINNING OF YEAR 60 242 181
CASH, END OF YEAR $ 475 $ 60 $ 242
SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS
Interest paid $ 45 $ 53 $ 60

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES - See Note 17

See accompanying notes to consolidated financial statements.

Northcore Technologies Inc.  2006 Annual Report F-6

Notes to the Consolidated Financial Statements -

Years ended December 31, ~~2003, 2002~~2006, 2005 and ~~2001 (in~~2004

(in Canadian dollars)

1.DESCRIPTION OF BUSINESS

Northcore Technologies Inc., formerly ADB Systems International Ltd. (“~~ADB”~~Northcore” or the “Company”) ~~delivers asset lifecycle management~~changed its name by filing Articles of Amendment on June 30, 2006. Northcore provides software solutions and services that ~~enable companies to~~help organizations source, manage and sell ~~assets for maximum value. ADB~~their capital equipment and assets. Northcore works with a growing number of customers and partners in a variety of sectors including ~~the asset-intensive~~financial services, manufacturing, government and oil and ~~gas industry to improve operational efficiencies. ADB also enables customers in government, manufacturing and financial services sectors to reduce purchasing costs and improve procurement processes.~~

gas.

Through its wholly owned subsidiary, ADB Systems ~~International Ltd. was created on August 30, 2002. Upon implementation of~~USA, Inc., Northcore owns a ~~special resolution of the shareholder of the Company and shareholders of ADB Systems International Inc. (“Old ADB”, formerly Bid.Com International Inc. (“Bid.Com”)), pursuant~~50 percent interest in GE Asset Manager, LLC (also referred to Section 182 of the Business Corporations Act (Ontario), the shareholders of Old ADB exchanged their shares for shares of the Company on a one-for-one basis on October 22, 2002. All assets and liabilities of Old ADB, other than those related to retail activities (Note 13) were transferred to the Company on that date in the form of a return of capital. ADB Systems International Ltd. conducted no activities prior to October 22, 2002. Old ADB subsequently changed its name to Bid.Com International Ltd. (“Bid.Com Ltd.”).

~~These consolidated financial statements reflect the financial position of the Company~~ as at December 31, 2003 and 2002, and results of its operations and its cash flows subsequent to October 22, 2002, and the financial position of Old ADB as at December 31, 2001 and results of operations and of cash flows of Old ADB for the 2002 period prior to October 22, 2002 and the year ended December 31, 2001 based upon continuity of interests accounting as no substantive change of ownership occurred.

Bid.Com was an on-line auction service provider and e-tailer. During 2000, the Company refocused its business model to become an on-line enabling service to other businesses seeking to use its on-line retailing technologies. The Company provides businesses with the use of its software and hardware technology over a specific term in addition to consulting, implementation, and training services. In October 2001, Bid.Com acquired ADB Systemer ASA (“ADB Systemer”“GE Asset Manager”), a Norway-based software vendor of enterprise asset management and electronic procurement applications. The Company changed its name to ADB Systems International Inc. to reflect its expanded product offering.

joint venture launched with GE Commercial Finance.

2.CONTINUATION OF THE BUSINESS

While the accompanying consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, ~~basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations,~~ certain adverse conditions and events cast substantial doubt upon the validity of this assumption. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations. The Company has not yet realized profitable operations and has relied on non-operational sources of financing to fund operations. The Company’s ability to continue as a going concern will be dependent on management’s ability to successfully execute its business plan including ana substantial increase in revenue ~~and seeking~~as well as maintaining operating expenses at or near the same level as 2006. Management believes that it has the ability to raise additional forms of debt or equity financing. Additional debt or equity financings such as issuance of loans or debentures, issuance of shares, conversion of warrants and exercise of options in the amount of $3.7 million are estimated to be required for 2004.financing if required. The Company cannot provide assurance that it will be able to execute on its business plan or assure that efforts to raise ~~such~~ additional financings ~~will~~would be successful.

These consolidated financial statements do not include adjustments or disclosures that may result from the Company’s inability to continue as a going concern. If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying ~~value~~values of assets and liabilities, ~~and~~ the reported net losses and the balance sheet classifications used.

Management believes that continued existence beyond ~~2004~~2006 is dependent on its ability to increase revenue from existing products, and to expand the scope of its product offering which entails a combination of internally developed software and ~~partnerships~~business ventures with third parties.

~~F-8~~

3.SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP), which are substantially the same as generally accepted accounting principles in the United States (U.S. GAAP), except as disclosed in Note 20. The accompanying consolidated financial statements are prepared using accounting principles applicable to a going concern, which assumes that the Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its liabilities in the normal course of operations ~~(see~~(See Note 2).

~~PRINCIPLES OF CONSOLIDATION~~

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and subsidiaries over which it exercises ~~control~~control. All inter-company balances and ~~its proportionate share of~~transactions have been eliminated on consolidation.

Investment in Jointly Controlled Company

On September 23, 2003 the ~~assets, liabilities, revenue and expenses of~~Company established a ~~jointly controlled company during~~joint venture with the ~~period of ownership, September 1999 to May 2001. Business acquisitions are accounted for~~GE Commercial Finance, with each entity holding a 50 percent interest in the joint venture. The joint venture operates under the ~~purchase method and operating results are included in the~~name of GE Asset Manager, LLC. The consolidated financial statements as of the ~~date~~Company reflect the Company’s pro rata share of

the ~~acquisition~~joint venture’s assets, liabilities, and results of ~~control. All material intercompany transactions have been eliminated.~~

~~INVESTMENT IN ASSOCIATED COMPANY~~

~~The investment~~operations in ~~associated company was accounted for under~~accordance with the ~~equity~~proportionate consolidation method ~~(see~~of accounting (See Note ~~19(a))~~19). This method was considered appropriate based upon management’s evaluation of its ability to determine the strategic operating policies of the associated company without the cooperation of others, its ability to obtain future economic benefits from the associated company, and its exposure

Northcore Technologies Inc. 2006 Annual Report F-7

Notes to the ~~related risks of ownership. U.S. GAAP required consolidation of the investment~~ Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in ~~associated company. The impact of this difference in U.S. GAAP from~~ Canadian ~~GAAP is disclosed in these financial statements in Note 20 – Reconciliation of United States GAAP.~~
~~MARKETABLE SECURITIES~~

dollars)

Marketable Securities

Marketable securities ~~include registered equity instruments, all~~are comprised of which are carried at the lower of cost and quoted market value. Net unrealized losses on marketable securities related to an impairment, determined to be other than temporary in nature, are determined on the specific identification basis and are included in the Consolidated Statements of Operations. Marketable securities also include interest-bearing certificates carried at cost plus accrued interest which approximate market value.

~~CAPITAL ASSETS AND AMORTIZATION~~

Capital Assets and Amortization

Capital assets are ~~carried~~recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis in amounts sufficient to amortize the cost of capital assets over their estimated useful lives as follows:

Computer hardware		3 years
Computer software ~~and licenses~~		1 year or life of the license
Furniture and fixtures		5 years
~~Building~~	~~20 years~~
Leasehold improvements		life of the lease

~~STRATEGIC INVESTMENTS~~

Strategic investments are carried at the lower of cost and estimated net realizable value. Management has assessed the carrying value of the investments and recorded an impairment provision based on management’s best estimate of net realizable value.

~~SOFTWARE DEVELOPMENT COSTS~~

Software Development Costs

The cost of ~~non-core~~ software internally developed for client applications through e-commerce enabling agreements and software licensing is expensed as incurred. ~~The cost~~

Translation of core software internally developed for client applications through e-commerce enabling agreements is capitalized and is amortized over two years. The cost of core software internally developed for software licensing contracts is expensed as incurred. The cost of acquired software and internally developed software for use in on-line retail operations is expensed as incurred.
~~F-9~~
Foreign Currencies

~~ACQUIRED SOFTWARE~~

~~The cost of core software acquired as a result of the acquisition of ADB Systemer ASA has been capitalized and is amortized over three years, the estimated useful life of the software.~~

~~ACQUIRED AGREEMENTS~~

Acquired agreements have been capitalized based on the estimated fair value of common share purchase warrants issued in exchange for entering into certain agreements and are amortized over the initial term of the agreements. The fair value of these warrants is calculated based on the Cox-Rubinstein binomial valuation model.

~~TRADEMARKS AND INTELLECTUAL PROPERTY~~

Trademarks and intellectual property are recorded at cost and amortized on a straight-line basis over two years. Trademarks and intellectual property acquired as a result of the acquisition of ADB Systemer ASA, and directly attributable to core software, have been capitalized and are amortized over three years, the estimated useful life of the related software.

~~GOODWILL~~

In 2001, the Company adopted the provisions of the Canadian Institute of Chartered Accountants Handbook sections 1581 and 3062, whereby the purchase price of an acquired business is allocated to all assets and liabilities, including identifiable intangible assets, based on their fair values. Any purchase price in excess of those fair values is recorded as goodwill. Goodwill must be tested annually for impairment on a fair value basis, and where the carrying value exceeds fair value, a goodwill impairment loss must be recorded. This accounting policy became effective January 1, 2002 with a transition provision beginning July 1, 2001. Management assessed the carrying value of the goodwill arising from the acquisition of ADB Systemer, and determined that a permanent decline had occurred in the fair value of goodwill at December 31, 2001 based on estimated future cash flows from the business acquired.

~~TRANSLATION OF FOREIGN CURRENCIES~~

The accompanying consolidated financial statements are prepared in Canadian dollars. All foreign denominated transactions, other than those of self-sustaining subsidiaries, are translated using the temporal method whereby monetary assets and liabilities are translated at the rates in effect on the balance sheet date, non-monetary items at historical rates and revenue and expenses at the average monthly rate. Gains and losses from foreign exchange translations are included in the statements of operations.

The Company’s foreign subsidiaries in the United States, Ireland and the United Kingdom ~~and Australia~~ are classified as fully integrated with the functional currency being the Canadian dollar. The Company uses the temporal method of foreign currency translation for these operations. Monetary assets and liabilities are translated at the exchange rates in effect on the balance sheet date. Non-monetary assets are translated at historic exchange rates. Revenue and expense amounts are translated using the average monthly exchange ~~rate for the year~~rates except amortization of capital assets, which is translated at historic exchange rates. Gains and losses from foreign exchange translations are included in the statement of operations.

The Company’s former subsidiary in Norway iswas classified as a self-sustaining operation whereby the functional currency of the operation is the Norwegian krone. The Company ~~uses~~used the current rate method of translation for these operations. Assets and liabilities ~~are~~were translated at the rate of exchange in effect at the balance sheet date. Revenue and expenses (including depreciation and amortization) ~~are~~were translated using the monthly average exchange ~~rate for the year.~~rate. Gains and losses from foreign exchange translations ~~are~~were included as a separate component of shareholders’ ~~equity.~~

~~LOSS PER SHARE~~

~~On January 1, 2001, the~~deficiency. The Company ~~adopted the provisions of~~ sold its Norwegian subsidiary in 2006 (See Note 4).

Loss Per Share

The ~~Canadian Institute of Chartered Accountants Handbook section 3500, “Earnings per Share,” whereby the~~ treasury stock method of calculating diluted ~~earnings~~loss per share is used. For ~~the~~all years presented, all stock options, convertible debentures and warrants are anti-dilutive, therefore diluted loss per share is equal to basic loss per share. The basic loss per share calculation is based on the weighted average number of shares outstanding during the year.

~~F-10~~

Revenue Recognition

~~REVENUE RECOGNITION~~

~~a) License~~

The Company’s revenues are derived from software license fees, implementation, training and ~~related~~consulting services, ~~agreements~~

product maintenance and customer support, software development, and hosting fees. Fees for services are billed separately from licenses of the Company’s product. The Company ~~has agreements to provide software licenses for client-server-based software applications. The Company adopted~~recognizes revenue in accordance with Canadian GAAP, which in the Company’s circumstances, is not materially different from the amounts that would be determined under provisions of ~~Statement~~the American Institute of Certified Public Accountants Statements of Position (SOP) No. 97-2, “Software Revenue ~~Recognition,”~~Recognition”, and as amended by Statement of Position 98-9, ~~“Software~~“Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain ~~Transactions,~~Transactions”. The Company also considers the provisions of The Canadian Institute of Chartered Accountants (“CICA”) EIC 141, which is analogous to Staff Accounting Bulletin (SAB) 104, “Revenue Recognition in Financial Statements”, and CICA EIC 142, which is analogous to the Emerging Issues Task Force consensus on EITF 00-21, “Accounting for Revenue Arrangements with Multiple Elements,” in ~~its accounting for~~determining the appropriate revenue recognition ~~on delivery~~methodology.

Northcore Technologies Inc. 2006 Annual Report F-8

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

Hosting Fees

The Company earns revenue from the hosting of customer websites. Under existing hosting contracts, the Company charge customers a recurring periodic flat fee. The fees are recognized as the hosting services are provided.

Software Development Fees

Typically, development of software ~~licenses.~~for our customers is provided based on a predetermined fixed rate basis. Revenue is recognized ~~on physical delivery for~~as time is incurred throughout the development process.

Software License Revenue

The Company recognizes software ~~licenses when undelivered elements are not essential to~~license revenue in accordance with the ~~functionality~~terms of the ~~license.~~license agreement and when the following criteria as set out in SOP No. 97-2 are met:

Persuasive evidence of an arrangement exists;

Delivery has occurred;

Fee is fixed or determinable; and

Collectibility is probable.

Software license revenue consists of fixed license fee agreements involving perpetual licenses.

Software license agreements may be part of multiple element arrangements that include consulting and implementation services. When ~~software licenses~~these services are ~~delivered and require additional elements~~considered essential to the functionality of the license, ~~such as consulting and implementation services, license~~the associated revenue is recognized on athe basis of the percentage of completion ~~basis until all~~method as specified by contract accounting principles. When these services ~~requisite~~are not considered essential to the functionality of the license, ~~have been delivered and vendor-~~the entire arrangement fee is allocated to each element in the arrangement based on the respective vendor specific objective evidence (“VSOE”) of the fair value of each ~~component exists. Software licenses~~element. The amount allocated to license revenues is based on the price charged by the Company when the same element is sold in similar quantities to a customer of a similar size and nature. If this amount is not determinable, the residual software license revenue is the amount of the total arrangement fee less the fair value of any undelivered elements. VSOE used in determining fair value for installation, implementation and training based on the standard daily rates for the type of service being provided multiplied by the estimated time to complete each task. VSOE used in determining the fair value of maintenance and support is based on the annual renewal rates. The revenue allocable to the software license is recognized when the revenue recognition criteria are ~~granted for an indefinite term.~~

met. The revenue allocable to the consulting services is recognized as the services are performed.

Implementation, Training and Consulting Service Fees

The Company ~~has agreements to provide maintenance, support,~~receives revenue from implementation of its product offerings, consulting services and training services. Customers are charged a fee based on time and expenses. Revenue from implementation, consulting service and training fees is recognized as the services are performed or deferred until contractually defined milestones are achieved or until customer acceptance has occurred, as the case may be, for such contracts.

Product Maintenance and Customer Support Fees

The Company receives revenue from maintaining its products and the provision of on-going support services to customers. The maintenance and support fees are typically equal to a specified percentage of the customers’ license fee. If associated with the fixed fee license model, the maintenance revenues received are recorded as deferred revenue and recognized on a straight-line basis over the contract period.

Services revenue from maintenance and support ~~agreements is recognized over the term of the agreement. Revenue from training services~~ is recognized when ~~these~~the services are ~~provided.~~

~~The Company also has agreements that principally include the provision of~~performed. Maintenance and support revenues paid in advance are non-refundable and are recognized on a software license, but also contain additional deliverable elements, such as the provision of upgrades and hosting services. For these contracts, where vendor-specific objective evidence criteria for independent recognition of revenue elements do not exist, revenue is recognizedstraight-line basis over the term of the agreement, ~~or three years when a revenue sharing arrangement exists.~~which typically is 12 months.

Northcore Technologies Inc. 2006 Annual Report F-9

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

Deferred Revenue ~~from net revenue sharing arrangements is recorded as received.~~

~~b) E-commerce enabling agreements~~

The Company has agreements where it has become an e-commerce enabler to various businesses. The Company adopted the provisions of Statement of Position 97-2, “Software Revenue Recognition,” issued by the American Institute of Certified Public Accountants in its accounting for multiple element e-commerce enabling agreements. The Company’s multiple element e-commerce enabling agreements are comprised of revenue for providing consulting, implementation, training, and hosting services. Revenue from individual elements of each contract is recognized when vendor-specific objective evidence exists to determine the fair value of individual contract elements. When vendor-specific objective evidence exists, consulting, implementation, and training elements are recognized on a percentage of completion basis and the hosting element is recognized ratably over the term of the contract. In the absence of vendor-specific objective evidence, the Company defers and amortizes all revenue from individual contract elements ratably over the term of the contract.

~~c) Sale of retail products and related activities~~

Revenue from product sales, commission, shipping, and handling was recognized when goods were shipped to customers. The Company curtailed its on-line retail operations in October 2000. During 2002, the non-consolidated investee, Bid.Com Ltd. resumed on-line retail activities (Note 19(a)).

~~DEFERRED REVENUE~~

Deferred revenue is comprised of the unrecognized portion of consulting and implementation fees received from maintenance and support e-commerce enabling agreements, and the unrecognized portion of license, installation, and consulting revenue on the sale of software licenses and related services.

~~CUSTOMER ACQUISITION COSTS~~

Customer acquisition costs are comprised of the calculated fair value of common share purchase warrants issued to customers in return for certain agreements. These amounts are deducted from gross revenue to the extent that revenue is earned, and are otherwise included in general and administrative expenses. The fair value of these warrants is calculated based on the Cox-Rubinstein binomial valuation model.

~~DEFERRED CHARGES~~

Deferred Charges

Deferred charges are comprised of expenditures incurred in ~~obtaining a demand loan and~~ the issuance of secured subordinated notes. The ~~expenditures relating to the demand loan~~deferred charges are amortized over the term of the ~~loan~~underlying notes on a straight-line ~~basis; expenditures relating~~basis. In accordance with Canadian GAAP, conversion of the underlying notes results in the allocation of the associated unamortized deferred charge to shareholders’ deficiency. Under U.S. GAAP, note conversion results in the expensing of the associated unamortized deferred charge. The impact of this difference in Canadian GAAP from U.S. GAAP is disclosed in these notes to the ~~subordinated notes were recorded as a reduction to the equity component of those notes.~~

~~F-11~~

consolidated financial statements under Canadian and United States accounting policy differences (See Note 20).

Secured Subordinated Notes

~~SECURED SUBORDINATED NOTES~~

Financial instruments that contain both a liability and an equity element are required to have the instrument’s component parts classified separately under Canadian GAAP. The Company uses the Cox-Rubinstein binomial valuation model to determine the fair value of the conversion feature at the issue dates of convertible secured subordinated notes and discloses the liability and equity components separately on its balance sheet. ~~United States~~U.S. GAAP does not permit separate disclosure of different elements of a financial instrument in the financial statements. The impact of this difference in ~~United States~~U.S. GAAP from Canadian GAAP is disclosed in the notes to these consolidated financial statements under ~~Reconciliation~~Canadian and United States accounting policy differences (See Note 20).

Stock-Based Compensation

The Company accounts for stock-based compensation based on the fair value method of ~~U.S. GAAP (Note 20).~~

~~STOCK-BASED COMPENSATION~~

~~The Canadian Institute of Chartered Accountants issued Handbook section~~accounting, which is consistent with CICA 3870, “Stock-based Compensation and ~~Other Stock-based Payments,~~Other-based Payments.” ~~effective January 1, 2002. During the fourth quarter of fiscal 2003, the Company elected to adopt the~~The estimated fair value ~~method for stock-based compensation on a prospective basis. As a result,~~is amortized to expense over the ~~annual financial statements reflect the cost~~vesting period. Performance based options are expensed upon achievement of stock-based compensation to employees effective January 1, 2003. The impact of this standard is disclosed in Note 9 to the financial statements. The impact of Statement of Financial Accounting Standards (SFAS) 123, “Accounting for Stock-Based Compensation,” is disclosed in the notes to these financial statements under Reconciliation of U.S. GAAP (Note 20).

Prior to January 1, 2003, under Canadian GAAP, stock options granted to employees were not required to be recorded in the accounts of the Company. Stock options to employees under U.S. GAAP are accounted for in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. Because options granted to employees have been fixed options with the exercise price equal to the market price of stock, under US GAAP no accounting recognition was given to stock options granted to employees at fair market value until they are exercised.

specific criteria.

Stock-based compensation to third parties is recognized and recorded in the accounts of the Company at the fair market value of the equity instrument as determined by the Cox-Rubinstein binomial valuation model.

~~INCOME TAXES~~

Income Taxes

The Company accounts for income taxes in accordance with the asset and liability method. The determination of future tax assets and liabilities is based on differences between the financial statement and income tax bases of assets and liabilities, using substantively enacted tax rates in effect for the ~~period~~year in which the differences are expected to reverse. Future tax assets are recorded to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized.

~~USE OF SIGNIFICANT ACCOUNTING ESTIMATES~~

Use of Significant Accounting Estimates

The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting ~~periods.~~years. Estimates are used when determining items such as the allowance for doubtful accounts, the fair value assigned to the debt and equity components of the secured subordinated notes and the expected requirements for non-operational funding in 2007. Actual results could differ from those estimates.

4.ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

~~CAPITAL ASSETS~~Financial Instruments

2003

2002

Cost

Accumulated
Amortization

Net Book
Value

Cost

Accumulated
Amortization

Net Book
Value

(in thousands)

Computer hardware

$
2,588

$
2,428

$
160

$
2,659

$
2,423

$
236

Computer software

28

—

28

—

—

—

Furniture and fixtures

411

333

78

465

268

197

Leasehold improvements

151

151

—

151

141

10

$
3,178

$
2,912

$
266

$
3,275

$
2,832

$
443

~~F-12~~

In 2005, the CICA issued Handbook Section 3855, Financial Instruments - Recognition and Measurement, Handbook Section 1530, Comprehensive Income, Handbook Section 3251, Equity, and Handbook Section 3855, Hedges. The new standards are effective for interim and annual financial statements commencing on or after October 1, 2006. The Company will adopt the new standards on January 1, 2007.

Northcore Technologies Inc. 2006 Annual Report F-10

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

Other comprehensive income (loss) will form part of shareholders’ equity. A new statement entitled “Consolidated Statement of Comprehensive Income (Loss)” will be added to the Company’s consolidated financial statements and will include net income as well as other comprehensive income (loss).

The Company is currently evaluating the impact of this new standard.

Capital Disclosures

5.~~DEFERRED CHARGES~~

~~During 2002,~~

In 2006, the CICA issued Handbook Section 1535, Capital Disclosures (“CICA 1535”). CICA 1535 requires that an entity disclose information that enables users of its financial statements to evaluate an entity’s objectives, policies and processes for managing capital including disclosures of any externally imposed capital requirements and the consequences for non-compliance. The new standard will be effective for the Company ~~incurred $874,000 of expenditures in obtaining a demand loan (Note 6). These expenditures were amortized on a straight-line basis over~~effective January 1, 2008.

4.	DISCONTINUED OPERATIONS

On May 18, 2006, the ~~term~~Company entered into an agreement with ADB Systemer Holding AS (the “Buyer”), to sell 100 percent of the ~~loan, which matured on~~Company's interest in its Norwegian subsidiary ADB Systemer AS, (“ADB Systemer”) for NOK 15,000,000 or approximately Canadian $2,687,000 in cash, subject to shareholder approval. As compensation for the transfer of UK contracts to the Buyer, the Company will receive a royalty of 10% of net annual sales from the contracts for a period of four years from the sale closing date. These royalties will be recognized in earnings as receivable. The Company received a total of $77,000 in royalties from the period of discontinued operations to the year end. Certain shareholders of the Buyer were employees or executive officers of ADB Systemer and shareholders of the Company. On June 21, 2006 the Company received approval from shareholders at its annual general meeting to proceed with the sale of ADB Systemer and changed its name to Northcore Technologies Inc. effective June 30, ~~2003. In 2002,~~2006. The sale of the shares of ADB Systemer included the sale of the ADB Systems name. Upon the sale of ADB Systemer, the Company ~~also incurred financing costs~~retains access to all existing technology that will be used to service existing customers and entered into a Value Added Reseller Agreement with ADB Systemer.

The consolidated financial statements and related note disclosures for 2005 and 2004 have been restated to reflect the impact of ~~$150,000 in obtaining convertible debt financing (Note 7). In 2003, deferred charges were reduced by an amortization expense~~the discontinued operations.

The following summarizes the balance sheet, statement of ~~$513,000 with a reduction~~operations and statement of ~~$511,000 occurring in 2002 comprised of an amortization expense of $361,000 and a reduction~~cash flows information for the Company’s discontinued operations.


Balance Sheet	2006		2005
	(in thousands)
Current assets	$	-	$	1,114
Long term assets		-		56
Current liabilities		-		(894	)
Net assets from discontinued operations	$	-	$	276


Income Statement	2006		2005			2004
	(in thousands, except per share amounts)
Revenue	$	2,399	$	4,491		$	3,453
Income (loss) from operations		331		(8	)		(1,505	)
Gain from disposition of discontinued operations		1,791		-			-
Income (loss) from discontinued operations	$	2,122	$	(8	)	$	(1,505	)
Income (loss) per share from discontinued operations, basic and diluted	$	0.02	$	-		$	(0.02	)

Northcore Technologies Inc. 2006 Annual Report F-11

Notes to the ~~equity component~~Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)


Statement of Cash Flows	2006			2005		2004
	(in thousands)
Operating activities	$	(317	)	$	141	$	(673	)
Investing activities - Net proceeds from disposition of discontinued operations		2,643			-		-
Financing activities		-			-		-
Cash (deficiency) from discontinued operations	$	2,326		$	141	$	(673	)

5. CAPITAL ASSETS


	2006						2005
							(Restated - Note 4)
	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
	(in thousands)
Computer hardware	$	2,472	$	2,407	$	65	$	2,407	$	2,385	$	22
Computer software		13		13		-		13		11		2
Furniture and fixtures		266		266		-		266		266		-
Leasehold improvements		27		12		15		27		6		21
	$	2,778	$	2,698	$	80	$	2,713	$	2,668	$	45

During 2006, the Company recorded capital asset amortization in the amount of $31,000 (2005 - $31,000, 2004 - $117,000).

6. DEFERRED CHARGES

The following table summarizes the transactions within deferred charges.


	2006			2005
	(in thousands)
Opening balance	$	156		$	155
Series I financing costs (Note 6 (b))		-			77
Amortization (Note 6 (c))		(62	)		(63	)
Allocation to contributed surplus (Note 6 (d))		(53	)		(13	)
Closing balance	$	41		$	156

During 2005, financing costs in the amount of $77,000 associated with the liability component of the Series I notes were recorded as deferred charges. These financing costs include $45,000 representing the allocation of the fair value of commission options issued in conjunction with these notes (See Note 8 (b)). The deferred charges are being amortized on a straight-line basis over the term of the underlying debt.

During 2006, amortization of deferred charges in the amount of $62,000 (2005 - $63,000, 2004 - $32,000) was recorded and included in depreciation and amortization expense.

During 2006, conversion of the Series I notes (2005 - Series H notes) resulted in the allocation of $51,000 (2005 - $13,000) in unamortized deferred charges to contributed surplus (See Note 11(b)). In addition, the repayment of Series G notes resulted in the allocation of $2,000 (2005 - $nil) in unamortized deferred charges to contributed surplus.

Northcore Technologies Inc. 2006 Annual Report F-12

Notes to the ~~secured notes of $150,000.~~

Consolidated Financial Statements

6.Years ended December 31, 2006, 2005 and 2004

~~DEMAND LOAN~~(in Canadian dollars)

7. DUE TO RELATED PARTIES

During the year ended December 31, ~~2002,~~2006, the Company ~~entered into~~repaid advances from related parties totaling $137,000 (2005 - $nil). The Company also paid $15,000 (2005 - $nil) in advisory fees to a ~~series~~director in connection with the sale of ~~agreements which resulted~~ADB Systemer (See Note 4).

As at December 31, 2006, accrued liabilities included $nil (2005 - $5,000) in interest payable relating to the ~~completion~~above amounts due to related parties. During 2006, interest expense on advances from related parties was $4,000 (2005 - $5,000).

8. SECURED SUBORDINATED NOTES

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/officers of the Company. The Series J notes mature February 8, 2011, have an annual interest rate of 11 percent and are convertible into equity units at a price of $0.15 per unit. Interest for the first year is 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 is 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 Toronto Stock Exchange, was greater than or equal to $0.35 for any 10 consecutive trading days. The afore-mentioned conversion provisions are subject to a four month and one day holding period. The Series J 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.

As required by Canadian GAAP, the Company separated the liability and equity components of the Series J secured subordinated notes. The Company determined the fair value of the liability component of the Series J notes by calculating the present value of the associated cash flows, using a discount rate that reflects the Company’s underlying rate of borrowing. The Company determined the fair value of the conversion feature at the issue date of the Series J notes using the Cox-Rubinstein binomial valuation model. The resulting pro rata fair values of the liability component of the notes and the conversion features of the units, comprised of shares and attached warrants, was $202,000, $353,000 and $200,000, respectively. The liability component will be accreted to $755,000 over the term of the Series J notes through the recording of a ~~series~~non-cash interest expense until such date at which the underlying notes are converted into common shares.

During 2006, $470,000 (face value) of ~~transactions (collectively~~ the ~~“Transaction”) whereby~~Series J notes (book value of $156,000) were converted into 3,133,000 equity units represented by 3,133,000 common shares valued at $220,000 and 3,133,000 warrants valued at $125,000 (See table below).

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/officers of the Company. The Series I notes mature September 12, 2010, have an annual interest rate of 11 percent and are convertible into equity units at a price of $0.15 per unit. Interest for the first year is 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 will be paid in cash. Interest payable for the remaining term of the notes is 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 expire 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.

Northcore Technologies Inc. 2006 Annual Report F-13

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

As required by Canadian GAAP, the Company ~~received~~separated the liability and equity components of the Series I secured subordinated notes. The Company determined the fair value of the liability component of the Series I notes by calculating the present value of the associated cash flows, using a ~~secured demand loan in~~discount rate that reflects the ~~aggregate principal amount of $2,000,000. The loan carried an interest~~Company’s underlying rate of ~~12 percent compounded monthly, and was secured by a general security agreement on~~borrowing. The Company determined the ~~assets~~fair value of the ~~Company and a pledge~~conversion feature at the issue date of the ~~shares~~Series I notes using the Cox-Rubinstein binomial valuation model. The resulting pro rata fair values of the ~~Company’s Norwegian subsidiary. The loan matured on June 30, 2003. The Company could, at its discretion, repay the loan in cash or transfer to the lender 100 percent~~liability component of the ~~issued shares of its investment in an associated company in full settlement~~notes and the conversion features of the ~~outstanding principal amount~~units, comprised of shares and ~~accrued interest then owing~~attached warrants, was $280,000, $472,000 and $448,000, respectively. The liability component will be accreted to $1,200,000 over the ~~lender (Note 19(a)).~~

~~On June 30, 2003,~~ ~~the Company exercised its option to transfer its investment in the associated company, which had a nominal carrying value, to the lender in full settlement~~term of the ~~outstanding principal and accrued~~Series I notes through the recording of a non-cash interest ~~amounts. This transfer resulted in a gain on settlement of~~expense until such date at which the ~~demand loan~~underlying notes are converted into common shares.

Financing costs in the amount of ~~$2,195,000.~~

7.~~SECURED SUBORDINATED NOTES~~

~~a) During~~$137,000 were incurred in the ~~year ended December 31, 2003,~~issuance of the Series I notes. A portion of these financing costs, in the amount of $32,000 attributed to the liability component of the notes was allocated to deferred charges (See Note 6). The remaining financing costs of $105,000 attributed to the equity portions of the notes were recorded as a reduction to the conversion feature on secured subordinated notes amount within shareholders’ deficiency.

In addition to the financing costs described above, the Company issued ~~Series E secured subordinated notes with a face value of $1.0 million for net proceeds of $994,000. The Series E notes have~~to the financing agent, PowerOne Capital Markets Limited (“PowerOne”), an ~~annual rate of interest of 11percent that is paid quarterly in arrears, mature August 19, 2006 and are convertible into~~option to purchase up to 747,000 equity units at a purchase price of ~~$0.35~~$0.15 per unit. The option expires on September 12, 2010. Each equity unit consists of one common share and one share-purchase warrant with an exercise price of $0.20. The share-purchase warrants expire on September 12, 2010. Using the Cox-Rubinstein binomial valuation model, the Company has determined the fair value of these equity units to be $193,000 and included this amount in other options. The portion of the fair value of this option, in the amount of $45,000, attributable to the liability component of the notes was allocated to deferred charges. The remaining portion, in the amount of $148,000, attributable to the equity components of the notes was recorded as a reduction to the conversion feature on secured subordinated notes amount within shareholders’ deficiency.

During 2006, $900,000 (face value) of the Series I notes (book value of $291,000) were converted into 6,000,000 equity units represented by 6,000,000 common shares valued at $257,000 and 6,000,000 warrants valued at $243,000 (See table below).

During the year ended December 31, 2004, the Company issued Series H secured subordinated notes with a face value of $520,000. The Series H notes were issued to private investors including an amount totaling $270,000 issued to three directors/officers of the Company. The Series H notes mature October 21, 2007, have an annual rate of interest of 11 percent payable upon the earlier of maturity and conversion and are convertible into equity units at a price of $0.20 per unit. Each equity unit consisted of one common share and one half of a share-purchase warrant with an exercise price of $0.40 per warrant. The share-purchase warrants expire on October 21, 2008. The Series H secured subordinated notes will automatically convert into units when the share price of the Company closes at or above $0.45 for 10 consecutive trading days during the term. Holders may convert the notes into units at anytime following a four-month hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash. In order to obtain the required approvals to issue the Series H notes, the Company retroactively increased the interest rate on the Series G notes from an annual rate of 7 percent to an annual rate of 11 percent. The Series H 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.

As required by Canadian GAAP, the Company separated the liability and equity components of the Series H secured subordinated notes. The Company determined the fair value of the liability component of the Series H notes by calculating the present value of the associated cash flows, using a discount rate that reflects the Company’s underlying rate of borrowing. The Company determined the fair value of the conversion feature at the issue date of the Series H notes using the Cox-Rubinstein binomial valuation model. The resulting pro rata fair values of the liability component of the notes and the conversion featuresof the units, comprised of shares and attached warrants, was $282,000, $184,000 and $54,000, respectively. The liability component will be accreted to $520,000 over the term of the Series H notes through the recording of a non-cash interest expense until such date at which the underlying notes are converted into common shares.

Northcore Technologies Inc. 2006 Annual Report F-14

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

Financing costs in the amount of $43,000 were incurred in the issuance of the Series H notes. Included in the financing costs was the incremental interest expense associated with the retroactive increase of the interest rate on the Series G notes. A portion of these financing costs, in the amount of $23,000 attributed to the liability component of the notes was allocated to deferred charges. The remaining financing costs of $20,000 attributed to the equity portions of the notes were recorded as a reduction to the conversion feature on secured subordinated notes amount within shareholders’ deficiency.

During 2005, $350,000 (face value) of the Series H notes (book value of $226,000) were converted into 1,750,000 equity units represented by 1,750,000 common shares valued at $113,000 and 875,000 warrants valued at $33,000 (See table below).

During the year ended December 31, 2004, the Company issued Series G secured subordinated notes with a face value of $1,710,000. The Series G notes were issued to private investors including an amount totaling $170,000 issued to three directors/officers of the Company. The Series G notes mature June 15, 2007, have an annual rate of interest of 7 percent payable upon the earlier of maturity and conversion and are convertible into equity units at a price of $0.31 per unit. Each equity unit consisted of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The share-purchase warrants expire on June 15, 2008. The Series G secured subordinated notes will automatically convert into units when the volume-weighted average share price of the Company closes above $0.70 for 20 consecutive trading days during the term. Holders may convert the notes into units at anytime following a four-month hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash. The Series G 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.

As required by Canadian GAAP, the Company separated the liability and equity components of the Series G secured subordinated notes. The Company determined the fair value of the liability component of the Series G notes by calculating the present value of the associated cash flows, using a discount rate that reflects the Company’s underlying rate of borrowing. The Company determined the fair value of the conversion feature at the issue date of the Series G notes using the Cox-Rubinstein binomial valuation model. The resulting pro rata fair values of the liability component of the notes and the conversion features of the units, comprised of shares and attached warrants, was $959,000, $539,000 and $212,000, respectively. The liability component will be accreted to $1,710,000 over the term of the Series G notes through the recording of a non-cash interest expense until such date at which the underlying notes are converted into common shares.

Financing costs in the amount of $230,000 were incurred in the issuance of the Series G notes. A portion of these financing costs, in the amount of $129,000 attributed to the liability component of the notes was allocated to deferred charges. The remaining financing costs of $101,000 attributed to the equity portions of the notes were recorded as a reduction to the conversion feature on secured subordinated notes amount within shareholders’ deficiency.

In addition to the financing costs described above, the Company issued to First Associates Investment Inc. (“First Associates”) an option to purchase up to 485,000 equity units at a purchase price of $0.31 per unit. The option expired on June 15, 2006. Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The ~~Series E secured subordinated notes will automatically convert into~~share-purchase warrants expire on June 15, 2008. Using the Cox-Rubinstein binomial valuation model, the Company has determined the fair value of these equity units ~~when the share price~~to be $59,000. The portion of the Company closes above $0.70 for five consecutive trading days during the term. Note holders may convert into units at anytime following a four-month hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount to the holdersfair value of the Series E secured subordinated notes in cash. As part of this private placement, the Company issued 30,000 common share-purchase warrants to an associate of Stonestreet Limited Partnership (“Stonestreet”) in consideration for professional fees. Each such warrant entitles the holder to purchase one common share of the Company for $0.50 at any time up to and including August 18, 2006.

~~The Series E notes were issued to private investors including an amount totaling $100,000 issued to directors and/or senior officers of the Company. Costs~~these options, in the amount of ~~$6,000 associated with~~$33,000, attributable to the liability component of the notes was allocated to deferred charges. The remaining portion, in the amount of $26,000, attributable to the equity components of the notes was recorded as an increase to shareholders’ deficiency.

Northcore Technologies Inc. 2006 Annual Report F-15

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

Subsequent to the issuance of the Series EG notes, the interest rate payable on the notes was retroactively increased to 11 percent. The increase in the interest rate was a condition of the issuance of the Series H notes (See (c) above).

During 2006, $60,000 (face value) of the Series G notes (book value of $51,000) was repaid. Accordingly, 194,000 equity units represented by 194,000 common shares valued at $16,000 and 96,000 warrants valued at $6,000 were canceled (See table below).

During the year ended December 31, 2004, the Company issued Series F secured subordinated notes with a face value of $500,000. The Series F notes had an annual rate of interest of 7 percent paid quarterly in arrears, matured May 19, 2007 and were convertible into equity units at a price of $0.31 per unit. Each equity unit consisted of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The share-purchase warrants expire on May 19, 2007. The Series F secured subordinated notes would have automatically convert into units when the share price of the Company closed above $0.70 for five consecutive trading days during the term. Holders could convert the notes into units at anytime following a four-month hold period. If the holder does not convert and no automatic conversion took place, the Company would have repaid the principal amount in cash. The Series F 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.

During 2004, all of the Series F notes were ~~recorded as a reduction of the~~converted into equity ~~component of these notes.~~

units.

As required by Canadian GAAP, the Company ~~has~~separated the liability and equity components of the Series F secured subordinated notes. The Company determined the fair value of the liability component of the Series F notes by calculating the present value of the associated cash flows, using a discount rate that reflects the Company’s underlying rate of borrowing. The Company determined the fair value of the conversion feature at the issue date of the Series F notes using the Cox-Rubinstein binomial valuation model. The resulting pro rata fair values of the liability component of the notes and the conversion features of the units, comprised of shares and attached warrants, was $286,000, $159,000 and $55,000, respectively. The liability component would have been accreted to $500,000 over the term of the Series F notes through the recording of a non-cash interest expense until such date at which the underlying notes were converted into common shares.

Financing costs in the amount of $26,000 were incurred in the issuance of the Series F notes. A portion of these financing costs, in the amount of $15,000 attributed to the liability component of the notes was allocated to deferred charges. The remaining financing costs of $11,000 attributed to the equity portions of the notes were recorded as a reduction to the conversion feature on secured subordinated notes amount within shareholders’ deficiency.

During the year ended December 31, 2003, the Company issued Series E secured subordinated notes with a face value of $1,000,000. The Series E notes had an annual rate of interest of 11 percent that was paid quarterly in arrears, matured August 19, 2006 and were convertible into equity units at a price of $0.35 per unit. Each equity unit consisted of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The Series E secured subordinated notes would have automatically converted into units when the share price of the Company closed above $0.70 for five consecutive trading days during the term. Note holders could convert into units at anytime following a four-month hold period. If the holder did not convert and no automatic conversion took place, the Company would have the principal amount to the holders of the Series E secured subordinated notes in cash. As part of this private placement, the Company issued 30,000 common share-purchase warrants to an associate of Stonestreet Limited Partnership (“Stonestreet”) in consideration for professional fees. Each such warrant entitled the holder to purchase one common share of the Company for $0.50 at any time up to and including August 18, 2006.

Northcore Technologies Inc. 2006 Annual Report F-16

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

The Series E 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.

As required by Canadian GAAP, the Company separated the liability and equity components of the Series E secured subordinated notes. The Company ~~has~~ determined the fair value of the debt component of the Series E notes by calculating the present value of the associated cash flows, using a discount rate that reflects the Company’s underlying rate of borrowing. The Company ~~has~~ determined the fair value of the conversion feature at the issue date of the Series E notes using the Cox-Rubinstein binomial valuation model. The resulting pro rata fair value of the liability component of the secured subordinated notes and the conversion features of the units, comprised of shares and attached warrants, was $596,000, ~~$292,000~~$296,000 and ~~$106,000,~~$108,000, respectively. The liability component ~~will~~was to be accreted to ~~$1 million~~$1,000,000 over the term of the Series E notes through the recording of non-cash interest expense until such date at which the underlying notes are converted into common shares.

~~F-13~~

~~b) During the year ended December 31, 2002, the Company issued a total of $1.12 million in principal of secured subordinated notes (collectively the “Notes”) in four series.~~

The Series ~~A, B, and C notes were issued to Stonestreet and Series D~~E notes were issued to private investors including ~~directors and/or senior officers. Series A, B, and D notes are due December 31, 2004, at~~ an interest rate of 8 percent. Series C notes are due December 31, 2004, and bear interest at 8 percent only from and after maturity or in an event of default. On October 22, 2002, after obtaining shareholder approval, Series A, B, and D notes became convertible into equity units at $0.12 per unit at the option of the holder. Each Series A, B, and D equity unit consists of one common share and one-half common share purchase warrant, with each whole warrant exercisable into one common share at $0.14. Series C notes also became convertible into common shares at a conversion price of $0.12 per share at the option of the holder or at the option of the Company.

The Company issued $120,000 in Series C notes in exchange for the waiver of certain US registration rights granted to Stonestreet pursuant to a subscription agreement dated April 25, 2002. Accordingly, the Company has recorded the issuance of the Series C notes as secured subordinated notes in shareholders’ equity.

~~The Series D secured subordinated notes included $135,000~~amount totaling $100,000 issued to ~~four directors or senior~~ three directors/officers of the Company.

~~As part~~ Costs in the amount of this private placement, the Company issued 150,000 common share purchase warrants to an associate of Stonestreet in partial consideration for securing such placement and for due diligence services. Each such warrant entitles the holder to purchase one common share of the Company for $0.14 at any time up to and including December 31, 2004.

As required by Canadian GAAP, the Company has separated the liability and equity components of the Series A, B, and D secured subordinated notes. Using the Cox-Rubinstein binominal valuation model, the Company has determined the fair value of the conversion feature and attached warrants at the issue dates of the secured subordinated notes. The fair values of the conversion feature of the units, comprised of shares attached, warrants and liability components of the secured subordinated notes issued were $636,000, $300,000 and $64,000 respectively. The $64,000 liability component will be accreted to $1 million over the term of the Series A, B, and D notes through the recording of non cash interest expense until such date at which the underlying notes are converted into common shares or mature.

~~In fiscal 2002, the Company incurred $150,000 of costs~~$6,000 associated with the issuance of the Series ~~A, B and D~~E secured subordinated notes ~~which was~~were recorded as a reduction of the equity component of these notes.

~~c) The following summarizes~~

During 2006, the ~~nominal and fair values of the liability and equity components~~remaining $375,000 (face value) balance of the Series ~~A through~~ E ~~secured subordinated notes.~~

notes (book value of $375,000) was repaid. Accordingly, 1,072,000 equity units represented by 1,072,000 common shares valued at $110,000 and 536,000 warrants valued at $40,000 were canceled (See table below).

During the year ended December 31, 2006 the Company recorded cash interest expense aggregating $345,000 (2005 - $312,000, 2004 - $173,000) and interest accretion of $454,000 (2005 - $405,000, 2004 - $266,000).

As at December 31, 2006, accrued liabilities include $574,000 (2005 - $363,000) of unpaid interest payable relating to the secured subordinated notes.

Accrued liabilities include accrued interest payable to related parties as follows:

2006

2005

(in thousands)
Series E $ - $ 1
Series G 31 29
Series H 5 1
Series I 16 3
Series J 10 -
Total $ 62 $ 34

Interest payments relating to the secured subordinated notes totaling $3,000 and $15,000, respectively, were made to related parties during the years ended December 31, 2006 and December 31, 2005.

~~Secured subordinated notes~~Northcore Technologies Inc. 2006 Annual Report

2003

2002

Nominal
Value

Fair
Value

Nominal
Value

Fair
Value

(in thousands)

Opening balance

$
205

$
34

$
—

$
—

Issuance of notes

1,000

596

1,120

64

Non-cash interest

—

112

—

21

Conversion of notes

(90
)
(21
)
(915
)
(51
)
Closing balance

$
1,115

$
721

$
205

$
34

~~F-14~~
F-17

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

The following summarizes the face and fair values of the liability and equity components of the secured subordinated notes.


Secured Subordinated Notes	2006						2005
	Face Value			Fair Value			Face Value			Fair Value
	(in thousands)
Opening balance	$	3,455		$	2,143		$	2,605		$	1,684
Issuance of notes:
Series I (Note 8 (b))		-			-			1,200			280
Series J (Note 8 (a))		755			202
Accreted (non-cash) interest		-			454			-			405
Conversion of notes:
Series H (Note 8 (c))		-			-			(350	)		(226	)
Series I (Note 8 (b))		(900	)		(291	)		-			-
Series J (Note 8 (a))		(470	)		(156	)		-			-
Repayment of notes:
Series E (Note 8 (f))		(375	)		(375	)		-			-
Series G (Note 8 (d))		(60	)		(51	)		-			-
Closing balance	$	2,405		$	1,926		$	3,455		$	2,143

Current portion of notes	$	1,820	$	1,682	$	375	$	343
Long term portion of notes		585		244		3,080		1,800
Closing balance	$	2,405	$	1,926	$	3,455	$	2,143


Conversion Features on Secured Subordinated Notes Including Conversion of Attached Warrants	2006						2005
	Common Shares			Fair Value			Common Shares			Fair Value
	(in thousands)
Opening balance		27,156		$	1,513			13,781		$	992
Issuance of notes:
Series I		-			-			16,000			667
Series J		10,067			553			-			-
Conversion of notes:
Series H (Note 8 (c))		-			-			(2,625	)		(146	)
Series I (Note 8 (b))		(12,000	)		(500	)		-			-
Series J (Note 8 (a))		(6,266	)		(345	)		-			-
Repayment of notes:
Series E (Note 8 (f))		(1,608	)		(150	)		-			-
Series G (Note 8 (d))		(290	)		(22	)		-			-
Closing balance		17,059		$	1,049			27,156		$	1,513

Northcore Technologies Inc. 2006 Annual Report

F-18

~~Conversion features on secured subordinated notes including conversion features of attached warrants~~Notes to the Consolidated Financial Statements

2003

2002

Common
Shares

Fair
Value

Common
Shares

Fair
Value

(in thousands)

Opening balance

2,562

$
175

—

$
—

Issuance of notes

4,286

398

13,500

936

Conversion of notes

(1,125
)
(76
)
(10,938
)
(761
)
Closing balance

5,723

$
497

2,562

$
175

8.Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

9. INCOME TAXES

The Company ~~adopted accounting~~accounts for income taxes under the asset and liability method. Under the asset and liability method, a future tax asset is recorded based upon tax losses carried forward and differences in tax and accounting values in the Company’s assets and liabilities. The tax asset is reduced by a valuation allowance to the extent that it is more likely than not that the asset would not be realized. The valuation allowance ~~will be~~is reviewed and adjusted as appropriate for each reporting period. At December 31, ~~2003~~2006 and ~~2002,~~2005, the Company established the valuation allowance at 100 percent of the future tax asset.

2003

2002

(in thousands)

FUTURE TAX ASSET

Tax losses carried forward

$
3,229

$
4,215

Difference in tax and accounting valuations for capital assets and investments

55

(305
)

3,284

3,910

Valuation allowance

(3,284
)
(3,910
)
Future tax asset

$
—

$
—

PROVISION FOR INCOME TAXES

Income taxes at statutory rate

$
(467
)
$
(2,781
)
Adjustments to loss

(316
)
—

Net reduction in tax rates

(896
)
—

Reduction to valuation allowance on future tax asset

1,212

—

Tax losses carried forward

226

2,665

Difference in tax and accounting valuations for capital assets and investments

360

111

Permanent differences for tax and accounting income

(119
)
5

Provision for income taxes

$
—

$
—

~~F-15~~


	2006			2005
	(in thousands)

FUTURE TAX ASSET
Tax losses carried forward	$	5,881		$	5,211
Difference in tax and accounting valuations for capital assets and investments		142			210
		6,023			5,421
Valuation allowance		(6,023	)		(5,421	)
Future tax asset	$	-		$	-
PROVISION FOR INCOME TAXES
Income taxes at statutory rate	$	(942	)	$	(1,262	)
Foreign losses affected at (higher) lower rates		(14	)		89
Change in enacted rates		271			-
Stock-based compensation not deductible for tax		45			31
Other, net		38			(98	)
		(602	)		(1,240	)
Change to valuation allowance		602			1,240
Provision for income taxes	$	-		$	-

The provision for income taxes differs from the amount computed by applying the combined Canadian Federal and Provincial statutory income tax rate of 34 percent (2005 - 36 percent) to the loss from continuing operations before income taxes. The sources and tax effects of the differences are indicated above.

Tax ~~Loss Carryforwards~~loss carry-forwards at December 31, ~~2003~~2006 expire as follows:

(in thousands)

2009

$
3,157

2010

3,424

2011

1,116

2012

966

2013

282

Tax loss carryforwards that do not expire (a)

4,581

$
13,526

Year		Amount
		(in thousands)
2009		$ 1,408
2010		3,782
2014		3,047
2015		3,351
2026		2,635
Tax loss carry-forwards that do not expire		11,989
		$ 26,212

The Company has Canadian net operating loss carry-forwards of $14,223,000 that expires in years 2009 through 2026, and indefinite loss carry forwards of $11,989,000 of which $5,877,000 relate to Ireland. Also included in the indefinite loss carry-forwards are net capital losses of $1,004,000 from continuing Canadian operations and $5,108,000 from discontinued operations which are available to reduce future year’s capital gains.

Northcore Technologies Inc. 2006 Annual Report F-19

~~(a)~~Notes to the Consolidated Financial Statements ~~Under Irish local tax laws, tax loss carryforwards do not expire.~~

9.Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

10. SHARE CAPITAL

a)~~AUTHORIZED~~

Authorized

Unlimited number of common shares

Unlimited number of preference shares –- issuable in series

b)Outstanding Common Shares~~COMMON SHARES~~

2003

2002

Number

Amount

Number

Amount

(in thousands of shares and dollars)

Opening balance

50,140

$
95,633

38,185

$
93,568

Shares issued pursuant to:

Exercise of options

39

12

30

11

Private placement

5,181

1,254

3,300

945

Exercise of warrants

3,313

703

1,000

550

Conversion of debentures

750

72

7,625

559

Closing balance

59,423

$
97,674

50,140

$
95,633

~~The~~


	2006				2005				2004
	Number		Amount		Number		Amount		Number		Amount
	(in thousands of shares and dollars)
Opening balance		74,120	$	100,859		69,870	$	100,052		59,423	$	97,674
Shares issued pursuant to:
Private placement (Note 10 (c))		-		-		2,500		468		5,000		930
Conversion of debentures (Note 8)		9,133		924		1,750		339		4,357		1,227
Payment of interest (Note 10 (d))		489		84		-		-		-		-
Exercise of warrants		-		-		-		-		920		195
Exercise of options		-		-		-		-		72		26
Re-issuance of treasury shares (Note 10 (e))		-		-		-		-		98		-
Closing balance		83,742	$	101,867		74,120	$	100,859		69,870	$	100,052

In addition to the above, the conversion of the remaining secured subordinated notes would result in the issuance of ~~958,000 (2002 – 1,708,000) common shares for Series A, B and D notes, and 2,857,000 (2002 – Nil)~~nil (2005 - 1,071,000) common shares for Series E notes, 5,323,000 (2005 - 5,516,000) common shares for Series G notes, 850,000 (2005 - 850,000) common shares for Series H notes, 2,000,000 (2005 - 8,000,000) common shares for Series I notes and 1,900,000 (2005 - nil) common shares for Series J notes.

~~F-16~~

Private Placement

On February 23, 2005, the Company completed a transaction resulting in the issuance of 2,500,000 common shares at a price of $0.23 per share and 1,250,000 share-purchase warrants, exercisable into one common share at a price of $0.40 per warrant, for gross proceeds of $575,000 and net proceeds of $570,000. Net proceeds of $444,000 were allocated to the common shares and the balance of $126,000 to warrants (See Note 12). The warrants expire on February 23, 2009.

In the third quarter of 2005, a reduction to the financing costs related to a private share placement in December 2004, resulted in a $24,000 increase to the amount of share capital.

On December 6, 2004, the Company completed a transaction resulting in the issuance of 5,000,000 shares at a price of $0.20 per share and 5,000,000 common share-purchase warrants exercisable into one common share at a price of $0.35 per warrant for gross proceeds of $1,000,000. The warrants expire on December 6, 2008. Gross proceeds were comprised of $800,000 in cash and $200,000 in legal services. The $200,000 was applied, in part, to outstanding payables and the remainder was recorded as a prepaid retainer for legal services. Issuance costs in the amount of $70,000 were incurred, including $19,000 representing the fair value of 150,000 compensation options issued to First Associates. The compensation options are exercisable into 150,000 equity units at a price of $0.20 per unit. Each equity unit consists of one common share and one common share-purchase warrant with an exercise price of $0.35 per warrant and an expiry date of December 6, 2008. The compensation options expired unexercised on December 6, 2006. Included in this private placement were 100,000 shares issued to a director of the Company for gross proceeds of $20,000.

Northcore Technologies Inc. 2006 Annual Report F-20

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

c)~~STOCK OPTIONS~~

Payment of Interest

Upon conversion of Series I notes, accrued interest in the amount of $60,000 was settled through the issuance of 361,000 common shares based on a fair value of $0.16 per share.

Upon conversion of Series J notes, accrued interest in the amount of $24,000 was settled through the issuance of 128,000 common shares based on a fair value of $0.19 per share.

Re-issuance of Treasury Shares

An unclaimed certificate for 98,000 common shares previously issued from treasury in the 2001 acquisition of ADB Systemer ASA, and not included in the number of shares outstanding, was reissued during 2004.

Loss Per Share

The following table sets forth the computation of basic and diluted loss per share.


	2006			2005			2004
	(in thousands, except per share amounts)
Numerator:
Loss from continuing operations	$	(2,770	)	$	(3,493	)	$	(3,599	)
Income (loss) from discontinued operations (Note 4)		2,122			(8	)		(1,505	)
Net loss for the year	$	(648	)	$	(3,501	)	$	(5,104	)
Denominator:
Weighted average number of shares outstanding, basic and diluted		79,933			72,904			61,938

Loss per share from continuing operations, basic and diluted	$	(0.03	)	$	(0.05	)	$	(0.06	)
Net loss per share, basic and diluted	$	(0.01	)	$	(0.05	)	$	(0.08	)

For each fiscal year, the Company excluded the effect of all convertible debt, stock options and share-purchase warrants, as their impact would have been anti-dilutive.

11. CONTRIBUTED SURPLUS

The following table summarizes the transactions within contributed surplus.


	2006			2005
	(in thousands)
Opening balance	$	1,555		$	1,282
Allocation of unamortized deferred charges upon conversion of secured subordinated notes (Note 11 (b))		(51	)		(13	)
Allocation of recorded value of expired warrants (Note 11 (c))		67			286
Allocation of recorded value of expired options (Note 11 (d))		78			-
Repayment of secured subordinated notes (Note 11 (e))		170			-
Closing balance	$	1,819		$	1,555

During the year ended December 31, 2006, conversion of the Series I (2005 - Series H) secured subordinated notes resulted in the reduction of contributed surplus by $51,000 (2005 - $13,000) due to the allocation of unamortized deferred charges (See Note 6 (d)).

Northcore Technologies Inc. 2006 Annual Report F-21

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian ~~Institute~~dollars)

During the year ended December 31, 2006, recorded value of $67,000 (2005 - $286,000) related to expired warrants was allocated from warrants to contributed surplus (See Note 12 (c)).

During the year ended December 31, 2006, recorded value of $78,000 (2005 - $nil) related to expired options was allocated from options to contributed surplus (See Note 14).

During the year ended December 31, 2006, recorded value of $170,000 (2005 - $nil) related to the repayment of secured subordinated notes was allocated from conversion features on secured subordinated notes to contributed surplus (See Note 8).

12.

WARRANTS

The following table summarizes the transactions within warrants.


	2006						2005
	Number			Amount			Number			Amount
	(in thousands)
Opening balance		8,854		$	278			11,512		$	405
Warrants issued pursuant to:
Private placement (Note 10 (c))		-			-			1,250			126
Conversion of debentures (Series J - Note 8 (a), Series I - Note 8 (b), Series H - Note 8 (c))		9,133			369			875			33
Warrants expired (Note 12 (b))		(923	)		(67	)		(4,783	)		(286	)
Closing balance		17,064		$	580			8,854		$	278

In addition to the above, the conversion of ~~Chartered Accountants issued Handbook section 3870, “Stock-based Compensation~~the remaining secured subordinated notes would result in the issuance of nil (2005 - 536,000) common share-purchase warrants for Series E notes, 2,661,000 (2005 - 2,758,000) common share-purchase warrants for Series G notes, 425,000 (2005 - 425,000) common share-purchase warrants for Series H notes, 2,000,000 (2005 - 8,000,000) common share-purchase warrants for Series I notes and ~~Other Stock-based Payments,” effective January 1, 2002.~~ 1,900,000 (2005 - nil) common share-purchase warrants for Series J notes.

During the year ended December 31, 2004, the Company issued 893,000 common share-purchase warrants with an exercise price of $0.50 and an expiry date of August 19, 2006 in connection with the issuance of Series E notes. These warrants expired unexercised on August 19, 2006 and were accordingly cancelled.

During the ~~fourth quarter of fiscal~~year ended December 31, 2003, the Company ~~elected~~issued 30,000 common share-purchase warrants, with an exercise price of $0.50 per warrant, in consideration for professional fees related to ~~adopt~~ the ~~fair value method~~issuance of Series E notes. These warrants expired unexercised on August 19, 2006 and were accordingly cancelled.

During the year ended December 31, 2002, the Company issued 2,000,000 common share-purchase warrants, with an exercise price of $0.45 per warrant, to a key customer as part of a strategic marketing agreement. These warrants, of which 1,250,000 had vested, expired unexercised on January 5, 2005 and were accordingly cancelled.

Also during the year ended December 31, 2002, the Company issued 50,000 common share-purchase warrants, with an exercise price of $US 0.35 per warrant, as partial consideration for ~~stock-based compensation~~funding and due diligence services. These warrants expired unexercised on ~~a prospective basis. As a result,~~April 25, 2005 and were accordingly cancelled.

On June 13, 2005, the ~~annual financial statements reflect~~Company extended the ~~stock-based compensation expense to employees effective January 1, 2003.~~

~~(i)~~ ~~Stock options are comprised~~expiry date of the ~~following components:~~

2003

2002

Number

Amount

Number

Amount

(in thousands of options and dollars)

Employees

2,645

$
782

2,793

$
590

Non-employees

27

116

253

116

Total

2,672

$
898

3,046

$
706

2,733,000 common share-purchase warrants, with an exercise price of $0.40 per warrant, that were issued on June 26, 2003. The original expiry date of June 26, 2005 was extended to September 26, 2005. These warrants expired unexercised on September 26, 2005 and were accordingly cancelled.

~~(ii)~~Northcore Technologies Inc. 2006 Annual Report F-22

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

13.

STOCK OPTIONS

Stock options are comprised of the following components:


	2006				2005
	Number		Amount		Number		Amount
	(in thousands of options and dollars)
Employees (Note 13 (b))		2,220	$	1,136		2,997	$	975
Non-employees		-		116		-		116
Total		2,220	$	1,252		2,997	$	1,091

Employee Stock Options

The Company has a stock option plan which provides for the issuance of stock options to employees, which may expire as much as 10 years from the date of grant, at prices not less than the fair market value of the common shares on the date of grant. A total of 5,350,000 options has been authorized by the Company’s shareholders for issuance under the stock option plan.

The aggregate exercise price for employee options outstanding at December 31, ~~2003~~2006 was approximately ~~$1.8 million (2002 – $5.2 million)~~$392,000 (2005 - $678,000). The Management Resources and Compensation Committee of the Board of Directors reserves the right to ~~attach~~determine the vesting periods to stock options granted. ~~Certain of the stock options outstanding at the end of 2003 are exercisable immediately, while the remainder have vesting periods attached which range from six months to 36 months.~~ The options expire between ~~2003~~2008 and ~~2006.~~

2011.

A summary of changes in the employee stock option plan for the two years ended December 31, ~~2003~~2006 is as follows:

Number of Options

Weighted Average
Exercise Price

2003

2002

2003

2002

(in thousands)

Opening balance

2,793

2,884

$
1.84

$
5.19

Granted

1,095

1,299

0.37

0.43

Exercised

(39
)
(30
)
0.30

0.36

Cancelled

(1,204
)
(1,360
)
3.38

6.78

Closing balance

2,645

2,793

$
0.68

$
1.84

Exercisable, end of year

2,057

1,981

$
0.74

$
2.51

Options remaining for issuance under stock option plan

1,224

853

~~F-17~~


	2006			2005			2006		2005
	Number of Options						Weighted Average Exercise Price
	(in thousands)
Opening balance		2,997			853		$	0.23	$	0.35
Granted		550			2,575			0.15		0.20
Exercised		-			-			-		-
Cancelled		(1,327	)		(431	)		0.28		0.28
Closing balance		2,220			2,997		$	0.18	$	0.23
Exercisable, end of year		1,827			1,498		$	0.18	$	0.27

Range of
Exercise
Prices

Number
Outstanding at
December 31, 2003

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price

Number
Exercisable at
December 31, 2003

Weighted
Average
Exercise Price

(in thousands)

(in thousands)

$0.22-$0.33

178

2.1 years

$
0.32

178

$
0.32

$0.34-$0.51

2,266

1.4 years

$
0.40

1,686

$
0.40

$0.52-$0.78

2

1.0 years

$
0.76

2

$
0.76

$0.99-$1.48

9

0.5 years

$
1.41

7

$
1.41

$1.83-$2.74

146

0.1 years

$
2.62

146

$
2.62

$3.91-$5.86

28

0.6 years

$
5.02

28

$
5.02

$15.33-$23.00

16

0.2 years

$
23.00

10

$
23.00

2,645

2,057

~~(iii)~~ ~~The~~

On August 4, 2006, the Company also had stock options outstanding to third parties at December 31, 2003. The aggregate exercise price for third-party stock options outstanding at December 31, 2003 was $69,000 (2002 – $730,000). These options expire in 2004. A summary of changes in thegranted 500,000 stock options to ~~third parties for the two years ended December 31, 2003 is as follows:~~

Number of Options

Weighted Average
Exercise Price

2003

2002

2003

2002

(in thousands)

Opening balance

253

289

$
2.88

$
5.13

Granted

—

2

—

0.34

Exercised

—

—

—

—

Cancelled

(226
)
(38
)
2.91

17.76

Closing balance

27

253

$
2.56

$
2.88

Exercisable, end of year

27

253

$
2.56

$
2.88

~~d) SHARE-PURCHASE WARRANTS~~

~~A summary of changes in the warrants issued~~employees, officers and ~~vested for the two years ended December 31, 2003 is as follows:~~

2003

2002

Number

Amount

Number

Amount

(in thousands)

Opening balance

6,121

$
1,599

1,300

$
1,349

Issued to key customer (Note 9(g))

—

226

2,000

—

Issued in private equity placement (Note 9 (e))

2,733

—

1,000

—

Issued upon conversion of debt (Note 9(h))

375

27

3,313

239

Issued in lieu of fees (Note 7 and 9(e))

30

—

200

11

Cancelled (Note 9(e), (f) and (g))

(608
)
(1,289
)
(692
)
—

Exercised

(3,313
)
(239
)
(1,000
)
—

Closing balance

5,338

$
324

6,121

$
1,599

directors. The conversion of the remaining secured subordinated notes would result in the issuance of 479,000 (2002 – 854,000) common share-purchase warrants for Series A, B and D notes, and 1,429,000 (2002 – Nil) common share-purchase warrants for Series E notes.

~~F-18~~

~~e) PRIVATE COMMON SHARE PLACEMENT~~

On June 26, 2003, the Company completed a transaction resulting in the issuance of 4,879,000 common shares at a price of $0.24 and 2,733,000 common share-purchase warrants exercisable into one common share at $0.40 for net proceeds of $1.148 million. The warrants expire on June 26, 2005. Included in this private placement were 2,146,000 shares issued to a director and officer of the Company for total net proceeds of $505,000. None of the 2,733,000 warrants had been converted into common shares at December 31, 2003.

~~On September 19, 2003 the Company issued 302,250 shares in settlement of an account payable in the amount of $106,000.~~

On April 25, 2002, the Company entered into an agreement with Stonestreet for a $1.1 million private placement resulting in net proceeds of $945,000 after deducting costs of issue of approximately $155,000. As a result, the Company issued 3.3 million common shares and 1 million common share-purchase warrants exercisable into common shares at US$0.35 per share.

On December 17, 2002, Stonestreet exercised all of these warrants for proceeds of $550,000. Pursuant to the April 25, 2002 private placement, the Company issued 50,000 share-purchase warrants to an associate of Stonestreet for partial consideration in securing the funding and due diligence services. These warrants expire on April 25, 2005 and are exercisable into common shares at US$ 0.35 per common share.

~~As the result of a private placement of common shares in 2000, the Company issued 180,158 share-purchase warrants with~~options have an exercise price of ~~US$5.36 per share. These warrants expired~~$0.15 and expire on ~~June 16,2002.~~

~~f) ACQUISITION OF ADB SYSTEMER ASA~~

~~On October 11, 2001, the Company acquired 98.3 percent~~August 4, 2011. The options are comprised of two categories: non-performance based options and performance based options. The non-performance based options account for 460,000 of the ~~outstanding common shares~~options granted. These options vest quarterly over a six-quarter period commencing with the quarter ended September 30, 2006. The remaining 40,000 performance-based options were granted to certain Company officers and will vest upon the achievement of ~~ADB Systemer ASA. As a result~~specific Company performance objectives. None of the acquisition, the Company issued 607,600 share-purchase warrants with a strike price of two Norwegian krone, in exchange for 700,000 share purchase warrants in ADB Systemer ASA. These warrants retained all of the characteristics of the original warrants and had specific exercise dates of March 31, 2002 and March 31, 2003, expiring March 31, 2003 (see Note 16). All of the 607,600 warrants were cancelled on March 31, 2003.

g) ~~STRATEGIC MARKETING AGREEMENT~~

On March 28, 2000, pursuant to a strategic marketing agreement with one of its key customers, the Company issued 512,500 common share-purchase warrants at a price of $15.80 per warrant. Each common share-purchase warrant entitled the holder to acquire one common share. These warrants had been fully vested and were cancelled on December 13, 2002.

On December 13, 2002, the Company issued 2 million warrants convertible into common shares of the Company to this customer at an exercise price of $0.45 per warrant under a two-year term from date of issuance. Warrants thatperformance-based options have vested are to be automatically exercised when the share price of the Company closes at or above $1.02 for three consecutive trading days. The vesting of warrants is based on achieving a number of performance objectives associated with the GE Asset Manager LLC joint venture (See Note 17).

During 2003, a total of 1.25 million of the above warrants vested; 250,000 warrants vested when three initial customers of the joint venture were identified and the remaining 1 million warrants vested upon the legal establishment of the joint venture. The remaining 750,000 warrants have not vested as at December 31, ~~2003. Vesting is contingent~~2006.

Northcore Technologies Inc. 2006 Annual Report F-23

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

On June 21, 2006, the Company granted 50,000 stock options to certain employees of the Company. The options have an exercise price of $0.15 and expire on June 21, 2011. These options vest quarterly over a four-quarter period commencing with the quarter ended June 30, 2006.

On December 22, 2005, the Company granted 1,000,000 stock options to certain employees, officers and directors of the Company. The options have an exercise price of $0.16 and expire on December 22, 2008. The options are comprised of two categories: non-performance based options and performance based options. The non-performance based options account for 500,000 of the options granted. Of these options, 400,000 vest quarterly over a four-quarter period and 100,000 vest quarterly over a six-quarter period. The remaining 500,000 performance-based options were granted to an officer and director of the Company and will vest upon the achievement of ~~certain~~specific Company performance ~~and business related goals, which are currently undefined, associated with the GE Asset Manager joint venture.~~

~~F-19~~

objectives. Approximately 450,000 of these performance-based options have vested as at December 31, 2006.

h) ~~CONVERTIBLE SECURED SUBORDINATED DEBENTURES~~

~~During the year,~~

On November 15, 2005, the Company ~~issued a total~~granted 75,000 stock options to directors of ~~375,000 (2002 – 3,312,500) share-purchase warrants with~~the Company. The options have an exercise price of ~~$0.50 per share (2002 - $0.14 per share) as~~$0.17 and expire on November 15, 2008. The options vested on the ~~result~~date of grant.

On January 25, 2005, the Company granted 1,500,000 stock options to employees, officers and directors. The options have an exercise price of $0.22 and expire on January 25, 2010. The options are comprised of two categories: non-performance based options and performance based options. The non-performance based options account for 1,361,000 of the ~~conversion of secured subordinated debentures.~~

i)options granted. These options vest quarterly over a six-quarter period commencing with the quarter ended March 31, 2005. The ~~following table sets forth the computation of basic and diluted loss per share.~~

2003

2002

2001

(in thousands, except per share amounts)

Numerator:

Net Loss (numerator for basic loss per share applicable to common shares)

$
(2,815
)
$
(9,364
)
$
(18,714
)

Denominator:

Weighted average shares denominator for basic loss per share

54,324

41,968

29,130

Basic loss per share

$
(0.05
)
$
(0.22
)
$
(0.64
)

~~For each fiscal year, the Company excluded the effect of all convertible debt, stock~~remaining 139,000 performance-based options ~~and share-purchase warrants, as their impact would have been anti-dilutive.~~

j) ~~STOCK-BASED COMPENSATION TO EMPLOYEES~~

During the fourth quarter of fiscal 2003, the Company adopted the accounting recommendations contained in the CICA Handbook Section 3870 – “Stock-based Compensation and Other Stock-based Payments” effective January 1, 2003. This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services, and applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. Commencing in fiscal 2003, the Company records a compensation expense for stock optionswere granted to ~~employees on or after January 1, 2003, based on~~certain Company officers and will vest upon the ~~fair value method~~achievement of ~~accounting. For the year ended~~specific Company performance objectives. None of these performance-based options have vested as at December 31, ~~2003, the employee stock option expense was $193,000. As a result~~2006.

A summary of the ~~early adoption~~status of ~~these recommendations, expenses in~~ the first, second and third quarters increased by $2,000, $1,000 and $130,000, respectively. Accordingly, quarterly net income (loss) in such quarters previously reported as ($1,755,000), $527,000 and ($460,000), respectively are revised to ($1,757,000), $526,000 and ($590,000), respectively.

~~For the year ended~~Company’s outstanding options at December 31, 2002, the Company did not record a compensation expense for stock options granted to employees. Instead, the Company disclosed the pro forma net income (loss) and the pro forma income (loss) per share had the Company adopted the fair value method of accounting for stock-based compensation awarded on or after January 1, 2002.

2006 is as follows:


Exercise Prices	Number of Options Outstanding (in thousands)	Remaining Contractual Life in years	Number of Options Exercisable (in thousands)
$ 0.15	550	4.6	321
$ 0.16	900	4.0	850
$ 0.17	75	1.9	75
$ 0.22	695	3.1	581
	2,220		1,827

The Company determined the fair value of employee stock option grants using the Cox-Rubinstein binomial valuation model with the following assumptions on a weighted average basis:

2003

2002

Dividend yield

—

—

Risk free interest rate

3.53
%
3.69
%
Volatility

137.51
%
131.51
%
Expected term, in years

2.94

2.00

~~F-20~~


	2006	2005	2004
Dividend yield	-	-	-
Risk free interest rate	4.21%	3.86%	-
Volatility	87.27%	86.66%	-
Expected term, in years	5	4.07	-

The Company records a compensation expense for stock options granted to employees and directors based on the fair value method of accounting. For the ~~years~~year ended December 31, ~~2003 and 2002,~~2006, the ~~amortization~~employee stock option expense was $137,000 (2005 - $105,000, 2004 - $27,000). The weighted average grant date fair values of the options issued during the year was $0.11 (2005 - $0.16, 2004 - $nil)

Northcore Technologies Inc. 2006 Annual Report F-24

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in Canadian dollars)

14.

OTHER OPTIONS

During the year ended December 31, 2005, the Company issued 747,000 compensation options with a fair value of $193,000 relating to the ~~stock-based compensation granted by~~issuance of Series I secured subordinated notes (See Note 8 (b)). The options entitle the holder to purchase an equity unit at a purchase price of $0.15 per unit. The options expire on September 12, 2010. Each equity unit consists of one common share and one share-purchase warrant with an exercise price of $0.20. The share-purchase warrants expire on September 12, 2010.

During the year ended December 31, 2004, the Company issued 485,000 compensation options with a fair value of $59,000 relating to ~~employees in 2002, over~~ the ~~vesting period~~issuance of Series G secured subordinated notes (See Note 8 (d)). The options entitle the ~~awards as specified under CICA 3870, would have resulted in~~holder to purchase an equity unit at a purchase price of $0.31 per unit. The options expired unexercised on June 15, 2006. Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The share-purchase warrants expire on June 15, 2008.

Also during the ~~following pro forma loss attributable~~year ended December 31, 2004, the Company issued 150,000 compensation options with a fair value of $19,000 relating to the December private equity placement (See Note 10 (c)). The options entitle the holder to purchase an equity unit at a purchase price of $0.20 per unit. The options expired unexercised on December 6, 2006. Each equity unit consists of one common ~~shareholders~~share and ~~pro forma basic and diluted loss per share:~~

2003

2002

Loss attributable to common shareholders

As reported

$
(2,815
)
$
(9,364
)
Pro forma

$
(2,956
)
$
(9,608
)

Basic and diluted net loss per share:

As reported

$
(0.05
)
$
(0.22
)
Pro forma

$
(0.05
)
$
(0.23
)

one share-purchase warrant with an exercise price of $0.35. The share-purchase warrants expire on December 6, 2008.

15.

FINANCIAL INSTRUMENTS

~~10.~~~~FINANCIAL INSTRUMENTS~~

Foreign ~~exchange risk~~Exchange Risk

The Company’s revenue from software licensing and related services and e-commerce enabling agreements is transacted in various currencies including the Canadian dollar, U.S. dollar, UK pound, ~~EURO,~~ and ~~Norwegian krone.~~EURO. Correspondingly, operating expenses related to these activities are transacted in the above-denoted currencies. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. ~~The~~During the year ended December 31, 2006, the Company incurred ~~$84,000 in~~ foreign exchange losses in ~~2003 (2002-$29,000; 2001-$95,000).~~

~~The Company transacted~~ the ~~majority~~amount of ~~its retail product sales and purchases in U.S. dollars.~~

$8,000 (2005 - $11,000, 2004 - $24,000).

Interest ~~rate risk~~Rate Risk

The Company has limited exposure to fluctuations in interest rates. The Company does not use derivative instruments to reduce its exposure to interest rate risk.

Credit ~~risk~~Risk

Credit risk arises from the potential that a customer will fail to meet its contractual obligations under a software licensing and related services agreement or an e-commerce enabling agreement.

In 2006, three customers accounted for 34 percent, 18 percent and 12 percent, respectively, (2005 - two customers accounted for 31 percent and 29 percent, respectively, 2004 - two customers accounted for 32 percent and 15 percent, respectively) of total revenues from continuing operations. At December 31, 2006, one customer accounted for 64 percent of total accounts receivable from continuing operations. At December 31, 2005, there were three customers that accounted for 27 percent, 24 percent and 21 percent, respectively, of total accounts receivable from continuing operations.

Fair ~~value~~Value

The fair value of monetary assets and liabilities approximates amounts at which they would be exchanged between knowledgeable and unrelated persons. The amounts recorded in the consolidated financial statements approximate fair ~~value.~~

~~Equity instruments~~

~~During 2001,~~value, with the ~~Company was exposed~~exception of the secured subordinated series G, H, I and J notes as it is not practical to determine the fair value ~~fluctuations~~ of the notes as at December 31, 2006, considering that they are not publicly ~~traded common shares received~~ traded.

Northcore Technologies Inc. 2006 Annual Report F-25

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and 2004

(in ~~connection~~Canadian dollars)

16. COMMITMENTS AND CONTINGENCIES

(a)

Minimum payments under operating leases during the next five years and thereafter are as follows:

Year	Amount (in thousands)
2007	$	178
2008		160
2009		128
2010		-
2011		-

(b)

The Company has entered into compensation arrangements with certain of its employees. In the event of involuntary termination, the Company may be liable for potential payments totaling $127,000 to these employees.

(c)

The Company entered into a licensing agreement with NCR Corporation on April 29th, 2002. The agreement provides the Company with access to specific technology patents over a seven year period for US $100,000 annually up to a cumulative maximum of US $5,000,000.

17. CHANGES IN NON-CASH OPERATING WORKING CAPITAL

The following table sets forth the ~~disposal~~changes in non-cash operating working capital items resulting from the inflow (outflow) of ~~one of its strategic investments. To mitigate this risk, the Company engaged~~cash in the ~~purchase~~year.


	2006			2005		2004
	(in thousands)
Accounts receivable	$	130		$	250	$	178
Deposits and prepaid expenses		52			70		(83	)
Accounts payable		(320	)		380		48
Accrued liabilities		211			112		415
Deferred revenue		(23	)		15		39
	$	50		$	827	$	597

The following table summarizes the non-cash financing activities of ~~call~~the Company.


	2006			2005			2004
	(in thousands)
Issuance of common shares in settlement of interest payments (Note 10(d))	$	84		$	-		$	-
Issuance of common shares in settlement of accounts payable (Note 10(c))		-			24			118
Issuance of common shares in return for prepaid services (Note 10(c))		-			-			82
Reduction in debt from conversion of secured subordinated notes (Note 8(k))		(447	)		(226	)		(830	)
Reduction in conversion feature from conversion of secured subordinated notes (Note 8(k))		(845	)		(146	)		(550	)
Issuance of compensation options relating to issuance of secured subordinated notes (Note 14)		-			(193	)		(59	)
Issuance of compensation options relating to equity private placement (Note 14)		-			-			19

Northcore Technologies Inc. 2006 Annual Report F-26

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2005 and ~~the sale of put options. The Company did not engage~~ 2004

(in ~~the purchase of call or put options exceeding the number of shares held. As at January 31, 2002, all common shares and related call and put options had been disposed of.~~

~~11.~~Canadian dollars)~~COMMITMENTS AND CONTINGENCIES~~

~~(a)~~ ~~Minimum payments under operating leases during the next five years are as follows:~~

(in thousands)

2004

$
232

2005

113

2006

43

2007

24

2008

$
24

~~F-21~~

~~(b)~~ As a result of a review of statutory reporting obligations regarding employee benefits, the Company has identified a potential for non-compliance. The employees and regulators concerned have been notified. The probability and amount of any potential liability relating to this situation is presently not determinable.

~~(c)~~ The Company has entered into compensation arrangements with certain of its employees. In the event of involuntary termination, the Company may be liable for potential payments totaling $295,000 to these employees.

~~(d)~~ The Company entered into a licensing agreement with NCR Corporation on April 29th, 2002. The agreement provides the Company with access to specific technology patents over a seven-year period for US$100,000 annually.

~~12.~~~~CHANGE IN NON CASH OPERATING WORKING CAPITAL~~

2003

2002

2001

(in thousands)

Accounts receivable

$
424

$
(522
)
$
(12
)
Deposits and prepaid expenses

56

(45
)
251

Accounts payable

(63
)
224

(1,040
)
Accrued liabilities

(453
)
427

5

Deferred revenue

(692
)
(23
)
(2,121
)

$
(728
)
$
61

$
(2,917
)

~~13.~~~~RETAIL ACTIVITIES~~

18.

OTHER INCOME

The Company ceased its on-line retail activities in October 2000; however, ~~in 2001 it was required to settle certain amounts payable relating to product sales of previous years. These amounts were not previously anticipated and did not reoccur in 2002. During 2003,~~during 2005, the Company received ~~a $67,000 refund from a U.S.-based credit card institution formally engaged by the Company when it operated its~~non-recurring proceeds of $42,000 related to on-line retail activities ~~in the U.S.~~

The Company’s non-consolidated investment, Bid.Com, recommenced on-line retail activities in 2002 (Note 19(a)). The shares of Bid.Com were transferred in settlement of a demand loan (Note 6) on June 30, 2003.

~~F-22~~

~~14.~~~~REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES, STRATEGIC INVESTMENTS AND CAPITAL ASSETS, AND RECOVERY OF ASSETS~~

2003

2002

2001

(in thousands)

Gain on disposal of strategic investment (Note 14(a))

$
20

$
41

$
6

(Loss) gain on disposal of capital assets (Note 14(b))

(13
)
23

—

(Loss) gain on disposal of marketable securities (Note 14(c))

—

(149
)
3,656

Gain on disposal on Point 2 (Note 14(d))

—

—

2,249

Recovery of Point2 receivable (Note 14(d))

—

—

811

$
7

$
(85
)
$
6,722

~~(a)~~ During 2003, the Company sold shares in Megawheels Technologies Inc. for proceeds of $20,000. During 2002, the Company disposed of its strategic investments, resulting in cash proceeds of $126,000 and a realized gain of $41,000.

~~(b)~~ ~~During 2003, the Company disposed of capital assets that were no longer required resulting in a loss of $13,000. Similar disposals in 2002 resulted in a gain of $23,000.~~

~~(c)~~ In January 2001, the Company’s unregistered AOL shares became freely trading and the Company sold 122,801 shares for gross proceeds of $10.0 million, realizing a gain of $3.7 million. In January 2002, the Company sold its remaining AOL shares for gross proceeds of $1.3 million and a realized loss of $143,000.

~~(d)~~ In May 2001, the Company sold its equity interest in Point2 Internet Systems Inc. (Point2) for $2.7 million in cash. The Company realized a gain of $2.2 million, and recovered a receivable in the amount of $811,000 from Point2 that had been ~~provided for in~~carried out prior to October 2000.

~~15.~~~~UNREALIZED GAINS AND LOSSES ON REVALUATION OF STRATEGIC INVESTMENTS, AND PROVISON FOR IMPAIRMENT OF ASSETS~~

2003

2002

2001

(in thousands)

Revaluation of strategic investments (Note 15(a))

$
—

$
(24
)
$
(1,510
)
Provision for impaired assets (Note 15(b))

—

—

(925
)

$
—

$
(24
)
$
(2,435
)

~~(a)~~ During 2002 and 2001, the Company reviewed the carrying value of each of its strategic investments and determined that in light of recent financial performance of each investment and market conditions, the decline in value of these investments was other than temporary, and a revaluation was required.

~~(b)~~ The Company reviewed the carrying value of a prepaid advertising asset during the first quarter of 2001 and determined the future value of this asset had been significantly reduced as a result of market conditions and changes to the Company’s business-to-business marketing strategy.

~~F-23~~

~~16.~~~~ACQUISITION OF ADB SYSTEMER ASA~~

On October 11, 2001, the Company acquired 98.3 per cent of the outstanding shares of ADB Systemer of Sola, Norway. ADB Systemer was a publicly traded software vendor focused on enterprise asset management and integrated electronic procurement. ADB Systemer has wholly-owned subsidiaries in the United States and in the United Kingdom.

The purchase price for 12,518,493 of the outstanding ADB Systemer common shares was $13.762 million. The purchase price was comprised of $2.293 million in cash, $9.844 million of common stock issued from treasury, acquisition costs of $765,000, employee stock options with a fair market value of $576,000 granted to ADB Systemer employees as replacement options and warrants with a fair market value of $284,000 issued to ADB Systemer warrant holders as replacement warrants. Common stock issued from treasury totaled 10,866,052 shares (21,732,104 pre-consolidation) with a value of $9.844 million based on a five-day trading average before and after September 10, 2001, the date the acquisition was announced to the general public. The purchase price for ADB Systemer did not include any contingent payments, options, or commitments. The purchase price of $13.762 million was allocated as follows:

2001

(in thousands)

Net monetary assets (including cash of $814)

$
418

Capital assets

308

Contractual agreements

177

Acquired software and related intellectual property

3,383

Goodwill

9,476

Total purchase price

$
13,762

~~ADB Systemer’s operations were consolidated after the effective date of the acquisition, October 11, 2001.~~

The amortization periods for contractual agreements and software and related intellectual property are 12 and 36 months respectively. At the end of fiscal 2003, accumulated amortization for acquired software amounted to $2,537,000 (2002 - $1,409,000), resulting in a net book value of $846,000 (2002 - - $1,974,000).

Goodwill was not amortized, but was subject to an impairment test where the carrying value of goodwill was compared to its fair value. In the event the carrying value of goodwill exceeded its fair value, a goodwill impairment would be recorded. At December 31, 2001, the carrying value of goodwill was tested for impairment, and it was determined that a goodwill impairment of $9.476 million was required. Goodwill is not deductible for tax purposes.

~~F-24~~

~~17.~~~~INVESTMENTS~~19. INVESTMENT IN JOINTLY CONTROLLED ~~COMPANIES~~COMPANY

On September ~~25,~~23, 2003 the Company established a joint venture with ~~GE Commercial Equipment Financing, a unit of~~the General Electric Capital Corporation, through its business division GE Commercial Finance, Capital Solutions (“GE Commercial Finance”), with each entity holding a 50 percent interest in the joint venture. The joint venture ~~will operate~~operates under the name of GE Asset Manager, LLC. The joint business venture ~~will develop~~develops and ~~market~~markets asset management technology to customers in a broad range of industries. Upon the establishment of this joint venture, ~~1 million~~1,000,000 share-purchase warrants issued by ~~ADB~~Northcore to GE ~~Capital Corporation~~ vested. The fair value of these warrants of $188,000, calculated at the vesting date, isand was reflected on the ~~Consolidated Balance Sheets~~consolidated balance sheets as an ~~Acquired Agreement.~~acquired agreement. This acquired agreement ~~is being~~was fully amortized ~~over the initial period~~as of ~~the venture agreement. Accumulated amortization at~~ December ~~31, 2003, is $38,000, resulting in a net book value of $150,000.~~

As at December 31, 2003, the joint venture held no assets or liabilities, nor were there any activities within the joint venture. As a result, there are no amounts with respect to GE Asset Manager LLC included in the2004.

The consolidated financial statements of the ~~Company.~~

~~b) In 1999~~Company reflect the Company acquired a 51% interest in Point2 Internet Systems Inc. (“Point2”) by issuing $2,500,000 of common shares and common share-purchase warrants to acquire $2,000,000 of common shares for no additional consideration. The warrants were exercised in 2000. The Company acquired 51 percentCompany’s pro rata share of the ~~shares~~joint venture’s assets, liabilities, and results of ~~Point2 but only elected 50 percent~~operations in accordance with the proportionate consolidation method of accounting. The effect of proportionate consolidation of the ~~board of directors. The investment was accounted for~~joint venture on ~~a proportionate consolidation basis and~~ the Company recorded its proportionate share of revenue and expenses, assets and liabilities from the date of acquisition. Of the total purchase price, $134,000 was allocated to current assets, $521,000 to non-current assets and $28,000 to current liabilities resulting in goodwill of $2,044,000.

~~In May 2001, the Company sold its equity interest in Point2 for $2.6 million in cash. The Company realized a gain of $2.2 million, and recovered a receivable from Point2 provided for in 2000.~~

~~Condensed income statement and cash flow information for Point2 for the five-month period ended May 31, 2001~~Company’s consolidated financial statements is summarized as follows:

2001

(in thousands)

Revenue

$
192

Net loss

293

Change in cash resources

—


For the years ended December 31	2006			2005			2004
	(in thousands)
Consolidated Statements of Operations
Operating revenue	$	72		$	9		$	-
Operating expenses		(3	)		(1	)		-
Net income	$	69		$	8		$	-
Consolidated Balance Sheets
Current assets	$	15		$	35		$	-
Current liabilities		(35	)		(27	)		-
Net investment	$	(20	)	$	8		$	-
Consolidated Statements of Cash Flows
Operating activities	$	77		$	35		$	-
Financing activities		(97	)		-			-
Net cash (outflow) inflow	$	(20	)	$	35		$	-

~~18.~~Northcore Technologies Inc. 2006 Annual Report F-27

~~GOODWILL IMPAIRMENT~~

~~The Company reviewed~~Notes to the carrying value of goodwill acquired in connection with the acquisition of ADB Systemer. The carrying value of goodwill was tested against its fair value and it was determined that a goodwill impairment of $9.476 million was required at December 31, 2001 (Note 16). For the yearConsolidated Financial Statements

Years ended December 31, ~~2002 a goodwill impairment of $14,000 was recorded on goodwill acquired~~ 2006, 2005 and 2004

(in connection with the purchase of shares of the non-controlling interest shareholders of ADB Systemer. The permanent decline in the fair value arose on a downturn in economic conditions resulting in lower than previously anticipated cash flows.
~~F-25~~
Canadian dollars)

~~19.~~~~RELATED PARTY TRANSACTIONS~~

~~(a)~~ On August 30, 2002, the Company entered into a series of agreements with a lender, an unrelated party, whereby the lender granted to the Company a secured loan in the aggregate principal amount of $2 million (Note 6). The Company and the same unrelated party also entered into an agreement whereby on-line retail operations were to be conducted by Bid.Com Ltd. These operations utilized the on-line retail technology, experience and expertise of the Company developed and operated under the name “Bid.Com International Inc.” in the on-line selling of consumer products supplied by the lender.

~~On June 30, 2003, the Company exercised its option to transfer 100 percent of the issued shares of Bid.Com Ltd. in full settlement of the outstanding principal and accrued interest owed to the lender.~~

The Company owned 100 percent of the issued and outstanding shares of Bid.Com Ltd., but determined that, for accounting purposes, consolidation of Bid.Com Ltd. was not appropriate. This determination was based upon the Company’s evaluation of its continuing ability to determine the strategic operating policies of Bid.Com without the cooperation of others, its ability to obtain the future economic benefits from the resources of Bid.Com Ltd., and its exposure to the related risk of ownership. Therefore, the Company accounted for its investment in Bid.Com Ltd. on the equity basis. The Company was not exposed to losses incurred by Bid.Com Ltd., and accordingly this investment was carried at a nominal amount. U.S. GAAP required consolidation of the investment in Bid.Com Ltd. in the Company’s financial statements. The impact of this U.S. GAAP difference from Canadian GAAP is disclosed in note 20.

~~Condensed balance sheet information for Bid.Com Ltd as at December 31, 2002 is as follows:~~

2002

(in thousands)

Current assets

$
435

Capital assets

71

Current liabilities

701

Shareholders’ deficiency

(195
)
~~Condensed income statement and cash flow information for Bid.Com Ltd. for the six-month period ended June 30, 2003 and the two-month period ended December 31, 2002 is as follows:~~

2003

2002

(in thousands)

Revenue

$
3,614

$
258

Net income (loss)

208

(195
)
Change in cash resources

(358
)
358

Revenue of $35,000 and $243,000 related to web-site development, support and maintenance services provided to Bid.com Ltd. has been included in the consolidated results of the Company for the six months ended June 30, 2003 and the two months ended December 31, 2002, respectively. In addition, the Company charged overhead-related costs of $76,000 and $22,000 for rent, connectivity and management fees to Bid.com Ltd. for the six-month period ended June 30, 2003, and the two months ended December 31, 2002, respectively. These overhead charges have been recorded as a reduction of expenses in the consolidated financial statements for the years ended December 31, 2003 and December 31, 2002.
~~At December 31, 2002, accounts receivable includes $59,000 related to unpaid service and overhead fees charged during the year to Bid.Com Ltd.~~
~~F-26~~

b) During 2001 the Company recorded $1 million in revenue relating to an agreement with a company in which it had an interest and in which certain Directors of the Company, in aggregate, had a controlling interest. Under this agreement, the Company would provide its on-line auction technology and related services to the investee. In April 2001, this investee went into receivership, and the Company’s investment in the investee was written down to zero.

~~20.~~~~RECONCILIATION OF~~ CANADIAN AND UNITED STATES ~~GAAP~~ACCOUNTING POLICY DIFFERENCES

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles as applied in Canada, which conform in all material respects with generally accepted accounting principles in the United States, except as noted below.

~~(a) STOCK-BASED COMPENSATION TO EMPLOYEES~~

In fiscal 2003, the Company adopted the accounting recommendations contained in the CICA Handbook Section 3870 – “Stock-based Compensation and Other Stock-based Payments” effective January 1, 2003 regarding expensing of employee stock-based compensation. Accordingly, commencing in fiscal 2003, the Company records a compensation expense for stock options granted to employees on or after January 1, 2003, based on the fair value method of accounting. For fiscal 2002, the Company did not recognize compensation expense for employee stock options, however pro-forma disclosure giving recognition

(a)

Consolidated Financial Statements

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
	FORM 20-F

oREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR


ORx

ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, ~~2003~~2006 OR

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 Date of event requiring this shell company report ___________________

For the transition period from __________ to . __________.
Commission File No. 001-14835

NORTHCORE TECHNOLOGIES INC. (Exact name of Registrant as specified in its charter)

Not Applicable (Translation of Registrant’s name into English)

ONTARIO, CANADA (Jurisdiction of incorporation or organization)

302 The East Mall, Suite 300 Toronto, Ontario M9B 6C7 (Address of principal executive offices)

	Securities registered or to be registered pursuant to Section 12(b) of the Act. None

	Securities registered or to be registered pursuant to Section 12(g) of the Act. Common Shares

	Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.

83,742,508 Common Shares as of December 31, 2006

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act Yes o No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. Yes o No x

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 xNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18x
If this an annual report, indicate by check mark whether the registrant is a shell company (as determined in Rule 12b-2 of the Exchange Act). Yes o No x

~~PART I~~				Page
PART I						7

	ITEM 1	- IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS		6 7

	ITEM 2	- OFFER STATISTICS AND EXPECTED TIMETABLE		6 7

	ITEM 3	- KEY INFORMATION		6 7
		A.
		A.		Selected Financial Data	6 7
		B.
		B.		Capitalization and Indebtedness	8 9
		C.
		C.		Reasons For The Offer And Use Of Proceeds	8 9
		D.	Risk Factors	9
		D.	~~Risk Factors~~	8

	ITEM 4				- INFORMATION ON THE COMPANY	16 17
		A.	History and Development of the Company	17
		B.	Business Overview	.20
		C.	Organizational Structure	30
		D.	Property, Plants and Equipment	30

	ITEM 4A	- UNRESOLVED STAFF COMMENTS		30

	ITEM 5	- OPERATING AND FINANCIAL REVIEW AND PROSPECTS - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS~~ OPERATIONS.		25 30
		A.	Operating Results	33
		B.	Liquidity and Capital Resources	41
		C.	Customer Service and Technology	45
		D.	Trend Information.	45
		E.	Off-Balance Sheet Arrangements	45
		F.	Tabular Disclosure of Contractual Obligations.	45

	ITEM 6	- DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		35 46
		A.
		A.		Directors And Senior Management	35 46
		B.	Compensation	47
		B. C.	~~Compensation~~ Board Practices	37 49
		D.	Employees	49
		C. E.	~~Board Practices~~ Share Ownership	39 51

		D.		~~Employees~~	40

		E.		~~Share Ownership~~	41

	ITEM 7				- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	42 51
		A.	Major Shareholders	51
		A. B.	~~Major Shareholders~~	42

		B.		Related Party Transactions	42 51

	Year Ended December 31
	2003		2003		2002		2001		2000		1999
	(Cdn$)		(U.S.$) (1)		(Cdn$)		(Cdn$)		(Cdn$)		(Cdn$)
	(Audited) (in thousands except for per share data)
Revenue	5,853		4,537		5,780		4,455		12,497		31,001
Less: Customer Acquisition Costs	—		—		—		(60	)	(157	)	—
Net Revenue	5,853		4,537		5,780		4,395		12,340		31,001
Expenses Direct expenses	—		—		—		—		11,460		26,696
Advertising and promotion	—		—		—		—		5,040		11,870
General and administrative	4,648		3,603		6,288		7,622		16,236		12,405
Sales and marketing	1,098		851		1,875		4,040		3,161		—
Software development and technology	2,817		2,183		4,101		3,691		1,802		1,001
Employee stock options	193		150		—		—		—		—
Depreciation and amortization	1,901		1,474		2,602		1,572		1,130		621
Interest expense	280		217		155		(345	)	(467	)	(767	)
Total expenses	10,937		8,478		15,021		16,580		38,362		51,826
Loss from operations	(5,084	)	(3,941	)	(9,241	)	(12,185	)	(26,022	)	(20,825	)
Net Loss	(2,815	)	(2,182	)	(9,364	)	(18,714	)	(20,366	)	(20,825	)
Loss per common share(2)	(0.05	)	(0.04	)	(0.22	)	(0.64	)	(0.76	)	(0.84	)
Weighted average number of common shares(2)	54,324		54,324		41,968		29,130		26,844		24,792

	As at December 31
	2003	2003	2002		2001	2000	1999
	(Cdn$)	(U.S.$(1)	(Cdn$)		(Cdn$)	(Cdn$)	(Cdn$)
	(Audited)
	(in thousands)
Working capital	486	376	(1,757	)	3,115	13,671	21,523
Total assets	3,211	2,488	6,355		10,592	20,801	36,743
Long-term Deferred Revenue	—	—	—		33	1,195	1,289
Shareholders equity	1,026	794	1,198		8,014	15,860	28,985

	Year Ended December 31⁽³⁾
Statement of Operations Data:	2006 (Cdn$)			2005 (Cdn$)			2004 (Cdn$)			2003 (Cdn$)			2002 (Cdn$)
	(in thousands except for per share data)

Revenue		1,073			1,285			1,478			2,456			2,654
Operating expenses:
General and administrative		1,790			2,517			3,043			3,208			4,906
Customer service and technology		664			839			854			831			1,405
Sales and marketing		377			505			561			737			1,478
Employee stock options		137			105			27			135			-
Depreciation and amortization		92			95			149			634			1,326
Interest expense		783			717			443			286			182
Total expenses		3,843			4,778			5,077			5,831			9,297
Loss from continuing operations		(2,770	)		(3,493	)		(3,599	)		(3,375	)		(6,643	)
Net Loss		(648	)		(3,501	)		(5,104	)		(2,815	)		(9,364	)
Loss per common share ⁽¹⁾		(0.01	)		(0.05	)		(0.08	)		(0.05	)		(0.22	)

Weighted average number of common shares		79,933			72,904			61,938			54,324			41,968


ITEM 8				- FINANCIAL INFORMATION	43 53

ITEM 9	- THE OFFER AND LISTING		43 53

ITEM 10	- ADDITIONAL INFORMATION		45 56
	A.	Share Capital	56
	A. B.	~~Share Capital~~	45

	B.		Memorandum and Articles of Association	45 56
	C.	Material Contracts	59
	C. D.	~~Material Contracts~~ Exchange Controls	48 60
	E.	Taxation	60
	D. F.	~~Exchange Controls~~	50

	E.		~~Taxation~~	50

	F.		Dividends and Paying Agents	55 65
	G.	Statements by Experts.	66
	G. H.	~~Statements by Experts~~	55

	H.		Documents on Display	55 66
	I.

		I.	Subsidiary Information	56 66

	ITEM 11	- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK		56 66

	ITEM 12	- DESCRIPTION OF SECURITIES OTHER THAN ~~DEBT~~EQUITY SECURITIES		56 66

PART II				56 66

	ITEM 13	- DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES		56 66

	ITEM 14	- MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		56 67

	ITEM 15 –	- CONTROLS AND PROCEDURES		56 67

	ITEM ~~16A – AUDIT COMMITTEE FINANCIAL EXPERT~~ 16	57 [RESERVED]		67

	ITEM ~~16B – CODE OF ETHICS~~ 16	57		67
		A.	Audit Committee Financial Expert	67
	~~ITEM 16C – PRINCIPAL ACCOUNTANT FEES AND SERVICES~~	57 B.	Code of Ethics	67
		C.	Principal Accountant Fees and Services	68
~~PART III~~	57	D.	Exemptions from the Listing Standards For Audit Committees	68
		E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	68
	~~ITEM 17- FINANCIAL STATEMENTS~~	57
PART III					.68

	ITEM 18 17	- FINANCIAL STATEMENTS		57 68

	ITEM 18	- FINANCIAL STATEMENTS		68

	ITEM 19 –	- EXHIBITS		58 68

	As at December 31
Balance Sheet Data: ⁽²⁾	2006 (Cdn$)			2005 (Cdn$)			2004 (Cdn$)			2003 (Cdn$)		2002 (Cdn$)
	(in thousands)

Working capital		(2,132	)		(1,164	)		381			486		(1,757	)
Total assets		813			1,843			2,493			3,211		6,355
Shareholders’ (deficiency) equity		(2,255	)		(2,710	)		(1,009	)		1,026		1,198

	Year Ended December 31,
Rate	2003	2002	2001	2000	1999

Average (1) during year	.7205	.6344	.6449	.6725	.6744

	Year Ended December 31,
Rate	2006		2005		2004		2003		2002

Average during year (1)		0.8844		0.8254		0.7702		0.7205		0.6344

Month	High during month	Low during month

November 2003	.7692	.7484
December 2003	.7738	.7522
January 2004	.7880	.7496
February 2004	.7629	.7439
March 2004	.7645	.7418
April 2004	.7633	.7293
May 2004	.7364	.7158

Month	High during month	Low during month

December 2006	0.8760	0.8582
January 2007	0.8586	0.8457
February 2007	0.8631	0.8437
March 2007	0.8673	0.8467
April 2007	0.9035	0.8633
May 2007	0.9345	0.8980

~~Partner~~		~~Service or Offering~~

~~AMEC Services Limited~~		~~Engineering Services~~
~~RBT Consulting~~		~~Healthcare Consulting Services~~
~~Production Access, Inc.~~		~~Oil and Gas Data Management Solutions~~

Customer	Solution(s)	~~Solution(s)~~		Industry Segment		Geographic Location
~~BP Norway AS~~ GE Capital Solutions	Dyn@mic Seller	~~ProcureMate;~~ ~~WorkMate~~ Financial Services	US
Paramount	WorkMate	Oil and Gas		~~Norway~~ Canada
~~Prosafe Drilling Company (Prosafe)~~ Trilogy Energy Trust	WorkMate	~~WorkMate~~		Oil and Gas		~~Norway~~ Canada
~~Halliburton Productos (Halliburton)~~					~~WorkMate~~		~~Oil and Gas~~	~~Brazil~~ Customers serviced by our joint venture, Asset Manager
~~AmecFluor~~ Kraft Foods Global, Inc.	Asset Tracker	~~WorkMate~~ Manufacturing		~~Oil and Gas~~		~~Korea~~ US
~~Talisman Energy~~ GE Infrastructure	Asset Tracker	~~WorkMate~~ Manufacturing		~~Oil and Gas~~		~~Canada, UK~~ US
~~Hordaland fylkeskommune (HFK)~~ The Toro Company	Asset Tracker	~~ProcureMate~~ Manufacturing		~~Public Authority~~		~~Norway~~
~~GE Commercial Equipment Financing (GE)~~		~~Dyn@mic Seller~~		~~Financial Services~~		US
~~Healthcare Purchasing Consortium (The NHS)~~		~~ProcureMate~~		~~Health~~		UK
~~permanent TSB~~		~~Dyn@mic Seller~~		~~Financial Services~~		~~Ireland~~


Net Revenue by Geographic Regions:	2006		2005		2004
	(in thousands)
North America	$	661	$	657	$	797
Ireland and U.K.		412		628		681
Revenue from discontinued operations		2,399		4,490		3,452
	$	3,472	$	5,775	$	4,930

Location	Use	~~Use~~		Square Feet (Approximate)	Term of Lease
~~6725 Airport Road,~~ 302 The East Mall, Suite ~~201~~ ~~Mississauga,~~300 Toronto, Ontario		Executive, Administrative, Engineering and Marketing	5,435	~~10,165~~	Expires ~~October 2004~~
~~Vingveien 2,~~ ~~4050, Sola Norway~~		~~Executive, Administrative, Engineering and Marketing~~		~~8,234 (1)~~	~~Expires July 2008~~
~~AS Kontorsenter 2~~ ~~Tonsberg, Norway~~		~~Not in Use~~		~~2,851~~	~~Expires October 2005~~
~~52 Broomhill Rd.,~~ ~~Suite 112 & 113~~ ~~Broomhill Industrial Estate~~ ~~Tallaght, Dublin 24~~ ~~Ireland~~		~~Administrative, Engineering and Marketing~~		~~500~~	~~Expires December 2004~~
~~3000 Cathedral Hill~~ ~~Guildford, Surrey, England~~		~~Marketing~~		~~no dedicated space~~	~~Month-by-Month~~
~~3001 North Rocky Point~~ ~~Drive East,~~ ~~Tampa, Florida~~		~~Executive~~		~~143~~	~~Month-by-Month~~ Oct. 2009

	Total			2004		2005		2006		2007		2008		2009
	(in thousands)

Operating leases	$		436	$	232	$	113	$	43	$	24	$	24	—
License agreements	677			129		129		129		129		129		32
Secured subordinated notes(a)	715			115		—		600		—		—		—
	$	1,828		$	476	$	242	$	772	$	153	$	153	$	32

Name	Age	~~Age~~	Position
~~Directors~~
Jeffrey Lymburner	50
~~Jeffrey Lymburner(1)~~		47	Director and Chief Executive Officer
T. Christopher ~~Bulger(2)~~Bulger^(1),(2),(3)	50	47	Director and Chairman of the Board
~~Paul Godin,(3)~~		51	~~Director~~
Jim Moskos	44	41	Director and President, ~~ADB~~Northcore Technology Group
Darroch (Rick) Robertson⁽³⁾~~(2)~~	55	52	Director
~~Jan Pedersen(4)~~ Duncan G. Copeland^(1),(2),(3)	50	46	Director ~~and President, Norwegian Operations~~
~~Glen Whyte~~ David Gelineau^(1),(2)	48	47	Director

________________________ ~~Executive Officers~~⁽¹⁾ ~~(other than Messrs. Lymburner,~~ ~~Pedersen~~Member of the Management Resources and ~~Moskos)~~Compensation Committee.
~~Michael Robb~~		41	~~Chief Financial Officer and~~ ⁽²⁾Member of the Corporate ~~Secretary~~
~~Aidan Rowsome~~		43	~~Vice-President, Global Sales~~ Governance Committee. ⁽³⁾Member of Audit Committee.


					Awards		Payouts
	Annual Compensation					Restricted
					Options/	Shares or
				Other Annual	SARs	Restricted	LTIP	All Other
		Salary	Bonus	Compensation	Granted	Share Units	Payout	Compensation
Name And Principal Position	Year	($)	($)	($)⁽¹⁾	(#)	($)	($)	($)
Jeffrey Lymburner	2006	113,400	Nil	13,608	20,000	Nil	Nil	Nil
CEO ⁽²⁾	2005	116,300	Nil	13,950	155,300	Nil	Nil	Nil
	2004	130,130	Nil	15,616	Nil	Nil	Nil	Nil

James Moskos	2006	200,000	Nil	12,000	20,000	Nil	Nil	Nil
President, Technology Group	2005	200,000	Nil	12,000	650,000	Nil	Nil	Nil
	2004	190,000	Nil	12,000	Nil	Nil	Nil	Nil

	2003			2002			Working capital inflows (outflows)
	(in thousands)

Accounts receivable	$	424		$	(522	)	$	946
Deposits and prepaid expenses	56			(45		)	101
Accounts payable	(63		)	224			(287		)
Accrued liabilities	(453		)	427			(880		)
Deferred revenue	(692		)	(23		)	(669		)
	$	(728	)	$	61		$	(789	)


	2006			2005		Difference
	(in thousands on Canadian dollars)

Accounts receivable	$	130		$	250	$	(120	)
Deposits and prepaid expenses		52			70		(18	)
Accounts payable		(320	)		380		(700	)
Accrued liabilities		211			112		99
Deferred revenue		(23	)		15		(38	)
	$	50		$	827	$	(777	)

Name	Securities Under Options/SARs Granted (#)		% of Total Options/SARs Granted to Employees in Financial Year		Exercise or Base Price ($/Security)	Market Value of Securities Underlying Options/SARs on the Date of Grant ($/Security)	Expiration Date
Jeffrey Lymburner	Nil		Nil		Nil	Nil	Nil

Mark Wallace	Nil		Nil		Nil	Nil	Nil

James Moskos	20,202	(1)	1.8	%	0.33	0.33	7/03/06
	100,000	(2)	9.1	%	0.35	0.35	8/15/06
	100,000		9.1	%	0.35	0.35	8/15/06

Jan Pedersen	22,378	(1)	2.0	%	0.33	0.33	7/03/06

Aidan Rowsome	22,580	(1)	2.1	%	0.33	0.33	7/03/06
	100,000		9.1	%	0.35	0.35	8/15/06

Stock Option Grants to Outside Directors during the fiscal year ended December 31, 2006
Name:	# Options Granted	Price CDN$	Date of Grant	Expiry Date of Option
Chris Bulger	45,000	0.15	Aug. 4, 2006	Aug. 4, 2011
Duncan Copeland	45,000	0.15	Aug. 4, 2006	Aug. 4, 2011
Darroch Robertson	55,000	0.15	Aug. 4, 2006	Aug. 4, 2011
David Gelineau	30,000	0.15	Aug. 4, 2006	Aug. 4, 2011

	North America	Ireland and UK	Norway
Sales and Marketing	5	1	1
Technical Services	5	2	12
Product Group	2	0	10
Finance and Admin	4	1	2
Executive	3	1	1
TOTAL	19	5	26

	North America	Ireland and UK	Norway
Sales and Marketing	4	1	2
Technical Services	4	0	12
Product Group	3	0	12
Finance and Admin	3	0	2
Executive	2	0	1
TOTAL	16	1	29

Name	Number of Common Shares Owned (1)	Number of Common Underlying Options (2)	Range ofexercise prices of options	Range of Expiration Dates of Options	Percentage of Common Shares Beneficially Owned (3)
Christopher Bulger	15,000	62,000	$0.36-$0.48	05/10/04-07/03/06	*
Paul Godin	232,667	25,000	$0.36 - $0.48	05/10/04-07/03/06	*
Jeffrey Lymburner	3,211,975	50,000	$0.36-$0.48	05/10/04/11/27/04	5.2	%
Jim Moskos	21,375	434,369	$0.33-$0.48	05/10/04-08/15/09	*
Rick Robertson	5,000	30,000	$0.37-	07/03/06	*
Glen Whyte	208,333	Nil	N/A	N/A	*
Michael Robb	Nil	43,250	$0.22-$0.48	11/27/04-08/15/06	*
Jan Pedersen	767,019	206,545	$033-$0.48	05/10/04-07/03/06	1.6	%
Aidan Rowsome	Nil	255,705	$0.33 - $0.48	05/10/04-08/15/06	*


Name	Number of Common Shares Owned ⁽¹⁾	Number of Common Underlying Options ⁽²⁾	Range of Exercise Prices of Options	Range of Expiration Dates of Options	Percentage of Common Shares Beneficially Owned ⁽³⁾

Jeffrey Lymburner	4,373,625	175,300	$0.15 - $0.22	1/25/10 - 08/04/11	5%

T. Christopher Bulger	265,000	515,000	$0.15 - $0.22	1/25/10 - 08/04/11	*

Jim Moskos	21,375	670,000	$0.15 - $0.22	1/25/10 - 08/04/11	*

Darroch Robertson	5,000	135,000	$0.15 - $0.22	1/25/10 - 08/04/11	*

Duncan Copeland	87,050	155,000	$0.15 - $0.22	11/15/08 - 08/04/11	*

David Gelineau	1,400	65,000	$0.15 - $0.17	11/15/08 - 08/04/11	*

	High	Low
	(Cdn $)	(Cdn $)
ANNUAL MARKET PRICES

1999 Calendar Year	67.30	7.30
2000 Calendar Year	26.20	1.94
2001 Calendar Year	3.40	0.29
2002 Calendar Year	0.93	0.07
2003 Calendar Year	0.85	0.17

QUARTERLY MARKET PRICES
2002 CALENDAR YEAR
First Quarter	0.50	0.28
Second Quarter	0.45	0.22
Third Quarter	0.25	0.09
Fourth Quarter	0.93	0.07
2003 CALENDAR YEAR
First Quarter	0.85	0.17
Second Quarter	0.41	0.19
Third Quarter	0.55	0.31
Fourth Quarter	0.54	0.37
2004 CALENDAR YEAR
First Quarter	0.52	0.34

MONTHLY MARKET PRICES
November 2003	0.53	0.37
December 2003	0.48	0.39
January 2004	0.45	0.39
February 2004	0.52	0.39
March 2004	0.42	0.34
April 2004	0.38	0.32
May 2004	0.38	0.25

	High		Low
	(U.S. $)		(U.S. $)
ANNUAL MARKET PRICES

2002 Calendar Year		0.59		0.04
2003 Calendar Year		0.54		0.11
2004 Calendar Year		0.41		0.12
2005 Calendar Year		0.29		0.11
2006 Calendar Year		0.27		0.10

QUARTERLY MARKET PRICES

2004 CALENDAR YEAR
First Quarter		0.41		0.26
Second Quarter		0.29		0.18
Third Quarter		0.27		0.15
Fourth Quarter		0.22		0.12

2005 CALENDAR YEAR
First Quarter		0.29		0.15
Second Quarter		0.25		0.16
Third Quarter		0.28		0.13
Fourth Quarter		0.18		0.11

2006 CALENDAR YEAR
First Quarter		0.15		0.12
Second Quarter		0.27		0.13
Third Quarter		0.24		0.12
Fourth Quarter		0.20		0.10

MONTHLY MARKET PRICES

December 2006		0.15		0.11
January 2007		0.15		0.11
February 2007		0.20		0.10
March 2007	0.16		0.10
April 2007		0.16		0.10
May 2007		0.15		0.11

(b) COMPREHENSIVE INCOME

Year	Audit Fees(1)		Review Fees(2)		Tax Fees(3)		Other Fees(4)
2002	$	184,500	$	54,000	$	31,203	$	18,190
2003	$	160,000	$	66,000	$	71,450	$	18,750

	~~ADB SYSTEMS INTERNATIONAL~~NORTHCORE TECHNOLOGIES INC.


By:	~~By:~~		/s/ Jeffrey Lymburner
		Name:	Jeffrey Lymburner
		Title:	Chief Executive Officer



Dated: June ~~29, 2004~~ 22, 2007	By:	/s/ ~~Michael Robb~~ Tam Nguyen
		Name:	~~Michael Robb~~ Tam Nguyen
		Title:	~~Chief Financial Officer and~~
				Corporate ~~Secretary~~
				Controller

~~Dated: June 29, 2004~~	~~/s/ Jeffrey Lymburner~~
	~~Jeffrey Lymburner~~
	~~Chief Executive Officer~~

~~Dated: June 29, 2004~~	~~/s/ Michael Robb~~
	~~Michael Robb~~
	~~Chief Financial Officer~~

~~Audited Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001~~	Management’s Report	F-1
	Report of Independent Registered ~~Chartered Accountants~~ Public Accounting Firm	~~F-1~~ F-2
	Consolidated Balance Sheets as at December 31, ~~2003~~2006 and ~~2002~~ 2005	F-3
	Consolidated Statements of Operations for the years ended December 31, ~~2003, 2002~~2006, 2005, and ~~2001~~ 2004	~~F-5~~ F-4
	Consolidated Statements of Deficit for the years ended December 31, ~~2003, 2002~~2006, 2005 and ~~2001~~ 2004	~~F-6~~ F-5
	Consolidated Statements of Cash Flows for the years ended December 31, ~~2003, 2002~~2006, 2005, and ~~2001~~ 2004	~~F-7~~ F-6
	Notes to Consolidated Financial Statements	~~F-8~~ F-7

~~Jeff Lymburner~~	~~Michael Robb~~
~~CEO~~ Jeffrey Lymburner	~~Chief Financial Officer~~	Tam Nguyen
CEO		Corporate Controller

Consolidated Balance Sheets December 31, 2006 and 2005 (in thousands ofCanadian dollars)

~~ON BEHALF OF THE BOARD~~
~~/s/ T. Christopher Bulger~~ Jeffrey Lymburner	~~Director~~	~~/s/ Darroch Robertson~~	~~Director~~ James Moskos
Director			Director

	2003						2002
	Nominal Value			Fair Value			Nominal Value			Fair Value
	(in thousands)
Opening balance	$	205		$	34		$	—		$	—
Issuance of notes	1,000			596			1,120			64
Non-cash interest	—			112			—			21
Conversion of notes	(90		)	(21		)	(915		)	(51		)
Closing balance	$	1,115		$	721		$	205		$	34

	2003					2002
	Common Shares		Fair Value			Common Shares		Fair Value
	(in thousands)
Opening balance	2,562		$	175		—		$	—
Issuance of notes	4,286		398			13,500		936
Conversion of notes	(1,125	)	(76		)	(10,938	)	(761		)
Closing balance	5,723		$	497		2,562		$	175