ex99_2.htm

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(AMOUNTS IN CANADIAN DOLLARS)

MAY 11, 2012

NORTHCORE TECHNOLOGIES INC.

Condensed Interim Consolidated Statements of Financial Position

As at March 31, 2012 and December 31, 2011

(in thousands of Canadian dollars) (Unaudited)

	March 31, 2012			December 31, 2011

ASSETS

CURRENT
Cash	$	1,480		$	1,760
Short-term investments		40			-
Accounts receivable		288			187
Deposits and prepaid expenses		47			40
		1,855			1,987
INVESTMENT IN GE ASSET MANAGER, LLC (Note 5)		20			24
CAPITAL ASSETS		88			91
INTANGIBLE ASSETS (Note 6)		839			807
UNALLOCATED PURCHASE PRICE (Note 7)		1,160			-
	$	3,962		$	2,909

LIABILITIES

CURRENT
Accounts payable	$	450		$	239
Accrued liabilities		197			173
Contingent consideration		134			-
Deferred revenue		123			3
		903			415

SHAREHOLDERS’ DEFICIENCY

Share capital (Note 8)		118,332			117,359
Contributed surplus		3,586			3,586
Warrants		836			836
Stock options (Note 9)		4,017			3,690
Deficit		(123,712	)		(122,977	)
		3,059			2,494
	$	3,962		$	2,909

Going concern (Note 2)

See accompanying notes to unaudited condensed interim consolidated financial statements. These unaudited condensed interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements.

NORTHCORE TECHNOLOGIES INC.

Condensed Interim Consolidated Statements of Operations and Comprehensive Loss

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars, except per share amounts) (Unaudited)

	Three Months Ended March 31,
	2012			2011

Revenues (Note 10)	$	230		$	183
Other income:
Income from GE Asset Manager, LLC (Note 5)		18			35
Operating expenses:
General and administrative		436			372
Customer service and technology		166			181
Sales and marketing		27			69
Stock-based compensation (Note 9)		343			83
Depreciation		11			6
Total operating expenses		983			711
Loss from operations		(735	)		(493	)

Finance costs:
Interest on notes payable and secured subordinated notes		-			45
Accretion of secured subordinated notes		-			36
Total finance costs		-			81
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD	$	(735	)	$	(574	)
LOSS PER SHARE, BASIC AND DILUTED	$	(0.003	)	$	(0.003	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED (000’s)		226,940			177,825

NORTHCORE TECHNOLOGIES INC.

Condensed Interim Consolidated Statements of Shareholders’ Equity

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

													Conversion
													Feature on
	Share		Contributed					Stock			Other		Secured
	Capital		Surplus		Warrants			Options			Options		Notes		Deficit			Total
Opening balance -
January 1, 2012	$	117,359	$	3,586	$	836		$	3,690		$	-	$	-	$	(122,977	)	$	2,494
Changes:
Shares issued for
acquisition of businesses		933		-		-			-			-		-		-			933
Stock options expense		-		-		-			343			-		-		-			343
Exercise of stock options		40		-		-			(16	)		-		-		-			24
Loss for the period		-		-		-			-			-		-		(735	)		(735	)
Closing balance -
March 31, 2012	$	118,332	$	3,586	$	836		$	4,017		$	-	$	-	$	(123,712	)	$	3,059

													Conversion
													Feature on
	Share		Contributed					Stock			Other		Secured
	Capital		Surplus		Warrants			Options			Options		Notes		Deficit			Total
Opening balance -
January 1, 2011	$	110,767	$	3,462	$	834		$	1,949		$	-	$	458	$	(119,043	)	$	(1,573	)
Changes:
Equity private placement		456		-		149			-			108		-		-			713
Exercise of warrants		93		-		(18	)		-			-		-		-			75
Stock options expense		-		-		-			83			-		-		-			83
Exercise of stock options		59		-		-			(23	)		-		-		-			36
Loss for the period		-		-		-			-			-		-		(574	)		(574	)
Closing balance -
March 31, 2011	$	111,375	$	3,462	$	965		$	2,009		$	108	$	458	$	(119,617	)	$	(1,240	)

NORTHCORE TECHNOLOGIES INC. Condensed Interim Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2012 and 2011 (in thousands of Canadian dollars) (Unaudited)
	Three Months Ended March 31,
	2012			2011

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

OPERATING
Loss for the period	$	(735	)	$	(574	)
Adjustments for:
Income from GE Asset Manager, LLC (Note 5)		(18	)		(35	)
Stock-based compensation		343			83
Depreciation		11			6
Cash interest expense		-			45
Accretion of secured subordinated notes		-			36
		(399	)		(439	)
Changes in non-cash operating working capital (Note 11)		203			47
		(196	)		(392	)

INVESTING
Cash distribution from investment in GE Asset Manager, LLC (Note 5)		22			50
Acquisition of intangible assets (Note 6)		(32	)		-
Acquisition of businesses, net of cash acquired (Note 7)		(98	)		-
		(108	)		50

FINANCING
Issuance of common shares and warrants		-			838
Share issuance costs		-			(125	)
Stock options exercised (Note 9 (c))		24			36
Warrants exercised		-			75
Repayment of notes payable		-			(100	)
Interest paid		-			(57	)
		24			667

NET CASH INFLOW (OUTFLOW) DURING THE PERIOD		(280	)		325
CASH, BEGINNING OF PERIOD		1,760			51

CASH, END OF PERIOD	$	1,480		$	376

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES – See Note 11

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

1.	DESCRIPTION OF BUSINESS

Northcore Technologies Inc. (“Northcore” or the “Company”) provides enterprise level software products and services that enable its customers to purchase, manage and dispose of capital equipment. Utilizing award-winning, multi-patented technology, as well as powerful, holistic Social Commerce tools, Northcore's solutions support customers throughout the entire asset lifecycle. Northcore’s portfolio companies include Envision Online Media Inc. (“Envision”), a specialist in the delivery of content management solutions.

Northcore owns 50 percent of GE Asset Manager, LLC (“GE Asset Manager” or “GEAM”), a joint business venture with GE Capital Corporation, through its business division GE Commercial Finance, Capital Solutions.

Northcore’s shares trade on both the Toronto Stock Exchange (TSX: NTI) and the OTC Bulletin Board (OTCBB: NTLNF). The principal and registered office of the Company is located at 302 The East Mall, Suite 300, Toronto, Ontario, Canada, M9B 6C7.

2.	GOING CONCERN

While the accompanying unaudited condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, certain adverse conditions and events cast substantial doubt upon the validity of this assumption. Financial statements are required to be prepared on a going concern basis unless management either intends to liquidate the Company or cease trading or has no realistic alternative but to do so within the foreseeable future. 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 a substantial increase in revenue as well as maintaining operating expenses at or near the same level as 2011. The Company cannot provide assurance that it will be able to execute on its business plan or assure that efforts to raise additional financings would be successful.

These unaudited condensed interim 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 unaudited condensed interim consolidated financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, the reported net losses and the financial position classifications used.

The continued existence beyond March 31, 2012 is dependent on the Company’s ability to increase revenue from existing products and services, and to expand the scope of its product offering which entails a combination of internally developed software and business ventures with third parties, and to raise additional financing.

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

3.	SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited condensed interim consolidated financial statements were prepared using the same accounting policies and methods as those used in the Company’s consolidated financial statements for the year ended December 31, 2011. These unaudited condensed interim financial statements are in compliance with International Accounting Standard (IAS) 34, Interim Financial Reporting. Accordingly, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), have been omitted. The preparation of these unaudited condensed interim consolidated financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements have been set out in Note 3 of the Company’s consolidated financial statements for the year ended December 31, 2011.

These unaudited condensed interim consolidated financial statements have been prepared on a historical cost basis. These statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011. These statements were approved by the Board of Directors on May 11, 2012.

Principles of Consolidation

These unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in associates and interests in joint ventures are accounted for using the equity method. Intercompany balances and transactions are eliminated on consolidation.

Recent Accounting Pronouncements

The following accounting standards, amendments and interpretations have been issued but are not yet effective for the Company. Management is currently assessing the impact of the new standards on the Company’s accounting policies and financial statement presentation.

IFRS 9, Financial Instruments was issued by the IASB in October 2010 and will replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015.

IFRS 13, Fair Value Measurement was issued by the IASB in May 2011. IFRS 13 establishes new guidance on fair value measurement and disclosure requirements for IFRSs and U.S. generally accepted accounting principles (GAAP). The guidance, set out in IFRS 13 and an update to Topic 820 in the FASB’s Accounting Standards Codification (formerly referred to as SFAS 157), completes a major project of the boards’ joint work to improve IFRSs and US GAAP and to bring about their convergence. The standard is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

IAS 1, Presentation of Financial Statements was amended by the IASB in June 2011 in order to align the presentation of items in other comprehensive income with U.S. GAAP standards. Items in other comprehensive income will be required to be presented in two categories: items that will be reclassified into profit or loss and those that will not be reclassified. The flexibility to present a statement of comprehensive income as one statement or two separate statements of profit and loss and other comprehensive income remains unchanged. The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012.

4.	TRANSACTIONS WITH RELATED PARTIES

Parties related to the Company include officers and Board members. Unless stated otherwise, no transactions include special characteristics or terms. Balances are generally settled in cash.

During the quarter ended March 31, 2012, the Company recorded consulting fees in the amount of $15,000 (March 31, 2011 - $15,000) to related parties.

5.	INVESTMENT IN GE ASSET MANAGER, LLC

On September 23, 2003 the Company established a joint venture with GE Commercial Finance, with each entity holding a 50 percent interest in the joint venture. The joint venture was formed as a Delaware Limited Liability Company and operates under the name of GE Asset Manager, LLC (“GEAM”). The principal office of GEAM is located at 44 Old Ridgebury Road, Danbury, Connecticut. The joint business venture develops and markets asset management technology to customers in a broad range of industries.

During the quarter ended March 31, 2011, the Company’s share of income and cash distribution from GE Asset Manager were $18,000 (March 31, 2011 - $35,000) and $22,000 (March 31, 2011 - $50,000), respectively. The investment in GEAM balance as at March 31, 2012 is $20,000 (December 31, 2011 - $24,000).

6.	INTANGIBLE ASSETS

On December 28, 2011, the Company acquired all the intellectual property of Discount This Holdings Limited (“Discount This”), commonly known as the “Group Purchase Platform”. In consideration of this asset acquisition, the purchase price of $630,000 was satisfied by the issuance of 4,500,000 common shares of Northcore at $0.14 per share. In addition, direct acquisition costs in the amount of $177,000, comprised of consulting, legal and filing fees, were capitalized upon this close of the transaction. The balance of intangible assets as at December 31, 2011 was $807,000.

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

During the quarter ended, the Company incurred direct costs in the amount of $32,000 in connection with the development and enhancement of the Group Purchase Platform. In accordance with IAS 38, Intangible Assets, the direct costs were capitalized. The balance of intangible assets as at March 31, 2012 is $839,000. Management has determined the useful life of the Group Purchase Platform to be 10 years. No amortization has been taken as at March 31, 2012, as the platform is still in the development phase and not ready for its intended use.

In addition, if the intellectual property is sold or licensed to a third party within the two year period following the closing date, Discount This will be entitled to an additional cash payment of 10 percent of the associated proceeds.

7.	ACQUISITION OF BUSINESSES

On March 27, 2012, the Company acquired 100 percent of the outstanding shares of Envision Online Media Inc. (“Envision”), a specialist in the delivery of content management solutions. As part of the same transaction, the Company also acquired from common shareholders, 85 percent of the outstanding shares of Kahootkids! Inc., a group discount and community portal targeting young families with kids.

The purchase price was satisfied by the issuance of 7,778,000 common shares valued at $933,000 based on the Company’s closing share price of $0.12 on March 27, 2012. In addition, a cash payment of $100,000 was paid at closing, with the remaining $200,000 to be earned over the next two years, subject to achieving specific performance criteria as set out by the Company. IFRS 3, Business Combination, requires the contingent cash payment to be measured at fair value as at the acquisition date. The Company has determined the fair value of the contingent cash payment to be $134,000 based on a discount rate of 13 percent and 80 percent probability of the performance criteria being satisfied.

The consideration transferred and acquisition date fair values assigned to assets acquired and liabilities assumed are as follows:

Total Purchase Price:

Amount
	(in thousands)
Cash	$	100
Common shares (7,778,000 at $0.12 per share)		933
Net present value of estimated future payments		134
	$	1,167

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

Acquisition Date Fair Values:

Amount
	(in thousands)
Cash	$	2
Short-term investments		40
Accounts receivable		82
Other current assets		15
Capital assets		8
Accounts payable		(107	)
Other current liabilities		(33	)
Total net assets		7
Unallocated purchase price		1,160
	$	1,167

Envision’s customer base, technological expertise and geographic reach are all highly synergistic to Northcore’s stated objectives of expansion within the Social Commerce arena. In addition, the skill set of the Envision team is completely complementary to Northcore and will allow the conjoined entity to target a new tier of business development opportunities.

The unallocated purchase price of $1,160,000 represents the excess of purchase price over the fair values of net assets acquired. The unallocated purchase price will be allocated to appropriate accounts pending final determination by independent third party valuation of the fair values of assets acquired and liabilities assumed.

Acquisition related costs in the amount of $25,000 were expensed as incurred.

8.	SHARE CAPITAL

a)	Authorized

Unlimited number of common shares

Unlimited number of preference shares – issuable in series

b)	Outstanding Common Shares

	March 31, 2012
	Number		Amount
(in thousands of shares and dollars)
Opening balance – January 1, 2011		226,598	$	117,359
Acquisition of businesses (Note 7)		7,778		933
Stock options exercised (Note 9 (c))		250		40
Closing balance – March 31, 2012		234,626	$	118,332

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

9.	STOCK OPTIONS

a)	The following table summarizes the transactions within stock options.

	March 31, 2012
	Number			Amount
(in thousands of options and dollars)
Opening balance, January 1, 2012		19,290		$	3,690
Granted (Note 9 (b))		5,375			-
Exercised (Note 9 (c))		(250	)		(16	)
Cancelled		(3,319	)		-
Stock-based compensation expense		-			343
Closing balance – March 31, 2012		21,096		$	4,017
Exercisable		15,682

During the quarter ended March 31, 2012, the Company granted 5,375,000 stock options to employees, officers and directors of the Company. The weighted average grant date fair value of $0.06 per option was valued using the Cox-Rubinstein binomial valuation model with the following assumptions: volatility of 111 percent based on a historical trend of five years, a risk free interest rate of 1.60 percent, a maturity of five years, average share price of $0.09 and a dividend yield of nil.

c)	During the quarter ended March 31, 2012, total proceeds of $24,000 were realized from the exercise of 250,000 stock options (book value of $16,000) at an average exercise price of $0.10. The average trading price at the time of exercise of these options was $0.11.

During the quarter ended March 31, 2011, total proceeds of $36,000 were realized from the exercise of 300,000 stock options (book value of $23,000) at an average exercise price of $0.12. The average trading price at the time of exercise of these options was $0.24.

10.

REVENUES

Revenues are comprised of the following:

	Three Months Ended March 31,
	2012		2011
	(in thousands)
Services	$	177	$	124
Hosting fees		53		59
	$	230	$	183

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

11.	SUPPLEMENTAL CASH FLOWS INFORMATION

The following table sets forth the changes in non-cash working capital items resulting from the inflow (outflow) of cash in the period.

	Three Months Ended March 31,
	2012			2011
	(in thousands)
Accounts receivable	$	(19	)	$	(11	)
Deposits and prepaid expenses		8			4
Accounts payable		104			(15	)
Accrued liabilities		(10	)		3
Deferred revenue		120			66
	$	203		$	47

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

	Three Months Ended March 31,
	2012		2011
	(in thousands)
Issuance of common shares for acquisition of businesses	$	933	$	-

12.	FINANCIAL RISK FACTORS

a)	Credit Risk

Credit risk arises from cash and short-term investments and 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.

The Company invests its cash and short-term investments with counterparties that are high credit quality. Given these high credit ratings, the Company does not expect any counterparties to fail to meet their obligations.

Two customers accounted for 44 percent and 43 percent, respectively (March 31, 2011 – two customers accounted for 49 percent and 41 percent, respectively) of total revenues for the quarter ended March 31, 2012. As at March 31, 2012, three customers accounted for 39 percent, 20 percent and 12 percent, respectively (December 31, 2011 – three customers accounted for 42 percent, 18 percent and 12 percent, respectively) of total accounts receivable.

NORTHCORE TECHNOLOGIES INC.

Notes to Condensed Interim Consolidated Financial Statements

For the Three Months Ended March 31, 2012 and 2011

(in thousands of Canadian dollars) (Unaudited)

The following table summarizes the aging of accounts receivable as at the reporting date.

March 31, 2012			December 31, 2011
	(in thousands)
Current	$	170	$	144
Past due (61-120 days)		105		36
Past due (> 120 days)		13		7
	$	288	$	187

The allowance for doubtful accounts recorded as at March 31, 2012 was $nil (December 31, 2011 - $nil).

b)	Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to meet its liabilities when due, as disclosed in Note 2 to the unaudited condensed interim consolidated financial statements. The Company manages its liquidity risk by continuously monitoring forecast and actual cash flows.

NORTHCORE TECHNOLOGIES INC.

Corporate Directory

CORPORATE OFFICES

Northcore Technologies Inc.

302 The East Mall, Suite 300

Toronto, Ontario

M9B 6C7

Toll free: 1 888 287 7467

Email: nvestor-relations@northcore.com

Website: www.northcore.com

Envision Online Media Inc.

1150 Morrison Drive, Suite 201

Ottawa, Ontario

K2H 8S9

Website: www.envisiononline.ca

SHARES OUTSTANDING

As at March 31, 2012:

234,625,479 common shares

REGISTRAR & TRANSFER AGENT

Equity Financial Trust Company

200 University Avenue, Suite 400

Toronto, Ontario

M5H 4H1

STOCK EXCHANGE LISTINGS

Toronto Stock Exchange

Symbol: NTI

OTC Bulletin Board

Symbol: NTLNF

AUDITORS

Collins Barrow Toronto LLP

11 King Street West

Suite 700, Box 27

Toronto, Ontario

M5H 4C7