northcore20f.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ______
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP [ ] International Financial Reporting Standards as issued Other [ ] by the International Accounting Standards Board [ X ]

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

Item 17 ______ Item 18 __X__
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 ______ No __X__

Northcore Technologies Inc. 2

NORTHCORE TECHNOLOGIES INC.

Annual Report on Form 20-F for the Fiscal Year

Ended December 31, 2012

FORWARD LOOKING STATEMENTS

From time to time, we make oral and written statements that may be considered "forward looking statements" (rather than historical facts). We are taking advantage of the "safe-harbour" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements we may make from time to time, including the forward-looking statements in this Annual Report.

You can identify these statements when you see words such as "may", "expect", "anticipate", "estimate", "believe", "intend", and other similar expressions. These forward-looking statements relate, among other items, to:

·	our future capital needs;

·	future expectations as to profitability and operating results;

·	our ability to further develop business relationships and revenues;

·	our expectations about the markets for our products and services;

·	acceptance of our products and services;

·	competitive factors;

·	our ability to maintain operating expenses;

·	our ability to attract and retain employees;

·	new products and technological changes;

·	our ability to develop appropriate strategic alliances;

·	protection of our proprietary technology;

·	our ability to acquire complementary products or businesses and integrate them into our business;

·	our ability to increase revenue from existing products and services;

·	our ability to expand the scope of our product offering; and

·	geographic expansion of our business.

We have based these forward-looking statements largely on our current plans and expectations. Forward-looking statements are subject to risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from those described in our forward-looking statements as a result of the factors described in the “Risk Factors” included elsewhere in this Annual Report, including, among others:

·	the timing of our future capital needs and our ability to raise additional capital when needed;

·	increasingly longer sales cycles;

·	potential fluctuations in our financial results and our difficulties in forecasting;

·	volatility of the stock markets and fluctuations in the market price of our stock;

·	the ability to buy and sell our shares on the Over the Counter Bulletin Board;

·	our ability to compete with other companies in our industry;

·	our dependence upon a limited number of customers;

·	our ability to retain and attract key personnel;

·	risk of significant delays in product development;

·	failure to timely develop or license new technologies;

·	risks relating to any requirement to correct or delay the release of products due to software bugs or errors;

·	risk of system failure or interruption;

·	risks associated with any further dramatic expansions and retractions in the future;

·	risks associated with international operations;

Northcore Technologies Inc. 3

·	problems which may arise in connection with the acquisition or integration of new businesses, products, services, technologies or other strategic relationships;

·	risks associated with protecting our intellectual property, and potentially infringing the intellectual property rights of others;

·	fluctuations in currency exchanges;

·	risks to holders of our common shares following any issuance of our preferred shares; and

·	the ability to enforce legal claims against us or our officers or directors.

We do not have, and do not undertake, any obligation to publicly update or revise any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise. Because of these risks and uncertainties, the forward-looking statements and circumstances discussed in this Annual Report might not transpire.

Trademarks or trade names, which we own and are used in this Annual Report, include: DYN@MIC BUYER™, DYN@MIC SELLER™ and WORKING CAPITAL ENGINE™. Each trademark, trade name, or service mark of any other company appearing in this Annual Report belongs to its holder.

Northcore Technologies Inc. 4

TABLE OF CONTENTS


		Page
PART I		7

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

ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE		7

ITEM 3 - KEY INFORMATION		7

A. Selected Financial Data		7

B. Capitalization and Indebtedness		10

C. Reasons For The Offer And Use Of Proceeds		10

D. Risk Factors		10

ITEM 4 - INFORMATION ON THE COMPANY		17

A. History and Development of the Company		17

B. Business Overview		21

C. Organizational Structure		30

D. Property, Plant and Equipment

ITEM 4A - UNRESOLVED STAFF COMMENTS		31

ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS -
		31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A. Operating Results		32

B. Liquidity and Capital Resources		37

C. Research and Development, Patents, and Licenses, Etc.		40

D. Trend Information		40

E. Off-Balance Sheet Arrangements		41

F. Tabular Disclosure of Contractual Obligations		41

ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		41

A. Directors And Senior Management		41

B. Compensation		43

C. Board Practices		44

C.1. Audit Committee Information		45

D. Employees		47

E. Share Ownership		47

ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		47

A. Major Shareholders		47

B. Related Party Transactions		48

ITEM 8 - FINANCIAL INFORMATION		48

ITEM 9 - THE OFFER AND LISTING		48

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ITEM 10 - ADDITIONAL INFORMATION		51

A. Share Capital		51

B. Memorandum and Articles of Association		51

C. Material Contracts		54

D. Exchange Controls		55

E. Taxation		55

F. Dividends and Paying Agents		61

G. Statements by Experts		60

H. Documents on Display		61

I. Subsidiary Information		61

ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK		61

ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		61

PART II	61

ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		61

ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		61

ITEM 15 - CONTROLS AND PROCEDURES		61

ITEM 16 [RESERVED]		63

ITEM 16		63

A. Audit Committee Financial Expert		63

B. Code of Ethics		63

C. Principal Accountant Fees and Services		63

D. Exemptions from the Listing Standards For Audit Committees		63

E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers		64

PART III		64

ITEM 17 - FINANCIAL STATEMENTS		64

ITEM 18 - FINANCIAL STATEMENTS - FINANCIAL STATEMENTS		64

ITEM 19 - EXHIBITS		64

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Unless otherwise indicated, all references in this Annual Report to “dollars” or “$” are references to Canadian dollars. Our financial statements are expressed in Canadian dollars. Except as otherwise noted, certain financial information presented in this Annual Report has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$0.9958 to US$1.00 (or US$1.0042 to Cdn$1.00), the noon buying rate in New York City on December 31, 2012 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. These translations are not intended to suggest that Canadian dollars have been or could be converted into U.S. dollars at that or any other rate.

PART I

ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3 - KEY INFORMATION

A.	SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and the related notes, and the section "Operating and Financial Review and Prospects" included elsewhere in this Annual Report. The consolidated statement of operations data for the years ended December 31, 2012, 2011 and 2010 and consolidated statements of financial position data as of December 31, 2012 and 2011, as set forth below, are derived from our audited consolidated financial statements and the related notes included elsewhere in this Annual Report in accordance with International Financial Reporting Standards. The consolidated statement of operations and comprehensive loss data for the years ended December 31, 2009 and 2008 and the consolidated statements of financial positions data as at December 31, 2009 and 2008 have been derived from our audited consolidated financial statements for those years in accordance with Canadian generally accepted accounting principles and reconciled to accounting principles generally accepted in the United States of America, which are not included in this Annual Report but have previously been filed with the Commission.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements have been prepared on a historical cost basis other than certain financial assets and liabilities measured at fair value.

The Company’s consolidated financial statements were previously prepared in accordance with Canadian generally accepted accounting principles (“previous GAAP”). The adoption of IFRS has not had a material impact on the Company’s operations, strategic decisions, cash flow and capital expenditures.

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Historical results are not necessarily indicative of results to be expected for any future period.

	Year Ended December 31,
	2012 (Cdn$)			2011 (Cdn$)			2010 (Cdn$)
	IFRS
	(in thousands except for per share amounts)
Consolidated Statement of Operations and Comprehensive Loss
Revenues		1,362			785			582
Income from GE Asset Manager, LLC		82			69			43
Operating expenses:
General and administrative		1,685			1,670			1,440
Customer service and technology		1,113			726			734
Sales and marketing		225			260			188
Stock-based compensation		425			1,873			517
Depreciation		61			32			22
Finance costs		-			227			269
Other expenses (net)		-			-			487
Total expenses		3,509			4,788			3,657
Loss from operations before income taxes		(2,065	)		(3,934	)		(3,032	)
Recovery of income taxes		(36	)		-			-
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR		(2,029	)		(3,934	)		(3,032	)
Loss per share (1)		(0.009	)		(0.020	)		(0.019	)
Weighted average number of common shares		232,715			196,180			162,899

	As at December 31,
		2012 (Cdn$)		2011 (Cdn$)		2010 (Cdn$)
		IFRS
	(in thousands)
Consolidated Statement of Financial Position (2)
Total assets			2,715		2,909		284

Total Liabilities			868		415		1,857
Shareholders’ equity (deficiency)			1,847		2,494		(1,573	)
Total liabilities and shareholders’ equity			2,715		2,909		284

(1) For each fiscal year, the Company excluded the effect of all convertible debt, stock options and share-purchase warrants in the calculation of diluted loss per share, as their impact would have been anti-dilutive.

(2) The Company has not paid dividend since its formation.

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Historical results are not necessarily indicative of results to be expected for any future period.

	Year Ended December 31,
	2009 (Cdn$)			2008 (Cdn$)
	(CANADIAN GAAP)
	(in thousands except for per share amounts)
Consolidated Statement of Operations and Comprehensive Loss
Revenues		759			741
Operating expenses:
General and administrative		1,269			1,485
Customer service and technology		738			689
Sales and marketing		181			117
Stock-based compensation		183			43
Depreciation		29			33
Finance costs		768			729
Other expenses (net)		-			-
Total expenses		3,168			3,096
Loss from operations		(2,409	)		(2,355	)
Loss per share (1)		(0.02	)		(0.02	)

Weighted average number of common shares		140,434			108,861

Consolidated Statement of Operations Data (U.S. GAAP): (3)
Loss for the year as reported under U.S. GAAP		$	(2,285	)		$	(2,204	)

	As at December 31,
	2009 (Cdn$)			2008 (Cdn$)
	(CANADIAN GAAP)
	(in thousands)
Consolidated Statement of Financial Position (2)
Total assets		1,105			812
Shareholders’ equity (deficiency)		(16	)		(2,403	)
Total liabilities and shareholders’ equity		1,105			812

Consolidated Balance Sheet Data (U.S. GAAP): (3)
Total assets	872		731
Shareholders’ deficiency	(3,283	)	(2,037	)

(2) The Company has not paid dividend since its formation.

(3) The significant differences between Canadian GAAP and U.S. GAAP arise primarily from the accounting differences relating to the secured subordinated notes issued.

(4) The financial data for the years ended December 31, 2009 and 2008 shown separately from 2012, 2011 and 2010 as the information is not comparable with the data presented based on IFRS.

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EXCHANGE RATES

The following tables set forth, for the periods indicated, certain exchange rates based on 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. Such rates are the number of U.S. dollars per one Canadian dollar and are the inverse of the rates quoted by the Federal Reserve Board of New York for Canadian Dollars per U.S. $1.00. On February 28, 2013, the exchange rate was CAD$1.00 = US$0.9721.

	Year Ended December 31,
Rate	2012	2011	2010	2009	2008

Average during year (1)	1.0005	1.0151	0.9663	0.8799	0.9297
(1) The average rate is the average of the exchange rates on the last day of each month during the year.

Month	High during month	Low during month

September 2012	1.0299	1.0100
October 2012	1.0243	0.9859
November 2012	1.0074	0.9993
December 2012	1.0162	1.0059
January 2013	1.0164	0.9923
February 2013	1.0041	0.9722

B.	CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.	REASONS FOR THE OFFER AND USE OF PROCEEDS.

Not applicable.

D.	RISK FACTORS

The following is a summary of certain risks and uncertainties, which we face in our business. This summary is not meant to be exhaustive. These Risk Factors should be read in conjunction with other cautionary statements, which we make in this Annual Report and in our other public reports, registration statements and public announcements.

WE WILL NEED ADDITIONAL CAPITAL AND IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING WHEN WE NEED IT, WE MAY BE REQUIRED TO SIGNIFICANTLY CURTAIL OR CEASE OUR OPERATIONS

We have not yet realized profitable operations and have relied on non-operational sources of financing to fund our operations. Since we began our operations, we have been funded primarily through the sale of securities to investors in a series of private placements, convertible debt instruments, sales of equity to, and investments from, strategic partners, gains from investments, option exercises, a rights offering and, to a limited extent, through cash flow from operations. While our Company’s consolidated financial statements for the year-ended December 31, 2012, 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. Our 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 2012. We cannot provide assurance that we will be able to execute on our business plan or assure that efforts to raise additional financings would be successful.

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Management believes that continued existence beyond 2012 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 with third parties. Management further believes that ability to raise additional financing during 2013 is also critical for continued existence of the Company. As of December 31, 2012, we had cash and short-term investments of $62,000.

We do not have any committed sources of additional financing at this time and we are uncertain whether additional funding will be available when we need it on terms that will be acceptable to us. If we are not able to obtain financing when we need it, we would be unable to carry out our business plan and would have to significantly curtail or cease our operations. We have included in Note 2 to our consolidated financial statements for the year ended December 31, 2012, a discussion about our ability to continue as a going concern. Potential sources of financing include strategic relationships, public or private sales of our shares, debt, convertible securities or other arrangements. If we raise funds by selling additional shares, including common shares or other securities convertible into common shares, the ownership interests of our existing shareholders will be diluted. If we raise funds by selling preferred shares, such shares may carry more voting rights, higher dividend payments or more favorable rights upon distribution than those for the common shares. If we incur debt, the holders of such debt may be granted security interests in our assets. Because of our potential long-term capital requirements, we may seek to access the public or private equity or debt markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. If we fail to obtain financing when we need it, it would have a material adverse effect on our business, financial condition, cash flows and results of operations.

WE ARE NOT PROFITABLE AND WE MAY NEVER BECOME PROFITABLE

We have accumulated losses of $125 million as of December 31, 2012. For the year ended December 31, 2012 our loss was $2.029 million. We have never been profitable and expect to continue to incur losses for the foreseeable future. We cannot assure you that we will earn profits or generate positive cash flows from operations in the future.

WE MAY EXPERIENCE INCREASINGLY LONGER SALES CYCLES

A significant portion of our revenue in any quarter is derived from a relatively small number of contracts. We often experience sales cycles of six (6) to eighteen (18) months. If the length of our sales cycles increases, our revenues may decrease and our quarterly results would be adversely affected. In addition, our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any significant shortfall in revenues relative to our planned expenditures would have a material adverse effect on our business, financial condition, cash flows and results of operations.

POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKE FINANCIAL FORECASTING DIFFICULT

Our operating results have varied on a quarterly basis in the past and may fluctuate significantly as a result of a variety of factors, many of which are outside our control. Factors that may affect our quarterly operating results include:

·	General economic conditions as well as economic conditions specific to our industry;

·	Long sales cycles, which characterize our industry;

·	Implementation delays, which can affect payment and recognition of revenue;

·	Any decision by us to reduce prices for our solutions in response to price reductions by competitors;

·	The amount and timing of operating costs and capital expenditures relating to monitoring or expanding our business, operations and infrastructure; and

·	The timing of, and our ability to integrate, any future acquisition, technologies or products or any strategic investments or relationships into which we may enter.

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Due to these factors, our quarterly revenues and operating results are difficult to forecast. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is likely that in one or more future quarters, our operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of our common shares would almost certainly be materially adversely affected.

OUR SHARE PRICE HAS FLUCTUATED SUBSTANTIALLY AND MAY CONTINUE TO DO SO

The trading price of our common shares on The Toronto Stock Exchange and on the Nasdaq Over the Counter Bulletin Board (“OTCBB”) has fluctuated significantly in the past and could be subject to wide fluctuations in the future. The market prices for securities of technology companies have been highly volatile. These companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to their operating performance. Broad market and industry factors may materially and adversely affect the market price of our common shares, regardless of our operating performance. In addition, fluctuations in our operating results and concerns regarding our competitive position can have an adverse and unpredictable effect on the market price of our shares.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect on our business, results of operations, cash flow, financial condition and prospects. If we do not prevail in any such action, which may be brought, we could be forced to pay damages.

THE ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED

Our common shares trade on the OTCBB. The OTCBB is generally considered to be a less efficient market than the Nasdaq National Market or the Nasdaq SmallCap Market on which our shares previously traded. As a result, the ability to buy or sell our common shares on the OTCBB may be limited. In addition, since our shares are no longer listed on the Nasdaq National Market or Nasdaq SmallCap Market, our shares may be subject to the “penny stock” regulations described below. De-listing from the Nasdaq National Market and the Nasdaq SmallCap Market does not affect the listing of our common shares on The Toronto Stock Exchange.

OUR COMMON SHARES ARE SUBJECT TO “PENNY STOCK” REGULATIONS WHICH MAY AFFECT YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES

Our shares are characterized as “penny stocks” which may severely affect market liquidity. The Securities Enforcement and Penny Stock Reform Act of 1990 require additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock.

Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than US$5.00 per share, subject to certain exceptions. The regulations require, prior to any transaction involving a penny stock, delivery of a disclosure schedule explaining the penny stock market and the risks associated therewith. The penny stock regulations may adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market. Certain institutions and investors will not invest in penny stocks.

THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE

The market for asset lifecycle management solutions is rapidly evolving and intensely competitive. We face significant competition in each segment of our business (asset sourcing, procurement, asset management and asset disposition). We expect that competition will further intensify as larger existing companies expand their product lines and industry consolidation accelerates.

Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we. We cannot be certain that we will be able to compete with them effectively. If we fail to do so, it would have a material adverse effect on our business, financial condition, cash flows and results of operations.

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IMPACT OF CURRENT GLOBAL ECONOMIC CONDITIONS

Recently, global financial markets and economic conditions have been, and may continue to be, disrupted and volatile. As a result of concerns about the stability of financial markets generally and the solvency of creditors specifically, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt on terms similar to current debt and in some cases, ceased to provide funding to borrowers. Concerns about the current economic situation may also have the effect of tightening the equity markets making any equity based financing which we may desire to undertake difficult to obtain, or obtainable only on terms and conditions which we may find burdensome or unacceptable. These issues, along with the current weak economic conditions have made, and may continue to make, it more difficult for us to obtain necessary funding on reasonable and competitive terms, and as a result, our ability to continue our businesses, pursue improvements, and continue future growth may be limited or curtailed. In addition, current weak economic conditions may negatively impact our customers’ ability to obtain financing and fund their businesses. As a result, we may incur decreases in sales, which will negatively impact our revenue.

WE DEPEND HEAVILY ON A SMALL NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF THEM OR THEY REDUCE THEIR BUSINESS WITH US, WE WOULD LOSE A SUBSTANTIAL PORTION OF OUR REVENUES

In 2012, one customer accounted for 31 percent (2011- two customers accounted for 50 percent and 31 percent, respectively) of total revenues. If our relationships with any of these customers is severed or meaningfully altered, we would experience a significant decline in our performance, particularly through reduced revenues, which would have a material adverse effect on our business, financial condition, cash flows and results of operations.

WE MAY NOT BE ABLE TO RETAIN OR ATTRACT THE HIGHLY SKILLED PERSONNEL WE NEED

Our success is substantially dependent on the ability and experience of our senior management and other key personnel. We do not have long-term employment agreements with any of our key personnel and maintain no “key person” life insurance policies.

We may need to hire new or additional personnel to respond to attrition or future growth of our business. However, there is significant competition for qualified personnel. We cannot be certain we will be able to retain existing personnel or hire additional, qualified personnel when needed.

SIGNIFICANT DELAYS IN PRODUCT DEVELOPMENT WOULD HARM OUR REPUTATION AND RESULT IN LOSS OF REVENUE

If we experience significant product development delays, our position in the market would be harmed, and our revenues could be substantially reduced, which would adversely affect our operating results. As a result of the complexities inherent in our software, major new product enhancements and new products often require long development and test periods before they are released. On occasion, we have experienced delays in the scheduled release date of new or enhanced products, and we may experience delays in the future. Delays may occur for many reasons, including an inability to hire a sufficient number of developers, discovery of bugs and errors or a failure of our current or future products to conform to industry requirements. Any such delay, or the failure of new products or enhancements in achieving market acceptance, could materially impact our business and reputation and result in a decrease in our revenues.

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WE MAY HAVE TO EXPEND SIGNIFICANT RESOURCES TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE

Our industry is characterized by rapid technological change, changes in user and customer requirements, frequent new service or product introductions embodying new technologies and the emergence of new industry standards and practices. Any of these could hamper our ability to compete or render our proprietary technology obsolete. Our future success will depend, in part, on our ability to:

·	Develop new proprietary technology that addresses the increasingly sophisticated and varied needs of our existing and prospective customers;

·	Anticipate and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis;

·	Continually improve the performance, features and reliability of our products in response to evolving market demands; and

·	License leading technologies.

We may be required to make substantial expenditures to accomplish the foregoing or to modify or adapt our services or infrastructure. If we are unable to do so, it would have a material adverse effect on our business, financial condition, cash flows and results of operations.

OUR BUSINESS COULD BE SUBSTANTIALLY HARMED IF WE HAVE TO CORRECT OR DELAY THE RELEASE OF PRODUCTS DUE TO SOFTWARE BUGS OR ERRORS

We sell complex software applications and services. Our applications may contain undetected errors or bugs when first introduced or as new versions are released. Our software products may also contain undetected viruses. Further, software we license from third parties and incorporate into our products may contain errors, bugs or viruses. Errors, bugs and viruses may result in any of the following:

·	Adverse customer reactions;

·	Negative publicity regarding our business and our products;

·	Harm to our reputation;

·	Loss of or delay in market acceptance;

·	Loss of revenue or required product changes;

·	Diversion of development resources and increased development expenses;

·	Increased service and warranty costs;

·	Legal action by our customers; and

·	Increased insurance costs.

SYSTEMS DEFECTS, FAILURES OR BREACHES OF SECURITY COULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS, DAMAGE OUR REPUTATION AND EXPOSE US TO LIABILITY

We host certain websites and applications for our customers. Our systems are vulnerable to a number of factors that may cause interruptions in our ability to enable or host solutions for third parties, including, among others:

·	Damage from human error, tampering and vandalism;

·	Breaches of security;

·	Fire and power losses;

·	Telecommunications failures and capacity limitations; and

·	Software or hardware defects.

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Despite the precautions we have taken and plan to take, the occurrence of any of these events or other unanticipated problems could result in service interruptions, which could damage our reputation, and subject us to loss of business and significant repair costs. Certain of our contracts require that we pay penalties or permit a customer to terminate the contract if we are unable to maintain minimum performance levels. Although we continue to take steps to enhance the security of our systems and ensure that appropriate back-up systems are in place, our systems are not now, nor will they ever be, fully secure.

OUR BUSINESS HAS UNDERGONE DRAMATIC EXPANSION AND RETRACTION PHASES SINCE OUR FORMATION. WE MAY NOT BE ABLE TO MANAGE FURTHER DRAMATIC EXPANSIONS AND RETRACTIONS IN THE FUTURE

Our business has undergone dramatic expansion and retraction since our formation, which has placed significant strain on our management resources. If we should grow or retract dramatically in the future, there may be further significant demands on our management, administrative, operating and financial resources. In order to manage these demands effectively, we will need to expand and improve our operational, financial and management information systems and motivate, manage and retain employees. We cannot assure you that we will be able to do so, that our management, personnel or systems will be adequate, or that we will be able to achieve levels of revenue commensurate with the resulting levels of operating expenses.

SALES TO CUSTOMERS OUTSIDE CANADA ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE, WHICH EXPOSES US TO CERTAIN RISKS

While we currently operate out of Canada, many of our customers are based outside of Canada. There are risks inherent in doing business outside Canada, including:

·	Differing laws and regulatory requirements;

·	Political and economic risks;

·	Currency and foreign exchange fluctuations and controls;

·	Tariffs, customs, duties and other trade barriers;

·	Longer payment cycles and problems in collecting accounts receivable;

·	Potentially adverse tax consequences; and

Any of these risks could adversely affect the success of our business;

ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND/OR DISTRACTIONS FOR OUR MANAGEMENT

In the future, we may seek to acquire other businesses or make investments in complementary businesses or technologies. We may not be able to acquire or manage additional businesses profitably or successfully integrate any acquired businesses with our business. Businesses that we acquire may have liabilities that we underestimate or do not discover during our pre-acquisition investigations. Certain liabilities, even if we do not expressly assume them, may be imposed on us as the successor to the business. Further, each acquisition may involve other special risks that could cause the acquired businesses to fail to meet our expectations. For example:

·	The acquired businesses may not achieve expected results;

·	We may not be able to retain key personnel of the acquired businesses;

·	We may incur substantial, unanticipated costs, delays or other operational or financial problems when we try to integrate businesses we acquire with our own;

·	Our management’s attention may be diverted; or

·	Our management may not be able to manage the combined entity effectively or to make acquisitions and grow our business internally at the same time.

The occurrence of one or more of these factors could have a material adverse effect on our business, financial condition, cash flows and results of operations. In addition, we may incur debt or issue equity securities to pay for any future acquisitions or investments, which could dilute the ownership interest of our existing shareholders.

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IF WE ARE UNABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY OR OBTAIN CERTAIN LICENSES, OUR COMPETITIVE POSITION MAY BE WEAKENED

Our performance and ability to compete are dependent in part on our technology. We rely on a combination of patent, copyright, trademark and trade secret laws as well as confidentiality agreements and technical measures, to establish and protect our rights in the technology we develop. We cannot guarantee that any patents issued to us will afford meaningful protection for our technology. Competitors may develop similar technologies which do not conflict with our patents. Others may challenge our patents and, as a result, our patents could be narrowed or invalidated.

Our software is protected by common law copyright laws, as opposed to registration under copyright statutes. Common law protection may be narrower than that which we could obtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third parties. The source code for our proprietary software is protected as a trade secret. As part of our confidentiality protection procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software, documentation and other proprietary information. We cannot assure you that the steps we take will prevent misappropriation of our technology or that agreements entered into for that purpose will be enforceable. In order to protect our intellectual property, it may be necessary for us to sue one or more third parties. While this has not been necessary to date, there can be no guarantee that we will not be required to do so in future to protect our rights. The laws of other countries may afford us little or no protection for our intellectual property.

We also rely on a variety of technology that we license from third parties, including our database and Internet server software, which is used to perform key functions. These third-party technology licenses may not continue to be available to us on commercially reasonable terms, or at all. If we are unable to maintain these licenses or obtain upgrades to these licenses, we could be delayed in completing or prevented from offering some products or services.

OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY RESULT IN COSTLY AND TIME-CONSUMING LITIGATION

Our success will also depend partly on our ability to operate without infringing upon the proprietary rights of others, as well as our ability to prevent others from infringing on our proprietary rights. We may be required at times to take legal action in order to protect our proprietary rights. Also, from time to time, we may receive notice from third parties claiming that we infringe their patent or other proprietary rights. In the past, a certain third party claimed that certain of our technology infringed their intellectual property rights. The claim with the particular third party has been resolved in a prior period through a licensing arrangement. There can be no assurances that other third parties will not make similar claims in the future.

We believe that infringement claims will increase in the technology sector as competition intensifies. Despite our best efforts, we may be sued for infringing on the patent or other proprietary rights of others. Such litigation is costly, and even if we prevail, the cost of such litigation could harm us. If we do not prevail or cannot fund a complete defense, in addition to any damages we might have to pay, we could be required to stop the infringing activity or obtain a license. We cannot be certain that any required license would be available to us on acceptable terms, or at all. If we fail to obtain a license, or if the terms of a license are burdensome to us, this could have a material adverse effect on our business, financial condition, cash flows and results of operations.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS

The Company’s revenue from software licensing and related services and e-commerce enabling agreements is transacted in various currencies including the Canadian dollar and U.S. dollar. As the majority of our revenues are realized in U.S. dollar and our expenses are transacted in Canadian dollar, the appreciation of the U.S. dollar against the Canadian dollar may have a favorable impact on our results. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. Fluctuations in the exchange rates of these currencies or the exchange rate of other currencies against the Canadian dollar could have a material adverse effect on our business, financial condition, cash flows and results of operations.

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OUR PREFERRED SHARES COULD PREVENT OR DELAY A TAKEOVER THAT SOME OR A MAJORITY OF SHAREHOLDERS CONSIDER FAVORABLE

Our Board of Directors, without any further vote of our shareholders, may issue preferred shares and determine the price, preferences, rights and restrictions of those shares. The rights of the holders of common shares will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred shares that may be issued in the future. That means, for example, that we can issue preferred shares with more voting rights, higher dividend payments or more favorable rights upon distribution than those for our common shares. If we issue certain types of preferred shares in the future, it may also be more difficult for a third party to acquire a majority of our outstanding voting shares and such issuance may, in certain circumstances, deter or delay mergers, tender offers or other possible transactions that may be favored by some or a majority of our shareholders.

IT MAY BE DIFFICULT FOR YOU TO ENFORCE LEGAL CLAIMS AGAINST US OR OUR OFFICERS OR DIRECTORS

We are incorporated under the laws of the Province of Ontario, Canada. All of our directors and officers are residents of Canada and substantially all of our assets and the assets of such persons are located outside the United States. As a result, it may be difficult for holders of common shares to effect service of legal process within the United States upon those directors and officers who are not residents of the United States. It may also be difficult to realize in the United States upon judgments of courts of the United States without enforcing such judgments in our home jurisdiction or the jurisdiction of residence of the director or officer concerned.

ITEM 4 - INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

Northcore Technologies Inc. (“Northcore, or the “Company”) was formed pursuant to the Business Corporations Act (Ontario). The business began as Internet Liquidators Inc. (“IL Inc.”), a business corporation formed under the laws of Ontario, Canada, in September 1995 and after a series of corporate reorganizations, as described below, developed into the present Company.

In May 1996, Internet Liquidators International Inc. (“ILI Inc.”), also an Ontario company, acquired all of the shares of IL Inc. The two companies, IL Inc. and ILI Inc., were amalgamated on January 9, 1997. By articles of amendment dated June 25 1998, the name of ILI Inc. was changed to Bid.Com International Inc.

On October 11, 2001, Bid.Com acquired substantially all of the shares of ADB Systemer ASA, a public limited liability company organized under the laws of the Kingdom of Norway. As part of the acquisition of ADB Systemer, Bid.Com completed a two for one share consolidation and changed its name to ADB Systems International Inc. (“ADB Inc.”) by articles of amendment dated October 11, 2001.

During 2002, ADB Inc. entered into a series of agreements with the Brick Warehouse Corporation (“The Brick”) whereby the parties agreed to cooperate in online retail operations that utilized the retail technology that the Company had developed and operated under the name “Bid.Com International Inc.” in the online sale of consumer products to be supplied by The Brick. In connection with these transactions The Brick granted to the Company a secured loan and the Company completed a corporate reorganization by plan of arrangement, as described below.

On August 20, 2002, a new Ontario company was formed called ADB Systems International Ltd. (“ADB Ltd.”), which was incorporated by certificate and Articles of Incorporation. Pursuant to a plan of arrangement approved by the shareholders of ADB Inc. on October 22, 2002 and by the Ontario Superior Court of Justice on October 24, 2002 (the “Arrangement”) the shareholders of ADB Inc. exchanged their shares of ADB Inc. for shares of ADB Ltd., as the Company was then known, on a one-for-one basis on October 31, 2002. As a result of the Arrangement, the business of ADB Inc., including all assets and liabilities of ADB Inc. (other than those related to retail activities, which remained with ADB Inc.), was transferred to the Company in the form of a return of capital. The name of ADB Inc. was subsequently changed to Bid.Com International Ltd. and on June 30, 2003, the Company exercised its option to transfer to The Brick all of the issued shares of Bid.Com International Ltd. (formerly ADB Inc.) in satisfaction of the outstanding principal amount and accrued interest on the loan then owing to The Brick.

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On June 30, 2006, in connection with the disposition of the Company’s Norwegian subsidiary ADB Systemer AS, the Company changed its name, by articles of amendment, to Northcore Technologies Inc. Effective July 18, 2006 the Company’s stock symbols were changed to NTI on the TSX and to NTLNF on the over-the-counter bulletin board (OTCBB).

On March 27, 2012 the Company entered into an agreement to acquire Envision Online Media Inc.; a software development company and Kahootkids! Inc.; a social media company. Both the companies are Ottawa based. The purchase price of $1,000,000 was satisfied by $300,000 cash payment and $700,000 through the issuance of 7,778,000 common shares at $0.12. The cash payment was satisfied by $100,000 cash payment at closing with the remaining $200,000 to be paid over the next two years, subject to achieving specific performance criteria.

The principal and registered office of the Company is located at 302 The East Mall, Suite 300 Toronto, Ontario, Canada, M9B 6C7 and our telephone number is (416) 640-0400. Additional information on the Company can be found at www.northcore.com. The information contained on our web site is not deemed to be part of this Annual Report.

MAJOR DEVELOPMENTS

Significant product and business developments over the last three fiscal years have been as follows:

FISCAL 2012

Northcore completed a number of customer and operational activities throughout the course of 2012. These activities were designed to accelerate revenue opportunities, solidify our financial position, and strengthen our abilities to work with our customers and partners.

OPERATIONAL ACTIVITIES

·	Acquired Envision Online Media Inc., an Ottawa based Content Management specialist;

·	Filed additional patents to support the proprietary implementation of viral accelerators and to expand the scope of the Company’s existing patents in the delivery of online Dutch Auctions;

·	Integrated the financial management and reporting functions of Envision into the Northcore management framework;

·	Completed a new implementation of the Company's Dutch Auction transaction engine; and

·	Completed development on a new version of Northcore’s legacy Material Management application.

CUSTOMER ACTIVITIES

During 2012, Northcore focused on expanding the breadth of existing customer relationships and extending the product line in order to open up new opportunities. Results of this strategy include:

·	Designed and deployed a back end server platform to support the "Intelligent Agent" initiative for a major strategic partner;

·	Implemented a series of major enhancements into a customer deployment of Asset Seller liquidation platform;

·	Delivered the first implementation of Northcore’s core architecture on the iPad IOS platform for a major partner;

·	Hosted a series of commercial auction events for a major strategic partner;

·	Implemented a new platform instance for a key enterprise client and one of the five largest food and beverage companies in North America;

·	Delivered a number of customer web platforms and content management solutions through Envision Online Media; and

·	Launched a Dutch Auction platform for the Wine and Spirits industry.

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JOINT VENTURE WITH GE COMMERCIAL FINANCE

Throughout 2012, Northcore executed a number of initiatives through its joint venture entity, GE Asset Manager, LLC. The goal was to acquire new clients while strengthening and expanding pre-existing relationships.

Significant effort was spent on the evolution of the product platform with a new release of Asset Seller successfully deployed and an Asset Management Mobile 'App' becoming part of the core offering. During the same period, existing installations made inroads in terms of user base and corporate importance, while critical new customers were activated.

The partners remain committed to the product set and look forward to new opportunities in the coming year.

FISCAL 2011

Northcore completed a number of customer and operational activities throughout the course of 2011. These activities were designed to accelerate revenue opportunities, solidify our financial position, and strengthen our abilities to work with our customers and partners.

OPERATIONAL ACTIVITIES

·	Recruited a new CEO, Chairman and two Board of Directors members to assist with corporate realignment and growth initiatives;

·	Completed the acquisition of the Discount This asset base, inclusive of unique Intellectual Property, to serve as the basis for a coordinated IP strategy;

·	Opened a U.S. based office in Naples, Florida to facilitate greater access to American market opportunities;

·	Completed major upgrades to production information technology infrastructure, including Server Architecture, Database Management Systems and Operating Environments;

·	Launched a strategic initiative with Pellegrino and Associates to position Northcore to take advantage of high growth domains with its proprietary Working Capital Engine and Dutch Auction IP portfolio;

·	Closed an equity private placement, generating net proceeds of $713,000 through the issuance of common shares and warrants;

·	Secured $3,574,000 in proceeds through the exercise of warrants and options by current holders; and

·	Continued to strengthen our balance sheet through the conversion of all remaining secured subordinated notes into equity and repayment of notes payable.

CUSTOMER ACTIVITIES

During 2011, Northcore focused on expanding the breadth of existing customer relationships and extending the product line in order to open up new opportunities. Results of this strategy include:

·	Successful deployment of Northcore’s e-tendering technology for the Irish Government Health Services Executive’s initial online acquisition pilot, resulting in a 30 percent savings on a €30 million acquisition;

·	Launch of the Home Hardware Dealer-Owners Connect website at the bi-annual Home Hardware market showcase;

·	Formation of a Social Commerce Group to focus on helping corporations leverage social media to accelerate buying and selling;

·	Contractual renewal of multiple long-term enterprise clients;

·	Execution of new contractual agreements with customers in multiple industry segments;

·	Implementation of an “Intelligent Agent” data extraction initiative for a major strategic partner; and

·	Awarded of Vendor of Record status by Ontario Government.

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JOINT VENTURE WITH GE COMMERCIAL FINANCE

Throughout 2011, Northcore continued to strengthen the relationship with GE Capital and engage on a number of initiatives through its joint venture entity, GE Asset Manager, LLC.

The technology underpinnings of the associated products of Asset Seller and Asset Tracker have evolved and seen considerable success in implementations for such important customers such as the NACCO Material Handling Group and the Bobcat Company. The year also saw accelerated forays into the mobile device space with delivery of Asset Management "Apps". During this period cornerstone client remarketing portals such as GEasset.com, nfsassetseller.com and ToroUsed.com have also continued to gain in terms of customer base and item sell-through.

Both founding partners believe that the opportunities for the venture are significant and look forward to bringing compelling offerings to a growing client base in 2012.

FISCAL 2010

Northcore completed a number of customer and operational activities throughout the course of 2010. These activities were designed to accelerate revenue opportunities, solidify our financial position, and strengthen our abilities to work with our customers and partners.

FINANCING ACTIVITIES

Closed an equity transaction with GEM Global Yield Fund Limited, securing net cash proceeds of $300,000. As a result of the transaction, Northcore issued 2,191,000 common shares for the first tranche draw and 6,000,000 warrants to finalize the availability of the committed $6,000,000 equity line of credit with GEM;

·	Closed the first tranche of equity private placement on December 22, 2010, securing net proceeds of $625,000 through the issuance of common shares and warrants. The second tranche closed for net proceeds of $713,000 on February 14, 2011 as a subsequent event to the year; and

·	Continued to strengthen our balance sheet through the conversion of $145,000 secured subordinated notes into equity combined with $143,000 of new equity through the exercise of the associated warrants.

CUSTOMER ACTIVITIES

During 2010, Northcore focused on expanding the breadth of existing customer relationships and extending the product line in order to open up new opportunities. Results of this strategy include:

·	Completed the development cycle and large scale roll out of a holistic remarketing platform to the Yale and Hyster dealer community, combining mobile computing with Asset Tracker and Asset Seller;

·	Delivered and deployed a customized Asset Seller platform to Xstrata Corporation to effect the disposition of surplus mining assets;

·	Initiated initial user interface design for the Group Purchasing platform subsequently named Discount This;

·	Increased the volume of third party auction events in the light-duty construction equipment and utility vehicle categories, with successful value realization and improved sales cycle efficiency;

·	Evidenced continued effectiveness in the remarketing of corporate aircraft and established Asset Seller as a leading platform for sales of high value asset categories by displaying showcased items in unprecedented rich detail;

·	Awarded two supply arrangements with the Canadian Federal Government, qualifying Northcore for the provision of business technology services, one directly and one in partnership with Ottawa based Donna Cona Inc.;

·	Completed the development of additional security modules required for Northcore’s core products to achieve US bank certification;

·	Entered into a collaborative sales and marketing agreement with Revere Corporation where both parties can now serve their customers with a broader product offering; and

·	Delivered a number of enhancements to a customized Asset Tracker application used by a Global Electronics Leasing corporation.

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JOINT VENTURE WITH GE COMMERCIAL FINANCE

Throughout 2010, Northcore maintained a strong focus on GE Asset Manager, our joint venture with GE Commercial Finance. The year saw significant enhancements made to the entire portfolio of Joint Venture products, with substantial new releases of Asset Seller and Asset Tracker delivered to clients. In addition Northcore worked closely with GE internal teams to execute tasks required to achieve Bank Certification for internal and customer facing applications.

Remarketing portals such as GEasset.com and ToroUsed.com have also experience solid results in terms of viewership and sell-through.

In specific, the joint venture has shown its efficacy in helping partners accelerate remarketing and redeployment of fixed assets in spite of a sub-optimal economic climate. Both stakeholders remain committed to helping the venture achieve its full potential and a broader reach to GE customers.

COMPANY’S JOINT VENTURE WITH GE COMMERCIAL FINANCE

On December 31, 2003 the Company, through its wholly owned subsidiary, entered into an Amended and Restated Operating Agreement (the “Operating Agreement”) with General Electric Capital Corporation through its business division GE Commercial Finance. This agreement was entered into in connection with the establishment of GE Asset Manager, LLC, a joint business venture in which both GE Commercial Finance and Northcore hold a 50 percent interest. The joint venture carries on business under the name GE Commercial Finance Asset Manager (“GE Asset Manager”, “GEAM”), is an integrated, web-based business enabling mid- and large-size organizations to reduce operating costs by simplifying and consolidating their asset management programs. GEAM features all-in-one capabilities designed for sourcing of new equipment, tracking and reallocation of existing assets, automated appraisal management and disposition of surplus equipment.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

For a description of principal capital expenditures and divestitures, see ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As of February 28, 2013 we do not have any significant current capital divestitures or any current capital expenditures.

B. BUSINESS OVERVIEW

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 and Kahootkids! Inc. (operating as “Kuklamoo”), a family information web destination and national daily deal site targeting families with children. Our integrated software solutions and support services are designed for organizations in the financial services, manufacturing, oil and gas, mining, and government sectors to:

·	Streamline the sourcing and procurement of critical assets, while reducing purchasing costs;

·	Track the location of assets to support improved asset utilization and redeployment of idle equipment;

·	Manage the appraisal of used equipment more effectively, resulting in a better understanding of fair market values; and

·	Accelerate the sale of surplus assets while generating higher yields.

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 also owns 50 percent of Dealco Inc. (operating as “PriceDutch”), a Toronto based technology company, servicing the daily deal and online e-commerce industries.

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.

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GEAM offers a suite of integrated, web-based solutions that are designed to help organizations gain greater control of their capital assets and implement new process efficiencies to their operational activities which we believe enables our customers to:

·	Automate sourcing and tendering processes;

·	Track and re-deploy assets more effectively;

·	Automate equipment appraisals; and

Efficiently market and sell surplus equipment.

We believe however, that the current economic turmoil bodes well for Northcore. In times where access to new capital is reduced, or rendered more difficult, companies are motivated to “stretch” existing capital investments by redeploying idle and surplus assets back into productive use. In addition, assets that are ultimately unneeded represent a “harvest” opportunity, if they can be liquidated efficiently. The product suite offered by Northcore and by extension our joint venture, GE Asset Manager, LLC, provides an efficient, cost effective solution to help organizations achieve these goals.

INDUSTRY BACKGROUND AND OVERVIEW

Asset management applications have existed for more than thirty years, initially through computerized maintenance management systems (CMMS), and more recently including more comprehensive and robust enterprise asset management (EAM) and enterprise resource planning (ERP) solutions. These early systems automated daily management of assets, while more recent ERP solutions consolidated basic asset information with financial information at the corporate level. Asset Management applications, as provided by Northcore, encompass elements of both approaches, and are increasingly delivered via web-based or hosted systems.

Current asset management systems provide a number of capabilities including maintenance scheduling, materials management, electronic procurement, and asset tracking. In essence, asset management activities have evolved to integrate all aspects of an asset’s lifecycle.

There are a number of industry trends driving the demand for asset management capabilities, including the need to:

·	Improve the utilization of assets;

·	Comply with industry standards and requirement such as, Sarbanes-Oxley financial requirements;

·	Reduce operating expenses and improve bottom-line performance; and

·	Introduce new operational efficiencies.

PRODUCTS AND SERVICES

The Company offers solutions to manage all aspects of the asset lifecycle – sourcing/procurement, maintenance, materials management and disposition. Below is a detailed description of our offerings:

Dyn@mic Buyer (TM)

An on-line sourcing solution, Dyn@mic Buyer automates tendering activities, and can be used to improve the decision-making process involved in the sourcing of goods by providing automated analysis and selection among competing supplier bids, based on a variety of pre-determined factors.

Key features include:

·	The ability for buyers to create tenders using automated tools that accelerate the purchasing process and reduce procurement costs.

·	Capabilities for buyers to post and distribute their tenders on-line to qualified suppliers.

·	The ability for buyers to assign values to criteria involved in the purchase decision, such as price, product availability, post-sales support and certification standards. Buyers then weigh suppliers’ responses to tender questions for evaluation.

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·	Functionality that allows for the posting of detailed technical information, question and answer forums, and automatic e-mail notification of amended or new buyer-posted documents.

Capabilities to allow for the use of sealed bid-sourcing formats enabling users to post their product or service requirements to selected vendors. The sealed bid system differs from the request for quotation in that the vendors only have one opportunity to supply a bid. Only after the close of the auction is the user able to view the vendor bids.

Dyn@mic Buyer is delivered to our customers via a hosted model. Fees for Dyn@mic Buyer are determined on an annual basis, depending on the number of sourcing events identified by customers. Service fees are charged separately for implementation, systems integration, training and other consulting activities. Dyn@mic Buyer can be bundled with our procurement solutions or used separately depending on customer requirements.

Dyn@mic Seller (TM)

An on-line sales solution designed to help our customers with the disposition of surplus assets and equipment. Dyn@mic Seller integrates multiple pricing methods, such as fixed priced, top bid (auction), Dutch (declining price) and hybrids, through private-labeled websites. Dyn@mic Seller is delivered through a hosted model.

Key capabilities of the product include:

· Traditional rising price auctions, where the highest bids win the items being sold. The rising price auction allows participants to competitively bid on available products by incrementally adjusting their bid amounts. Our user interface allows users to easily identify current leading bidders, minimum new bids and initial bid pricing. Participants are informed of their bid status, and advised whether they have won, been outbid, approved or declined via electronic mail.

· A patented Dutch (declining) auction format, in which a starting price is set and a limited time period is allocated for a fixed quantity of the product to be sold. As time advances, the price drops in small increments until the asset is sold. The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale.

· Hybrid auction formats that blend multiple pricing formats to meet a customer’s particular needs.

· Fixed price sales where assets are sold in a catalogue or directory format. The purchaser cannot bid on the price, but merely elects whether or not to purchase the good or service.

Our customers pay monthly hosting fees for use of Dyn@mic Seller and typically also enter into a revenue sharing arrangement with us. Service fees for implementation, systems integration, training and other consulting activities are charged separately.

RELATED SERVICES

In connection with our software offerings, we provide the following services to our customers:

CONSULTING

A significant number of our customers request our advice regarding their business and technical processes, often in conjunction with a scoping exercise conducted both before and after the execution of a contract. This advice can relate to development or optimization of assorted business processes, such as sourcing or procurement activities, assisting in the development of technical specifications, and recommendations regarding internal workflow activities.

CUSTOMIZATION AND IMPLEMENTATION

Based generally upon the up-front scoping activities, we are able to customize our solutions as required to meet the customer's particular needs. This process can vary in length depending on the degree of customization, the resources applied by the customer and the customer's business requirements. We work closely with our customers to ensure that new features and functionality meet their expectations. We also provide the professional services work required for the implementation of our customer solutions, including loading of data, identification of business processes, and integration to other systems applications.

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APPLICATION DEVELOPMENT

A growing number of our customers have engaged us to develop web-based applications that support their unique asset management requirements. Typically, these application development projects become the proprietary technology of our customers and are not resold by us. We charge customers based on hourly service rates or through a fixed price format.

TRAINING

Upon completion of implementation (and often during implementation), we train customer personnel to utilize our solutions. Training can be conducted in one-on-one or group situations. We also conduct “train the trainer” sessions.

MAINTENANCE AND SUPPORT

We provide regular software upgrades and ongoing support to our customers. Northcore provides these services for a yearly maintenance fee of 18 percent of the license fee for client/server environment or as part of its monthly hosting fees.

HOSTING

We also provide technology-hosting services to our customers. Through these services, customers gain access to Northcore's applications via the Internet through dedicated, secure websites. Our hosting services enable customers to accelerate the deployment of technology initiatives while limiting investments in systems configuration and new hardware infrastructure.

GE ASSET MANAGER, LLC (GEAM)

GEAM is a joint venture between GE Commercial Finance and Northcore Technologies Inc. that combines GE’s equipment financing and asset management expertise together with our experience in providing mission critical technology solutions for asset lifecycle management.

With organizations needing to generate improved bottom-line results and comply with new financial regulatory requirements, GEAM has introduced a new suite of integrated, web-based solutions that are designed to help organizations gain greater control of their capital assets and implement new process efficiencies to their operational activities. Our industry-proven solutions enable our customers to:

·	Automate sourcing and tendering processes.

·	Track and re-deploy assets more effectively;

·	Automate equipment appraisals; and

·	Efficiently market and sell surplus equipment.

The four key components to Asset Manager’s offerings are as follows:

Asset Buyer

Asset Buyer is a web-based solution designed for automating sourcing activities and improving purchasing decisions. Using Asset Buyer, purchasers can determine the factors that are the most important to their procurement decisions and identify suppliers that deliver the greatest value – from the lowest price to the ability to match exact specification requirements.

Asset Buyer also streamlines the procurement process, making it easier to create and distribute tenders, select vendors and negotiate with suppliers.

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With Asset Buyer, organizations can:

·	Generate cost savings on sourcing activities;

·	Reduce purchasing cycle times;

·	Take advantage of multiple sourcing formats including request for proposals, reverse auction, and sealed bid; and

Rank suppliers based on their ability to match buying criteria improve relations with suppliers through on-line collaborations.

Asset Tracker

Designed to allow organizations to more effectively utilize their assets, Asset Tracker is a web-based solution for keeping track of the location, details and status of capital equipment – regardless of where the equipment is being deployed.

Using a dedicated tracking site that is password protected, Asset Tracker provides users the ability to search and locate capital assets throughout their organization. Users can search for equipment in a number of ways. Assets can be searched by business unit, function, or by specific piece of equipment category.

Once an asset is located, users can determine its status and take appropriate action. Idle or under-utilized assets, for example, can be re-deployed, helping to increase their value to the organization and reducing capital spending on new equipment.

Assets no longer required or deemed surplus can be earmarked for disposition through traditional or on-line sales methods, such as Asset Seller (described below).

With Asset Tracker, users can:

·	Search and request for capital equipment within their organization, across multiple locations or facilities;

·	Review asset details, such as equipment description, image, financial information, and contact information;

·	Add new asset details by uploading data from spreadsheet applications;

·	Extract asset details and generate asset management reports;

·	Instantly determine the status of capital equipment;

·	Transfer and re-deploy idle assets; and

·	Dispose of unnecessary or surplus equipment.

Asset Appraiser

Asset Appraiser is a web-based solution that allows organizations to more effectively manage the capital equipment appraisal process. With Asset Appraiser users can create an appraisal scope, confirm appraisal data, distribute documents and data collection tools, compile appraisal results and access stored appraisals on-line in a protected environment.

Asset Appraiser allows users to:

·	Automate and accelerate the appraisal process using web-based tools;

·	Gain instant access to ongoing project details from anywhere in the world;

·	Store asset data in a secure repository for future reference, retrieval and analysis;

·	Access appraisals in a 24 x 7 environment;

·	Store and review appraisals in a secure environment;

·	Download spreadsheet templates into reports;

·	Add attachments, such as image, text or movie files, to reports; and

·	Assist with compliance with the Uniform Standards of Professional Appraisal Practice.

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Asset Seller

Asset Seller facilitates instant and global access to a buying community by presenting surplus equipment or inventory on geasset.com, GE's equipment re-marketing website. Asset Seller is a proven take-to-market solution that will connect a company's equipment to a global community of qualified organizational buyers using multiple sales platforms, all developed to help maximize asset recovery value and improve cycle time.

Asset Seller brings together multiple sales platforms into one integrated on-line environment, providing flexibility, while maximizing the yield for your surplus equipment.

Asset Seller's direct sale platform features equipment showcases that are designed to promote private treaty sales. Other sales platforms available through Asset Seller include ranked sealed bid and top bid sale events that enable you to market equipment in an auction-like environment.

Utilizing GE's patent pending ranked sealed bid method, Asset Seller encourages multiple bids and retains buyer anonymity, creating competitive sales environments that generate a higher recovery for asset investment.

Asset Seller also enables organizations to feature equipment specifications, photos, videos and contact information, and allows them to coordinate off-line sales activities such as equipment inspections. Current customers of Asset Seller, through our joint venture, include The Toro Company.

THIRD PARTY BUSINESS RELATIONSHIPS

Designed to extend the value of the solutions we deliver to our customers, Northcore has fostered relationships with a number of leading technology and professional service organizations. These relationships allow Northcore to develop world-class offerings that leverage the leading-edge technologies, proven methodologies and subject matter expertise of our business partners.

Northcore’s existing business relationships include:

GE COMMERCIAL FINANCE

Backed by more than 65 years of operating experience, a strong credit rating, and the vast resources of its parent, General Electric Company, GE Capital offers a wide range of value-added financial products and services through a network of 28 specialized businesses in five core niches: Equipment Management, Customer Services, Specialized Financing, Mid-Market Financing and Specialty Insurance.

DONNA CONA

Donna Cona is Canada's largest Aboriginal Information and Communications Technology company. The company was incorporated in 1996, and has successfully been providing information technology and management consulting services to public sector organizations.

MOTOROLA

A global communication leader, powered by, and driving, seamless mobility. Motorola is revolutionizing broadband, embedded systems and wireless networks - bringing cutting-edge technologies into your everyday life, with style.

BUSINESS CYCLES

As many of the customers of the Company and GEAM are large, multinational organizations or quasi-governmental entities, we may experience increasingly longer sales and collection cycles. Additional information on business cycle risks are set out in Item 3.D. of this Annual Report under the heading Risk Factors.

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For additional information regarding business cycles, see Part I - Item 5 under the heading “OPERATING AND FINANCIAL REVIEW AND PROSPECTS – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”.

STRATEGY

Our business strategy is to expand our customer base, particularly in the financial services, manufacturing, public, and oil and gas sectors, through superior software functionality and through the industry expertise of our employees. In particular, our strategy is comprised of the following key components:

EXPAND JOINT VENTURE WITH GE AND INCREASE OUR CUSTOMER BASE

Since the launch of GE Asset Manager, we have focused our efforts on increasing the number of joint venture customers and enhancing our portfolio of asset management technology. This focus will be a cornerstone of our efforts in 2012.

STRENGTHEN OUR POSITION AS AN ASSET MANAGEMENT SOLUTION PROVIDER AND IMPROVE OUR VISIBILITY AMONG TARGET SECTOR

While we have expanded our customer base and increased the number of users of our technology, Northcore is committed to solidifying our position as a provider of asset management solutions particularly among our target markets.

MAINTAIN AND ENHANCE OUR TECHNOLOGY

Based on the relative pricing and functionality of our products as compared with those of our competitors, we consider our proprietary software offerings to be competitive, however it is critical that we continue to maintain and enhance our technology.

SEEKING ACQUISITIONS AND STRATEGIC INVESTMENTS

We plan to expand by seeking technologies, products, and services that complement our existing business. If appropriate opportunities are available, we may acquire businesses, technologies or products or enter into strategic relationships that may further diversify revenue sources and product offerings, expand our customer base or enhance our technology platform.

CUSTOMERS

We provide our solutions to customers in a variety of industries, including: financial services, manufacturing, government and oil and gas.

The revenue structures and particular services provided vary depending upon the needs of the customer and the solution concerned. For licensed offerings we generally collect a license fee based on number of users, service fees for implementation and training, and support and maintenance fees that are collected on a recurring annual basis. For hosted offerings, we generally collect an up-front implementation fee, monthly hosting fee, and a share of revenue or transaction volumes.

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The following is a representative list of some of the customers for whom we have implemented or are implementing our solutions:

Customer	Solution(s)	Industry Segment	Geographic Location
GE Capital Solutions	Asset Seller	Financial Services	US
Global Electronics Services-GE Capital Solutions	Asset Tracker	Financial Services	US
GE Infrastructure	Asset Tracker	Manufacturing	US
NACCO Materials Handling Group (NMHG)	Asset Seller & Asset Tracker	Manufacturing	US
The Toro Company	Asset Tracker	Manufacturing	US
Kraft Foods Global, Inc.	Asset Tracker	Manufacturing	US
Home Hardware Stores Limited	Asset Seller	Retail	CDA

SALES AND MARKETING

We market our solutions primarily through our direct sales force. Our sales organization is regional with personnel located in our principal offices in Toronto, Canada.

Our marketing efforts are focused on targeted marketing campaigns, rather than broad-based "awareness" campaigns. Potential customers are identified through direct contact, responses to requests for information, attendance at trade shows and through industry contacts.

The GE sales force takes the lead in the sales and marketing efforts of the Asset Manager joint venture.

We use reference customers to assist us in our marketing efforts, both through direct contact with potential customers and through site branding and case studies. We also rely on our co-marketing partners to assist in our marketing efforts.

TECHNOLOGY PLATFORM

Northcore has devoted significant resources to developing its proprietary software technology. The technology platform is constructed using distributed software technologies which allow for rapid development and deployment of new software technology in order to take advantage of emerging business opportunities.

Our company's core technology platform is based on Microsoft applications, including the Windows NT operating system and a SQL server relational database, all residing on scaleable hardware. The software is constructed using an advanced proprietary XML framework and resides on an N-tier architecture. The support of open systems allows integration with a large variety of existing commercial, proprietary and legacy applications. Other applications, which are also operational in a Microsoft NT environment, have been developed using Power Builder and are dependent on an Oracle relational database.

CUSTOMER SERVICE AND TECHNOLOGY

Based on the relative pricing and functionality of our products as compared with those of competitors, we believe that our proprietary software provides a competitive advantage, and that our future success depends, in part, on our ability to continue developing and enhancing that software. Therefore, we have focused our customer service and technology efforts on the continued development of our proprietary software offerings.

Our ongoing software development and technology efforts are aimed at the continued “productization” of specific elements of our software, enhancing the features and functionality of our existing software components, the development of new software components, and the integration of superior third party technology into our environment. Productization involves the development of reusable applications to reduce programming time and costs for customer implementations.

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Our software development and technology expenditures were approximately $1,113,000 and $726,000, for the year ended December 31, 2012 and 2011, respectively, including salaries and related expenses of our personnel engaged in research and development.

Our software development and technology activities in 2012 included the ongoing development of new applications framework implemented in Microsoft.Net. The new framework will be used as the foundation of all future Web based products. There was also a substantial amount of time devoted to the extension of our integration tool set, which allows us to connect our core product suite to pre-existing customer owned third party applications.

CUSTOMER CONCENTRATION

The majority of our revenue is generated by a small number of customers as discussed above in Item 3-D Risk Factors - WE DEPEND HEAVILY ON A LIMITED NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF THEM OR THEY REDUCE THEIR BUSINESS WITH US, WE WOULD LOSE A SUBSTANTIAL PORTION OF OUR REVENUES. See also Item 5-D under the heading Credit Risk.

INTELLECTUAL PROPERTY

We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and technical measures, to establish and protect our proprietary rights.

In March 1999 and July 2001, we received patents from the U.S. Patent and Trademark Office covering the process whereby we conduct Dutch auctions over electronic distribution channels. We also continue to explore other patent opportunities, and may have other applications pending from time to time. We do not believe, however, that our ability to obtain patents is material to our success or results.

Our proprietary software is subject to common law copyright protection, but we do not have, and do not intend to pursue, any registered copyrights. Common law protection may be narrower than that which we could obtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements. The source code for our proprietary software is protected as a trade secret. Our major trademarks or trade names include: Northcore™, DYN@MIC SELLER™, DYN@MIC BUYER™, WORKING CAPITAL ENGINE™ and POWERED BY Northcore™. We also claim rights in other unregistered trademarks.

Our competitive position is also dependent upon our unpatented trade secrets. In an effort to protect our trade secrets, and as part of our confidentiality procedures, we generally enter into confidentiality and non-disclosure agreements with our employees and consultants and generally limit access to and distribution of our software, documentation and other proprietary information. Additionally, we limit physical access to our premises, software and hardware and employ security measures to protect against damage or theft.

In 2009, the Company entered into a technology licensing agreement with a Fortune 500 company that provides Northcore with access to a portfolio of intellectually property patents over a six-year period for a minimum fee of US $260,000 over the term of the agreement.

COMPETITION

The market for each solution comprising our asset lifecycle management suite is intensely competitive. Many of the companies we compete with have much greater financial, technical, research and development resources than we do.

To remain and become more competitive, we will need to make continued investments in product development and improve our market visibility and financial situation.

Although we offer a broad range of asset lifecycle management solutions, we face significant competition in each of the component product areas from the following companies:

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·	Sourcing – Ariba, Inc., Emptoris, Inc., Moai, and SAP AG;

·	Procurement –Ariba, Inc., IBM, and broader ERP solution providers such as Oracle and SAP AG;

·	Asset Management– Indus International Inc., Infor, IBM, Mincom Ltd., and broader ERP solution providers such as Oracle and SAP AG; and

·	Sales solutions – eBay Inc.

In addition, many organizations use in-house developers to develop solutions for certain elements of the asset lifecycle.

C. ORGANIZATIONAL STRUCTURE

The Company has the following organizational structure, which includes the subsidiaries as set out below:

CORPORATE ORGANIZATIONAL STRUCTURE

AS OF FEBRUARY 28, 2013

D. PROPERTY, PLANT AND EQUIPMENT

The table below lists the location of our facilities, which is held by us pursuant to a lease agreement, and summarizes certain information about the location.

Location	Use	Square Feet (Approximate)	Term of Lease
Northcore Technologies Inc. 302 The East Mall, Suite 300 Toronto, Ontario, M9B 6C7	Executive, Administrative, Software Development, Sales and Marketing	5,435	Expires Oct. 2014
Envision Online Media Inc. 1306 Wellington St West, Suite 401, Ottawa, Ontario K1Y 3B2	Executive, Administrative, Software Development, Sales and Marketing	1,986	Expires September 30, 2017

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We believe that we have adequate space for our current needs. As we expand, we expect that suitable additional space will be available on commercially reasonable terms. We do not own any real estate nor do we currently own or lease warehouse space.

ITEM 4A - UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 5- OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH "ITEM 3.A-SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. SEE "FORWARD-LOOKING STATEMENTS".

Overview

The Company provides a Working Capital Engine™ that helps organizations source, manage, appraise and sell their capital equipment. We refer to our product and services suite as asset lifecycle management solutions. Our solutions can reduce sourcing and procurement costs, improve tracking and monitoring of asset performance and reduce operational downtime.

The Company operates in a single reportable operating segment, that is, the design and delivery of software solutions for use by its customers. The single reportable operating segment derives its revenues from the sale of software licenses and related services.

SELECTED ANNUAL INFORMATION

Year ended December 31,	2012			2011			2010
	(IFRS)
Revenues		1,362			785			582
Income from GE Asset Manager, LLC		82			69			43
Operating expenses:
General and administrative		1,685			1,670			1,440
Customer service and technology		1,113			726			734
Sales and marketing		225			260			188
Stock-based compensation		425			1,873			517
Depreciation		61			32			22
Total operating expenses		3,509			4,561			2,901
Loss from operations		(2,065	)		(3,707	)		(2,276	)
Finance cost:
Cash interest expense		-			103			154
Accretion of secured subordinated notes		-			124			115
Total finance costs		-			227			269
Other expenses
Gain on settlement of debt		-			-			(57	)
Provision for impaired investment		-			-			544
Total other expenses		-			-			487
Loss before recovery of income taxes		(2,065	)		(3,934	)		(3,032	)
Recovery of income taxes		(36	)		-			-
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR	$	(2,029	)	$	(3,934	)	$	(3,032	)
LOSS PER SHARE, BASIC AND DILUTED	$	(0.009	)	$	(0.020	)	$	(0.019	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED (000’s)		232,715			196,180			162,899

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RECONCILIATION OF LOSS TO OPERATIONAL EBITDA(1)

Year ended December 31,	2012			2011			2010
	(in thousands of Canadian dollars)
Loss for the year, as per above	$	(2,029	)	$	(3,934	)	$	(3,032	)
Reconciling items:
Stock-based compensation		425			1,873			517
Depreciation		61			32			22
Recovery of income taxes		(36	)		-			-
Finance costs:
Cash interest expense		-			103			154
Accretion of secured subordinated notes		-			124			115
Other Items:
Professional fees (2)		52			235			-
Gain on settlement of debt		-			-			(57	)
Provision for impaired investment		-			-			544
OPERATIONAL EBITDA	$	(1,527	)	$	(1,567	)	$	(1,737	)

(1)

Operational EBITDA is defined as the loss before interest, taxes, depreciation, stock-based compensation and other non-recurring expenses. The Company considers Operational EBITDA to be a meaningful performance measure as it provides an approximation of operating cash flows. Operational EBITDA should not be considered as a substitute or alternative for operating loss or loss for the year, in each case determined in accordance with IFRS.

(2)

Included in non-recurring professional fees for 2012 were acquisition related costs in connection with the acquisition of Envision and Kuklamoo. 2011 non-recurring professional fees related to consulting fees paid in connection with the recruitment of new senior management and Board members, as well as engaging an Intellectual Property firm to help examine the applicability of the Company’s core technology.

A. OPERATING RESULTS

FINANCIAL PERFORMANCE

Comparison of Years Ended December 31, 2012 and December 31, 2011

Overview: The Operational EBITDA loss was $1,527,000 for 2012 as compared to $1,567,000 for 2011, a slight improvement in the Operational EBITDA loss of $40,000 or three percent. The improvement in the Operational EBITDA loss was primarily due an increase in revenues, partially offset by an increase in customer service and technology expenses as a result of the acquisition of Envision during 2012.

Our loss for the year ended December 31, 2012 was $2,029,000, an improvement of $1,905,000 or 48 percent from the loss of $3,934,000 reported for the year ended December 31, 2011. The significant improvement in loss was attributable to the increase in revenues and a decrease in operating and interest expenses during the year. The decrease in operating expenses was largely due to reduced stock-based compensation, which decreased by $1,448,000 as compared to the prior year.

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Revenues: Revenues are comprised of services (application and web development activities, software implementation and license fees, training and consulting, product maintenance and customer support) and application hosting fees.

Revenues increased by $577,000 or 74 percent to $1,362,000 for the year ended December 31, 2012, as compared to $785,000 for the same period of 2011. The growth in revenues was attributed to the increase in social commerce services revenues as a result of the acquisition of Envision.

Income from GEAM, LLC: Income is derived from using the equity method of accounting to record the Investment in GEAM, LLC. Income from GEAM increased by $13,000 or 19 percent, to $82,000 for the year ended December 31, 2012, as compared to $69,000 for the year ended December 31, 2011. The increase in income recorded was due to the execution of a new hosting agreement with Mondelez during the third quarter of 2012.

General and Administrative: General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than technology staff compensation (which is included in customer service and technology expenses), and sales and marketing staff compensation (which is included in sales and marketing expenses), occupancy costs, foreign exchange gains or losses, professional fees, insurance, investor relations, regulatory filing fees, and travel and related costs.

General and administrative expenses for the year ended December 31, 2012 amounted to $1,685,000, consistent with $1,670,000 reported in 2011.

Customer Service and Technology: Customer service and technology expenses consist of costs associated with acquired and internally developed software, and research and development expenses, including fees to independent contractors and salaries and related expenses of personnel engaged in these activities.

Customer service and technology expenses the year ended December 31, 2012 amounted to $1,113,000, compared to $726,000 in 2011, an increase of $387,000 or 53 percent. The increase was attributed to the increase in workforce as a result of the acquisition of Envision in the first quarter of 2012.

Sales and Marketing: Sales and marketing costs include all salaries and related expenses of sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs.

Sales and marketing costs decreased by $35,000 or 13 percent, to $225,000 for the year ended December 31, 2012, as compared to $260,000 for the year ended December 31, 2011. The decrease was due to a reduction in workforce during the year.

Stock-based Compensation: For the year ended December 31, 2012, employee stock option expense decreased by $1,448,000 to $425,000, as compared to $1,873,000 for the year ended December 31, 2011. The decrease was due to lower vesting of stock options as a result of a reduction in workforce during 2012.

Depreciation and Amortization: Depreciation and amortization expense was $66,000 for the year ended December 31, 2012, compared to $32,000 for 2011, an increase of $34,000 or 106 percent. The increase in depreciation and amortization was due to additions in capital asset and intangible assets of $34,000 and $129,000, respectively.

Interest Expense: Interest expense reflects interest incurred from debt instruments and loans. Interest expense for the year ended December 31, 2012 was $nil compared to $227,000 for December 31, 2011, representing a decrease of $227,000 or 100 percent. During 2011, cash interest expense of $103,000 and non-cash interest expense of $124,000 was incurred related to the secured subordinated notes and notes payable.

Recovery of Income Taxes: Recovery of income taxes resulted from intangible assets acquired in connection with the acquisition of Envision and Kuklamoo.

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Comparison of Years Ended December 31, 2011 and December 31, 2010

Overview: The Operational EBITDA loss was $1,567,000 for 2011 as compared to $1,737,000 for 2010, an improvement in the Operational EBITDA loss of $170,000 or 10 percent. The improvement in the Operational EBITDA loss was primarily due an increase in revenues, partially offset by an increase in sales and marketing expenses.

Our loss for the year ended December 31, 2011 was $3,934,000, an increase of $902,000 or 30 percent from the loss of $3,032,000 reported for the year ended December 31, 2010. The increase in loss was attributable to the increase in operating expenses, partially offset by the increase in revenues and the decrease in interest expense. The increase in operating expenses was largely due to stock-based compensation, which increased by $1,356,000 as compared to the prior year.

Revenues: Revenues are comprised of services (application development activities, software implementation and license fees, training and consulting, product maintenance and customer support) and application hosting fees.

Revenues increased by $203,000 or 35 percent to $785,000 for the year ended December 31, 2011, as compared to $582,000 for the same period of 2010. The growth in revenues was attributed to the higher social commerce services revenues in connection with group purchase platform and applications implementation for our strategic partners.

General and administrative expenses increased by $230,000 or 16 percent, to $1,670,000 for the year ended December 31, 2011, as compared to $1,440,000 for the year ended December 31, 2010. The increase was attributed to higher non-cash, non-recurring professional fees in connection with the recruitment of new senior management and Board members, as well as engaging an intellectual property firm to help examine the applicability of the Company’s core technology and intellectual property portfolio in selected business domains. The increase was partially offset by savings in the areas of investor relations and financing fees.

Customer service and technology expenses the year ended December 31, 2011 amounted to $726,000, relatively consistent with $734,000 for the year ended December 31, 2010.

Sales and marketing costs increased by $72,000 or 38 percent, to $260,000 for the year ended December 31, 2011, as compared to $188,000 for the year ended December 31, 2010. The increase was due to the Company engaging a sales executive in Europe during the fourth quarter of 2010 to explore new business opportunities in this region.

Stock-based Compensation: For the year ended December 31, 2011, employee stock option expense amounted to $1,873,000, as compared to $517,000 for the year ended December 31, 2010, an increase $1,356,000. The increase was attributed to the vesting of stock options, which were higher in 2011 due to the higher number of stock options granted to new senior management and Board members during the second quarter of 2011.

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Depreciation: Depreciation expense was $32,000 for the year ended December 31, 2011, compared to $22,000 for 2010, an increase of $10,000 or 45 percent. The increase in depreciation was due to capital asset acquisitions totaling $92,000 during the current year.

Interest Expense: Interest expense reflects interest incurred from debt instruments and loans. Interest expense for the year ended December 31, 2011 was $227,000 compared to $269,000 for December 31, 2010, representing a decrease of $42,000 or 16 percent. During 2011, cash interest expense of $103,000 and non-cash interest expense of $124,000 was incurred related to the secured subordinated notes and notes payable. Comparatively, cash interest expense of $154,000 and non-cash interest expense of $115,000 was recorded in 2010. The reduction in interest expense was due to the full conversions of Series L and N subordinated notes, as well as full repayment of notes payable during the current year.

GOING CONCERN

The Company has incurred negative annual cash flows from operations since inception and expects to continue to expend substantial funds to continue to develop technology, build an infrastructure to support business development efforts and expand other areas of business including the acquisition of, or strategic investments in, complementary products, businesses or technologies. 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 2012. The Company cannot provide assurance that it will be able to execute on its business plan or assure that efforts to raise additional financings will be successful.

The consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. If the going concern assumption was not appropriate, adjustments would be necessary in the carrying value of assets and liabilities, and the reported losses and the balance sheet classification used.

The continued existence beyond 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.

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements in conformity with IFRS 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 years. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. These estimates have been applied in a manner consistent with that in the prior periods and there are no known trends, commitments, events or uncertainties that the Company believes will materially affect the assumptions utilized in these consolidated financial statements. Significant estimates made by the Company include the determination of identifiable assets in the business combination, the useful lives of intangible assets, the recoverable amount of intangible assets and goodwill, contingent consideration, valuation of stock-based payments and the expected requirements for non-operational funding. Actual results could differ from these estimates.

The Company performed tests for impairment of goodwill at December 31, 2012. The goodwill recorded in the consolidated financial statements relates to the acquisition of Envision and Kahootkids!. The recoverable amount was estimated based on an assessment of its value in use using a discounted cash flow approach. The Company has made certain assumptions in determining the cash flow projections based on budgets approved by management and include management’s best estimate of expected market conditions. The cash flow projections include certain key assumptions regarding expected gross margins, current income tax rates and the purchase of property and equipment required to achieve revenue projections. The cash flow projections are discounted using the weighted average costs of capital that considers the uncertainties about the industry and assumptions relating to the sensitivity of the cash flows, depending on economic conditions and other events. Accordingly, it is reasonably possible that future changes in assumptions may negatively impact future valuations of goodwill and the Company would be required to recognize an impairment loss.

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The Company determines the fair value stock-base compensation using the Cox-Rubinstein binomial valuation model, which requires management to make assumptions regarding the volatility rate, risk free interest rate, average share price, expect term and dividend yield.

CRITICAL ACCOUNTING POLICIES

We periodically review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and transparent information relative to the current economic and business environment. As part of this process, we have reviewed our selection, application and communication of critical accounting policies and financial disclosures. We have determined that the critical accounting policies related to our core ongoing business activities are primarily those that relate to revenue recognition. Other significant accounting policies are described in Note 3 to our audited annual consolidated financial statements for the year ended December 31, 2012.

REVENUE RECOGNITION

The Company’s revenues are derived from services (application development activities, software implementation and license fees, training and consulting, product maintenance and customer support), and application hosting fees. Fees for services are billed separately from licenses of the Company’s products.

Revenue from the rendering of services is recognized when the following criteria are met:

·	The amount of revenue can be measured reliably;

·	The stage of completion can be measured reliably;

·	The receipt of economic benefits is probable; and

·	The costs incurred or to be incurred can be measured reliably.

Revenue from the sale of goods is recognized when the following criteria are met:

·	The amount of revenue can be measured reliably;

·	The risks and rewards of ownership have been transferred to the buyer;

·	The receipt of economic benefits is probable; and

·	The costs incurred or to be incurred can be measured reliably.

In addition to the above general principles, the Company applies the following specific revenue recognition policies:

·	Application Development Fees

Typically, development of applications for the Company’s customers are provided based on a predetermined fixed hourly rate basis. Revenue is recognized as time is incurred throughout the development process.

·	Implementation, Training and Consulting Service Fees

The Company 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 is recognized when the services are performed. Maintenance and support revenues paid in advance are non-refundable and are recognized on a straight-line basis over the term of the agreement, which typically is 12 months.

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·	Hosting Fees

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

·	Multiple Deliverable Revenue Arrangements

The Company also enters into transactions that represent multiple elements arrangements, which may include one or more of the following: software, application development, maintenance, hosting, and/or other professional service offerings. These multiple element arrangements are assessed to determine whether they can be sold separately in order to determine if they can be treated as more than one unit of accounting or element for the purpose of revenue recognition. The Company allocates the arrangement fee, in a multiple element transaction, to the separate elements based on their relative selling prices, as indicated by vendor-specific objective evidence or third-party evidence of selling price, and if both are not available, estimated selling prices are used. The allocated portion of the arrangement which is undelivered is then deferred.

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 7, Financial Instruments: Disclosures was amended by the IASB in December 2011 to provide additional information about offsetting of financial assets and financial liabilities. Additional disclosures will be required to enable users of financial statements to evaluate the effect or potential effect of netting arrangements on the entity’s financial position. The amendments are effective for annual periods beginning on or after January 1, 2013.

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.

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.

B. LIQUIDITY AND CAPITAL RESOURCES

The Company has been funded to date primarily through a series of private placements of equity and convertible debentures, option and warrant exercises, sales of equity to strategic partners and gains from investments. Since inception, the Company has received aggregate net proceeds of $101.7 million from debt and equity financing and has realized net proceeds of $25.8 million from disposal of investments. The Company has not earned profits to date and, at December 31, 2012, has an accumulated deficit of $125 million. The Company expects to incur losses into 2013 and there can be no assurance that it will ever achieve profitability. Operating results have varied on a quarterly basis in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of the Company’s control.

Northcore Technologies Inc. 37

The Company has incurred negative annual cash flows from operations since inception and expects to continue to expend substantial funds to continue to develop technology, build an infrastructure to support business development efforts and expand other areas of business including the acquisition of, or strategic investments in, complementary products, businesses or technologies. The Company has historically relied on non-operational sources of financing to fund its operations. The Company’s ability to continue as a going concern is dependent on management’s ability to successfully execute its business plan and to successfully repay or refinance obligations as they come due. Management believes that it has the ability to raise additional financing. 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.

Cash decreased by $1,739,000 to $21,000 as at December 31, 2012 from $1,760,000 as at December 31, 2011. The decrease in cash was due to cash outflows from operating and investing activities of $1,445,000 and $351,000, respectively, partially offset by cash inflows from financing activities of $57,000.

Current assets of $284,000 were exceeded by current liabilities of $805,000 in the current fiscal year by $521,000. Current assets of $1,987,000 exceeded current liabilities of $415,000 by $1,572,000 in the prior year.

a) Operating

Cash outflows from operating activities improved by $445,000 to $1,445,000 in the current fiscal year compared to cash outflows from operating activities of $1,890,000 in the prior year. The improvement was due to lower operating losses combined with in increase in non-cash working capital as per below.

Non-cash working capital resulted in inflows of $216,000 in fiscal 2012 as compared to outflows of $19,000 in fiscal 2011, an improvement of $235,000 as summarized in the following table:

	2012			2011			Change
	(in thousands of Canadian dollars)

Accounts receivable	$	95		$	(36	)	$	131
Deposits and prepaid expenses		4			(4	)		8
Accounts payable		108			(161	)		269
Accrued liabilities		(9	)		182			(191	)
Deferred revenue		18			-			18
	$	216		$	(19	)	$	235

b) Investing

Investing activities resulted in cash outflows of $351,000 during fiscal 2012, compared to cash outflows of $209,000 in 2011. Cash outflows during 2012 were the result of the acquisition of businesses of $97,000, investment in Dealco of $167,000, and acquisition of capital and intangible assets of $34,000 and $129,000, respectively, partially offset by cash by cash distribution from the investment in GEAM of $77,000. Cash outflows from investing activities in 2011 were the result of the acquisition of new capital and intangible assets of $92,000 and $177,000, respectively, partially offset by cash distribution from the investment in GEAM of $60,000.

c) Financing

Financing activities generated net inflows of $57,000 in fiscal 2012, as compared to $3,808,000 in fiscal 2011. Cash inflows during the year were generated from the exercise of options of $24,000 and proceeds from operating line of credit of $33,000. Cash inflows during 2011 were generated from the issuance of equity units for $1,018,000, and the exercise of warrants and options generated proceeds of $3,377,000 and $197,000, respectively, partially offset by the repayment of notes payable of $530,000, share issuance costs of $125,000 and interest payment of $129,000.

Northcore Technologies Inc. 38

d) Contractual Obligations

As at December 31, 2012, the Company's contractual obligations, including payments due by periods over the next five years, are as follows:

	Total		2013		2014		2015		2016		2017
	(in thousands of Canadian dollars)

Operating leases	$	600	$	222	$	196	$	66	$	66	$	50
License agreements		100		50		50		-		-		-
	$	700	$	272	$	246	$	66	$	66	$	50

FUNDING

Overview

Funding 2012

On March 27, 2012, the Company completed the acquisition of Envision and Kuklamoo by issuing 7,778,000 common shares valued at $933,000 based on the Company’s closing share price of $0.12.

Funding – 2011

On February 14, 2011, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit, for gross proceeds of $838,000 and net proceeds of $713,000 after deducting financing costs of $125,000. Each unit consists of one common share and one share-purchase warrant. Each warrant may be converted into a common share at the exercise price of $0.12 at any time prior to February 14, 2013.

In addition to the above financing costs, the Company issued 2,250,000 compensation options to the financing agent, Saratoga Finance Inc. The options entitled the holder to purchase up to 2,250,000 equity units at a purchase price of $0.08 per unit, at any time prior to February 14, 2013. Each equity unit consisted of one common share and one warrant. Each warrant may be converted into a common share at an exercise price of $0.12, at any time prior to February 14, 2013. These compensation options were exercised during 2011, resulting in gross proceeds of $180,000.

During the year ended December 31, 2011, Series I and L note holders, along with warrant holders from equity private placements in 2010 and 2011, exercised 26,260,000 common share-purchase warrants for total proceeds of $3,377,000.

Also during the year ended December 31, 2011, total proceeds of $197,000 were realized from the exercise of 1,334,000 stock options at an average exercise price of $0.15.

Funding – 2010

On December 22, 2010, the Company completed a transaction resulting in the issuance of 7,816,000 equity units, priced at $0.08 per unit, for net proceeds of $625,000. Each unit consists of one common share and one share-purchase warrant. Each warrant may be converted into a common share at the exercise price of $0.12 at any time prior to December 22, 2012.

Northcore Technologies Inc. 39

On August 9, 2010, the Company closed an equity transaction with GEM, securing gross proceeds of $383,000 and net cash proceeds of $300,000 after deducting legal fees and one half of the commitment fee of $90,000. In connection with the transaction, the Company issued 2,191,000 common shares and 6,000,000 share-purchase warrants with an exercise price of $0.27 and an expiry date of August 9, 2013.

On June 16, 2010, the Company entered into an agreement with GEM Global Yield Fund Limited (“GEM”) for a $6,000,000 equity line of credit. The Company will control the timing and maximum amount of any draw downs under this facility, and has the right, not the obligation, to draw down on available funds by requiring GEM to subscribe for the Company’s common shares at a 10 percent discount to the average closing price of the Company’s common shares over a 15 day trading period following the draw down notice date, provided that the Company’s share price during the notice period is greater than the floor price of $0.17 per share as defined in the agreement. GEM will hold freely trading shares of the Company through a share lending facility provided by a current shareholder. As part of the equity credit line transaction, the Company has agreed to issue 6,000,000 warrants to GEM. The warrants are exercisable for a period of three years from the closing notice date at an exercise price of $0.27 per share. The warrants are not issuable until the first draw down of funds has occurred.

During the year ended December 31, 2010, Series I and L warrant holders exercised 1,083,000 warrants for total proceeds of $170,000.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

During the year ended December 31, 2012, the Company incurred direct costs in the amount of $129,000 in connection with the development and enhancement of the Group Purchase Platform. In accordance with IAS 38, Intangible Assets, the direct costs were capitalized.

D. TREND INFORMATION

FOREIGN EXCHANGE RISK

The Company’s revenue from software licensing and related services and e-commerce enabling agreements is transacted in Canadian and U.S dollar currencies. As a portion of the Company’s revenues are realized in U.S. dollar and expenses are transacted in Canadian dollar, the appreciation of the U.S. dollar against the Canadian dollar may have a favorable impact on our results. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. During the year ended December 31, 2012, the Company incurred foreign exchange losses in the amount of $7,000 (2011 – $3,000), which is recorded in general and administrative expenses.

INTEREST 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

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.

The Company invests its cash in investments that are of high credit quality. Given these high credit ratings, the Company does not expect any investees to fail to meet their obligations.

At December 31, 2012, no customers accounted for more than 10 percent (2011 – three customers accounted for 42 percent, 18 percent and 12 percent, respectively) of total accounts receivable.

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

Northcore Technologies Inc. 40

E. OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet special purpose entities or other off-balance sheet arrangements.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

As at December 31, 2012, the Company's contractual obligations, including payments due by periods over the next five years, are as follows:

	Total		2013		2014		2015		2016		2017
	(in thousands of Canadian dollars)

Operating leases	$	600	$	222	$	196	$	66	$	66	$	50
License agreements		100		50		50		-		-		-
	$	700	$	272	$	246	$	66	$	66	$	50

ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth the name, age and position of each of the individuals who served as a director and/or an executive officer during the past year. This list includes the dates of resignation and appointment, as applicable, of individuals who resigned or were appointed directors or officers during the past year. This information is supplied based on our records and information furnished by our executive officers and directors.

Name, Age and Municipality of Residence	Director Since	Position with the Company
Paul B. Godin, 59, Caledon, Ontario	March 26, 2012	Director and non-executive Chairman of the Board Since March 26, 2012. Resigned from the positions on October 15, 2012.
T. Christopher Bulger, (1)(2)(3) 54, Toronto, Ontario	May 28, 1996	Director and non-executive Chairman of the Board since October 14, 2005 to May 31, 2011. Reappointed as Non-Executive Chairman of the Board on October 15, 2012. non-executive Chairman of the Audit Committee since May 31, 2011.
Jim Moskos, 49, Toronto, Ontario	June 7, 1999	Director and Chief Operating Officer, since July 11, 2007. Appointed Interim Chief Executive Officer on December 4, 2012. President, Technology Group from October 19, 1999 to July 11, 2007
Amit Monga, 45* Toronto, Ontario	May 31, 2011	Director and Chief Executive Officer. Resigned from the positions on November 26, 2012.
Marvin Igelman (1)(2)(3) 50, * Thornhill, Ontario	May 31, 2011	Director. Resigned on December 3, 2012.
Ryan Deslippe (1)(2)(3) 34, Amherstburg, Ontario	May 31, 2011	Director
________________________ (1)Member of the Management Resources and Compensation Committee (2)Member of the Corporate Governance Committee (3) Member of the Audit Committee

The business experience of each of our current directors and executive officers for at least the last five years is as follows:

Northcore Technologies Inc. 41

Directors

Paul B. Godin, Caledon, Ontario

Director since March 26, 2012

Non-executive Chairman of the Board of Directors

As Chairman and CEO of Bid.com from 1995 to 2002, he led the first Canadian company to conduct a secure credit card transaction over the Internet and successfully introduced Canada to its first "online auction" website. Bid.com became part of the prestigious TSE 300 and became the first Canadian e-commerce firm to be listed on NASDAQ. Previous to founding Bid.com Paul was Vice President of Alpine Canada and General Manager of Casio Canada, where he spent a total of 11 years leading these Japanese electronics firm. He traveled to Japan, China and Korea, on their behalf, while fortifying his appreciation for many cultures, customs and business practices. Most recently Paul was EcoWater Canada's President (A Marmon Water/Berkshire Hathaway Company) and Senior Vice President of EcoWater Systems USA, where he received one of his proudest honors - the first-ever "Sears Canada: Green Marketer of the Year" award (2010).

T. Christopher Bulger, Toronto, Ontario

Director since May 28, 1996

Chairman of the Audit Committee and member of the Management Resources and Compensation and Corporate Governance Committees

Mr. Bulger has been the non-executive Chairman of the Board since October 14, 2005 and a director of the Company since May 28, 1996. Mr. Bulger provides consulting to number of companies, including the role of Chief Financial Officer for Hy-Power Coatings Ltd., a company innovating insulation properties for paints and windows using nano technology to reduce energy consumption and Bio-Organic Catalyst of Canada Inc., a company offering science based organic solutions for waste management, using patented technology to remove toxins from wastewater and enhance energy production from waste. Mr. Bulger was Chairman and CEO of Megawheels Technologies Inc., (“Megawheels”) from Jan 01, 2001 to April 30, 2007, a software and solutions provider to the online classified advertising industry. From December 1999 to December 2001, Mr. Bulger was President and Chief Executive Officer of eLab Technology Ventures Inc. Mr. Bulger served as Executive Vice President of our Company from September 1998 to December 1999 and Chief Financial Officer of the Company from April 1996 to September 1998. Mr. Bulger is a CFA, holds an MBA from INSEAD, France and an HBA from The Richard Ivey School of Business, Canada.

Jim Moskos, Toronto, Ontario

Director since June 7, 1999

Chief Executive Officer

Mr. Moskos has been Chief Operating Officer of the Company since July 11, 2007 until he was appointed as interim Chief Executive Officer of the Company on December 4, 2012. Mr. Moskos also served as President of the Technology Group since from October 19, 1999 to July 11, 2007 and Vice President - Technology from September 1997 to October 19, 1999. From September 1994 to August 1997, Mr. Moskos was Senior Technology Manager for the Canadian Department of Indian Affairs and Northern Development responsible for setting the technical direction for all aspects of application development.

Dr. Amit monga, Toronto, Ontario

Director since May 31, 2011

Chief Executive Officer

Dr. Monga is the CEO of the company and is a highly respected thought leader in business circles in North America on new technologies, software trends and business models and brings a unique background in technology and capital markets to Northcore. He currently has served on the boards of Poynt Corporation and Sprylogics International. He is a successful angel investor who has previously worked as an investment banker, venture capitalist and has founded a US based on-demand procurement software company that was acquired by a NASDAQ-listed company. Dr. Monga received his PhD in Mechanical Engineering from the University of Alberta, specializing in advanced genetic algorithms, where he currently serves as a Member of Dean's Business Advisory Council at the Alberta School of Business.

Northcore Technologies Inc. 42

Marvin Igelman, Thornhill, Ontario

Director since May 31, 2011

Chairman of the Corporate Governance Committee and member of the Management Resources and Compensation and Audit Committees

Mr. Igelman was founder and CEO of Unomobi, a mobile advertising and messaging firm, before the company was acquired by Poynt Corporation. Prior to Unomobi, he was President and CEO of Brandera which operated Portfolios.com a leading online B2B marketplace for the graphic arts and creative community. Mr. Igelman is considered to be an innovator in the social, mobile, media and search technology fields having authored numerous patent applications. He graduated from Osgoode Hall Law School in 1986 and was admitted to the Law Society of Upper Canada in 1988.

Ryan Deslippe, Amherstburg, Ontario

Director since May 31, 2011

Chairman of the Management Resources and Compensation Committee and member of the Corporate Governance and Audit Committees

Mr. Deslippe co-founded Selectcore in 1999 as President and led its successful growth over the past decade to revenues in excess of CDN $100 million, ranking the company as one of the fastest growing firms in Canada between the period 2006 to 2010. At Selectcore, he led the development and launch of its Iridium MasterCard and ReCash - two industry first products in Canada. From 2003 to 2006, Mr. Deslippe also co-founded and was a director of Datazinc, a successful 6 Sigma consulting firm. He was the recipient of the 2006 Profit 100 Magazine Young President Award. Mr. Deslippe is a past Board member of various non-profit organizations.

Director’s relationship to Megawheels Technologies Inc. subject to Cease Trade Order

Mr. Bulger, the non-executive Chairman and a director of the Company, was formerly the Chairman and a director of Megawheels, which was listed on the TSX Venture exchange under the symbol "MWT", and which was issued a cease trade order on January 9, 2007 by the Ontario Securities Commission under paragraph 2 and paragraph 2.1 of subsection 127(1) and subsection 127(5) because Megawheels failed to provide continuous disclosure material of audited annual financial statements for the year ended August 31, 2006. Megawheels has undergone an orderly wind-up of operations.

B. COMPENSATION

Summary Compensation Table

The following table provides a summary of compensation earned during the most recently completed fiscal year by the Company’s Named Executive Officers (“NEOs”). The Company’s NEOs, as at the end of 2012, were our Chief Executive Officer, and our Chief Operating Officer.

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)

)

($)

Amit Monga (CEO)

(Until Nov 2012)

2012

70,000

Nil

1,250,000

Nil

(From June 1)

2011

105,000

Nil

2,900,000

Nil

Duncan Copeland

(From January 1 to May 31)

2011

12,500

Nil

300,000

Nil

2010

30,000

Nil

1,000,000

Nil

Jim Moskos (COO)

2012

200,000

Nil

12,000

1,000,000

Nil

2011

200,000

Nil

12,000

850,000

Nil

2010

200,000

Nil

12,000

1,350,000

Nil

Northcore Technologies Inc. 43

Tam Nguyen (CFO)	2012	110,000	Nil	12,000	400,000	Nil	Nil	Nil
	2011	100,000	Nil	12,000	300,000	Nil	Nil	Nil
	2010	100,000	Nil	12,000	700,000	Nil	Nil	Nil

(1)	The Company’s provision of automotive related expenses.

Our Company has a stock option plan (the “Plan”) which was originally adopted on May 15, 1996, and as amended most recently by shareholder approval on June 6, 2012, and currently provides that options may not be granted to purchase more than 35,000,000 common shares. The Plan provides for the issuance of stock options to directors, officers and full time employees of the Company and it subsidiaries or any other person engage to provide ongoing services to the Company, 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. The Management Resources and Compensation Committee of the Board of Directors, whom administer the Plan, reserves the right to attach vesting periods to stock options granted. For options granted to senior management during the fiscal year ended December 31, 2012 see Summary Compensation Table above.

During 2012, we did not provide any pension, retirement or similar benefits to our directors and officers as a group.

Compensation of Directors

For the 2012 financial year, directors received no cash payment as fees for meetings of the Board or Committees of the Board, which they attend, and no cash payments as fee for the signing of any resolution of directors or documents on behalf of the Company. All directors are reimbursed for reasonable out-of-pocket travel and other expenses incurred by them in attending meetings of the Board or Committee meetings.

The Management Resources and Compensation Committee is responsible for recommendations to the Board regarding the granting of incentive stock options to directors to encourage their serving on the Board and Committees, to afford them the opportunity to be compensated properly, and to provide them with an equity stake in the Company.

The Following table provides a summary of the option grants to outside directors during the fiscal year ended December 31, 2012, which were not included in the summary compensation table above.

STOCK OPTION GRANTS TO OUTSIDE DIRECTORS DURING THE FISCAL YEAR ENDED DECEMBER 31, 2012
Name	#Options Granted		Price CDN$		Date of Grant	Expiry Date of Option
Paul B. Godin		1,250,000	$	0.085	March 20, 2012	March 19, 2017
Christopher Bulger		400,000	$	0.085	March 20, 2012	March 19, 2017
Ryan Deslippe		100,000	$	0.085	March 20, 2012	March 19, 2017

During the 2012 financial year, Mr. Bulger received $57,500, and Paul B. Godin received $ 18,000 as cash compensation.

C. BOARD PRACTICES

Our articles of incorporation currently provide for a Board of Directors consisting of not less than 3 and not more than 15 directors, to be elected annually. The Business Corporations Act (Ontario) provides that, where a minimum and maximum number of directors is provided for in the articles of a company, the directors of that company may, if empowered by special resolution of the shareholders, by a resolution determine the number of directors to be elected at each annual meeting of the shareholders.

Our Board of Directors presently consists of three directors. Under Canadian law, a majority of our Board of directors and of each of our Board Committees must be residents of Canada, subject to certain exceptions. Each of our directors holds office until the next annual meeting of shareholders, until his successor has been elected and qualified, or his earlier resignation or removal. Our executive officers are appointed by our Board of directors and serve at the discretion of our Board of Directors.

Northcore Technologies Inc. 44

None of the directors have any contract or arrangement entitling them to benefits upon termination of their directorship.

The three committees of the Board are the Audit Committee, Management Resources and Compensation Committee, and the Corporate Governance Committee.

The Audit Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines and Independent as defined by Nasdaq listing standards, meets with our management and our auditors on a periodic basis, before the release of quarterly results and before submission of our annual financial statements to the Board. The committee is responsible for the review and assessment of our audit practices, financial reporting and internal controls, inquiry of the auditors as to cooperation in access and disclosure by our management and the ultimate approval of our annual financial statements for submission to the Board and to the shareholders. The committee is also responsible for the appointment, compensation and oversight of the work of our auditors (including resolution of disagreements between management and our auditors regarding financial reporting). During the year, our Audit Committee consists of Christopher Bulger (Chairman), Marvin Igelman and Ryan Deslippe. Mr. Igelman resigned from the Board and all of its Committees effective from December 3, 2012. The Company is in the process of filling in the position.

The Management Resources and Compensation Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines and Independent as defined by Nasdaq listing standards, is responsible for recommendations to the Board regarding the appointment or removal of executive officers, reviewing the performance of the executive officers and fixing their compensation. The committee is also responsible for administering our stock option plan and ensuring that salary and benefit programs are continuously suitable for attracting, retaining and encouraging the development of knowledgeable, experienced and capable management and employees. During the year, the Management Resources and Compensation Committee of our Company consists of Ryan Deslippe (Chairman), Christopher Bulger and Marvin Igelman; all of whom were directors of our Company. Mr. Igelman resigned from the Board and all of its Committees effective from December 3, 2012. The Company is in the process of filling in the position.

The Corporate Governance Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines and Independent as defined by Nasdaq listing standards, oversees the implementation of our governance practices. The committee also oversees the process for nominations to the Board and assesses the overall effectiveness of the Board. During the year, the Corporate Governance Committee consists of Marvin Igelman (Chairman) Christopher Bulger and Ryan Deslippe; all of whom were directors of the Company. Mr. Igelman resigned from the Board and all of its Committees effective from December 3, 2012. The Company is in the process of filling in the position.

C. 1. AUDIT COMMITTEE INFORMATION

As a reporting issuer in jurisdictions that have adopted Multilateral Instrument 52-110 Audit Committees (“MI 52-110”) the Company is required to provide disclosure with respect to its Audit Committee including the text of the Audit Committee’s Charter, composition of the Committee, and the fees paid to the external auditor.

1. The Audit Committee’s Charter

A Copy of the Audit Committee Charter adopted by the Board of Directors on June 6, 2012 is attached to this Annual Report as Exhibit 4.26.

2. Composition of the Audit Committee

Name	Relevant Education and Experience
Christopher Bulger*‡	Mr. Bulger has been the non-executive Chairman of the Board since October 14, 2005 and a director of the Company since May 28, 1996. Mr. Bulger provides consulting to number of companies, including the role of Chief Financial Officer for Hy-Power Coatings Ltd., a company innovating insulation properties for paints and windows using nano technology to reduce energy consumption and Bio-Organic Catalyst of Canada Inc., a company offering science based organic solutions for waste management, using patented technology to remove toxins from wastewater and enhance energy production from waste. Mr. Bulger was Chairman and CEO of Megawheels Technologies Inc., (“Megawheels”) from Jan 01, 2001 to April 30, 2007, software and solutions provider to the online classified advertising industry. From December 1999 to December 2001, Mr. Bulger was President and Chief Executive Officer of eLab Technology Ventures Inc. Mr. Bulger served as Executive Vice President of our Company from September 1998 to December 1999 and Chief Financial Officer of the Company from April 1996 to September 1998. Mr. Bulger is a CFA, holds an MBA from INSEAD, France and an HBA from The Richard Ivey School of Business, Canada.
Marvin Igelman*	Mr. Igelman was founder and CEO of Unomobi, a mobile advertising and messaging firm, before the company was acquired by Poynt Corporation. Prior to Unomobi, he was President and CEO of Brandera, which operated Portfolios.com a leading online B2B marketplace for the graphic arts and creative community. Mr. Igelman is considered to be an innovator in the social, mobile, media and search technology fields having authored numerous patent applications. He graduated from Osgoode Hall Law School in 1986 and was admitted to the Law Society of Upper Canada in 1988.
Ryan Deslippe*	Mr. Deslippe co-founded Selectcore in 1999 as President and led its successful growth over the past decade to revenues in excess of CDN $100 million, ranking the company as one of the fastest growing firms in Canada between the period 2006 to 2010. At Selectcore, he led the development and launch of its Iridium MasterCard and ReCash - two industry first products in Canada. From 2003 to 2006, Mr. Deslippe also co-founded and was a director of Datazinc, a successful 6 Sigma consulting firm. He was the recipient of the 2006 Profit 100 Magazine Young President Award. Mr. Deslippe is a past Board member of various non-profit organizations.

(*) independent as such term is defined in MI 52-110

(‡) financially literate as such term is defined in MI 52-110

Northcore Technologies Inc. 45

3. Reliance on Certain Exemptions

At no time since the commencement of the Company’s most recently completed financial year has the Company relied on the exemption in Section 2.4 of MI 52-110 (De Minimis Non-audit Services), Section 3.3(2) (Controlled Companies), Section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances), or an exemption from MI 52-110, in whole or in part granted under Part 8 of MI 52-110, nor has the Company relied on Section 3.8 (Acquisition of Financial Literacy) of MI 52-110.

4. Audit Committee Oversight

Directly responsible for overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor's report or performing other audit, review or attest services for the issuer, including the resolution of disagreements between management and the external auditor regarding financial reporting. The Committee also recommends fees of the external auditors to the Board of Directors.

5. Pre-Approval Policies

Pursuant to the Audit Committee Charter Adopted by the Board of Directors on June 6, 2012, the Audit Committee is responsible for the pre-approval of all non-audit services to be provided to the Company or its subsidiary entities by the independent auditor.

Northcore Technologies Inc. 46

D. EMPLOYEES

The number of our employees as of February 28, 2013 is increased by one employee in Technical Services departments as compared to the number of our employees as of February 29, 2012. The break-up is as follows:

	North America
Sales and Marketing	2
Technical Services	14
Finance Legal Affairs and Admin	2
Executive	2
TOTAL	20

As of February 29, 2012 we employed a total of 16 full-time employees as follows:

	North America
Sales and Marketing	2
Technical Services	10
Finance Legal Affairs and Admin	3
Executive	2
TOTAL	17

As of February 28, 2011 we employed a total of 16 full-time employees as follows:

	North America
Sales and Marketing	2
Technical Services	9
Finance Legal Affairs and Admin	3
Executive	2
TOTAL	16

E. SHARE OWNERSHIP

The following table sets forth information concerning share and option ownership of each of our current directors and officers as of February 28, 2013:

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

Christopher Bulger	1,003,229	2,670,000/0	$0.085 - $0.20	03/11/14 - 03/19/17	*

Jim Moskos	389,937	3,630,000/333,336	$0.085 - $0.20	03/11/14 - 03/19/17	*

Ryan Deslippe	-	1,100,000/0	$0.085 - $0.315	04/03/2016- 03/19/17	-

* Represents less than 1 percent

(1) Represents shares owned beneficially by the named individual other than those shares, which may be acquired under our Company's option plans. Unless otherwise noted, all persons referred to above have sole voting and sole investment power.

(2) Includes all shares which the named individual has the right to acquire under all vested and unvested options and warrants granted to such individual under the Company's option plan.

(3) This information is based on 234,625,479 common shares outstanding as of February 28, 2013.

ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

Kris Sammy a registered individual portfolio manager with Canaccord Wealth Management previously with Dundee Securities Corporation, beneficially owns and/or exercises control or direction over “Nil” (2011- “Nil” and 2010-19,613,059) common shares and warrants, representing a total of ‘Nil” (2011- “Nil” and 2010-10.72 percent respectively) of the February 28, 2013 and outstanding common shares of Northcore Technologies Inc. assuming full exercise of his convertible securities.

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This information is based on our records, information provided to us by directors and executive officers and a review of information, including press releases filed by our shareholders with the Ontario Securities Commission prior to February 28, 2013, and insider reports filed with the Ontario Securities Commission. The Company’s major shareholders do not have any voting rights that differ from the rights of our other shareholders.

As at February 28, 2013 the shareholders of record held 234,625,479 common shares.

WE ARE NOT AWARE OF ANY OTHER CORPORATION, FOREIGN GOVERNMENT, OR OTHER PERSON OR ENTITY THAT DIRECTLY OR INDIRECTLY OWN OR CONTROL OUR COMPANY, SEVERALLY OR JOINTLY. WE ARE NOT AWARE OF ANY ARRANGEMENTS, WHICH MAY AT A LATER DATE RESULT IN A CHANGE IN CONTROL OF OUR COMPANY.

B. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2012, interest payments relating to the secured subordinated notes totaling $nil (2011 - $1,000) were made to related parties.

ITEM 8 - FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS

See “Item 18 - Financial Statements” and the Consolidated Financial Statements and notes thereto accompanying this Annual Report as an exhibit 15.1. All contingencies and commitments set out in the Financial Statements have been reviewed and updated as at the date of filing this Annual Report.

LEGAL PROCEEDINGS

Neither we, nor any of our subsidiaries, is a party to, or the subject of, any material legal proceedings.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our common shares. We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future.

We have not issued any preferred shares. The dividend entitlement of any preferred shares issued will be determined by our Board of Directors.

SIGNIFICANT CHANGES

Except as otherwise disclosed in this report, there has been no significant change in our financial position since December 31, 2012

ITEM 9 - THE OFFER AND LISTING

Our common shares are listed on The Toronto Stock Exchange and are quoted for trading on the OTCBB. The Company’s stock symbols are NTI on the TSX and NTLNF on the OTCBB.

For additional information about the trading of our common shares, see Item 3-D - Risk Factors - YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED.

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The following tables set forth the range of high and low sales prices (rounded to the nearest hundredth) as reported by The Toronto Stock Exchange and the OTCBB during the calendar years and quarters indicated.

THE TORONTO STOCK EXCHANGE- (TSX)

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

2008 Calendar Year	0.15	0.04
2009 Calendar Year	0.33	0.10
2010 Calendar Year	0.25	0.07
2011 Calendar Year	0.48	0.09
2012 Calendar Year	0.15	0.01

QUARTERLY MARKET PRICES

2011 CALENDAR YEAR
First Quarter	0.34	0.09
Second Quarter	0.48	0.14
Third Quarter	0.32	0.16
Fourth Quarter	0.20	0.11

2012 CALENDAR YEAR
First Quarter	0.14	0.07
Second Quarter	0.15	0.05
Third Quarter	0.08	0.04
Fourth Quarter	0.05	0.01

MONTHLY MARKET PRICES

September 2012	0.05	0.04
October 2012	0.05	0.01
November 2012	0.05	0.02
December 2012	0.03	0.01
January 2013	0.05	0.03
February 2013	0.03	0.02

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OVER-THE-COUNTER BULLETIN BOARD–(OTCBB)

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

2007 Calendar Year	0.20	0.06
2008 Calendar Year	0.15	0.03
2009 Calendar Year	0.30	0.05
2011 Calendar Year	0.50	0.05
2012 Calendar Year	0.12	0.01

QUARTERLY MARKET PRICES

2011 CALENDAR YEAR
First Quarter	0.33	0.08
Second Quarter	0.50	0.13
Third Quarter	0.30	0.15
Fourth Quarter	0.18	0.05

2012 CALENDAR YEAR
First Quarter	0.12	0.07
Second Quarter	0.12	0.07
Third Quarter	0.08	0.03
Fourth Quarter	0.05	0.01

MONTHLY MARKET PRICES

September 2012	0.05	0.03
October 2012	0.05	0.02
November 2012	0.04	0.02
December 2012	0.03	0.01
January 2013	0.04	0.02
February 2013	0.03	0.01

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ITEM 10 - ADDITIONAL INFORMATION

A.	Share Capital

Not applicable.

B.	Memorandum and Articles of Association

The Articles of Arrangement for 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 of our Company need not be shareholders. In accordance with our by-laws and the 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 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 shall disclose to our Company the nature and extent of his interest at the time and in the manner provided by the 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 or an affiliate;

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

Is for indemnity or insurance; or

Is with an affiliate.

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

Borrow money upon the credit of our Company;

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

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, 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.

Common Shares

Our articles authorize the issuance of an unlimited number of common shares. The holders of the common shares of our Company are entitled to receive notice of and to attend all meetings of the shareholders of our Company and have one vote for each common share held at all meetings of the shareholders of our Company, except for meetings at which only holders of another specified class or series of shares of our Company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of preferred shares of our 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 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, whether voluntary or involuntary, or any other distribution of assets of our Company among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of preferred 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. 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.

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Preferred Shares

Our articles of incorporation authorize the issuance of an unlimited number of preferred shares, in one or more series. The Ontario Business Corporations Act does not impose restrictions upon our Board of Directors issuing preferred shares of the type authorized by our articles of incorporation. Our Board of Directors may fix, before issuing, the number of preferred shares of each series, the designation, rights, privileges, restrictions and conditions attaching to the preferred 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, 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 preferred shares of the series. Our articles of incorporation require that preferred 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, whether voluntary or involuntary, rank on a parity with the preferred shares of every other series and be entitled to preference over the common shares and over any other shares ranking junior to the preferred shares. The preferred shares of one series shall participate ratably with the preferred shares of every other series in respect of all dividends and similar amounts. The holders of our preferred shares are not liable to further capital calls by our Company. None of our preferred 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 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 Chief Executive, 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, the auditor of our 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 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.

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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 preferred 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, 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 was an investment to acquire direct control of our 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, 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 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 by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our 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 preferred shares. The Board of Directors, without any further vote by the common shareholders, has the authority to issue preferred 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 preferred shares that the Board of Directors may issue in the future. That means, for example, that we can issue preferred shares with more voting rights, higher dividend payments or more favorable rights upon dissolution, than the common shares. If we issued certain types of preferred 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.

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C. Material Contracts

The following is a summary of our Company’s material contracts entered into within the last three years.

ACQUISITION OF BUSINESSES: On March 27, 2012, the Company acquired 100 percent of the outstanding shares of 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 Kuklamoo, a group discount and community portal targeting young families with children.

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 paid over the next two years, subject to achieving specific performance criteria as set out by the Company. IFRS 3, Business Combinations, 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 at inception to be $134,000 based on a discount rate of 13 percent and 80 percent probability of the performance criteria being satisfied.

DISCOUNT THIS GROUP PURCHASE PLATFORM: On December 28, 2011, the Company acquired all the Intellectual Property of Discount This Holdings Limited (“Discount This”), commonly known as the “Discount This 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 the Discount This Group Purchase Platform as at December 31, 2011 was $807,000.

During the year ended December 31, 2012, the Company incurred direct costs in the amount of $129,000 in connection with the development and enhancement of the Discount This Group Purchase Platform. In accordance with IAS 38, Intangible Assets, the direct costs were capitalized. The balance of the Discount This Group Purchase Platform as at December 31, 2012 is $936,000.

EQUITY PRIVATE PLACEMENT: On February 14, 2011, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit, for gross proceeds of $838,000 and net proceeds of $713,000 after deducting financing costs of $125,000. Each unit consists of one common share and one share-purchase warrant. Each warrant may be converted into a common share at the exercise price of $0.12 at any time prior to February 14, 2013.

In addition to the above financing costs, the Company issued 2,250,000 compensation options to the financing agent, Saratoga Finance Inc. The options entitled the holder to purchase up to 2,250,000 equity units at a purchase price of $0.08 per unit, at any time prior to February 14, 2013. Each equity unit consisted of one common share and one warrant. Each warrant may be converted into a common share at an exercise price of $0.12, at any time prior to February 14, 2013. These warrants were expired unexercised on February 14, 2013. These compensation options were exercised during 2011, resulting in gross proceeds of $180,000.

4.	CONVERSION OF NOTES AND EXERCISING OF WARRANTS: During the year ended December 31, 2011, Series I and L note holders, along with warrant holders from equity private placements in 2010 and 2011, exercised 26,260,000 common share-purchase warrants for total proceeds of $3,377,000.

EQUITY PRIVATE PLACEMENT: On December 22, 2010, the Company completed a transaction resulting in the issuance of 7,816,000 equity units, priced at $0.08 per unit, for net proceeds of $625,000. Each unit consists of one common share and one common share purchase warrant. Each full warrant may be converted into a common share at the exercise price of $0.12 at any time prior to December 22, 2012. Subsequent to the year ended December 31, 2010, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit for net proceeds of $713,000.

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OPERATING LOAN: On October 28, 2010, the Company received an operating loan from a private institution in the amount of $500,000. The loan bears interest at 18.75 percent, matures in six months from the closing date and is secured by a general security agreement and common shares pledged by certain shareholders of the Company. The balance outstanding as at December 31, 2010 is $500,000.

EQUITY LINE OF CREDIT: On June 16, 2010, the Company entered into an agreement with GEM Global Yield Fund Limited (“GEM”) for a $6,000,000 equity line of credit. The Company will control the timing and maximum amount of any draw downs under this facility, and has the right, not the obligation, to draw down on available funds by requiring GEM to subscribe for the Company’s common shares at a 10 percent discount to the average closing price of the Company’s common shares over a 15 day trading period following the draw down notice date, provided that the Company’s share price during the notice period is greater than the floor price of $0.17 per share as defined in the agreement. GEM will hold freely trading shares of the Company through a share lending facility provided by a current shareholder. As part of the equity credit line transaction, the Company has agreed to issue 6,000,000 warrants to GEM. The warrants are exercisable for a period of three years from the closing notice date at an exercise price of $0.27 per share. The warrants are not issuable until the first draw down of funds have occurred.

D. Exchange Controls

As of the date hereof, we are not aware of any 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 our common shares, other than withholding tax requirements.

E. 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 a 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 there under 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.

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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 percent 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 percent, or 5 percent in the case of a corporate holder which owns 10 percent 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 percent 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.

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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 administrative pronouncements of the 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.

This summary does not address the considerations that may be applicable to any particular U.S. Holder based on such U.S. Holder's particular circumstances nor to particular classes of shareholders (including but not limited to financial institutions, broker-dealers, insurance companies, real estate investment trusts, regulated investment companies, persons who have elected mark-to-market accounting, tax-exempt organizations, persons who hold ordinary shares as part of a straddle, "hedge" or "conversion transaction" with other investments, persons who own (directly, indirectly or through attribution) 10 percent or more of our Company's outstanding voting shares, persons whose functional currency is not the U.S. dollar, persons who are not citizens or residents of the United States, foreign corporations, foreign partnerships or foreign estates or trusts, or persons who acquired their common shares pursuant to the exercise of employee stock options or rights or 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. 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). 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, as defined under United States tax laws, (ii) the trust was in existence on August 20, 1996 and 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 (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.

Each shareholder should consult with such 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.

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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 Status Of The Company”, a distribution by our 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 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 current and accumulated earnings and profits, as so computed, it will first reduce the U.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 will pay dividends in the foreseeable future, the gross amount of any distribution from our 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 gross income as ordinary income and generally will not qualify for the dividends received deduction applicable in certain cases to United States corporations. If you are an individual, dividends that we pay you through 2011 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 any preceding taxable year, we are not a controlled foreign corporation 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 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 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 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 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. 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 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. 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 one taxable year and forward for ten taxable years, subject to the credit limitation applicable in each of such years.

Sale or Exchange of a Common Share

Subject to the discussion below under "Tax Status Of The 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 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 (non-corporate) U.S. Holder on the sale or exchange of a common share will be long-term capital gain or loss subject to a 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. 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.

Northcore Technologies Inc. 58

Tax Status of the Company

Controlled Foreign Corporations. A non-US company generally will be a “controlled foreign corporation” under Section 957 of the Internal Revenue Code (a “CFC”) if more than 50 percent 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 percent or more of the total voting power of the outstanding shares of the company (a “10 percent Shareholder”).

If our Company is a CFC, a 10 percent Shareholder generally will be subject to current U.S. federal income tax with respect to (a) such 10 percent Shareholder’s pro rata share of the “subpart F income” (as defined in Section 952 of the Internal Revenue Code) of our Company and (b) such 10 percent 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 percent Shareholder at any time during the five-year period ending with such sale or other taxable disposition generally will be treated as a dividend to the extent of the “earnings and profits” of our Company that are attributable to such common shares.

The Company does not believe that it currently is a CFC. However, there can be no assurances that our Company will not be a CFC for the current or any future taxable year.

Passive Foreign Investment Companies. A non-U.S. company will be a passive foreign investment company if 75 percent 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 percent 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 percent of the value of the 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 percent or more of the shares (determined by market value)) in a taxable year are held for the production of, or produce, passive income. Passive income generally includes, among others, interest, dividends, royalties, rents and annuities.

If our 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 as a "qualified electing fund" (a "QEF election"), as discussed below, would, upon certain distributions by our 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 holding period for the common shares during which our Company was a passive foreign investment company. Additionally, if our Company is a passive foreign investment company, U.S. Holders who acquire 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 U.S. decedent's basis, if lower.

If our 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 was a passive foreign investment company, distributions and gain will not be recognized ratably over the U.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 is a qualified electing fund to include in income a pro rata share of the ordinary earnings of our Company as ordinary income and a pro rata share of the net capital gain of our Company as capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. In order to comply with the requirements of a QEF election, a U.S. Holder must receive from our 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 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 or, if not required to file United States Federal income tax return, by filing such form with the IRS Service Center 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.

Northcore Technologies Inc. 59

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 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 de minimis 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 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 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 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 have not determined whether our Company may have been a passive foreign investment company during 2012. There can be no assurance that our Company will not be classified as a passive foreign investment company in 2013, 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 is a passive foreign investment company will be subject to the foregoing rules, even if our Company ceases to be a passive foreign investment company, subject to certain exceptions for U.S. Holders who made a QEF election or mark-to-market 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 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.

Northcore Technologies Inc. 60

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

Not applicable.

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:

100F Street, N.E Washington D.C. 20549

You can also obtain copies of this material by mail from the Public Reference Section of the Securities and Exchange Commission, 100F Street, N.E., 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

Not applicable.

ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

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

Not applicable.

Northcore Technologies Inc. 61

ITEM 15 – CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

The Company has evaluated, under the supervision and with the participation of the management, including our Chief Executive Officer and our Chief Operating Officer, our disclosure controls and procedures as of December 31, 2012 pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on this evaluation, these Officers have concluded that Company’s disclosure controls and procedures as of such date were effective to provide reasonable assurance that information required to be disclosed by the Company in this report we file or submit under the Securities Exchange Act of 1934, as amended, (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Operating Officer, as appropriate to allow timely decisions regarding required disclosure.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the Chief Executive Officer and Chief Operating Officer, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the

transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and

·	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the design and operating effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of December 31, 2012, the Company’s internal control over financial reporting was effective.

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 by the Audit Committee to ensure that internal controls over financial reporting and 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 justify the expenses associated with such increase.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Northcore Technologies Inc. 62

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has been no changes in the Company's internal controls over financial reporting during the year ended December 31, 2012, that has materially affected, or is reasonably likely to materially affect, the Company's internal 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 Christopher Bulger is audit committee financial expert.

ITEM 16B – CODE OF ETHICS

The Company has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and 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

The aggregate audit fees billed by Collins Barrow Toronto LLP, for the years ended December 31, 2012, and 2011, are set out in the table below:

Year	Audit Fees(1)	Tax Fees(2)
2012	$101,000	$2,000
2011	$98,000	$3,000

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

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

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. Audit and non-audit services provided by the Company’s auditor were pre-approved by the Audit Committee pursuant to the Audit Committee’s pre-approval policy.

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

Not applicable.

Northcore Technologies Inc. 63

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 as an exhibit 15.1.

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)

1.2

By-laws of the Company.(2)

2.1 Form of 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

Form of Warrant issued or issuable upon exercise of 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)

Northcore Technologies Inc. 64

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

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 between ADB Systems International Ltd. and First Associates Investments Inc.(7)

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

4.20	Form of Subscription Agreement for Equity Private Placement(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)

4.26	The Audit Committee’s Charter*

4.27	Form of Subscription Agreement for June 15, 2007 Equity Private Placement

4.28	Form of Subscription Agreement for Series K Convertible Secured Debenture

4.29	Form of Series K Convertible Secured Debenture

4.30	Form of Subscription Agreement for Series L Convertible Secured Debenture

4.31	Form of Subscription Agreement for Series M Convertible Secured Debenture

4.32	Form of Subscription Agreement for Series N Convertible Secured Debenture

8.1 List of Subsidiaries*

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

12.1 CEO Certification.*

12.2 Chief Operating Officer.*

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

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

14.1	Report of Independent Registered Public Accounting Firm*

14.2	Schedule of Valuation and Qualifying Accounts*

15.1	Consolidated Financial Statements for the year ended Dec. 31, 2012*

Northcore Technologies Inc. 65

15.2	Form of Subscription Agreement of the Equity Private Placement Closed on Dec.22, 2010

15.3	Form of Subscription Agreement of the Equity Private Placement Closed on Feb.14, 2011

15.4	Share Purchase Agreement with Envision Online Media Inc. and Kahootkids! Inc.*

______________________________________________________________________________

Filed herewith

(1)	Incorporated by reference from Exhibit 1 to the Company’s Current Report on Form 6-K, Filing No. 1 for the Month of November 2002, filed with the Securities and Exchange Commission on November 5, 2002.

(2)	Incorporated by reference from Exhibit 1.2 of Amendment No. 1 to the Company’s Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999.

(3)	Incorporated by reference from Exhibit 3.27 of Amendment No. 1 to the Company’s Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999.

(4)	Incorporated by reference from the Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 23, 2001.

(5)	Incorporated by reference from the Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 17, 2002.

(6)	Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 20, 2003.

(7)	Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on June 30, 2004.

(8)	Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on June 30, 2005.

(9)	Incorporated by reference from Exhibit 99.6 to the Company’s Filing No. 1 for the Month of May on Form 6-K, File No. 001-14835 filed with the Securities and Exchange Commission on May 31, 2006.

(10)	Incorporated by reference from Exhibit 99.6 to the Company’s Filing No. 1 for the Month of March on Form 6-K, File No. 001-14835 filed with the Securities and Exchange Commission on March 30, 2007.

(11)	Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on June 25, 2007.

Northcore Technologies Inc. 66

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

	NORTHCORE TECHNOLOGIES INC. By: “Jim Moskos” Name: Jim Moskos Title: Chief Executive Officer
Dated: March 28, 2013	By: “Tam Nguyen” Name: Tam Nguyen Title: Chief Financial Officer

Northcore Technologies Inc. 67

EXHIBIT 4.26

NORTHCORE TECHNOLOGIES INC.

(the “Company”)

AUDIT COMMITTEE CHARTER

Originally Adopted by the Board of Directors on May 18, 2005

Organization

There shall be a committee of the Board of Directors (the “Board”) to be known as the Audit Committee (the “Committee”). The Committee shall be composed of at least three directors and any vacancies shall be filled as soon as practicable.

All of the members of the Committee must be “independent”1 as such term is defined in Multilateral Instrument 52-110 “Audit Committees” (the “Instrument”) (or exempt therefrom), and free of any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee.

All members of the Committee should have a working familiarity with basic finance and accounting practices and be “financially literate”2 as such term is defined in the Instrument.

The Committee members and the Committee chairman shall be appointed by the Board and members of the Committee shall hold office until the next annual meeting of the shareholders or until they cease to be directors of the Company. Where a vacancy occurs at any time in the membership of the Committee, it may be filled by the Board on the recommendation of the Committee, and shall be filled by the Board if membership of the Committee falls below three directors. If the Chair of the Committee is absent from any meeting, the Committee shall select one of the other members of the Committee to preside at the meeting.

The Chair of the Committee shall be responsible for:

(i) developing and setting the agenda for Committee meetings; and

(ii) determining the time, place and frequency of Committee meetings.

Any member of the Committee or the external auditor may call a meeting of the Committee.

The quorum for a meeting of the Committee is a majority of the members. With the exemption of the foregoing quorum requirement, the Committee may determine its own procedures.

Notice of the time and place of every meeting shall be given in writing, verbally, by facsimile or by phone to each member of the Committee, the Chairman of the Board, the Chief Executive Officer of the Company and the Chief Financial Officer of the Company, at least 48 hours prior to the time fixed for the meeting. The notice period may be waived by all members of the Committee. The external auditor of the Company shall be given notice of every meeting of the Committee, and, at the expense of the Company, shall be entitled to attend and be heard thereat. If requested by a member of the Committee, the external auditor shall attend every meeting of the Committee held during the term of office of the external auditor.

1 Meaning of Independence pursuant to s. 1.4 of the Instrument – A member of an audit committee is independent if the member has no direct or indirect material relationship with the issuer and subject to subsections 1.4(2) through (8) of the Instrument.

2 Meaning of Financial Literacy pursuant to s. 1.5 of the Instrument - An individual is financially literate if he or she has the ability to read and understand a set of financial statements that presents a breadth and level of complexity of accounting issues that are general comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the issuer’s financial statements.

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Statement of Policy

The Committee shall provide assistance to the Board in fulfilling their responsibility to the shareholders, potential shareholders and the investment community relating to:

(i) corporate accounting;

(ii) reporting practices of the Company;

(iii) the quality and integrity of the financial reports of the Company;

(iv) the Company’s compliance with legal and regulatory requirements, as they relate to the Company’s financial statements;

(v) the qualifications, independence and performance of the external auditor;

(vi) internal controls and disclosure controls;

(v) the performance of the Company’s internal audit function; and

(vi) performing the additional duties set out in this Charter or otherwise delegated to the Committee by the Board.

In so doing, it is the responsibility of the Committee to maintain free and open means of communications between and among the auditors, the directors and the financial management of the Company.

Authority and Responsibilities

In carrying out its responsibilities, the Committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to ensure that the corporate accounting and reporting practices of the Company are in accordance with all applicable requirements and are of the highest quality. The duties and responsibilities of the members of the Committee are in addition to those of a member of the Board.

The Company’s external auditor is required to report directly to the Committee.

In carrying out these responsibilities, the audit committee will:

1.	General. Provide an open avenue of communication among the directors, auditors and financial management of the Company.

The Committee has the authority:

(i) to engage independent counsel and other advisors as it determines necessary to carry out its duties,

(ii) to set and pay the compensation for any advisors employed by the audit committee, and

(iii) to communicate directly with the internal and external auditors.

2.	Committee Charter. Review and update the Committee’s charter annually.

3.	Auditor Selection. Review and recommend to the Board the auditors to be selected to be nominated for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company and review and recommend the compensation of the independent auditor.

Northcore Technologies Inc. 69

Auditor Oversight. Be directly responsible for overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor's report or performing other audit, review or attest services for the issuer, including the resolution of disagreements between management and the external auditor regarding financial reporting.

Review of Audit. Meet with the auditors, the Board and financial management of the Company to review the scope of the proposed audit for the current year and the audit procedures to be utilized, and at the conclusion thereof, review such audit, including any comments or recommendations of the auditors.

6.	Appointment of CFO. Review and concur in the appointment, replacement, reassignment, or dismissal of the Chief Financial Officer (the “CFO”) and any other key financial executives involved in the financial reporting process.

7.	Auditor Independence. Confirm and assure the independence of the auditors.

Review Financial Reporting and Accounting Standards. Review with the auditors, the competitiveness and suitability of the financial and accounting personnel and the adequacy and effectiveness of the financial reporting and accounting standards and controls of the Company, and elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such internal controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. The Committee is also responsible for reviewing the Company’s accounting policy note to ensure completeness and acceptability with GAAP as part of the approval of the financial statements.

9.	Internal Audit Function. Review the applicability of an internal audit function of the Company including the independence and authority of its reporting obligations, the proposed audit plans for the coming year and the coordination of such plans with the auditors.

10.	Pre-approval of Non-audit Services. Be responsible for the pre-approval of all non-audit services to be provided to the Company or its subsidiary entities by the independent auditor.

11.

Review Annual Financial Statements. Review the annual financial statements and MD&A contained in the annual report to shareholders with management and the auditors to determine that the auditors are satisfied with the disclosure and content of the financial statements to be presented to the shareholders. Upon review, recommend the annual financial statements and MD&A for approval by the Board. Any changes in accounting principles should be reviewed.

12.	Review Interim Financials. Review with management and the CFO the interim financial reports and MD&A and recommend that such reports and MD&A be approved by the Board before they are filed with the OSC, SEC or other regulators.

13.	Risk and Uncertainty. The Committee is responsible for reviewing, as part of its approval of the financial statements, uncertainty notes and disclosures, and MD&A disclosures.

14.	Press Releases and MD&A. Prior to release, review with management and, where necessary, recommend for approval by the Board any press releases and MD&A that disclose annual or interim financial results or that contain other significant financial information.

The Committee is responsible for being satisfied that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, other than the public disclosure referred to in the preceding paragraph, and must periodically assess the adequacy of those procedures.

Northcore Technologies Inc. 70

15.

Review Related Party and Conflicts of Interest. Review with management and the independent auditor significant risks or exposures and assess the steps management has taken to minimize such risk to the Company. This includes a review of related party transactions and conflict of interest transactions and the public disclosure of such transactions, if required.

16.

Review of Accounting and Financial Disclosure Policies. Provide sufficient opportunity for the auditors to meet with the members of the audit committee without members of management present. Among the items to be discussed in these meetings are the auditors’ evaluation of the Company’s accounting policies and the clarity of the financial information and disclosure practices adopted by the Company, and the cooperation that the auditors received during the course of the audit.

17.	Audit Resources. Review accounting and financial human resources and succession planning and audit efforts of the Company to assure completeness of coverage, reduction of redundant efforts and the effective use of audit resources.

18.	Committee Minutes. Appoint a secretary to the Committee who need not be a director or officer of the Company and will submit the minutes of all meetings of the audit committee to, or discuss the matters discussed at each committee meeting with, the Board.

19.	Committee Reports. Report the Committee’s actions to the Board, including recommendations that the Committee may deem appropriate.

20.

Review Internal Controls. Be responsible for reviewing the plan and scope of the annual audit with respect to planned reliance and testing of controls, and for reviewing major points contained in the auditor’s management letter resulting from control evaluation and testing. The Committee is also responsible for receiving reports from management when significant control deviations occur.

The Committee will also establish and review the Company’s procedures for the:

· Receipt, retention and treatment of complaints regarding accounting, financial disclosure, internal controls or auditing matters; and

· Confidential, anonymous submission by employees regarding questionable accounting auditing and financial reporting and disclosure matters.

21.	Hiring Policies. Be responsible for reviewing and approving the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Company.

22.	Authority to Investigate. Investigate any matter brought to its attention within the scope of its duties, with the power to retain outside counsel, accountants and others for this purpose if, in its judgment, that is appropriate.

23.	Review of Expense Accounts and Perquisites. Review policies and procedures with respect to expense accounts and perquisites, including their use of Company assets and address the results of any review of these areas with the CFO.

24.	Legal and Regulatory Matters. Review legal and regulatory matters that may have a material impact on the Company’s financial statements and on its compliance policies programs and procedures, including compliance with tax and financial reporting laws and regulations, if and when issues arise.

25.	Committee Letter for Annual Report. Prepare a letter for inclusion in the annual report that describes the Committee’s composition and responsibilities, and how they were discharged.

Northcore Technologies Inc. 71

26.

Other Functions and Powers. The Committee will perform such other functions and exercise such other powers as are assigned by the Company’s charter or bylaws, or the Board or are prescribed from time to time for the audit committee of a reporting company in Parts 2 and 4 of the Instrument and other relevant legislation.

Northcore Technologies Inc. 72

EXHIBIT 8.1

LIST OF SUBSIDIARIES

Unless otherwise indicated, Northcore Technologies Inc. (“Northcore”), or one of its subsidiaries, owns 100 percent, except as otherwise noted, of the outstanding capital stock of the following companies:

Name of Subsidiary		Country of Incorporation

ADB Systems USA, Inc.		USA (Delaware)
GE Asset Manager, LLC(1) Envision Online Media Inc.(2) Kahootkids! Inc.(2) Dealco Inc. (3)		USA (Delaware) Ottawa, ONTARIO Ottawa, ONTARIO Toronto, ONTARIO

(1) Northcore owns 50 percent of the membership interest of GE Asset Manager, LLC.

(2) Northcore acquired them on March 27, 2012.

(3) Northcore owns 50 percent ownership in the Company.

Northcore Technologies Inc. 73

EXHIBIT 12.1

Certification

I, Jim Moskos, certify that:

1. I have reviewed this annual report on Form 20-F of Northcore Technologies Inc.

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

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

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

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

Dated: March 28, 2013

“Jim Moskos”

Jim Moskos

Chief Executive Officer

Northcore Technologies Inc. 74

EXHIBIT 12.2

Certification

I, Tam Nguyen, certify that:

1. I have reviewed this annual report on Form 20-F of Northcore Technologies Inc.

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

Dated: March 28, 2013

“Tam Nguyen”

Tam Nguyen

Chief Financial Officer

Northcore Technologies Inc. 75

EXHIBIT 13.1

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, being the Chief Executive Officer of Northcore Technologies Inc. (the “Company”) hereby certifies that to the best of my knowledge:

(1) The Annual Report on Form 20-F of the Company for the fiscal year ended December 31, 2012 (the “Report”) which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as at, and for the fiscal year ended on, December 31, 2012.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: March 28, 2013

“Jim Moskos”

Jim Moskos

Chief Executive Officer

This certification is being furnished solely to accompany this Report pursuant to 18 U.S.C. Section 1350, and is not being filed for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise, and is not to be incorporated by reference into any filing of the Company unless such incorporation is expressly referenced within.

Northcore Technologies Inc. 76

EXHIBIT 13.2

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, being the Chief Financial Officer of Northcore Technologies Inc. (the “Company”) hereby certifies that to the best of my knowledge:

Dated: March 28, 2013

“Tam Nguyen”

Tam Nguyen

Chief Financial Officer

Northcore Technologies Inc. 77

EXHIBIT 15.1

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements for the years ended December 31, 2012, and 2011

Management’s Report			79
Report of Independent Registered Public Accounting Firm			80
Consolidated Statement of Financial Position as at December 31, 2012 and 2011			81
Consolidated Statements of Operations and Comprehensive loss for the years ended December 31, 2012 2011 and 2010.			82
Consolidated Statements of Shareholders’ Equity as at December 31, 2012, 2011 and 2010			83
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010			84
Notes to Consolidated Financial Statements			85

MANAGEMENT’S REPORT

March 28, 2013

Preparation of the consolidated financial statements accompanying this annual report and the presentation of all other information in this report is the responsibility of management. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and reflect management’s best estimates and judgments. All other financial information in the report is consistent with that contained in the consolidated financial statements. The Company maintains appropriate systems of internal control, policies and procedures which provide management with reasonable assurance that assets are safeguarded and that financial records are reliable and form a proper basis for preparation of financial statements.

The Board of Directors ensures that management fulfills its responsibilities for financial reporting and internal control through an Audit Committee which is composed of non-executive directors. The Audit Committee reviewed the consolidated financial statements with management and external auditors and recommended their approval by the Board of Directors. The consolidated financial statements have been audited by Collins Barrow Toronto LLP, Chartered Accountants. Their report stating the scope of their audit and their opinion on the consolidated financial statements is presented below.


Jim Moskos CEO	Tam Nguyen CFO

Northcore Technologies Inc. 79

INDEPENDENT AUDITORS' REPORT

To the Shareholders of Northcore Technologies Inc.

We have audited the accompanying consolidated financial statements of Northcore Technologies Inc., and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2012 and 2011 and the consolidated statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2012 and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Northcore Technologies Inc., and its subsidiaries, as at December 31, 2012 and 2011, and its financial performance and its cash flows for each of the years in the three year period ended December 31, 2012 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 2 in the consolidated financial statements which describes the material uncertainties that cast substantial doubt about Northcore Technologies Inc.'s, and its subsidiaries, ability to continue as a going concern.

Licensed Public Accountants

Chartered Accountants

March 28, 2013

Toronto, Ontario

Northcore Technologies Inc. 80

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at December 31, 2012 and 2011 (in thousands of Canadian dollars)

	2012			2011

ASSETS
CURRENT
Cash	$	21		$	1,760
Short-term investments (Note 4)		41			-
Accounts receivable		171			187
Deposits and prepaid expenses		51			40
		284			1,987
INVESTMENT IN JOINT VENTURES (Note 5)		196			24
CAPITAL ASSETS (Note 6)		86			91
INTANGIBLE ASSETS (Note 7)		1,058			807
GOODWILL (Note 8)		1,091			-
TOTAL ASSETS	$	2,715		$	2,909

LIABILITIES
CURRENT
Operating line of credit (Note 4)	$	33		$	-
Accounts payable		448			239
Accrued liabilities		197			173
Deferred revenue		56			3
Current portion of contingent consideration (Note 8)		71			-
		805			415
CONTINGENT CONSIDERATION (Note 8)		63			-
TOTAL LIABILITIES		868			415
SHAREHOLDERS’ EQUITY
Share capital (Note 11)		118,332			117,359
Contributed surplus		4,149			3,586
Warrants (Note 12)		273			836
Stock options (Note 13)		4,099			3,690
Deficit		(125,006	)		(122,977	)
TOTAL SHAREHOLDERS’ EQUITY		1,847			2,494
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,715		$	2,909

Going concern (Note 2)

Commitments and contingencies (Note 17)

On behalf of the Board:


Jim Moskos Director	Christopher Bulger Director

See accompanying notes to consolidated financial statements.

Northcore Technologies Inc. 81

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the years ended December 31, 2012, 2011 and 2010

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

	2012			2011			2010


Revenues (Note 14)	$	1,362		$	785		$	582

Other income:
Income from GE Asset Manager, LLC (Note 5 (a))		82			69			43
Operating expenses:
General and administrative		1,685			1,670			1,440
Customer service and technology		1,113			726			734
Sales and marketing		225			260			188
Stock-based compensation (Note 13 (b))		425			1,873			517
Depreciation and amortization		61			32			22
Total operating expenses		3,509			4,561			2,901
Loss from operations		(2,065	)		(3,707	)		(2,276	)

Finance costs:
Cash interest expense (Note 9 (c))		-			103			154
Accretion of secured subordinated notes (Note 9 (c))		-			124			115
Total finance costs		-			227			269
Other expenses:
Gain on settlement of debt (Note 9 (e))		-			-			(57	)
Provision for impaired investment (Note 5 (c))		-			-			544
Total other expenses		-			-			487
Loss before recovery of income taxes		(2,065	)		(3,934	)		(3,032	)
Recovery of income taxes		(36	)		-			-
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR	$	(2,029	)	$	(3,934	)	$	(3,032	)
LOSS PER SHARE, BASIC AND DILUTED	$	(0.009	)	$	(0.020	)	$	(0.019	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED (000’s)		232,715			196,180			162,899

SUPPLEMENTAL DISCLOSURE OF OPERATING EXPENSES – See Note 18 (b)

See accompanying notes to consolidated financial statements

Northcore Technologies Inc. 82

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY As at December 31, 2012, 2011 and 2010 (in thousands of Canadian dollars)

	Share Capital			Contributed Surplus		Warrants			Stock Options			Other Options		Conversion Feature on Secured Notes			Deficit			Total
Opening balance – January 1, 2010	$	110,240		$	3,074	$	490		$	1,435		$	-	$	547		$	(116,011	)	$	(228	)
Changes:
Conversion of notes		117			-		41			-			-		(89	)		-			69
Equity private placement		461			-		164			-			-		-			-			625
Equity line of credit		(308	)		-		562			-			-		-			-			254
Exercise of warrants		202			-		(32	)		-			-		-			-			170
Expiry of warrants		-			391		(391	)		-			-		-			-			-
Payment of interest		48			-		-			-			-		-			-			48
Exercise of stock options		7			-		-			(3	)		-		-			-			4
Stock-based compensation		-			-		-			517			-		-			-			517
Loss for the period		-			-		-			-			-		-			(3,032	)		(3,032	)
Closing balance – December 31, 2010	$	110,767		$	3,462	$	834		$	1,949		$	-	$	458		$	(119,043	)	$	(1,573	)

Changes in 2011:
Conversion of notes		1,081		-		207			-			-			(458	)		-			830
Equity private placement		456		-		149			-			108			-			-			713
Acquisition of intellectual properties		630		-		-			-			-			-			-			630
Warrants issued for debt settlement		-		-		200			-			-			-			-			200
Exercise of warrants		3,854		-		(477	)		-			-			-			-			3,377
Exercise of compensation options		241		-		47			-			(108	)		-			-			180
Expiry of warrants		-		124		(124	)		-			-			-			-			-
Payment of interest		1		-		-			-			-			-			-			1
Exercise of stock options		329		-		-			(132	)		-			-			-			197
Stock-based compensation		-		-		-			1,873			-			-			-			1,873
Loss for the period		-		-		-			-			-			-			(3,934	)		(3,934	)
Closing balance – December 31, 2011	$	117,359	$	3,586	$	836		$	3,690		$	-		$	-		$	(122,977	)	$	2,494

Changes in 2012:
Shares issued for acquisition of businesses		933		-		-			-			-		-		-			933
Expiry of warrants		-		563		(563	)		-			-		-		-			-
Exercise of stock options		40		-		-			(16	)		-		-		-			24
Stock-based compensation		-		-		-			425			-		-		-			425
Loss for the period		-		-		-			-			-		-		(2,029	)		(2,029	)
Closing balance – December 31, 2012	$	118,332	$	4,149	$	273		$	4,099		$	-	$	-	$	(125,006	)	$	1,847

See accompanying notes to consolidated financial statements.

Northcore Technologies Inc. 83

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2012, 2011 and 2010

(in thousands of Canadian dollars)

	2012			2011			2010
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES

OPERATING
Loss for the year	$	(2,029	)	$	(3,934	)	$	(3,032	)
Adjustments for:
Income from GE Asset Manager, LLC (Note 5 (a))		(82	)		(69	)		(43	)
Stock-based compensation		425			1,873			517
Depreciation and amortization		61			32			22
Recovery of income taxes		(36	)		-			-
Cash interest expense		-			103			154
Accretion of secured subordinated notes		-			124			115
Gain on settlement of debt (Note 9 (e))		-			-			(57	)
Provision for impaired investment (Note 5(c))		-			-			544
		(1,661	)		(1,871	)		(1,780	)
Changes in non-cash operating working capital (Note 18)		216			(19	)		200
		(1,445	)		(1,890	)		(1,580	)

INVESTING
Increase in short-term investments		(1	)		-			-
Investment in Dealco (Note 5 (b))		(167	)		-			-
Cash distribution from investment in GE Asset Manager, LLC (Note 5 (a))		77			60			60
Purchase of capital assets		(34	)		(92	)		(6	)
Acquisition of intangible assets (Note 7)		(129	)		(177	)		-
Acquisition of businesses, net of cash acquired (Note 8)		(97	)		-			-
		(351	)		(209	)		54

FINANCING
Stock options exercised (Note 13 (c))		24			197			4
Proceeds from operating line of credit (Note 4)		33			-			-
Proceeds from issuance of notes payable		-			-			859
Repayment of notes payable (Note 9)		-			(530	)		(465	)
Issuance of equity and compensation units (Note 11)		-			1,018			1,008
Share issuance costs (Note 11 (d))		-			(125	)		(129	)
Warrants exercised (Note 12 (c))		-			3,377			170
Interest paid		-			(129	)		(80	)
		57			3,808			1,367
NET CASH INFLOW (OUTFLOW) DURING THE YEAR		(1,739	)		1,709			(159	)
CASH, BEGINNING OF YEAR		1,760			51			210
CASH, END OF YEAR	$	21		$	1,760		$	51

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES – See Note 18

See accompanying notes to consolidated financial statements.

Northcore Technologies Inc. 84

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

1. DESCRIPTION OF BUSINESS

2. GOING CONCERN

While the accompanying 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 continued existence beyond 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. The Company cannot provide assurance that it will be able to execute on its business plan or assure that efforts to raise additional financings will 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 was not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, and the reported losses and the classifications used in the statements of financial position.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These statements were authorized for issuance by the Board of Directors of the Company on March 28, 2013.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Envision Online Media Inc., Kahootkids! Inc., and ADB USA Inc. Investments in associates and interests in joint ventures are accounted for using the equity method. Intercompany balances and transactions are eliminated on consolidation.

Northcore Technologies Inc. 85

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

Foreign Currencies

The consolidated financial statements are presented in Canadian dollars, which is the Company’s functional and presentation currency. The functional currency of the Company’s foreign subsidiaries is the Canadian dollar. The Company translates monetary assets and liabilities 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 rates except depreciation of capital assets, which is translated at historic exchange rates. Gains and losses from foreign exchange translations are included in the statement of operations.

Investments

On May 12, 2011, the IASB issued the new standard, IFRS 11, Joint Arrangements. The effective date for this standard is January 1, 2013, with early adoption permitted. This standard requires investments in joint ventures to be accounted using the equity method in accordance with IAS 28, Investments in Associates.

Prior to January 1, 2010, the consolidated financial statements of the Company reflected the Company’s pro rata share of the joint venture’s assets, liabilities, and results of operations in accordance with the proportionate consolidation method of accounting. On January 1, 2010, the Company early adopted IFRS 11, Joint Arrangements and IFRS 12, Disclosure of Interests in Other Entities, and accounted for the investment using the equity method of accounting in accordance with IAS 28 (as amended), Investments in Associates. As a result of the early adoption, assets, liabilities, income and expense accounts have been restated to reflect the investment using the equity method of accounting since its inception. Additionally, as required under IFRS 11, the Company was required to early adopt IFRS 10 and IFRS 12, IAS 27 (as amended) and IAS 28 (as amended).

Equity method investees are entities over which the Company has significant influence, but not control. Generally, the Company has a shareholding of between 20 percent and 50 percent of the voting rights in its equity method investees. Investments in equity method investees are accounted for using the equity method as follows:

·	Investments are initially recognized at cost;

·	The Company’s share of post-acquisition profits or losses is recognized in the income statement and is adjusted against the carrying amount of the investments;

·	When the Company’s share of losses equals or exceeds its interest in the investee, the Company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the investee; and

·	Gains and losses on transactions between the Company and its equity method investees are eliminated to the extent of the Company’s interest in these entities.

Capital Assets and Depreciation

Capital assets are recorded at cost less accumulated depreciation. Depreciation 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 1 year or life of the license

Furniture and fixtures 5 years

Leasehold improvements Shorter of useful life or life of the lease

Intangible Assets

Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives as follows:

Intellectual properties 5 - 10 years

Intellectual properties are comprised of customer lists, trade names and acquired technologies. Residual values and useful lives are reviewed at the end of each reporting period and adjusted if appropriate.

Northcore Technologies Inc. 86

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

Research and Product Development Costs

The Company incurs costs associated with the design and development of new products. Expenditures during the research phase are expensed as incurred. Expenditures during the development phase are capitalized if the Company can demonstrate each of the following criteria are met: i) the technical feasibility of completing the intangible asset so that it will be available for use or sale, ii) its intention to complete the intangible asset and use or sell it, iii) its ability to use or sell the intangible asset, iv) how the intangible asset will generate probable future economic benefits, v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and vi) its ability to measure reliably the expenditure attributable to the intangible asset during its development; otherwise they are expensed as incurred. During the year ended December 31, 2012, the Company capitalized $129,000 of development costs in connection with the Discount This Platform (See Note 7).

The costs of software internally developed for client applications through e-commerce enabling agreements and software licensing are expensed as incurred. The costs associated with maintaining computer software programs are also recognized as an expense as incurred.

Impairment

Impairments are recorded when the recoverable amount of assets are less than their carrying amounts. The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit, for which the estimated future cash flows from the asset were not adjusted. Certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of future revenues, timing and quantum of future capital expenditure, long-term growth rates of subscribers and discount rates, to reflect the risks involved. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. Impairment losses, other than those relating to goodwill, are evaluated for potential reversals when events or changes in circumstances warrant such consideration.

The carrying values of capital and intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

Goodwill is not subject to amortization but is tested for impairment annually or whenever there is an indication that the asset may be impaired.

In addition, long-lived assets that are not amortized, such as equity investments, are subject to an annual impairment assessment. Assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

Cash-generating units (CGU) to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes.

An impairment loss is recognized if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis.

Stock-based Compensation

The Company has a stock option plan for directors, officers and employees. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. The estimated fair value of each tranche is measured at the date of the grant using the Cox-Rubinstein binomial valuation model. Compensation expense is recognized over the tranche’s vesting period, based on the number of awards expected to vest, with the offset credited to stock options. Performance based options are expensed based upon achievement of specific criteria. The number of awards expected to vest is reviewed quarterly, with any impact being recognized immediately. When options are exercised, the amount received is credited to share capital and the fair value attributed to these options is transferred from stock options to share capital.

Northcore Technologies Inc. 87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

For equity-settled share-based payment transactions, the Company measures the goods and services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably, in which cases, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instrument granted.

Financial Instruments with Separate Components

The secured subordinated notes are segregated into their debt and equity components at the date of issue. The fair value of the debt component was calculated using market rates at the time the financial instrument was issued. The remaining component, representing the value ascribed to the convertible feature, has been included in equity. The difference between the face value and the ascribed value of the debt, is accreted to the original face value of the secured subordinated notes over the respective terms of the notes and charged to the consolidated statements of comprehensive income and loss as interest expense based on the effective interest method.

Financial Instruments

Financial instruments are classified into one of these five categories: financial assets or liabilities at fair value through profit or loss (FVTPL); held-to-maturity; loans and receivables; available-for-sale financial assets; or financial liabilities measured at amortized cost. All financial instruments, including derivatives, are measured in the statement of financial position at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities, which are measured at amortized cost using the effective interest rate method. Subsequent measurement and changes in fair value will depend on their initial classification, as follows: financial assets or liabilities at FVTPL are measured at fair value and changes in fair value are recognized in net income; available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is de-recognized or impaired at which time the amounts would be recorded in net income.

Transaction costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset.

All financial liabilities are recognized initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. Financial liabilities are classified as other financial liabilities, and are subsequently measured at amortized cost using the effective interest rate method.

The Company designated its accounts receivable as loans and receivables, which are measured at amortized cost. The operating line of credit, accounts payable and accrued liabilities are classified as financial liabilities measured at amortized cost. Cash, short-term investments and contingent consideration are designed as FVTPL. The Company had neither available-for-sale, nor held-to-maturity instruments during the years ended December 31, 2012, 2011 and 2010.

The Company had no “other comprehensive income or loss” transactions during the years ended December 31, 2012, 2011 and 2010 and no opening or closing balances for accumulated other comprehensive income or loss.

Revenue Recognition

The Company’s revenues are derived from services (application and web development activities, software implementation and license fees, training and consulting, product maintenance and customer support) and application hosting fees. Fees for services are billed separately from licenses of the Company’s products.

Revenue from the rendering of services is recognized when the following criteria are met:

·	The amount of revenue can be measured reliably;

·	The stage of completion can be measured reliably;

·	The receipt of economic benefits is probable; and

·	The costs incurred or to be incurred can be measured reliably.

Northcore Technologies Inc. 88

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

Revenue from the sale of goods is recognized when the following criteria are met:

·	The amount of revenue can be measured reliably;

·	The risks and rewards of ownership have been transferred to the buyer;

·	The receipt of economic benefits is probable; and

·	The costs incurred or to be incurred can be measured reliably.

In addition to the above general principles, the Company applies the following specific revenue recognition policies:

·	Application and Web Development Fees

·	Implementation, Training and Consulting Service Fees

·	Product Maintenance and Customer Support Fees

·	Hosting Fees

·	Multiple Deliverable Revenue Arrangements

Northcore Technologies Inc. 89

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

Loss Per Share

For 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.

Income Taxes

The Company accounts for income taxes in accordance with the asset and liability method. The determination of deferred 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 year in which the differences are expected to reverse. Deferred tax assets are recorded to recognize tax benefits only to the extent that, based on available evidence, it is probable that they will be realized.

Use of Significant Accounting Estimates

The Company determines the fair value stock-based compensation using the Cox-Rubinstein binomial valuation model, which requires management to make assumptions regarding the volatility rate, risk free interest rate, average share price, expect term and dividend yield.

RECENT ACCOUNTING PRONOUNCEMENTS

Northcore Technologies Inc. 90

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

4. SHORT-TERM INVESTMENTS AND OPERATING LINE OF CREDIT

Short-term investments include a Guaranteed Investment Certificate (GIC) of $41,000 with an annual interest rate of 0.75 percent. The short-term investment is currently used as security for the Canadian Imperial Bank of Commerce (“CIBC”) in connection with the operating line of credit.

The Company has an operating line of credit of $150,000 available with CIBC. The line of credit bears interest at CIBC prime rate plus 1.75 percent and is due on demand. The line of credit is secured by a GIC in the amount of $41,000, a general security agreement over the assets of the Company and a personal guarantee from a director. The balance in the operating line of credit as at December 31, 2012 is $33,000 (2011 - $nil).

5. INVESTMENTS IN JOINT VENTURES

a) 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 solutions to customers in a broad range of industries.

During the year ended December 31, 2012, the Company’s share of income from GEAM and cash distributions were $82,000 (2011 - $69,000, 2010 - $43,000) and $77,000 (2011 - $60,000, 2010 - $60,000), respectively. The Investment in GEAM balance as at December 31, 2012 is $29,000 (December 31, 2011 - $24,000).

The following is a summary of the statement of financial position as at December 31, 2012 and 2011, and the statement of operations and cash flows of GEAM for each of the years in the three year period ended December 31, 2012.

Northcore Technologies Inc. 91

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

GE ASSET MANAGER, LLC	December 31, 2012		December 31, 2011
	(in thousands)
Statement of Financial Position
Assets Cash	$	10	$	91
Accounts receivable		54		13
Total assets	$	64	$	104
Liabilities and Equity
Accounts payable	$	7	$	-
Deferred revenue		-		55
Equity		57		49
Total liabilities and equity	$	64	$	104

GE ASSET MANAGER, LLC	2012			2011			2010
Statement of Operations	(in thousands)
Operating revenue	$	172		$	147		$	104
Operating expenses		(8	)		(9	)		(18	)
Net income	$	164		$	138		$	86

GE ASSET MANAGER, LLC	2012			2011		2010
Statement of Cash Flows	(in thousands)
Operating activities	$	(81	)	$	11	$	50
Investing activities		-			-		-
Financing activities		-			-		-
Net cash inflows (outflows)	$	(81	)	$	11	$	50

b)	Investment in Dealco Inc.

During the year ended December 31, 2012, the Company subscribed for a 50 percent interest in Dealco Inc. (“Dealco”) by paying $150,000 cash, with 2170773 Ontario Limited and Jety Holdings Inc., each holding 25 percent interest in the Dealco. Dealco was incorporated under the laws of the Province of Ontario with its principal office located at 1152 Yonge Street, Toronto, Ontario. Dealco is a Toronto based technology company servicing the daily deal and online e-commerce industries.

The Company incurred transaction costs in the amount of $17,000 and recorded as part of the initial investment. The investment in Dealco balance as at December 31, 2012 is $167,000. There were no significant operations in Dealco during the period from inception to December 31, 2012.

c)	Investment in Southcore Technologies Limited

During the year ended December 31, 2010, the Company wrote off the investment in Southcore as the Company determined that there was an other than temporary decline in the value of the investment. The contingent shares were cancelled and the investment in Southcore was wound-up during the year ended December 31, 2010.

Northcore Technologies Inc. 92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

6. CAPITAL ASSETS

The following summarizes the change in carrying values of capital assets:

	Computer Hardware		Computer Software		Furniture and Fixtures		Leasehold Improvements		Total
							(in thousands)
Cost:
January 1, 2011	$	139	$	15	$	-	$	27	$	181
Additions		38		-		11		43		92
December 31, 2011	$	177	$	15	$	11	$	70	$	273
Acquisition of Envision		1		1		5		1		8
Additions		11		23		-		-		34
December 31, 2012	$	189	$	39	$	16	$	71	$	315
Accumulated depreciation:
January 1, 2011	$	114	$	9	$	-	$	27	$	150
Depreciation for the year		20		6		1		5		32
December 31, 2011	$	134	$	15	$	1	$	32	$	182
Depreciation for the year		27		3		3		14		47
December 31, 2012	$	161	$	18	$	4	$	46	$	229
Carrying amount:
January 1, 2011	$	25	$	6	$	-	$	-	$	31
December 31, 2011	$	43	$	-	$	10	$	38	$	91
December 31, 2012	$	28	$	21	$	12	$	25	$	86

7. INTANGIBLE ASSETS

a)	Intangible assets are comprised of the following:

	2012			2011
	(in thousands)
Discount This Group Purchase Platform (Note 7 (b))	$	936		$	807
Envision Customer List (Note 7 (c))		28			-
Envision Trade Name (Note 7 (c))		60			-
Kuklamoo Technology (Note 7 (d))		48			-
Amortization of intangible assets		(14	)		-
	$	1,058		$	807

b)	Discount This Group Purchase Platform

On December 28, 2011, the Company acquired all the Intellectual Property of Discount This Holdings Limited (“Discount This”), commonly known as the “Discount This 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 the Discount This Group Purchase Platform as at December 31, 2011 was $807,000.

Northcore Technologies Inc. 93

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

Management has determined the estimated useful life of the Discount This Group Purchase Platform to be 5 years. Starting in 2013, amortization will be recorded on a straight-line basis over the useful life of 5 years as the commercialization of the Discount This Group Purchase Platform is expected to begin. If the Discount This Group Purchase Platform is sold or licensed to a third party within the two year period following December 28, 2011, Discount This will be entitled to an additional cash payment of 10 percent of the associated proceeds. No amounts have been accrued as at December 31, 2012 (2011 - $nil).

c)	Envision Customer List and Trade Name

The Envision Customer List and Trade Name were acquired in connection with the acquisition of Envision on March 27, 2012. The fair values of the Envision Customer List and Trade Name are $28,000 and $60,000, respectively, and were determined by an independent third party valuation (See Note 8). Management has determined the useful life of the Envision Customer List and Trade Name to be 10 years. Amortization was recorded on a straight-line basis over the useful life of 10 years.

d)	Kuklamoo Technology

Kuklamoo Technology was acquired in connection with the acquisition of Kuklamoo on March 27, 2012. The fair value of the Kuklamoo Technology of $48,000 was determined by an independent third party valuation (See Note 8). Management has determined the useful life of the Kuklamoo Technology to be 5 years. Amortization was recorded on a straight-line basis over the useful life of 5 years.

8. ACQUISITION OF BUSINESSES

On March 27, 2012, the Company acquired 100 percent of the outstanding shares of 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 Kuklamoo, a group discount and community portal targeting young families with children.

Post acquisition revenues and net income of Envision and Kuklamoo are $695,000 (Services - $547,000, Hosting - $148,000) and $21,000, respectively. Had this acquisition occurred at the beginning of the fiscal year, revenues and net loss for the twelve months period would have been $868,000 and $27,000, respectively.

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

Northcore Technologies Inc. 94

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

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
Total Purchase Price	$	1,167

Acquisition Date Fair Values:

	Amount
	(in thousands)
Cash	$	3
Short-term investments		40
Accounts receivable		79
Deposits and prepaid expenses		15
Capital assets		8
Accounts payable		(101	)
Accrued liabilities		(33	)
Deferred revenue		(35	)
Deferred tax liability		(36	)
Total net assets		(60	)
Envision customer list (Note 7 (c))		28
Envision trade name (Note 7 (c))		60
Kuklamoo technology (Note 7 (d))		48
Goodwill		1,091
Total Purchase Price	$	1,167

The change in the purchase price allocation from the quarter ended March 31, 2012 was due to the Company setting up a deferred revenue balance in the amount of $35,000 at the acquisition date.

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 higher tier of business development opportunities.

Goodwill of $1,091,000 represents the excess of purchase price over the fair values of net assets acquired, none of which is deductible for tax purposes. The fair values of Envision Customer List and Trade Name in the amount of $28,000 and $60,000, respectively, and Kuklamoo technology in the amount of $48,000 were determined 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.

During the quarter ended June 30, 2012, the Company acquired the remaining 15 percent of Kuklamoo. As consideration, the Company agreed to pay 15 percent of the cumulative profits of Kuklamoo in the event of sale of Kuklamoo to a third party. No provision has been recorded for this contingent consideration.

Northcore Technologies Inc. 95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

9. SECURED SUBORDINATED NOTES AND NOTES PAYABLE

During the year ended December 31, 2008, the Company issued Series N secured subordinated notes with a face value of $600,000. The Series N notes matured on December 12, 2011, had an annual interest rate of 10 percent and were convertible into equity units at a price of $0.10 per unit. Interest was payable in cash upon the earlier of each quarter end, conversion, or maturity of the notes. Each equity unit consisted of one common share and one share-purchase warrant with an exercise price of $0.15 per warrant. The warrants expired on December 12, 2011. Dundee Securities Corporation received a brokerage commission of four percent on a portion of the private placement. The afore-mentioned conversion provisions were subject to a four month and one day hold period. The Series N notes 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 IFRS, the Company separated the liability and equity components of the Series N secured subordinated notes. The Company determined the fair value of the liability component of the Series N notes by calculating the present value of the associated cash flows, using a discount rate that reflects the Company’s underlying rate of borrowing, and has been classified as long-term debt. The remaining component, representing the value ascribed to the conversion feature, has been included in equity. The Company determined the fair value of the share and warrant conversion feature at the issue date of the Series N notes using the Cox-Rubinstein binomial valuation model. Financing costs in the amount of $8,000 were allocated to the liability and equity components in proportion to the allocation of proceeds. The resulting fair values of the liability component of the notes and the conversion features of the units, comprised of shares and attached warrants, was $360,000, $133,000 and $107,000, respectively. The liability component will be accreted to $600,000 over the term of the Series N notes through the recording of a non-cash interest expense until such date at which the underlying notes are converted into common shares.

During the year ended December 31, 2011, $600,000 (face value) of the Series N notes (book value of $592,000) were converted into 6,000,000 equity units represented by 6,000,000 common shares valued at $131,000 and 6,000,000 warrants valued at $106,000.

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

As required by IFRS, the Company separated the liability and equity components of the Series L secured subordinated notes. The Company determined the fair value of the liability component of the Series L notes by calculating the present value of the associated cash flows, using a discount rate that reflects the Company’s underlying rate of borrowing, and has been classified as long-term debt. The remaining component, representing the value ascribed to the conversion feature, has been included in equity. The Company determined the fair value of the share and warrant conversion feature at the issue date of the Series L notes using the Cox-Rubinstein binomial valuation model. Financing costs in the amount of $21,000 were allocated to the liability and equity components in proportion to the allocation of proceeds. The resulting fair values of the liability component of the notes and the conversion features of the units, comprised of shares and attached warrants, was $190,000, $182,000 and $153,000, respectively. The liability component will be accreted to $525,000 over the term of the Series N 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. 96

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

During the year ended December 31, 2009, $20,000 (face value) of the Series L notes (book value of $6,000) were converted into 200,000 equity units represented by 200,000 common shares valued at $8,000 and 200,000 warrants valued at $7,000.

During the year ended December 31, 2010, $145,000 (face value) of the Series L notes (book value of $68,000) were converted into 1,450,000 equity units represented by 1,450,000 common shares valued at $48,000 and 1,450,000 warrants valued at $41,000.

During the year ended December 31, 2011, $360,000 (face value) of the Series L notes (book value of $237,000) were converted into 3,600,000 equity units represented by 3,600,000 common shares valued at $120,000 and 3,600,000 warrants valued at $101,000.

c)	During the year ended December 31, 2012, the Company recorded cash interest expense aggregating $nil (2011 - $103,000, 2010 - $154,000) and interest accretion of $nil (2011 - $124,000, 2010 - $115,000).

d)	The following summarizes the change in the face and carrying values of the liability and equity components of the secured subordinated notes.

Secured Subordinated Notes (liability component)	2012				2011
	Face Value		Carrying Value		Face Value			Carrying Value
	(in thousands)
Opening balance	$	-	$	-	$	960		$	705
Accreted (non-cash) interest		-		-		-			124
Conversion of notes:
Series N (Note 9 (a))		-		-		(600	)		(592	)
Series L (Note 9 (b))		-		-		(360	)		(237	)
Closing balance	$	-	$	-	$	-		$	-

Conversion Features on Secured Subordinated Notes Including Conversion of Attached Warrants	2012				2011
	Common Shares Issuable		Carrying Value		Common Shares Issuable			Carrying Value
	(in thousands of shares and dollars)
Opening balance		-	$	-		19,200		$	458
Conversion of notes:
Series N (Note 9 (a))		-		-		(12,000	)		(237	)
Series L (Note 9 (b))		-		-		(7,200	)		(221	)
Closing balance		-	$	-		-		$	-

Northcore Technologies Inc. 97

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

The During the year ended December 31, 2010, the Company reached a settlement agreement with the Series G debt holders by paying $86,000 in full settlement of the outstanding balance of $143,000, which included accrued interest of $17,000 recorded in 2010. As a result of this transaction, the Company recorded a gain on debt settlement of notes payable of $57,000.

10. INCOME TAXES

The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, a deferred 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 to the extent that it is probable that the asset would not be realized. At December 31, 2012 and 2011, the Company recognized none of the temporary differences noted below.

	2012			2011
	(in thousands)
DEFERRED TAX ASSET
Tax losses carried forward	$	7,705		$	6,916
Difference in tax and accounting valuations
for capital assets and investments		60			76
		7,765			6,992
Temporary differences not recognized		(7,765	)		(6,992	)
Deferred tax asset	$	-		$	-

The provision for income taxes differs from the amount computed by applying the combined Canadian Federal and Provincial statutory income tax rate of 26.5 percent (2011 – 28 percent) to the loss from continuing operations before income taxes. The sources and tax effects of the differences are indicated below.

	2012			2011
	(in thousands)
PROVISION FOR INCOME TAXES
Income taxes at statutory rate	$	(537	)	$	(1,112	)
Change in enacted rates		(420	)		63
Non-deductible interest on subordinated notes		-			35
Stock-based compensation not deductible for tax		113			529
Expiry of warrants		37			-
Impact of business combination		36			-
Loss carry-forwards not recognized		773			414
Other		(38	)		71
Recovery of income taxes	$	(36	)	$	-

Tax loss carry-forwards at December 31, 2012 expire as follows:

Year		Amount
		(in thousands)
2014		$ 3,047
2015		3,351
2026		2,588
2027		2,050
2028		1,969
2029		1,700
2030		1,741
2031 2032		1,985 1,600
Tax loss carry-forwards that do not expire		9,045
		$ 29,076

Northcore Technologies Inc. 98

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

The Company has net operating loss carry-forwards of $20,031,000 that expire in years 2014 through 2032, and indefinite loss carry-forwards of $9,045,000. The indefinite loss carry-forwards are comprised of net capital losses from continuing Canadian operations of $3,937,000 and from discontinued operations of $5,108,000, which are available to reduce future year’s capital gains.

11. SHARE CAPITAL

a)	Authorized

Unlimited number of common shares

Unlimited number of preference shares – issuable in series

b) Outstanding Common Shares

	2012				2011
	Number		Amount		Number		Amount
	(in thousands of shares and dollars)
Opening balance		226,598	$	117,359		172,170	$	110,767
Shares issued pursuant to:
Acquisition of businesses (Note 8)		7,778		933		-		-
Stock options exercised (Note 13 (c))		250		40		1,334		329
Conversion of subordinated notes (Note 9 (a) and (b))		-		-		9,600		1,081
Payment of interest (Note 11 (c))		-		-		6		1
Equity private placements (Note 11 (d))		-		-		10,478		456
Exercise of compensation options (Note 11 (d))		-		-		2,250		241
Warrants exercised (Note 12 (d))		-		-		26,260		3,854
Acquisition of intellectual properties (Note 7 (b))		-		-		4,500		630
Closing balance		234,626	$	118,332		226,598	$	117,359

c)	Payment of Interest

During the year ended December 31, 2011, accrued interest in the amount of $1,000 relating to Series L notes was settled through the issuance of 6,000 common shares based on an average fair value of $0.18 per share.

d)	Equity Private Placements

During the year ended December 31, 2011, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit, for gross proceeds of $838,000 and net proceeds of $713,000 after deducting financing costs of $125,000. Each equity unit consisted of one common share and one warrant. Each warrant may be converted into a common share at an exercise price of $0.12, at any time prior to February 14, 2013. These warrants were exercised during 2011.

The Company determined the fair value of the common shares and warrants at the issue date using the Cox-Rubenstein binomial valuation model. The resultant pro rata fair values of the 10,478,000 common shares and 10,478,000 warrants, was $607,000 and $231,000, respectively.

In addition to the above financing costs, the Company issued 2,250,000 compensation options to the financing agent, Saratoga Finance Inc. The options entitled the holder to purchase up to 2,250,000 equity units at a purchase price of $0.08 per unit, at any time prior to February 14, 2013. Each equity unit consisted of one common share and one warrant. Each warrant may be converted into a common share at an exercise price of $0.12, at any time prior to February 14, 2013. Using the Cox-Rubenstein binomial valuation model, the Company has determined the fair value of these equity unit options to be $108,000 and included this amount in Other Options. The Other Options were all exercised during the year ended December 31, 2011.

Northcore Technologies Inc. 99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

Total financing costs of $233,000 was recorded as a reduction to Share Capital and Warrants within Shareholders` Equity, in the amount of $151,000 and $82,000, respectively.

During the quarter ended September 30, 2011, proceeds of $180,000 were realized through the exercise of 2,250,000 compensation options. As a result, the Company issued 2,250,000 common shares valued at $61,000 and 2,250,000 warrants valued at $47,000.

12.

WARRANTS

a)	The following table summarizes the transactions within warrants.

	2012						2011
	Number			Amount			Number			Amount
	(in thousands of warrants and dollars)
Opening balance		11,665		$	836			15,818		$	834
Warrants issued pursuant to:
Warrants expired (Note 12 (b))		(6,000	)		(563	)		(3,121	)		(124	)
Conversion of subordinated notes (Note 9 (a) and (b))		-			-			9,600			207
Equity private placements (Note 11 (d))		-			-			10,478			149
Exercise of compensation options (Note 11 (d))		-			-			2,250			47
Debt settlement (Note 12 (c))		-			-			2,900			200
Warrants exercised (Note 12 (d))		-			-			(26,260	)		(477	)
Closing balance		5,665		$	273			11,665		$	836

b)	Warrants Expired

During the year ended December 31, 2012, 6,000,000 warrants (book value of $563,000) in connection with an equity line of credit in 2010 expired unexercised and were accordingly cancelled.

During the year ended December 31, 2011, 3,121,000 warrants (book value of $124,000) in connection with private placements in 2009, 2010 and 2011 expired unexercised and were accordingly cancelled.

c)	Warrants Issued For Debt Settlement

During the year ended December 31, 2011, the Company issued 2,900,000 warrants for full settlement of recruiting fees to a third party in the amount of $200,000. The warrants have an exercise price of $0.315 and an expiry date of June 29, 2013. This transaction was measured at the fair value of the services received by the Company.

d)	Warrants Exercised

During the year ended December 31, 2011, Series L and N note holders, along with warrant holders from equity private placements in 2010 and 2011, exercised 26,260,000 common share-purchase warrants (book value of $477,000) for total proceeds of $3,377,000.

e)	Fair Value of Warrants Issued

The Company determined the weighted average fair value of warrants issued in 2011 using the Cox-Rubinstein binomial valuation model with the following assumptions on a weighted average basis:

	2011
Share price	$	0.16
Dividend yield		-
Risk free interest rate		1.9	%
Volatility		103.6	%
Expected term, in years		2.0

Northcore Technologies Inc. 100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

Volatility was calculated based on historical volatility of the Company’s share price consistent with the term of the warrants issued.

13.	STOCK OPTIONS

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

	2012						2011
	Number			Amount			Number			Amount
	(in thousands of warrants and dollars)
Opening balance		19,290		$	3,690			10,946		$	1,949
Granted		6,875			-			10,150			-
Exercised (Note 13 (c))		(250	)		(16	)		(1,334	)		(132	)
Forfeited/Cancelled		(6,416	)		-			(472	)		-
Stock-based compensation expense		-			425			-			1,873
Closing balance		19,499		$	4,099			19,290		$	3,690

b)	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 35,000,000 options have been authorized by the Company’s shareholders for issuance under the stock option plan.

The Management Resources and Compensation Committee of the Board of Directors reserves the right to determine the vesting periods of stock options granted. The options expire between 2013 and 2017.

A summary of the status of the Company’s outstanding options at December 31, 2012 is as follows:

Exercise Prices	Number of Options Outstanding (in thousands)	Remaining Contractual Life (in years)	Number of Options Exercisable (in thousands)
$ 0.09	4,570	4.3	3,838
$ 0.10	4,247	2.3	3,247
$ 0.12	290	1.3	290
$ 0.19	2,420	3.3	2,420
$ 0.20	3,255	2.1	3,255
$ 0.32	4,717	3.4	4,717
	19,499		17,767

The aggregate exercise price for employee options outstanding at December 31, 2012 was approximately $3,432,000 (2011 - $4,079,000).

During the year ended December 31, 2012, the Company granted 6,875,000 stock options to employees, officers and directors of the Company. The options have a weighted average exercise price of $0.09 and an expiry date of five years from the date of the grant. The weighted average grant date fair value of $0.06 per option was valued using the Cox-Rubinstein binomial valuation model based on the below assumptions.

Northcore Technologies Inc. 101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

During the year ended December 31, 2011, the Company granted 10,150,000 stock options to employees, officers and directors of the Company. The options have a weighted average exercise price of $0.27 and an expiry date of five years from the date of the grant. The weighted average grant date fair value of $0.20 per option was valued using the Cox-Rubinstein binomial valuation model based on the below assumptions.

During the year ended December 31, 2010, the Company granted 7,515,000 stock options to employees, officers and directors of the Company. The options have a weighted average exercise price of $0.15 and an expiry date of five years from the date of the grant. The weighted average grant date fair value of $0.09 per option was valued using the Cox-Rubinstein binomial valuation model based on the below assumptions.

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

	2012			2011			2010
Share price	$	0.09		$	0.27		$	0.15
Dividend yield		-			-			-
Risk free interest rate		1.5	%		2.5	%		2.6	%
Volatility		114	%		100.3	%		89.1	%
Expected term, in years		4.4			5			5

Volatility was calculated based on historical volatility of the Company’s share price consistent with the term of the options granted.

The Company records compensation expense for stock options granted to employees and directors based on the fair value method of accounting. For the year ended December 31, 2012, the employee stock-based compensation expense was $425,000 (2011 - $1,873,000, 2010 - $517,000).

c)	During the year ended December 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 year ended December 31, 2011, total proceeds of $197,000 were realized from the exercise of 1,334,000 stock options (book value of $132,000) at an average exercise price of $0.15. The average trading price at the time of exercise of these options was $0.27.

During the year ended December 31, 2010, total proceeds of $4,000 were realized from the exercise of 45,000 stock options (book value of $3,000) at an average exercise price of $0.10. The average trading price at the time of exercise of these options was $0.22.

14.

REVENUES

Revenues are comprised of the following:

	2012		2011		2010
			(in thousands)
Services	$	969	$	543	$	317
Hosting fees		393		242		255
Royalty fees		-		-		10
	$	1,362	$	785	$	582

Northcore Technologies Inc. 102

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

15.	FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS

Financial Instruments

The Company has classified its financial instruments as follows:

	2012		2011
	(in thousands)
Financial Assets:
Fair value through profit and loss
Cash	$	21	$	1,760
Short-term investments		41		-
Loans and receivables, recorded at amortized cost
Accounts receivable		171		187
Financial Liabilities:
Fair value through profit and loss
Operating line of credit		33		-
Contingent consideration		134		-
Financial liabilities measured at amortized cost
Accounts payable and accrued liabilities		645		412

The Company had neither available-for-sale, nor held-to-maturity financial instruments as at December 31, 2012 and 2011.

Financial Risk Factors

Foreign Exchange Risk

The Company’s revenue from software licensing and related services and e-commerce enabling agreements is transacted in Canadian and U.S. dollar currencies. As a portion of the Company’s revenues are realized in U.S. dollars and expenses are transacted in Canadian dollars, the appreciation of the U.S. dollar against the Canadian dollar may have a favorable impact on results. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. During the year ended December 31, 2012, the Company incurred foreign exchange losses in the amount of $7,000 (2011 - $3,000, 2010 - $24,000), which is recorded in general and administrative expenses.

Interest Rate Risk

The Company has limited exposure to fluctuations in interest rates due to the Company’s debt instruments bearing fixed interest rates, with the exception of the operating line of credit bearing a floating interest rate, which the Company does not consider to be significant. The Company does not use derivative instruments to reduce its exposure to interest rate risk.

Credit 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.

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

In 2012, one customer accounted for 31 percent (2011 – two customers accounted for 50 percent and 31 percent, respectively, 2010 – one customer accounted for 75 percent) of total revenues. At December 31, 2012, no customers accounted for more than 10 percent (2011 – three customers accounted for 42 percent, 18 percent and 12 percent, respectively) of total accounts receivable.

Northcore Technologies Inc. 103

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

The following table summarizes the aging of accounts receivable as at:

	December 31, 2012		December 31, 2011
	(in thousands)
Current	$	87	$	144
Past due (61-120 days)		46		36
Past due (> 120 days)		38		7
	$	171	$	187

The allowance for doubtful accounts recorded as at December 31, 2012 was $nil (2011 - $nil), as the majority of amounts past due at December 31, 2012 were subsequently collected.

Fair Value

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The Company’s financial instruments carried at fair value on the statement of financial position, consists of cash, short-term investments and contingent consideration. Cash and short-term investments are valued using quoted market prices (Level 1). There were no financial instruments categorized using observable market inputs (Level 2). Contingent consideration is valued using valuation techniques using non-observable market inputs (Level 3) as at December 31, 2012.

The fair value of monetary assets and liabilities approximates amounts at which they would be exchanged between knowledgeable and unrelated persons.

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. The Company’s accounts payable and accrued liabilities are due within the current fiscal year. The contingent consideration is due over a period of two years. The Company manages its liquidity risk by continuously monitoring forecast and actual cash flows.

16. CAPITAL DISCLOSURES

The Company’s objective when managing capital is to safeguard its accumulated capital in order to provide adequate return to shareholders by maintaining sufficient levels of funds, in order to support and further expand upon the Company’s current base of products and services.

The capital structure of the Company consists of debt, net of cash and equity comprised of issued capital, contributed surplus and deficit. The Company manages its capital structure and makes adjustments to it, based on the level of funds required to manage its operations. In order to achieve these objectives, the Company invests its excess capital in highly liquid financial instruments. The Company is required to secure its operating line of credit with a GIC (note 4).

There was no change in the capital management in the year.

Northcore Technologies Inc. 104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

17. COMMITMENTS AND CONTINGENCIES

a)	Minimum payments under operating leases are as follows:

	Year	Amount (in thousands)
	2013	$ 222
	2014	196
	2015 2016 2017	66 66 50

During the year ended December 31, 2009, the Company entered into a technology licensing agreement with a Fortune 500 company that provides Northcore with access to a portfolio of intellectual property patents over a six year period for a minimum fee of US $260,000 over the term of the agreement. Minimum payments over the remaining term are as follows: 2013 - $50,000, 2014 - $50,000.

In connection with the acquisition of all the Intellectual Property of Discount This Holdings limited, the Company agreed to pay a 10 percent commission on all proceeds realized, if the Intellectual Property is sold or licensed to a third party within the two year period following the close date of December 28, 2011.

d)	In connection with the acquisition of Kuklamoo, the Company agreed to pay 15 percent of the cumulative profits of Kuklamoo in the event of sale of Kuklamoo to a third party.

18. SUPPLEMENTAL INFORMATION

Cash Flow

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

	2012			2011				2010
	(in thousands)
Accounts receivable	$	95		$	(36	)	$	63
Deposits and prepaid expenses		4			(4	)		(1	)
Accounts payable		108			(161	)		69
Accrued liabilities		(9	)		182			69
Deferred revenue		18			-			-
	$	216		$	(19	)	$	200

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

	2012		2011			2010
	(in thousands)
Issuance of common shares for acquisition of businesses (Note 8)	$	933	$	-		$	-
Issuance of common shares in settlement of interest payments (Note 11 (c))		-		1			48
Reduction in debt from conversion of secured subordinated notes (Note 9 (d))		-		(829	)		(68	)
Reduction in conversion feature from conversion of secured subordinated notes (Note 9 (d))		-		(458	)		(89	)
Issuance of common shares for acquisition of intangible assets (Note 7 (b))		-		630			-
Issuance of warrants for settlement of trade payables (Note 12 (c))		-		200			-

Northcore Technologies Inc. 105

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(in Canadian dollars)

b)	Employee Benefits

For the year ended December 31, 2012, employee benefits expense amounted to $1,853,000 (2011 - $1,447,000, 2010 - $1,356,000).

19. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2012, interest payments relating to the secured subordinated notes totaling $nil (2011 - $1,000, 2010 - $1,000) were made to related parties.

Key management personnel compensation, comprised of the Company’s executive officers, is as follows:

	2012		2011		2010
	(in thousands)
Salaries and other benefits	$	506	$	430	$	355
Stock-based compensation		286		741		144
	$	792	$	1,171	$	499

Northcore Technologies Inc. 106

CORPORATE DIRECTORY – DECEMBER 31, 2012

DIRECTORS

T. Christopher Bulger

Chairman

Jim Moskos

Chief Executive Officer and Board Member

Ryan Deslippe

Board Member

CORPORATE OFFICE

Northcore Technologies Inc.

302 The East Mall, Suite 300

Toronto, Ontario M9B 6C7

1 888 287 7467

AUDITORS

Collins Barrow Toronto LLP

11 King Street, West, Suite 700

Toronto, Ontario, M5H 4C7

ADDITIONAL SHAREHOLDER INFORMATION

Website:

www.northcore.com

Email:

investor-relations@northcore.com

SHARES OUTSTANDING

As at December 31, 2012:

234,625,479 common shares

REGISTRAR & TRANSFER AGENT

Equity Financial Trust Company

200 University Avenue, Suite 400

Toronto, ON M5H 4H1

STOCK EXCHANGE LISTINGS

Toronto Stock Exchange (TSX)

Symbol: NTI

OTC Bulletin Board (OTCBB)

Symbol: NTLNF

SHARE PURCHASE AGREEMENT

BETWEEN

SHAREHOLDERS OF ENVISION ONLINE MEDIA INC. AND KAHOOTKIDS! INC.

AND

NORTHCORE TECHNOLOGIES INC.

FOR THE PURCHASE OF CERTAIN SHARES OF

ENVISION ONLINE MEDIA INC.

AND

KAHOOTKIDS! INC.

March 27, 2012

EXHIBIT 15.4

THIS AGREEMENT made as of the 27 day of March, 2012

B E T W E E N :

NORTHCORE TECHNOLOGIES INC.,

a corporation governed by the laws of Ontario,

(“Northcore” or the “Company”)

and

ENVISION ONLINE MEDIA INC.,

a corporation governed by the laws of Canada,

(“Envision”)

and

KAHOOTKIDS! INC.,

a corporation governed by the laws of Canada,

( “Kahoot”)

and

SHAREHOLDERS OF ENVISION ONLINE MEDIA INC.,

(collectively, the “Envision Vendors” and each an “Envision Vendor”)

and

SHAREHOLDERS OF KAHOOTKIDS! INC.,

(collectively, the “Kahoot Vendors” and each a “Kahoot Vendor”)

W I T N E S S E T H:

WHEREAS Envision and Kahoot are in the business of producing web sites and also provide web design and web development services to customers;

AND WHEREAS the Envision Vendors are the registered and beneficial owners of all of the issued and outstanding shares in the capital of Envision as set out in Appendix “A” (the “Purchased Envision Shares”);

AND WHEREAS the Kahoot Vendors are the registered and beneficial owners of all of the issued and outstanding shares in the capital of Kahoot as set out in Appendix “B” including the shares in the column marked “Selling” of such appendix (the “Purchased Kahoot Shares” and together with the Purchased Envision Shares, the “Purchased Shares”);

- Page 109 -

AND WHEREAS the Purchased Kahoot Shares constitute 85% of the issued and outstanding common shares of Kahoot;

AND WHEREAS Northcore wishes to purchase and the Envision Vendors wish to sell the Purchased Envision Shares on the terms and conditions set out in this Agreement;

AND WHEREAS Northcore wishes to purchase and the Kahoot Vendors wish to sell the Purchased Kahoot Shares on the terms and conditions set out in this Agreement;

AND WHEREAS the Parties have executed a term sheet (the “Term Sheet”) setting out certain terms and conditions that they wish to have apply to such purchases;

NOW, THEREFORE, in consideration of the promises, representations, warranties, agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:

DEFINITIONS AND INTERPRETATION

Section 1.1 Definitions.

When used in this Agreement, each of the following capitalized terms shall have the respective meanings set forth below:

“Affiliate” means, with respect to a Person, any corporation, partnership, proprietorship or other legal entity directly or indirectly controlled by, controlling, or under common control with another legal entity; “control” meaning, for purposes hereof, the effective power to elect at least a majority of the board or directors or other management body of a legal entity or to effectively direct the management of a legal entity, by the ownership of voting securities, by contract, or otherwise.

“Annual Incentives” means the bonus compensation payable to Todd Jamieson on April 1st of each year pursuant to the terms of the employment agreement to be executed pursuant to Section 4.1(f)(ii).

“Applicable Law” means:

(xvii) any applicable domestic or foreign law including any statute, subordinate legislation or treaty, and

(xviii) any applicable guideline, directive, rule, standard, requirement, policy, order, judgment, injunction, award or decree of a Governmental Authority having the force of law.

- Page 110 -

“Business Premises Lease” means the lease for 1150-201 Morrison Drive, Ottawa, Ontario.

“Business Day” means a day other than a Saturday, Sunday or statutory holiday in the Province of Ontario.

“Claim” means any actual or threatened civil, criminal, administrative, regulatory, arbitral or investigative inquiry, action, suit, investigation or proceeding and any claim or demand resulting therefrom or any other claim or demand of whatever nature or kind.

“Closing” means the completion of the Transactions pursuant to this Agreement as of the Closing Date.

“Closing Date” means the date on which Northcore delivers the Shares (as defined below) to the Vendors and the Vendors surrender the control of Envision and Kahoot (collectively the “Corporations”) to Northcore and deliver the Purchased Shares to Northcore, expected to be on or before March 31, 2012 or such other date as the Parties may agree.

“Compensation Policies” has the meaning set out in Section 5.1(9)(c).

“Confidential Information” means any and all non-public information of a Party or its Affiliates, whether or not related to the subject matter of this Agreement, which (i) is marked as confidential or with words of like effect, or (ii) is disclosed orally, but identified as confidential information by subsequent writing within five (5) days of such disclosure, or (iii) on its face is of such a nature that a reasonable business person would necessarily regard it as confidential. Confidential Information may include the non-public information of a Third Party that has disclosed such information to a Party or its Affiliates in the course of its business.

“Consent” means a license, permit, approval, consent, certificate, registration or authorization (including, without limitation, those made or issued by a Regulatory Authority, in respect of a Contract, or otherwise).

“Contract” means any agreement, understanding, indenture, contract, lease, deed of trust, license, option, instrument or other commitment, whether written of oral.

“Corporations” means Envision Online Media Inc. and Kahootkids! Inc. collectively and Corporation means one of them individually.

“EBITDA” is defined as Earnings Before Interest, Taxes, Depreciation, Amortization and Stock-based Compensation.

“Effective Date” means the date of this Agreement.

- Page 111 -

“Encumbrances” means claims, security interests, liens, pledges, charges, escrows, options, encumbrances, actions, proxies, rights of first refusal, pre-emptive rights, mortgages, hypothecations, assessments, prior assignments, title retention agreements, conditional sales agreements, indentures, deeds of trust, leases, levies or security agreements of any kind whatsoever imposed upon the subject property or item and any rights or privileges capable of becoming any of the foregoing.

“Environmental Law” means any Applicable Law relating to the environment including those pertaining to:

reporting, licensing, permitting, investigating, remediating and cleaning up in connection with any presence or Release, or the threat of the same, of Hazardous Substances, and

(xix) the manufacture, processing, distribution, use, treatment, storage, disposal, transport, handling and the like of Hazardous Substances, including those pertaining to occupational health and safety.

“Financial Statements” means the unaudited statements of income, changes in shareholders’ equity, and cash flows and balance sheets of each of the Corporations for the years ended December 31, 2011, December 31, 2010 and December 31, 2009.

“First Bonus Pool” has the meaning set out in Section 5.4.

“Governmental Authority” means any domestic or foreign legislative, executive, judicial or administrative body or person having or purporting to have jurisdiction in the relevant circumstances.

“Hazardous Substance” means any substance or material that is prohibited, controlled or regulated by any Governmental Authority pursuant to Environmental Laws.

“Indebtedness” means, as of any date, without duplication, the outstanding principal amount of, accrued and unpaid interest on and other payment obligations (including any fee, penalties, consent fees or prepayment premiums payable as a result of the consummation of the Transactions) arising under any obligations of either of the Corporations for (i) indebtedness for borrowed money owed by either Corporation whether secured or unsecured, (ii) indebtedness evidenced by any note, bond, debenture or other debt security, (iii) letters of credit, issued for the account of either Corporation, (iv) obligations under leases required in accordance with generally accepted accounting principles to be recorded as capital leases, (v) any obligation for the deferral of property or services, including all earn-out and other contingent payment obligations (other than trade payables and other current Liabilities incurred in the ordinary course of business), (vi) indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (vii) indebtedness for borrowed money secured by a purchase money security interest or other Encumbrance to secure all or part of the purchase price of the property subject to such purchase money security interest or other Encumbrance, (viii) indebtedness for borrowed money of any other person which is directly or indirectly guaranteed by either Corporation, (ix) indebtedness or payment obligations to any of the Vendors, and (x) all obligations to pay bonuses or other forms of compensation to directors, officers and employees of either Corporation as a direct result of the sale of the Transactions.

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“Intellectual Property” means intellectual property of any nature and kind including all domestic and foreign trade-marks, business names, trade names, domain names, trading styles, patents, trade secrets, Software, industrial designs and copyrights, whether registered or unregistered, and all applications for registration thereof, and inventions, formulae, recipes, product formulations, processes and processing methods, technology and techniques, and know-how.

“Key Employees” means in the capacity of web designer, in the capacity of President, Creative Director, in the capacity of Lead Developer, and in the capacity of Senior Project Manager.

“Knowledge of the Vendors” means the actual knowledge of any of the Vendors.

“Lands” means all leasehold property and interests therein disclosed to Northcore, including all rights of way, licences or rights of occupation, easements or other similar rights of each Corporation in connection with such leasehold property.

“Law” or “Laws” means all requirements imposed by statutes, regulations, rules, ordinances, by-laws, decrees, codes, policies, judgments, orders, rulings, decisions, approvals, notices, permits, guidelines or directives of any Regulatory Authority.

“Liability” means, with respect to any person, any liability or obligation of such person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, and whether or not the same is required to be accrued on the financial statements of such person.

“Licensed Intellectual Property” means all Intellectual Property that is used by a Corporation but owned by another party.

“Losses” means all damages, fines, penalties, deficiencies, losses, liabilities (whether accrued, actual, contingent, latent or otherwise), costs, fees and expenses (including interest, court costs and reasonable fees and expenses of lawyers, accountants and other experts and professionals).

"Material" means of such a nature or amount as would reasonably be regarded as significant in relation to the business of the Corporations or in relation to the capital, prospects, condition (financial or otherwise) or results of operation of the Corporations, whether or not significant in relation to the Vendors or the Purchaser, and "Materially" has a corresponding meaning.

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“Material Contract” means any agreement, arrangement or understanding, whether written or oral, which:

materially affects the business, operations, assets or prospects, financial or otherwise, of either of the Corporations; or

(xx) involves or may involve annual expenditures or annual receipts by the Corporations of an amount greater than $5,000 and which has a term of more than one year or has a lesser term with rights of renewal that, if renewed, would result in a term of more than one year.

“Material Adverse Effect” means, when used in connection with either Corporation or its business, any change, event, violation, inaccuracy, circumstance or effect that is or could reasonably be expected to be materially adverse to the business, assets, Liabilities, operations, financial condition, results of operations or prospects of such Corporation.

“Milestones” means the performance milestones as follows;

For the fiscal year 2012; the Corporations collectively achieving $1,000,000 of annual gross revenues net of any discounts and $80,000 of EBITDA (Net EBITDA; after adjusting for the First Bonus Pool and Second Bonus Pool (as defined below), respectively and Annual Incentives) and

For the fiscal year 2013; Envision and Kahoot collectively achieving $1,200,000 of revenues and $120,000 of EBITDA (Net EBITDA; after adjusting for the First Bonus Pool and Second Bonus Pool, respectively and Annual Incentives).

Where in both cases, revenue will be recognized in accordance with International Financial Reporting Standards. In both cases, Milestones will be calculated using the period of April 1st through March 31st.

“Net EBITDA” means EBITDA as calculated, adjusting for the First Bonus Pool, the Second Bonus Pool and Annual Incentive payments. The following example is provided for illustration purposes only:

Assuming Year 1 EBITDA is calculated as $180,000. Based on this, the two payments are calculated as follows:

Employee Bonus : greater of $23,000 or 20% of $100,000 = $20,000 (i.e. $180,000 EBITDA - $80,000 Milestone EBITDA = $100,000 EBITDA in excess of Milestone)

So the employee bonus amount is $23,000.

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Annual Incentive: since EBITDA is 125% greater than Milestone EBITDA (ie. EBITDA of $180,000 is 125% greater than milestone EBITDA of $80,000), Todd Jamieson is entitled to a 20% commission of $100,000 = $20,000.

For Net EBITDA for the purposes of paying the $100,000 Milestone payment, we include the following:

Original EBITDA as calculated: 180,000

Less: Employee Bonus: (23,000)

Less: Annual Incentive: (20,000)

Net EBITDA 137,000.

Since Year 1 Net EBITDA is greater than $80,000, the milestone payment of $100,000 is released.

For year two, replace the Employee Bonus portion with the Year 2 bonus of $35,000. Based on the same example as above:

Original EBITDA 180,000

Less: Yr 2 Bonus (35,000)

Less: Annual Incentive (12,000) (ie. $180,000-120,000=$60,000*20%)

Net EBITDA 133,000.

Since Year 2 Net EBITDA is greater than $120,000, the milestone payment of $100,000 is released.

“Parties” means the Vendors and Northcore and any other Person that may become a party to this Agreement and Party means any one of them.

“Permits” means all permits, consents, waivers, licences, certificates, approvals, authorizations, registrations, franchises, rights, privileges, quotas and exemptions, or any item with a similar effect, issued or granted by any person.

“Person” means any individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other legal entity or government or political subdivision thereof.

“Personal Information” means the type of information regulated by Privacy Laws and collected, used, disclosed or retained by either Corporation including information regarding a Corporation’s customers, suppliers, employees and agents, such as an individual’s name, address, age, gender, identification number, income, family status, citizenship, employment, assets, liabilities, source of funds, payment records, credit information, personal references and health records.

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“Privacy Laws” means all applicable federal, provincial, state, municipal or other laws governing the collection, use, disclosure and retention of Personal Information, including the Personal Information Protection and Electronic Documents Act (Canada).

“Privacy Policies” means all privacy, data protection and similar policies adopted or used by either Corporation in respect of Personal Information, including any complaints process.

“Purchased Shares” has the meaning set out in the recitals to this Agreement.

“Records” means all technical, business and financial records relating to the business of both of the Corporations, including, without limitation, customer lists, operating data, files, financial books, correspondence, credit information, research materials, contract documents, title documents, leases, surveys, records of past sales, supplier lists, employee documents, inventory data, accounts receivable data, financial statements and any other similar records in any form whatsoever (including written, printed, electronic or computer printout form).

“Regulatory Authority” means any government, regulatory or administrative authority, agency, commission, utility or board (federal, provincial, municipal or local, domestic or foreign) having jurisdiction in the relevant circumstances and any Person acting under the authority of any of the foregoing and any judicial, administrative or arbitral court, authority, tribunal or commission having jurisdiction in the relevant circumstances.

“Release” means any release or discharge of any Hazardous Substance including any discharge, spray, injection, inoculation, abandonment, deposit, spillage, leakage, seepage, pouring, emission, emptying, throwing, dumping, placing, exhausting, escape, leach, migration, dispersal, dispensing or disposal.

“Reorganization” means the share exchange transaction between Envision, Kenneth Jamieson and Todd Jamieson effective as of March 6, 2012.

“Second Bonus Pool” has the meaning set out in Section 5.4.

“Software” means all software relating to either Corporation or used in the business of either Corporation, including all versions thereof, and all related documentation, manuals, source code and object code, program files, data files, computer related data, field and data definitions and relationships, data definition specifications, data models, program and system logic, interfaces, program modules, routines, sub-routines, algorithms, program architecture, design concepts, system designs, program structure, sequence and organization, screen displays and report layouts, and all other material related to such software.

“Special Representations” means, collectively, the representations and warranties set forth in Section 5.1(1)(a) to (j), inclusive; Section 5.1(4)(a) and Section 5.1(15).

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“Tax” and “Taxes” means all taxes whatsoever, including Canadian and foreign, federal, provincial, state, territorial, municipal or local taxes, fees, duties, imposts, levies, tariffs, assessments or reassessments and other charges of any nature whatsoever, whether direct or indirect including income taxes, customs duties, anti-dumping and countervailing duties, provincial health insurance plan premiums, Canada and Quebec pension plan contributions, employment insurance premiums, social security and unemployment taxes, workers’ compensation, and other payroll taxes or levies, deductions at source, non-resident withholding, provincial sales taxes, goods and services/harmonized sales taxes, value added taxes, excise, stamp duty, alternative, add-on or minimum, and any tax imposed on, or in respect of, gross receipts, retail sales, immoveable or real property, capital gains, goods and services, license, payroll, employment, goods, assets, liabilities, severance, occupation, premium, windfall profits, environmental attributes, capital stock, shares or securities, franchise, profits, tax, withholding, personal property, sales, use, consumption, transfer, registration, property of any kind, imports, exports, transfer, business, and intangibles, including in respect of any and all of the foregoing, any estimated tax payments, other additions, interest, penalties, and fines related thereto, or in respect thereof, whether or not disputed;.

“Tax Act” means the Income Tax Act (Canada).

“Taxation Authority” means any domestic or foreign government, agency or authority that is entitled to impose Taxes or to administer any applicable Tax Laws.

“Tax Return” means all returns, reports, declarations, statements, bills, schedules, forms, elections or written information of, or in respect of, Taxes that are, or are required to be, filed with or supplied to any Taxation Authority.

“Transaction Documents” means, collectively, this Agreement and the employment contracts required pursuant to Section 4.1(f)(ii).

“Third Party” means any Person other than Envision, Kahoot, Northcore or their Affiliates.

Schedules.

The following are the Schedules to this Agreement:

Appendix “A”	- Purchased Envision Shares;
Appendix “B”	- Purchased Kahoot Shares;
Appendix “C”	- Purchase Price;
Schedule 4.1(f)(i)	- Form of Vendors’ counsel’s opinion.
Schedule 4.1(f)(ii)	- Employment contracts;
Schedule 4.1(f)(iii)	- Releases; and
Schedule 4.1(f)(ix)	- Form of shareholders’ agreement.

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SHARE PURCHASE TRANSACTION

Share Purchase.

The Company will acquire the Purchased Envision Shares from the Envision Vendors and the Purchased Kahoot Shares from the Kahoot Vendors (collectively the “Transactions”).

PURCHASE CONSIDERATION

Closing Payments.

The aggregate purchase price of $1,000,000 (the “Purchase Price”) to be paid to the Envision Vendors and the Kahoot Vendors (collectively the “Vendors”) will be satisfied by way of $300,000 in total cash payments, subject to adjustment as set out herein, plus $700,000 by way of issuing an equivalent number of the Company’s common shares (the “Shares”). The number of Shares to be issued will equal $700,000 divided by the issue price of the Shares approved by the Toronto Stock Exchange. Subject to the adjustments as set out in this Agreement, the Shares will be issued to the Vendors in accordance with the columns marked “# OF SHARES” in Appendix “C” at Closing.

Subject to the adjustments as set out in this Agreement, cash payments will be advanced in the amounts of one-third at Closing and the balance in two equal annual payments on the first annual anniversary of the Closing Date and on the second annual anniversary of the Closing Date (each a “Milestone Payment”) according to the achievement of the Milestones. The Shares will be issued at Closing.

The Purchase Price is inclusive of all Taxes, if any, of any kind payable by Northcore in connection with the Transactions.

CLOSING CONDITIONS

Closing Conditions of the Transaction for the Benefit of Northcore.

The obligations of Northcore to complete the Transactions contemplated herein will be subject, among other things, to the completion of the following conditions to the sole and discretionary satisfaction of Northcore and its legal counsel:

(a)

Representations, Warranties and Covenants. The representations and warranties of the Vendors made in or pursuant to this Agreement shall be true and accurate at Closing with the same force and effect as though such representations and warranties had been made as of Closing. The Vendors shall have complied with all covenants and agreements in this Agreement to be performed or caused to be performed by them at or prior to Closing. In addition, the Vendors shall have delivered to Northcore a certificate confirming the foregoing. The receipt of such certificate and the completion of the Transactions shall not be deemed to constitute a waiver of any of the representations, warranties or covenants of the Vendors contained in this Agreement.

(b)	Satisfaction of Due Diligence Inquiries. Northcore shall have received satisfactory responses, acting reasonably, to its due diligence related inquiries.

(c)	No Material Adverse Change. Except as has been specifically permitted in this Agreement, since the date of this Agreement there shall not have been:

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(xxi) any material adverse change in any of the assets, business, financial condition, earnings, results of operations or prospects of the Corporations that has, or threatens to have, a Material Adverse Effect on the assets, business, financial condition, earnings, results of operations or prospects either of the Corporations or which might materially adversely affect the ability of a Corporation to carry on its respective business after Closing substantially as such business is being conducted on the Effective Date; or

(xxii) any damage, destruction or loss, or other event, development or condition of any character (whether or not covered by insurance) which would have a Material Adverse Effect on the Corporations.

(d)

No Action to Restrain/No Adverse Law. No Law shall have been made, and no action or proceeding shall be pending or threatened, which is likely to result in an order, decision or ruling imposing any limitations or conditions which may have a Material Adverse Effect on the Corporations, the right of Northcore to own the Purchased Shares, or the assets, business, financial condition, earnings, results of operations or prospects of the Corporations.

(e)

Consents. All filings, notifications and Consents with, to or from Regulatory Authorities and Third Parties and the Vendors, required to permit the change of ownership of the Purchased Shares contemplated hereby without resulting in the violation of or a default under or any termination, amendment or acceleration of any obligation under any licence, permit, lease, or Material Contract affecting the business of either of the Corporations or otherwise adversely affecting either of the Corporations, shall have been made, given or obtained on terms acceptable to Northcore acting reasonably.

(f)	Deliveries. As of Closing, the Vendors shall have delivered to Northcore:

	(xxiii)	a favourable opinion of counsel to the Vendors and the Corporations as to the ability of the Vendors and the Corporations to complete the Transactions;
	(xxiv)	executed employment contracts in the form set out as Schedule 4.1(f)(ii) to reflect:

all Key Employees agree to appropriate non-compete provisions and acknowledge that ownership of all intellectual property within the businesses of the Corporations remains with the Corporations;

Key Employees of the Corporations will devote their full time and attention to activities of the Corporations as defined in annual business plans and not engage in other commercial business while employed by the Corporations;

the employment contract for Todd Jamieson will be for a minimum of 2 years with a base pay of $110,000 per year and will also include an Annual Incentive that will be earned and payable based on EBITDA (Pre-adjusted EBITDA for employee bonus and Annual Incentive) performance that exceeds the Milestones, such bonus to be equal to 15% of the amount that EBITDA exceeds the relevant Milestone for the first 30% of EBITDA performance in excess of the Milestone, and should EBITDA performance be greater than 30% of the relevant Milestone, the bonus will be calculated at a rate of 20% on the full amount of EBITDA in excess of the Milestone; and

the First Bonus Pool and Second Bonus Pool (defined below) shall be excluded from EBITDA calculation for the purpose of incentive bonus calculations for Todd Jamieson. Milestones for fiscal years beyond 2013 shall be mutually agreed in advance of each year and reflect steady improvement in year over year financial performance;

(xxv)

releases from each of the Vendors and each of the individuals of all claims they may have against each of the Corporations substantially in the terms of the release attached as Schedule 4.1(f)(iii);

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(xxvi) confirmation of discharge of all arrangements, unless previously disclosed to and agreed to by Northcore, between the Vendors and the Corporations, including all loan and related security arrangements;

(xxvii) satisfaction of all other significant Material Contract terms and conditions identified during the due diligence process;

(xxviii) delivery of all material Third Party Consents to the closing of the Transactions, unless otherwise agreed to by Northcore;

(xxix) all Records of the Corporations and other documents referred to in this Agreement or any Schedule, all of which shall be current and up to date in the opinion of Northcore, acting reasonably;

(xxx) all documentation and other evidence reasonably requested by Northcore in order to establish the due authorization and consummation of the Transactions, including the taking of all corporate proceedings by the boards of directors and shareholders of Corporations required to effectively carry out the obligations of the Vendors and the Corporations pursuant to this Agreement; and

(xxxi) customary documents to reflect Closing of the Transactions, including, but not limited to a shareholder agreement with respect to Kahoot reflecting Northcore as a shareholder upon closing of the Transactions as set out in Schedule 4.1(f)(ix).

Closing Conditions of the Transaction for the Vendors.

The obligations of the Vendors to complete the Transactions contemplated herein will be subject, among other things, to the completion of the following conditions to the sole and discretionary satisfaction of the Vendors and their legal counsel:

(g)

Representations, Warranties and Covenants. The representations and warranties of Northcore made in or pursuant to this Agreement shall be true and accurate at Closing with the same force and effect as though such representations and warranties had been made as of Closing. Northcore shall have complied with all covenants and agreements in this Agreement to be performed or caused to be performed by it at or prior to Closing. In addition, Northcore shall have delivered to the Vendors a certificate confirming the foregoing. The receipt of such certificate and the completion of the Transactions shall not be deemed to constitute a waiver of any of the representations, warranties or covenants of Northcore contained in this Agreement.

(h)

No Action to Restrain/No Adverse Law. No Law shall have been made, and no action or proceeding shall be pending or threatened, which is likely to result in an order, decision or ruling imposing any limitations or conditions which may have a Material Adverse Effect on Northcore or the right of Northcore to own the Purchased Shares.

(i)

Consents. All filings, notifications and Consents with, to or from Regulatory Authorities and Third Parties and Northcore required to permit the change of ownership of the Shares contemplated hereby without resulting in the violation of or a default under or any termination, amendment or acceleration of any obligation under any licence, permit or lease affecting the business of, shall have been made, given or obtained.

(j)	Status of Northcore. At Closing, Northcore will be a publicly traded company listed on the Toronto Stock Exchange and will not have been advised of any change in such status.

(k)	Deliveries. As of Closing, Northcore shall have delivered to the Vendors the following:

(xxxii) executed employment contracts in the form set out as Schedule 4.1(f)(ii) to reflect:

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all Key Employees agree to appropriate non-compete provisions and acknowledge that ownership of all intellectual property within the businesses of the Corporations remains with the Corporations;

certain employees are eligible to participate in Northcore’s Employee Stock Option Plan on a performance basis;

the First Bonus Pool and Second Bonus Pool shall be excluded from EBITDA calculation for the purpose of incentive bonus calculations for Todd Jamieson. Milestones for fiscal years beyond 2013 shall be mutually agreed in advance of each year and reflect steady improvement in year over year financial performance.

REPRESENTATIONS, WARRANTIES AND COVENANTS

Representations and Warranties of the Vendors.

Each of the Vendors (in the case of Todd Jamieson with respect to all provisions of this Section 5.1 and with respect to all other Vendors solely with respect to Sections 5.1(a), (e), (f), (g), (h), (i)(i), (j)(ii) and (j)(iii)) hereby represents and warrants to Northcore as of the Effective Date and as of the Closing Date and acknowledge that Northcore is relying on such representations and warranties in entering into this Agreement and completing the Transactions, as follows:

Corporate

(l)

Each of the Corporations is a corporation duly incorporated, organized and subsisting under the laws of Canada. Each of the Corporations has the corporate power to own its assets and to carry on its respective business. Each of the Corporations and the Vendors have made all necessary filings under all applicable corporate, securities and Tax laws or any other Applicable Laws necessary to fulfill their obligations under this Agreement and the Reorganization.

(m)

The authorized capital of: (i) Envision consists of Corporation is authorized to issue (A) an unlimited number of common shares without nominal or par value, (B) an unlimited number of preference shares, without nominal or par value, non-voting, non-cumulative, divided into Series A, Series B, Series C and Series D Preference shares, (C) an unlimited number of Class E common shares, (D) an unlimited number of Class X preference shares, and (E) an unlimited number of Class Y preference shares of which 531,000 Class E common shares, 44,830 Class X Preference shares and 224,170 Preference shares have been validly issued and are outstanding as fully paid and non-assessable; and (ii) Kahoot consists of an unlimited number of common shares, an unlimited number of Class A preferred shares and an unlimited number of Class B preferred shares of which 10,000 common shares have been validly issued and are outstanding as fully paid and non-assessable on the date of this Agreement and will be at the Closing Date.

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(n)	The rights, privileges, restrictions and conditions attached to each of the shares of Envision are as set out in the minute books of Envision.

(o)	The rights, privileges, restrictions and conditions attached to the common shares of Kahoot are as set out in the minute books of Kahoot.

(p)

The Vendors are the sole beneficial and registered owners of the Purchased Shares free and clear of all Encumbrances and any other rights of others. No other Person has any registered or beneficial ownership interest in the Corporations. There are no restrictions on the voting rights (including voting trusts or proxies), or sale or transfer (including agreements relating to pre-emptive rights, rights of first refusal, co-sale rights or “drag-along” rights) of any securities of either Corporation or any registration rights with respect to any securities of either Corporation, other than pursuant to this Agreement.

(q)	The Vendors have the power, authority and right to enter into and deliver each Transaction Document to which they are a party and to transfer the legal and beneficial title and ownership of the Purchased Shares to Northcore free and clear of all Encumbrances and any other rights of others.

(r)	Each Vendor has attained the age of majority and is legally competent to execute and deliver each Transaction Document to which it is a party and to perform its obligations hereunder and thereunder.

(s)

This Agreement constitutes a valid and legally binding obligation of each of the Vendors, and, at Closing, each other Transaction Document will constitute a valid and legally binding obligation of each of the Vendors, in each case enforceable against each of the Vendors in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization and other laws of general application limiting the enforcement of creditors’ rights generally and to the fact that specific performance is an equitable remedy available only in the discretion of the court.

(t)	There is no Contract, option or any other right of another binding upon or which at any time in the future may become binding upon:

(xxxiii) any Vendor to sell, transfer, assign, pledge, charge, mortgage or in any other way dispose of or encumber any of the Purchased Shares, other than pursuant to the provisions of this Agreement;

(xxxiv) the Corporations to sell, transfer, assign, pledge, charge, mortgage or in any other way dispose of or encumber any security of the Corporations;

(xxxv) either Corporation to allot or issue any of the unissued shares of such Corporation or to create any additional class of shares; or

(xxxvi) either Corporation to sell, transfer, assign, pledge, mortgage or in any other way dispose of or encumber any of its assets other than pursuant to purchase orders accepted by such Corporation in the usual and ordinary course of its business.

(u)

Neither the entering into nor the delivery of any Transaction Document nor the completion of the transactions contemplated hereby or thereby, by any of the Vendors or either of the Corporations will result, with the giving of notice, lapse or time or both, in the breach or violation of or conflict with or result in a default under, or allow any person to exercise any rights under:

(xxxvii) any of the provisions of the constating documents or by-laws of the Corporations;

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(xxxviii) any Contract or other instrument to which any of the Vendors or either of the Corporations is a party or by which any of the Vendors or either of the Corporations is bound; or

(xxxix) any Applicable Law in respect of which any of the Vendors or either of the Corporations must comply.

Financial

(v)

The books and records of each Corporation are true and correct and present fairly and disclose in all material respects the financial position of such Corporation, and all material financial transactions of each Corporation have been accurately recorded in such books and records and, to the extent possible, such books and records have been prepared in accordance with generally accepted accounting principles consistently applied.

(w)	The management prepared Financial Statements are in the form of Notice to Readers, copies of which have been provided to Northcore:

(xl) are in accordance with the books and accounts of each of the Corporations;

(xli) are true and correct and present fairly the financial position of each of the Corporations as at the respective dates thereof and the results of operations and cash flows of such Corporation for the periods covered thereby; and

(xlii) and, to the extent possible, have been prepared in accordance with generally accepted accounting principles consistently applied.

(x)

The Corporations have no Liabilities and there are no facts, circumstances or events which exist that may give rise to any Liabilities except for (i) Liabilities set out or reflected in the Financial Statements, and (ii) normal Liabilities that have been incurred by either of the Corporations since December 31, 2011 in the ordinary course of its business and consistent with past practices and not materially different in type or amount, none of which, separately or in the aggregate, has or would reasonably be expected to have a Material Adverse Effect. The Corporations have no outstanding bonds, debentures, notes, mortgages or other Indebtedness. At Closing, the Corporations will have no outstanding bonds, debentures, notes, mortgages or other Indebtedness. The Corporations have not agreed to create or issue any bonds, debentures, notes, mortgages or other Indebtedness.

(y)

Since December 31, 2011, each of the businesses of the Corporations has been carried on in its usual and ordinary course and neither of the Corporations has entered into any transaction out of the usual and ordinary course of its business, other than the transactions forming part of the Reorganization.

(z)	Since December 31, 2011, other than the Reorganization, there has been no Material Adverse Effect in respect of either of the Corporations.

(aa)	No current or former director, officer, shareholder or employee of either of the Corporations, or any person not dealing at arm’s length within the meaning of the Tax Act with any such person or with either of the Corporations, is indebted to either of the Corporations.

Absence of Changes

(bb)	Since December 31, 2011, neither of the Corporations has:

(xliii) discharged or satisfied any Encumbrances or Liabilities, other than current Liabilities shown on the Financial Statements and current Liabilities incurred since December 31, 2011 in the usual and ordinary course of its business, consistent with past practice; and each Corporation has discharged or satisfied such Liabilities when due;

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(xliv) sold, leased, transferred or otherwise disposed of any assets except in the usual and ordinary course of its businesses, as applicable, consistent with past practice or as approved by Northcore;

(xlv) made any capital expenditure except in the usual and ordinary course, consistent with past practice or as approved by Northcore;

(xlvi) declared, set aside, made or paid any dividend, or any other distribution of or with respect to its share capital and all dividends which to the date hereof have been declared or paid either Corporation have been duly and validly declared or paid;

(xlvii) redeemed, purchased or otherwise acquired or disposed of any of its share capital;

(xlviii) increased its Indebtedness, or made any loan or advance to any person;

(xlix) cancelled or waived any debts, claims or rights of value, except in the usual and ordinary course of its business, as applicable, consistent with past practice;

(l) made any change in methods of accounting or auditing practice other than as required by generally accepted accounting principles;

(li) suffered any material damage, destruction or loss, whether or not covered by insurance;

(lii) effected any revaluing of any of the assets or Liabilities of the business, as applicable, including writing up, writing down or writing off the value of accounts receivable or intellectual property;

(liii) become subject to any material labour dispute or, to the Knowledge of the Vendors, threatened material labour dispute involving any employee;

(liv) changed the methods or procedures for billing or collection of customer accounts or recording of customer accounts receivable or reserves for doubtful accounts in any material respect; or

(lv) authorized or made a commitment, whether or not in writing, to do any of the foregoing.

Condition of Assets

(cc)

The Corporations are the owners, with good title to all assets shown or reflected on the Financial Statements (except for assets disposed of in the usual and ordinary course of business, as applicable, since December 31, 2011) and free and clear of all Encumbrances and any other rights of others or as otherwise disclosed herein, all except for such Encumbrances as previously disclosed to Northcore.

(dd)	All machinery and equipment owned or used by either of the Corporations has been properly maintained and are in good working order for the purposes of on-going operation, subject to ordinary wear and tear for machinery and equipment of comparable age.

(ee)	There are no outstanding orders, notices or similar requirements relating to either of the Corporations issued by any Governmental Authority and there are no matters under discussion with any Governmental Authority relating to orders, notices or similar requirements.

(ff)

The assets owned and leased by each of the Corporations constitute all of the assets used in connection with the respective businesses of the Corporations on the date hereof. Such assets constitute all the assets necessary for each of the Corporations to conduct their respective businesses in the same manner as such business is currently being conducted by the Corporations immediately following the Date of Closing, except for any restrictions on the operations of the Corporations imposed by the shareholders agreements to be entered into as of Closing.

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Contracts and Commitments

(gg)	Except as otherwise disclosed in full to Northcore, neither of the Corporations is a party to, or is otherwise bound by, any Contract, including the following:

(lvi) for any Indebtedness;

(lvii) for any management, employment, consulting or other similar type of agreement;

(lviii) restricting the freedom of either Corporation to engage in any line of business or to compete with any other person;

(lix) for any sales agency, distributorship or franchise agreement for the provision of services by either Corporation;

(lx) for any lease of real property;

(lxi) for any lease of personal property;

(lxii) for any loan, advance, mortgage, pledge, conditional sale or title retention, security, equipment obligation or lease or lease purchase (in addition to any personal property lease or lease for real property);

(lxiii) for any license or royalty arrangement relating to Intellectual Property;

(lxiv) for any lease where either Corporation is the lessor of any real property or personal property;

(lxv) for any swap, hedge or forward contractual agreement;

(lxvi) for any indemnities or guarantees, whether contingent or otherwise, in respect of any indebtedness or obligations of a Third Party or relating to or providing for borrowing of money or the extension of credit or for a leasing transaction with a Third Party;

(lxvii) not made in the ordinary course of business of either of the Corporations, as applicable, consistent with past practice;

(lxviii) not at arm’s length or on reasonable commercial terms and conditions; or

(lxix) the loss of which would be expected to have a Material Adverse Effect.

Correct and complete copies of all of such Contracts (including all amendments thereto and restatements thereof) have been delivered or made available to Northcore. Each of such Contracts is in full force and effect and is valid, binding and enforceable in accordance with its terms with respect to the Corporations, as applicable, and, to the Knowledge of the Vendors, with respect to the other parties thereto. Neither of the Corporations is nor, to the Knowledge of the Vendors, is any other party thereto, in material default under any of such Contracts, and no event has occurred or as a result of the transactions contemplated by this Agreement will occur, which with the giving of notice, the lapse of time, or both, would constitute a material default thereunder or result in any material violation or breach thereof, or give a right of, or result in, termination, cancellation or acceleration of any material obligation or to a loss of a material benefit thereunder, or result in the creation of any Encumbrance in or upon any of the assets or properties of any of either of the Corporations or their businesses.

(hh)

Neither of the Corporations is in default or breach of any Contract to which it is a party and there exists no condition, event or act that, with the giving of notice or lapse of time or both, would constitute such a default or breach, and all such Contracts are in good standing and in full force and effect without amendment thereto and each of the Corporations is entitled to all benefits thereunder.

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(ii)	Neither of the Corporations has any subsidiaries, or any agreements, options or commitments to acquire any securities of any person or to acquire or lease any real property or assets.

(jj)	There is no Contract, option or understanding, or any right or privilege capable of becoming an agreement, for the purchase from either of the Corporations or any of their assets other than in the usual and ordinary course of a Corporation’s business, as applicable.

Intellectual Property

(kk)

Other than the Software, neither of the Corporations licenses any Licensed Intellectual Property. The Corporations have, and, at the Closing Date, the Corporations will have, the exclusive right to use the Software except to the extent the rights are identified as being non-exclusive. Neither of the Corporations is a party to any Contract to pay any royalty or other fee to use the Software. The Intellectual Property previously disclosed to Northcore in writing is all of the Intellectual Property required for the proper carrying on of the businesses of the Corporations, as applicable.

(ll)	To the Knowledge of the Vendors, the conduct of neither of the businesses of the Corporations infringes or otherwise violates the Intellectual Property rights of any other person.

(mm)	Neither of the Corporations owns any Intellectual Property, including any Software, other than as previously disclosed in writing to Northcore.

(nn)	Copies of all licence and maintenance agreements for Software have been made available by the Vendors to Northcore.

(oo)	To the Knowledge of the Vendors, the Software operates as set out in the related documentation and in accordance with its documentation and specifications.

Employees

(pp)	Neither of the Corporations has any written employment Contract with any person whomsoever, except as previously disclosed to Northcore. Neither of the Corporations is a party to or bound by any Contract to pay any management or consulting fee except as disclosed previously to Northcore in writing.

(qq)	The Vendors have previously provided Northcore with, as of the date hereof and as of Closing, all of the:

(lxx) the names, ages, titles and status (i.e. full time, temporary or casual) of all employees of each Corporation;

(lxxi) their total annual remuneration, including a breakdown of (A) salary and (B) bonus or other incentive compensation, if any;

(lxxii) other terms and conditions of their employment (other than Compensation Policies as defined below);

(lxxiii) their total length of employment including any prior employment that would affect calculation of years of service for any purpose, including statutory entitlements, contractual entitlements (express or implied) benefit entitlement or pension entitlement; and

(lxxiv) whether any employees are on any approved or statutory leave of absence, and, if so, the reason for such absence and the expected date of return.

(rr)	The Vendors have previously provided Northcore with, as of the date hereof and as of closing, all of the:

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(lxxv) the names of all consultants of each Corporation;

(lxxvi) whether the consultant is providing services pursuant to a written consulting Contract;

(lxxvii) the term of any Contract under clause (ii) above;

(lxxviii) notice, if any, required for either Corporation to terminate the consulting relationship without cause;

(lxxix) the date the consultant first commenced providing services to the Corporation;

(lxxx) the hourly fee of the consultant; and

(lxxxi) the annual fees paid to the consultant for the preceding calendar year.

(ss)	Neither of the Corporations is bound by or a party to any collective bargaining agreement. No trade union, council of trade unions, employee bargaining agency or affiliated bargaining agent:

(lxxxii) holds bargaining rights with respect to any employees of either Corporation, by way of certification, interim certification, voluntary recognition, designation or successor rights;

(lxxxiii) to the Knowledge of the Vendors, has applied to be certified as the bargaining agent of any employees of either of the Corporation; or

(lxxxiv) to the Knowledge of the Vendors, has applied to have either Corporation declared a related employer or successor employer pursuant to applicable labour legislation.

(tt)

There are no actual or, to the Knowledge of the Vendors, threatened or pending organizing activities of any trade union, council of trade unions, employee bargaining agency or affiliated bargaining agent or any actual, threatened or pending unfair labour practice complaints, strikes, work stoppages, picketing, lock-outs, hand-billings, boycotts, slowdowns, arbitrations, grievances, complaints, charges or similar labour related disputes or proceedings pertaining to either Corporation, and there have not been any such activities or disputes or proceedings within the last year.

(uu)	All vacation pay for employees of both Corporations is properly reflected and accrued in the books and accounts of such Corporation.

(vv)

Except in connection with the transactions contemplated pursuant to this Agreement, since December 31, 2011, there have been no changes in the terms and conditions of employment of any employees of either Corporation, including their salaries, remuneration and any other payments to them, and there have been no changes in any remuneration payable or benefits provided to any officer, director, consultant, independent or dependent contractor or agent of either Corporation, and neither of the Corporations has agreed or otherwise become committed to change any of the foregoing since that date.

(ww)	Each Corporation employs all employees in compliance with all applicable Taxation, health, labour and employment laws, rules, regulations, notices, and orders, including the Occupational Health and Safety Act (Ontario) and there are no outstanding Claims, changes or orders thereunder.

(xx)	Each Corporation is in compliance with applicable workers’ compensation laws and regulations made pursuant thereto and there are no outstanding assessments, levies or penalties thereunder.

Privacy Laws

The collection, use and retention of the Personal Information by each Corporation, the disclosure or transfer of the Personal Information by such Corporation to any Third Parties and transfer of the Personal Information by such Corporation to Northcore as part of Northcore’s due diligence and as contemplated by this Agreement and in accordance with any ancillary agreement complies with all Privacy Laws, other than solely with respect to the Corporations’ failure to establish and maintain privacy policies. There are no restrictions on either Corporation’s collection, use, disclosure and retention of the Personal Information except as provided by Privacy Laws. There are no Claims pending, or ongoing or, to the Knowledge of the Vendors, threatened, with respect to either Corporations’ collection, use, disclosure or retention of the Personal Information. No decision, judgment or order, whether statutory or otherwise, is pending or has been made, and no notice has been given pursuant to any Privacy Laws, requiring either Corporation to take (or to refrain from taking) any action with respect to the Personal Information.

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Benefit Plans

(yy)

Neither Corporation maintains, or has ever maintained, contributed to, or provided any benefit plan, program, agreement or arrangement (whether written or unwritten) for the benefit of any of the employees, former employees or dependent or independent contractors of each Corporation or their respective dependants or beneficiaries (a “Benefit Plan”) including any bonus, deferred compensation, incentive compensation, share purchase, share option, stock appreciation, phantom stock, savings, profit sharing, severance or termination pay, health or other medical, life, disability or other insurance (whether insured or self-insured), supplementary unemployment benefit, pension, retirement and supplementary retirement plans, programs, agreements and arrangements, except for any statutory plans to which each Corporation is obliged to contribute or comply including the Canada/Québec Pension Plan, or plans administered pursuant to applicable federal or provincial health, worker’s compensation or employment insurance legislation.

(zz)	There are no arrangements with current or former directors, officers, employees or consultants of either Corporation with respect to compensation or benefits payable in connection with ceasing to be a director, officer, employee or consultant.

(aaa)

Northcore has been provided with a list of all compensation policies and practices of each Corporation (“Compensation Policies”) applicable to employees and dependent and independent contractors of each Corporation.

(bbb)

Each Corporation has delivered to Northcore true, complete and up-to-date copies of all Compensation Policies and all amendments thereto together with all summary descriptions of the Compensation Policies provided to past or present participants therein.

(ccc)

No fact, condition or circumstance exists that would affect the information contained in the documents provided pursuant to this section and, in particular, no promises or commitments have been made by either Company to amend any Compensation Policy.

Realty

(ddd)

Neither of the Corporations owns or possesses, beneficially or of record, any real property or any ownership, or other interest of any nature or kind whatsoever in any real property and neither of the Corporations is a party (or otherwise subject) to any Contracts, options or other rights or obligations to acquire any real property or any ownership, leasehold or other interest of any nature of kind whatsoever in real property.

(eee)

Correct and complete copies of the Business Premises Lease have been delivered to Northcore and the Business Premises Lease is unamended, in full force and effect, and contains the entire agreement between the respective landlord and the tenant thereunder as it relates to the applicable leased premises, and there are no other agreements or understandings between the respective landlord and tenant under the Business Premises Lease.

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(fff)

There are no Third Party consents necessary to the transfer, assignment and conveyance of the Business Premises Lease as contemplated by this Agreement other than as set out in the Business Premises Lease.

(ggg)

The Business Premises Lease is in good standing and there is no default thereunder and neither Corporation has received any work order, notice or letter of non-compliance or other similar notices from any governmental authority in respect of the Business Premises Lease and there is no litigation or governmental or municipal proceeding commenced or pending or threatened against or by them with respect to the Business Premises Lease.

(hhh)

To the Knowledge of the Vendors, the leased premises subject to the Business Premises Lease, do not violate any zoning or building laws, ordinances, regulations, covenants or official plans, nor does the conduct of the business of the Corporations as presently conducted thereon violate same.

(iii)

Except for the Business Premises Lease, neither of the Corporations occupies, is legally obligated for, has any interest in, or otherwise uses, any land, buildings, locations or offices, nor has any rights or obligations to acquire such interests, and neither of the Corporations has any Liability in respect of any land, building, location or office previously owned, occupied or otherwise used by it, or in which it had any such interest.

Environmental

The Corporations and their respective assets and businesses are in compliance in all material respects with all Environmental Laws and there are no facts that could give rise to a notice of non-compliance with any Environmental Law. There are no environmental Permits used in or required to carry on the businesses of the Corporations, as applicable, in their usual and ordinary course. Neither of the Corporations has used any of the facilities or Lands of such Corporation, or permitted them to be used, to generate, manufacture, refine, treat, transport, store, handle, dispose, transfer, produce or process Hazardous Substances except in compliance in all material respects with all Environmental Laws. None of the Lands has been used for or been designated as a waste disposal site. To the Knowledge of the Vendors, there are no pending changes to Environmental Laws that would render illegal, or materially restrict, the operation of the businesses of the Corporations, as applicable, in their usual and ordinary course. Neither of the Corporations has been convicted of an offence or been subjected to any judgment, injunction or other proceeding or been fined or otherwise sentenced for non-compliance with any Environmental Laws, and neither has settled any prosecution or other proceeding short of conviction in connection therewith. Neither of the Corporations has caused or permitted the Release of any Hazardous Substance at, on or under the Lands, or the Release of any Hazardous Substance off-site of the Lands, except in compliance in all material respects with Environmental Laws. There are no conditions that directly or indirectly relate to environmental matters or to the condition of the soil or the groundwater that would adversely affect either of the Corporations in a material manner (whether at, on or below the Lands or any adjoining properties). The Lands are not located within or adjacent to an area that has been determined to be an environmentally sensitive area or a wetlands area by any Governmental Authority. Neither of the Corporations has received written notice, or has knowledge after due inquiry of any facts that could give rise to any notice, that such Corporation is potentially responsible for any remedial action under any Environmental Law. Each Corporation has maintained all environmental and operating documents and records in the manner and for the time periods required by Environmental Laws and has never conducted an environmental audit of the Lands. Neither of the Corporations has breached any obligation to report to any person imposed by any Environmental Law.

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Taxes

(jjj)

With respect to Taxes:

(lxxxv) each Corporation has filed all Tax Returns, including any elections and designations required by or referred to in any such Tax Return, which were required to be filed by it with any Taxation Authority with respect to the last seven Taxation years in the case of Envision and last Taxation year in the case of Kahoot. All such Tax Returns filed by each Corporation are accurate and complete in all respects;

(lxxxvi) both Corporations have withheld, and will continue until the Closing Date to withhold, any Taxes that are required by Applicable Law to be withheld and have timely paid or remitted, and will continue until the Closing Date to pay and remit, on a timely basis, the full amount of any Taxes that have been or will be withheld, to the applicable Taxation Authority;

(lxxxvii) both Corporations have paid and will continue until the Closing Date to pay all Taxes, including any amount due on or before the Closing Date, including instalments or prepayments of Taxes, which are required to have been paid to any Taxation Authority pursuant to Applicable Law, and no deficiency with respect to the payment of any Taxes or Tax instalments has been asserted against it by any Taxation Authority. Neither Corporation has incurred any Liability, whether actual or contingent, for Taxes or engaged in any transaction or event that would result in any Liability, whether actual or contingent, for Taxes or realized any income or gain for Tax purposes otherwise than in the usual and ordinary course of the businesses of the Corporations, as applicable. Other than Taxes provided for in the Financial Statements, neither of the Corporations has any Liability or obligation in respect of any Taxes for any Taxable periods ending on or before Closing, and where no Taxable period ends or is deemed to end on or immediately prior to the Closing Date, no Liability for Taxes in respect of any time or event prior to the Closing Date. There are no Encumbrances or any rights of others on any of the assets of either Corporation that arose in connection with any failure (or alleged failure) to pay any Tax when due;

(lxxxviii) the income Tax Liability of each Corporation, has been assessed by the relevant Taxation Authority in respect of each of the Taxation years of such Corporation, with respect to the last seven Taxation years of Envision and last Taxation year of Kahoot;

(lxxxix) neither of the Corporations has outstanding assessments for Taxes, and the Vendors have no knowledge of any threatened or potential assessment or other proceedings, negotiations or investigations in respect of Taxes, against either Corporation;

(xc) neither of the Corporations is a party to any agreement, waiver or arrangement with any Taxation Authority that relates to any extension of time with respect to the filing of any Tax Return, any payment of Taxes or any assessment;

(xci) neither of the Corporations has made any election in respect of Taxes over the last seven Taxation years in the case of Envision and last Taxation year in the case of Kahoot pursuant to Applicable Law;

(xcii) neither of the Corporations is subject to Liability for Taxes of any other Person. Neither of the Corporations has acquired property from any Person in circumstances where such Corporation did or could become liable for any Taxes of such Person. The value of the consideration paid or received by such Corporation, for the acquisition, sale, transfer or provision of property (including intangibles) or the provision of services (including financial transactions) from or to a Person with whom such Corporation, was not dealing at arm’s length within the meaning of the Tax Act was equal to the estimated fair market value of such property acquired, provided or sold or services purchased or provided. Neither of the Corporations has entered into any agreement with, or provided any undertaking to, any Person pursuant to which it has assumed Liability for the payment of income Taxes owing by such Person;

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(xciii) neither of the Corporations has been required to file any Tax Return with, and has never been liable to pay any Taxes to, any Taxation Authority outside Canada. No Claim has ever been made by a Taxation Authority in a jurisdiction where either of the Corporations does not file Tax Returns that it is or may be subject to the imposition of any Tax by that jurisdiction;

(xciv) each Corporation is duly registered under the Excise Tax Act (Canada) (the “ETA”) with the Canada Revenue Agency for purposes of the goods and services Tax and harmonized sales Tax (“GST/HST”) and the registration number for Envision is 875501322RT0001 and the registration number for Kahoot is 8018305711RT0001. All input tax credits claimed by each Corporation for GST/HST purposes were determined in accordance with Applicable Law and each Corporation has properly charged and collected on all sales, leases, provision of services and all other supplies, including deemed supplies, the amount of all Taxes required to be collected by the Corporation and has properly remitted such Taxes (including amounts collectible and remittable under the ETA and any Laws of a province that imposes sales Tax) when due, in the form required under the appropriate Laws or made adequate provision for the payment of such amounts to the appropriate Taxation Authority. Each Corporation has paid all Taxes (including all sales Taxes under the applicable Laws) when due, in the form and manner required under the applicable Laws or has made adequate provision for payment of such amounts to the appropriate Taxation Authority. Each Corporation has complied with all registration, reporting, payment, collection and remittance requirements in respect of GST/HST and provincial sales Tax Laws including without limiting the foregoing, the provincial retail sales Tax imposed under Applicable Law in Manitoba, Saskatchewan, Prince Edward Island, Ontario and British Columbia and the Quebec Sales Tax;

(xcv) neither of the Corporations has claimed any reserves for purposes of the Tax Act (or analogous provincial or similar provisions) for the most recent Taxation year ending prior to the date hereof; and

(xcvi) records or documents that meet the requirements of paragraphs 247(4)(a) to (c) of the Tax Act have been made and obtained by each Corporation with respect to all material transactions between such Corporation and any non-resident person with whom such Corporation was not dealing at arm’s length within the meaning of the Tax Act, during a Taxation year commencing after 1998 and ending on or before the Closing Date.

(kkk)

The Vendors are not non-residents of Canada within the meaning of section 116 of the Tax Act.

(lll)

The Corporations have never been assessed any administrative monetary penalties by the Canada Border Services Agency.

Customers and Suppliers

Northcore has been provided with a true and complete list of (i) the 10 largest customers of each of the Corporations, respectively, as of December 31, 2011 (determined by reference to the revenue from such customers during the 12 months preceding such date), and (ii) the 10 largest suppliers of each of the Corporations, respectively, as of December 31, 2011 (determined by reference to payments actually made during the 12 months preceding such date). Neither of the Corporations or any of the Vendors, has received any notice that any vendor or supplier will not sell supplies, merchandise or other goods to either of the Corporations at any time after the Closing Date on terms and conditions substantially similar to those used in its current sales to such Corporation.

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Insurance

Northcore has been provided with a true and complete list of all insurance policies maintained by each Corporation that also specifies the insurer, the amount of the coverage, the type of insurance, the policy number and any pending claims thereunder. All such policies are in full force and effect, and all premiums due on such policies have been paid in full and in a timely manner. There are no notices of any pending or, to the Knowledge of the Vendors, threatened termination or premium increases with respect to any such policies. Neither of the Corporations has had any material casualty loss or other occurrence which may give rise to any claim of any kind not covered by insurance or, to the Knowledge of the Vendors, of any occurrence which may give rise to any claim of any kind not covered by insurance. There have been no claims against either Corporation reported to the insurance carrier.

No Brokers’ or Finders’ Fees

No person acting or purporting to act on behalf of the Vendors or either Corporation will be entitled to any commission or brokers’ or finders’ fee respecting the transactions contemplated by this Agreement from either Corporation or Northcore.

Bank Accounts and Powers of Attorney

Northcore has been provided with a true and complete list of (i) each bank or other financial institution in which either Corporation has an account or safe deposit box, and (ii) the names of all persons authorized to draw thereon or who have access thereto, and (iii) the names of all persons holding powers of attorney with respect to each Corporation.

Litigation

There are no Claims (whether or not purportedly on behalf of either Corporation):

(xcvii) pending or threatened against or adversely affecting, or which could adversely affect, such Corporation or any its assets, or

(xcviii) before or by any Governmental Authority.

Compliance with Law

Other than with respect to its failure to maintain a privacy policy, each Corporation is conducting its respective business, as applicable, in compliance with all Applicable Laws, is not in breach of any such Applicable Laws and is duly licensed, registered or qualified in the Province of Ontario and all municipalities thereof in which each Corporation carries on its business, as applicable, to enable it to be carried on as now conducted and its assets to be owned, leased and operated, and all such licences, registrations and qualifications are valid and subsisting and in good standing and none of the same contains any term, provision, condition or limitation that has or may have an adverse effect on the operation of either business, as applicable, or which may be affected by the completion of the transactions contemplated hereby. Neither of the Corporations is subject to any reporting requirements or other obligations pursuant to any securities laws and none of the Vendors has any right to compel either Corporation to register or otherwise qualify such securities for public sale or resale.

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Permits

Northcore has been provided with a complete and accurate list of all Permits necessary or required to enable the Corporations’ businesses, as applicable, to be carried on as now conducted and their respective assets to be owned, leased and operated. All of such Permits are in full force and effect and neither of the Corporations has engaged in any activity which would cause or permit revocation or suspension of any such Permit, and no action or proceeding seeking to or contemplating the revocation or suspension of any such Permit is pending or, to the Knowledge of the Vendors, threatened. Neither of the Corporations has received written notice of any, and to the Knowledge of the Vendors there are no existing, defaults or events of default or events or states of fact which notice will lapse of time or both would constitute a default by either Corporation, and/or of any such Permit.

Representations and Warranties of Northcore.

Northcore hereby represents and warrants to the Vendors as follows:

(mmm)

Northcore is a corporation duly incorporated, organized and subsisting under the laws of the Province of Ontario.

(nnn)

Northcore has good and sufficient power, authority and right to enter into and deliver this Agreement and to complete the transactions to be completed by Northcore contemplated hereunder.

(ooo)

This Agreement constitutes, and, at Closing, each other Transaction Document will constitute, a valid and legally binding obligation of Northcore, enforceable against Northcore in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization and other laws of general application limiting the enforcement of creditors’ rights generally and to the fact that specific performance is an equitable remedy available only in the discretion of the court.

(ppp)

Neither the entering into nor the delivery of this Agreement nor the completion of the transactions contemplated hereby by Northcore will result in a violation of:

(xcix) any of the provisions of the constating documents or by-laws of Northcore;

(ci) any Applicable Law in respect of which the Purchaser must comply.

General Covenants.

With respect to Taxes, Northcore does not assume and will not be liable for any Taxes which may be or become payable by the Vendors, including any Taxes resulting from or arising as a consequence of the sale by the Vendors to Northcore of the Purchased Shares herein contemplated, and the Vendors will indemnify and save harmless Northcore and the directors, officers, employees and agents of Northcore from and against all such Taxes.

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Covenants of the Vendors.

The Vendors hereby covenant as follows:

Except as contemplated in this Agreement or with the prior written consent of Northcore, from the date of this Agreement until the Closing Date, each of the Vendors will: (i) cause the Corporations’ businesses to be carried on only, and will ensure that neither Corporation, as applicable, takes any action except in the usual and ordinary course of such respective business, as applicable, consistent with past practice; (ii) cause each Corporation to use its reasonable commercial efforts to preserve intact its business organization and its present relationships with customers, suppliers and other persons with which it may have business relationships and to keep available the services of its current officers, employees and consultants; and (iii) ensure that neither of the Corporations, directly or indirectly, do, authorize, agree or commit to do any of the following:

(qqq)

modify, amend or otherwise change, or take any action in contravention of, its articles of incorporation or by-laws or equivalent organizational documents or governing documents;

(rrr)

enter into any amalgamation, plan of amalgamation, consolidation, business combination, joint venture or other material corporate transaction;

(sss)

issue, sell, dispose of, pledge or encumber: (i) any shares of its capital, as applicable, or any options, warrants, convertible or exchangeable securities or other rights of any kind to acquire any shares of its capital, as applicable, of it; or (ii) any of its assets, tangible or intangible, unless any such disposition is in the ordinary course of a business of a Corporation, as applicable, consistent with past practice;

(ttt)

purchase or otherwise acquire (including for cash or securities, by amalgamation, consolidation, or acquisition of shares or assets) any interest in any property or make any investment either by purchase of securities, contributions of capital or property transfer, unless any such purchase or other acquisition is in the ordinary course of the Corporations’ businesses, as applicable, consistent with past practice;

(uuu)

incur any Indebtedness (including any refinancing of existing Indebtedness) or guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances;

(vvv)

declare, set aside, make or pay any dividend or any other distribution, payable in cash, property or otherwise, with respect to any of its share capital or other ownership interests;

(www)

reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its share capital, partnership or membership interest or other ownership interest as applicable;

(xxx)

make any capital expenditures;

(yyy)

enter into, amend or terminate any Contract;

(zzz)

increase the compensation, commission, bonus or other direct or indirect remuneration payable or to become payable to its directors, managers, officers, employees, independent contractors or agents, or grant any severance or termination pay to, or enter into any employment or severance agreement with any such persons, or establish, adopt, enter into or amend or take any action to accelerate any rights or benefits under any collective bargaining, bonus, profit share, trust, compensation, stock option, restricted stock, pension, retirement deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such persons, except as required by Applicable Law;

(aaaa)

hire or otherwise retain the services of any employee or consultant;

(bbbb)

change its fiscal year or make any material change in its accounting policies or procedures, unless required under generally accepted accounting principles or otherwise required by Applicable Law;

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(cccc)

permit present insurance policies or other comparable insurance coverage to lapse;

(dddd)

adopt any plan or proposal for a complete or partial liquidation or dissolution or any reorganization or recapitalization or commence any case, proceeding or action seeking relief under any existing or future Applicable Laws relating to bankruptcy, insolvency, conservatorship or relief of debtors;

(eeee)

take or permit to be taken, any action that would prevent the businesses of the Corporations as they currently exist, from continuing on an ongoing basis in all material respects;

(ffff)

suffer or permit any Encumbrances to attach to or affect their respective assets; or

(gggg)

not declare or distribute any dividends or pay dividends on the Purchased Shares.

During the period from the date of this Agreement until Closing, the Vendors will:

(hhhh)

promptly advise Northcore in writing of the occurrence of any Material Adverse Effect in respect of the Corporations or of any facts that come to their attention which would cause any of the Vendors’ representations and warranties herein contained to be untrue in any respect; and

(iiii)

cause each Corporation to maintain its books, records and accounts, in the usual and ordinary course, consistent with past practice and record all transactions on a basis consistent with that practice.

The Vendors will ensure that the representations and warranties of the Vendors set out in this Agreement are true and correct at Closing and that the conditions of closing for the benefit of Northcore have been performed or complied with by Closing.

Covenants of Northcore.

Northcore hereby covenants as follows:

Northcore will ensure that the representations and warranties of Northcore set out in this Agreement are true and correct at Closing and that the conditions of closing for the benefit of the Vendors set out in this Agreement have been performed or complied with by Closing.

If the Corporations fail to sustain two consecutive financial quarters meeting pro-rated Milestones, in the event that Northcore, acting reasonably, decides to implement a material reorganization, disposition, amalgamation or other transaction involving the Corporations, Northcore may, subject to Applicable Law, provide the Corporations with one hundred and eighty (180) days notice of such decision. If the Corporations return to achieving such pro-rated Milestones within such one hundred and eighty (180) day period, Northcore will, acting reasonably, defer such decision. If the Corporations fail to return to achieving such pro-rated Milestones, Northcore may in its sole discretion, implement such decision.

Employee Bonus Pool.

The Parties agree that an annual employee bonus pool (the “First Bonus Pool”) will be established within Envision and Kahoot equal to the greater of $23,000 or 20% of Envision plus Kahoot’s combined EBITDA (such EBITDA adjusted to reflect employee bonuses and Annual Incentives) in excess of the Milestones. Such bonus pool will be allocated and distributed at Todd Jamieson’s discretion at the end of each of Envision and Kahoot’s 2012 and 2013 fiscal year. There will be an additional one-time bonus (the “Second Bonus Pool”) for certain Key Employees for a combined total of $35,000 ($10,000 available to Gurjot Bhuller, $15,000 available to Brian Johnson and $10,000 available to Jennifer Priest) should each Key Employee stay with the company for two years.

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Milestone Payments.

Upon a Milestone Payment date:

(jjjj)

If a Vendor has voluntarily resigned from their employment with a Corporation or such employment has been terminated with cause prior to any of the Milestone Payment dates, such Vendor shall forfeit their entitlement to receive any Milestone Payment which has not yet been released pursuant to the terms of this Agreement on each of the Milestone Payment dates following the date of such resignation or termination.

(kkkk)

If a Vendor’s employment with a Corporation is terminated without cause, or such Vendor is laid off, dies or becomes permanently disabled, he, she or their estate as the case may be, will be entitled to receive the Milestone Payment otherwise owed to such Vendor in accordance with the terms of this Agreement.

(llll)

Should the collective financial performance of the Corporations not meet the Milestones, the corresponding Milestone Payment shall be reduced in direct proportion to the shortfall, with no payment due in a given year should collective revenues be less than $800,000 or net EDITDA, after adjusting for the First Bonus Pool and the Second Bonus Pool and Annual Incentives, be less than $20,000. The Company views revenue and EBITDA to be of equal importance.

(mmmm)

Revenue will be recognized in accordance with International Financial reporting Standards.

(nnnn)

Any dispute regarding Milestone achievement will be resolved by a mutually agreed upon independent national accounting firm.

Post-Transaction Accounting.

The Parties agree that all ongoing accounting activities of the Corporations will be completed by Northcore, including accounts payable, accounts receivable and payroll requirements. Northcore will charge the Corporations a flat fee of $20,000 per year allocated between the Corporations for such services.

Examination of Records and Assets.

The Vendors will forthwith cause each Corporation to make available to Northcore and its authorized representatives all data bases recorded or stored by means of any device, including in electronic form, leases, certificates of trade marks and copyrights, if any, and Contracts in its possession or under its control relating to each Corporation, its assets or the Corporations’ businesses, as applicable. The Vendors will cause each Corporation to forthwith make available to Northcore and its authorized representatives for examination all books of account and accounting records relating to such Corporation. The Vendors will cause each Corporation to give Northcore and its authorized representatives every reasonable opportunity to have access to and to inspect the assets of each Corporation.

Role of Todd Jamieson.

The Parties agree that post-Closing, subject to the discretion of Northcore acting reasonably, Todd Jamieson’s role with Envision will include:

(oooo)

Todd will be responsible for overseeing the mutually agreed upon vision statement/business plan and budget.

(pppp)

Todd will be given the ability to ensure the existing Envision Online staff culture, branding, perceived image and customer service are retained (as outlined in Northcore’s Core Values Document provided to Todd Jamieson).

(qqqq)

Todd will be given all reasonable chances to meet Milestones by keeping existing production and management strategies and systems intact and all current staff (who continue to have favourable reviews) will continue to be employed by Envision Online.

(rrrr)

Should Envision be asked to lay-off staff in order to cut costs, Envision will be given a reasonable amount of time (3 or more months) to correct the situation by other cost cutting/revenue creation measures.

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(ssss)

Envision Employees will eventually (once Northcore’s budget permits) be offered industry appropriate salaries, employee stock options and health benefits (subject to achieving Milestones).

(tttt)

Todd will be invited, from time to time (when appropriate) to be involved in strategic management discussions regarding Northcore’s future acquisitions, technology and over business direction.

(uuuu)

Brian Johnson will be invited, from time to time (when appropriate) to be involved in strategic management discussions regarding Northcore’s future acquisitions, technology and over business direction.

(vvvv)

Envision will be highlighted on Northcore’s website and whenever possible Northcore will refer new business to Envision (as will Envision to Northcore) that is more appropriate for their strengths. (eg: a website for a medium sized business would ideally be developed by Envision instead of Northcore).”

GENERAL TERMS AND CONDITIONS

Restrictions.

The Shares will be issued by way of private placement exempt from prospectus and registration requirements in the Province of Ontario, subject to the receipt of any applicable regulatory and stock exchange approvals.

Currency.

Unless otherwise indicated, all references to dollar amounts in this Agreement are expressed in Canadian currency.

Further Acts.

Each of the Vendors and Northcore will from time to time execute and deliver all such further documents and instruments and do all acts and things as the other Parties may, either before or after the Closing Date, reasonably require to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement.

Expenses.

Whether or not the Transactions are consummated (as contemplated herein or otherwise), each Party will pay its own fees and expenses incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the Term Sheet, and any other agreements or documents contemplated hereby or thereby, and the due diligence in advance of the Closing Date.

Headings.

The division of this Agreement into Articles and Sections and the insertion of a table of contents and headings are for convenience of reference only and do not affect the construction or interpretation of this Agreement. The terms “hereof”, “hereunder” and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles, Sections, Appendices and Schedules are to Articles and Sections of and Schedules to and Appendices to this Agreement.

Statutory References.

In this Agreement, unless something in the subject matter or context is inconsistent therewith or unless otherwise herein provided, a reference to any statute is to that statute as now enacted or as the same may from time to time be amended, re-enacted or replaced and includes any regulations made thereunder.

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Waiver of Condition.

Northcore, in the case of a condition set out in Section 4.1, and the Vendors, in the case of a condition set out in Section 4.2, will have the exclusive right to waive the performance or compliance of such condition in whole or in part and on such terms as may be agreed upon without prejudice to any of its rights in the event of non-performance of or non-compliance with any other condition in whole or in part. Any such waiver will not constitute a waiver of any other conditions in favour of the waiving Party. Such waiving Party will retain the right to complete the sale and purchase of the Purchased Shares herein contemplated and sue the other Party or Parties, in respect of any breach of the other Party’s covenants, obligations or any inaccuracy or misrepresentation in a representation or warranty of the other Party which gave rise to the non-performance of or non-compliance with the condition so waived.

Termination.

This Agreement may be terminated, by notice given prior to or at the completion of the sale and purchase of the Purchased Shares herein contemplated:

(wwww)

by the Vendors or Northcore if a breach of any representation, warranty, covenant, obligation or other provision of this Agreement has been committed by the other Party and such breach has not been waived or cured within 30 days following the date on which the non-breaching Party notifies the other Party of such breach;

(xxxx)

by Northcore if any of the conditions in Section 4.1 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Northcore to comply with its obligations under this Agreement) and Northcore has not waived such condition on or before the Closing Date;

(yyyy)

by the Vendors if any of the conditions in Section 4.2 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of the Vendors to comply with their obligations under this Agreement) and the Vendors have not waived such condition on or before the Closing Date; or

(zzzz)

by written agreement of Northcore and the Vendors;.

(aaaaa)

by the Vendors or Northcore if the completion of the sale and purchase of the Purchased Shares herein contemplated has not occurred (other than through the failure of the Party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before April 30, 2012 or such later date as the Parties may agree upon.

Effect of Termination.

Each Party’s right of termination under Section 6.8 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 6.8, all further obligations of the Parties under this Agreement will terminate, except that the obligations in Section 6.11(3) and Section 6.4 will survive; provided, however, that if this Agreement is terminated by a Party because of a breach of a representation or warranty, covenant, obligation or other provision of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal remedies with respect to such breach will survive such termination unimpaired.

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Closing.

The sale and purchase of the Shares will be completed at the time of Closing by exchange of documents as agreed between the Parties.

Deliveries and Confidentiality.

At Closing the Vendors will have delivered to (i) Northcore all of the material books and records that relate to the Envision business (the “Envision Documents”), and (ii) Northcore all of the material books and records that relate to the Kahoot business (the “Kahoot Documents”), in each case to the extent they are not under the possession or control of the Corporations, as applicable. Northcore will use its reasonable commercial efforts to ensure that the Corporations preserves the Envision Documents and the Kahoot Documents so delivered for a period of six years from the Closing Date, or for such other period as is required by any Applicable Law, and will permit the Vendor s and their authorized representatives reasonable access thereto in connection with the affairs of the Vendors, but Northcore will not be responsible or liable to the Vendors for or as a result of any loss or destruction of or damage to any such documents, except to the extent such loss or destruction or damage directly results in a Claim against a Vendor by Northcore pursuant to this Agreement and the defence of such Claim by such Vendor is materially prejudiced by such loss, destruction or damage

Both prior to the Closing Date and, if the sale and purchase of the Purchased Shares hereunder fail to occur for whatever reason, thereafter Northcore will not disclose to anyone or use for its own or for any purpose other than the purpose contemplated by this Agreement any confidential information concerning the Vendors or the Corporations obtained by Northcore pursuant hereto, will hold all such information in the strictest confidence and, if the sale and purchase of the Purchased Shares hereunder fails to occur for whatever reason, will return all documents, records and all other information or data relating to the Vendors or the Corporations which Northcore obtained pursuant to this Agreement.

From and after the Closing Date the Vendors will not disclose to anyone or use for any purpose any confidential information concerning the Corporations and will hold all such information in the strictest confidence.

Except as required by Applicable Law or rules and policies of the Toronto Stock Exchange, no public announcement or press release concerning the sale and purchase of the Shares may be made by the Vendors or Northcore without the prior consent and joint approval of the Vendors and Northcore.

Time of the Essence.

Time is of the essence of this Agreement.

Benefit of the Agreement.

This Agreement will enure to the benefit of and be binding upon the respective heirs, executors, administrators, other legal representatives, successors and permitted assigns of the Parties.

Entire Agreement.

This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between the Parties with respect thereto, including the Term Sheet. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Parties other than as expressly set forth in this Agreement.

Amendments and Waivers.

No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by all of the Parties. No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the Party purporting to give the same and, unless otherwise provided, will be limited to the specific breach waived.

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Assignment.

This Agreement may not be assigned by the Vendors without the written consent of Northcore but may be assigned by Northcore without the consent of the Vendors to an Affiliate of Northcore, provided that such Affiliate enters into a written agreement with the Vendors to be bound by the provisions of this Agreement in all respects and to the same extent as Northcore is bound and provided that Northcore will continue to be bound by all the obligations hereunder as if such assignment had not occurred and perform such obligations to the extent that such Affiliate fails to do so.

Notices.

Any demand, notice or other communication to be given in connection with this Agreement must be given in writing and will be given by personal delivery, by registered mail or by electronic means of communication addressed to the recipient as follows:

To the Vendors:

·	Confidential Personal Information.

With a copy to:

Andre Martin

Mann & Partners, LLP

Suite 710, 1600 Scott Street

Ottawa, Ontario, K1Y 4N7 Canada

Fax No.: 613-722-7677

Email: Andre@mannlawyers.com

To Northcore:

302 The East Mall, Suite 300

Etobicoke, Ontario, Canada M9B 6C7

Attention: CFO

Fax No.: (416) 640-0413

With a copy to:

Baker & McKenzie LLP

Brookfield Place

181 Bay Street, Suite 2100

P.O. Box 874

Toronto, Ontario, Canada M5J 2T3

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Attention: Greg McNab

Fax No.: (416) 863-6275

Email: greg.mcnab@bakermckenzie.com

or to such other street address, individual or electronic communication number or address as may be designated by notice given by either Party to the other. Any demand, notice or other communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered mail, on the second Business Day following the deposit thereof in the mail and, if given by electronic communication, on the day of transmittal thereof if given during the normal business hours of the recipient and on the Business Day during which such normal business hours next occur if not given during such hours on any day. If the Party giving any demand, notice or other communication knows or ought reasonably to know of any difficulties with the postal system that might affect the delivery of mail, any such demand, notice or other communication may not be mailed but must be given by personal delivery or by electronic communication.

Remedies Cumulative.

The right and remedies of the Parties under this Agreement are cumulative and are in addition to, and not in substitution for, any other rights and remedies available at law or in equity or otherwise. No single or partial exercise by a Party of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which that Party may be entitled.

No Third Party Beneficiaries.

Except as provided in Section 6.16, this Agreement is solely for the benefit of:

(bbbbb)

the Vendors and their respective heirs, executors, administrators, other legal representatives, successors and permitted assigns, with respect to the obligations of Northcore under this Agreement; and

(ccccc)

Northcore, and its respective successors and permitted assigns, with respect to the respective obligations of the Vendors under this Agreement;

and this Agreement will not be deemed to confer upon or give to any person any Claim or other right or remedy. Each of the Vendors appoints the Purchaser as the trustee for the Purchaser Indemnitees (as defined below) of the covenants of indemnification of such Vendor with respect to such Purchaser Indemnitees as specified in this Agreement and Northcore accepts such appointment. Northcore appoints the Vendors as the trustees for the Vendor Indemnitees of the covenants of indemnification of Northcore with respect to such Vendor Indemnitees (as defined below) specified in this Agreement and the Vendors accept such appointment.

Counterparts.

This Agreement may be executed in two or more counterparts, including counterparts transmitted by facsimile or electronic transmission, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to this Agreement by any Party by electronic transmission will be as effective as delivery of a manually executed copy of this Agreement by such Party.

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Governing Law.

This Agreement will be governed by the laws of Ontario, Canada and the Parties attorn to the jurisdiction of the Courts of Ontario, Canada. In the event of any claim by a Party, the other Parties agree that such claim will be heard in the Provincial Courts located in the City of Toronto, Ontario, Canada.

INDEMNIFICATION

Survival.

All covenants, representations and warranties of each Party contained in this Agreement will survive the Closing and will continue in full force and effect, subject to the provisions of this Article 7.

Indemnification by the Vendors.

Subject to the provisions of this Article 7, the Vendors will, as set out below, indemnify and save harmless Northcore and the directors, officers, employees and agents of Northcore (collectively, the “Purchaser Indemnitees”) from and against all Claims asserted against and Losses incurred by any of them directly or indirectly arising out of or resulting from:

(ddddd)

any inaccuracy or misrepresentation in any representation or warranty of any of the Vendors in this Agreement applicable to it;

(eeeee)

any breach of any covenant of any of the Vendors applicable to it in this Agreement;

(fffff)

any Taxes owing or that may become owing by the Corporation in respect of any period ending on or before the Closing Date, in excess of the amount of the provisions for such Taxes in previous filed tax returns and any GST/HST, Quebec Sales Tax, provincial retail sales Tax and similar Taxes owing or that may become owing by the Corporation in respect of any period ending on or before the Closing Date and where a period ends after the Closing Date, that part of the period up to and including the Closing Date, but only to the extent such Taxes are not reflect in the books and records of a Corporation at Closing;

(ggggg)

the Reorganization;

(hhhhh)

the Corporations not having prepared or posted a pay equity plan for all employees of the Corporations in compliance with the Pay Equity Act (Ontario); or

(iiiii)

the authorized, issued or unissued share capital of the Corporations, including the articles of the Corporations (including the articles of amendment of Envision dated March 6, 2012), or any omission to file any articles of amendment or any decision to not file any articles of amendment.

Todd Jamieson shall be the sole indemnifying party for purposes of Section 7.2(1)(c) to (f) inclusive.

Notwithstanding any of the other provisions of this Agreement, the Vendors will not be liable to any Purchaser Indemnitee in respect of:

(jjjjj)

any Claim or Loss directly or indirectly arising out of or resulting from any inaccuracy or misrepresentation in any representation or warranty of the Vendors in this Agreement unless:

(cii) in the case of any Claim or Loss arising out of or resulting from the Tax liability of a Corporation, including any representation or warranty in Section 5.1(12), notice of any Claim by Northcore against any of the Vendors with respect thereto is given to the Vendors by Northcore within 90 days after the expiration of the last of the limitation periods contained in the Tax Act and any other legislation imposing Tax on a Corporation subsequent to the expiration of which an assessment, reassessment or other form or recognized document assessing liability for Tax for the period ended on or before the Closing Date (and where a reporting period for purposes of GST/HST, Quebec Sales Tax and provincial retail sales Tax, ends after the Closing Date, that part of the particular reporting period up to and including the Closing Date) cannot be issued to any Corporation; or

- Page 142 -

(ciii) in the case of any Claim or Loss arising out of or resulting from: (i) any inaccuracy or misrepresentation in any representation or warranty in Section 5.1 (other than Section 5.1(12) and the Special Representations), notice of any Claim by Northcore against the Vendors with respect thereto is given to the Vendors by Northcore pursuant to Section 7.4 within 30 months after the Closing Date,

whether or not any Purchaser Indemnitee has discovered or could have discovered such inaccuracy or misrepresentation before such time but excluding any Claim or Loss arising out of or resulting from any fraud by any Vendor or from any inaccuracy or misrepresentation in any Special Representation in which case there will be no time limit for Northcore to make a Claim against the Vendors in respect thereof;

(kkkkk)

any inaccuracy or misrepresentation in any representation or warranty of the Vendors in this Agreement:

(civ) unless the Losses arising from such inaccuracy or misrepresentation exceed $25,000, and for this purpose all inaccuracies or misrepresentations arising from the same event or circumstances will be aggregated; and

(cv) unless and until the aggregate of all such other Losses that meet the criteria in (i) above exceeds $25,000, after which the Vendor Parties will be jointly and severally liable for (and will be required to pay) the amount owing in respect of all such Losses, including the $25,000, other than, in all cases, any Loss attributable to: (i) an inaccuracy or misrepresentation pertaining to any of the Special Representations; or (ii) fraud.

Indemnification by Northcore.

Subject to the provisions of this Article 7, Northcore will indemnify and save harmless the Vendors and the directors, officers, employees and agents of the Vendors (the “Vendor Indemnitees”) from and against all Claims asserted against and Losses incurred by any of them directly or indirectly arising out of or resulting from

(lllll)

any inaccuracy or misrepresentation in any representation or warranty of Northcore in this Agreement, or

(mmmmm)

any breach of any covenant of Northcore in this Agreement.

Notwithstanding any of the other provisions of this Agreement, Northcore will not be liable to any Vendor Indemnitee in respect of:

(nnnnn)

any Claim or Loss directly or indirectly arising out of or resulting from any inaccuracy or misrepresentation in any representation or warranty of Northcore in this Agreement unless notice of any Claim by a Vendor against Northcore with respect thereto is given to Northcore by a Vendor within 36 months after the Closing Date, whether or not any Vendor Indemnitee has discovered or could have discovered such inaccuracy or misrepresentation before such time but excluding any Claim or Loss arising out of or resulting from any fraud by Northcore in which case there will be no time limit for a Vendor to make a claim or demand against the Northcore in respect thereof; or

(ooooo)

any inaccuracy or misrepresentation in any representation or warranty of Northcore in this Agreement:

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(cvi) unless the Losses arising from such an inaccuracy or misrepresentation exceeds $25,000 and for this purpose all inaccuracies or misrepresentations arising from the same event or circumstances will be aggregated; and

(cvii) unless and until the aggregate of all such Losses which meet the criteria in (i) above exceeds $25,000, after which Northcore will be liable for (and will be required to pay) the amount owing in respect of all such Losses, including the $25,000.

Third Party Indemnification.

Promptly after the assertion by any Third Party of any Third Party Claim (a “Third Party Proceeding”) against any person entitled to indemnification under this Agreement (the “Indemnitee”) that results or may result in the incurrence by such Indemnitee of any Claim or Loss for which such Indemnitee would be entitled to indemnification pursuant to this Agreement, such Indemnitee will promptly notify the Party from whom such indemnification is or may be sought (the “Indemnitor”) of such Third Party Proceeding. Such notice will also specify with reasonable detail (to the extent the information is reasonably available) the factual basis for the Third Party Proceeding, the amount claimed by the Third Party, or if such amount is not then determinable, a reasonable estimate of the likely amount of the Third Party Claim. The failure to promptly provide such notice will not relieve the Indemnitor of any obligation to indemnify the Indemnitee, except to the extent such failure prejudices the Indemnitor. Thereupon, the Indemnitor will have the right, upon written notice (the “Defence Notice”) to the Indemnitee within 30 days after receipt by the Indemnitor of notice of the Third Party Proceeding (or sooner if such Third Party Proceeding so requires) to conduct, at its own expense, the defence against the Third Party Proceeding in its own name or, if necessary, in the name of the Indemnitee. The Defence Notice will specify the counsel the Indemnitor will appoint to defend such Third Party Proceeding (the “Defence Counsel”), and the Indemnitee will have the right to approve the Defence Counsel, which approval will not be unreasonably withheld. Any Indemnitee will have the right to employ separate counsel in any Third Party Proceeding and/or to participate in the defence thereof, but the fees and expenses of such counsel will not be included as part of any Losses incurred by the Indemnitee unless (i) the Indemnitor failed to give the Defence Notice, (ii) such Indemnitee has received an opinion of counsel, reasonably acceptable to the Indemnitor, to the effect that the interests of the Indemnitee and the Indemnitor with respect to the Third Party Proceeding are sufficiently adverse to prohibit the representation by the same counsel of both Parties under applicable ethical rules, or (iii) the employment of such counsel at the expense of the Indemnitor has been specifically authorized by the Indemnitor. The Party conducting the defence of any Third Party Proceeding will keep the other Party apprised of all significant developments and will not enter into any settlement, compromise or consent to judgment with respect to such Third Party Proceeding unless the Indemnitor and the Indemnitee consent, which consent will not be unreasonably withheld.

Exclusive Remedy.

From and after the completion of the sale and purchase of the Purchased Shares herein contemplated, except in the case of a breach of Section 6.11(2) and (3), the rights of indemnity set forth in this Article 7 are the sole and exclusive remedies of each Party in respect of any inaccuracy or misrepresentation in any representation or warranty, or breach of covenant or other obligation by another Party under this Agreement. Accordingly, the Parties waive, from and after the Closing, any and all rights, remedies and Claims that one Party may have against another Party, whether at law, under any statute or in equity (including Claims for contribution or other rights of recovery arising under any Environmental Law, Claims for breach of contract, breach of representation and warranty, negligent representation and all Claims for breach of duty), or otherwise, directly or indirectly, relating to the provisions of this Agreement or the transaction contemplated by this Agreement other than equitable remedies in the case of a breach of Section 6.11(3), as expressly provided for in this Article 7 and other than those arising with respect to any fraud. This Article 7 will remain in full force and effect in all circumstances and will not be terminated by any breach (fundamental, negligent or otherwise) by any Party of its representations, warranties, covenants or other obligations under this Agreement or under any Closing document or by any termination or rescission of this Agreement by any Party.

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Milestone Payment Set-off.

Any of Todd Jamieson’s payment obligations in the event of any indemnity by Todd Jamieson shall be guaranteed by any Milestone Payments not yet paid to Todd Jamieson. In the event that Todd Jamieson fails to make any payment for obligations arising under this Agreement, Northcore shall be entitled to immediate payment of such amounts out of any outstanding Milestone Payments as soon as they become payable on a pro rata basis without any notice to or consent of Todd Jamieson.

PREPARATION OF TAX RETURNS

Preparation of Tax Returns

(ppppp)

The Vendors shall cooperate with Northcore to prepare all Tax Returns for the Corporations due after the Closing Date in respect of periods ending on or before or which include the Closing Date. Such Tax Returns shall be prepared on a basis consistent with applicable Laws and the Corporations' existing procedures for preparing such Tax Returns and in a manner consistent with prior practice with respect to the treatment of specific items on the Tax Returns (to the extent such treatment is in accordance with applicable Laws and reasonable in the circumstances).

(qqqqq)

The Vendors will cooperate with Northcore to have the Corporations elect in their Tax Returns for the Corporations' taxation year ending immediately before the acquisition of control (as that term is used in the Tax Act) not to have subsection 256(9) of the Tax Act apply, so that the acquisition of control of the Corporations shall be deemed to have occurred at the time of Closing.

(rrrrr)

Not less than thirty (30) days (or in the case of GST/HST and other sales Taxes not less than fifteen (15) days) prior to the due date of each such Tax Return, the Vendors will cooperate with Northcore or its designee to prepare a complete Tax Return.

ARBITRATION

Arbitration. Subject to Section 5.7(e), in the event of any dispute, claim, question or difference arising out of or relating to this Agreement, or any breach hereof, the Parties shall use their best efforts to settle such dispute, claim, question or difference. To this effect, they shall consult and negotiate with each other, in good faith and understanding of their mutual interests, to reach a just and equitable solution satisfactory to all Parties.

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If the Parties do not reach a solution within a period of twenty-five (25) Business Days following the receipt by each Party of notice of such dispute, claim, question or difference, then upon notice by any Party to the other Party, the dispute, claim, question or difference shall be finally settled by arbitration in accordance with the following provisions:

(sssss)

the arbitration shall take place in Toronto, Ontario, unless the Parties agree otherwise, in the English language, and in accordance with the Rules of Arbitration of the International Chamber of Commerce with one or more arbitrators appointed in accordance with such rules;

(ttttt)

the arbitrator(s) shall be qualified by education and training to pass upon the particular matter to be decided;

(uuuuu)

the arbitrator(s) shall be instructed that time is of the essence in proceeding with this determination of any dispute, claim, question or difference and, in any event, the arbitration award must be rendered within thirty (30) days of any arbitral hearing;

(vvvvv)

the arbitrator may establish such procedures, schedules and time limits as the arbitrator, in his or her absolute discretion, considers fair and appropriate for achieving a just and proper result in relation to the particular matter in issue and in doing so may have regard to:

	(cviii)	the amount in issue;
	(cix)	the complexity of the matters in dispute;
	(cx)	the need for urgency;
	(cxi)	the need for Parties to have access to documents or information in the possession of the other;
	(cxii)	whether issues of credibility are involved or whether the matter can be disposed of without the evidence of witnesses; and
	(cxiii)	whether there is a need for oral argument or whether the matter can be disposed of on the basis of written submissions;

(wwwww)

unless the Parties agree or the arbitrator directs otherwise, the fact of the arbitration and all proceedings relating thereto shall be held in confidence by the arbitrator and by the Parties and their professional advisors and consultants. The arbitrator may authorise disclosure of some or all of the matters in dispute to Third Parties, on such terms as to confidentiality as the arbitrator considers appropriate, where such disclosure is necessary to comply with legal requirements or obligations of either Party or to facilitate the arbitration;

(xxxxx)

the prevailing Party (as determined by the arbitrator) shall in addition be awarded by the arbitrator such Party’s own reasonable legal fees and expenses in connection with such proceeding. The nonprevailing Party (as determined by the arbitrator) shall pay the Arbitrator’s fees and expenses.

(yyyyy)

the arbitrator may award interest on all or any portion of any amount found owing from one Party to the other;

(zzzzz)

the arbitrator may not award punitive, exemplary or non-compensatory damages of any kind;

(aaaaaa)

the arbitration award shall be given in writing and shall be final and binding on the Parties, not subject to any appeal, and shall deal with the question of costs of arbitration and all matters related thereto;

- Page 146 -

(bbbbbb)

judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial recognition of the award or an order or enforcement thereof, as the case may be; and

(cccccc)

with respect to matters not specifically covered by this Section, the arbitration shall be governed by the laws of the Province of Ontario and the Rules of Civil Procedure, made under the Courts of Justice Act, R.R. O. 1990, Reg. 194., as amended from time to time.

Notwithstanding the foregoing, nothing in this Section shall be construed to waive any rights or timely performance of any obligation existing under this Agreement.

(balance of the page intentionally left blank)

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SHARES PURCHASE AGREEMENT

Executed as of the date first written above on behalf of:

Northcore Technologies Inc.

Per:

_-Sd-___________________________

The Shareholders of Envision Online Media Inc.:

-Sd-

_____________________

___________________

Shareholder,

Witness

-Sd-

_____________________

___________________

Shareholder,

Witness

The Shareholders of KahootKids! Inc.:

-Sd-

_____________________

___________________

Shareholder,

Witness

-Sd-

_____________________

___________________

Shareholder,

Witness

Envision Online Media Inc.

KahootKids! Inc.

Per:

-Sd-

_____________________

Chief Executive Officer

-Sd-

_____________________

Chief Executive Officer

- Page 148 -

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

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
[ ] 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.
234,625,479 Common Shares as of December 31, 2012
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act Yes _____ 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 _____ No ___X___