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		Deloitte & Touche LLP 1 Place Ville Marie Suite 3000 Montreal QC H3B 4T9 Canada

		Tel: 514-393-5194 Fax: 514-390-4104 www.deloitte.ca

Report of Independent Registered Chartered Accountants

To the Board of Directors of
Timespring Software Corporation/
Corporation de Logiciels Timespring

We have audited the consolidated balance sheets of Timespring Software Corporation/Corporation de Logiciels Timespring and subsidiaries (the “Company”) as at December 31, 2006 and 2005 and the consolidated statements of operations, deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and auditing standards generally accepted in the United States of America. These standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Montreal, Canada
March 9, 2007, except Note 21, which is as of July 18, 2007, and Note 22, which is as of January 23, 2008

Comments by Independent Registered Chartered Accountants for U.S. readers on Canada-U.S. reporting differences

Generally accepted auditing standards in the United States require the addition of an explanatory paragraph when the consolidated financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements of the Company. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and auditing standards generally accepted in the United States of America, our report to the Board of Directors, dated March 9, 2007, except as to Note 21, which is as of July 18, 2007, and Note 22, which is as of January 23, 2008, is expressed in accordance with Canadian reporting standards, which do not permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the consolidated financial statements.

/s/ Deloitte & Touche LLP

Independent Chartered Chartered Accountants

Montreal, Canada
March 9, 2007, except Note 21, which is as of July 18, 2007, and Note 22, which is as of January 23, 2008

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Consolidated statement of operations
years ended December 31
In Canadian dollars


	2006			2005
	$			$
Revenue
Licences		453,178			174,862
Maintenance		99,230			21,071
Service		51,648			1,884

		604,056			197,817

Cost of sales		62,244			9,934

		541,812			187,883


Expenses
Research and development, net (Note 5)		1,349,159			2,133,886
Selling, general and administrative		4,614,832			5,355,012
Financial (Note 17)		2,078,330			1,803,449
Amortization — capital assets		229,011			175,782

		8,271,332			9,468,129

Operating loss		(7,729,520	)		(9,280,246	)

Interest income		134,100			236,497

Net loss		(7,595,420	)		(9,043,749	)

Page 2 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Consolidated balance sheet
as at December 31
In Canadian dollars


	2006			2005
	$			$
Assets
Current assets
Cash		152,757			435,840
Marketable securities		3,185,614			2,847,392
Accounts receivable, net (Note 4)		225,927			137,214
Research and development tax credits receivable (Note 5)		1,397,674			3,031,192
Prepaid expenses		49,120			26,711

		5,011,092			6,478,349

Capital assets, net (Note 6)		616,016			679,417
Deferred charges (Note 7)		76,608			132,833
Patents		1			1

		5,703,717			7,290,600


Liabilities
Current liabilities
Bank loan and overdraft (Note 8)		724,074			720,000
Shareholders credit loan (Note 13)		4,128,768			—
Accounts payable and accrued liabilities (Note 9)		295,314			276,687
Deferred revenue		91,443			34,439
Current portion of obligation under capital lease (Note 12)		42,744			8,904
Loans payable (Note 11)		27,045			27,045

		5,309,388			1,067,075

Redeemable preferred shares (Note 10)		23,399,582			21,666,279
Loans payable (Note 11)		110,160			110,160
Long-term portion of obligation under capital lease (Note 12)		49,985			17,064

		28,869,115			22,860,578


Commitments (Note 14)

Shareholders’ deficiency
Capital stock (Note 15)		2,696,089			2,696,089
Deficit		(25,861,487	)		(18,266,067	)

		(23,165,398	)		(15,569,978	)

		5,703,717			7,290,600

Approved by the Board


		Director

		Director

Page 4 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Consolidated statement of cash flows
years ended December 31
In Canadian dollars


	2006			2005
	$			$
Operating activities
Net loss		(7,595,420	)		(9,043,749	)
Items not affecting cash:
Amortization		285,236			232,007
Interest accrued on redeemable preferred shares		1,733,303			1,604,909
Interest accrued on Shareholders Credit Loan		128,768			—
Loss on disposal of capital assets		1,910			—
Loss on sale of marketable securities		—			28,390

		(5,446,203	)		(7,178,443	)

Increase in accounts receivable		(88,713	)		(55,653	)
Decrease in interest receivable		—			117,252
Decrease (increase) in research and development tax credits receivable		1,633,518			(1,489,719	)
Increase in prepaid expenses		(22,409	)		(12,271	)
Increase (decrease) in other current liabilities		75,631			(101,973	)

Cash used in operating activities		(3,848,176	)		(8,720,807	)


Investing activities
Increase in marketable securities		(338,222	)		—
Proceeds from disposal of marketable securities		—			9,613,787
Acquisition of capital assets		(80,680	)		(575,430	)

Cash (used in) provided by investing activities		(418,902	)		9,038,357


Financing activities
Issuance of bank loan		1,974,074			—
Repayment of bank loan		(1,970,000	)		—
Issuance of Shareholders Credit Loan		4,000,000			—
Repayment of obligations under capital lease		(20,079	)		(4,404	)
Issuance of capital stock		—			2,598

Cash provided by (used in) financing activities		3,983,995			(1,806	)


(Decrease) increase in cash		(283,083	)		315,744
Cash, beginning of year		435,840			120,096

Cash, end of year		152,757			435,840

See Note 18 for supplementary cash flow information.

Page 5 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

1.		Going concern

		The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of operations. Several adverse conditions and events cast substantial doubt upon the validity of this assumption. The Company has incurred significant losses during 2006, 2005 and prior years and has incurred significant costs related to developing its general and administrative infrastructure, developing technology, recruiting personnel and establishing a market for the Company’s products and services. The Company has funded such costs with investment capital and related party debt. As of December 31, 2006, the Company has current liabilities of $5,309,388 and a shareholders’ deficiency of $23,165,398. In addition, the Company’s bank loan is subject to various financial covenants which, at December 31, 2006, were not respected.

		These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amount and classification of liabilities and the reported revenue and expenses that would be necessary should the Company be unable to continue as a going concern.

		The Company’s ability to continue as a going concern is dependent upon, amongst other things, the attainment of a satisfactory sales level, attaining profitable operations, its ability to generate sufficient cash from operations in the future and the continued financial support of its shareholders and creditors. These matters are dependent on a number of items outside the Company’s control and there is significant uncertainty about the Company’s ability to successfully conclude on these matters. As such, the realization of assets and discharge of liabilities in the ordinary course of business is subject to significant uncertainty.

		Management’s plans with respect to addressing the going concern uncertainty include the following:

	1.		Restructure the operations in order to reduce the Company’s operating cash requirements;

	2.		Renew existing bank loans and seek additional financing to contribute to the funding of its expansion projects; and

	3.		Continue financial support of certain current shareholders.

Management believes that with the above plans and continued financial support of its creditors and shareholders, the Company will be able to continue to operate as a going concern. There can, however, be no assurance that the plans described above will result in sufficient funds being generated.

Page 6 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

2.		Description of the business

		Timespring Software Corporation (the “Company”) is incorporated under the Canada Business Corporations Act and is engaged in providing High Data Availability and Disaster Recovery solutions.

3.		Summary of significant accounting policies

		Financial statement presentation

		The accompanying consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) assuming the Company is a going concern (see Note 1). They include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated upon consolidation.

		Use of estimates

		The presentation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect revenue and expenses during the period reported. The balances that are subject to a high degree of estimation are allowances for doubtful accounts and returns, investment tax credits and fair value of the stock options. Actual results could differ from those estimates.

		Marketable securities

		Marketable securities are recorded at the lower of cost or market value.

		Capital assets

		Capital assets are recorded at cost and are amortized over their expected useful lives on a declining balance basis at the following annual rates:


Furniture and fixtures		30%
Research and development equipment		30%
Computer hardware, software and telecom		20%
Leasehold improvements	until end of lease — September 2008
Equipment under capital lease	until end of lease — December 2009

		Income taxes

		The Company follows the liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined for each temporary difference based on the substantially enacted tax rates expected to apply when the differences will reverse. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized. The effect of the changes in tax rates on future income tax assets and liabilities is recognized in earnings in the year the changes occur.

Page 7 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

3.		Summary of significant accounting policies (continued)

		Revenue recognition

		The Company generates revenue principally through two sources: (1) software licences and (2) services. Software licence revenue is normally generated from licensing the perpetual use of the Company’s software products. Services revenue is generated from sales of maintenance and services performed for customers that licence the Company’s products.

		Revenue from the sale of software license agreements is recognized upon delivery of software if persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable. Fair value is used to allocate the total fee to the different elements of an arrangement. Fair value is typically based on the price charged when an element is sold separately, or, in the case of an element not yet sold separately, the price established by management, if it is probable that the price, once established, will not change before market introduction.

		Revenue from maintenance services for licences previously sold and implemented is recognized ratably over the term of the contract.

		Revenue is presented net of sales tax

		Amounts received in advance of the delivery of products or performance of services are classified as deferred revenue.

		Foreign currency translation

		The Company’s subsidiary is considered to be integrated and its financial statements are translated following the temporal method. Accordingly, monetary assets and liabilities are translated using the exchange rates in effect at the balance sheet date, whereas non-monetary assets are translated at historical rates. Revenue and expenses are translated at the average exchange rate. Translation gains or losses are included in earnings.

		Foreign currency transactions

		For transactions in foreign currencies, the Company translates monetary assets and liabilities denominated in foreign currencies into Canadian dollars using exchange rates in effect at the balance sheet date. Revenue and expenses are translated at the average exchange rates prevailing during the year. Translation gains or losses are included in earnings.

		Research and development

		Research and development costs, net of investment tax credits, are expensed as incurred, except for development costs that meet certain criteria. Development costs were not considered deferrable.

		Government assistance

		Government assistance, in the form of grants and investment and other tax credits, is accrued when earned and, in the case of tax credits, where there is also reasonable assurance that they will be realized. Such assistance is applied to reduce the related asset costs or expenses.

Page 8 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

3.		Summary of significant accounting policies (continued)

		Deferred charges

		Deferred charges relate to costs incurred in connection with the issuance of the preferred shares and are amortized on a straight-line basis over the term of the financing, to a maximum of five years.

		Stock-based compensation plan

		The Company has a stock-based compensation plan, which is described in Note 15. The Company accounts for its grants under this plan in accordance with the fair value-based method of accounting for stock-based compensation. The fair value of stock options is determined on their grant date and recorded as compensation expense over the period that the stock options vest, with a corresponding increase to contributed surplus. When stock options are exercised, the proceeds, together with the amount recorded in contributed surplus, are recorded in share capital.

4.		Accounts receivable, net


	2006			2005
	$			$
Trade		200,372			103,441
Sales tax receivable		36,426			27,175
Other		3,946			6,598
Allowance for doubtful accounts		(14,817	)		—

		225,927			137,214

5.		Research and development tax credits receivable

		Research and development expenses have been reduced by investment tax credits of $1,506,918 in 2006 ($1,599,908 in 2005). The amounts recorded by the Company are subject to review and approval by the tax authorities and the amounts granted may differ from those accounted for by the Company. Should such a difference arise resulting from assessment by the tax authorities, the amount would be recorded in earnings in the year of the assessment.

Page 9 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

6. Capital assets

2006

2005

Accumulated

Net book

Cost

amortization

value

Furniture and fixtures

77,392

50,963

26,429

37,756

Research and development equipment

803,254

456,122

347,132

457,363

Computer hardware, software and telecom

113,466

46,064

67,402

72,811

Leasehold improvements

135,389

54,120

81,269

85,519

Equipment under capital lease

113,547

19,763

93,784

25,968

1,243,048

627,032

616,016

679,417

Deferred charges


	2006		2005
	$		$
Original cost		281,127		281,127
Less:
Accumulated amortization		204,519		148,294

		76,608		132,833

8.		Bank loan

		The Company has a credit facility with maximum borrowings of $1,250,000, due on demand, to finance up to 75% of refundable research and development tax credits, bearing interest at a Canadian chartered bank’s prime rate plus 1.75% per annum payable monthly. As at December 31, 2006, $625,000 was unused. The facility is secured by a $1,500,000 movable hypothec, which provides for a charge on the Company’s present and future assets, including intellectual property, and by a certificate of guarantee from Garantie Québec as described below. The credit facility was renewed August 23, 2007 for an amount of $873,000.

		The credit facility is subject to various financial covenants of which, at December 31, 2006, the Company was not in compliance with. As a result, the availability of the credit facility is limited.

		Garantie Québec has provided a guarantee of 80% of the bank loan to a maximum of $1,000,000. The guarantee expires on June 30, 2008. The agreement contains various covenants that require the Company to maintain certain financial ratios as defined by Garantie Québec. As at December 31, 2006, the Company was not in compliance with these covenants.

Page 10 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

Accounts payable and accrued liabilities


	2006		2005
	$		$
Trade accounts		198,719		139,931
Commissions		33,453		34,353
Capital tax		17,000		29,000
Accrued expenses		35,672		69,957
Other		10,470		3,446

		295,314		276,687

10.		Redeemable convertible preferred shares

		In accordance with the accounting recommendations of Section 3860 of the Canadian Institute of Chartered Accountants’ Handbook, “Financial Instruments”, the preferred shares have been presented in these financial statements based on their substance. Although their legal form is that of share capital, in substance these shares are liabilities because they provide for redemption, at the option of the holder, for a fixed amount.

		The holders of preferred shares have the option to require the Company to redeem all or part of the preferred shares at any time on or after December 17, 2009 for a consideration equal to the issue price paid for such shares, plus declared, accrued and unpaid dividends, plus an amount equal to 8% of the issue price for such preferred shares per annum on a compounded basis calculated from the original issue date. The increase in the preferred share redemption value has been included in the financial expenses for the year.

		Should the Company not pay the redemption amount within 120 days after the demand for redemption, the Company is obligated to pay an additional 20% per annum from the date of issuance of the shares.

Page 11 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

10.

Redeemable convertible preferred shares (continued)


	2006		2005
	$		$
6,900,261 (6,900,261 in 2005) Class A preferred shares		20,000,000		20,000,000
Increase in redemption value		3,399,582		1,666,279

		23,399,582		21,666,279

		See Note 15 for additional characteristics of the preferred shares.

		On March 31, 2006, the Company consolidated its shares on a 42-to-1 basis. All share information is presented as if the share consolidation took place on January 1, 2005.

11.		Loans payable

		The loans payable include an amount of $110,160 ($110,160 in 2005) from a beneficial shareholder of the Company, which bears interest at a Canadian chartered bank’s prime rate plus 1% and is subrogated in favour of the Company’s bank, carrying a maximum term of five years to June 30, 2008 with any prior repayments to be made out of “First Available Funds”, which has been defined as the funds generated from the revenue of the Company available for the payment of its indebtedness after operating expenses, capital expenditures, debt service and taxes.

		The balance of the loans payable, in the amount of $27,045, is due to a former employee, is non-interest bearing and without specific terms of repayment.

12.		Obligation under capital lease


	2006		2005
	$		$
Equipment lease contracts, repayable in monthly installments of $4,112, including interest calculated at 10.9% to December 31, 2009		92,729		25,968

Current portion		42,744		8,904

		49,985		17,064

Future minimum payments under the capital lease for subsequent years are as follows:


	$
2007		49,350
2008		41,015
2009		16,253

Page 12 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

13.		Shareholders credit loan

		The loan is due on demand, upon the agreement of the majority of the lenders, bears interest at 20% per annum compounded monthly and is secured by a movable hypothec covering the universality of the Company’s assets. The loan is also convertible into Class A preferred shares at $2.89842 per share at the option of the lenders at any time. The fair value of the conversion option at the date of issue was not considered significant. Upon agreement of the majority of the lenders, all of the outstanding loans will be converted at the then applicable loan conversion price.

14.		Commitments

		The minimum rents payable to non-related parties and to a beneficial shareholder of the Company (Note 19) under long-term operating leases exclusive of certain operating costs for which the Company is responsible are approximately as follows:


	Non-related		Beneficial
	parties		shareholders
	$		$
2007		85,593		130,755
2008		64,195		98,066

15.		Capital stock

		On March 31, 2006, the Company consolidated is shares on a 42-to-1 basis. All share information is presented as if the share consolidation took place on January 1, 2005.

		Authorized

The following authorized classes of shares are unlimited in number and without par value:

Class A preferred shares

Voting, providing for a non-cumulative dividend to be determined at the discretion of the directors, convertible into common shares at the option of the holder at a price that could vary depending upon future events and financings, see Note 10.

Common shares

Voting and providing for a non-cumulative dividend to be determined by the directors


	2006		2005
	$		$
Issued and fully paid 1,794,902 common shares (1,794,902 in 2005)		2,696,089		2,696,089

		The Class A preferred shares are recorded as long-term debt as described in Note 10.

		Stock-based compensation plan

		The Company adopted a stock option plan for officers, directors, key employees and service providers of the Company. Options granted under this plan generally expire ten years after the date of the grant and vest over a period of four years. The plan provides that a maximum of 1,393,774 common shares may be optioned under the stock option plan.

Page 13 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

15.		Capital stock (continued)

		Stock-based compensation plan (continued)

		The fair value of the stock options granted during the years ended December 31, 2006 and 2005 had nominal value and has been determined using the Black-Scholes option pricing model, with the following assumptions:


	2006			2005

Expected dividend yield		0.0	%		0.0	%
Expected volatility		100.0	%		0.0	%
Risk-free interest rate		4.0	%		4.7	%
Weighted average expected life		10years			10years

The Black-Scholes option pricing model requires the input of subjective assumptions, including the changes in the subjective input assumptions that can materially affect the fair value estimate, and, therefore, the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of the Company’s share purchase options.


	2006					2005
				Weighted					Weighted
				average					average
				exercise					exercise
	Number			price		Number			price
				$					$
Options outstanding, beginning of year		1,257,359			0.84		1,152,189			0.84
Granted during the year		57,390			0.84		129,942			0.84
Cancelled		(23,918	)		0.84		(21,679	)		0.84
Exercised		—			0.84		(3,093	)		0.84

Options outstanding, end of year		1,290,831			0.84		1,257,359			0.84

The Company has 1,290,831 options outstanding as at December 31, 2006 with a weighted average remaining life of 7.39 years, of which 820,967 were exercisable at year end at a price of $0.84.

Page 14 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

16.		Future income taxes

		The Company’s income tax provision has been determined as follows:


	Federal			Provincial
		$			$
Net loss for the year for accounting purposes		7,595,420			7,595,420

Temporary differences arising from:
Amortization		236,924			236,924
Research and development		828,107			1,103,858

Permanent differences arising from:
Non-deductible items		1,758,646			1,776,467

		4,771,743			4,478,171


Combined basic federal and provincial income tax recovery at 11% and 8%, respectively		524,892			358,254

Net operating loss and temporary differences for which no benefit was recognized, excluding the effect of investment tax credits in accordance with the Company’s accounting policy		(524,892	)		(358,254	)

		—			—

Page 15 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

16.		Future income taxes (continued)

		The Company has non-capital losses and research and development expenses available, in excess of amounts taken for book purposes, for income tax purposes, which may be carried forward and applied against future years’ taxable income. The potential benefits relating to the available losses and expenses have not been recorded in the financial statements. These losses expire approximately as follows:


	Federal		Provincial
	$		$
2008		427,533		661,000
2009		863,188		577,106
2010		3,133,288		2,704,470
2014		4,369,827		3,918,356
2015		4,168,575		3,738,940
2016		2,890,012		2,596,440

		15,852,423		14,196,312


Unused research and development expenses, not subject to expiry		3,112,385		8,466,106

The Company has earned non-refundable investment tax credits that can be applied to reduce future federal income taxes payable. These credits expire as follows:


	$
2010		25,552
2011		15,070
2012		9,966
2013		24,498
2014		23,819
2015		181,916
2016		77,605

		358,426

The significant components of future income tax assets and liabilities are summarized approximately as follows:


	2006			2005
	$			$
Non-capital loss carry-forwards		2,879,471			3,144,563
Pool of unused research and development expenses		1,019,651			970,713
Benefit of investment tax credits		290,325			212,166
Valuation allowance		(4,189,447	)		(4,327,442	)

Net tax asset		—			—

The Company has recorded a valuation allowance against its future tax assets. The benefits will be recorded when their realization is reasonably assured.

Page 16 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

17.

Financial expenses


	2006		2005
	$		$
Interest and bank charges		160,034		142,315
Interest on preferred shares		1,733,303		1,604,909
Interest on Shareholders Credit Loan		128,768		—
Amortization — deferred charges		56,225		56,225

		2,078,330		1,803,449

18.

Supplementary cash flow information


	2006		2005
	$		$
Cash paid for interest		92,899		25,672
Capital assets acquired through capital leases		86,840		26,708

19.		Related party transactions

		During the year, the Company had transactions with related parties in the normal course of operations. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.

Consulting fees were charged approximately as follows:


	2006		2005
	$		$
i) Beneficial shareholders and companies owned
by beneficial shareholders (owning between 1 and 8%)		39,833		180,925
ii) Shareholders’ director		35,106		76,276

Rent of approximately $131,168 ($130,755 in 2005) was charged by a beneficial shareholder of the Company as a sublet of property at the same price the shareholder is paying to an arm’s length party.

Page 17 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

20.		Financial instruments

		Credit risk

		The Company’s exposure to credit risk at December 31, 2006 is equal to the carrying amount of its accounts receivable.

		Concentration of credit risk

		The Company is exposed to a concentration of credit risk, with respect to accounts receivable, due to the small number of customers. As at December 31, 2006, five customers represented 58% of the total accounts receivable.

		Currency risk

		The Company is exposed to market risk principally from foreign exchange fluctuations. The Company does not actively manage this risk. Accounts receivable and accounts payable and accrued liabilities include amounts denominated in foreign currency of $161,798 and $55,192, respectively.

		Interest rate risk

		The Company is subject to interest rate risk due to changes to the prime rate since its borrowings bear variable interest rates.

		Fair value

		The carrying amounts of the Company’s financial assets and liabilities, included in the current and non-current assets and liabilities, other than the redeemable preferred shares, approximate their fair values at December 31, 2006 and 2005, given their short-term maturities or variable interest rates. Due to the nature of the preferred shares and the status of the Company, the quantification of the fair value of the redeemable preferred shares is not determinable at a reasonable cost.

21.		Subsequent event

		On July 18, 2007, the Company entered into an amendment to the shareholder credit loan (Note 13) for an additional $650,000 and subject to the same conditions as the original loan.

Page 18 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

22.		Reconciliation of amounts reported in accordance with Canadian GAAP to United States GAAP

		These consolidated financial statements are prepared in accordance with Canadian GAAP, which differ in certain material respects from United States GAAP (US GAAP). Material differences between Canadian and US GAAP and the effect on net loss and balance sheet amounts are presented in the following tables with an explanation of the adjustments.

		Reconciliation of consolidated net loss and comprehensive loss


	2006			2005
	$			$
Net loss — Canadian GAAP		(7,595,420	)		(9,043,749	)
Adjustments
Increase in redemption value of Preferred shares (a)		1,733,303			1,604,909
Amortization of deferred charges (a)		56,225			56,225

Net loss — US GAAP		(5,805,892	)		(7,382,615	)

		Statement of comprehensive loss

		Comprehensive loss is the same as net loss and accordingly, a statement of comprehensive loss is not presented.

Page 19 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

22.		Reconciliation of amounts reported in accordance with Canadian GAAP to United States GAAP (continued)

		Reconciliation of reported amounts on consolidated balance sheets

		Reconciliation of material selected balance sheet accounts between Canadian and US GAAP are as follows:

Canadian

GAAP

Adjustments

GAAP

As at December 31, 2006

Liabilities

Preferred shares (a)

23,399,582

(23,399,582

)

—

Redeemable preferred shares (a)

—

23,118,455

Shareholders deficiency (a)

(23,165,398

)

204,519

(22,960,879

)

As at December 31, 2005

Liabilities

Preferred shares (a)

21,666,279

(21,666,279

)

—

Redeemable preferred shares (a)

—

21,385,152

Shareholders deficiency (a)

(15,569,978

)

148,294

(15,421,684

)

Page 20 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

22.		Reconciliation of amounts reported in accordance with Canadian GAAP to United States GAAP (continued)

		Reconciliation of reported amounts on consolidated balance sheets (continued)

(a)

Convertible redeemable preferred shares

Under Canadian GAAP, the convertible redeemable preferred shares are accounted for as described in Note 10. Under US GAAP, the convertible redeemable preferred shares are accounted for in accordance with FAS 150, “Accounting for certain financial instruments with characteristics of both liabilities and equity”, and are not classified as a liability, but, instead, are presented as a category between liabilities and equity.

The redemption terms of the Preferred shares include an amount equal to 8% of the issue price per annum on a compounded basis calculated from the original issue date. Under Canadian GAAP, the increase in the preferred share redemption value has been included in the financial expenses of the year. Under US GAAP, in accordance with EITF Topic D-98, “Classification and Measurement of Redeemable Securities”, the increase in redemption value is charged to the deficit and a corresponding amount added to the redeemable preferred shares at each balance sheet date. The amounts charged to deficit amounted to $1,733,303 in 2006 and $1,604,909 in 2005.

The terms of the convertible redeemable preferred shares were examined to determine if any of the terms created a beneficial conversion feature at the date of issuance. The terms did not result in the recognition of any such beneficial conversion feature.

In addition, under Canadian GAAP, costs incurred in connection with the issuance of the preferred shares were deferred and amortized as a charge to earnings, using the straight-line method over a period of five years. Under US GAAP, such costs are recorded as a reduction of the share issuance proceeds.

(b)

Marketable securities

Under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, the Company’s investments in securities would be classified as available-for-sale securities and are carried at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings under US GAAP and reported as a net amount in accumulated other comprehensive income (loss), which is a separate component of shareholders’ equity on the balance sheet, until realized. Upon realization, comprehensive income (loss) would be adjusted to reflect the reclassification of the gains or losses into income (loss). As at December 31, 2006 and 2005, the difference between the carrying value and fair value of the securities was nominal.

Page 21 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

22.		Reconciliation of amounts reported in accordance with Canadian GAAP to United States GAAP (continued)

		Reconciliation of reported amounts on consolidated balance sheets (continued)

(c)

Shareholder credit loan

Under Canadian GAAP, the convertible term loan is accounted for as described in Note 13, Under US GAAP the terms and conditions of the convertible term loan were examined to determine if a beneficial conversion feature was created at the date of issuance. These terms and conditions did not result in the recognition of any such beneficial conversion feature.

(d)

Research and development

Under Canadian GAAP, investment tax credits on research and development are deducted from research and development expense. Under US GAAP, non-refundable Canadian federal investment tax credits are included in the provision for income taxes. The Company does not recognize benefits of federal investment tax credits carry forwards and, as such, no reconciling item between Canadian and US GAAP is required for the 2005 and 2006 periods.

(e)

Stock-based compensation

Under Canadian GAAP, the Company accounts for Stock-based compensation to employees and directors as described in Note 15. Under US GAAP, the Company had elected, as permitted, to account for stock-based compensation in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”, and related interpretations in accounting for employee stock options, rather than the alternative fair value accounting as allowed by Statement of Financial Accounting Standards (SFAS”) No. 123, “Accounting for Stock-Based Compensation”.

On January 1, 2006, the Company adopted SFAS 123R, “Share-Based Payment”, using the modified prospective basis approach and using the calculated value method allowed for certain non-public entities. As the Company had previously used the minimum value method under the provisions of APB No. 25, the Company is now required to adopt the provisions of SFAS 123R prospectively for any newly issued, modified or settled awards after the date of initial adoption whereby the Company recognizes a compensation expense for these options. The Company is also required to continue to provide proforma disclosure on any portion of awards outstanding at the date of initial application of the new standard. As the compensation expense was nominal, no proforma disclosure is made.

Page 22 of 23

TIMESPRING SOFTWARE CORPORATION/CORPORATION
DE LOGICIELS TIMESPRING
Notes to the consolidated financial statements
years ended December 31, 2006 and 2005
In Canadian dollars

22.		Reconciliation of amounts reported in accordance with Canadian GAAP to United States GAAP (continued)

		Reconciliation of reported amounts on consolidated balance sheets (continued)

(e)

Stock-based compensation (continued)

The fair value of the stock options granted during the years ended December 31, 2006 and 2005 had nominal values and has been determined using the Black-Scholes option pricing model, with the following assumptions:


	2006			2005
Expected dividend yield		0.0	%		0.0	%
Expected volatility		100.0	%		0.0	%
Risk-free interest rate		4.0	%		4.7	%
Weighted average expected life		10years			10years

The weighted average fair value per option granted for all options as of December 31, 2006 and 2005 is nominal.

Page 23 of 23


Report of Independent Registered Chartered Accountants			1

Consolidated statement of operations			2

Consolidated statement of deficit			3

Consolidated balance sheet			4

Consolidated statement of cash flows			5

Notes to the consolidated financial statements			6-23


	2006			2005
	$			$
Balance, beginning of year		(18,266,067	)		(9,222,318	)

Net loss		(7,595,420	)		(9,043,749	)

Balance, end of year		(25,861,487	)		(18,266,067	)