ANNUAL REPORT

2010

TABLE OF CONTENTS

MESSAGE TO SHAREHOLDERS ......................................................................................................................................................................................................................... 1

                   

MANAGEMENT’S DISCUSSION & ANALYSIS .................................................................................................................................................................................................... 3

MANAGEMENT’S REPORT ................................................................................................................................................................................................................................. 24

AUDITORS’ REPORT........................................................................................................................................................................................................................................... 25

BALANCE SHEETS ............................................................................................................................................................................................................................................. 26

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY ............................................................................................................................................................................ 27

STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT ................................................................................................................................................... 28

STATEMENTS OF CASH FLOWS ....................................................................................................................................................................................................................... 29

NOTES TO THE FINANCIAL STATEMENTS ...................................................................................................................................................................................................... 30

CORPORATE DIRECTORY ................................................................................................................................................................................................................................. 52

HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010

MESSAGE TO SHAREHOLDERS

Dear Fellow Shareholders, While 2010 may not have been Healthscreen’s break-out year financially, history will show that the hard work and creativity our team demonstrated in 2010 set us on a path towards becoming the world-class, billion dollar Company we have always aspired to become. However, that is not to say that we should not feel proud of our accomplishments, nor that our achievements were insignificant. Quite the opposite. In 2010, we more than doubled our EMR market share from 9.5% under the previous funding round to over 20% in the current $200 million program. In the years ahead, when we sit atop the national EMR industry, we will remember 2010 as the year in which the major leaps forward in product development, sales and marketing all took place. In 2010, we perfected our long-anticipated Chronic Condition Management service. We now have conclusively demonstrated that we can generate over $50,000 in revenue per doctor who participates in this service, while delivering world-class care to their diabetic patients. In a few years, when thousands of doctors and hundreds of thousands of patients are enrolled in this service, we will remember that it was in 2010 that we cracked the code on this game-changing business model. And despite my assertion that 2010 was not our most exciting year financially – by any reasonable external measure, it was a strong year. We grew revenue by 15% and our organic growth continues to exceed any of our competitors. And we were EBITDA positive for a second year in a row. Perhaps most importantly, in 2010 we came to understand that the opportunity before us is actually much bigger than we ever realized. Prior to this year, “more services to more doctors” was the Company mantra. Today, we know with certainty that while serving the needs of physicians must remain a top priority (and a cornerstone of our strategy), much larger financial returns will come from serving their patients. Our unique combination of software and services will allow Healthscreen to become the most trusted partner not just of Canadian doctors – but of patients as well. In 2011, we will begin to execute on this Patient Services strategy beginning with the expansion of our Chronic Condition Management program, and through our partnerships with companies like Telus who will help us give patients access to their medical records through the Healthscreen website, or on their mobile phone. We will do all of this while resuming our historic growth rates and generating positive cash flow. These are ambitious goals, no question. But thanks to the many important accomplishments of 2010, we are ideally positioned to achieve them.

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On behalf of Healthscreen’s staff and management team, I would like to thank you for your continued support for our Company and our goal of continuous practice enhancement and support for the Canadian physician. Yours truly,

Justin Belobaba President & CEO, Healthscreen Solutions Incorporated February 10, 2011

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MANAGEMENT’S DISCUSSION & ANALYSIS

This management’s discussion and analysis (“MD&A”) provides an analysis of the financial condition and results of operations of Healthscreen Solutions Incorporated (“we,” “our,” “Healthscreen”, the “Company”) and compares the year ended September 30, 2010 financial results with those of the same period in the prior year. The MD&A is provided as a complement and supplement to the financial statements and should be read in conjunction with the Company’s audited financial statements for the years ended September 30, 2010 and 2009 and related notes thereto. The Company’s financial statements have been prepared in accordance with

Canadian generally accepted accounting principles (“Canadian GAAP”). This MD&A has been prepared as of February 10, 2011, by reference to the disclosure requirement established under National Instrument 51-102 “Continuous Disclosure Obligations” of the Canadian Securities Administrators. Additional information regarding the Company is available on SEDAR at www.sedar.com. Forward-Looking Statements Securities laws encourage the disclosure of forward-looking information to enable users of the financial statements to better understand the Company’s future prospects which facilitates better investment decisions. The financial statements provided for the 2010 fiscal year, along with this MD&A, contains forward-looking statements about Healthscreen’s objectives, plans, strategies, financial condition, results of operations, cash flows and businesses. These statements are forward-looking because they are based on management’s current expectations, estimates and assumptions about the markets Healthscreen operates in as well as the Company’s ability to attract and retain customers. It is important to understand that unless otherwise indicated, forward-looking statements in the reported financial statements, including this MD&A, describe the Company’s expectations which could be different from actual results if known or unknown risks affect the Company’s business, or if the Company’s estimates or assumptions turn out to be inaccurate. As a result, the Company cannot guarantee that any forward looking statement will materialize. The Company disclaims any obligation to update forward-looking statements. Readers are encouraged to read the section entitled “Risks and Uncertainties” in this MD&A for a discussion of the factors that could affect the Healthscreen’s future performance. Overview of the Business The business of the Company is organized into two active business units consisting of: (i) Physician Services, which focuses on increasing practice revenue, reducing cost and improving patient care and (ii) Software Products, which focuses on developing and offering a comprehensive suite of software products to communitybased physicians. The two active business units are supported by a corporate head office group providing

HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010

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These amalgamations do not impact the operations of the Company. the Company entered into an amended agreement with one of its customers. Scheduling (HS Admin).services to the patients of our physician customers. Healthscreen has also partnered with Physiomed Health. 1589681 Ontario Limited and Regent Healthcare Systems (“Regent”). Healthscreen Solutions Incorporated amalgamated with its wholly owned subsidiary Medical Telecom Corporation and effective October 1. $200. This segment also includes hardware products and maintenance and services related to the software. Physiomed. thus taking on the cumbersome and labour-intensive task doctors have of proving the service was provided. (ii) PrevCareMD – a service to facilitate the maximization of physician bonus payment for doctors by identifying patients who are eligible for preventive care interventions. including OHIP billing (HS Billing). iii) HealthAlert . kinesiologists. the Company has generated revenue from four physician services: (i) CallerMD . $150.000 was due on May 31. and Electronic Medical Records (HS Practice). Inc (“Physiomed”).778 common shares at $.000 was due on November 30. such as data conversion.000 remained unpaid and is included in accounts payable and accrued liabilities. and lifestyle management consultants. In connection with the private placement. 2008. and iv) Chronic Condition Management .finance. encouraging patients to participate in preventative care activities and tracking performance to target levels. corporate development. 2010 and $250. Healthscreen Solutions Incorporated amalgamated with its wholly owned subsidiaries.a simple and effective billing service to help physicians effortlessly manage and monetize their uninsured services. Collectively. to terminate Healthscreen’s exclusivity obligation.225 per share HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 4 . resulting in gross proceeds of $1.a service designed to help patients of Healthscreen’s physician clients schedule and prepare for healthcare interactions. 2010. booking appointments where required. 2009. Physician Services – Over the past year.777. 2009.000 was due on June 30. On November 30. these services are designed to provide doctors the opportunity to provide a superior level of care to their patients while minimizing the cost to both the patient and the physician. which the Company refers to as Corporate. to assist its physician customers in providing their patients access to a wide range of health care professionals including physiotherapists. which is a service offered to patients of Healthscreen’s physician clients in which Healthscreen provides comprehensive case management for diabetic patients. markets and supports several software products. and traditional transcription that support an enhanced delivery of care.000. connections to labs and hospitals. $250. investor relations and other administrative activities. Significant Events in the Current Fiscal Year Effective October 1. On April 20. Software Products – The Company develops. As of September 30. installation. Currently included in this offering is our DIAMOND (“Diabetes Management Optimized with Nurses and Devices”) Program.3 million. training and associated maintenance. Healthscreen completed a private placement with an affiliate of NorthStar Bancorp Ltd. Healthscreen has issued 5. 2010. 2009. (“NorthStar”) of Toronto and one other private investor. The amended agreement resulted in a cash break fee owing in the amount of $650. 2010. These products range from basic administrative functions that every doctor’s office performs to a fully integrated system that enables online data transfers. internal technical support.

and warrants to purchase 5. forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. NorthStar will serve as Healthscreen’s exclusive acquisition advisor for the next twelve months. a further $100.778 common shares with an exercise price of $.555 of this facility has been utilized. subordinate to senior lenders. By their nature.000 in order to finance the purchase of hardware used by the Company in the ordinary course of business. the Company entered into a development agreement with one of its suppliers to provide development services for the improvement of internally used computer software. In addition to providing funding. subject to certain conditions.30 and a one year term. including a hold period which ended on August 20. This loan is repayable in whole or in part by the Company at any time up to one year from date of advance and bears interest at the rate of 2% per month. the Company announced it would be the first EMR software provider to on-board its application to the TELUS health space platform. As at September 30. to purchase an additional $1. The Company expects to be able to repay this loan with cash generated from operations. with certain of its directors and officers for up to a maximum of $400. In May. 2010. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 5 . Subsequent Events In October 2010. The Company expects to be able to repay the secured credit facility with cash generated from operations. Please refer to the sections entitled “Forward-Looking Statements” and “Risks and Uncertainties” in this MD&A for a discussion of such risks and uncertainties and the factors that could affect the Company’s future performance and statements set forth in this section.25 million worth of common shares and warrants on the one year anniversary of the original private placement. New Developments and Outlook This section contains certain forward-looking statements.777.000 was advanced to the Company through the credit facility with certain of its directors and officers. TELUS is the first consumer e-health platform for the Canadian market and has been designed to allow easy collaboration between physicians and their patients via Healthscreen’s EMR software. The securities issued under this private placement were subject to restrictions on transfer. including Healthscreen achieving financial performance targets and obtaining any applicable regulatory and shareholder approvals. The debt is repayable in whole or in part by the Company at any time up to one year in advance and carries an interest rate of 2% per month. The Company expects to be able to repay this loan with cash generated from operations.000 based on the completion of agreed upon milestones. will be entitled to observer status on Healthscreen’s board of directors and will have a right to participate in and provide any equity financing required by Healthscreen over the next twelve months. The agreement provides for the Company to fund up to $614. $105. In October 2010. 2010. Northstar has also agreed. During the fourth quarter the Company entered into a secured credit facility. The proceeds from the financing will be used for working capital and general corporate purposes.

The Company expects that the investments made in these products in 2010 will result in significant growth in 2011 and beyond. Internally at Healthscreen. With this in mind.” In addition to its traditional suite of Physician Services (CallerMD.Throughout 2010 and into the future. PrevcareMD and HealthAlert). with the resultant benefit of improving doctor billing levels. the long-anticipated EMR funding program began to release funds to Ontario physicians. In fact.2 million. processes and cost structures were in place throughout fiscal year 2010 and into 2011. Healthscreen’s CCM program has been designed to significantly enhance preventative patient care as well as streamline physician practice efficiency. 2010 was a year in which the benefits of the significant expense reductions made in 2009 were realized. created a working capital deficit in the first half of 2010.000 physicians using EMR by 2012. Throughout 2010. The Company has invested significantly in this technology in order to conform with this new set of standards and has had its HSPractice software certified by the Ontario government in June 2009. This investment combined with the fact that the Company only receives payments for the PrevCareMD service once a year. such as Healthscreen. Even with this reduction in operating expenses. which are able to facilitate a higher and more effective level of preventative care to patients will be successful. With the adoption rate and use of technology expanding. the Company expects that the prevalence of chronic conditions such as diabetes will not only increase but will place ever-increasing demands on the Canadian health care system. This success will be in terms of managing patient care as well as relieving some of the cost burden on the health care system while generating profits for the organization itself. In order to continue to invest in its EMR and CCM products (which both represent areas for significant growth in 2011). Shares were issued at $0. The Company continuously monitored and updated its detailed budgeting and spending analysis and eliminated certain costs determined to be extraneous to the Company’s current business operations. scalable product to the marketplace. The Company anticipates that this trend will not only continue but become more widely accepted in the future. during 2010. the Ontario government has begun to invest heavily in electronic medical record (“EMR”) systems. The use of information technology in healthcare continues to grow as more and more physicians and patients look to technology for more efficient and informational solutions to current problems. In Q3 2010. Companies. the Company continued to develop its Chronic Condition Management (“CCM”) program and will begin offering it on a larger scale to physicians in 2011. With an aging population. the Company completed a financing with NorthStar. the Company continues to focus its efforts on providing "More Services to More Doctors. Healthscreen is in a strong position to continue to increase its market share by offering its industry-leading EMR solution in combination with support services to its physician customers.225 for net proceeds to the Company of $1. with a goal of having 9. the software requirements for this program have necessitated continued investment in product development in order to deliver a high-quality. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 6 . the Company continued to seek process improvements to ensure that the appropriate people.

049.386.397.897) 815.383.946 682.577 3.699.434.110.257 1.397.175.651 3.03) 1.543. As at and for the fiscal year ended Septem ber 30.649.974.521.484 989.091 (582.965.986.850.096.029) (536.929.049.613 73. 2009 $ 8.961.462) (0.600 $ $ $ As at and for the fiscal year ended Septem ber 30.010.413 876.937 10.512 249.774) (0.597 2.602.969 12.102 5.725 1.227 13.829 422.162) 658.101.709.699.981 (3.722.572 28% 27% $ $ $ Change % Change (180.643 5.834 565.914 (1.508 4.368 14.287.01) 1. 2010 and 2009.383.828 1.067 927.541) (140.059.587.134.110 (2.254) (1.235 (1.939 (1.571.074 452.687 1.421) 310.096.523.024.511 1.392) (356.798) (2.670 3. 2010 Physician Services Softw are and Hardw are Products Total Revenue Cost of Sales-Physician Expenses Cost of Sales-Softw are and Hardw are Gross Margin SG&A Operating Expenses Adjusted EBITDA Net Loss Net loss per share (basic and diluted) Cash and Cash Equivalents Total Assets $ $ $ $ 1.620 16.141 1.412 (930.548 2.738 1.684 5.740) (0.617.865 920.276.503.327.638) (0.562 202.013 1.287.875 (1.966) -9% -28% -16% 55% 81% -41% 70% 15% -476% 162% Summary of Quarterly Results HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 7 .846 10.208 4. As at and for the fiscal quarter ended Septem ber 30.609.651 3.620 16.591.028 $ $ 361.448.Selected Annual Information The information outlined in the table below was prepared in accordance with Canadian GAAP and was taken from the Company’s financial statements for the years ended September 30.176) 19% 8% 15% 95% 136% -5% -3% 17% -94% 84% Selected Quarterly Information The information outlined in the table below was prepared in accordance with Canadian GAAP and was taken from the Company’s financial statements for the quarters ended September 30.028 $ $ 361.932.04) 1.203 145.02) 1.600 $ $ $ As at and for the fiscal quarter ended Septem ber 30.435 1.052 3.476 418.969 12. 2010 Physician Services Softw are and Hardw are Products Total Revenue Cost of Sales-Physician Expenses Cost of Sales-Softw are and Hardw are Gross Margin SG&A Operating Expenses Adjusted EBITDA Net Loss Net loss per share (basic and diluted) Cash and Cash Equivalents Total Assets $ $ $ $ 9.649. 2010 and 2009.210) (1.617 1.572 28% 27% $ $ $ Change % Change 1.159.170.631. 2009 $ 2.

3 8 6 .974.288.435 for the year ended September 30. Healthscreen’s revenue for the quarter ended September 30.986.081 91 1 .4 3 4 .204.521 283. 30.521 (573.687 1 34. 2010 reached $14.0 1) - $ - $ ( 0 .526 $ Sept.024.91 3 77.9 9 8 . 2010 was $9.591 (445. 30.51 0) (28.602.870 1 3.988 Dec.306.746 (457.1 98 $ 869.110. The increase in annual 2010 revenue compared to 2009 results from the inclusion of a full year of DIAMOND services with partner Physiomed compared to a partial year in 2009 when these services commenced plus the expected increase in PrevcareMD services.1 53.61 6) (1 87.1 47 $ 3.0 7 7 363.8 6 6 .4 8 0 729.8 3 4 565.929.378.303) 1 .4 10 .2 2 7 1 . The PrevecareMD service follows a 2 year government funding HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 8 .062) (4.202 .6 2 0 524.5 4 1) $ ( 9 3 0 . As at and for the three month period ended: Sept. 2010 $ 2. 2010 2.733.068) 2.0 6 9 .952.7 4 0 ) $ ( 10 6 .2 8 8 .8 2 5 577.251 3 .096.600 $ 2.829 422.386.1 2 .028 3.080.374.6 7 5 1 .556 1 79.3 8 3 355.757 $ Dec. Results of Operations and Financial Condition Revenue – Healthscreen’s revenue for the year ended September 30.929.539) (41 0.71 1 .871 $ 1 .484 .046 1 79.073.684 compared to $8.059.548 2 . 2010 was $2. 30. 31. representing an decrease of $180.1 75 1 .807. This represents an annual increase of $1.421 or 16%.363.0 7 7 .079 $ .444.7 3 3 .354.6 2 3 11 .064. Revenue generated by the Physician Services business unit for the year ended September 30.585 1.257 in the prior year fourth quarter. This represents a decrease of $536.783.458 450.544.522 $ 2 .14 1 424.1 94) 81 .395 2 . 31.939 .353) (8.504 .530 (439.857 $ 1.904 883.076.543.920.857 $ 1 2.427.328.397 .444) 1 .821 $ Note (1): Income (Loss) before undernoted on this summary corresponds to Adjusted EBITDA measure used by management and described in Non-GAAP Financial Measures section of this MD&A.321 ) (3.876 1 44.568) (88.798) $ ( 2 .882 535.989.71 3.31 .967 997. $3.961.600 1 . 2009 2.699.667.1 989.649.end of period Cash Total Assets Shareholders’ Equity $ (278. 31.052 $ 2 .1 66 869.2 8 7 .413 compared to September 30.9 4 5 1 .0 1) $ ( 0 .965 1 75.7 2 5 1 59. 2009 1 3.9 7 6 1 1 .572 $ 1 4.0 11.0 1) Selected Cash Flow Information Cash (used in) provided by: Operating activities Investing activities Financing activities Change in Cash Cash .960 423.427 $ 2.41 3 $ 1.495.21 .5 0 1.577 3 .074 452. 2008 1 .beginning of period Cash .0 3 ) - - $ ( 0 . derived from the Company’s financial statements.7 4 6 1 .826 2. 31.464 2 .044.225 $ 2.969 $ 1.548.834 901 .0 8 7 860.031 .587.405 260.51 6.279.052 compared to $13.726 1 .4 13 876.51 2 249.485) 2.688 1 6.392 or 9%.885 539.443 (676.486 35.5 3 7 .3 4 2 Selected Balance Sheet Information $ $ $ 1 .733.476 or 19%.482 502.257 1 1 .850.208 for the prior year.824) 466.8 7 5 .2 0 4 .480 $ .279.617 or 15%.342 1 2.865 compared to $2.8 5 0 . 2009 2.204.483.288.522 $ $ $ 1 .376 $ 1 3.825 1 3.265 3.6 8 8 75.1 0.520 $ 1 .1 5.41 $ 3 $ 1 .8 5 7 (347.597 3 .783 .578) 789.51 6) (1 84.087) 1 . The Physician Services business unit’s revenue for the fourth quarter ended September 30.The table below summarizes results.5 2 1.1 44) 1 .342 $ 1.507. 2009.401 3 4 .761 Mar.41 0.384 257.5 7 1.2 9 5 $ ( 3 5 9 .969 1 2.305 4 .290 2.209 1 .1 2 .496 Mar.51 4 .284.3 16 ) $ ( 4 4 .834 for the prior year fourth quarter.1 (1 .597 81 09 5.821 .1 25 2.41 0.0 5 9 .6 9 0 ) $ ( 0 .438 2 .270 3 . representing an increase of $1.0 7 2 860.7 7 4 ) $ 16 0 .2 9 3 ) $ ( 5 9 2 .793.4 13 (487.5 2 3 . 30.0 4 1) $ ( 5 8 5 .335.884) (555.504 1 .41 2 $ Jun.690 $ 1 2. 2010 Jun.044 (672.7 8 4 .829 $ $ $ 1 .1 2 .8 2 8 1 .1 .962 784.988 708.688 1.9 6 9 (568.774 1 .865 $ 920. 2010 was $1.6 4 9 .825 $ 8 6 9 .5 2 2 434.287.734) (270. FY 2010 and Q4 2010 Overall Performance.820 $ 1 6.850 2 .385 1 .01 8 456.724 1 68. for the eight most recently completed quarters.0 5 5 .21 ) 1 (343.903) (444) 1 .2 7 9 .497.287.276.074 Selected Statement of Operations Information Physician Services Softw are and Hardw are Products Total Revenue Cost of Sales-Physician Services Cost of Sales-Softw are and Hardw are Total Cost of Sales Gross Profit SG&A Operating Expenses (Loss) income before undernoted(1) Net (Loss) Incom e Earnings (Loss) per Share $ 1 .51 1 1 . 2009 2.

Physician services costs as a percent of revenue increased to 35% compared to 21% in the prior year.162 compared to SG&A expenses of $5. 2010 were $5.846 for the year ended September 30. Cost of Sales . 2010 was $920. a 55% or $310. Physician services costs as a percent of revenue were 46% in Q4 2010 as compared to 27% in Q4 2009.937 for the year ended September 30. For the last quarter 2010. Cost of Sales – Software and Hardware Products – Direct costs associated with the Company’s Software and Hardware Products operations consist primarily of hardware resold to customers.508 a decline of 3% or $140. Revenue generated by the Software and Hardware Products business unit for the three months ended September 30. general and administrative expenses (“SG&A”) – SG&A expenses for the year ended September 30. 2009 of $1. For the year ended September 30.548.383. 2010 was $5.617. The result was certain items being deferred into future periods as more maintenance services were sold but the terms of these contracts were over extended periods of time.609.227 in the 2009 fiscal year. Total costs were $1. The increase in total costs as a percentage of revenue results from increased hardware sales as a percentage of total sales throughout fiscal 2010 compared to the prior year.946. a decrease of $356. 2009. This represents an increase of $927. total costs for the year ended September 30.Physician Expenses – Direct costs associated with the Healthscreen’s Physician Services operations are comprised primarily of doctor’s fees.013 compared to the year ended September 30. As a percentage of revenue. mailing and supplies costs. reflecting an increase of $418. The Software Products business unit includes revenue from sale of software products. Within the Software and Hardware Products business unit.965.914 or 81%. The increase in total revenue in the Software and Hardware Products business unit for the year resulted from increased sales of the EMR software platform (HSPRactice product) which qualified for funding by the doctors who purchased this platform under Ontario government EMR initiatives. This represents an increase of $202. The increase in Physician Services costs as a percentage of revenue from fiscal year 2009 has primarily resulted from DIAMOND revenue as this business generates higher volumes of business at lower margins. Sales.141 or 8%.709. For the fourth quarter of 2010 total costs were 49% of revenue compared to 20% in the prior year fourth quarter.511 compared to $249.512. 2010 compared to $682. Total costs for the fourth quarter of 2010 were $452. For HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 9 .562 increase.368 compared to $4.383.523. Revenue generated by the Software and Hardware Products business unit for the year ended September 30.577. a detailed analysis of certain revenue recognition policies for new revenue generating services during fiscal 2010 was completed during the fourth quarter.276. hardware products and associated maintenance services. 2009 of $1.091 or 136%.597 for the fourth quarter of 2009. which represents a 95% or $1.cycle whereby 2010 saw an increase compared to 2009 but with anticipated lower revenues in 2011 followed by higher revenues in the following year. 2010 were 30% of revenue compared to 14% in the prior year.327. The lower revenue in the fourth quarter of 2010 compared to the prior year fourth quarter results from a change in the mix of services sold during each quarter. 2010 was $3.670 a year ago.029 or 28% compared revenue for the three months ended September 30.074 compared to the prior fourth quarter of $565. Physician Services expenses were $876.067 increase.

250 or 15% in operating expenses in the fourth quarter of 2010 results primarily from the inclusion of development costs of $274.936 at September 31. It is HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 10 .The increase in cash and cash equivalents from $1. as detailed under Total Assets working capital increased over the period.699. In addition.613 or 31% of total revenue compared to $3.397.711.028 at September 30.649. also 30% of total revenue for the year ended September 30. Year over year operating expenses were maintained at consistent levels with the increase of $658. The primary component of this increase was the growth in the accounts and unbilled receivables balance by $2. 2010 from $12.185.939 or 40% of total quarterly revenue.984 and shareholder loans of $211. Non-GAAP Financial Measures Adjusted EBITDA Management defines Adjusted EBITDA as earnings before depreciation expense. Cash and Cash Equivalents -.287.the last quarter of 2010 SG&A expenses were $1. stock-based compensation expense and other miscellaneous income. 2009. Operating expenses – Operating expenses for the fiscal year ended September 30.209.591.174 expensed during the quarter as the Company no longer meets the criteria for capitalization effective July 1. 2010. 2009. For the last quarter of 2009 operating expenses were $988. 2010 were $4.754.738.523 from $4. The increase in the Q4 2010 SG&A from the Q4 2009 level was primarily due to a bad debt as a customer filed for bankruptcy plus increased professional fees. 2009 to $1. 2010. The term does not have any standardized meaning according to Canadian GAAP.932.689 or 29% of total quarterly revenue. Operating expenses for the last quarter of 2010 were $1. There were no unusual Operating expenses during Q4 2010.572 or 27%.459 at September 30.620 at September 30.000 reported in the first quarter of 2010. As a percentage of total revenue. income taxes. The annual decrease in SG&A resulted from an overall decrease in salaries and benefits expense cost cutting efforts put in place at the end of fiscal 2009 which were maintained throughout most of fiscal 2010.687. an increase of $3.181 and funds reinvested in the Company’s infrastructure and software product (intangible assets) which reached $1.430.875 as the 2010 amount attributed to the non-recurring break fee of $650.974. Total Assets – Total assets of the Company grew to $16. a 70% or $815.600 at September 30. SG&A expenses in FY 2010 were 36% compared to 42% in FY 2009.134. amortization expense. plus the timing of government payments and billings delays relating to the cyclical nature of the PrevcareMD services. The increase $146. 2009 to $7. Increases in receivables were experienced across all products and services due to delays in collections from certain large customers.096. intangible asset impairment. These funds were also used to bridge the difference between cash generated from operations of $703.335 in fiscal 2010.605 both during the third quarter of fiscal 2010 for the business.203 increase from the fourth quarter of 2009. interest expenses.969 at September 30. Management believes these amounts are collectible and recognizes the need to place more focus on collections in the coming year. 2010 was bolstered by the private placement which generated net proceeds of $1. many of which have been collected since year end.

834 1.389 359.309) (191.419) 1. and often involve the use of significant estimates and assumptions. The Company has therefore included a reconciliation of operating income to adjusted EBITDA on a consistent basis for the years ended September 30. Goodwill is not amortized but is tested for impairment annually and when significant events or circumstances occur that indicate the carrying value might not be recoverable. While the Company may employ experts to assist with these matters. and asset lives. Goodwill has been recorded as a result of the Company’s acquisitions of Regent.253 464. The most comparable Canadian GAAP financial measure is operating income. net Amortization of property and equipment Amortization of intangible assets Impairment of intangible assets Stock-based compensation Adjusted EBITDA $ $ $ Critical Accounting Policies and Estimates Our accounting policies are outlined in note 2 to Healthscreen’s financial statements.721 $ 1. stock-based compensation expense and other miscellaneous income.060.175.254) Net loss Other income. The total cost of each acquisition is allocated to the underlying net assets based on their estimated fair values.638) (24.023 190.981 2009 $ (1. Management uses Adjusted EBITDA.136 (464. intangible asset impairment.442) 1.771 $ 73. Set out below is a discussion of the applicable policies and estimates that require management to make assumptions that affect the measurement and recognition of assets and liabilities at the balance sheet date as well as the revenues and expenses presented in the statement of operations and deficit. such determinations involve considerable judgment. income taxes. Adjusted EBITDA facilitates the consistent comparison of operating results for the Company.411) 378.722. interest expenses.462) (491.438.448.383. as well as non-operating factors such as the historical cost of property and equipment. including those with respect to future cash inflows and outflows. The Company has selected the HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 11 . Valuation of Intangible Assets and Goodwill Healthscreen accounts for its business acquisitions under the purchase method of accounting.101. among other measures. net Interest charges.309 551. Adjusted EBITDA is presented on a consistent basis from period to period.433 (32. amortization expense. The Company excludes amortization expense because it depends on the accounting methods and assumptions a company uses. to assess the operating performance of the Company’s ongoing business without the effects of depreciation expense.170.611 120.950) (1. 2010 and 2009.therefore unlikely to be comparable to similar measures presented by other companies.235 Change (1.192. discount rates.245 1. customer lists and capitalized development costs. 2010 (3.044 87. MTC and Johnston Lake Software. These determinations will affect the amount of amortization expense recognized in future periods.176) 467.

Allowance for Doubtful Accounts Healthscreen records an allowance against accounts receivable for accounts the Company anticipates may not be fully collectible. there is significant judgment that management uses in forecasting future results which could have a material affect on goodwill impairments. Accounting Changes.4th quarter as its annual testing period for goodwill. The Company adopted this standard on July 1. The amendments apply to interim and annual financial statements relating to years beginning on or after July 1. 2009. This allowance is based on the Company’s best estimate of the specific credit risk associated with the customer. This evaluation is based on projections of future undiscounted net cash flows. The fair values of the reporting units are obtained using the present value of expected cash flows. but are tested for impairment annually or when significant events or circumstances occur that indicate the asset might be impaired. Management also reviews the carrying amount of intangible assets with finite lives when events or circumstances indicate that the carrying amount may not be recoverable. Stock-Based Compensation Healthscreen uses the fair value method to measure compensation expense at the date of grant of stock options to employees. As such. the asset is written down to fair value. and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.” The amendments require enhanced disclosures about fair value measurements. 2009. Option pricing models require the input of highly subjective assumptions including the expected price volatility.” to adopt the amendments recently made by the International Accounting Standards Board to IFRS 7 “Financial Instruments: Disclosures. The total of these projected net cash flows is referred to as the “net recoverable amount. Financial Instruments-Disclosures In June 2009. including the relative reliability of the inputs used in those measurements and about the liquidity risk of financial instruments. analysis of collections history and other relevant information.” If the net recoverable amount is less than carrying value. Accounting Changes CICA Handbook Section 1506. the CICA amended Handbook Section 3862 “Financial Instruments – Disclosures. The fair value of options is determined using the Black-Scholes option pricing model and amortized to earnings over the vesting period with an offset to Contributed Surplus. Change in accounting policies CICA Section 1506. CICA Section 3862. The adoption of this standard did not have an impact on the financial statements. Intangible assets with indefinite lives are not amortized. was amended to exclude from its scope changes in accounting policies upon the complete replacement of an entity's primary basis of accounting. Changes in these subjective input assumptions can materially affect the fair value estimate. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 12 .

Section 1582. how the deliverables in an arrangement should be separated and the consideration allocated: (2) require. Section 1601.Although the amendments apply to financial statements relating to fiscal years ending after September 30. This abstract was amended to: (1) provide updated guidance on whether multiple deliverables exist. International Financial Accounting Standards (“IFRS”) IFRS: In April 2008. (4) require expanded qualitative and quantitative disclosures regarding significant judgements made in applying this guidance. carries forward the existing guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. and 1602. the CICA issued Section 1582. Consolidated Financial Statements (Section 1601). The Company is currently assessing the future impact of these amendments on its financial statements and has not yet determined the timing and method of their adoption. Business Combinations (Section 1582). (3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method: and. 2011. Following is Healthscreen’s plan for adoption of IFRS standards. with earlier adoption permitted as at the beginning of a fiscal year. which replaces Section 1600. CICA Emerging Issues Committee Abstract 175 (EIC 175) EIC 175 was issued in December 2009. publicly accountable enterprises will be required to prepare financial statements in accordance with IFRS. 2011. the CICA published the exposure draft “Adopting IFRSs in Canada. Section 1602 establishes guidance for the treatment of non-controlling interests subsequent to acquisition through a business combination. 2009. it must be applied retroactively from the beginning of the entity’s fiscal period adoption. Non-controlling Interests (Section 1602). The accounting changes summarized in EIC 175 are effective for fiscal years beginning on or after January 2. concurrently with Sections 1601. which HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 13 . with early adoption permitted. in a reporting period that is not the first reporting in the entity’s fiscal year. Adoption may either be on a prospective basis or by retrospective application. The Company is currently assessing the impact of the new standards on its financial statements. Recently Issued Accounting Standards Business Combinations. establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed. that the entity allocate revenue in an arrangement using the estimated selling prices of deliverables. comparative information is not required in the first year of application. The exposure draft makes possible early adoption of IFRS by Canadian entities. At this date. replacing EIC 142. If the abstract is adopted early. These new standards are effective for the Company’s interim and annual periods commencing on January 1. Consolidated Financial Statements and Non-Controlling Interests In October 2008. which replaces Section 1581. Business Combinations.” The exposure draft proposed to incorporate IFRS into the CICA Accounting Handbook effective for interim and annual financial statements relating to fiscal years beginning on or after January 1. The results of these amendments have been included in the disclosures in note 16 to the financial statements. in situations where a vendor does not have VSOE or third party evidence of selling price. 2011.

Healthscreen has just begun the scoping phase of the IFRS Changeover implementation. In addition. The impact of one-time changes will be calculated and reflected in Healthscreen’s financial statements. The Company has plans to bring in additional resources to assist with the completion of all phases of the changeover process and be ready for the required restatements and HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 14 . Design Phase: Healthscreen will evaluate the impact of the identified changes on Healthscreen’s systems and processes. Healthscreen will plan for a testing phase of the IFRS implementation project in which the operating effectiveness of newly implemented controls. A final report will be given to those charged with governance over this project that outlines the results of the tests performed and the overall conclusion of the project. along with an estimate of the magnitude of the impact. on a high level. a report will be provided to those charged with governance which outlines the overall design plan as well as potential areas of risk in implementation. Training of the relevant individuals and process owners will be completed during this phase. the IFRS standards that will have a major impact on Healthscreen’s current accounting policies and financial reporting. Changeover Plan: Scoping Phase: The scoping phase will be used to review. Healthscreen intends to implement its IFRS changeover in accordance with the established deadlines. identified in the scoping phase. Testing Phase: Due to the potential for errors and omissions in the design and initial implementation of control and process changes. Differences between current accounting and reporting practices will be identified. Implementation Phase: During the implementation phase. controls and process changes identified in the design phase. and management will produce a summary of the impact of the changes made for public disclosure. The Company believes it is two quarters behind in its changeover process. in this phase. the responsibility for governance of the process will be assigned and a reporting mechanism for the progress and notable issues arising from this process will be established. The estimated magnitude of the change. At the conclusion of this phase. if any. processes and systems will be tested. Individuals or departments that will be impacted by these changes will be identified and engaged in the process. Healthscreen will execute the systems. Disclosure of Expected Changes in Accounting Policies Related to Changeover to International Financial Reporting Standards. Draft IFRS statements will be prepared in parallel with Healthscreen’s regular Canadian GAAP reporting. Also during this phase. Onetime changes to be made at the date of changeover will also be identified and assigned an estimated magnitude. Ongoing disclosure requirements will be considered at this time. To date.is presented pursuant to the October 2008 recommendations of the Canadian Performance Reporting Board related to pre-2011 communications about IFRS conversion and to comply with Canadian Securities Administrators Staff Notice 52-320. Progress Toward Completion and Expected Milestones: Though early adoption is permitted. Healthscreen will once again examine the design of the new accounting policies to evaluate the financial reporting implications for Healthscreen of any IFRS standards established between the completion of the design phase and the implementation phase. will be used to prioritize order and resource allocation to each of the changes.

846. The maximum number of common shares reserved for the issuance at any time pursuant to the Plan is 15% (2009 – 10%) of the shares currently outstanding.000 shares without par value. Changes in Accounting Estimates Effective October 1.987 4. Healthscreen had 86.615 6.602 The estimated fair value of options granted during the period and prior years was amortized into income over the vesting period.17 0.141. Under the Plan the directors have granted the following stock options: Weighted Average Outstanding Strike Price 0. consultants and employees.131.131. there were 86.100 to $0. The fiscal year 2011 statements.855 common shares issued and outstanding. officers. consistent with the accounting estimates used in the period of their sale.116.269. amounted to $132.100 to $0. 2008 where the deferral of revenue from the sale of these licenses was not required. 2010.20 Range $0.290 $0. As of September 30.16 2.290 Outstanding Options 2.330 in the year.07 2.190 $0. (2009 .$504.031) Outstanding Shares The Company is authorized to issue 100. The expiry dates of the options granted under the Plan are determined by the board of directors at the time the options are granted.202. As of February 10. Revenue from software sales from prior periods.200 to $0.17 0. The Company has established a stock option plan (the “Plan”) for directors.428 5.21 0. will be required for presentation as comparatives for the fiscal year 2011 annual report.378 Remaining Contractual Life 4. 2011.85 Vested Options 1. from deferred revenue. on a straight-line basis and is determined using the Black-Scholes option pricing model. Healthscreen’s shareholders approved a repricing of all outstanding options issued prior to September 30. 2009 and held by option holders who were still employed by the Company to a price equal to the greater of: a) the average closing price of the Company’s shares on the TSX Venture Exchange for the thirty trading days prior to the date shareholder approval is obtained for the change .950 7.855 common shares outstanding. 2008 the Company made changes to its business practices and Software License Agreements to more clearly separate the sale of software licenses from the sale of maintenance services which provide clients with ongoing support.1 on the discounted market price for warrants and incentive stock options.060. Deferred revenue from prior period sales will be recognized as income ratably.21 0.20 Weighted Average Vested Strike Price 0. and b) the Market Price of the Company’s shares (as HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 15 .000. maintenance and access to upgrades.presentation in accordance with established guidelines. The result of these changes was a prospective change in revenue recognition for new Software License sales starting October 1. provided that the term of such options may not be for less than three years or more than ten years from the date of grant. The exercise price of options granted under the Plan is fixed by the board of directors and must be in accordance TSX Venture Exchange Policy 1. after undergoing audit.

873. the Black-Scholes option-pricing model was used to estimate values of options granted based on the following weighted average information: risk-free interest rate of 2.801 and accounts receivable of $2.474.209.92%.414.identified by the policies of the TSX Venture Exchange in effect on the date shareholder approval is obtained for the change.183. 2010. The Company’s working capital deficit has also changed substantially during the year. Financing activities generated cash of $1. Option pricing models require the input of highly subjective assumptions including the expected price volatility. In addition. The primary reason for these changes is growth in the Physician Services business. This repricing resulted in an increase in the stock based compensation expense reported for the fourth quarter of fiscal year 2010 of $66. Liquidity and Capital Resources For the fiscal year ended September 30. including increasing revenue through the introduction of new service offerings and obtaining additional external financing.754. The expense related to stock options recognized in the Statements of Operations and Deficit for the year ended September 30. with an increase in accounts payable of $2. 2010. in support of upgrades to the Company’s software product and investment in its infrastructure and growth. the Company had generated cash from operations of $703.21.50 years and no dividends.17 per share.485. the Company will also continue to monitor expenses and control costs in order to improve overall liquidity. expected life of 3.330 per share. Changes in these subjective input assumptions can materially affect the fair value estimate.095 outstanding options which were granted prior to September 30. The fair value of the stock options granted during the year ended September 30. The new price established for these options based on the above criteria was $0. 2010 was $359. 2009 with exercise prices ranging from $.214. 2010 was $382. Healthscreen intends to improve liquidity and increase working capital through a series of initiatives.265 to $. The repricing impacted 4. The most significant factor in this cash generation was an increase in deferred revenue as the Company generated revenue which will be recognized in future periods primarily from its Software business. which funded the purchase and development of software and other property and equipment.953. The largest component of this was a private placement for $1.34%. the weighted average price was $0.756. For the year ended September 30. The Company’s contractual obligations are summarized in the table below: HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 16 .771. Funds utilized in investing activities reached $1. expected volatility of 133.226.602.523.984 with Northstar and shareholder loans totaling $211. and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.

962. In the coming year. Operating results for the year presented are not necessarily indicative of the results to be expected for any future periods. though has not committed to. In the opinion of management.038 Payments due by period Less than 1 year 1-3 years 5.638 (2009 .073 801.930 5. a level of capital expenditure commensurate with current year capital expenditures.937 9. management expects to obtain sufficient financing to meet all operating obligations as well as contractual obligations.098 4-5 years - In addition to contractual obligations.Contractual obligations Long term debt (Wellington Series A and B). Based upon historical performance.940 386. all adjustments considered necessary for fair presentation of the Company’s financial position.722.178. reported a deficit of $13.602. realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. 2011 (note 7). 2010.073 414. results of operations and cash flows have been included. timely funding to meet all obligations currently.462).132. However. however. The Company expects to be able to meet operating obligations in the upcoming fiscal year through a combination of cash generated from operations and financing activities.178.028 5. Capital expenditures are primarily for the development of internal use software.000 on May 15. the success of these initiatives cannot be assured at this time.098 386. Going Concern These financial statements have been prepared on a going concern basis.937 9.989. For the year-ended September 30. These projects are expected funded primarily through cash flow generated from operations. debt obligations due within the foreseeable future and the covenant violation. the Company expects. which assumes that the Company will be able to meet its commitments. this casts significant doubt on the Company’s ability to continue as a going concern and hence the appropriateness ultimately of the use of accounting principles applicable to a going concern. the Company must maintain sufficient liquidity to meet regular operating obligations.801 (2009 – $9. Such adjustments could be material. plus interest Capital Lease Operating leases Total contractual obligations Total 5. the Company incurred a net loss of $3. Continuation of the Company as a going concern is dependent upon achieving profitable operations and obtaining additional financing (both of which management is actively pursuing). As the current lending market is not favourable to borrowers.$1. the current condition of the credit markets. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 17 . there is a risk that the Company will not be able to obtain sufficient.163) at that date and faces a significant debt principal repayment amounting to $4.170. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations.800.

Any required adjustments have been made in order to achieve fair presentation in accordance with GAAP of the Company’s financial statements for the year ended September 30.800 (2009 .510 (2009 . The Company sold $198.$79. $233.800 (2009 – nil) were paid to a company owned by a director of the Company. Consulting fees of $114. 2010. These fees are included in SG&A expenses and remain unpaid as of September 30. The Audit Committee is investigating whether these activities and adjustments have any other impact and is also evaluating the Company’s internal control over financial reporting and disclosure controls and procedures with a view to improving such controls and procedures.800) were paid to a company owned by an officer and director of the Company. All related party transactions are in the normal course of operations and are recorded at their exchange amount. Transactions with Related Parties Management fees of $99.500 is still receivable as of September 30.500 (2009 – nil) were accrued for independent directors for their services as directors to the Company. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 18 . certain breaches of internal control over financial reporting and failure to comply with disclosure controls and procedures were discovered.$12. Off Balance Sheet Arrangements There was no off balance sheet financing at the end of the fiscal year or as at the date of this report. 2010 and is included in accounts receivable. As of September 30. CallerMD fees of $14. approximately $8. 2010.960 remains unpaid relating to this salary deferral.$6. officers or shareholders of the Company agreed to defer payment of their salaries into a future period.Internal Controls During the audit of the financial statements.150 (2009 – nil) were paid to a company owned by an officer and director of the Company. Throughout the year various amounts were loaned by various directors.$27. officers and shareholders to the Company and repaid shortly thereafter to fund short-term working capital requirements.870 (2009 . During the year certain employees and consultants who were also directors. Of the CallerMD fees. including amounts paid prior to the date of election as director.400 (2009 .450).000) were paid for an automobile owned by an officer and director of the Company. 2010. Lease charges of $4. Fees in the amount of $38. Consulting fees of $41.000 of hardware (2009 – nil) to a company owned by an officer and director of the Company.610) and certain office expenses of approximately $25.

and readers should carefully consider the risks described below as well as additional risks inherent in a competitive and free marketplace. there is no assurance that Healthscreen will be able to comply with their financial covenants in future periods. access to patient information in order to properly fulfill its mandate.044 during the year. Though the Company fully expects to reverse this trend and has taken steps to ensure cash flow selfsufficiency. These loans are governed by loan agreements that require that the Company adhere to certain financial covenants. Healthscreen’s interest bearing debt stood at $4. forwardlooking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. Healthscreen is occasionally granted.638 (2009 . by its clients. most provincial governments in Canada provide subsidies in the form of grants to physicians who purchase IT products and software from the government’s “approved vendor list”. however. some of the Company’s services may be at risk and this could result in a material adverse effect on the business of Healthscreen. By their nature. Please refer to the caution regarding forward-looking statements on page 3 of the Company’s 2010 Annual Report.074 with interest expense of $1. a risk that if funding commitments from government initiatives are halted. the Company risks losing potential business. Government Political decisions have an enormous impact on companies operating in the healthcare sector. Financial and Capital Markets Risk In the past.383.Risks and Uncertainties This “Risks and Uncertainties” section contains certain forward-looking statements.$1. the Company incurred a net loss of $3. which Healthscreen is on. Despite the Company’s financial management efforts. Government funding programs are helping to fuel growth in the healthcare sector.722. A decision by a Provincial government to centralize the management of the information systems of the health and social services network could result in a significant decrease in the number of Healthscreen’s customers in that Province and have a material adverse effect on the Company's business. In addition. then the demand for EMR could significantly decrease. there is no assurance that Healthscreen will be able to do so in the event of a material change in the HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 19 . If any Provincial government were to restrict Healthscreen from gaining access to specific patient information. and as an agent with physician-granted access to patient’s health information. An investment in the Company’s business involves risk. If Healthscreen’s software fails to meet the requirements of a government's "approved vendor list".252.462). There is. For the year-ended September 30. As of the end of fiscal year 2010.170. which could have an adverse effect on Healthscreen’s software sales. 2010. the Company has financed the growth of its business with a mix of debt and equity. Healthscreen is exposed to government regulations both as an Information Technology ("IT") vendor.

the Company relies on its ability to raise capital from the public markets to source its growth by acquisitions model. and Healthscreen has many competitors with substantial financial. Furthermore. However. the Company’s ability to maintain its competitive position depends largely on its ability to retain a technically competent software development staff. Competition could affect Healthscreen’s pricing strategies. Technology The Information Technology industry is highly competitive and characterized by rapid changes that can have a material impact on development costs and methods as well as on the way in which Healthscreen’s products and services are delivered. disruption of the Company’s ongoing business. customer retention expectations and models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby cause the Company to overvalue an acquisition target. The development by Microsoft of new versions of Windows and upgrades or updates to Windows or other operating systems and or the market adoption of these or other operating systems HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 20 . its customers and its personnel. in paying for an acquisition. The individual or combined effect of these risks could have a material adverse effect on the Company's business. and lower revenues and net income and could also affect the Company’s ability to retain existing customers and attract new ones. marketing. there is the risk that the Company's valuation assumptions. Microsoft Operating Systems The Company has designed the majority of its software products to operate on certain generations of Microsoft Windows operating systems. dealing with unfamiliar laws. There is no assurance that the Company will find suitable companies to acquire or that it will have enough resources to complete any acquisition. New competitors may also enter the industry and bring with them new technologies. There is also the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated.Company’s economic environment or business. Competition The EMR market is extremely competitive. including: diversion of management’s attention from current operations. difficulties in integrating and retaining all or part of the acquired business. and the effectiveness of the acquired company’s internal controls and procedures. customs and practices in foreign jurisdictions. As well. to upgrade its software packages to meet changing needs and to adapt to the technological progress in its sector on an ongoing basis. the Company may deplete its cash resources. As such. Acquisitions The Company's growth strategy includes making strategic acquisitions. Acquisitions involve a number of risks. Healthscreen’s software product recently became certified by the Ontario government as having conformed to the latest round of specifications prescribed by that body. products and services. personnel and technological resources. assumption of disclosed and undisclosed liabilities.

increased service and warranty costs and liability claims. diversion of development resources. computer viruses and disabling devices. unauthorized intrusion. The Company is insured for claims relating to product liability and has licensing agreements with its customers to limit the Company's liability for certain programming defects and loss of data. these systems may be insufficient or may fail and result in a disruption of availability of its products or services to its customers. Any errors that are discovered after commercial release could result in loss of revenues or delay in market acceptance. Further. In addition. telecommunications failures. and other similar events. necessitate customer service or repair work that would involve substantial costs and distract management from operating the Company’s business. if the Company is unable to protect the physical and electronic security and privacy of its databases and transactions. no assurance can be given that a judgment will not be rendered against the Company in an amount exceeding the amount of insurance coverage or in respect of a claim for which the Company is not insured. especially when first introduced or when new versions are released. it is possible that the Company's product may become the subject of a third party attack or disruption. may deter people from using the Company’s product and service offerings to conduct transactions that involve confidential healthcare information. by its clients. access to patient information or other third party confidential information as may be necessary for the Company to fulfill its mandate. including third-party misappropriation of patient information or other confidential data. or face litigation. The Company's operations are dependent upon its ability to protect its computer equipment and the information stored in its data centers against damage that may be caused by fire. damage to the Company's reputation. A compromise of Company security. Nevertheless. including its customer relationships and operating results. This could adversely affect the persistence of its technology and a materially adverse effect of this kind could materially adversely affect its business. Security Risks Healthscreen is occasionally granted. Such failures could lead to the Company becoming subject to claims from its customers. power loss. whether malicious or otherwise.developed by other vendors may have an adverse effect on the Company's business if it is not able to adapt its technology to be compatible with these new operating systems. or a perception of any such security breach. Liability for Software Failure Defects in the Company's software products and delays in delivery could materially harm the Company's business. Any disruption to the Company's services could impair its reputation and cause the Company to lose customers or revenue. Product Errors and Third Party Mischief The software technology enabling the Company's software services is complex and the related application software may contain errors or defects. it could be subject to potential HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 21 . or that limitation of liability clauses in the licensing agreements will be deemed to be enforceable by a court of competent jurisdiction. Although the Company has redundant and back-up systems for some of its services and products.

that the scope of the patent protection will exclude competitors or provide competitive advantages to the Company. There can be no assurance that the Company will develop or improve products that it will be successful and effective in meeting the needs of the Company’s current customers. including those of Healthscreen. Protection of Intellectual Property The patent. trademark.liability and regulatory action. that any of the Company’s patents will be held valid if challenged or that others will not claim rights in the Company’s ownership of the patents and other proprietary rights held by the Company. The Company's future success will depend in large part on its ability to continue to respond to such changes. many of which have substantial resources. and its business. The coverage sought in a patent application can be denied or significantly reduced before or after the patent is issued. the Company has undergone turnover in management and staff at all levels. There can be no assurance that any patent applications will lead to the grant of a patent. results of operations and financial condition. implement and improve its operational. resulting in increased responsibility for both existing and new management personnel. operations and financial results may be materially adversely affected. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 22 . attract and retain management and staff. Many software applications have a life cycle of less than twelve months. In addition. Product research and development will require substantial expenditures and will be subject to inherent risks. copyright and trade secret positions of medical software companies. are uncertain and involve complex legal and factual issues. The Company’s recent expansion has resulted in growth in the number of employees including senior managers. There can be no assurance that the Company will be able to respond to such changes or that new or improved competing products will not render the Company’s software obsolete. customer support and financial control systems. to expand. the Company’s future operating results will depend on the ability of the directors. Accordingly. Largely as a result of growth related challenges. will not obtain patents that will interfere with the Company’s ability to make or sell its products. train and manage its employee base and to achieve product scalability. Growth Management and Maintenance of Growth Rate The Company’s business has grown rapidly in recent years. There can be no assurance that the Company will be able to manage recent or any future expansion successfully and any inability to do so could have a material adverse effect on the Company’s business. Remaining Current The medical software industry is characterized by rapid and significant technological change. its reputation and customer relationships would be harmed. including those of the executive level. the scope of its operating and financial systems and the geographic area of its operations and customers. officers and other key employees to continue to. there can be no assurance that those competitors.

com and on the Company’s website at www. There is no assurance that delays or problems in the implementation process used for all customers will not adversely affect the Company’s activities.com. Additional Information Additional information relating to the Company is available on SEDAR at www. a situation over which Healthscreen has little control. The Company is not protected from a shortage in qualified manpower or from difficulties in negotiating fair and reasonable agreements with its personnel. operating results or financial position. Recruitment and Hiring of Competent Personnel Growth and profitability of the Company’s business may be affected by any difficulty recruiting. The success of an implementation project requires close collaboration between Healthscreen and its customer. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 23 .Length of Sales Cycle and Fixed Price Contracts Healthscreen EMR sales cycle is long and the implementation thereof may be long and subject to delay.healthscreen. hiring and retaining personnel.sedar.

Justin Belobaba President & Chief Executive Officer February 10. The financial statements have been audited on behalf of the shareholders by PricewaterhouseCoopers LLP. Financial information presented elsewhere in the Annual Report is consistent with that in the financial statements. except as described further in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis. The Board carries out this responsibility principally through its Audit Committee (the “Committee”). 2011 Ken Rosenberg Director HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 24 . The Committee meets periodically with management and the external auditors to discuss internal controls over the financial reporting process. for review by the Board and approval of shareholders. The Committee has reported its findings to the Board which has approved the financial statements for issuance to shareholders.MANAGEMENT’S REPORT The accompanying financial statements of Healthscreen Solutions Incorporated are the responsibility of management and have been approved by the Board of Directors. which is ultimately responsible for reviewing and approving the financial statements. The Committee is appointed by the Board and all of its members are independent directors. The Committee also considers. the external auditors. in all material respects. The financial statements and other information in this Annual Report include amounts that are based on estimates and judgments. to satisfy itself that each party is properly discharging its responsibilities and to review the financial statements and the external auditors’ report. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly. in accordance with Canadian generally accepted auditing standards. The external auditors have full and free access to management and the Audit Committee. auditing matters and financial reporting issues. Management’s responsibilities for financial reporting are overseen by the Board of Directors (the “Board”). The financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. the engagement or reappointment of the external auditors.

in all material respects.PricewaterhouseCoopers LLP Chartered Accountants Mississauga Executive Centre One Robert Speck Parkway. and statements of cash flows for the years then ended. statements of operations. Licensed Public Accountants Mississauga. These financial statements are the responsibility of the company’s management. . An audit also includes assessing the accounting principles used and significant estimates made by management. as the context requires. Ontario February 10. We conducted our audits in accordance with Canadian generally accepted auditing standards. Suite 1100 Mississauga. 2010 and 2009 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. evidence supporting the amounts and disclosures in the financial statements. 2011 “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP. each of which is a separate legal entity. Our responsibility is to express an opinion on these financial statements based on our audits. comprehensive loss and deficit. Ontario Canada L4Z 3M3 Telephone +1 905 949 7400 Facsimile +1 416 814 3220 Auditors’ Report To the Shareholders of Healthscreen Solutions Incorporated We have audited the balance sheets of Healthscreen Solutions Incorporated as at September 30. these financial statements present fairly. (Signed) “PricewaterhouseCoopers LLP” Chartered Accountants. on a test basis. In our opinion. An audit includes examining. as well as evaluating the overall financial statement presentation. the PricewaterhouseCoopers global network or other member firms of the network. 2010 and 2009 and the statement of changes in shareholders’ equity. or. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. an Ontario limited liability partnership. the financial position of the company as at September 30.

516 269.521 11.546.801) 1.620 7.287.073 18.383.132.166 4.827. $ $ 5.342 3.611 5.987.969 4.022 3.518 16.600 $ 1.285.370.121 18.518 12.728.572.079 16.465 1.769 242.430.074 9.Commitments and Contingencies The accompanying notes are an integral part of these financial statements.306.277 (13.980.162 9. 2010 and 2009 2010 Assets Current assets Cash and cash equivalents Accounts and unbilled receivables Prepaid expenses and other assets 2009 $ 1.028 Property and equipment (note 4) Intangible assets (note 5) Goodwill (note 3a) $ Liabilities Current liabilities Accounts payable and accrued liabilities Payables to doctors Current portion of deferred revenue Current portion of long-term debt (note 7) Current portion of obligation under capital lease (note 7) Shareholders’ loans (note 6) Deferred revenue Obligation under capital lease (note 7) Future income tax liabilities (note 11) Shareholders’ Equity Share capital Warrants (note 10) Contributed surplus Deficit and accumulated other comprehensive loss $ Note 1 .826 226.073 263.096.087.288 3.504 9.163) 3.974 1.145.968 3.747 9.849 753.097 818.Nature of Business and Going Concern Note 15 .121 (9.028 $ Justin Belobaba President and CEO Ken Rosenberg Director HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 26 .096.252.048 800.715 1.962.558.156.508 10.520 12.BALANCE SHEETS As at September 30.699.652 3.363.470.265 2.156.600 $ 3.137.459 319.699.930.185.209 9.713.811 13.936 268.122.649.441 14.162 14.888 1.075 52.392.238 995.

638) 5.163) (3.465 - $ 918.980.962.888 $ 1. 2010 and 2009 Common Shares . HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 27 .715 $ 1.115.771 - 7.800 - - 712.998.239.170.363 - $ 10.038 1.827.455.011 - $ 8.495.778 940.132.121 - $ (9.462) 5.079 The accompanying notes are an integral part of these financial statements.801) $ 1.324.721 - 551.561 269.423 - - 1.514 300.701) (1.668 (1.000 798.722. 2008 Net loss and comprehensive loss Issuance of common shares on private placement Shares issued to former Regent shareholders-note 3b MTC warrants issued as contingent consideration-note 3c Shares issued upon MTC warrant exercisenote 10 Shares issued pursuant to Wellington debt issuance-note 7 Employee stock-based compensation expense Balance at September 30.930.714 - 10.000 - - 712.722.800 (712.170.277 $ (13.087.755 - - - 551.800) - - - 1.465 - $ 1.504 - $ 818.638) $ 3.000 - - - 300.097 - $ 818.520 (3.771 86.057 - - (2.755 - - - 170.713.306.038 - - - 798.note 9 Number Amount Warrants (note 10) Contributed Surplus Deficit and Accumulated Other Comprehensive Loss $ (8.403.777.006 712.832 170.400 - $ 2.855 $ 11.470.131.000. 2010 68. 2009 Net loss and comprehensive loss Issuance of common shares on private placement-note 8 Exercise of options Employee stock-based compensation expense Balance at September 30.STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY For the years ended September 30.615) 359.298.800 4.209.462) Total Shareholders’ Equity Balance at September 30.984 55.721 80.442 359.

975.956 13.739. beginning of year Deficit.438.701) (9. general and administrative Operating Income before undernoted Stock-based compensation expense Amortization of property and equipment Amortization of intangible assets Impairment of indefinite-lived intangible asset (note 5) Interest.013 1.826 1.936.508 4.738 9.986.192.327.170.462) (1.846 2.709.073 14.456.962.STATEMENTS OF OPERATIONS.591.175.309 1.950 10. COMPREHENSIVE LOSS AND DEFICIT For the years ended September 30.638) (9.792 10. net Other income.102 5.02) $ 9.163) (13.442) (1.444.643 5.253 464.04) $ $ $ $ $ $ HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 28 .052 3.469 1.392.523.245 1.771 87.189.721 120. 2010 and 2009 2010 Revenue Physician services Software maintenance Software Hardware and hardware maintenance Cost of sales Physician expenses Hardware Gross profit Expenses Sales.024. net Loss before income taxes Income tax expense Net loss and comprehensive loss Deficit.638) (3.713.834 1.631.170.208 2.937 4.419) (3.609. end of year Loss per share (basic and diluted. 2009 $ 8.962.235 551.462) (8.389 1.059.383.882 806.801) (0.435 1.239.611 (491.408 1.044 (24.163) (0.132.722.613 9.684 2.932.049.722. note 12) The accompanying notes are an integral part of these financial statements.981 359.670 3.389 1.121 73.602.060.454.946 682.383.

net Proceeds from shareholders loans Proceeds from debt issuance Repayment of long-term debt Proceeds from private placement.226.398) 1.033. beginning of year Cash and cash equivalents.475) 1.287.649.429 (448.638) 87.117) (1.332. $ 626.438.000 (3.414.287.153.709) 1.052 1.953 361.801 (47.000 1.810 $ 688.462) 120.620 $ (1.633 (2.183 (45.075) 1. 2010 and 2009 2010 2009 Cash provided by (used in): Operations Net loss from continuing operations Items not affecting cash: Amortization of property and equipment Amortization of intangible assets Stock-based compensation expenses Amortization of debt issuance costs and non-cash interest expense Gain on extinguishment of debt Impairment of indefinite-lived intangible asset Changes in non-cash working capital: Accounts and unbilled receivables Prepaid expenses and other assets Accounts payable and accrued liabilities Payables to doctors Deferred revenue Cash provided by (used in) operations Investing activities Purchase of property and equipment Purchase of intangible assets Cash used in investing activities Financing activities Proceeds from exercise of options Proceeds from share issuance. net Repayment of capital lease obligation Cash provided by financing activities Net increase (decrease) in cash and cash equivalents during the year Cash and cash equivalents.649.038 550.658) 798.136) 2.245 1.389 359.065) (61.083) 2.984 (14.209.754.523) (51.711.364.335) (1.602 1.485) 7.649.761 703.941) (58.722.541) (1.620 1. end of year Cash and cash equivalents consist of: Cash Cash equivalents $ (3.442 211.313.934.480) (825.371.060.620 $ $ 787.STATEMENTS OF CASH FLOWS For the years ended September 30.150) (1.170.834 1.287.969 500.969 Supplemental cash flow information Cash paid for interest The accompanying notes are an integral part of these financial statements.756.309 (2.771 679.474) (131.516 (865.920 (496.969 1.969 $ $ $ $ 1.124) (12.411 HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 29 .253 551.862) 464.651 1.721 506.

These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Physician Services include CallerMD.462). Software Products consist of the Company’s Electronic Medical Record (“EMR”) software.638 (2009 . reported a deficit of $13.000 on May 15. data conversion and training.722. the success of these initiatives cannot be assured at this time. maintenance fees and services related to the software. HealthAlert. Continuation of the Company as a going concern is dependent upon achieving profitable operations and obtaining additional financing (both of which management is actively pursuing). which assists physicians in managing a range of uninsured medical services.132. The Company’s two principal business activities are i) Software Products and ii) Physician Services. however. realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. 2008. Operating results for the year presented are not necessarily indicative of the results to be expected for any future periods. 2009. PrevCareMD. Effective October 1.801 (2009 – $9. all adjustments considered necessary for fair presentation of the Company’s financial position. Such adjustments could be material.170. such as installation.NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30. debt obligations due within the foreseeable future and the covenant violation (note 7). which assumes that the Company will be able to meet its commitments.$1. 1981. NATURE OF BUSINESS AND GOING CONCERN Healthscreen Solutions Incorporated (“Healthscreen” or the “Company”) offers a comprehensive suite of practice enhancing products and services designed to increase physician revenues. These financial statements have been prepared on a going concern basis. In the opinion of management.962. hardware products.800. the current condition of the credit markets. Healthscreen Solutions Incorporated amalgamated with its wholly owned subsidiary Medical Telecom Corporation. this casts significant doubt on the Company’s ability to continue as a going concern and hence the appropriateness ultimately of the use of accounting principles applicable to a going concern. which helps physicians to provide reminders on scheduling of healthcare services. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 30 . Scheduling (“HS Admin”).163) at that date and faces a significant debt principal repayment amounting to $4. OHIP billing (“HS Billing”). 2010. 2011 (note 7). 2010 and 2009 1. The Company was incorporated originally by registration of its memorandum and articles under the Company Act (British Columbia) on May 13. the Company incurred a net loss of $3. For the year-ended September 30. which is designed to help doctors coordinate the care of their chronic condition patients. results of operations and cash flows have been included. Effective October 1. These amalgamations do not impact the operations of the Company. which allows physicians to maximize government-funded preventive care bonuses and Chronic Condition Management. reduce costs and improve patient care. Healthscreen Solutions Incorporated amalgamated with its wholly owned subsidiaries. Based upon historical performance. 1589681 Ontario Limited and Regent Healthcare Systems.

HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 31 . the recoverability of intangible assets and goodwill. liabilities. in which case revenue is allocated to each separate element of the contract using the relative fair value method. ii) Software and hardware maintenance The Company charges various forms of maintenance fees which are deferred and amortized on a straight-line basis over the term of the maintenance contract. the fair value of stock options and warrants granted and estimates of fair values related to business acquisitions. Actual results could differ from those estimates. 2008 are deferred and amortized over the economic life of the software since fair value did not exist for each contract element at that time. Software Products i) Software sales (including conversion. installation. except the license fee. the Company has accomplished its responsibilities to the customer in accordance with the purchase agreement and reasonable assurance exists regarding the measurement of the consideration (price) and collectability of such consideration. All amounts are expressed in Canadian dollars unless otherwise specified. Examples of significant estimates made by the Company include allowances for potentially uncollectible accounts receivable. Contract arrangements provide for the delivery of multiple elements. The fair value of each element is determined based upon the price charged when the same element is sold separately. starting October 1. 2008. revenues and expenses. training) Revenues from the initial license fee and installation fees from installations prior to October 1.2. For software installed after October 1. Conversion and training revenues are recognized once there is persuasive evidence that there is an arrangement with the customer (which is supported by the terms of the Company’s license agreement). The value of the license fee portion of each contract is determined using the residual value. a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). b) Accounting estimates The preparation of the financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets. Management has established a fair valur for all contract elements. c) Revenue recognition The Company’s revenue is derived from two major segments: Software Products and Physician Services. the Company has recognized installation revenue at the time of installation and license revenue upon customer acceptance of the license. 2008.

Goodwill is not amortized but is tested for impairment annually and when significant events or circumstances occur that indicate the carrying value might not be recoverable. c) Property and equipment Property and equipment are recorded at cost less accumulated amortization. reasonable assurance exists regarding the measurement of the consideration (price) and collectability of such consideration is reasonably assured. Revenues are generated on an agreed upon fee for service basis and are recognized when there is evidence of an arrangement. no significant vendor obligations exist at the time of delivery and reasonable assurance exists regarding collection. The fair values of the reporting units are determined using the present value of expected cash flows.iii) Hardware products Revenue from the resale of computer equipment and other hardware items is recognized when there is persuasive evidence of an arrangement with the customer. the service is rendered to the physician. Physician Services Physician services provided to customers include: a) b) CallerMD: This is a billing service to assist physicians in managing uninsured services. PrevCareMD: This service helps maximize the bonus offered by the Ontario Provincial Government to primary care physicians for preventive care. d) Chronic Condition Management: This service is designed to help doctors coordinate the care of their chronic condition patients. If the carrying amount of the reporting unit HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 32 . the fee is fixed or determinable. which has been provided using the following methods and annual rates: Office furniture and equipment Computer hardware Telecom equipment Licenses 20% diminishing balance 30% diminishing balance 33% diminishing balance 100% straight line basis Leasehold improvements are amortized on a straight-line basis over the term of the lease. the product is delivered. d) Goodwill and intangible assets Goodwill Goodwill represents the excess purchase price paid for a business over the value of its separable net assets acquired. c) HealthAlert: This service is designed to help patients of Healthscreen’s physician clients schedule and prepare for healthcare interactions.

Initial software and installation fees related to installations prior to October 1. then a second step is performed to determine the amount of impairment loss. e) Impairment of long-lived assets Long-lived assets. 2008 that are deferred and amortized over the economic life of the software product. and iii) g) Upfront payments made by HealthAlert customers for whom the service period is not yet complete.100% (straight-line basis) The Computer Software includes costs associated with the internal development and enhancement of the Company’s Healthscreen Systems which are capitalized and amortized on a straight-line basis over one to two years. The Company annually reviews the useful lives and the carrying values of its long-lived assets for continued appropriateness. The Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long-lived assets.exceeds its fair value. Income taxes The Company follows the liability method of income tax allocation. Under this method. If required. If the carrying amount of an asset is not recoverable the amount of the impairment is measured by the amount by which the carrying amount of the assets exceeds its fair value and is recognized in the financial statements. f) Deferred revenue Deferred revenue results from: i) ii) Advance payments of maintenance contracts when the service period has not expired. measured as the amount by which the carrying value of the reporting unit’s goodwill exceeds its fair value. future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 33 . intangible assets with finite useful lives are amortized based on their estimated useful lives as follows: Customer lists and relationships Intellectual property .software Brand Trademarks Computer software 10 years straight-line 1-4 years straight-line 1 year straight-line to indefinite Indefinite 50% . the Company would assess recoverability using estimated non-discounted future operating cash flows. Intangible assets The Company’s intangible assets are classified to have finite useful lives or indefinite useful lives. are amortized over their useful lives. if any. including property and equipment and intangible assets with finite lives. The Company has chosen September 30 as the date for this annual impairment test. Any impairment loss would be expensed in the Statements of Operations and Deficit.

The Company has classified its financial instruments as follows: • Cash and cash equivalents are classified as held-for-trading.reporting and tax bases of assets and liabilities and available loss carry forwards. During the period. i) Research and development costs Costs related to research. The fair value of options is determined using the Black-Scholes option pricing model and amortized to earnings over the vesting period with an offset to contributed surplus.335 (2009 . the corresponding contributed surplus and the proceeds received by the Company are credited to capital stock. Available-for-sale financial assets that have a quoted price in an active market are measured at fair value with changes in fair value recorded in other comprehensive income (loss). Costs associated with the maintenance of Healthscreen Systems are expensed as incurred. “held-to-maturity”. Financial assets and liabilities classified as held-for-trading are measured at fair value with changes in fair value recorded in the Statements of Operations and Deficit. “available-for-sale” or “loans and receivables” and financial liabilities are classified as either “held-for-trading” or “other liabilities”. When options are exercised. this cost is written-off in the period. This generally occurs on completion of a working model and ends when a product is available for general release to customers. and are measured using the enacted and substantively enacted tax rates for years when the differences are expected to be realized. with all costs being expensed as incurred commencing with the last quarter of 2010. design and development of software products are initially charged to research and development expenses as incurred.174 (2009 – $132.638) of research and development costs which did not meet the criteria for capitalization during fiscal 2010. the Company capitalized $561. Software development costs are capitalized beginning when a product’s technological feasibility has been established. A valuation allowance is established to reduce future tax assets if it is more likely than not that all or some portions of such future tax assets will not be realized. j) Financial instruments Financial assets are classified as either “held-for-trading”. Such gains and losses are reclassified to earnings when the related financial asset is disposed of or when the decline in value is considered to be other-than-temporary. h) Stock based compensation The Company uses the fair value method to measure compensation expense at the date of grant of stock options to employees and non-employees. Equity instruments classified as “available-for-sale” that do not have a quoted price in an active market are subsequently measured at cost.111. When a component of computer software cost is identified as non-viable and will not produce revenues. Financial assets classified as held-to-maturity or loans and receivables and financial liabilities classified as other liabilities are subsequently measured at amortized cost using the effective interest method. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 34 . unless the criteria for deferral are met. The Company expensed $274. The carrying value of these costs is included in intangible assets on the Balance Sheet.$1.086) of development costs.

fair values are determined by using valuation techniques that refer to observable market data. The Company adopted this standard on July 1. • Shareholders’ loans.” The amendments require enhanced disclosures about fair value measurements. Although the amendments apply to financial statements relating to fiscal years ending after September 30. Accounts payable and accrued liabilities as well as payables to doctors are classified as financial liabilities. “Accounting Changes. which is the fair value of the consideration given or received. the CICA amended Handbook Section 3862 “Financial Instruments – Disclosures. Fair value The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arms length transaction between knowledgeable. The results of these amendments have been included in the disclosures in note 16. Financial Instruments-Disclosures In June 2009. including the relative reliability of the inputs used in those measurements and about the liquidity risk of financial instruments. The Company has elected to capitalize transaction costs related to financial instruments.” was amended to exclude from its scope changes in accounting policies upon the complete replacement of an entity's primary basis of accounting. obligations under capital lease and debt are classified as other liabilities. When independent prices are not available. The fair value of a financial instrument on initial recognition is the transaction price. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 35 . k) Changes in accounting policies CICA Section 1506. The Company has elected to use trade date accounting for regular-way purchases and sales of financial assets. the fair values of financial instruments that are quoted in active markets are based on bid prices for financial assets held and offer prices for financial liabilities. The amendments apply to interim and annual financial statements relating to years beginning on or after July 1.” to adopt the amendments recently made by the International Accounting Standards Board to IFRS 7 “Financial Instruments: Disclosures. willing parties who are under no compulsion to act. There were no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on the Balance Sheet. 2009. The adoption of this standard did not have an impact on the financial statements. CICA Section 3862. Subsequent to initial recognition.• • Accounts receivable are classified as loans and receivables. comparative information is not required in the first year of application. 2009. 2009. Accounting Changes CICA Handbook Section 1506.

Consolidated Financial Statements and Non-Controlling Interests In October 2008. 2008 the Company made changes to its business practices and Software License Agreements to more clearly separate the sale of software licenses from the sale of maintenance licenses which provide clients with ongoing support. Adoption may either be on a prospective basis or by retrospective application. carries forward the existing guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. Section 1601. n) Changes in Accounting Estimate Effective October 1. If the abstract is adopted early. which replaces Section 1581. in a reporting period that is not the first reporting in the entity’s fiscal year. Non-controlling Interests (Section 1602). 2008 where the deferral of revenue from the sale of these licenses was not appropriate. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 36 . The Company is currently assessing the future impact of these amendments on its financial statements and has not yet determined the timing and method of their adoption. that the entity allocate revenue in an arrangement using the estimated selling prices of deliverables. concurrently with Sections 1601. which replaces Section 1600. CICA Emerging Issues Committee Abstract 175 (EIC 175) EIC 175 was issued in December 2009. (3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method: and. with early adoption permitted. (4) require expanded qualitative and quantitative disclosures regarding significant judgements made in applying this guidance. Consolidated Financial Statements (Section 1601). it must be applied retroactively from the beginning of the entity’s fiscal period adoption. This abstract was amended to: (1) provide updated guidance on whether multiple deliverables exist. Revenue from software sales from prior periods. in situations where a vendor does not have VSOE or third party evidence of selling price. The accounting changes summarized in EIC 175 are effective for fiscal years beginning on or after January 1. how the deliverables in an arrangement should be separated and the consideration allocated: (2) require. replacing EIC 142.031). Business Combinations. 2011. 2011. and 1602. The Company is currently assessing the impact of the new standards on its financial statements. Section 1602 establishes guidance for the treatment of non-controlling interests subsequent to acquisition through a business combination. amounted to $132.$504. with earlier adoption permitted as at the beginning of a fiscal year. The result of these changes was a prospective change in revenue recognition for new Software License sales starting October 1. the CICA issued Section 1582. maintenance and access to upgrades. establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed.l) Recently issued accounting standards Business Combinations. Business Combinations (Section 1582). Section 1582. Deferred revenue from prior period sales will be recognized as income ratably. These new standards are effective for the Company’s interim and annual periods commencing on January 1.330 in the year (2009 . previously deferred. consistent with the accounting estimates used in the period of their sale.

The performance conditions necessary for these warrants to be exercisable were met in January 2009 and have been exercised in full without payment of additional consideration on July 21.518 Johnson Lake Software Regent Healthcare Systems Medical Telecom Corporation $ $ $ b) Regent Healthcare Systems (“Regent”) $ On July 4.380 $ $ Cost 162.142 82. for no additional consideration. Healthscreen had pending contingent consideration 4.997 3.518 2009 178. 4. c) Medical Telecom Corporation (“MTC”) In connection with the acquisition of MTC in 2007. with the consideration issued presented as an increase to goodwill.652 716.245 761.022.097 2.968 2009 Accumulated Amortization 94.668 95.226 40.424 955.561 62. 2009 in settlement of this obligation.000 was payable in cash or shares at the Company’s option.923 119. into common shares.923 86. upon Healthscreen achieving certain net revenue milestones for the period from July 1. PROPERTY AND EQUIPMENT 2010 Accumulated Amortization 106. 2008 to June 30.006 special warrants to the shareholders of MTC.782 52. $1 million was paid to Regent’s shareholders upon closing and approximately $300.997 3.514 shares to Regent’s former shareholders on January 4.578 269.141 71. 2009.156. Healthscreen agreed to pay a total of $1.785 200. Of the purchase price.403.230 $ $ $ $ $ $ $ HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 37 . Under terms of the definitive agreement. subject to adjustment.3. The warrants were valued at $712. Healthscreen completed the acquisition of Regent.352 84.022. 2009.825 534.412 226.352 84.225 95.800 and included on the Balance Sheet and Statement of Shareholders’ Equity.635 286.635 299. has resulted from the following transactions: 2010 178. The Company has issued 1.424 955.304 167. arising from business combinations.097 2.652 Office furniture and equipment Computer hardware Leasehold improvements Telecom equipment Licenses Net book value $ Cost 162.455. a) BUSINESS COMBINATION Goodwill Goodwill.345 446. 2008.879 102.156.3 million for Regent. The special warrants were exercisable.

051.309.285.309 464.209 were non-interest bearing and unsecured with no fixed terms of repayment. with certain of its directors and officers for up to a maximum of $400.800 418.252.073 3. The impairment was primarily the result of the Company’s reduced usage of their brands acquired from the MTC acquisition. 2010.222 (2009 – nil).694 2.694 3.555 of this facility has been utilized.571 2.168 10. The debt is repayable in whole or in part by the Company at any time up to one year in advance and carries an interest rate of 2% per month.786.595.491 1.391 203.779.407 294.516 9.475. Computer software additions in 2010 include an amount of $650.589 3.261. During 2010.199 5.000 which is not available for use: accordingly. DEBT 2010 Wellington Financial LP Capital lease obligations $ Current portion Long-term portion $ 4.833 10.185 40.586. the Company recorded an impairment of their Brand indefinite-lived intangible asset in the amount of $464. INTANGIBLE ASSETS 2010 Costs Accumulated Amortization 2.5.100 542.568. The interest expense recorded in the Statement of Operations and Deficit related to these loans is $4.912 (2009 .100 78.659. $105.572.328. shareholders’ loans in the amount of $158.570 20.$63.441 23.074 9. 7. the Company entered into a secured credit facility.147 2009 3. 2009.073 4.144 1.631 $ $ $ $ $ $ $ $ During 2009. amortization has not yet commenced on this asset.660 25. SHAREHOLDERS’ LOANS As at September 30.421 7.912). The carrying value of indefinite-lived intangible assets not subject to amortization is $63. The Company expects to be able to repay this loan with cash generated from operations.261.964 4. 6.000 411.885 25.589 $ $ HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 38 . subordinate to senior lenders.036.288 Costs $ 3.000 in order to finance the purchase of hardware used by the Company in the ordinary course of business.572 363.766.595.605 $ Impairment 464.147 4.148 3. 2010.256 are non-interest bearing and unsecured with no fixed terms of repayment.261.343 3.954 3. As at September 30.558.644.147 4.000 226.309 $ 2009 Accumulated Amortization 1.033.342 Customer lists Intellectual propertysoftware Brand Computer software Computer software under capital lease Healthscreen Systems Trademarks Net book value $ 3.572 363.644. shareholders’ loans of $52.185 40.781. As of September 30.421 9.506 33.

the carrying value of the warrants is $818. without the advance written consent of Wellington. The fair value of the debt of $499. totaling $478.246 was determined by discounting the future cash flows using a discount rate of 21%. The debt was thus assigned 78.000 as well as the transaction costs of $199. $125.014 using the market value of the shares on the date of issue. Transaction costs of $199. The fair value of the shares was determined to be $75.265 per share. 2009 or immediate prior to change of control of the Company. 2010.562 were incurred. The fair value of the warrants was determined to be $1.250 common shares. The secured debentures carry an interest rate of 12. the settled through the issuance of 781. totaling $913. The secured debentures shall be senior to all existing and future debt. The secured debentures carry an interest rate of 12. Healthscreen issued to Wellington an aggregate of 543.250.183 respectively.000 of the transaction fees were As at September 30.25 million through the issuance of secured debentures (“Series A Debentures”). Accordingly.648 and $95. Each special warrant entitles the holder to purchase one common share at an exercise price of $0. Gross proceeds of this transaction.336. The carrying value of the debt is the value initially assigned plus the amortization of debt issuance costs and accretion since the inception of the debt. Concurrent with the financing. without payment of additional consideration. totaling $4.506 respectively. The warrants expire on May 14.004. at which time repayment is due.000 through the issuance of secured debentures (“Series B Debentures”). The debentures had an initial maturity date of September 30.321 special warrants.000 as well as the transaction costs of $442. Concurrent with the financing.667. Company is not in compliance with certain of these covenants. the Company has classified the debt as a current liability because the lender has the right to demand repayment.75% per annum. for one common share purchase warrant. the Company shall not.580 respectively. The carrying value of the debt is the value initially assigned plus the amortization of debt HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 39 . As at September 30. On April 7. Other standard covenants for this debt transaction apply as well. The fair value of the debt of $3.811. 2008. 2013.352 and $347. the Company was not in compliance with certain of these covenants.189 and $173.562 were allocated to the debt and bonus shares based on the relative fair value of each. incur any new or additional debt. the Company entered into a debt financing agreement with Wellington Financial LP (“Wellington”) for gross proceeds of $550. 2009.263 using the Black-Scholes option pricing model (note 10).518 was determined by discounting the future cash flows using a discount rate of 33%. Each special warrant is exercisable.763 were allocated to the debt and warrants based on the relative fair value of each.9% of the gross proceeds and transaction costs. Healthscreen issued to Wellington an aggregate of 4. 2009. Under the covenants of the agreement. totaling $3.On May 15. Gross proceeds of this transaction.75% per annum.465. The debt was thus assigned approximately 86. The warrants were assigned 21. revenue and EBITDA.5% of the gross proceeds and transaction costs.582 bonus common shares. The secured debentures had an original term of 24 months or immediate prior to change of control of the Company. at which time repayment is due.5% of the gross proceeds and transaction costs. totaling $550. The Company must also satisfy certain minimum covenants as to cash. the Company entered into a debt financing agreement with Wellington Financial LP (“Wellington”) for gross proceeds of $4.

Related to these obligations.453 and $385. No transaction costs were associated with this transaction.$1.25 million worth of common shares and warrants on the one year anniversary of the original private placement. 2008.368).issuance costs and accretion since the inception of the debt. totaling $1. Healthscreen amended the terms of its debt with Wellington to extend the maturity date of both the Series A and Series B Debentures until May 15.17 for gross proceeds of $850. The securities issued under this private placement were subject to restrictions on transfer.777. including Healthscreen achieving financial performance targets and obtaining any applicable regulatory and shareholder approvals.824). Wealth Manager Inc. the carrying value of the shares is $45.016 were allocated to the shares and special warrants based on the relative fair value of each (note 10). The Series A debentures generated an interest expense of $1. the transaction was treated as an extinguishment of the existing debt and a reissuance of debt.020. Gross proceeds of this transaction. including a hold period ending on August 20. and was calculated at $3. resulting in gross proceeds of $1. 2010 (2009 .460 during the year ended September 30.045).778 common shares with an exercise price of $.862 was included in other income in the Statement of Operations and Deficit pursuant to this transaction.I.000. On December 19.072. Healthscreen issued 5.3 million. 2010.352 and are due in April 2011.948 for the Series A and Series B debentures respectively. The proceeds from the financing will be used for working capital and general corporate purposes. On May 19.225 per share and warrants to purchase 5. The revised fair value of the debentures was calculated using a discount rate of 33%.777.755. 2009.963 transaction costs relating to the private placement were incurred.$101. Healthscreen has issued 5. $51. The shares were assigned approximately 13. of Toronto. Healthscreen completed a private placement with an affiliate of Northstar Bancorp Ltd. As the terms of the debt were changed materially. A gain of $496.000 common shares at a price of $0. The Series B debentures generated an interest expense of $148.937 On April 20.056 respectively.P. 2010 (2009 . In connection with the private placement. Northstar has also agreed.30 and a one year term. The payment commitments related to future debt and interest repayments are as follows: 2011 8. the Company has charged to interest expense $2.143. to purchase an additional $1.75% per annum (2009 – $3.778 common shares at $.1% of the gross proceeds and transaction costs. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 40 . PRIVATE PLACEMENTS $ 5.173 during the year ended September 30. (“Northstar”) of Toronto and one other private investor.3 million as well as transaction costs of $90. 2010 reflecting at an effective interest rate of 12. totaling $71. 2011.811 and $26. 2010.178.148 in the year ended September 30. Healthscreen completed a private placement led by Horizons Advantaged Equity Fund.000. The capital lease obligations are repayable in monthly installments of $1. managed by T. subject to certain conditions.

998.131.403. 2007 and March 27.298. 2009 Shares issued upon exercise of options Shares issued in private placement (note 10) Common shares outstanding at September 30. Also during this meeting.714 5.514 4. Healthscreen’s shareholders approved a repricing of all outstanding options issued prior to September 30. During Healthscreen’s Annual General and Special Meeting of Shareholders held on July 15.363 55.038 300. the Company’s shareholders voted to approve an increase to the Stock Option Plan pool from 7. The expiry dates of the options granted under the Plan are determined by the board of directors at the time the options are granted.832 80.115. consultants and employees.504 798. 2009 and held by option holders who were still employed by the Company to a price equal to the greater of: a) the average closing price of the Company’s shares on the TSX Venture Exchange for the thirty trading days prior to the date shareholder approval is obtained for the change .980.324. a.9.000. which increased the option pool to 12. The new price established for these options based on the above criteria was $0.800 170. by the board of directors in March 2010 with all amendments effective July 15.852 to a fixed number of options equivalent to 15% of the issued and outstanding shares.930.778 86. 2010. 2008 Shares issued on private placement Shares issued to former Regent shareholders Shares issued upon MTC warrants exercise Shares issued pursuant to Wellington Debt issuance Common shares outstanding at September 30.100.855 Common shares outstanding at September 30.451.000 1.715 The Company has established a stock option plan (the “Plan”) for directors.561 $ 11.873.011 5. SHARE CAPITAL Authorized .095 outstanding options which were granted prior HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 41 .000. b.755 $ 10.919. 2008. the date of the latest shareholder approval of the Plan at the Annual General and Special Meeting of Shareholders. officers.097 10.777. Stock Option Plan Amount $ 8. 2010. The maximum number of common shares reserved for the issuance pursuant to the Plan is 15% (2009 – 10%) of the total outstanding common shares.057 940. provided that the term of such option may not be for less than three years or more than ten years from the date of grant thereof. The Plan and amendments to the Plan were approved by the shareholders of the Company as of June 25.21. and b) the Market Price of the Company’s shares (as identified by the policies of the TSX Venture Exchange in effect on the date shareholder approval is obtained for the change.006 1. The exercise price of options granted under the Plan is fixed by the board of directors and must be no less than the closing price of the common shares on the stock exchange on which the shares are traded on the day immediately preceding the effective date of the grant. 2010 c. The repricing impacted 4.000 common shares without par value Issued Common Shares Number of Shares 68.778.000 712.455.

330 per share.04%.290 Outstanding Options 2.000) (55.16 Vested Options 1.615 Weighted Average Vested Exercise Price 0. expected volatility of 137. on a straight-line basis and is determined using the Black-Scholes option pricing model.13 0.17 0.172 2. 2010 was $382.176.200 to $0. 2010 the following options are outstanding: Weighted Average Outstanding Exercise Price 0.214.846.17 0.17 per share.428 5. 2009 Granted Forfeited Expired Exercised Balance as at September 30. the Black-Scholes option-pricing model was used to estimate values of options granted based on the following weighted average information: risk-free interest rate of 2.27 0. A summary of the Company’s option activity is as follows: Weighted average exercise price 0. expected volatility of 133.202.411 (1. For the year ended September 30.714) 7.718. Option pricing models require the input of highly subjective assumptions including the expected price volatility. This repricing resulted in an increase in the stock based compensation expense reported for the fourth quarter of fiscal year 2010 of $66.07 2.100 to $0. 2010 was $359.190 $0.to September 30. 2010 As of September 30.92%.580) (31.771.615.767. The fair value of the stock options granted HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 42 .21 The estimated fair value of options granted during the period and prior years was amortized into income over the vesting period.25 0. expected life of 3. 2009 with exercise prices ranging from $.137. 2009. 2008 Granted Forfeited Expired Balance as at September 30.333 2. the weighted average price was $0.21 Number of shares 5.50 years and no dividends.20 Balance as at September 30. and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.060.21 0.572) (83.762. Changes in these subjective input assumptions can materially affect the fair value estimate.29 0. For the year ended September 30.141.000) 6. 2010.265 to $.378 Range $0.21 0.950 Remaining Contractual Life 4. the Black-Scholes option-pricing model was used to estimate values of options granted based on the following weighted average information: risk-free interest rate of 2.34%. The expense related to stock options recognized in the Statements of Operations and Deficit for the year ended September 30.474.17 0.45%.17 0.987 4.28 0. expected life of 3. The fair value of the stock options granted during the year ended September 30.500 (1.269.50 years and no dividends.

without payment of additional consideration.800 and included on the Balance Sheet and Statement of Shareholders’ Equity during Q2 2009. Changes in Warrants for the years ended September 30.561.533 and $69.006 (4.21 per share. the weighted average price was $0. The fair value of the warrants was determined to be $269. The special warrants have been valued at $712.888 $ $ $ HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 43 . 2008 Issued Exercised Balance as at September 30.28 Balance as at September 30.16 0. upon Healthscreen achieving certain net revenue milestones for the period from July 1.333 using the market value of the shares on the date of issue. totaling $1.3% of the gross proceeds and transaction costs. for one common share purchase warrant. Concurrent with the private placement completed in Q3 2010.087. Healthscreen had pending contingent consideration 4. the carrying value of the shares is $940.455. The expense related to stock options recognized in the Statements of Operations and Deficit for the year ended September 30.777. 2009 was $464. totaling $289.778 common shares and 5. In conjunction with the purchase of MTC. Concurrent with its debt financing. 2009 Issued Balance as at September 30.778 10. for no additional consideration.16 0. The warrants expire on May 14.777. Healthscreen issued to Wellington an aggregate of 4.321 4.006) 4.16 at the grant date using the following assumptions: risk-free interest rate: 1.265 0.265 0.465 712. expected life: . 2008 to June 30.55 years and no dividends. 2013. WARRANTS Included in Warrants is the fair value of warrants granted at the date of grant using the Black-Scholes option pricing model. and were exercised in full without payment of additional consideration on July 21. The performance conditions necessary for these special warrants to be exercisable have been met in Q2 2009.800 (712. Healthscreen issued (note 8) an aggregate of 5. These special warrants were valued at $0. subject to adjustment.811. The warrants were thus assigned approximately 22.800) 818.972 respectively.589.777.006 special warrants to the shareholders of MTC.778 special warrants of Healthscreen. The special warrants were exercisable.during the year ended September 30. The shares were assigned approximately 77. 2009.423 using the Black-Scholes option pricing model.044 respectively. Each special warrant is exercisable.455.30 0.811.467 and $20.11%.455. 2010 and 2009 are as follows: Number of warrants 4. The fair value of the shares was determined to be $953.321 5.321 special warrants of Healthscreen (note 7).446. Each common share purchase warrant entitles the holder to purchase one common share of Healthscreen at an exercise price of $0.423 1.010. into common shares. 2009. 10.721. 2010 was $551.811.87%. 2010 $ $ $ Amount 818.465 269. with the consideration issued presented as an increase to goodwill.099 Weighted average exercise price 0. expected volatility: 126.265 per share.7% of the gross proceeds and transaction costs.

25%) for Federal and Provincial taxes are as follows: 2010 (3.16) using the following assumptions: risk-free interest rate: 1.131 (368.192 448.784) 92.304.62 0.222.722.811.329) (18.170. 2010.63% (2009 – 1.11%).359.05 (2009 .938 2.466 447.354 1.119 911.638) (1.777.487 (1.87%).162) Property and equipment Losses Deferred revenue and other provisions Intangible assets Other Valuation allowance thereon Future tax liability $ $ $ $ A reconciliation between income taxes provided at actual rates and at the statutory rate of 32% (2009 – 33.706 (62.724.321 5.103) 186.014.649) (18.500 2.$0.476 3.679 2009 (1.795) - Net loss before income taxes Taxes at statutory rate Permanent differences Change in future tax rates and other Valuation allowance $ $ $ $ As of September 30. The losses will expire as follows: 2028 2029 $ $ 1.162) 2009 336. INCOME TAXES The Company uses the liability method of accounting for income taxes.417) 62. the Company has available tax losses for Canadian income tax purposes that may be carried forward to reduce taxable income derived in future years.462) (572.811.611 (549.321 5.55 Vested Warrants 4.414 HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 44 .605) 265. As at September 30.778 Remaining Contractual Life (years) 2.354 1.645. the following warrants were outstanding: Outstanding Warrants 4. The future income tax assets and liabilities consist of the following temporary differences: 2010 657.The weighted average grant date fair value of Warrants issued during fiscal year 2010 was $0. 2010.706.30 11.55 years) and no dividends.320 1.265 $ 0.777.167 (2.322. expected volatility: 125.989 597. expected life: 1 year (2009 – 0.778 Exercise Price $ 0.199.82% (2009 – 126.285. A summary of these losses is provided below.937 150.

officers and shareholders to the Company and repaid shortly thereafter to fund short-term working capital requirements. LOSS PER SHARE Loss per share figures have been calculated using the weighted average number of common shares outstanding for the year ended period September 30.000) were paid for an automobile owned by an officer and director of the Company.800) were paid to a company owned by an officer and director of the Company. The Company sold $198.454). Consulting fees of $114. including amounts paid prior to the date of election as director.400 (2009 – $27. Where applicable corporate and other activities are reported separately as Corporate.800 (2009 – nil) were paid to a company owned by a director of the Company.500 (2009 – nil) were accrued for independent directors for their services as directors to the Company. Exercise of outstanding stock options and warrants would be anti-dilutive and accordingly diluted loss per share has not been presented. As of September 30.000 of hardware (2009 – nil) to a company owned by an officer and director of the Company.500 is still receivable as of September 30.921. approximately $8. These fees are included in SG&A expenses and remain unpaid as of September 30. SEGMENTED FINANCIAL INFORMATION The Company’s reportable segments include Software Products and Physician Services. Fees in the amount of $38. $233. Throughout the year various amounts were loaned by various directors.12.960 remains unpaid relating to this salary deferral. During the year certain employees and consultants who were also directors. 14. All related party transactions are in the normal course of operations and are recorded at their exchange amount. RELATED PARTY TRANSACTIONS The following summarizes all related party transactions during the year ended September 30.926 (2009 – 74.510 (2009 – $12. 2010: Management fees of $99. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 45 .870 (2009 – $79. Of the CallerMD fees. 2010. The Company operates in Canada only. Lease charges of $4.904).150 (2009 – nil) were paid to a company owned by an officer and director of the Company. CallerMD fees of $14. 13.558. 2010 and is included in accounts receivable. 2010 at 82. 2010. Consulting fees of $41. officers or shareholders of the Company agreed to defer payment of their salaries into a future period.614) and certain office expenses of approximately $25.800 (2009 – $6.

073 14.013 1. 2010 Software Products Revenues Physician services Software maintenance Software Hardware and hardware maintenance Cost of Sales Physician expenses Hardware Gross Profit Expenses Sales.981 359.327.368 $ 9.714 1.813 1.677 (1.781.383.602.591.044 (24.170) 43.733 1.201) (3.684 $ $ 9.389 87.201) $ 5.170) (891.919 (216) (3.821.171 53.739.013 3.609. Financial information by reportable segment for the years ended September 30.975.506 1.937 4.383.950 10.937 3.040.000 50.039. 2010 (2009 – 17%).431 3.303.547) (891.113.771 1.684 2.370.102 $ 2.773.049.284) 811.356.113.684 9.170.255 $ 1. 2010 and 2009 is as follows: Year ended September 30.638) (3. net Income (loss) before income taxes Income Tax Expense Net loss Purchase of property and equipment $ $ 2.383.052 Physician Services Corporate Total HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 46 .609.609.715 (48.454.756.454.687 12.986.613 9.121 73.013 6.327.677) 359.356.469 1.433 (18.073 5.205 4.336 2.508 4.942 604.902 3.469 1.419) (3.602.The Company derives a significant portion of its Physician Services segment revenues from one customer.638) 45. net Other expenses.771 23. representing 33% of total Physician Services revenue for the year ended September 30.125 (5.733 833.053 34.189.936.478.826 1.739.327.275.602.834 1.189.895 $ 2.524 2.671 3.150 1.438.170.729 1.796.656) 833.937 1.826 1. general and administrative Operating expenses Income/(loss) before undernoted Stock compensation expense Amortization of intangible assets Amortization of property and equipment Interest expense.

670 3.444.389 1.979 1.609 1.885 10.248 34.722.041 49.605.384 385.882 806.022.235 551.163.059.812 1.713.192.819) 551.373.709.880 640.309 1.932.956 13.745 $ 1.443.338.268) (2.030 1.155 3.764 702.699.521 2.462) 58.846 682.SEGMENTED FINANCIAL STATEMENTS (continued) Year ended September 30.792 10.442) (1.208 $ $ 8. 2009 Software Products Revenues Physician services Software maintenance Software Hardware and hardware maintenance Cost of Sales Physician expenses Hardware Gross Profit Expenses Sales.000 5.956 4.227 $ 8.018 430.536.435 Physician Services Corporate Total Total assets and goodwill by segment are as follows: 2010 Total Assets Software Products Physician Services Corporate $ Goodwill (included in Total Assets) Software Products Physician Services $ $ 1.059.408 1.846 4.127) 40.523.722.268) 14.389 1.059.854) (25.021 $ 2.682 6.713.462) (1.117 682.175.208 8.523 60.022.721 1.282.275 12.309 (5.059.738 9.816.631.721 24.338.579.078 640.518 $ $ 1.997 3.021.532.133.611 (491.208 2.882 806.325 2.128.262 1.133.156.600 $ $ 4.245 464.880 3.392. net Other expenses.127) (25.997 3.451.253 120.186.444.736 38.521 2.946 6.456.059.878 1.047 16.156.666) (2.553 4.643 $ 2. net Loss before income taxes Income Tax Expense Net loss Purchase of property and equipment 2.071 1.717.846 2. general and administrative Operating expenses Income/(loss) before undernoted Stock compensation expense Amortization of intangible assets Amortization of property and equipment Impairment of indefinite-lived intangible asset Interest expense.741 9.726 (495.349.381 1.617 650.096.351 $ 5.965.946 1.445.819 (1.028 2009 HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 47 .327.518 $ 5.689 10.709.709.946 682.060.024.

15. 16. if considered likely to result in a loss and when.880 10. commenced an action against MTC and the Company’s former Vice President of Sales.218 801. Additionally computer equipment was acquired under operating lease agreements.000 plus interest and legal costs. Annual lease payments under these agreements are as follows: 2011 2012 2013 2014 and beyond $ 414. On August 31. 2008 for a balance that cannot be disclosed due to a binding non-disclosure agreement.028 $ Contingencies The Company is involved in certain claims and litigation arising out of the ordinary course and conduct of business. Any settlements or awards under such claims are provided for when reasonably determined. A portion of the full settlement amount remains accrued at September 30. On September 19. FINANCIAL INSTRUMENTS The Company adopted amendments related to Handbook Section 3862 “Financial Instruments – Disclosures” which require enhanced disclosure on the fair value measurements of financial instruments. general and administrative expenses on the Statements of Operations and Deficit. 2007.930 375. The Company settled this claim during fiscal 2009 for a sum that cannot be disclosed due to a binding agreement and has been included in selling. Management does not provide claims for which the outcome is not determinable or claims where the amount of the loss cannot be reasonably estimated. Of HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 48 . general and administrative expenses on the Statements of Operations and Deficit. 2010. a former employee commenced action against Healthscreen alleging wrongful dismissal and claiming damages and unpaid commissions and expenses in the amount of $80. COMMITMENTS AND CONTINGENCIES Commitments The Company leases its office and walk-in clinic space under operating lease agreements. 2009. 2008. On September 17. alleging that Healthscreen’s former Vice President of Sales breached the terms of a non-solicitation agreement. The amendments establish a three-level fair value hierarchy that reflects the reliability of the inputs used to measure fair value. IKON Office Solutions Inc. Management assesses such claims and. This claim was settled through mediation on October 6. based on management’s assessment of the most likely outcome. provisions for loss are made. a former employee commenced action against Healthscreen alleging wrongful dismissal and claiming damages and unpaid commissions in the amount of $100.713 plus interest and legal costs. the amount of the loss is quantifiable. The Company settled this claim during fiscal 2010 and has included the settlement amount and legal fees in selling.

accrued liabilities and doctors payables. There were no transfers of financial assets between levels during fiscal 2009 and 2010. in the normal course of business. Healthscreen’s functional currency is the Canadian dollar.969 4. is exposed to credit risk on its accounts receivable from customers. Loans and receivables consists of accounts receivables.022 3.114 4. Management does not believe that the impact of currency fluctuations will be significant. a) Foreign currency risk The Company does not have a significant exposure to foreign currency risk since only a small portion of transactions are denominated in U.154 (2009 .the three levels of the value hierarchy. b) Interest rate risk The Company’s debt with Wellington Financial carries a fixed interest rate of 12. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. 2010 is $946.S. held-to-maturity.117.938. The allowance for doubtful accounts as at September 30. Financial instruments are classified into one of the following categories. All amounts are shown on the Balance Sheet. which is established based on the specific credit risk associated with the customer and other relevant information. accounts receivable.885 $ 2009 1. accounts payable and shareholder loans which are due within one year. dollars.459 6.515.936 3.620 7. The following summarizes the carrying value of the Company’s financial instruments according to these categories: 2010 Held-for-trading Loans and receivables Financial liabilities Loans payable $ 1. 2010 fall into Level 1 which is considered most reliable value being based on unadjusted quoted prices in active market for identical financial assets or liabilities. loans and receivables and other financial liabilities. The Company.835). Accounts receivable are net of an applicable allowance for doubtful accounts.649. Market risk Market risk is the risk to the Company that the fair value of future cash flows of financial instruments will fluctuate due to changes in interest rates and foreign currency exchange rates. Since the interest rate is fixed the Company is not exposed to interest rate risk on this debt. Financial liabilities consists of accounts payable.430.185.$446. No other significant interest rate risks exist. consist of debt and shareholder loans.624.287. the Company’s financial assets and liabilities as at September 30. held-for-trading. available-for-sale.650 Held for trading consists of cash and cash equivalents. These include cash and cash equivalents. 2009 and September 30.75% per annum. Loans payable HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 49 .

The Company manages its capital structure and makes adjustments to it.936 5.430.287.459 $ $ 2009 1. creditor and market confidence and to sustain future development of the business. 17. but rather promotes year over year sustainable growth. The fair value of the debt and obligations under capital leases as of September 30.595.718.313 389.569. CAPITAL MANAGEMENT The Company’s objective is to maintain a strong capital base so as to maintain investor.079 2009 1.355 549.950.969 4.459 8. Fair value The carrying value of the Company’s cash and cash equivalents. however recognizes additional efforts are required to ensure there is an improvement in the aging profile. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 50 .536 3. payables to doctors and shareholders’ loans approximates their respective fair values due to the short-term maturities. The carrying amount of financial assets represents a maximum credit exposure.118.164.936 Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.649. the Company expects that it will be able to obtain long-term debt or raise equity sufficient to maintain and expand its operations. Management defines capital as the Company’s long-term debt and shareholders’ equity. accounts receivable. During the current economic climate.835) 4. this risk is compounded. There are no assurances that these initiatives will be successful.154) 7.185. 2010 approximates the recorded book value as these are due within the next 12 months. The maximum exposure to credit risk at the reporting date was: 2010 1.185.673.138 (446.Management does not believe that there is significant credit risk arising from receivables with the Company’s customers.620 7. The board of directors does not establish quantitative return on capital criteria for management. that it will always have sufficient liquidity to meet liabilities when due.222 1.201 (946. The Company’s approach to managing liquidity risk is to ensure.056 1. In order to maintain or adjust the capital structure. accounts payable and accrued liabilities. as far as possible.90 days) Past due (>90 days) Unbilled receivables Allowance for doubtful accounts $ $ $ $ $ $ Liquidity risk 2010 1. in which borrowing is relatively difficult.563 2.430. based on the level of funds available to the Company to manage its operations.835.905 Cash and cash equivalents Accounts and unbilled receivables The aging of accounts receivable at the reporting date was: Current Past due (61 .

000 shareholder loan under the credit facility was advanced to the Company. SUBSEQUENT EVENTS In October 2010. 18. This loan is repayable in whole or in part by the Company at any time up to one year from date of advance and bears interest at the rate of 2% per month. HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 51 . In October 2010.000 based on the completion of agreed upon milestones. The Company expects to be able to repay this loan with cash generated from operations. COMPARATIVE FIGURES Prior year figures presented in these financial statements have been reclassified to conform to the presentation in the 2010 financial statement balances. The agreement provides for the Company to fund up to $614. the Company’s approach to capital management remained consistent as it maintained its debt financing arrangement with Wellington Financial (note 7) as well as completed a private placement. the Company entered into a development agreement with one of its suppliers to provide development services for the improvement of internally used computer software. which are measured on a quarterly basis.During the period. These reclassifications impact each of the financial statements as well as the segmented financial statements note (note 14). a further $100. The Company is subject to financial covenants as part of this debt agreement. 19.

Bruce Rosenberg Director Ken Rosenberg Director Stewart Davis Director Stock Exchange Listing TSX Venture Exchange Symbol: MDU HEALTHSCREEN SOLUTIONS INCORPORATED FISCAL YEAR 2010 52 .CORPORATE DIRECTORY Management Justin Belobaba President and CEO Dr.com Auditors PricewaterhouseCoopers LLP Mississauga. Bruce Rosenberg Chief Medical Officer Stewart Davis Chief Operating Officer Dave Armstrong Vice President Operations Adam Hutton Vice President Product Management Corporate Office Healthscreen Solutions Incorporated Suite 1200. 80 Bloor Street West Toronto.healthscreen. 2nd Floor Vancouver. Ontario Transfer Agent Computershare Inc. BC V6C 3B9 604-691-7361 Board of Directors Justin Belobaba Director Tom Enright Board Chairman Dr. 510 Burrard Street. Ontario Canada M5S 2V1 www.

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