TIDMVVS 
 
Half year report 
FOR:  VERSATILE SYSTEMS INC. 
 
TSX VENTURE SYMBOL:  VV 
AIM SYMBOL:  VVS 
 
January 26, 2011 
 
Versatile Reports Second Quarter Results 
 
Revenue of $15,460,033 for the Quarter Produces Net Earnings of $178,965 
 
VANCOUVER, BRITISH COLUMBIA--(Marketwire - Jan. 26, 2011) - Versatile Systems Inc. (TSX VENTURE:VV)(AIM:VVS) announces its results for 
the second quarter of the 2011 fiscal year. 
 
Revenue for the three months ended December 31, 2010 was $15,460,033 compared to $11,259,292 for the same quarter last year, an 
increase of $4,200,741. The Net Earnings for the quarter amounted to $178,965 ($0.00 per share) compared to a Net Loss of $80,661 
($0.00 per share) for the same period last year. 
 
"All key financial metrics have shown substantial improvement over the comparable quarter last year, as well as the first quarter ended 
September 30, 2010," said John Hardy, Chairman and CEO of Versatile. "Revenue, deferred revenue, working capital, cash flow and 
earnings have all increased. We will continue our efforts to improve the Company's financial performance in future quarters." 
 
Highlights for the quarter included: 
 
=-  Revenue for the three months ended December 31, 2010 was $15,460,033 
    compared to $11,259,292 for the same quarter last year, an increase of 
    $4,200,741; 
 
=-  Deferred revenue at December 31, 2010 was $8,112,256 (of which 
    $7,264,273 is expected to be recognized in the next four quarters) 
    compared to $7,512,605 at December 31, 2009; 
 
=-  The Earnings before interest, taxes and amortization for the quarter was 
    $305,701 compared to a Loss before interest, taxes and amortization of 
    $268,531 for the same quarter last year, an improvement of $574,232; 
 
=-  The cash flow generated from operations before other items amounted to 
    $299,384 for the three months ended December 31, 2010 compared to cash 
    flow used in operations before other items of $277,284 for the same 
    period last year, an improvement of $576,668; 
 
=-  The Net Earnings for the quarter amounted to $178,965 ($0.00 per share) 
    compared to a Net Loss of $80,661 ($0.00 per share) for the same period 
    last year, an improvement of $259,626; 
 
=-  The working capital as of December 31, 2010 was $4,381,730, an increase 
    of $352,858 compared to the working capital of $4,028,872 at September 
    30, 2010; 
 
=-  The research and development expense for the quarter amounted to 
    $278,909 compared to $247,084 for the same quarter last year; and 
 
=-  The Investment in Equus consists of 962,962 shares of Equus Total 
    Return, Inc. which is a public company trading on the NYSE under the 
    symbol EQS. During the quarter the Company acquired an additional 
    140,391 shares, thereby increasing its holdings to 10.9% of the total 
    issued shares. On November11, 2010 Equus released its results for the 
    third quarter. The net asset value of Equus at September 30, 2010 was 
    $3.55 per share. 
 
During the current quarter, the Company incurred $124,442 for research and development activities related to Mobiquity Route(TM), DEX 
and related mobile software products and $114,660 related to Mobiquity Transaction Engine 3.0(TM), Mobiquity Kiosk(TM) and Autostore. 
 
Revenue for the six months ended December 31, 2010 was $24,679,083 compared to $22,875,517 for the same period last year, an increase 
of $1,803,566. Net Earnings for the period amounted to $89,651 ($0.00 per share) compared to a Net Loss of $127,436 ($0.00 per share) 
for the same period last year. 
 
"Versatile generated cash flow from operations before other items of $299,384 this quarter," said Fraser Atkinson, CFO of Versatile. 
"This has helped to further strengthen the Company's financial position in addition to $5 million that was unused and available on its 
bank line of credit." 
 
About Versatile 
 
Versatile provides business solutions that enable companies to improve sales, marketing and distribution of their products. Versatile 
also provides information technology services for the implementation, maintenance and security of mission-critical computer 
environments. Versatile has the ability to architect solutions involving both proprietary and third party components. For more 
information: www.versatile.com. 
 
Forward-Looking Statements 
 
This document may contain forward-looking statements relating to Versatile's operations or to the environment in which it operates, 
which are based on Versatile's operations, estimates, forecasts and projections. These statements are not guarantees of future 
performance and involve risks and uncertainties that are difficult to predict or are beyond Versatile's control. A number of important 
factors including those set forth in other public filings could cause actual outcomes and results to differ materially from those 
expressed in these forward-looking statements. Consequently, readers should not place any undue reliance on such forward-looking 
statements. In addition, these forward-looking statements relate to the date on which they are made. Versatile disclaims any intention 
or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. 
 
All amounts are expressed in U.S. dollars unless otherwise stated. (C) 2011 Versatile Systems Inc. All rights reserved. 
 
Versatile Systems Inc. 
Consolidated Financial Statements 
December 31, 2010 
 
Consolidated Balance Sheets 
 
Consolidated Statements of Operations and Deficit 
 
Consolidated Statements of Comprehensive (Loss) Income 
 
Consolidated Statements of Cash Flows 
 
Notes to Consolidated Financial Statements 
 
Versatile Systems Inc. 
Consolidated Balance Sheets 
(Unaudited - Prepared by Management) 
Expressed in U.S. dollars                         December 31, 2010     June 30, 2010 
                                                  ------------------------------------ 
                                                        (unaudited) 
 
ASSETS 
Current Assets 
Cash and cash equivalents                          $        923,825  $      1,738,036 
Investment in Equus (note 3)                              2,407,405         2,203,043 
Accounts receivable                                      10,814,932        10,580,706 
Current portion of deferred contract costs                5,509,052         5,793,180 
Prepaid expenses                                            277,956           236,993 
Inventory                                                 1,806,109         1,719,477 
Future income tax benefits (note 8)                         731,006           721,975 
                                                  ------------------------------------ 
                                                         22,470,285        22,993,410 
Long-term accounts receivable                               318,386           265,612 
Deferred contract costs                                     758,408           598,366 
Capital Assets                                              356,972           519,391 
Intangible assets                                                 -               459 
Future income tax benefits (note 8)                       6,186,924         6,243,875 
Goodwill                                                  9,914,350         9,914,350 
                                                  ------------------------------------ 
                                                   $     40,005,325  $     40,535,463 
                                                  ------------------------------------ 
LIABILITIES 
Current Liabilities 
Line of credit (note 4)                            $        815,855  $      1,353,312 
Accounts payable and accrued liabilities                 10,008,427         9,955,342 
Current portion of deferred revenue                       7,264,273         7,432,210 
                                                  ------------------------------------ 
                                                         18,088,555        18,740,864 
Deferred Revenue                                            847,983           710,269 
                                                  ------------------------------------ 
                                                         18,936,538        19,451,133 
                                                  ------------------------------------ 
SHAREHOLDERS' EQUITY 
Share Capital (note 5)                                   54,433,709        54,433,709 
Warrants (note 6)                                           186,367           186,367 
Contributed surplus                                       4,231,539         4,231,539 
Deficit                                                 (36,876,185)      (36,965,836) 
Accumulated other comprehensive loss                       (906,643)         (801,449) 
                                                  ------------------------------------ 
                                                         21,068,787        21,084,330 
                                                  ------------------------------------ 
                                                   $     40,005,325  $     40,535,463 
                                                  ------------------------------------ 
     APPROVED BY THE DIRECTORS: 
     DIRECTOR: John Hardy                                       DIRECTOR: Fraser Atkinson 
 
See Notes to Consolidated Financial Statements 
Expressed in U.S. dollars                       Three months ended December 31   Six months ended December 31 
                                                          2010            2009           2010            2009 
                                                -------------------------------------------------------------- 
 
 
SALES                                            $  15,460,033  $   11,259,292  $  24,679,083  $   22,875,517 
COST OF SALES                                       12,491,896       8,599,212     19,607,119      17,560,133 
                                                -------------------------------------------------------------- 
                                                     2,968,137       2,660,080      5,071,964       5,315,384 
                                                -------------------------------------------------------------- 
EXPENSES 
  Selling and marketing                              1,327,878       1,619,075      2,336,445       2,980,776 
  General and administrative                         1,051,897       1,100,145      1,942,347       1,974,493 
  Research and development                             278,909         247,084        471,177         493,754 
  Non recurrring expenses                               37,503          28,219         58,171          48,079 
  Stock-based compensation                                   -          23,242              -          45,630 
  Foreign exchange gain                                (33,751)        (89,154)       (31,418)        (74,612) 
                                                -------------------------------------------------------------- 
                                                     2,662,436       2,928,611      4,776,722       5,468,120 
                                                -------------------------------------------------------------- 
Earnings (loss) before interest, taxes and 
 amortization                                          305,701        (268,531)       295,242        (152,736) 
  Amortization of capital assets                        48,108          62,287        119,269         128,911 
  Amortization of intangible assets                          -          90,675              -         181,349 
  Interest expense                                         666          10,441         15,636          14,210 
  Loss (Gain) on sale of capital assets and 
   investments                                           2,575          (4,952)         2,575          (4,952) 
                                                -------------------------------------------------------------- 
EARNINGS (LOSS) BEFORE INCOME TAXES                    254,352        (426,982)       157,762        (472,254) 
Current income tax expense                                (995)         (1,245)        (1,990)         (2,748) 
Future income tax (expense) benefit                    (74,392)        347,566        (66,121)        347,566 
                                                -------------------------------------------------------------- 
NET EARNINGS (LOSS)                                    178,965         (80,661)        89,651        (127,436) 
                                                -------------------------------------------------------------- 
 
DEFICIT, BEGINNING OF PERIOD                       (37,055,150)    (35,775,990)   (36,965,836)    (35,729,215) 
                                                -------------------------------------------------------------- 
 
DEFICIT, END OF PERIOD                             (36,876,185)    (35,856,651)   (36,876,185)    (35,856,651) 
                                                -------------------------------------------------------------- 
 
EARNINGS (LOSS) PER SHARE (basic and diluted)            $0.00          ($0.00)         $0.00          ($0.00) 
                                                -------------------------------------------------------------- 
 
See Notes to Consolidated Financial Statements 
 
Versatile Systems Inc. 
Consolidated Statements of Comprehensive (Loss) Income 
(Unaudited - Prepared by Management) 
 
                                                     Three Months ended December 
Expressed in U.S. dollars                                                     31 Six Months ended December 31 
                                                            2010            2009        2010             2009 
                                                     --------------------------------------------------------- 
 
 
Net earnings (loss)                                      178,965         (80,661)     89,651         (127,436) 
 
Other comprehensive (loss) income 
  Net change in fair value of available-for-sale 
   investments                                           141,415               -    (105,194)               - 
                                                     --------------------------------------------------------- 
 
Comprehensive (loss) income                              320,380         (80,661)    (15,543)        (127,436) 
                                                     --------------------------------------------------------- 
 
 
See Notes to Consolidated Financial Statements 
 
Versatile Systems Inc. 
Consolidated Statements of Cash Flows 
(Unaudited - Prepared by Management) 
 
                                                                Three Months ended           Six Months ended 
Expressed in U.S. dollars                                              December 31                December 31 
                                                                2010          2009         2010          2009 
                                                        ------------------------------------------------------ 
 
 
OPERATING ACTIVITIES 
    Net earnings (loss)                                  $   178,965  $    (80,661) $    89,651  $   (127,436) 
    Items not affecting cash 
      Amortization of capital and intangible assets           63,597       170,862      137,849       348,987 
      Stock-based compensation                                     -        23,242            -        45,630 
      Loss (Gain) on sale of capital assets and 
       investments                                             2,575       ( 4,952)       2,575       ( 4,952) 
      Unrealized foreign exchange gain                      ( 20,886)     ( 38,209)    ( 20,391)     ( 42,539) 
      Future income tax expense (benefit)                     74,392     ( 347,566)      66,121     ( 347,566) 
                                                        ------------------------------------------------------ 
Cash flow used in operations before other items              298,643     ( 277,284)     275,805     ( 127,876) 
      Net change in non-cash operating balance sheet 
       items                                               ( 415,708)       41,236    ( 267,647)  ( 2,157,242) 
                                                        ------------------------------------------------------ 
                                                           ( 117,065)    ( 236,048)       8,158   ( 2,285,118) 
 
INVESTING ACTIVITIES 
  Short term investments                                    (309,556)     (567,558)    (309,556)   (2,300,835) 
  Proceeds from disposition of capital assets                 30,174         7,701      103,268         7,701 
  Additions to capital assets                               ( 38,799)     ( 21,414)    ( 78,624)     ( 37,266) 
                                                        ------------------------------------------------------ 
                                                           ( 318,181)    ( 581,271)   ( 284,912)  ( 2,330,400) 
                                                        ------------------------------------------------------ 
 
FINANCING ACTIVITIES 
  Proceeds from issuance of shares                                 -     3,876,257            -     3,876,257 
  Share issue costs                                                -       (26,291)           -       (26,291) 
  Proceeds from (repayment of) line of credit               (104,426)     (503,051)    (537,457)    2,558,445 
                                                        ------------------------------------------------------ 
                                                           ( 104,426)    3,346,915    ( 537,457)    6,408,411 
                                                        ------------------------------------------------------ 
 
Increase (decrease) in cash and cash equivalents           ( 539,672)    2,529,596    ( 814,211)    1,792,893 
 
CASH and cash equivalents, beginning of period             1,463,497     1,265,827    1,738,036     2,002,530 
                                                        ------------------------------------------------------ 
 
CASH and cash equivalents, end of period                 $   923,825  $  3,795,423  $   923,825  $  3,795,423 
                                                        ------------------------------------------------------ 
 
Supplementary information 
    Cash paid for interest expense                       $     4,929  $     14,130  $    16,993  $     14,672 
    Cash paid for income taxes                                 1,050         1,455        2,469         2,963 
 
 
See Notes to Consolidated Financial Statements 
 
Versatile Systems Inc. 
 
Notes to Consolidated Financial Statements For the period ended December 31, 2010 
 
(Unaudited - Prepared by Management) 
 
1. Consolidated financial statement presentation: 
 
These unaudited interim consolidated financial statements at December 31, 2010 and the consolidated statements of operations and 
deficit, comprehensive income (loss) and cash flows for the periods ended December 31, 2010 and 2009, have been prepared in accordance 
with Canadian generally accepted accounting principles. These unaudited interim financial statements do not include all the disclosures 
required for annual audited financial statements and should be read in conjunction with the Company's annual audited consolidated 
financial statements and notes therein for the year ended June 30, 2010. 
 
The results of operations for the periods ended December 31, 2010 are not necessarily indicative of the results for the full year 
ending June 30, 2011. All amounts herein, including the comparative figures, have been expressed in United States dollars unless 
otherwise 
 
The financial statements as at and for the period ended December 31, 2010 have not been reviewed or audited by the Company's auditor. 
 
2. Accounting Policies 
 
The accounting policies applied in these interim financial statements are consistent with those applied in the Annual financial 
statements. 
 
3. Investment in Equus 
 
The Investment in Equus consists of 962,962 shares of Equus Total Return, Inc. which is a public company trading on the NYSE under the 
symbol EQS. The share price as at December 31, 2010 was $2.50 so the unrealized gain for the quarter was $141,415 and the cumulative 
unrealized loss was $624,864. 
 
4. Bank Line of Credit 
 
The Company has a credit line facility for up to $5,800,000, which is limited to 70% of eligible accounts receivable of certain U.S. 
subsidiaries from a U.S. based financial institution. At December 31, 2010 this amounted to $5,800,000. The line of credit bears 
interest at the prime rate of lending as published in the Wall Street Journal and is secured with a first charge on the assets of these 
U.S. subsidiaries. 
 
5. Share Capital 
 
Authorized 
   Unlimited common shares without par value 
Issued and outstanding 
                                                                 Number 
                                                              of shares             Amount 
                                                        ---------------------------------- 
   Issued and outstanding - June 30, 2010                   157,285,643   $     54,433,709 
   Issued during the period                                           -                  - 
                                                        ---------------------------------- 
 
   Balance - December 31, 2010                              157,285,643   $     54,433,709 
                                                        ---------------------------------- 
 
6. Warrants 
 
Issued and outstanding: 
                                                                     Exercise     Number of 
   Expiry date                                                     Price CDN$      Warrants               Cost 
=------------------------------------------------------------------------------------------------------------- 
 
   March 31, 2011                                                $      0.569     1,411,808  $          63,309 
   April 16, 2011                                                $     0.6636       583,770             81,058 
   January 22, 2012                                              $       0.30       600,000             42,000 
                                                                             --------------------------------- 
 
   Balance - December 31, 2010                                                    2,595,578  $         186,367 
                                                                             --------------------------------- 
 
 
7. Stock Options 
 
                                                                                 Weighted average 
                                                                   Number of       exercise price 
                                                               Stock Options                 CDN$ 
                                                             ------------------------------------ 
 
Balance - June 30, 2010                                            7,901,000    $            0.45 
Granted during the period                                                  - 
Forfeited during the period                                         (225,000)   $            0.10 
Expired during the period                                         (3,125,000)   $            0.94 
                                                             ------------------------------------ 
 
Balance - December 31, 2010                                        4,551,000    $            0.12 
                                                             ------------------------------------ 
 
During the second quarter 1,610,000 stock options expired and during the first quarter 1,515,000 stock options expired and 225,000 
stock options were forfeitted. 
 
8. Income taxes 
 
Canadian GAAP requires a valuation allowance to be recorded against any future tax asset to the extent that it is more likely than not 
that the future income tax asset will not be realized. This is also the Company's stated accounting policy. 
 
                                                                  December 31, 2010  June 30, 2010 
                                                            --------------------------------------- 
                                                                        (unaudited) 
 
Future income tax assets 
  Tax losses and deductions                                  $            8,990,499   $  8,929,483 
  Capital assets                                                          1,078,107      1,063,918 
  Share issuance costs                                                      123,435        115,754 
  Other                                                                     347,103        338,000 
                                                            --------------------------------------- 
 
Future income tax assets                                                 10,539,144     10,447,155 
Valuation allowance                                                      (2,865,564)    (2,725,655) 
                                                            --------------------------------------- 
 
Net Future income tax asset                                               7,673,580      7,721,500 
Future income tax liabilities - Goodwill                                   (755,650)      (755,650) 
                                                            --------------------------------------- 
 
Net Future income tax asset                                               6,917,930      6,965,850 
 
Less current portion                                                       (731,006)      (721,975) 
                                                            --------------------------------------- 
Non-current portiion of net future income tax asset          $            6,186,924   $  6,243,875 
                                                            --------------------------------------- 
 
During the three months ended December 31, 2010 the Company recorded a future income tax expense of $74,392 related to the recognition 
of future income tax assets compared to a future income tax benefit of $347,566 for the comparable period last year. 
 
9. Segmented Information 
 
The Company's only reportable segment is the development and sales of computer software, hardware and system integration services. 
 
The Company's assets and sales by geographic area are as follows: 
 
                                                                                  Three months ended 
                                   December 31           June 30                         December 31 
                                          2010              2010              2010              2009 
                            ------------------------------------------------------------------------ 
                                   (unaudited)                         (unaudited)       (unaudited) 
 
                               Capital assets,   Capital assets, 
                             intangible assets intangible assets 
                                  and goodwill      and goodwill           Revenue           Revenue 
 
U.S. companies 
  United States              $      10,267,025 $      10,431,566 $      15,112,456 $      10,949,663 
  Canada                                                                    81,507           138,802 
  Netherlands                                                               10,460            16,579 
  France                                                                    37,120            32,390 
  United Kingdom                                                            30,000            16,884 
  Australia                                                                 12,050 
  Other                                                                      9,852            32,906 
UK and Canadian companies 
  United Kingdom                         4,297             2,634           166,588            72,068 
  Canada                                     -                 -                 -                 - 
                            ------------------------------------------------------------------------ 
 
                                    10,271,322        10,434,200        15,460,033        11,259,292 
                            ------------------------------------------------------------------------ 
 
During the three months ended December 31, 2010 the Company generated revenue of $2,785,710 (2009 - $1,804,020) from Comcast Cable 
representing 18.0% (2009 - 16.0%) of the revenue for that period. 
 
During the three months ended December 31, 2010 the Company purchased products and services from one vendor for $5,564,358 (2009 - 
$3,551,944) representing 44.5% (2009 - 41.0%) of the cost of sales. 
 
Versatile Systems Inc. 
Management Discussion and Analysis 
Six months ended December 31, 2010 
 
The following management discussion and analysis of the consolidated results of operations and financial condition of Versatile Systems 
Inc. (the "Company" or "Versatile") is made as of January 24, 2011 on the consolidated financial statements and notes for the six 
months ended December 31, 2010. 
 
The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting 
principles ("Canadian GAAP") and are stated in United States dollars unless otherwise specified. The unaudited interim consolidated 
financial statements and management discussion and analysis have been reviewed and approved by the Company's Audit Committee as 
directed by the Company's Board of Directors. 
 
The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions, which 
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the 
financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from 
those estimates. 
 
Forward-Looking Statements 
 
This document may contain forward-looking statements relating to Versatile's operations or to the environment in which it operates, 
which are based on Versatile's operations, estimates, forecasts and projections. These statements are not guarantees of future 
performance and involve risks and uncertainties that are difficult to predict or are beyond Versatile's control. A number of important 
factors including those set forth in other public filings could cause actual outcomes and results to differ materially from those 
expressed in these forward looking statements. Consequently readers should not place any undue reliance on such forward-looking 
statements. In addition, these forward looking statements relate to the date on which they are made. Versatile disclaims any intention 
or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. 
 
Non-GAAP Disclosure 
 
EBITDA is defined by the Company as net earnings before interest, income taxes, depreciation and amortization. The Company has included 
information concerning EBITDA because it believes that it may be used by certain investors as one measure of the Company's financial 
performance. EBITDA is not a measure of financial performance under Canadian GAAP and is not necessarily comparable to similarly titled 
measures used by other companies. EBITDA should not be construed as an alternative to operating income or to cash flows from operating 
activities (as determined in accordance with Canadian GAAP) as a measure of liquidity. 
 
In addition, the Company has included information concerning its cash flow from operations as it may be used by certain investors as a 
measure of the Company's financial performance. 
 
Overview 
 
The Company's core business is developing solutions that solve customers' problems in the storage, security, transmission and 
collection of mission critical data. The Company's proprietary software applications, the Mobiquity(TM) Solution Suite, are a key 
component of this solution. This enables companies to improve the sales, marketing and distribution of their products. The Company 
delivers wireless/wired solutions to the consumer packaged goods, retail, financial, pharmaceutical, healthcare, and logistics 
verticals through an integrated combination of licensed software, professional services, and the re-sale of mobile and storage related 
hardware. The Company also offers maintenance and support via a 24 hour call centre. 
 
Highlights of the Second quarter 
 
Highlights of the Company's operations for the quarter included: 
 
=-  Revenue for the three months ended December 31, 2010 was $15,460,033 
    compared to $11,259,292 for the same quarter last year, an increase of 
    $4,200,741; 
=-  The EBITDA for the quarter was $305,701 compared to an EBITDA Loss of 
    $268,531 for the same quarter last year, an improvement of $574,232; 
=-  The Net Earnings for the quarter amounted to $178,965 ($0.00 per share) 
    compared to a Net Loss of $80,661 ($0.00 per share) for the same period 
    last year; 
=-  The cash flow generated from operations before other items amounted to 
    $299,384 for the three months ended December 31, 2010 compared to cash 
    flow used in operations before other items of $277,284 for the same 
    period last year, an improvement of $576,668; 
=-  The working capital as of December 31, 2010 was $4,381,730, an increase 
    of $352,858 compared to the working capital of $4,028,872 at September 
    30, 2010; 
=-  The research and development expense for the quarter amounted to 
    $278,909 compared to $247,084 for the same quarter last year; 
=-  Deferred revenue at December 31, 2010 was $8,112,256 (of which 
    $7,264,273 is expected to be recognized in the next four quarters) 
    compared to $7,512,605 at December 31, 2009; 
=-  The Investment in Equus consists of 962,962 shares of Equus Total 
    Return, Inc. which is a public company trading on the NYSE under the 
    symbol EQS; and 
=-  The Company generated revenue of $2,785,710 from Comcast, $1,238,965 
    from Frontier, $1,157,092 from Michaels, $972,921 from American Eagle, 
    $933,596 from Hershey, $791,964 from Duferco and $582,464 from Motorola. 
 
Review of the Second quarter 
 
Revenue for the three months ended December 31, 2010 was $15,460,033 compared to $11,259,292 for the same quarter last year, an 
increase of $4,200,741. During the current quarter the Company generated revenue of $2,785,710 from Comcast, $1,238,965 from Frontier, 
$1,157,092 from Michaels, $972,921 from American Eagle, $933,596 from Hershey, $791,964 from Duferco and $582,464 from Motorola. The 
Company had repeat business from its existing customer base including Comcast, Hershey, Motorola, and various retailers, universities 
and government organizations, as well as significant increases with other customers such as Frontier, Duferco and Michaels. 
 
The EBITDA for the quarter was $305,701 compared to an EBITDA Loss of $268,531 for the same quarter last year. 
 
During the current quarter the Company recorded a Non-recurring expense consisting of an additional provision of $37,503 (2009 - 
$28,219) primarily for legal costs, for transactions occurring in prior periods. 
 
During the quarter the Company had a future income tax expense of $74,392 compared to a future income tax benefit of $347,566 for the 
same quarter last year. 
 
The Net Earnings for the quarter amounted to $178,965 ($0.00 per share) compared to a Net Loss of $80,661 ($0.00 per share) for the 
same period last year. 
 
Cost of sales 
 
Cost of sales for the quarter amounted to $12,491,896 resulting in a gross profit of $2,968,137 or 19.2% of sales as compared to 
$8,599,212 resulting in a gross profit of $2,660,080 or 23.6% of sales for the same quarter last year. The decline in the gross profit 
percentage can be attributed to a drop in the rebate programs that are available to the Company as well as several of the larger 
transactions in the quarter that had lower margins. 
 
At December 31, 2010 the Company had an inventory provision of $181,649 (June 30, 2010 - $172,169). 
 
General and administrative 
 
General and administrative expenses for the quarter amounted to $1,051,897 compared to $1,100,145 for the same quarter last year, a 
decrease of $48,248. As a percentage of sales the general and administrative expenses were 6.8% in the quarter compared to 9.8% in the 
same quarter last year. 
 
Technology Investment 
 
Over the past ten years the Company has made a significant investment in the form of expenses to advance the abilities of its 
technology and resulting service offering. This investment does not contribute directly to revenues during the period that the research 
and development expenses are incurred. 
 
Research and development expense for the quarter amounted to $278,909 compared to $247,084 for the same quarter last year. The 
significant expense item in this category is salary and benefit costs. As a percentage of sales the research and development expenses 
are 1.8% in the quarter compared to 2.2% in the same quarter last year. The decrease in the overall expenditures on research and 
development expense can be attributed to the reduction in the number of research and development projects. 
 
During the current quarter the Company's technology investment related to enhanced product functionality and requirements from various 
partners: 
 
For the Mobiquity Route(TM) these included the following: 
 
=-  Creating multiple distribution center catalogs for a single mobile 
    route; 
=-  Developing regional assignments for users, routes, customers and 
    catalogs; 
=-  Developing audit templates with work assignment alerts; 
=-  Developing compound product lookups on mobile devices; and 
=-  Developing host initiated Discount Management Module with multiple sub- 
    discounts per item. 
 
For the Mobiquity Kiosk(TM), these included the following: 
 
=-  Improving the content management/delivery infrastructure to enhance 
    content scheduling capabilities; 
=-  Developing a customer facing interface and middleware integration with a 
    third party direct mail and marketing solution; 
=-  Improving web browsing capabilities; 
=-  Integrating select applications onto the Apple iPhone and iPad 
    platforms; and 
=-  Developing an interactive digital signage platform. 
 
For the Mobiquity Transaction Engine 3.0(TM)these included the following: 
 
=-  Implementing faster and more detailed search capabilities; 
=-  Enhancing UI navigation functionality; 
=-  Architecting and designing a hosted version of SyncSeer; and 
=-  Implementing updated adaptors for Wifi device tracking. 
 
During the current period, the Company incurred $124,442 for research and development activities related to Mobiquity Route(TM) and 
related mobile software products. 
 
During the current period, the Company incurred $114,660 for research and development activities related to Mobiquity Transaction 
Engine 3.0(TM)and Mobiquity Kiosk(TM). 
 
Selling and marketing expenses 
 
Selling and marketing expense for the quarter amounted to $1,327,878 compared to $1,619,075 for the same quarter last year, a decrease 
of $291,197. Selling and marketing expenses includes salaries, commissions, advertising, trade shows and promotion costs to support the 
various sales initiatives. As a percentage of sales the selling and marketing expenses are 8.6% in the quarter compared to 14.4% in the 
same quarter last year. As a percentage of gross profit the selling and marketing expenses were 44.7% in the quarter compared to 60.9% 
in the same quarter last year. There were no significant changes in the selling and marketing activities during the quarter. 
 
Future Income Tax Benefits 
 
Canadian GAAP requires a valuation allowance to be recorded against any future tax asset to the extent that it is more likely than not 
that the future income tax asset will not be realized. 
 
Prior to the 2006 fiscal year, the Company determined that it had not met this test so the Company recorded a full valuation allowance 
against the potential value of all of its tax losses and deductions available to be taken against future years' taxable income. As a 
result, future income tax assets were fully provided for. 
 
During the 2006 fiscal year, the Company determined that the U.S. subsidiaries were generating sufficient profits such that they were 
more likely than not to utilize the losses and deductions attributable to these U.S. subsidiaries. Consequently, the Company concluded 
that the valuation allowance be reduced accordingly. The difference between the total value of these tax benefits less the valuation 
allowance is the amount of the future income tax asset that is recorded by the Company. 
 
For the three months ended December 31, 2010 the Company recorded a future income tax expense of $74,392 compared to a future income 
tax benefit of $347,566 for the same quarter last year. 
 
To the extent that the Company expects to generate sufficient profits in the following fiscal period, that portion of the Future income 
tax benefits have been classified as current. 
 
Amortization 
 
The amortization of capital assets and intangible assets for the quarter amounted to $63,597 (2009 - $170,862), which includes $15,489 
of amortization classified with the cost of sales for Kiosks deployed pursuant to various subscription agreements. 
 
Foreign Exchange Gain 
 
The foreign exchange gain for the quarter amounted to $33,751 compared to a foreign exchange gain of $89,154 for the same quarter last 
year. The gain was primarily due to the fluctuation in the U.S. dollar against the Canadian dollar in the quarter. 
 
Review of the operations for the six months ended December 31, 2010 
 
Revenue for the six months ended December 31, 2010 was $24,679,083 generating a gross profit of $5,071,964 or 20.6% of sales compared 
to $22,875,517 generating a gross profit of $5,315,384 or 23.2% of sales for the same period last year. The EBITDA for the period was 
$295,242 compared to and EBITDA Loss of $152,736 for the same period last year. The Net Earnings for the period amounted to $89,651 
($0.00 per share) compared to a Net Loss of $127,436 ($0.00 per share) for the same period last year. 
 
Cost of sales 
 
Cost of sales for the six months ended December 31, 2010 amounted to $19,607,119 resulting in a gross profit of $5,071,964 or 20.6% of 
sales as compared to $17,560,133 resulting in a gross profit of $5,315,384 or 23.2% of sales for the same period last year. 
 
General and administrative 
 
General and administrative expenses for the six months ended December 31, 2010 amounted to $1,942,347 compared to $1,974,493 for the 
same period last year, a decrease of $32,146. 
 
Technology Investment 
 
Research and development expense for the six months ended December 31, 2010 amounted to $471,177 compared to $493,754 for the same 
period last year. The significant expense item in this category is salary and benefit costs. As a percentage of sales the research and 
development expenses are 1.9% compared to 2.2% in the same period last year. 
 
Selling and marketing expenses 
 
Selling and marketing expense for the six months ended December 31, 2010 amounted to $2,336,445 compared to $2,980,776 for the same 
period last year. 
 
Amortization 
 
The amortization of capital assets and intangible assets for the six months ended December 31, 2010 amounted to $137,849 (December 31, 
2009 - $348,987). 
 
Foreign exchange gain 
 
The foreign exchange gain for the six months ended December 31, 2010 was $31,418 compared to $74,612 for the same period last year. 
 
Summary of Quarterly Results 
 
The table below provides a summary of certain selected unaudited financial information from the Consolidated Statements of Operations 
for the most recent eight fiscal quarters comprising the Company's preceding two years: 
 
                         Q3 2009    Q4 2009    Q1 2010    Q2 2010    Q3 2010    Q4 2010   Q1 2011    Q2 2011 
                          Mar 09     Jun 09    Sept 09     Dec 09     Mar 10     Jun 10   Sept 10     Dec 10 
                      -------------------------------------------------------------------------------------- 
 
Revenue               10,877,354 11,609,822 11,616,225 11,259,292  9,795,481 11,517,023 9,219,050 15,460,033 
Cost of Sales          8,553,367  8,614,785  8,960,921  8,599,212  7,493,702  9,097,685 7,115,223 12,491,896 
                      -------------------------------------------------------------------------------------- 
Gross Profit           2,323,987  2,995,037  2,655,304  2,660,080  2,301,779  2,419,338 2,103,827  2,968,137 
                      -------------------------------------------------------------------------------------- 
Expenses: 
 General and 
  administrative 
  (including foreign 
  exchange)              898,936    987,696    888,890  1,010,991  1,007,964  1,141,838   892,783  1,018,146 
 Non recurring expenses  160,158   (110,823)    19,860     28,219    525,656   (214,924)   20,668     37,503 
 Research and 
  Development            278,701    186,568    246,670    247,084    185,289    177,744   192,268    278,909 
 Selling and Marketing 1,515,711  1,685,829  1,361,701  1,619,075  1,490,778  1,497,988 1,008,567  1,327,878 
 Stock-based 
  compensation             2,696     12,719     22,388     23,242     23,585     23,887         -          - 
                      -------------------------------------------------------------------------------------- 
                       2,856,202  2,761,989  2,539,509  2,928,611  3,233,272  2,626,533 2,114,286  2,662,436 
                      -------------------------------------------------------------------------------------- 
Earnings (loss) before 
 interest taxes and 
 amortization           (532,215)   233,048    115,795   (268,531)  (931,493)  (207,195)  (10,459)   305,701 
 Amortization           (182,273)  (124,066)  (157,298)  (152,962)  (152,631)  (128,065)  (71,161)   (48,108) 
 Interest                  1,648     (5,520)    (3,769)   (10,441)    (7,781)   (10,248)  (14,970)      (666) 
 Goodwill impairment           -          -          -          -          -    (63,309)        -          - 
 Gain (loss) on sale           -          -          -      4,952          -          -         -     (2,575) 
 Income taxes            139,885    279,930     (1,503)   346,321    275,055    116,482     7,276    (75,387) 
                      -------------------------------------------------------------------------------------- 
                      -------------------------------------------------------------------------------------- 
Net Earnings (loss)     (572,955)   383,392    (46,775)   (80,661)  (816,850)  (292,335)  (89,314)   178,965 
                      -------------------------------------------------------------------------------------- 
                      -------------------------------------------------------------------------------------- 
Per share, basic and 
 diluted                   (0.00)      0.00      (0.00)     (0.00)     (0.01)     (0.00)    (0.00)      0.00 
                      -------------------------------------------------------------------------------------- 
 
The Company's revenues and earnings fluctuate from quarter to quarter. A number of factors can cause such fluctuations, including the 
timing of substantial orders, the timing of releases of new products, timing of the deployment of solutions and delays by customers. 
Because the Company's operating expenses are determined based on anticipated sales, are generally fixed and are incurred throughout 
each fiscal quarter, any of the factors listed above can cause significant variations in the Company's revenues and earnings in any 
given quarter. Thus, the Company's quarterly results are not necessarily indicative of the Company's overall business, results of 
operations and financial condition. 
 
Over the past three years the Company has improved its financial position while maintaining selling, marketing, general and 
administration expenses at relatively the same level as revenue. 
 
Financial position 
 
The working capital as of December 31, 2010 was $4,381,730, an increase of $352,858 compared to the working capital of $4,028,872 at 
September 30, 2010. 
 
Cash and cash equivalents at December 31, 2010 was $923,825 compared to $1,463,497 at September 30, 2010. 
 
The cash flow generated from operations before other items amounted to $299,384 for the three months ended December 31, 2010 compared 
to cash flow used in operations before other items of $277,284 for the same period last year, an improvement of $576,668. 
 
The Company has a credit line facility of $5,800,000, which is limited to 70% of eligible accounts receivable of certain U.S. 
subsidiaries from a U.S. based financial institution. The line of credit bears interest at the prime rate of lending as published in 
the Wall Street Journal and is secured with a first charge on the assets of VAC, VSI and POI. At December 31, 2010 the amount drawn on 
the line of credit was $815,855 a decrease of $537,457 from the amount drawn at June 30, 2010 of $1,353,301. 
 
The amount that may be advanced under the credit line is limited to 70% of eligible accounts receivable of VAC, POI and VSI less than 
90 days from the invoice date. At December 31, 2010 this amounted to $5,800,000. At December 31, 2010 the financial covenants for these 
companies include the requirement of a minimum Tangible Net worth of $4,800,000. The companies met this test. 
 
Included in accounts payable and accrued liabilities is $3,233,227 owing to a major supplier. 
 
Investment in Equus Total Return, Inc. 
 
The Investment in Equus is held by the Company's wholly owned subsidiary, Mobiquity Investments Limited ("Mobiquity") and consists of 
962,962 shares of Equus Total Return, Inc. which is a public company trading on the NYSE under the symbol EQS (the "Fund"). The share 
price as at December 31, 2010 was $2.50 so the unrealized gain for the quarter was $141,415 and the cumulative unrealized loss was 
$624,864. 
 
On April 14, 2010 Mobiquity filed a Schedule 13D/A (Amendment No. 1) with the U.S. Securities and Exchange Commission and reported that 
the Fund had agreed to nominate Fraser Atkinson, Alessandro Benedetti, John Hardy and Bertrand des Pallieres as directors of the Fund 
(the "Nominees") and to support the election of the Nominees at the Fund's Annual Meeting scheduled to be held on May 12, 2010. On 
April 13, 2010, the Fund filed a definitive proxy statement on Schedule 14A with the Securities and Exchange Commission to, among other 
things, solicit stockholders of the Fund to vote in favor of the Nominees selected by the Reporting Persons, along with the other 
nominees for director in connection with the Fund's 2010 Annual Meeting. 
 
On May 20, 2010 the Inspector of Elections who attended the Annual Meeting of the Equus stockholders held on May 12, 2010 certified 
that Fraser Atkinson, Alessandro Benedetti, John Hardy and Bertrand des Pallieres had been elected to the Board of Directors of Equus. 
 
On June 8, 2010 John Hardy was appointed Executive Chairman and Fraser Atkinson was appointed Chairman of the Audit Committee. 
 
On August 13, 2010 Equus released its results for the second quarter. The net asset value of Equus at June 30, 2010 was $4.28 per 
share. 
 
On November 11, 2010 Equus released its results for the thirds quarter. The net asset value of Equus at September 30, 2010 was $3.55 
per share. 
 
Between November 24, 2010 and December 21, 2010 Mobiquity purchased an additional 140,931 shares of Equus at a cost of $309,556. 
 
Capital Expenditures 
 
During the three months ended December 31, 2010 the additions to capital assets amounted to $38,799 (2009 - $21,414). Substantially all 
of the capital expenditures relate to the costs of Kiosks that have been deployed under various subscription agreements. 
 
Share Capital 
 
As of January 24, 2011 the Company had 157,285,643 common shares issued and outstanding. 
 
Stock Options 
 
The Company can grant up to 15,728,564 of the issued shares pursuant to its stock option plan. 
 
                                                  Number of shares      Weighted average exercise price CDN$ 
=----------------------------------------------------------------------------------------------------------- 
Outstanding - June 30, 2010                              7,901,000                                      0.45 
Granted                                                          - 
Forfeited                                                 (225,000)                                     0.10 
Expired                                                 (3,125,000)                                     0.94 
Exercised                                                        - 
                                                  ---------------------------------------------------------- 
Outstanding - December 31, 2010                          4,551,000                                      0.12 
                                                  ---------------------------------------------------------- 
 
For the three months ended December 31, 2010, the Company had no stock-based compensation charge (2009 - $23,242) for vesting of stock 
options granted to employees, consultants, directors and officers of the Company in prior years. 
 
Warrants 
 
The details of the outstanding warrants at December 31, 2010 are as follows: 
 
Expiry date                                    Exercise Price CDN$      Number of Warrants              Cost 
=----------------------------------------------------------------------------------------------------------- 
 
March 31, 2011                                 $             0.569               1,411,808            63,309 
April 16, 2011                                 $            0.6636                 583,770            81,058 
January 22, 2012                               $              0.30                 600,000            42,000 
                                               ------------------------------------------------------------- 
 
Balance                                                   2,595,578  186,367 
                                               ------------------------------------------------------------- 
 
Related Party Transactions 
 
During the current quarter, the Company paid consulting fees and salaries, which are included in the general and administration 
expense, of $254,872 to four Directors and Officers of the Company (2009 - $178,753 was paid to three Directors and Officers of the 
Company). 
 
Risk Factors 
 
The securities of the Company should be considered a highly speculative investment and investors should carefully consider all of the 
information disclosed in this Management Discussion & Analysis prior to making an investment in the Company. In addition to the other 
information presented in this Management Discussion & Analysis, the following risk factors should be given special consideration when 
evaluating an investment in the Company's securities. 
 
Operating History 
 
The Company's predecessor company commenced operations in March 1987 to distribute and sell Maximizer products in European countries, 
as well as provide consulting services and Customer Relationship Management ("CRM") solutions to companies. In January 1997, the 
Company changed its focus to research and development of CRM software. The Company purchased Versatile Mobile Systems on September 19, 
2000, Perfect Order, Inc. and Versatile Systems, Inc. on April 26, 2005 and Sagent Solutions on December 28, 2007. The Company may face 
many of the risks and uncertainties encountered by early-stage companies in rapidly evolving markets. 
 
History of Losses 
 
The Company had a history of losses up to September 30, 2005 and since that time has had varying results, but has an accumulated 
deficit of $36,876,185 to December 31, 2010. Although the Company has decreased its operating expenses (excluding non recurring 
expenses) the Company cannot be assured that it can consistently maintain profitable operations. 
 
No Certainty of Future Profitability 
 
The Company's product revenues are not predictable with any significant degree of certainty and future product revenues may differ from 
historical patterns. If customers cancel or delay orders, it can have a material adverse impact on the Company's revenues and results 
of operations from quarter to quarter. Because the Company's results of operations may fluctuate from quarter to quarter, investors 
should not assume that results of operations in future periods can be predicted based on results of operations in past periods. 
 
Even though the Company's revenues are difficult to predict, the Company's expense levels are based in part on future revenue 
projections. Many of the Company's expenses are fixed and, accordingly, the Company cannot quickly reduce spending if revenues are 
lower than expected. 
 
Competitive Market 
 
The market for the Company's software is intensely competitive, fragmented and rapidly changing. Some of the Company's actual and 
potential competitors are larger, established companies that have greater technical, financial and marketing resources. In addition, as 
the Company develops new products, particularly applications focused on electronic commerce or specific industries, it may begin 
competing with companies with whom it has not previously competed. It is also possible that new competitors will enter the market or 
that the Company's competitors will form alliances that may enable them to rapidly increase market share. 
 
Increased competition may result in price reductions, lower gross margins or loss of the Company's market share, any of which could 
materially adversely affect its business, financial condition and operating results. 
 
Technological Change 
 
The market for the Company's solutions is characterized by rapidly changing technology and evolving industry standards. The market is 
affected by changes in end user requirements and frequent new product introductions and enhancements. The Company's products embody 
complex technology and may not always be compatible with current and evolving technical standards and products, developed by others. 
Failure or delays by the Company to meet or comply with the requisite and evolving industry or user standards could have a material 
adverse effect on the Company's business, results of operations and financial condition. The Company's ability to anticipate changes in 
technology, technical standards and product offerings will be a significant factor in the Company's ability to compete. There can be no 
assurance that the Company will be successful in identifying, developing, manufacturing and marketing products that will respond to 
technological change, evolving standards or individual wireless communications service provider standards or requirements. The 
Company's business will be adversely affected if the Company incurs delays in developing new products or enhancements or if such 
products or enhancements do not gain market acceptance. In addition, there can be no assurance that products or technologies developed 
by others will not render the Company's products or technologies non-competitive or obsolete. 
 
Limited Sales and Support Infrastructure 
 
The Company's future revenue growth will depend in large part on its ability to successfully expand its direct sales force and its 
customer support capability. The Company may not be able to successfully manage the expansion of these functions or to recruit and 
train additional direct sales, consulting and customer support personnel. 
 
If the Company is unable to hire and retain additional highly skilled direct sales personnel, it may not be able to increase its 
license revenue to the extent necessary to achieve profitability. If the Company is unable to hire highly trained consulting and 
customer support personnel, it may be unable to meet customer demands. The Company is unlikely to be able to increase its revenues as 
planned if it fails to expand its direct sales force or its consulting and customer support staff. Even if the Company is successful in 
expanding its direct sales force and customer support capability, the expansion may not result in revenue growth. 
 
Dependence on Business Alliances 
 
A key element of the Company's business strategy is the formation of corporate alliances with leading companies. The Company is 
currently investing and plans to continue to invest significant resources to develop these relationships. The Company believes that its 
success in penetrating new markets for its products will depend in part on its ability to maintain these relationships and to cultivate 
additional or alternative relationships. There can be no assurance that the Company will be able to develop additional corporate 
alliances with such companies, that existing relationships will continue or be successful in achieving their purposes or that such 
companies will not form competing arrangements. 
 
Dependence on Key Personnel 
 
The Company's success depends largely upon the continued service of its executive officers and other key management, sales and 
marketing and technical personnel. The loss of the services of one or more of the Company's executive officers or other key employees 
could have a material adverse effect on its business, results of operations or financial condition. 
 
The Company's future success also depends on its ability to attract and retain highly qualified personnel. The competition for 
qualified personnel in the computer software and Internet markets is intense, and the Company may be unable to attract or retain highly 
qualified personnel in the future. In addition, due to intense competition for qualified employees, it may be necessary for the Company 
to increase the level of compensation paid to existing and new employees to the degree that operating expenses could be materially 
increased. 
 
Management of Growth 
 
The Company expects to experience a period of significant growth in the number of personnel that will place a strain upon its 
management systems and resources. The Company's future will depend in part on the ability of its officers and other key employees to 
implement and improve its financial and management controls, reporting systems and procedures on a timely basis and to expand, train 
and manage its employee workforce. There can be no assurance that the Company will be able to effectively manage such growth. The 
Company's failure to do so could have a material adverse effect upon the Company's business, prospects, results of operation and 
financial condition. 
 
Integration of Newly Acquired Businesses or Technology 
 
The Company may expand its operations through acquisitions of additional businesses or technology. There can be no assurance that the 
Company will be able to identify, acquire or profitably manage additional businesses or technology or successfully integrate acquired 
businesses or technology into the Company without substantial expense, delay or other operational or financial problems. Further, 
acquisitions may involve a number of additional risks, including diversion of management's attention, failure to retain key acquired 
personnel, unanticipated events or circumstances, legal liabilities and amortization of acquired intangible assets, some or all of 
which could have a material adverse effect on the Company's business, financial condition and results of operation. In addition, there 
can be no assurance that acquired businesses, if any, will achieve anticipated revenues and earnings. The failure of the Company to 
manage its acquisition strategy successfully could have a material adverse effect on the Company's business, financial condition and 
results of operation. 
 
Potential Fluctuations in Quarterly Financial Results 
 
The Company's quarterly financial results may be affected by the timing of new releases of its products and/or substantial customer 
orders. The Company's operating expenses are based on anticipated revenue levels in the short term, are relatively fixed, and are 
incurred throughout the quarter. As a result, if expected revenues are not realized on a timely basis as anticipated, the Company's 
financial results could be materially and adversely affected. These or other factors, including possible delays in the shipment of new 
products, may influence quarterly financial results in the future. Accordingly, there may be significant variation in the Company's 
quarterly financial results. 
 
International Sales 
 
Sales outside of the United States currently represent less than 10% of the Company's total gross revenues. The Company believes that 
its continued growth and profitability will require additional expansion of its sales in international markets. To the extent that the 
Company is unable to expand international sales in a timely and cost effective manner, the Company's business, results of operations 
and financial condition could be materially and adversely affected. In addition, even with the successful recruitment of additional 
personnel and international resellers, there can be no assurance that the Company will be successful in maintaining or increasing 
international market demand for the Company's products. 
 
Currency Exchange Rate Risk 
 
The Company's results have been stated in U.S. dollars as a substantial portion of the Company's revenues and a material portion of its 
expenses are denominated in US dollars. 
 
Dependence on Proprietary Technology and Limited Patent and Trademark Protection 
 
The Company relies on a combination of copyright and trademark laws, trade secret, confidentiality procedures and contractual 
provisions to protect its proprietary rights. Unauthorized parties may attempt to copy aspects of the Company's products or obtain and 
use information that the Company regards as proprietary. Policing unauthorized use of the Company's product is difficult, time- 
consuming and costly as is the pursuing of patents in each jurisdiction in which the Company carries on business. Although the Company 
is unable to determine the extent to which piracy of its software product exists, software piracy is a possibility. In addition, the 
laws of certain countries in which the Company's products may be licensed do not protect its product and intellectual property rights 
to the same extent as the laws do in Canada or the United States. There is no assurance that the Company's means of protecting its 
proprietary rights will be adequate or the Company's competitors will not independently develop similar technology, the effect of 
either of which may be materially adverse to the Company's business, results of operations and financial condition. 
 
Risk of Third Party Claims for Infringement 
 
The Company is not aware that its product infringes the proprietary rights of third parties. There can be no assurance, however, that 
third parties will not claim such infringement by the Company or its licensees with respect to current or future products. The Company 
expects that software product developers will increasingly be subject to such claims as the number of products and competitors in the 
Company's industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or 
without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require the Company to enter into 
royalty or licensing agreements which, if required, may not be available on terms acceptable to the Company. Any of the foregoing could 
have a materially adverse effect on the Company's business, results of operations and financial condition. 
 
Lengthy Sales and Implementation Cycle 
 
The adoption of the Company's product generally involves a significant commitment of resources by potential customers. As a result, the 
Company's sales process is often subject to delays associated with lengthy approval processes by potential customers. For these and 
other reasons, the sales cycle associated with the license of the Company's product varies substantially from customer to customer and 
typically lasts between 6 to 12 months during which time the Company may devote significant time and resources to a prospective 
customer, including costs associated with multiple site visits, product demonstrations and feasibility studies, and experience a number 
of significant delays over which the Company has no control. Any significant or ongoing failure by the Company to ultimately achieve 
such sales could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, 
following license sales, the implementation period is expected to involve a time period for customer training and integration with the 
customer's existing systems. A successful implementation program requires a close working relationship between the Company, the 
customer and, generally, third party consultants and system integrators who assist in the process. There can be no assurance that 
delays or difficulties in the implementation process for any given customer will not have a material adverse effect on the Company's 
business, results of operations and financial condition. 
 
Risk of System Defects 
 
System development involves the integration of the Company's proprietary software and software of others into the customer's operating 
systems. There can be no assurance that defects and errors will not be found in the Company's product when integrated with other 
products or systems. Any such defects and errors could result in adverse customer reactions, negative publicity regarding the Company 
and its product or damages. Consequently, there could be a material adverse effect on the Company's business, results of operations and 
financial condition. 
 
Requirements for New Capital 
 
As a growing business, the Company typically needs more capital than it has available to it or can expect to generate through the sale 
of its products. In the past, the Company has had to raise, by way of debt and equity financing, considerable funds to meet its capital 
needs. There is no guarantee that the Company will be able to continue to raise funds needed for its business. Failure to raise the 
necessary funds in a timely fashion will limit the Company's growth. 
 
Critical Accounting Estimates 
 
General 
 
Unless otherwise specified in the discussion of the specific critical accounting estimates, the Company is not aware of trends, 
commitments, events, or uncertainties that it reasonably expects to materially affect the methodology or assumptions associated with 
the critical accounting estimates, subject to the circumstances identified above. 
 
Changes are made to assumptions underlying all critical accounting estimates to reflect current economic conditions and updating of 
historical information used to develop the assumptions, where applicable. Unless otherwise specified in the discussion of the specific 
critical accounting estimates, it is expected that no material changes in overall financial performance and financial statement line 
items would arise either from reasonably likely changes in material assumptions underlying the estimate or within a valid range of 
estimates, from which the recorded estimate was selected. 
 
All critical accounting estimates are uncertain at the time of making the estimate. 
 
Accounts Receivable 
 
Allowance for doubtful accounts 
 
The Company considers the business area that gives rise to the accounts receivable, maintains procedures for granting credit terms on 
sales transactions and performs specific account identification when determining its allowance for doubtful accounts. This accounting 
estimate is in respect of the accounts receivable line item on the Company's consolidated balance sheet comprising approximately 28% of 
total assets as at December 31, 2010. In the event the future results were to adversely differ from management's best estimate of the 
allowance for doubtful accounts, the Company could experience a bad debt charge in the future. Such a bad debt charge would not result 
in a cash outflow. 
 
The estimate of the Company's allowance for doubtful accounts could materially change from period to period due to the allowance being 
a function of the balance and composition of accounts receivable, which can vary on a month-to-month basis. The variance in the balance 
of accounts receivable can arise from a variance in the amount and composition of operating revenues and from variances in accounts 
receivable collection performance. 
 
Inventories 
 
Provision for inventory obsolescence 
 
The Company determines its provision for inventory obsolescence based upon historical experience, expected inventory turnover, 
inventory aging and current condition, and current and future expectations with respect to product offerings. 
 
Assumptions underlying the provision for inventory obsolescence include the activity levels over previous fiscal years, and the 
expected inventory requirements and inventory composition necessary to support these future sales and offerings. The estimate of the 
Company's provision for inventory obsolescence could materially change from period to period due to changes in product offerings and 
consumer acceptance of those products. 
 
This accounting estimate is in respect of the inventory line item on the Company's consolidated balance sheet comprising approximately 
5% of total assets as at December 31, 2010. If the provision for inventory obsolescence was inadequate, the Company could experience a 
charge to direct cost of sales in the future. Such an inventory obsolescence charge would not result in a cash outflow. 
 
Long-Lived Assets 
 
The accounting estimates for long-lived assets that include capital assets, purchased technology, intellectual property, customer 
contracts and licenses, in aggregate, represent approximately 1% of the Company's total assets as at December 31, 2010, presented in 
its consolidated balance sheet. If the Company's estimated useful lives of assets were different as a result of changes in facts and 
circumstances, the Company could experience increased or decreased charges for amortization and the Company could potentially 
experience future material impairment charges in respect of its recovery of long-lived assets. 
 
The estimated useful lives of capital assets are determined by a continuing program of asset life studies. The recoverability of 
capital assets is significantly impacted by the estimated useful lives. Assumptions underlying the estimated useful lives of capital 
assets include timing of technological obsolescence, competitive pressures and future infrastructure utilization plans. In the event 
management's best estimate of the useful lives of capital assets was adversely affected, the Company could potentially experience a 
charge to amortization expense in the future. Such a charge to amortization would not result in a cash outflow. 
 
The purchased technology, intellectual property, customer contracts and licenses were fully amortized in the 2010 fiscal year. 
 
Future Income Tax Benefits 
 
The amount recorded for Future Income Tax Benefits represents approximately 17% of the Company's assets as at December 31, 2010, 
presented in its consolidated balance sheet. If the Company determines that the valuation allowances relating to the loss carry 
forwards and tax deductions should be increased, the Company could experience a reduction in the recorded future income tax benefits. 
 
The Company determined that because VSI, POI, VAC and VMS-US were expected to generate sufficient profits that it was more likely than 
not that the losses would be fully utilized and the deductions attributable to these companies would be fully utilized. Consequently, 
there is no valuation allowance for these companies. The difference between the value of these tax benefits less the valuation 
allowance is the amount of the future income tax asset that is recorded by the Company. 
 
Goodwill 
 
The accounting estimates for goodwill represents approximately 25% of the Company's total assets as at December 31, 2010, presented in 
its consolidated balance sheet. If the future were to adversely differ from management's best estimate to recover the Company's 
investments in its goodwill, the Company could potentially experience future material impairment losses in respect of its goodwill. The 
impairment losses would be recognized and presented as a separate line item in the consolidated statements of loss and deficit. 
Impairment losses to goodwill would not result in a cash outflow. 
 
Changes in accounting policies 
 
Adoption of new accounting standards in the current fiscal year: 
 
On July 1, 2009, the Company adopted the changes made by the Canadian Institute of Chartered Accountants ("CICA") to Handbook Section 
3862, "Financial Instruments - Disclosures", whereby an entity is required to classify and disclose the fair value measurements using a 
fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have 
the following levels: 
 
Level 1 - Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities; 
 
Level 2 - Valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or 
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and 
 
Level 3 - Valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable 
inputs). 
 
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified 
to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value. 
 
On July 1, 2009, the Company adopted the requirements of CICA Handbook Section 3064, Goodwill and Intangible Assets. The new standard 
provides guidance on when expenditures qualify for recognition as intangible assets. The adoption of this standard did not have a 
significant impact on the financial statements. 
 
Adoption of future accounting standards: 
 
In January 2009, the CICA issued Section 1582, "Business Combinations", Section 1601, "Consolidated Financial Statements", and Section 
1602, "Non-controlling Interests". Section 1582 establishes standards for the accounting for business combinations that is equivalent 
to the business combination accounting standard under International Financial Reporting Standards. Section 1582 is applicable for any 
business combinations with acquisition dates on or after July 1, 2011. Early adoption of this Section is permitted. Section 1601 
together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable 
for the Company's interim and annual consolidated financial statements for its fiscal year beginning July 1, 2011. Early adoption of 
this Section is permitted. If the Company chooses to early adopt any one of these Sections, the other two sections must also be adopted 
at the same time. The Company does not expect the adoption of these standards will have a material impact on its consolidated financial 
statements. 
 
In December 2009, the CICA issued Emerging Issues Committee Abstract ("EIC") 175, "Multiple Deliverable Revenue Arrangements", 
replacing EIC 142, "Revenue Arrangements with Multiple Deliverables". This abstract was amended to (1) exclude from the application of 
the updated guidance those arrangements that would be accounted for in accordance with ASC 985-605 (formerly Financial Accounting 
Standards Board Statement of Position 97-2), "Software Revenue Recognition" as amended by Accounting Standards Update 2009-14; (2) 
provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the 
consideration allocated; (3) require in situations where a vendor does not have vendor-specific objective evidence or third-party 
evidence of selling price, that the entity allocate revenue in an arrangement using estimated selling prices of deliverables; (4) 
eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and (5) 
require expanded qualitative and quantitative disclosures regarding significant judgments made in applying this guidance. 
 
The accounting changes summarized in EIC 175 are effective for fiscal years beginning on or after January 1, 2011, with early adoption 
permitted. Adoption may either be on a prospective basis or by retrospective application. The Company does not believe the adoption of 
this standard will have a material impact on its consolidated financial statements. 
 
Key International Financial Reporting Standards (IFRS) conversion dates 
 
According to dates set out by the AcSB, the Company will be required to begin publicly reporting under IFRS in the fiscal year ending 
June 30, 2012. Because of the need to present comparative financial information, the Company will need to create its first IFRS 
compliant balance sheet as at July 1, 2010. For the fiscal year ending June 30, 2011, the Company will need to prepare information for 
financial statements and note disclosures under both Canadian GAAP and IFRS in order to meet Canadian GAAP reporting requirements that 
year and to allow for comparative information to be presented in 2012. 
 
The Company has not yet completed a full evaluation of the adoption of IFRS and its impact on its financial position and results of 
operations. The full evaluation and an implementation plan will be completed during the ensuing fiscal year. The evaluation and 
implementation plan will address the impact of IFRS, among others, on: 
 
=-  accounting policies, including policies permitted under IFRS and 
    implementation decisions such as whether changes will be applied on a 
    retrospective or a prospective basis; 
=-  Information technology and data systems; 
=-  Controls and procedures; and 
=-  Financial reporting expertise, training requirements and the need for 
    assistance from outside expertise. 
 
Additional information relating to the Company can be found on the Canadian Securities Administrators System for Electronic Document 
Analysis and Retrieval (SEDAR), located at www.sedar.com. 
 
-30- 
 
FOR FURTHER INFORMATION PLEASE CONTACT: 
 
Versatile Systems Inc. 
John Hardy 
Chairman and CEO 
1-800-262-1633 or International: 001-206-979-6760 
 
OR 
 
Versatile Systems Inc. 
Fraser Atkinson 
CFO 
1-800-262-1633 
www.versatile.com 
 
OR 
 
NCB Stockbrokers Limited (Nominated Adviser) 
Christopher Caldwell 
+44 (0) 20 7071 5200 
 
The TSX Venture Exchange and the AIM market of the London Stock Exchange have not reviewed and do not accept responsibility for the 
adequacy or accuracy of this release. 
 
 
 
 
Versatile Systems Inc. 
 


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