ABLEAUCTIONS.COM, INC.





CONSOLIDATED FINANCIAL STATEMENTS





DECEMBER 31, 2005





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[f31dec05002.gif]

Cinnamon Jang Willoughby & Company



Chartered Accountants

A Partnership of Incorporated Professionals



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the stockholders and Board of Directors of Ableauctions.com, Inc.:





We have audited the accompanying consolidated balance sheet of Ableauctions.com, Inc. as of December 31, 2005 and 2004 and the related consolidated statements of operations, comprehensive loss, cash flows and stockholders equity for each of the two years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.



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



In our opinion, these consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2005 and 2004 and the results of its operations and  its cash flows for the years then ended in conformity with generally accepted accounting principles in the United States.











Cinnamon Jang Willoughby & Company



Chartered Accountants



Burnaby, Canada

March 15, 2006





















MetroTower II - Suite 900 - 4720 Kingsway, Burnaby, BC Canada V5H 4N2.  Telephone: +1 604 435 4317.  Fax: +1 604 435 4319.



HLB Cinnamon Jang Willoughby & Company is a member of [f31dec05004.gif]International. A world-wide organization of accounting firms and business advisors









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ABLEAUCTIONS.COM, INC.



CONSOLIDATED BALANCE SHEET

|                                                       |             |              |   |                    | 
|------------------------------------------------------ | ----------- | ------------ | - | ------------------ | 
|                                                       | DECEMBER 31
|                                                       |             |              |   | (Restated -Note 3)
|                                                       |             | 2005         |   | 2004              
|ASSETS                                                 |             |              |   |                   
|Current                                                |             |              |   |                   
|Cash and cash equivalents                              | $           | 955,554      | $ | 182,305           
|Marketable securities                                  |             | 3,091,017    |   | 8,645,570         
|Accounts receivable  trade, net of allowance (Note 4) |             | 1,549,567    |   | 861,439           
|Loans receivable (Note 5)                              |             | 2,155,469    |   | 252,745           
|Inventory                                              |             | 1,266,777    |   | 961,345           
|Prepaid expenses                                       |             | 268,358      |   | 183,616           
|Current portion of notes receivable                    |             | 5,168        |   | 71,544            
|                                                       |             | 9,291,910    |   | 11,158,564        
|Notes Receivable (Note 6)                              |             | -            |   | 4,992             
|Intangible Assets (Note 7)                             |             | 362,900      |   | 196,376           
|Property and Equipment (Note 8)                        |             | 2,950,357    |   | 506,260           
|Property Held for Development (Note 9)                 |             | 1,658,901    |   | -                 
|                                                       |             |              |   |                   
|                                                       | $           | 14,264,068   | $ | 11,866,192        
|LIABILITIES                                            |             |              |   |                   
|Current                                                |             |              |   |                   
|Accounts payable and accrued liabilities               | $           | 79,388       | $ | 138,757           
|Deferred revenue                                       |             | -            |   | 52,425            
|Bank loan (Note 10)                                    |             | 1,395,349    |   |                   
|                                                       |             | 1,474,737    |   | 191,182           
|Long Term                                              |             |              |   |                   
|Investor Deposit (Note 13)                             |             | -            |   | 100,254           
|                                                       |             | 1,474,737    |   | 291,436           
|STOCKHOLDERS EQUITY (DEFICIENCY)                      |             |              |   |                   
|                                                       |             |              |   |                   
|Capital Stock                                          |             |              |   |                   
|Authorized:                                            |             |              |   |                   
|100,000,000 common shares with a par value of $0.001   |             |              |   |                   
|Issued and outstanding:                                |             |              |   |                   
|62,406,834 common shares at December 31, 2005          |             |              |   |                   
|61,621,065 common shares at December 31, 2004          |             | 62,406       |   | 61,621            
|Additional paid-in capital                             |             | 37,231,271   |   | 36,751,076        
|                                                       |             |              |   |                   
|Deferred Compensation                                  |             | -            |   | (15,954)          
|Deficit                                                |             | (24,854,830) |   | (25,292,012)      
|Accumulated Other Comprehensive Income (Loss)          |             | 350,484      |   | 70,025            
|                                                       |             | 12,789,331   |   | 11,574,756        
|Contingent Liabilities (Note 22)                       |             |              |   |                   
|                                                       | $           | 14,264,068   | $ | 11,866,192        



Approved By The Directors:



Abdul Ladha

Barrett Sleeman



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ABLEAUCTIONS.COM, INC.



CONSOLIDATED STATEMENT OF OPERATIONS



|                                                            |                        |             |   |                    
|----------------------------------------------------------- | ---------------------- | ----------- | - | -------------------
|                                                            | YEAR ENDED DECEMBER 31
|                                                            |                        |             |   | (Restated - Note 3)
|                                                            |                        | 2005        |   | 2004               
|                                                            |                        |             |   |                    
|Net Revenues                                                |                        |             |   |                    
|Sales & Commissions                                         | $                      | 4,428,912   | $ | 4,423,171          
|                                                            |                        |             |   |                    
|Cost Of Revenues                                            |                        | (3,129,761) |   | (3,141,596)        
|Gross Profit                                                |                        | 1,299,151   |   | 1,281,575          
|                                                            |                        |             |   |                    
|Investment Income(Note 14)                                  |                        | 773,572     |   | 650,795            
|                                                            |                        |             |   |                    
|                                                            |                        | 2,072,723   |   | 1,932,370          
|                                                            |                        |             |   |                    
|Operating Expenses                                          |                        |             |   |                    
|Accounting and legal                                        |                        | 47,055      |   | 92,658             
|Advertising and promotion                                   |                        | 105,215     |   | 119,876            
|Automobile and travel                                       |                        | 62,272      |   | 70,223             
|Bad debts                                                   |                        | (33,175)    |   | 231,743            
|Commission                                                  |                        | 293,420     |   | 316,847            
|Consulting                                                  |                        | -           |   | 5,345              
|Depreciation and amortization of fixed assets               |                        | 147,844     |   | 99,757             
|Insurance                                                   |                        | 24,279      |   | 14,330             
|Interest                                                    |                        | 9,188       |   | -                  
|Investor relations and shareholder information              |                        | 41,827      |   | 29,791             
|Management fees, salaries and benefits                      |                        | 742,839     |   | 381,293            
|Office and administration                                   |                        | 92,290      |   | 75,068             
|Rent, utilities and maintenance                             |                        | 88,063      |   | 130,042            
|Telephone and internet                                      |                        | 117,098     |   | 90,436             
|                                                            |                        | 1,738,215   |   | 1,657,409          
|Income Before Other Items                                   |                        | 334,508     |   | 274,961            
|                                                            |                        |             |   |                    
|Other Items                                                 |                        |             |   |                    
|Share of net income of joint venture                        |                        | -           |   | 5,670              
|Gain on legal settlement (Note 17)                          |                        | 99,518      |   | (40,000)           
|Foreign exchange gain                                       |                        | 3,156       |   | 298,476            
|                                                            |                        | 102,674     |   | 264,146            
|                                                            |                        |             |   |                    
|Income From Continuing Operations                           |                        | 437,182     |   | 539,107            
|Gain On Disposition Of Subsidiaries And Businesses(Note 18) |                        | -           |   | 13,832             
|Loss From Discontinued Operations                           |                        | -           |   | (54,752)           
|                                                            |                        |             |   |                    
|Income For The Year                                         | $                      | 437,182     | $ | 498,187            
|                                                            |                        |             |   |                    
|Basic And Diluted Earnings Per Share                        |                        |             |   |                    
|Income from continuing operations                           | $                      | 0.007       | $ | 0.010              
|Income for the year                                         | $                      | 0.007       | $ | 0.009              
|                                                            |                        |             |   |                    
|Weighted Average Number Of Shares Outstanding               |                        | 62,283,763  |   | 55,679,946         



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ABLEAUCTIONS.COM, INC.



CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS







|                                                 |                        |         |   |                   
|------------------------------------------------ | ---------------------- | ------- | - | ------------------
|                                                 | YEAR ENDED DECEMBER 31
|                                                 |                        |         |   | (Restated- Note 3)
|                                                 |                        | 2005    |   | 2004              
|                                                 |                        |         |   |                   
|Income For The Year                              | $                      | 437,182 | $ | 498,187           
|                                                 |                        |         |   |                   
|Other Comprehensive Income, net of tax           |                        |         |   |                   
|Foreign currency translation adjustments         |                        | 280,459 |   | 55,045            
|                                                 |                        |         |   |                   
|Consolidated Comprehensive Income                | $                      | 717,641 | $ | 553,232           
|                                                 |                        |         |   |                   
|                                                 |                        |         |   |                   
|Basic And Diluted Comprehensive Income Per Share | $                      | 0.012   | $ | 0.010             



































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ABLEAUCTIONS.COM, INC.



CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                                |                        |             |   |                   
|--------------------------------------------------------------- | ---------------------- | ----------- | - | ------------------
|                                                                | YEAR ENDED DECEMBER 31
|                                                                |                        |             |   | (Restated- Note 3)
|                                                                |                        | 2005        |   | 2004              
|Cash Flows from Operating Activities                            |                        |             |   |                   
|Income for the year from continuing operations                  | $                      | 437,182     | $ | 539,107           
|Non-cash items included in net loss:                            |                        |             |   |                   
|Depreciation and amortization                                   |                        | 147,844     |   | 99,757            
|Stock based compensation                                        |                        | 15,954      |   | 65,957            
|Joint venture share of income                                   |                        | -           |   | (5,670)           
|                                                                |                        | 600,980     |   | 699,151           
|Changes in operating working capital items:                     |                        |             |   |                   
|(Increase) Decrease in accounts receivable                      |                        | (688,128)   |   | (441,518)         
|(Increase) Decrease in inventory                                |                        | (305,432)   |   | (557,328)         
|Increase (Decrease) in prepaid expenses                         |                        | (84,742)    |   | (143,836)         
|Increase (Decrease) in accounts payable and accrued liabilities |                        | (59,369)    |   | 32,223            
|Increase (Decrease) in deferred revenue                         |                        | (52,425)    |   | (2,673)           
|                                                                |                        | (589,116)   |   | (413,981)         
|                                                                |                        |             |   |                   
|Cash Flows from Investing Activities                            |                        |             |   |                   
|Purchase of property and equipment, net                         |                        | (2,536,108) |   | (192,159)         
|Purchase of property held for development                       |                        | (1,658,901) |   | -                 
|(Increase) Decrease in marketable securities                    |                        | 5,554,553   |   | (5,768,369)       
|Loan advances                                                   |                        | (1,902,724) |   | (116,518)         
|Investment in intangible assets                                 |                        | (222,357)   |   | (196,376)         
|Investment in joint venture                                     |                        | -           |   | 136,986           
|Note receivable                                                 |                        | 71,368      |   | 81,059            
|                                                                |                        | (694,169)   |   | (6,055,377)       
|                                                                |                        |             |   |                   
|Cash Flows from Financing Activities                            |                        |             |   |                   
|Proceed from Bank Loan                                          |                        | 1,395,349   |   | -                 
|Investor deposit received                                       |                        |             |   | 100,254           
|Issuance of share capital                                       |                        |             |   | 3,000,000         
|Exercise of warrants                                            |                        |             |   | 555,151           
|Exercise of stock options                                       |                        | 380,726     |   | 2,199,765         
|                                                                |                        | 1,776,075   |   | 5,855,170         
|                                                                |                        |             |   |                   
|Change in Cash and Cash Equivalents for the Year                |                        | 492,790     |   | (614,188)         
|Net Cash Used In Discontinued Operations                        |                        | -           |   | (5,157)           
|Cash and Cash Equivalents, Beginning Of Year                    |                        | 182,305     |   | 738,226           
|Effect of Exchange Rates on Cash                                |                        | 280,459     |   | 63,424            
|                                                                |                        |             |   |                   
|Cash and Cash Equivalents, End of Year                          | $                      | 955,554     | $ | 182,305           







Supplemental Disclosures With Respect To Cash Flows (Note 15)







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ABLEAUCTIONS.COM, INC.



CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY



DECEMBER 31, 2005



|                                             |              |         |               |             |              |               |         |   |          |   |              |   |            |  |  | 
|-------------------------------------------- | ------------ | ------- | ------------- | ----------- | ------------ | ------------- | ------- | - | -------- | - | ------------ | - | ---------- |  |  | 
|                                             |              |         |               | ACCUMULATED | DEFERRED     |               |        
|                                             |              |         | ADDITIONAL    | OTHER       | OPTION       |               | TOTAL  
|                                             | COMMON STOCK | PAID-IN | COMPREHENSIVE | PLAN        |              | STOCKHOLDERS
|                                             | SHARES       | AMOUNT  | CAPITAL       | INCOME      | COMPENSATION | DEFICIT       | EQUITY 
|                                             |              |         |               |             |              |               |         |   |          |   |              |   |           
|Balance, December 31, 2003                   | 49,845,020   | $       | 49,845        | $           | 30,972,186   | $             | 14,980  | $ | (46,161) | $ | (25,790,199) | $ | 5,200,651 
|                                             |              |         |               |             |              |               |         |   |          |   |              |   |           
|Private placement (Note 11)                  | 4,615,385    |         | 4,615         |             | 2,995,385    |               |         |   |          |   |              |   | 3,000,000 
|Warrants issued to agent                     |              |         |               |             | 19,478       |               |         |   |          |   |              |   | 19,478    
|Share issuance costs                         |              |         |               |             | (19,478)     |               |         |   |          |   |              |   | (19,478)  
|Exercise of warrants                         | 760,660      |         | 761           |             | 554,390      |               |         |   |          |   |              |   | 555,151   
|Exercise of stock options                    | 6,400,000    |         | 6,400         |             | 2,193,365    |               |         |   |          |   |              |   | 2,199,765 
|Deferred option plan compensation            |              |         |               |             |              |               |         |   | 30,207   |   |              |   | 30,207    
|Stock based compensation                     |              |         |               |             | 35,750       |               |         |   |          |   |              |   | 35,750    
|Translation adjustment                       |              |         |               |             |              |               | 55,045  |   |          |   |              |   | 55,045    
|Income for the year                          |              |         |               |             |              |               |         |   |          |   | 498,187      |   | 498,187   
|                                             |              |         |               |             |              |               |         |   |          |   |              |   |           
|Balance, December 31, 2004 (Restated-Note 3) | 61,621,065   | $       | 61,621        | $           | 36,751,076   | $             | 70,025  | $ | (15,954) | $ | (25,292,012) | $ | 11,574,756
|                                             |              |         |               |             |              |               |         |   |          |   |              |   |           
|Exercise of stock options                    | 785,769      |         | 785           |             | 480,195      |               |         |   |          |   |              |   | 480,980   
|Deferred option plan compensation            |              |         |               |             |              |               |         |   | 15,954   |   |              |   | 15,954    
|Translation adjustment                       |              |         |               |             |              |               | 280,459 |   |          |   |              |   | 280,459   
|Income for the year                          |              |         |               |             |              |               |         |   |          |   | 437,182      |   | 437,182   
|                                             |              |         |               |             |              |               |         |   |          |   |              |   |           
|Balance, December 31, 2005                   | 62,406,834   | $       | 62,406        | $           | 37,231,271   | $             | 350,484 | $ | -        | $ | (24,854,830) | $ | 12,789,331



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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





1.

BUSINESS AND BASIS OF ORGANIZATION



Ableauctions.com, Inc. (the 'Company') was organized on September 30, 1996, under the laws of the State of Florida, as J.B. Financial Services, Inc.  On July 19, 1999, an Article of Amendment was filed with the State of Florida for the change of the Company's name from J.B. Financial Services, Inc. to Ableauctions.com, Inc.



The Company provides services to businesses to assist with managing merchandise.  Through its subsidiary, Unlimited Closeouts, Inc., it provides liquidation services to businesses with overstock.  Through its subsidiary iCollector.com Technologies Ltd., it provides auction broadcast technology and facilitator services that allow businesses to take advantage of the on-line auction marketplace.  Through its subsidiary, Rapidfusion Technologies, Inc., it develops and sells point-of-sale software.  Through Ableauctions.com Inc., it manages an investment portfolio.  During the 2005 year, it expanded its business through its subsidiary, Stanford Development Corporation.  Stanford Development Corporation manages various types of investments.



The Company's operating subsidiaries are:



Able Auctions (1991) Ltd., a Canadian-based investment business.



Ableauctions.com (Washington) Inc., a U.S.-based auction business.



Rapidfusion Technologies Inc., a Canadian-based Internet auction business.



Icollector.Com Technologies Ltd., a Canadian-based Internet auction facility.



Jarvis Industries Ltd., a Canadian-based auction house.



ICollector International, Ltd., a US-based Internet auction business



Unlimited Closeouts Inc., a US-based liquidation business.



Itrustee.Com Technologies Ltd., a Canadian-based liquidation business



Itrustee.Com International, Ltd. a US-based liquidation business.



0716590 B.C.

Ltd., a Canadian-based real estate holding company.



0723074 B.C. Ltd., a Canadian-based real estate holding company.



Effective December 31, 2005, two of the subsidiaries, Itrustee.com Technologies Ltd. and Able Auctions (1991) Ltd. were amalgamated under the name of Stanford Development Corporation.







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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005











2.

SIGNIFICANT ACCOUNTING POLICIES



a)

Principles of Consolidation



These consolidated financial statements include the accounts of Ableauctions.com, Inc. and its wholly owned subsidiaries, from the dates of acquisition.



b)

Foreign Currency Translation



The Company accounts for foreign currency transactions and translation of foreign currency financial statements under Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").  Transaction amounts denominated in foreign currencies are translated at exchange rates prevailing at transaction dates.  Carrying values of monetary assets and liabilities are adjusted at each balance sheet date to reflect the exchange rate at that date.  Non-monetary assets and liabilities are translated at the exchange rate on the original transaction date.  Gains and losses from restatement of foreign currency monetary and non-monetary assets and liabilities are included in income.  Revenues and expenses are translated at the rates of exchange prevailing on the dates such items are recognized in earnings.



Financial statements of the Company's Canadian subsidiaries (see Note 1) are translated into U.S. dollars using the exchange rate at the balance sheet date for assets and liabilities.  The Company's investments in the structural capital of the Canadian subsidiaries have been recorded at the historical cost in U.S. dollars.  The resulting gains or losses are reported as a separate component of stockholders' equity.   The functional currency of the Canadian subsidiaries, is the local currency, the Canadian dollar.







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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





2.  SIGNIFICANT ACCOUNTING POLICIES (Continued)



c)

Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the period.  Actual results could differ from those estimates.



d)

Cash and Cash Equivalents



Cash and cash equivalents includes cash, and highly liquid investments with original maturities of three months or less.



e)

Marketable Securities



The Company accounts for its trading securities in accordance with SFAF 115-Accounting for Certain Investments in Debt and Equity Securities, which governs the accounting for all debt and equity securities that have readily determinable fair value. The companys marketable securities consist of term deposits, bonds, income trusts and equity.  These investments are recorded on the balance sheet at fair value and are recorded on the statement of cash flows as a component of operating activities.  These investments represent a substantial portion of the companys overall income, and accordingly unrealized and realized income and losses from these investments are included in the statement of operations.



f)

Financial Instruments



The carrying amounts of financial instruments including cash and cash equivalents, marketable securities, accounts receivable, loans receivable, notes receivable, and accounts payable and accrued liabilities, approximated fair value at December 31, 2005.



g)

Inventory



Inventory is stated at the lower of cost and estimated net realizable value.



h)

Software Development



The Company has adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", as its accounting policy for internally developed computer software costs.  Under SOP 98-1, computer software costs incurred in the preliminary development stage are expensed as incurred.  Computer software costs incurred during the application development stage are capitalized and amortized over the software's estimated useful life.









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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005







2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)



i)

Property and Equipment, Depreciation and Amortization



Property and equipment are recorded at cost.  The cost of property and equipment is depreciated using the declining balance method at the following annual rates:



|                                  |    
|--------------------------------- | ---
|Building                          | 4% 
|Furniture, fixtures and equipment | 20%
|Server equipment                  | 10%
|Computer equipment                | 30%
|Computer software                 | 10%
|Vehicles                          | 30%



Leasehold improvements are amortized using the straight-line method over the terms of the leases.



j)

Intangible Assets



Intangible assets consist of a non-competition covenant, and are recorded at cost and amortized on a straight-line basis over the life of the agreement.



k)

Impairment of Long-Lived Assets



The Company periodically evaluates potential impairments of its long-lived assets, including intangibles.  When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, the Company evaluates the projected undiscounted cash flows related to the assets.  If these cash flows are less than the carrying value of the assets, the Company measures the impairment using discounted cash flows or other methods of determining fair value.



Long-lived assets to be disposed of are carried at the lower of cost or fair value less estimated costs of disposal.













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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)



l)

Revenue Recognition



The Company's net revenues result from fees and revenue associated with internet based listing fees and auction activities.  Internet related listing fees are derived principally from enabling independent auction houses to simultaneously broadcast their auctions over the Internet. These fees are recognized upon successful completion of each individual auction when the final terms of sales and commissions have been determined.



The Company generally earns revenues from its auction activities either through consignment sales, or through sales of inventory purchased by the Company.  For consignment sales, the Company earns auction fees charged to consignees, and buyer's premiums charged to purchasers, determined as a percentage of the sale price.  For inventory sales, the Company earns a profit or incurs a loss on the sale, to the extent the purchase price exceeds or is less than the purchase price paid for such inventory.



For each type of auction revenue, an invoice is rendered to the purchaser, and revenue is recognized by the Company, at the date of the auction.  The auction purchase creates a legal obligation upon the purchaser to take possession of, and pay for the merchandise.  This obligation generally provides the Company with reasonable assurance of collection of the sale proceeds, from which the Company's earnings are derived, including the fees from consignees and purchasers, as well as resale profits.



m)

Acquisitions and Goodwill



All business acquisitions have been accounted for under the purchase method and, accordingly, the excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill in the consolidated balance sheet.  The results of operations, changes in equity and cash flows of acquired companies are included in operations only for the period between the date of acquisition and the end of the financial year.



All goodwill arising from acquisitions of businesses was written off in previous periods.



n)

Advertising Costs



The Company recognizes advertising expenses in accordance with Statement of Position 98-7, "Reporting on Advertising Costs".  As such, the Company expenses the cost of communicating advertising in the period in which the advertising space or airtime is used.









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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)



o)

Income Per Share



In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").  Under SFAS 128, basic and diluted earnings per share are to be presented.  Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period.  Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares.



p)

Income Taxes



Income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".  A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards.  Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.



Deferred tax assets are reduced by a valuation allowance when, based upon currently available information, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.



q)

Segmented information



Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information", establishes standards for reporting information about the operating and geographic segments of the Company's business.  Currently, the nature and extent of the Company's operations are such that it operates in only one reportable segment, as an auction house and liquidator.  Information regarding the Company's geographic segments is set forth in Note 24.



















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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005



2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)



r)

Stock Based Compensation



Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value.  The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."  Accordingly compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock.



The Company adopts the disclosure provisions of SFAS 123 for stock options granted to employees and directors.  The Company discloses on a supplemental basis, the pro-forma effect of accounting for stock options awarded to employees and directors, as if the fair value based method had been applied, using the Black-Scholes model.



3.

RESTATEMENT



In March 2006, while preparing its financial statements for the year ended December 31, 2005, the Company determined that certain balances as at December 31, 2004 required adjustment.



During the year ended December 31, 2004, the company recorded marketable securities at cost.  While preparing its financial statements for the year ended December 31, 2005, it determined that the marketable securities should have been recorded at fair value.   The effect of the necessary restatement is an increase to the carrying amounts of marketable securities by $269,474 and to increase investment income by $269,474 for the fourth quarter of 2004.



Additionally, while preparing its financial statements for the year ended December 31, 2005, the Company determined that certain accounts receivable at December 31, 2004, which had been outstanding for over one year, should have been offset by an allowance for doubtful accounts.   The company has restated its 2004 financial statements to reflect a provision for bad debt related to these accounts.  The effect of this restatement is to decrease the carrying value of accounts receivable by $200,524, increase bad debts expense by $192,531, and decrease accumulated other comprehensive income by $7,991 for the fourth quarter.











---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005



3.     RESTATEMENT(Continued)





The following presents the effect on the Companys previously issued financial statements for the year ended December 31, 2004:



Balance Sheet as at December 31, 2004:

|                                              |              |  |            |  |              | 
|--------------------------------------------- | ------------ |  | ---------- |  | ------------ | 
|                                              | Previously   |  | Increase   |  |              | 
|                                              | Reported     |  | (Decrease) |  | Restated     | 
|Marketable securities                         | $
8,376,096  |  | $
269,474  |  | $
8,645,570  | 
|Accounts receivable  trade, net of allowance | 1,061,963    |  | (200,524)  |  | 861,439      | 
|Accumulated other comprehensive income (loss) | 78,016       |  | (7,991)    |  | 70,025       | 
|Deficit                                       | (25,368,953) |  | 76,941     |  | (25,292,012) | 



Statement of operations for the year ended December 31, 2004:







---









|                                                                         |            |  |            |  |           | 
|------------------------------------------------------------------------ | ---------- |  | ---------- |  | --------- | 
|                                                                         | Previously |  | Increase   |  |           | 
|                                                                         | Reported   |  | (Decrease) |  | Restated  | 
|Bad debts                                                                | $
39,212   |  | $
192,531  |  | $
231,743 | 
|Management fees, salaries and benefits                                   | 346,182    |  | 35,111     |  | 381,293   | 
|Expenses                                                                 | 1,469,767  |  | 187,642    |  | 1,657,409 | 
|Investment income                                                        | 346,212    |  | 304,583    |  | 650,795   | 
|Income from continuing operations                                        | 462,166    |  | 76,941     |  | 539,107   | 
|Income for the year                                                      | 421,246    |  | 76,941     |  | 498,187   | 
|Basic and diluted earnings per share  Income from continuing operations | 0.008      |  | 0.002      |  | 0.010     | 
|Basic and diluted earnings per share  Income for the year               | 0.007      |  | 0.002      |  | 0.009     | 









---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005



3.     RESTATEMENT(Continued)



Statement of comprehensive loss for the year ended December 31, 2004:



|                                  |               |  |                 |  |             | 
|--------------------------------- | ------------- |  | --------------- |  | ----------- | 
|                                  | Previously    |  | Increase        |  |             | 
|                                  | Reported      |  | (Decrease)      |  | Restated    | 
|Income for the year               | $     421,246 |  | $        76,941 |  | $   498,187 | 
|Other comprehensive income        | 63,063        |  | (7,991)         |  | 55,045      | 
|Consolidated comprehensive income | 484,282       |  | 68,950          |  | 553,232     | 



Statement of cash flows for the year ended December 31, 2004:-



|                                                      |             |  |            |  |             | 
|----------------------------------------------------- | ----------- |  | ---------- |  | ----------- | 
|                                                      | Previously  |  | Increase   |  |             | 
|                                                      | Reported    |  | (Decrease) |  | Restated    | 
|Income (Loss) for the year from continuing operations | $ 462,166   |  | $ 76,941   |  | $ 539,107   | 
|(Increase) Decrease in marketable securities          | (5,498,895) |  | (269,474)  |  | (5,768,369) | 
|(Increase) Decrease in accounts receivable            | (642,042)   |  | 200,524    |  | (441,518)   | 
|Change in cash and cash equivalents for the year      | (622,179)   |  | 7,991      |  | (614,188)   | 
|Effect of exchange rates on cash                      | 71,415      |  | (7,991)    |  | 63,424      | 







The net effect of the correction is an increase of $76,941 in income from continuing operations, and a similar increase in the net income for the year.  As a result of the correction, the basic and diluted earnings per share also increased by $0.002 per share for income from continuing operations, and increased by $0.002 per share for the net income.



The changes to the figures for the 2004 year also include certain reclassifications made to conform to the presentation adopted for the 2005 year.



4.

ACCOUNTS RECIEVABLE



Accounts receivable is presented net of allowance for doubtful accounts.  The allowance was $21,533 at December 31, 2005 (December 31, 2004 : $55,555).







---









ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





5

LOANS RECEIVABLE

|                                                                                                                                                                                                                                                                                                  |      |           |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------- | - | -------
|                                                                                                                                                                                                                                                                                                  | 2005 | 2004     
|                                                                                                                                                                                                                                                                                                  |      |           |   |        
|i)
Loan advanced on July 13, 2005 in the amount of $187,500 CAN, bears interest at 11% per annum (interest is receivable at $1,751 CAN per month), with the principal due for repayment on July 13, 2006, and secured by a mortgage on the property of the borrower.                              | $    | 161,498   | $ | -      
|                                                                                                                                                                                                                                                                                                  |      |           |   |        
|ii) Loan advanced on October 15, 2005 in the amount of $115,000 CAN, bears interest at 10% per annum (interest is receivable at $1,045 CAN per month), with the principal due for repayment on October 15, 2006, and secured by a mortgage on the property of the borrower.                       |      | 99,052    |   | -      
|                                                                                                                                                                                                                                                                                                  |      |           |   |        
|iii) Loan advanced on October 17, 2005 in the amount of $2,200,000 CAN, bears interest at 9.75% per annum (interest is receivable at $17,875 CAN per month), with the principal due for repayment on October 17, 2006, and secured by a mortgage on the property of the borrower.                 |      | 1,894,919 |   | -      
|                                                                                                                                                                                                                                                                                                  |      |           |   |        
|iv) Loan advanced in the amount of $150,000 CAN, bears interest at 10% per annum (interest is receivable at $1,266 CAN per month), with the principal due for repayment in 2005, and secured by a mortgage on the property of the borrower.  The loan was collected in full during the 2005 year. |      | -         |   | 126,373
|                                                                                                                                                                                                                                                                                                  |      |           |   |        
|v) Loan advanced in the amount of $150,000 CAN, bears interest at 30% per annum (interest is receivable at $3,750 CAN per month), with the principal due for repayment in 2005, and secured by a mortgage on the property of the borrower.  The loan was collected in full during the 2005 year   |      | -         |   | 126,372
|                                                                                                                                                                                                                                                                                                  |      |           |   |        
|                                                                                                                                                                                                                                                                                                  | $    | 2,155,469 | $ | 252,745











---









ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





6.

NOTE RECEIVABLE

|                                                                                                                                                                                                                             |      |         |   |         
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------- | - | --------
|                                                                                                                                                                                                                             | 2005 | 2004   
|                                                                                                                                                                                                                             |      |         |   |         
|i)
Note receivable, repayable $5,338 per month, without interest, due and paid by July 31, 2005, secured by the pledge and escrow to the Company of the shares from the purchaser of the assets of Able Auctions (1991) Ltd. | $    | -       | $ | 63,432  
|                                                                                                                                                                                                                             |      |         |   |         
|ii) Note receivable, repayable $750 CAN per month, without interest, due August 31, 2006, related to the discontinued operations of ANO as described in Note 18.                                                             |      | 5,168   |   | 13,104  
|                                                                                                                                                                                                                             |      |         |   |         
|Less:  Current portion                                                                                                                                                                                                       |      | (5,168) |   | (71,544)
|                                                                                                                                                                                                                             |      |         |   |         
|                                                                                                                                                                                                                             | $    | -       | $ | 4,992   



7.

INTANGIBLE ASSETS



Intangible assets are comprised of the following:



|                               |      |              |     |        |   |        
|------------------------------ | ---- | ------------ | --- | ------ | - | -------
|                               |      | 2005         |    
|                               |      | ACCUMULATED  |    
|                               | COST | AMORTIZATION | NET
|                               |      |              |     |        |   |        
|Non-competition agreement      | $    | 150,000      | $   | 91,667 | $ | 58,333 
|Affiliate related relationship |      | 100,000      |     | 5,833  |   | 94,167 
|Intellectual property          |      | 210,400      |     | -      |   | 210,400
|                               |      |              |     |        |   |        
|                               | $    | 460,400      | $   | 97,500 | $ | 362,900



|                               |      |              |     |        |   |        
|------------------------------ | ---- | ------------ | --- | ------ | - | -------
|                               |      | 2004         |    
|                               |      | ACCUMULATED  |    
|                               | COST | AMORTIZATION | NET
|                               |      |              |     |        |   |        
|Non-competition agreement      | $    | 150,000      | $   | 41,667 | $ | 108,333
|Affiliate related relationship |      | -            |     | -      |   | -      
|Intellectual property          |      | 88,043       |     | -      |   | 88,043 
|                               |      |              |     |        |   |        
|                               | $    | 238,043      | $   | 41,667 | $ | 196,376







---









| |  |  |  |  |  | 
| |  |  |  |  |  | 

ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005



7

INTANGIBLE ASSETS (continued)



Non-competition agreement consists of payments made to three former principals of a company that was a direct competitor of Ableauctions.  In consideration of payments received in 2004 for $150,000, the former principals agreed to cease any activities that directly compete with Ableauctions for a period of three years.  The cost is amortized on a straight-line basis over three years.



On June 1, 2005, the Company made a cash payment in the amount of $100,000 to an unrelated third party as consideration for exclusive rights relating to that partys auction services.  The cost is amortized on a straight-line basis over ten years.



During the 2005 and 2004 years, the Company incurred development costs to enhance the current on-line auction technology.  These costs include fees paid to programmers to develop the systems, software and processes related to the enhancement.  The Company expects the final stage will be completed in the 2006 year, at which time they will start to amortize the costs over the estimated useful life of the technology.



Based on the carrying value of the identified intangible assets as at December 31, 2005, excluding the intellectual property that has not been completed, and assuming no subsequent impairment of the underlying assets, future annual amortization expense is expected to be as follows: 2006 - $60,000; 2007 - $18,333, 2008 - $10,000, 2009 - $10,000, 2010 - $10,000.











---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005



8.  PROPERTY AND EQUIPMENT

|                       |      |              |          |           |          |           |  |   |        
|---------------------- | ---- | ------------ | -------- | --------- | -------- | --------- |  | - | -------
|                       |      | 2005         |          |           | 2004    
|                       |      |              |          |           |         
|                       |      | ACCUMULATED  | NET BOOK |           | NET BOOK
|                       | COST | DEPRECIATION | VALUE    |           | VALUE   
|                       |      |              |          |           |          |           |  |   |        
|Furniture and fixtures | $    | 112,683      | $        | 43,821    | $        | 68,862    |  | $ | 51,017 
|Land                   |      | 1,448,579    |          | -         |          | 1,448,579 |  |   | -      
|Building               |      | 965,719      |          | 19,314    |          | 946,405   |  |   | -      
|Server equipment       |      | 1,162,532    |          | 852,207   |          | 310,325   |  |   | 344,805
|Computer equipment     |      | 57,463       |          | 8,619     |          | 48,843    |  |   | -      
|Computer software      |      | 188,477      |          | 143,827   |          | 44,650    |  |   | 41,638 
|Vehicles               |      | 30,653       |          | 6,542     |          | 24,111    |  |   | 2,889  
|Leasehold improvements |      | 107,175      |          | 48,593    |          | 58,582    |  |   | 65,911 
|                       |      |              |          |           |          |           |  |   |        
|                       | $    | 4,073,281    | $        | 1,122,923 | $        | 2,950,357 |  | $ | 506,260









---









9.   PROPERTY HELD FOR DEVELOPMENT



Property held for development at December 31, 2005 is comprised of the following:



|                       |      |          
|---------------------- | ---- | ---------
|                       | COST
|Coquitlam property (a) | $    | 294,882  
|Surrey property (b)    |      | 1,364,019
|                       |      |          
|                       | $    | 1,658,901









---











a)

On May 4, 2005, the Company, through its wholly owned subsidiary 0723074 B.C. Ltd., purchased a single dwelling house for the purpose of rental income located at 1880 Coleman Avenue in Coquitlam, British Columbia.  The purchase price was $242,411 and was paid in cash.  During the 2005 year, additional costs were incurred in respect to improvements of the house, which were capitalized.  Subsequent to December 31, 2005, the house was sold as described in Note 23.



b)

On August 3, 2005, the company entered into a Contract of Purchase and Sale (the Agreement) for property located at 9643 King George Highway, Surrey, British Columbia V3T 2V3 (the Property).  The Agreement was subject to the companys satisfactory investigation of the development potential of the Property.  This investigation was completed on August 9, 2005, at which time the company released to the seller, Imara Venture Ltd. (the Seller), a down payment of $41,195 to be credited against a total purchase price of $1,270,000.  The remaining balance was paid in cash on August 15, 2005.  The purchase price was negotiated between the Company and the Seller, who are not related to each other.





10.   BANK LOAN



The Company maintains a bank operating line of credit with an authorized limit of $1,395,349, advances under which bear interest at the banks prime rate per annum.  The line of credit is secured by a provincial bond held by the Company in the amount of $1,350,000.  Subsequent to December 31, 2005, the bond was sold and the proceeds were used to pay off the line of credit.













---











ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005











11.

WARRANTS



The Company has issued warrants entitling the holders to acquire common shares of the Company.  A summary of changes in unexercised warrants during the 2005 and 2004 years is presented below:



|                          |                     |                     |                     |                     |          
|------------------------- | ------------------- | ------------------- | ------------------- | ------------------- | ---------
|                          | Warrants
@$0.54
(1) | Warrants
@$0.44
(2) | Warrants
@$0.80
(3) | Warrants
@$0.80
(4) | Total    
|Outstanding,
Dec 31, 2003 | 171,429             | 100,000             | -                   | -                   | 271,429  
|Granted during year       | -                   | -                   | 1,384,615           | 100,000             | 1,484,615
|Exercised during year     | (71,429)            | (100,000)           | (489,231)           | (100,000)           | (760,660)
|Expired during year       | -                   | -                   | -                   | -                   | -        
|Outstanding, Dec 31, 2004 | 100,000             | -                   | 895,384             | -                   | 995,384  
|Granted during year       | -                   | -                   | -                   | -                   | -        
|Outstanding, Dec 31, 2005 | 100,000             | -                   | 895,384             | -                   | 995,384  





(1) Exercisable until September 23, 2007, granted pursuant to private placement (Note 11(a))

(2) Exercisable until September 4, 2007, granted to agent for consulting services.

(3) Exercisable until December 30, 2007, granted pursuant to private placement (Note 11(b))

(4) Exercisable until December 30, 2007, granted to agent pursuant to private placement (Note 11(b))







---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005



12.

CAPITAL STOCK



Effective December 30, 2003, the Company completed a private placement of 4,615,386 units at a price of $0.65 per unit for gross proceeds of $3,000,000. The full amount net of share issuance costs was received in January 2004, and was reported in the 2004 year.  Each unit consists of one common share of the Company and 0.30 of a transferable share purchase warrant.  Each warrant entitles the holder to purchase one common share of the Company for a term of 4 years, at a price of $0.8021 a share.  In connection with the private placement, the agent was granted broker warrants to acquire up to 100,000 common shares of the Company at an exercise price of $0.8021 per share for a term of 4 years.  The company recognizes share issue costs of $19,478 during the 2004 year, representing the estimated fair market value of the warrants.



13.

INVESTOR DEPOSIT



The balance of investor deposit at December 31, 2004 represents amounts received from investors for which shares were not issued until year 2005.



14.

INVESTMENT INCOME



Investment income includes both the realized and unrealized trading gains.  The breakdown is as follows:



2005                  2004

Realized trading gains                     614,623                381,321

Unrealized trading gains                  158,949                269,474

Investment income                          773,572                650,795





15.

SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS



|                           |      |       |   |  
|-------------------------- | ---- | ----- | - | -
|                           | 2005 | 2004 
|                           |      |       |   |  
|Cash paid for income taxes | $    | -     | $ | -
|                           |      |       |   |  
|Cash paid for interest     | $    | 9,188 | $ | -



During the year ended December 31, 2005:

The Company recorded $15,954 as stock compensation expense.



During the year ended December 31, 2004:

The Company recorded $65,957 as stock compensation expense.









---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005







16.

INCOME TAXES



At December 31, 2005, the Company has net operating losses carried forward of approximately $9,500,000 which expire in years ranging from 2007 to 2025.  The Company has provided a full valuation allowance of approximately $3,230,000 on the deferred tax asset because of the uncertainty of realizability.



A reconciliation of the Companys effective income tax rate to the approximate combined federal, provincial and state statutory income tax rates of 34% [2004  36%] is as follows:



|                                                            |           |         
|----------------------------------------------------------- | --------- | --------
|                                                            | 2005
$    | 2004
$  
|Tax at statutory rate                                       | 148,642   | 179,347 
|Temporary differences for which tax benefit was recognized  | (45,418)  | (83,545)
|Losses carried forward for which tax benefit was recognized | (103,224) | (95,802)
|                                                            | -         | -       



Significant components of the Companys deferred tax assets are as follows:





|                                 |             |            
|-------------------------------- | ----------- | -----------
|                                 | 2005
$      | 2004
$     
|Operating losses carried forward | 3,230,000   | 3,518,000  
|Property and equipment           | (126,000)   | (105,000)  
|Intangible assets                | (55,000)    | (39,000)   
|Marketable securities            | (54,000)    | (97,000)   
|Total deferred tax assets        | 2,995,000   | 3,277,000  
|Valuation allowance              | (2,995,000) | (3,277,000)
|Net deferred tax assets          | -           | -          





















17.

LEGAL CLAIM



During the 2004 year, the Company and its subsidiary iCollector.com Technologies Ltd (iCollector) commenced a lawsuit against a former officer of iCollector for alleged breach of fiduciary duty.  During the 2005 year, the Company incurred legal and related costs totaling $210,482 related to this matter.  A judgment awarding damages was issued in favor of the Company and iCollector, for a total of $417,300.  The former officer appealed the judgement.  The claim was subsequently settled for an amount of $310,000, resulting in a net gain on legal settlement to the Company of $99,518.





18.   DISCONTINUED OPERATIONS



Effective September 1, 2004, the company abandoned the computer resale operations of 652297 B.C. Ltd., which operated as ANO Office Automation (ANO). The Company sold the exclusive right to the names of ANO and customer lists in consideration for payment of the greater of $750 per month or 3% of gross sales per month generated from clients in the ANO client database, to a maximum of $3,000 per month for a period of 2 years.  The minimum entitlement under the agreement of $13,553 ($18,000 CAN) was recorded as Note Receivable.  The company reported a loss from discontinued operations of $54,752 in respect to the abandoned ANO business.







---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





19.   CONCENTRATION OF RISK



Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of marketable securities that are invested in debt securities, accounts receivable and loans receivable.



The Companys investments in marketable securities include bonds, money market funds, and income trust funds.  Investments in bonds are usually with high-credit-quality counterparties such as the Provincial government.



The majority of the companys trade receivables are derived from fees and revenue associated with internet based listing fees and auction activities.  The companys largest customer accounted for 19% of net revenue for the 2005 year, and 34% for the 2004 year. At December 31, 2005, the largest customer accounted for 15% of net accounts receivable (47% of net accounts receivable at December 31, 2004). Management believes that the receivable balance from this customer does not represent a significant credit risk based on past collection experience.



20.

RELATED PARTY TRANSACTIONS



Except as disclosed elsewhere, during the years ended December 31, 2004 and December 31, 2005, the following payments were made to a company controlled by a director:



|                                                          |      |      |   |       
|--------------------------------------------------------- | ---- | ---- | - | ------
|                                                          | 2005 | 2004
|                                                          |      |      |   |       
|Rent, leasehold improvements, and repairs and maintenance | $    | -    | $ | 18,443
|Management fees                                           |      | -    |   | 72,850



The Company, through its assignee and wholly owned subsidiary, 0716590 B.C. Ltd., exercised its option to purchase the commercial building and property that the Company currently leases for its head office.  The property was purchased from a private company that was wholly owned by the spouse of the president and director of the Company.  The purchase price was $2,221,316 ($2,750,000 CAN).



As at December 31, 2005, is $33,233.60 (2004:$0) included in accounts receivable during year end.  The transactions between related are recorded at their exchange amount, which is the amount agreed by the parties.









---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005







21.

STOCK BASED COMPENSATION



Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value.  The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".  Accordingly, compensation cost for employee stock options is measured as the excess, if any, of quoted market price of the Company's stock at the date of grant over the option price.



No stock options were granted during the 2005 year.  Stock based compensation expense of $15,954 was recognized in the consolidated statement of operations in respect to stock options granted in prior years.



During the 2004 year, no non-employee stock options were granted.  However, stock based compensation expense of $65,957 was recognized in the consolidated statement of operations in respect to employee stock options granted.



A summary of the Company's stock option plan and changes during 2005 and 2004 are presented below:



|                                                               |           |          |      |        |             |   |      |  |  | 
|-------------------------------------------------------------- | --------- | -------- | ---- | ------ | ----------- | - | ---- |  |  | 
|                                                               | 2005      |          | 2004
|                                                               |           | WEIGHTED |      |        | WEIGHTED   
|                                                               | NUMBER    | AVERAGE  |      | NUMBER | AVERAGE    
|                                                               | OF        | EXERCISE |      | OF     | EXERCISE   
|                                                               | SHARES    | PRICE    |      | SHARES | PRICE      
|                                                               |           |          |      |        |             |   |     
|Outstanding, beginning of year                                 | 9,922,000 | $        | 0.30 |        | 2,545,000   | $ | 0.28
|                                                               |           |          |      |        |             |   |     
|Granted                                                        | -         |          | -    |        | 13,857,050  |   | 0.40
|Exercised                                                      | (785,769) |          | 0.24 |        | (6,400,000) |   | 0.37
|Forfeited/Cancelled                                            | -         |          | -    |        | (80,050)    |   | 0.37
|                                                               |           |          |      |        |             |   |     
|Outstanding, end of year                                       | 9,136,231 |          | 0.40 |        | 9,922,000   |   | 0.39
|                                                               |           |          |      |        |             |   |     
|Weighted average fair value of options granted during the year |           |          |      |        |             | $ | 0.30







---







ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





21.

STOCK BASED COMPENSATION (Continued)





The following table summarizes information about stock options outstanding and exercisable at December 31, 2005:



|         |             |             |             |           | 
|-------- | ----------- | ----------- | ----------- | --------- | 
|         |             | AVERAGE     |            
|RANGE OF | WEIGHTED    | REMAINING   |            
|EXERCISE | NUMBER      | CONTRACTUAL | NUMBER     
|PRICE    | OUTSTANDING | LIFE        | EXERCISABLE
|         |             |             |             |          
|$        | 0.15  0.25 | 515,000     | 3 years     | 515,000  
|         | 0.36        | 3,257,000   | 3 years     | 3,227,000
|         | 0.40  0.50 | 5,364,231   | 3 years     | 5,264,231
|         |             | 9,136,231   |             | 9,006,231



At December 31, 2005, of the 9,136,231 options, 9,006,231 options were vested.  The remaining number of options will vest in 2006.



Compensation



Had compensation cost been recognized in respect to employee stock options on the basis of fair value, pursuant to Statement of Financial Accounting Standards No. 123, net income (loss) and income (loss) per share would have been adjusted as follows:



|                                     |      |             |   |        
|------------------------------------ | ---- | ----------- | - | -------
|                                     |      | (Note 3)   
|                                     | 2005 | 2004       
|                                     |      |             |   |        
|Income for the year                  |      |             |   |        
|As reported                          | $    | 437,182     | $ | 498,187
|                                     |      |             |   |        
|Pro-Forma                            | $    | (2,622,598) | $ | 280,763
|                                     |      |             |   |        
|Basic and diluted earnings per share |      |             |   |        
|As reported                          | $    | 0.007       | $ | 0.009  
|                                     |      |             |   |        
|Pro-Forma                            | $    | (0.042)     | $ | 0.005  



The fair value of employee options granted during the 2004 year was estimated using the Black-Scholes option pricing model assuming a dividend yield of 0.0%, expected volatility of 82%, risk free interest rate of 4% and weighted average expected option terms of 5 years







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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005



22.

CONTINGENT LIABILITIES

a)

The Company is ordinarily involved in claims and lawsuits which arise in the normal course of business.  Except as disclosed below, in managements opinion none of these claims will have a significant effect on the Companys financial condition.



b)

The Company is a defendant in several legal actions commenced by certain trade creditors of one of its wholly-owned US subsidiaries.  The ultimate liability, if any, arising from this action is not expected to exceed $20,000 and will be recorded at the time of that determination, if necessary.



23.

SUBSEQUENT EVENTS



a)

On March 2, 2006, the Company, through its wholly owned subsidiary, 072304 B.C. Ltd., completed the sale of residential real estate located at 1880 Coleman Avenue in Coquitlam, British Columbia.  The sale price of the property was $388,608 cash. The sale price was negotiated between the Company and the buyers, Michael and Agnes Piotrowski. Mr. Piotrowski is employed by the Company.



During the period of the Company's ownership of the property, it invested approximately $25,000 in improvements.  In consideration of the purchase, the Company agreed to provide an additional $61,824 to the Purchaser to complete the improvements.  The Company also advanced a loan to the buyers in the amount of $55,000 (CAN) for a term of 1 year, bearing an interest rate of 10% per annum.  Interest is receivable monthly, with the principal due for repayment on February 9, 2007.  The loan is secured by the personal guarantee of the borrowers and a second mortgage on the property.



b)

Subsequent to December 31, 2005, the Company entered into loan arrangements with two commercial borrowers as follows:



i)

Loan advanced in January 2006 in the amount of $450,000 CAN, bears interest at 10% per annum (interest is receivable at $22,500 CAN every 6 months), with the principal due for repayment in January, 2008.  The loan is secured by a personal guarantee of the borrower, and a mortgage on the property.



ii)

Loan advanced in February 2006 in the amount of $603,750 CAN, bears interest at 11% per annum (interest is receivable at $5,534 CAN per month), with the principal due for repayment in February, 2007.  The loan is secured by a mortgage on the property.







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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





24.

SEGMENTED INFORMATION



The external sales and long-lived assets of the Company's businesses by geographical region are summarized below:



|                  |      |           |   |          
|----------------- | ---- | --------- | - | ---------
|                  | 2005 | 2004     
|                  |      |           |   |          
|External Sales    |      |           |   |          
|United States     | $    | 3,272,235 | $ | 3,511,671
|Canada            |      | 1,156,677 |   | 911,500  
|                  |      |           |   |          
|                  | $    | 4,428,912 | $ | 4,423,171
|                  |      |           |   |          
|Long-Lived Assets |      |           |   |          
|United States     | $    | 58,333    | $ | 108,333  
|Canada            |      | 4,913,825 |   | 599,295  
|                  |      |           |   |          
|                  | $    | 4,972,158 | $ | 707,628  





25.

RECENT ACCOUNTING PRONOUNCEMENTS



(i) In November of 2004, the FASB issued Statement of Financial Accounting Standards No. 151 (Inventory Costs - An Amendment of ARB No. 43, Chapter 4) ("SFAS 151").  SFAS 151 amends the guidance in Accounting Research Bulletin ("ARB") No. 43, Chapter 4 (Inventory Pricing) to clarify the accounting for abnormal amounts of idle facility expense, excessive spoilage, double freight, and rehandling costs to be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43.  Additionally, SFAS 151 requires that allocation of fixed production overheads to the costs of conversions be based on normal capacity of the production facilities.  SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the year ended December 31, 2006.  The Company does not believe adoption of SFAS 151 will have a material effect on its financial position, cash flows or results of operations.











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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





25.

RECENT ACCOUNTING PRONOUNCEMENTS  (continued)



(ii) In December of 2004, the FASB issued Statement of Financial Accounting Standards No. 153 (Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions) ("SFAS 153").  SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchange of similar productive assets in paragraph 21(b) of Accounting Principles Board ("APB") Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance.  SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS 153 is effective for fiscal periods beginning after June 15, 2005, and must be applied prospectively. The Company does not believe adoption of SFAS 154 will have a material effect on its financial position, cash flows or results of operations.



(iii) In December of 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), (Share-Based Payment) (SFAS 123R). SFAS 123R requires employee share-based equity awards to be accounted for under the fair value method, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25 and allowed under the original provisions of SFAS No. 123. SFAS123R requires the use of an option pricing model for estimating fair value, which is then amortized to expense over the service periods. If the company had applied the provisions of SFAS 123R to the financial statements for 2005, net income would have been reduced by approximately $3 million. SFAS 123R allows for either prospective recognition of compensation expense or retrospective recognition. In the first quarter of 2006, the company began to apply the prospective recognition method and implemented the provisions of SFAS 123R.  The Company expects the adoption of SFAS 123R to result in stock compensation expense and therefore a reduction in net income in 2006 of approximately $36,000.  The Companys actual stock compensation expense in 2006 could differ materially from this estimate depending on the timing and magnitude of any new awards, the number and mix of any new awards, changes in the market price or the volatility of the Companys common stock, as well as unanticipated changes in the Companys workforce.







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ABLEAUCTIONS.COM, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2005





25.

RECENT ACCOUNTING PRONOUNCEMENTS  (continued)



(iv) In May of 2005, the FASB issued Statement of Financial Accounting Standards No. 154, (Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements) (SFAS 154).  SFAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle.  Previously, voluntary changes in accounting principles were generally required to be recognized by way of a cumulative effect adjustment within net income during the period of the change.  SFAS 154 requires retrospective application to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements.  The Company does not believe adoption of SFAS 154 will have a material effect on its financial position, cash flows or results of operations.