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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 20-F


|   |  |                                                                                                   
|-- |  | --------------------------------------------------------------------------------------------------
|o  |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|or
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934          
|   |  | For the fiscal year ended December 31, 2005                                                       
|or
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934      
|or
|o  |  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934   
|   |  | Date of event requiring this shell company report                                                 
|   |  | For the transition period
    from                            to                                  

Commission file number 001-04192





(Exact name of registrant as specified in its charter)


Not Applicable


(Translation of Registrants Name into English)


British Columbia, Canada


(Jurisdiction of incorporation or organization)


8th Floor, Dina House, Ruttonjee Centre, 11 Duddell
Street, Central, Hong Kong SAR, China


(Address of principal executive office)


Securities registered or to be registered pursuant to
Section 12(b) of the Act.


|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|Not Applicable      |  | Not Applicable                           

Securities registered or to be registered pursuant to
Section 12(g) of the Act:


Common Shares, Without Par Value


(Title of Class)


Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:


Not Applicable


(Title of Class)





There were
13,635,384 common shares, without par value, issued and
outstanding as of December 31, 2005.


o þ


þ o




þ o


12b-2 o þ o


þ o


12b-2 o þ




o o










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DEAR FELLOW SHAREHOLDERS
   Company comparison
    
    Andritz AG
    
    
    FLSmidth & Co. A/S
    
    
    Sinoma International
    
    
    KHD Humboldt WedagCo. Ltd
    
    
    International LtdFY 31.12.
    
    
    FY 31.12.
    
    
    6 MNS.
    
    
    FY 31.12.FOR THE YEAR ENDED
    
    31.12.2005
    
    
    31.12.2005
    
    
    30.06.2005
    
    
    31.12.2005Shares outstanding
    
    
    12,839,237
    
    
    
    53,200,000
    
    
    
    168,000,000
    
    
    
    13,635,384
    (2)Shareholders equity (000 US$)
    
    
    389,328
    
    
    
    378,235
    
    
    
    85,611
    
    
    
    244,259

(2)Sales (000 US$)
    
    
    2,065,699
    
    
    
    1,663,412
    
    
    
    199,577
    
    
    
    819,976Net income (000 US$)
    
    
    95,023
    
    
    
    77,453
    
    
    
    9,428
    
    
    
    29,332Market capitalization(1) (000 US$)
    
    
    1,779,748
    
    
    
    1,992,351
    
    
    
    335,432
    
    
    
    298,615Book value per share (US$)
    
    
    30.32
    
    
    
    7.11
    
    
    
    0.51
    
    
    
    17.91Price / Book value per share(1)
    
    
    4.57
    
    
    
    5.85
    
    
    
    4.03
    
    
    
    1.22Price / Earnings per share(1)
    
    
    18.85
    
    
    
    25.72
    
    
    
    35.58
    
    
    
    10.23
 (1)
    
    Market share value as of March 24, 2006(2)
    
    The table does not reallocate 1,571,128 KHD shares held by Mass through its subsidiaries.The shares had a book value of US $9.3 million, which had been eliminated and deducted from
shareholders equity.




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(U.S. dollars in thousands, except per share amounts)YEARS ENDED DECEMBER 31
    
    2005
    
    
    2004(Unaudited)Revenues
    
    $
    819,976
    
    
    $
    579,731Net income
    
    
    29,332
    
    
    
    30,701Net income per shareBasic
    
    
    2.16
    
    
    
    2.27Diluted
    
    
    2.14
    
    
    
    2.24
  (U.S. dollars in thousands, except per share amounts)THREE MONTHS ENDED DECEMBER 31
    
    2005
    
    
    2004(Unaudited)Revenues
    
    $
    202,487
    
    
    $
    171,564Net income
    
    
    4,907
    
    
    
    6,347Net income per shareBasic
    
    
    0.36
    
    
    
    0.47Diluted
    
    
    0.36
    
    
    
    0.46




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(U.S. dollars in thousands, except per share amount and ratios)YEARS ENDED DECEMBER 31
    
    2005
    
    
    2004(Unaudited)Cash and cash equivalents
    
    $
    194,313
    
    
    $
    179,231Short-term securities
    
    
    16,265
    
    
    
    17,542Working capital
    
    
    209,360
    
    
    
    181,095Total assets
    
    
    523,054
    
    
    
    501,579Long-term debt, less current portion
    
    
    6,253
    
    
    
    11,950Shareholders equity
    
    
    244,259
    
    
    
    223,849Book value per share
    
    
    17.91
    
    
    
    16.49Current ratio
    
    
    1.98
    
    
    
    1.86Long-term debt to equity ratio
    
    
    0.03
    
    
    
    0.05
     (U.S. dollars in thousands, except per share amount)YEARS ENDED DECEMBER 31
    
    2005
    
    
    2004(Unaudited)
    
    Industrial and
    
    
    Total
    
    
    Industrial and
    
    
    TotalEngineering
    
    
    
    
    
    EngineeringRevenues from external customers
    
    $
    341,775
    
    
    $
    819,976
    
    
    $
    165,414
    
    
    $
    579,731Inter-segment revenues
    
    
    260
    
    
    
    2,741
    
    
    
    100
    
    
    
    1,054Interest expense  External
    
    
    3,618
    
    
    
    7,776
    
    
    
    2,940
    
    
    
    6,184Interest expense  Inter-segment
    
    
    406
    
    
    
    1,240
    
    
    
    66
    
    
    
    892Income before taxes and minority interests
    
    
    26,187
    
    
    
    37,880
    
    
    
    14,171
    
    
    
    31,917Income before taxes and minority interests
per share, diluted
    
    
    1.90
    
    
    
    2.75
    
    
    
    1.03
    
    
    
    2.31




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PROJECT
    
    PROJECT LOCATION
    
    SUBJECTYanbu Zm3
    
    Middle East
    
    Cement millZaveh Torbat
    
    Middle East
    
    Cement production line 3,500 t/dSichuan Ya Dong
    
    Asia
    
    Cement production line 4,200 t/dJiangxi 3
    
    Asia
    
    Cement production line 4,200 t/dSichuan Klinkermahl
    
    Asia
    
    Clinker grinding plant with rollerpress 20.170/180Illinois
    
    N/S America
    
    Construction and EquipmentJ P Himachal
    
    Asia
    
    Kiln Line 10 000 t/dChettinad
    
    Asia
    
    Cement grinding plant + rollerpress 10-140/110Grasim Dadri
    
    Asia
    
    Roller PressJ P Himachal Grinding
    
    Asia
    
    Cement grinding plant with rollerpress (3 Line)Myhome Cement
    
    Asia
    
    Kiln LineShree Cement
    
    Asia
    
    Clinker grinding plant with rollerpressCNSAL
    
    Middle East
    
    Capacity increase from 2000 to 3800 t/dSterlitamak Service
    
    Russia
    
    Service contractGuandi
    
    Asia
    
    4x PneuflotsGuandi 2
    
    Asia
    
    2 RomjigsDafeshi
    
    Asia
    
    2 RomjigsSnim
    
    Pacific
    
    RollerpressListwjashnaja
    
    Russia
    
    Coal PlantArgyle (ADM)
    
    Australia
    
    Tyre setBushan
    
    Asia
    
    Coal washery plantNurkasgan
    
    Kazakhstan
    
    2 RollerpressesNational Cement
    
    Middle East
    
    Cement production line 3,500 tpdBolu Cimento
    
    Middle East
    
    SFG system with expressAberthaw (Service)
    
    Europe
    
    RepanDiamanante (service)
    
    N/S America
    
    Roller replacementContinental
    
    N/S America
    
    EngineeringLafarge
    
    N/S America
    
    2V separators and equipmentShree Cement
    
    Asia
    
    Clinker grinding plant with rollerpressAshakacem
    
    Asia
    
    Heat exchanger and tucker elevatorGassim Batiada
    
    Asia
    
    Clinker grinding plant with rollerpressPanbei
    
    Asia
    
    1 RomjigsGubei
    
    Asia
    
    1 RomjigsLonggu
    
    Asia
    
    3 RomjigsWangfengang
    
    Asia
    
    4x PneuflotsDuro Felguera
    
    N/S America
    
    8x Jones DP




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n
    
    In November, MFC Bancorp Ltd. communicated
its new industrial focus to the capital markets
by changing its name to KHD Humboldt Wedag
International Ltd.n
    
    To create a more efficient structure to improve
retained earnings, we established a new holding
structure in Austria, including the transfer of
most of the KHD Humboldt Wedag GmbH operating companies into this structure.n
    
    We realigned the companys licensing and
research and development activities early in
2006 in order to enhance the ongoing
development of the technology and the
availability of sufficient funds for this
purpose.n
    
    We established a group treasury and investment
system to enhance financial benefits.n
    
    In January 2006, substantially all of the
non-industrial assets and operations were
transferred to Mass and distributed by means of
a non-taxable distribution to our shareholders.
Mass intends to create new value for our
shareholders by focusing exclusively on the
growth and development of financial services.n
    
    We implemented our profit margin improvement
plan through the expanded use of low-cost
business bases in India.n
    
    In March 2006, KHD appointed a new Chief
Executive Officer and President, Jim Busche, a
seasoned professional with strong and relevant
experience in the highly engineered industrial
plant business. Mr. Busche will lead the
companys globalization efforts and growth
initiatives, succeeding Michael Smith, who will
continue as Chairman of the Board.n
    
    Jim Busche hired two executives based in New
Delhi, India: one assigned to lead a merger and
acquisition effort, the other to lead the
technology transfer initiative with the
objective of developing qualified engineering,
procurement and manufacturing capacities in
low-cost bases.




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®




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1856
    
    Founding of Humboldt as a manufacturer of mining machinery1930
    
    Merger with Humboldt Deutz Motoren AG1938
    
    Renamed as Klöckner-Humboldt-Deutz AG, or KHD1952
    
    Established Humboldt Wedag Australia Ltd.1964
    
    Established Humboldt Wedag India Ltd.1972
    
    Acquired Wedag AG, Bochum, Germany1974
    
    Established Humboldt Wedag, Inc., Atlanta, USA1977
    
    Established Humboldt Wedag (South Africa) Ltd.1979
    
    Renamed the company KHD Humboldt Wedag AG1982
    
    Opened a representative office in Beijing, China1991
    
    Opened a representative office in Moscow, Russia1994
    
    Acquisition of Zab Industrietechnik & Service GmbH1995
    
    Opened a representative office in Riyadh, Saudi Arabia2001
    
    Acquisition by Fahr Beteiligungen AG2002
    
    Investment by the MFC Group2004
    
    KHD Humboldt Wedag GmbH becomes a subsidiary of MFC Group2005
    
    Restructuring as part of KHD Humboldt Wedag International Ltd.2006
    
    Distributed the financial services sector to our shareholders as Mass Financial Corp.




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(PICTURE)
    
    SIAM CEMENT PUBLIC CO. LTD. THAILAND
    
    5,500 t/day plant
    
    State-of-the-art technology integrated into an environmentally protected area(PICTURE)
    
    YANBU CEMENT CO. LTD. SAUDI ARABIA
    
    7,000 t/day clinker production
    
    Largest production line in the Gulf region(PICTURE)
    
    LAFARGE ALABAMA, USA
    
    4,200 t/day clinker production
    
    Low Nox Calciner with top air duct




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Complete-line competitors
  Part-line competitors




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(U.S. dollars in thousands, except per share
amounts)DECEMBER 31, 2005(Unaudited)ASSETS
    
    KHD
    
    
    MassCurrentCash and cash equivalents
    
    $
    194,313
    
    
    $
    26,185
    (1)Restricted cash
    
    
    22,016
    
    
    
    32Securities
    
    
    16,265
    
    
    
    2,880Loans
    
    
    10,638
    
    
    
    8,500Receivables, commodities transactions
    
    
    10,450
    
    
    
    10,450Receivables, industrial and engineering services
    
    
    34,588
    
    
    
    0Receivables
    
    
    25,533
    
    
    
    6,468Commodity investments
    
    
    24,356
    
    
    
    24,356Inventories
    
    
    38,641
    
    
    
    2,071Real estate held for sale
    
    
    27,479
    
    
    
    729Contract deposits, prepaid and other
    
    
    11,201
    
    
    
    296Future income tax assets
    
    
    7,594
    
    
    
    632Total current assets
    
    
    423,074
    
    
    
    82,599Non-currentSecurities
    
    
    7,893
    
    
    
    7,166Loans
    
    
    9,436
    
    
    
    0Property, plant and equipment
    
    
    10,835
    
    
    
    558Resource property
    
    
    30,312
    
    
    
    0Goodwill
    
    
    12,987
    
    
    
    3,779Equity method investments
    
    
    16,021
    
    
    
    15,153Future income tax assets
    
    
    12,496
    
    
    
    0Total non-current assets
    
    
    99,980
    
    
    
    26,656$
    523,054
    
    
    $
    109,255




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(U.S.
dollars in thousands, except per share amounts)
DECEMBER 31, 2005(Unaudited)LIABILITIES AND SHAREHOLDERS EQUITY
    
    KHD
    
    
    MassCurrent liabilitiesAccounts payable and accrued expenses
    
    $
    159,628
    
    
    $
    29,274Notes payable, commodities transactions
    
    
    9,890
    
    
    
    9,890Notes payable, industrial and engineering service
    
    
    2,944
    
    
    
    0Long-term debt, current portion
    
    
    1,606
    
    
    
    200Pension liabilities
    
    
    1,489
    
    
    
    0Deposits
    
    
    17,327
    
    
    
    0Provision for warranty costs
    
    
    20,527
    
    
    
    0Future income tax liability
    
    
    303
    
    
    
    57Total current liabilities
    
    
    213,714
    
    
    
    39,421Long-term liabilitiesLong-term debt, less current portion
    
    
    6,253
    
    
    
    869Pension liabilities
    
    
    25,584
    
    
    
    0Provision for warranty costs
    
    
    4,427
    
    
    
    0Future income tax liability
    
    
    10,154
    
    
    
    0Other long-term liabilities
    
    
    575
    
    
    
    0Total long-term liabilities
    
    
    46,993
    
    
    
    869Total liabilities
    
    
    260,707
    
    
    
    40,290Minority interests
    
    
    18,088
    
    
    
    1,907Shareholders equity(2)
    
    
    244,259
    
    
    
    67,058
    (3)(4)$
    523,054
    
    
    $
    109,255 Notes:(1)
    
    Mass had $10,035 deposit with MFC Merchant Bank.(2)
    
    The table does not reallocate 1,571,128 KHD shares held by Mass through its subsidiaries.The shares had a book value of $9,330, which had been eliminated and deducted from shareholders
equity.(3)
    
    The net assets separated are paid for with
preferred shares issued of Mass as disclosed in our
Form 6-K filing of January 25, 2006.(4)
    
    The value of a common share of Mass as determined by an independent valuation as of January 31,
2006 is in the range of $0.50 per share - $0.76 per share.(5)
    
    All intercompany transactions have been eliminated.




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(U.S. dollars in thousands)DECEMBER 31, 2005(Unaudited)
    
    KHD
    
    
    MassRevenueFinancial services revenue
    
    $
    478,201
    
    
    $
    463,210Industrial and engineering services
    
    
    341,775
    
    
    
    4,092819,976
    
    
    
    467,302ExpensesFinancial services
    
    
    430,992
    
    
    
    427,264Industrial and engineering services
    
    
    279,637
    
    
    
    711General and administrative
    
    
    63,691
    
    
    
    30,152Interest
    
    
    7,776
    
    
    
    3,931782,096
    
    
    
    462,058Income from operations before income taxes and
minority interests
    
    
    37,880
    
    
    
    5,244
    (2)Provision for income taxes
    
    
    (2,710
    )
    
    
    (530
    )Income from operations before minority interests
    
    
    35,170
    
    
    
    4,714Minority interests
    
    
    (5,838
    )
    
    
    (684
    )Net income
    
    $
    29,332
    
    
    $
    4,030
    (2)
 Notes:(1)
    
    All intercompany transactions have been eliminated.(2)
    
    Business segment information shows an income from operations
before income taxes and minority interests of $13.0 million for the
financial services segment, which included our banking subsidiary and
our passive interest in an iron ore mine. Mass shows an income from
operations before income taxes and minority interests of $5.2 million
and a net income of $4.0 million, which do not include the financial
services revenues to be retained by KHD.







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Chairman of the Board






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KHD HUMBOLDT WEDAG INTERNATIONAL LTD.


FORM 20-F


TABLE OF CONTENTS


|          |  |                                                                                  |  |          |    | 
|--------- |  | -------------------------------------------------------------------------------- |  | -------- | -- | 
|          |  |                                                                                  |  | Page No. |   
|          |  |                                                                                  |  |          |   
|PART 1   
|ITEM 1.   |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
    AND ADVISERS                        |  |          | 3  | 
|ITEM 2.   |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                          |  |          | 3  | 
|ITEM 3.   |  | KEY INFORMATION                                                                  |  |          | 3  | 
|          |  | Selected Financial Data                                                          |  |          | 3  | 
|          |  | Risk Factors                                                                     |  |          | 5  | 
|ITEM 4.   |  | INFORMATION ON THE COMPANY                                                       |  |          | 9  | 
|          |  | History and Development of the Company                                           |  |          | 9  | 
|          |  | Overview                                                                         |  |          | 10 | 
|          |  | Organizational Structure                                                         |  |          | 15 | 
|          |  | Property, Plant and Equipment                                                    |  |          | 15 | 
|ITEM 4A   |  | UNRESOLVED STAFF COMMENTS                                                        |  |          | 16 | 
|ITEM 5.   |  | OPERATING AND FINANCIAL REVIEW AND
    PROSPECTS                                 |  |          | 16 | 
|          |  | Operating Results                                                                |  |          | 17 | 
|          |  | Liquidity and Capital Resources                                                  |  |          | 22 | 
|          |  | Off-balance Sheet Arrangements                                                   |  |          | 26 | 
|          |  | Contractual Obligations                                                          |  |          | 27 | 
|ITEM 6.   |  | DIRECTORS, SENIOR MANAGEMENT AND
    EMPLOYEES                                   |  |          | 28 | 
|          |  | Directors and Senior Management                                                  |  |          | 28 | 
|          |  | Compensation                                                                     |  |          | 29 | 
|          |  | Board Practices                                                                  |  |          | 31 | 
|          |  | Employees                                                                        |  |          | 31 | 
|          |  | Share Ownership                                                                  |  |          | 31 | 
|ITEM 7.   |  | MAJOR SHAREHOLDERS AND RELATED PARTY
    TRANSACTIONS                            |  |          | 32 | 
|          |  | Major Shareholders                                                               |  |          | 32 | 
|          |  | Related Party Transactions                                                       |  |          | 32 | 
|ITEM 8.   |  | FINANCIAL INFORMATION                                                            |  |          | 33 | 
|ITEM 9.   |  | THE OFFER AND LISTING                                                            |  |          | 38 | 
|ITEM 10.  |  | ADDITIONAL INFORMATION                                                           |  |          | 39 | 
|          |  | Share Capital                                                                    |  |          | 39 | 
|          |  | Memorandum and Articles of Association                                           |  |          | 39 | 
|          |  | Material Contracts                                                               |  |          | 40 | 
|          |  | Exchange Controls                                                                |  |          | 42 | 
|          |  | Taxation                                                                         |  |          | 43 | 
|          |  | Documents on Display                                                             |  |          | 46 | 
|          |  | Subsidiary Information                                                           |  |          | 46 | 
|ITEM 11.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                   |  |          | 46 | 
|ITEM 12.  |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
    SECURITIES                       |  |          | 49 | 
|PART II  
|ITEM 13.  |  | DEFAULTS, DIVIDEND ARREARAGES AND
    DELINQUENCIES                              |  |          | 49 | 
|ITEM 14.  |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF
    SECURITY HOLDERS AND USE OF PROCEEDS |  |          | 49 | 
|ITEM 15.  |  | CONTROLS AND PROCEDURES                                                          |  |          | 49 | 
|ITEM 16.  |  | RESERVED                                                                         |  |          | 50 | 
|ITEM 16A. |  | AUDIT COMMITTEE FINANCIAL EXPERT                                                 |  |          | 50 | 





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|                                                |  |                                                                             |  |          |    | 
|----------------------------------------------- |  | --------------------------------------------------------------------------- |  | -------- | -- | 
|                                                |  |                                                                             |  | Page No. |   
|                                                |  |                                                                             |  |          |   
|ITEM 16B.                                       |  | CODE OF ETHICS                                                              |  |          | 50 | 
|ITEM 16C.                                       |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |  |          | 51 | 
|ITEM 16D.                                       |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR
    AUDIT COMMITTEES              |  |          | 51 | 
|ITEM 16E.                                       |  | PURCHASES OF EQUITY SECURITIES BY OUR
    COMPANY AND AFFILIATED PURCHASERS |  |          | 51 | 
|PART III                                       
|ITEM 17.                                        |  | FINANCIAL STATEMENTS                                                        |  |          | 52 | 
|ITEM 18.                                        |  | FINANCIAL STATEMENTS                                                        |  |          | 52 | 
|ITEM 19.                                        |  | EXHIBITS                                                                    |  |          | 84 | 
|                                                |  | SIGNATURES                                                                  |  |          | 87 | 
|Certificate of Change of Name                  
|Supplemental Indenture - Computershare Trust   
|Restructuring Agreement - Mass Financial Corp. 
|Share Exchange Agreement - Mass Financial Corp.
|Services Agreement - Mass Financial Corp.      
|Section 302 Certification - CFO                
|Section 302 Certification _ CEO                
|Section 906 Certification - CFO                
|Section 906 Certification - CEO                
|Audit Committee Charter                        



2



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PART I















|       |                                                          
|------ | ---------------------------------------------------------
|ITEM 1 | Identity of Directors, Senior Management and
    Advisers








|       |                                        
|------ | ---------------------------------------
|ITEM 2 | Offer Statistics and Expected Timetable








|       |                
|------ | ---------------
|ITEM 3 | Key Information




A.     Selected Financial Data




3



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Selected Financial Data


(Stated in Canadian dollars  Calculated in
accordance with Canadian GAAP)


(In thousands, other than per share amounts)


Fiscal Years Ended December 31


|                                                                                      |         |           |         |      |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |      | 
|------------------------------------------------------------------------------------- | ------- | --------- | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                                                                      |         | 2005      |         |      | 2004 |   |         | 2003 |  |   | 2002    |      |  | 2001 |        
|                                                                                      |         |           |         |      |      |   |         |      |  |   |         |      |  |      |        
|                                                                                      |         | (Audited) |        
|Revenues                                                                              |         | $         | 956,010 |      |      | $ | 697,764 |      |  | $ | 409,513 |      |  | $    | 284,339 |      |  | $ | 214,246 |     
|Net income                                                                            |         |           | 34,197  |      |      |   | 36,951  |      |  |   | 49,116  |      |  |      | 50,755  |      |  |   | 45,288  |     
|Net income per share                                                                  |         |           |         |      |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |     
|                                                                                      | Basic   |           |         | 2.51 |      |   |         | 2.73 |  |   |         | 3.76 |  |      |         | 3.93 |  |   |         | 3.59 | 
|                                                                                      | Diluted |           |         | 2.50 |      |   |         | 2.70 |  |   |         | 3.59 |  |      |         | 3.70 |  |   |         | 3.35 | 
|Total assets                                                                          |         |           | 609,831 |      |      |   | 603,699 |      |  |   | 404,577 |      |  |      | 446,574 |      |  |   | 394,639 |     
|Net assets                                                                            |         |           | 305,872 |      |      |   | 298,731 |      |  |   | 223,273 |      |  |      | 291,041 |      |  |   | 249,118 |     
|Long-term debt, total                                                                 |         |           | 9,162   |      |      |   | 22,556  |      |  |   | 33,297  |      |  |      | 68,798  |      |  |   | 98,000  |     
|Shareholders equity                                                                  |         |           | 284,783 |      |      |   | 269,421 |      |  |   | 218,447 |      |  |      | 285,290 |      |  |   | 245,997 |     
|Capital stock                                                                         |         |           | 72,847  |      |      |   | 71,512  |      |  |   | 61,891  |      |  |      | 70,269  |      |  |   | 76,673  |     
|Cash dividends                                                                        |         |           |        |      |      |   |        |      |  |   |        |      |  |      |        |      |  |   |        |     
|Cash dividends per share                                                              |         |           |        |      |      |   |        |      |  |   |        |      |  |      |        |      |  |   |        |     
|Weighted average common stock outstanding, fully diluted (in
    thousands of shares) |         |           | 13,755  |      |      |   | 13,818  |      |  |   | 14,129  |      |  |      | 14,170  |      |  |   | 14,002  |     

Selected Financial Data


(Stated in Canadian dollars  Calculated in
accordance with U.S. GAAP)


(In thousands, other than per share amounts)


Fiscal Years Ended December 31


|                                                                                      |         |           |         |      |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |      | 
|------------------------------------------------------------------------------------- | ------- | --------- | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                                                                      |         | 2005      |         |      | 2004 |   |         | 2003 |  |   | 2002    |      |  | 2001 |        
|                                                                                      |         |           |         |      |      |   |         |      |  |   |         |      |  |      |        
|                                                                                      |         | (Audited) |        
|Revenues                                                                              |         | $         | 956,010 |      |      | $ | 697,764 |      |  | $ | 409,513 |      |  | $    | 284,339 |      |  | $ | 212,000 |     
|Net income                                                                            |         |           | 25,314  |      |      |   | 36,973  |      |  |   | 49,116  |      |  |      | 50,755  |      |  |   | 43,211  |     
|Net income per share                                                                  |         |           |         |      |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |     
|                                                                                      | Basic   |           |         | 1.86 |      |   |         | 2.73 |  |   |         | 3.76 |  |      |         | 3.93 |  |   |         | 3.42 | 
|                                                                                      | Diluted |           |         | 1.85 |      |   |         | 2.70 |  |   |         | 3.59 |  |      |         | 3.70 |  |   |         | 3.20 | 
|Total assets                                                                          |         |           | 610,250 |      |      |   | 604,243 |      |  |   | 401,235 |      |  |      | 445,342 |      |  |   | 391,489 |     
|Net assets                                                                            |         |           | 295,338 |      |      |   | 297,581 |      |  |   | 218,401 |      |  |      | 289,809 |      |  |   | 245,968 |     
|Long-term debt, total                                                                 |         |           | 9,271   |      |      |   | 22,680  |      |  |   | 33,297  |      |  |      | 68,798  |      |  |   | 98,000  |     
|Shareholders equity                                                                  |         |           | 274,249 |      |      |   | 268,271 |      |  |   | 213,575 |      |  |      | 284,058 |      |  |   | 242,847 |     
|Capital stock                                                                         |         |           | 72,847  |      |      |   | 71,512  |      |  |   | 61,891  |      |  |      | 70,269  |      |  |   | 76,673  |     
|Cash dividends                                                                        |         |           |        |      |      |   |        |      |  |   |        |      |  |      |        |      |  |   |        |     
|Cash dividends per share                                                              |         |           |        |      |      |   |        |      |  |   |        |      |  |      |        |      |  |   |        |     
|Weighted average common stock outstanding, fully diluted (in
    thousands of shares) |         |           | 13,755  |      |      |   | 13,818  |      |  |   | 14,129  |      |  |      | 14,170  |      |  |   | 14,002  |     



| |                                                                             
| | ----------------------------------------------------------------------------
| | Reconciliation to United States Generally Accepted
    Accounting Principles



4



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##### Table of Contents





| |                                    
| | -----------------------------------
| | Disclosure of Exchange Rate History



|                   |  |                          |        |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        | 
|------------------ |  | ------------------------ | ------ |  | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  |  |  | ------ | 
|                   |  | Years Ended December 31, |       
|                   |  |                          |       
|                   |  | 2005                     |        |  | 2004 |  |        | 2003 |  |  | 2002   |  |  | 2001 |       
|                   |  |                          |        |  |      |  |        |      |  |  |        |  |  |      |       
|End of period      |  |                          | 0.8577 |  |      |  | 0.8310 |      |  |  | 0.7738 |  |  |      | 0.6329 |  |  |  | 0.6279 | 
|High for period    |  |                          | 0.8751 |  |      |  | 0.8493 |      |  |  | 0.7738 |  |  |      | 0.6619 |  |  |  | 0.6697 | 
|Low for period     |  |                          | 0.7853 |  |      |  | 0.7177 |      |  |  | 0.6349 |  |  |      | 0.6200 |  |  |  | 0.6241 | 
|Average for period |  |                          | 0.8254 |  |      |  | 0.7682 |      |  |  | 0.7138 |  |  |      | 0.6368 |  |  |  | 0.6457 | 



|                    |  |      |        |  |     |  |        | 
|------------------- |  | ---- | ------ |  | --- |  | ------ | 
|                    |  | High |        |  | Low | 
|                    |  |      |        |  |     | 
|2005                |  |      |        |  |     |  |        | 
|September           |  |      | 0.8630 |  |     |  | 0.8378 | 
|October             |  |      | 0.8599 |  |     |  | 0.8387 | 
|November            |  |      | 0.8590 |  |     |  | 0.8349 | 
|December            |  |      | 0.8751 |  |     |  | 0.8508 | 
|2006                |  |      |        |  |     |  |        | 
|January             |  |      | 0.8794 |  |     |  | 0.8479 | 
|February            |  |      | 0.8809 |  |     |  | 0.8610 | 
|March 1 to March 15 |  |      | 0.8850 |  |     |  | 0.8584 | 



S-X




|   |                                
|-- | -------------------------------
|B. | Capitalization and Indebtedness





|   |                                          
|-- | -----------------------------------------
|C. | Reasons for the Offer and Use of Proceeds








|   |             
|-- | ------------
|D. | Risk Factors







5



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##### Table of Contents









| |                                                                     
| | --------------------------------------------------------------------
| | Risk Factors Relating to Our Industrial and Engineering
    Business



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A downturn in the economy could reduce the demand for our
    industrial and engineering services and therefore may have a
    material adverse effect on our financial results.





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Any significant disruption of our operations may harm our
    business reputation and cause an adverse effect on our financial
    results.





| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are exposed to political, economic, legal, operational and
    other risks as a result of our global operations, which may
    negatively effect our business, results of operations, financial
    condition and cash flow.



6



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##### Table of Contents







| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Transactions with parties in countries designated by the
    United States State Department as state sponsors of terrorism
    may lead some potential customers and investors in the United
    States and other countries to avoid doing business with us or
    investing in our shares.







| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | The cost of raw materials could have a material adverse
    effect on our financial condition and results of operations.





| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to risks associated with changing technology
    and manufacturing techniques, which could place us at a
    competitive disadvantage.



7



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##### Table of Contents







| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Our competitors include firms traditionally engaged in the
    industrial and engineering services business.





| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our risk management strategies leave us exposed to
    unidentified or unanticipated risks which could impact our risk
    management strategies in the future and could negatively affect
    our results of operation and financial condition.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | A rise in inflation may negatively affect our business,
    results of operations and financial condition.





| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are exposed to legal risks in our business which are often
    difficult to assess or quantify. We may incur significant legal
    expenses in defending against any litigation.





| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Some of our subsidiaries operating in the industrial and
    engineering services business are staffed by a unionized
    workforce, and union disputes and other employee relations
    issues may materially adversely affect our financial results.





| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to protect the confidentiality or unique
    aspects of our technology, which would reduce our competitive
    advantage.



8



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##### Table of Contents





| |                                   
| | ----------------------------------
| | General Risks Faced by Our Company



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Investors interests will be diluted and investors may
    suffer dilution in their net book value per share if we issue
    additional shares or raise funds through the sale of equity
    securities.





| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Articles contain indemnification provisions and we have
    entered into agreements indemnifying our officers and directors
    against all costs, charges and expenses incurred by them.





| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Certain factors may inhibit, delay or prevent a takeover of
    our company which may adversely affect the price of our common
    stock.

Investment Canada Act




| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Fluctuations in interest rates and foreign currency exchange
    rates may affect our results of operations and financial
    condition.










|       |                           
|------ | --------------------------
|ITEM 4 | Information on the Company






|   |                                       
|-- | --------------------------------------
|A. | History and Development of the Company

Companies
Act of 1934 Canada
Business Corporations Act Business


9



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##### Table of Contents



Corporations Act Business Corporations Act







|   |                  
|-- | -----------------
|B. | Business Overview



6-K






|              |  |                                 |         |  |      |   |         |      |  |   |         | 
|------------- |  | ------------------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|              |  | 2005                            |         |  | 2004 |   |         | 2003 | 
|              |  |                                 |         |  |      |   |         |      | 
|              |  | (Canadian dollars in thousands) |        
|Europe        |  | $                               | 494,915 |  |      | $ | 403,804 |      |  | $ | 391,282 | 
|Canada        |  |                                 | 9,499   |  |      |   | 10,042  |      |  |   | 7,872   | 
|United States |  |                                 | 34,764  |  |      |   | 46,320  |      |  |   | 9,563   | 
|Asia          |  |                                 | 381,051 |  |      |   | 207,320 |      |  |   |        | 
|Africa        |  |                                 | 20,350  |  |      |   | 23,522  |      |  |   | 796     | 
|Other         |  |                                 | 15,431  |  |      |   | 6,756   |      |  |   |        | 
|              |  |                                 |         |  |      |   |         |      | 
|Total         |  | $                               | 956,010 |  |      | $ | 697,764 |      |  | $ | 409,513 | 
|              |  |                                 |         |  |      |   |         |      | 



| |                                                                    
| | -------------------------------------------------------------------
| | Description of our Industrial and Engineering Services
    Business



scale-up


10



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##### Table of Contents









| |                             
| | ----------------------------
| | Business Activities  Cement













| |                                        
| | ---------------------------------------
| | Business Activities  Coal and Minerals









| |                    
| | -------------------
| | Recent Developments



11



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##### Table of Contents







| |                             
| | ----------------------------
| | Expanding Low Cost Platforms





| |                    
| | -------------------
| | Global Risk Control





| |                            
| | ---------------------------
| | New Joint Venture in Russia







| |                         
| | ------------------------
| | Research and Development







| |                                                                 
| | ----------------------------------------------------------------
| | Recent Commercialization of Research and Development
    Project

®


12



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##### Table of Contents





| |                                     
| | ------------------------------------
| | Revitalizing Dormant Product Lines







| |                         
| | ------------------------
| | Order Intake and Backlog

   








| |                     
| | --------------------
| | Industry Description





| |                                                                        
| | -----------------------------------------------------------------------
| | Description of Our Financial Services and Merchant Banking
    Business







13



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##### Table of Contents







| |            
| | -----------
| | Competition







| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | complete line competitors which are companies providing either a
    similar, or even broader range of equipment services to the
    cement industry; and
|
| |  | part line competitors which are companies focusing on a smaller
    range of equipment and technologies.                                                 









| |                                
| | -------------------------------
| | Sales and Distribution Channels





 




| |                     
| | --------------------
| | Patents and Licenses



14



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##### Table of Contents












|   |                         
|-- | ------------------------
|C. | Organizational Structure



|                                               |  |                 
|---------------------------------------------- |  | ----------------
|                                               |  | Jurisdiction of 
|                                               |  | Incorporation or
|Name of Wholly-Owned Subsidiary                |  | Organization    
|                                               |  |                 
|MFC Merchant Bank S.A.                         |  | Switzerland     
|Robabond Holding AG                            |  | Switzerland     
|MFC Commodities AG                             |  | Switzerland     
|KHD Humboldt Wedag International Holdings GmbH |  | Austria         
|KHD Humboldt Wedag International GmbH          |  | Austria         
|Humboldt Wedag Inc.                            |  | USA             
|Humboldt Wedag India Ltd.                      |  | India           



|                                    |  |                  |         |  |                    |                                       |              |  |         |  
|----------------------------------- |  | ---------------- | ------- |  | ------------------ | ------------------------------------- | ------------ |  | ------- | -
|                                    |  | Jurisdiction of  |         |  |                    |                                       |             
|                                    |  | Incorporation or |         |  |                    |                                       | Our          | 
|Name of Non-Wholly-Owned Subsidiary |  | Organization     |         |  | Owner of Interests |                                       | Shareholding | 
|                                    |  |                  |         |  |                    |                                       |              | 
|Sasamat Capital Corporation         |  |                  | Canada  |  |                    | KHD Humboldt Wedag International Ltd. |              |  | 50.5%(1 | )
|MFC Industrial Holdings AG          |  |                  | Germany |  |                    | KHD Humboldt Wedag International Ltd. |              |  | 97%(1   | )
|KHD Humboldt Wedag GmbH             |  |                  | Germany |  |                    | MFC Industrial Holdings AG            |              |  | 100%(2  | )
|Zementanlagenbau Dessau GmbH        |  |                  | Germany |  |                    | KHD Humboldt Wedag GmbH               |              |  | 100%(2  | )
|Altmark Industriepark AG            |  |                  | Germany |  |                    | KHD Humboldt Wedag GmbH               |              |  | 94.8%(2 | )
|ZAB Industrietechnik & Service GmbH |  |                  | Germany |  |                    | Zementanlagenbau Dessau GmbH          |              |  | 100%(2  | )






|    |                                                           
|--- | ----------------------------------------------------------
|(1) | Representing shareholding by the immediate parent company.
|   
|(2) | Held by our company and/or our subsidiaries.              






|   |                              
|-- | -----------------------------
|D. | Property, Plant and Equipment



| |             
| | ------------
| | Office Space









| |                                        
| | ---------------------------------------
| | Royalty Interest  Wabush Iron Ore Mine



15



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##### Table of Contents













| |                          
| | -------------------------
| | Real estate held for sale











|        |                          
|------- | -------------------------
|ITEM 4A | Unresolved Staff Comments








|       |                                             
|------ | --------------------------------------------
|ITEM 5 | Operating and Financial Review and Prospects



16



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##### Table of Contents








|   |                  
|-- | -----------------
|A. | Operating Results



| |         
| | --------
| | Overview

















| |                             
| | ----------------------------
| | Summary of Quarterly Results



|                           |  |                                                          |         |  |               |   |         |          |  |   |           |  |  |   |         | 
|-------------------------- |  | -------------------------------------------------------- | ------- |  | ------------- | - | ------- | -------- |  | - | --------- |  |  | - | ------- | 
|                           |  | December 31,                                             |         |  | September 30, |   |         | June 30, |  |   | March 31, | 
|                           |  | 2005                                                     |         |  | 2005          |   |         | 2005     |  |   | 2005      | 
|                           |  |                                                          |         |  |               |   |         |          |  |   |           | 
|                           |  | (Unaudited)                                              |        
|                           |  | (Canadian dollars in thousands, except per share amount) |        
|Revenues                   |  | $                                                        | 236,080 |  |               | $ | 231,223 |          |  | $ | 276,558   |  |  | $ | 212,149 | 
|Expenses                   |  |                                                          | 228,304 |  |               |   | 224,184 |          |  |   | 252,469   |  |  |   | 206,889 | 
|Net income                 |  |                                                          | 5,721   |  |               |   | 6,008   |          |  |   | 16,484    |  |  |   | 5,984   | 
|Diluted earnings per share |  |                                                          | 0.42    |  |               |   | 0.44    |          |  |   | 1.20      |  |  |   | 0.44    | 

17



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##### Table of Contents



|                           |  |                                                          |         |  |               |   |         |          |  |   |           |  |  |   |         | 
|-------------------------- |  | -------------------------------------------------------- | ------- |  | ------------- | - | ------- | -------- |  | - | --------- |  |  | - | ------- | 
|                           |  | December 31,                                             |         |  | September 30, |   |         | June 30, |  |   | March 31, | 
|                           |  | 2004                                                     |         |  | 2004          |   |         | 2004     |  |   | 2004      | 
|                           |  |                                                          |         |  |               |   |         |          |  |   |           | 
|                           |  | (Unaudited)                                              |        
|                           |  | (Canadian dollars in thousands, except per share amount) |        
|Revenues                   |  | $                                                        | 206,497 |  |               | $ | 195,717 |          |  | $ | 181,221   |  |  | $ | 114,329 | 
|Expenses                   |  |                                                          | 199,677 |  |               |   | 189,116 |          |  |   | 167,539   |  |  |   | 103,017 | 
|Net income                 |  |                                                          | 7,640   |  |               |   | 7,248   |          |  |   | 10,962    |  |  |   | 11,101  | 
|Diluted earnings per share |  |                                                          | 0.56    |  |               |   | 0.53    |          |  |   | 0.80      |  |  |   | 0.81    | 







| |                       
| | ----------------------
| | Summary of Fiscal 2005



| |                                           
| | ------------------------------------------
| | Changes in Financing and Capital Structure





| |                              
| | -----------------------------
| | Acquisitions and Divestitures









| |                         
| | ------------------------
| | Overview of 2005 Results



18



---



##### Table of Contents





|                                                  |  |                                |       |  |      |   |       |      |  |   |       | 
|------------------------------------------------- |  | ------------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                                  |  | Year Ended December 31         |      
|                                                  |  |                                |      
|                                                  |  | 2005                           |       |  | 2004 |   |       | 2003 | 
|                                                  |  |                                |       |  |      |   |       |      | 
|                                                  |  | (Canadian dollars in millions, |      
|                                                  |  | except per share amounts)      |      
|Revenue  industrial and engineering services(2)  |  | $                              | 398.5 |  |      | $ | 199.1 |      |  | $ |      | 
|Revenue  financial services(1)                   |  |                                | 557.5 |  |      |   | 498.7 |      |  |   | 409.5 | 
|Expenses  industrial and engineering services(2) |  |                                | 326.0 |  |      |   | 158.3 |      |  |   |      | 
|Expenses  financial services(1)                  |  |                                | 502.5 |  |      |   | 430.9 |      |  |   | 329.5 | 
|General and administrative expenses               |  |                                | 74.3  |  |      |   | 62.6  |      |  |   | 25.2  | 
|Net income                                        |  |                                | 34.2  |  |      |   | 37.0  |      |  |   | 49.1  | 
|Basic earnings per share                          |  |                                | 2.51  |  |      |   | 2.73  |      |  |   | 3.76  | 
|Diluted earnings per share                        |  |                                | 2.50  |  |      |   | 2.70  |      |  |   | 3.59  | 






|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(1) | Substantially all of our financial services business was
    distributed to our shareholders subsequent to December 31,
    2005
|   
|(2) | Segment acquired in March, 2004                                                                                                 





| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Year Ended December 31, 2005 Compared to the Year Ended
    December 31, 2004 (includes both the industrial and
    engineering services and financial services segments)





| |         
| | --------
| | Revenues



  




19



---



##### Table of Contents







| |         
| | --------
| | Expenses









day-to




| |             
| | ------------
| | Income Taxes







20



---



##### Table of Contents









time-to






| |       
| | ------
| | Income











| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to the Year Ended
    December 31, 2003 (includes both the industrial and
    engineering services and financial services segments)







21



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##### Table of Contents












|   |                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------
|B. | Liquidity and Capital Resources (includes both the industrial
    and engineering services and financial services segments)



|                                     |  |                   |         |  |                      |   |         |      |  |   |         |  |  |   |         | 
|------------------------------------ |  | ----------------- | ------- |  | -------------------- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                     |  | December 31,      |         |  | December 31,         |  
|                                     |  |                   |         |  |                      |  
|                                     |  | 2005              |         |  | 2004                 |   |         | 2005 |  |   | 2004    | 
|                                     |  |                   |         |  |                      |   |         |      |  |   |         | 
|                                     |  | (U.S. Dollars in  |         |  | (Canadian Dollars in |  
|                                     |  | thousands)        |         |  | thousands)           |  
|                                     |  | (for information) |         |  |                     
|Cash and cash equivalents            |  | $                 | 194,313 |  |                      | $ | 179,231 |      |  | $ | 226,550 |  |  | $ | 215,722 | 
|Short-term securities                |  |                   | 16,265  |  |                      |   | 17,542  |      |  |   | 18,963  |  |  |   | 21,113  | 
|Total assets                         |  |                   | 523,054 |  |                      |   | 501,579 |      |  |   | 609,831 |  |  |   | 603,699 | 
|Long-term debt, less current portion |  |                   | 6,253   |  |                      |   | 11,950  |      |  |   | 7,290   |  |  |   | 14,383  | 
|Shareholders equity                 |  |                   | 244,259 |  |                      |   | 223,849 |      |  |   | 284,783 |  |  |   | 269,421 | 










re-available 20-F.


22



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##### Table of Contents



    




| |                     
| | --------------------
| | Operating Activities







| |                     
| | --------------------
| | Investing Activities







| |                     
| | --------------------
| | Financing Activities







| |                 
| | ----------------
| | Foreign Currency







23



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##### Table of Contents









20-F,




| |                       
| | ----------------------
| | Derivative Instruments

20-F,




| |          
| | ---------
| | Inflation





| |                                            
| | -------------------------------------------
| | Application of Critical Accounting Policies







| |                    
| | -------------------
| | Revenue Recognition

percentage-of percentage-of in-house contract-in


24



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##### Table of Contents







| |                                    
| | -----------------------------------
| | Provisions for Assets Held for Sale



work-in


work-in








| |                            
| | ---------------------------
| | Allowance for Credit Losses





| |                    
| | -------------------
| | Goodwill Impairment





| |                        
| | -----------------------
| | Valuation of Securities



25



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##### Table of Contents









| |               
| | --------------
| | Warranty Costs





| |                         
| | ------------------------
| | Employee Future Benefits







| |                                                              
| | -------------------------------------------------------------
| | Changes in Accounting Policies including Initial
    Adoption

20-F.




|   |                                                     
|-- | ----------------------------------------------------
|C. | Research and Development, Patents and Licenses, Etc.





|   |                  
|-- | -----------------
|D. | Trend Information

     







|   |                               
|-- | ------------------------------
|E. | Off-balance Sheet Arrangements



26



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##### Table of Contents








|   |                                              
|-- | ---------------------------------------------
|F. | Tabular Disclosure of Contractual Obligations

|                                                                                    |  |                                 |        |     |       |   |       |       |  |   |           |  |  |   |       | 
|----------------------------------------------------------------------------------- |  | ------------------------------- | ------ | --- | ----- | - | ----- | ----- |  | - | --------- |  |  | - | ----- | 
|                                                                                    |  | Payments Due by Period          |       
|                                                                                    |  |                                 |       
|                                                                                    |  | Less than                       |        |     | 2  3 |   |       | 4  5 |  |   | More than | 
|Contractual Obligations as at December 31, 2005                                     |  | 1 Year                          |        |     | Years |   |       | Years |  |   | 5 Years   | 
|                                                                                    |  |                                 |        |     |       |   |       |       |  |   |           | 
|                                                                                    |  | (Canadian dollars in thousands) |       
|Long-term debt obligations(1)                                                       |  | $                               | 1,872  |     |       | $ | 309   |       |  | $ | 2,564     |  |  | $ | 4,417 | 
|Capital lease obligations(1)                                                        |  |                                 |       |     |       |   |      |       |  |   |          |  |  |   |      | 
|Operating lease obligations                                                         |  |                                 | 4,176  |     |       |   | 1,958 |       |  |   | 1,308     |  |  |   |      | 
|Purchase obligations                                                                |  |                                 | 60,162 | (2) |       |   |      |       |  |   |          |  |  |   |      | 
|Other long-term liabilities reflected on the Companys
    balance sheet under GAAP |  |                                 |       |     |       |   | 403   |       |  |   | 269       |  |  |   |      | 
|                                                                                    |  |                                 |        |     |       |   |       |       |  |   |           | 
|Total                                                                               |  | $                               | 66,210 |     |       | $ | 2,670 |       |  | $ | 4,141     |  |  | $ | 4,417 | 
|                                                                                    |  |                                 |        |     |       |   |       |       |  |   |           | 






|    |                                                   
|--- | --------------------------------------------------
|(1) | Principal amounts only                            
|   
|(2) | Purchases for industrial and engineering contracts





| |                  
| | -----------------
| | Capital Resources







|   |            
|-- | -----------
|G. | Safe Harbor



27



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|       |                                           
|------ | ------------------------------------------
|ITEM 6 | Directors, Senior Management and Employees






|   |                                
|-- | -------------------------------
|A. | Directors and Senior Management



|                            |  |                                                 |  |                |      |                |  |  |      |    
|--------------------------- |  | ----------------------------------------------- |  | -------------- | ---- | -------------- |  |  | ---- | ---
|                            |  |                                                 |  | Date of        |      | Expiration    
|                            |  |                                                 |  | commencement   |      | of term       
|                            |  |                                                 |  | of office with |      | of office with
|Name and age                |  | Present position with our company               |  | our company    |      | our company   
|                            |  |                                                 |  |                |      |               
|Michael J. Smith (57)       |  | Director                                        |  |                | 1986 |                |  |  | 2008 |    
|                            |  | Chairman, Chief Financial Officer and Secretary |  |                | 1996 |                |  |  | N/A  |    
|Jim Busche (47)             |  | President and Chief Executive Officer           |  |                | 2006 |                |  |  | N/A  |    
|Dr. Shuming Zhao(1) (51)    |  | Director                                        |  |                | 2004 |                |  |  | 2007 |    
|Dr. Kelvin K. Yao(1) (53)   |  | Director                                        |  |                | 2004 |                |  |  | 2007 |    
|Silke Brossmann(1) (37)     |  | Director                                        |  |                | 2003 |                |  |  | 2008 |    
|Indrajit Chatterjee(2) (60) |  | Director                                        |  |                | 2005 |                |  |  | 2006 | (3)






|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | Member of our audit committee.                                                                                          
|   
|(2) | Mr. Chatterjee was appointed to our board of directors on
    September 15, 2005.                                       
|   
|(3) | Expiring on the date of the annual general meeting for the 2005
    fiscal year to be held on or before August 14, 2006.



| |                                                         
| | --------------------------------------------------------
| | Michael J. Smith  President, Secretary and
    Director







| |                                     
| | ------------------------------------
| | Jim Busche  Chief Executive Officer





| |                            
| | ---------------------------
| | Dr. Shuming Zhao  Director



28



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| |                             
| | ----------------------------
| | Dr. Kelvin K. Yao  Director





| |                           
| | --------------------------
| | Silke Brossmann  Director





| |                               
| | ------------------------------
| | Indrajit Chatterjee  Director








|   |             
|-- | ------------
|B. | Compensation



29



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##### Table of Contents





| |                       
| | ----------------------
| | Executive Compensation



SUMMARY COMPENSATION TABLE


|                            |                                                           |                 |         |                        |  |                  |         |           |  |              |     |  |  |  |     |  |  |   |        |  | 
|--------------------------- | --------------------------------------------------------- | --------------- | ------- | ---------------------- |  | ---------------- | ------- | --------- |  | ------------ | --- |  |  |  | --- |  |  | - | ------ |  | 
|                            |                                                           |                 |         | Long Term Compensation |  |                 
|                            |                                                           | Annual          |         |                        |  |                 
|                            |                                                           | Compensation(1) |         |                        |  | Securities Under |         |          
|                            |                                                           |                 |         | Other Annual           |  | Options/SARs     |         | All other
|Name and Principal Position |                                                           | Salary          |         | Bonus                  |  | Compensation     |         | Granted   |  | Compensation
|                            |                                                           |                 |         |                        |  |                  |         |           |  |             
|Michael J. Smith(2)         |                                                           | $               | 312,686 |                        |  | $                | 134,424 |           |  |              | Nil |  |  |  | Nil |  |  | $ | 99,274 | 
|                            | Chairman, Chief Financial Officer, Secretary and Director |                 |         |                        |  |                  |         |           |  |              |     |  |  |  |     |  |  |   |        |  | 
|Stefan Feuerstein(3)        |                                                           | $               | 246,893 |                        |  | $                | 60,351  |           |  |              | Nil |  |  |  | Nil |  |  | $ | 6,211  | 
|                            | Vice-President and Director                               |                 |         |                        |  |                  |         |           |  |              |     |  |  |  |     |  |  |   |        |  | 
|Georg Zimmermann            |                                                           | $               | 322,322 |                        |  |                  | Nil     |           |  |              | Nil |  |  |  | Nil |  |  | $ | 69,710 | 
|                            | Member of Management Board  KHD Humboldt Wedag GmbH      |                 |         |                        |  |                  |         |           |  |              |     |  |  |  |     |  |  |   |        |  | 
|Hermann Kroeger             |                                                           | $               | 255,926 |                        |  | $                | 37,725  |           |  |              | Nil |  |  |  | Nil |  |  | $ | 944    | 
|                            | Member of Management Board  KHD Humboldt Wedag GmbH      |                 |         |                        |  |                  |         |           |  |              |     |  |  |  |     |  |  |   |        |  | 
|Rudolf Pich                 |                                                           | $               | 270,715 |                        |  |                  | Nil     |           |  |              | Nil |  |  |  | Nil |  |  | $ | 82,843 | 
|                            | Member of Management Board  KHD Humboldt Wedag GmbH      |                 |         |                        |  |                  |         |           |  |              |     |  |  |  |     |  |  |   |        |  | 






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On a cash basis, unless otherwise stated.                                                                                                        
|   
|(2) | Mr. Smith resigned as our President and Chief Executive
    Officer effective March 7, 2006.                                                     
|   
|(3) | Dr. Feuerstein resigned from our board of directors on
    September 15, 2005 to pursue other opportunities with an
    affiliate of our company.



| |                        
| | -----------------------
| | Directors Compensation





| |                                                                             
| | ----------------------------------------------------------------------------
| | Employment Agreements and Termination of Employment or
    Change of Control



30



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|   |                
|-- | ---------------
|C. | Board Practices

Business
Corporations Act.













|   |          
|-- | ---------
|D. | Employees








|   |                
|-- | ---------------
|E. | Share Ownership



|                       |                                   |                    |        |  |               |  |     |   | 
|---------------------- | --------------------------------- | ------------------ | ------ |  | ------------- |  | --- | - | 
|                       |                                   | Number of          |        |  |              
|                       |                                   | Common Shares      |        |  |              
|Name Office Held       |                                   | Beneficially Owned |        |  | Percentage(1) | 
|                       |                                   |                    |        |  |               | 
|Michael J. Smith       |                                   |                    | 85,000 |  |               |  | *   | %
|                       | President, Secretary and Director |                    |        |  |               |  |     |   | 
|Jim Busche(2)          |                                   |                    | Nil    |  |               |  | Nil |  
|                       | Chief Executive Officer           |                    |        |  |               |  |     |   | 
|Dr. Shuming Zhao       |                                   |                    | Nil    |  |               |  | Nil |  
|                       | Director                          |                    |        |  |               |  |     |   | 
|Dr. Kelvin K. Yao      |                                   |                    | Nil    |  |               |  | Nil |  
|                       | Director                          |                    |        |  |               |  |     |   | 
|Silke Brossmann        |                                   |                    | Nil    |  |               |  | Nil |  
|                       | Director                          |                    |        |  |               |  |     |   | 
|Indrajit Chatterjee(3) |                                   |                    | Nil    |  |               |  | Nil |  
|                       | Director                          |                    |        |  |               |  |     |   | 






|  |                           
|- | --------------------------
|* | Less than one percent (1%)



|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | Based on 15,206,512 common shares issued and outstanding as at
    March 15, 2006.
|   
|(2) | Jim Busche was appointed our Chief Executive Officer effective
    March 7, 2006. 

31



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Indrajit Chatterjee was appointed to our board of directors on
    September 15, 2005 to fill the vacancy created by the
    resignation of Stefan Feuerstein. Dr. Feuerstein resigned
    from our board of directors on September 15, 2005 to pursue
    other opportunities with an affiliate of our company.

Stock Option Plan









|       |                                                  
|------ | -------------------------------------------------
|ITEM 7 | Major Shareholders and Related Party Transactions




A. Major Shareholders




|                     |  |              |           |     |                     |  |      |  
|-------------------- |  | ------------ | --------- | --- | ------------------- |  | ---- | -
|Name                 |  | Amount Owned |           |     | Percent of Class(1) | 
|                     |  |              |           |     |                     | 
|Peter Kellog         |  |              | 3,141,550 | (2) |                     |  | 20.7 | %
|FMR Corp.            |  |              | 876,285   |     |                     |  | 5.8  | %
|Mass Financial Corp. |  |              | 1,571,128 |     |                     |  | 10.3 | %






|    |                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on 15,206,512 common shares issued and outstanding on
    March 15, 2006.                                                                                         
|   
|(2) | In his public filings, Mr. Kellog disclaims beneficial
    ownership of 2,821,550 of the shares, or approximately 18.6% of
    our issued and outstanding common shares.














B. Related Party Transactions




32



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##### Table of Contents




















|       |                      
|------ | ---------------------
|ITEM 8 | Financial Information

A. Consolidated Statements and Other Financial Information






| |                                                             
| | ------------------------------------------------------------
| | Financial Statements filed as part of the Annual
    Report:



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Independent Auditors Report of BDO Dunwoody LLP dated
    March 24, 2006 on the Consolidated Financial Statements of
    our company as at December 31, 2005                                           
|
| | Report of Independent Registered Public Accounting Firm Peterson
    Sullivan PLLC dated March 18, 2005 on the Consolidated
    Financial Statements of our company as at December 31, 2004
    and 2003
|
| | Consolidated Balance Sheets at December 31, 2005 and 2004                                                                                                                                               
|
| | Consolidated Statements of Income for the years ended
    December 31, 2005, 2004 and 2003                                                                                                              
|
| | Consolidated Statements of Changes in Shareholders Equity
    for the years ended December 31, 2005, 2004 and 2003                                                                                     
|
| | Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003                                                                                                          
|
| | Notes to Consolidated Financial Statements.                                                                                                                                                             





| |                  
| | -----------------
| | Legal Proceedings



33



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##### Table of Contents





| |                       
| | ----------------------
| | Dividend Distributions



B. Significant Changes




6-K


34



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##### Table of Contents





CONSOLIDATED BALANCE SHEET


December 31, 2005


|                   |                                                  |                          |         |             |           |   |         |        |        | 
|------------------ | ------------------------------------------------ | ------------------------ | ------- | ----------- | --------- | - | ------- | ------ | ------ | 
|                   |                                                  |                          |         | Mass        |          
|                   |                                                  | KHD                      |         |             | Financial |  
|                   |                                                  |                          |         |             |           |  
|                   |                                                  |                          |         | (Unaudited) |          
|                   |                                                  | (Canadian dollars        |        
|                   |                                                  | in thousands)            |        
|ASSETS            
|Current Assets     |                                                  |                          |         |             |           |   |         |       
|                   | Cash and cash equivalents                        |                          | $       | 226,550     |           |   | $       | 30,529 | (1)   
|                   | Restricted cash                                  |                          |         | 25,669      |           |   |         | 37     |       
|                   | Securities                                       |                          |         | 18,963      |           |   |         | 3,358  |       
|                   | Loans                                            |                          |         | 12,403      |           |   |         | 9,910  |       
|                   | Receivables, commodities transactions            |                          |         | 12,184      |           |   |         | 12,184 |       
|                   | Receivables, industrial and engineering services |                          |         | 40,326      |           |   |         |       |       
|                   | Receivables                                      |                          |         | 29,769      |           |   |         | 7,541  |       
|                   | Commodity investments                            |                          |         | 28,397      |           |   |         | 28,397 |       
|                   | Inventories                                      |                          |         | 45,052      |           |   |         | 2,414  |       
|                   | Real estate held for sale                        |                          |         | 32,038      |           |   |         | 850    |       
|                   | Contract deposits, prepaid and other             |                          |         | 13,059      |           |   |         | 345    |       
|                   | Future income tax assets                         |                          |         | 8,854       |           |   |         | 737    |       
|                   |                                                  |                          |         |             |           |  
|                   |                                                  | Total current assets     |         |             | 493,264   |   |         |        | 96,302 | 
|                   |                                                  |                          |         |             |           |  
|Non-current Assets |                                                  |                          |         |             |           |   |         |       
|                   | Securities                                       |                          |         | 9,202       |           |   |         | 8,355  |       
|                   | Loans                                            |                          |         | 11,002      |           |   |         |       |       
|                   | Property, plant and equipment                    |                          |         | 12,633      |           |   |         | 651    |       
|                   | Resource property                                |                          |         | 35,341      |           |   |         |       |       
|                   | Goodwill                                         |                          |         | 15,141      |           |   |         | 4,406  |       
|                   | Equity method investments                        |                          |         | 18,679      |           |   |         | 17,667 |       
|                   | Future income tax assets                         |                          |         | 14,569      |           |   |         |       |       
|                   |                                                  |                          |         |             |           |  
|                   |                                                  | Total non-current assets |         |             | 116,567   |   |         |        | 31,079 | 
|                   |                                                  |                          |         |             |           |  
|                   |                                                  | $                        | 609,831 |             |           | $ | 127,381 |       
|                   |                                                  |                          |         |             |           |  

35



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##### Table of Contents



|                                     |                                                    |                             |         |             |           |   |         |        |        | 
|------------------------------------ | -------------------------------------------------- | --------------------------- | ------- | ----------- | --------- | - | ------- | ------ | ------ | 
|                                     |                                                    |                             |         | Mass        |          
|                                     |                                                    | KHD                         |         |             | Financial |  
|                                     |                                                    |                             |         |             |           |  
|                                     |                                                    |                             |         | (Unaudited) |          
|                                     |                                                    | (Canadian dollars           |        
|                                     |                                                    | in thousands)               |        
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current Liabilities                  |                                                    |                             |         |             |           |   |         |       
|                                     | Accounts payable and accrued expenses              |                             | $       | 186,111     |           |   | $       | 34,130 |       
|                                     | Notes payable, commodities transactions            |                             |         | 11,531      |           |   |         | 11,531 |       
|                                     | Notes payable, industrial and engineering services |                             |         | 3,432       |           |   |         |       |       
|                                     | Long-term debt, current portion                    |                             |         | 1,872       |           |   |         | 233    |       
|                                     | Pension liabilities                                |                             |         | 1,736       |           |   |         |       |       
|                                     | Deposits                                           |                             |         | 20,202      |           |   |         |       |       
|                                     | Provision for warranty costs                       |                             |         | 23,932      |           |   |         |       |       
|                                     | Future income tax liability                        |                             |         | 353         |           |   |         | 67     |       
|                                     |                                                    |                             |         |             |           |  
|                                     |                                                    | Total current liabilities   |         |             | 249,169   |   |         |        | 45,961 | 
|Long-term Liabilities                |                                                    |                             |         |             |           |   |         |       
|                                     | Long-term debt, less current portion               |                             |         | 7,290       |           |   |         | 1,013  |       
|                                     | Pension liabilities                                |                             |         | 29,828      |           |   |         |       |       
|                                     | Provision for warranty costs                       |                             |         | 5,162       |           |   |         |       |       
|                                     | Future income tax liability                        |                             |         | 11,838      |           |   |         |       |       
|                                     | Other long-term liabilities                        |                             |         | 672         |           |   |         |       |       
|                                     |                                                    |                             |         |             |           |  
|                                     |                                                    | Total long-term liabilities |         |             | 54,790    |   |         |        | 1,013  | 
|                                     |                                                    |                             |         |             |           |  
|                                     |                                                    | Total liabilities           |         |             | 303,959   |   |         |        | 46,974 | 
|                                     |                                                    |                             |         |             |           |  
|Minority Interests                   |                                                    |                             | 21,089  |             |           |   | 2,223   |       
|Shareholders Equity                 |                                                    |                             | 284,783 | (2)(3)      |           |   | 78,184  | (2)(3)
|                                     |                                                    |                             |         |             |           |  
|                                     |                                                    | $                           | 609,831 |             |           | $ | 127,381 |       
|                                     |                                                    |                             |         |             |           |  








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mass Financial had $11,700 deposit with MFC Merchant Bank.                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | The table does not reallocate 1,571,128 shares of our
    common stock held by Mass Financial through its subsidiaries.
    The 1,571,128 common shares had a book value of
    $10.9 million, which has been eliminated and deducted from
    the shareholders equity. Upon separation of KHD and Mass
    Financial, these 1,571,128 common shares will be treated as
    issued and outstanding in KHDs consolidated financial
    statements.
|   
|(3) | At December 31, 2005, the cumulative currency translation
    adjustment loss, under the shareholders equity, included a
    cumulative loss of approximately $24.8 million attributable
    to Mass Financial group of companies.                                                                                                                                                                                                                
|   
|(4) | All intercompany transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                               

36



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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS


For the year ended December 31, 2005


|                                                                  |                                     |                           |         |             |           |   |         |         | 
|----------------------------------------------------------------- | ----------------------------------- | ------------------------- | ------- | ----------- | --------- | - | ------- | ------- | 
|                                                                  |                                     |                           |         | Mass        |          
|                                                                  |                                     | KHD                       |         |             | Financial |  
|                                                                  |                                     |                           |         |             |           |  
|                                                                  |                                     |                           |         | (Unaudited) |          
|                                                                  |                                     | (Canadian dollars in      |        
|                                                                  |                                     | thousands,                |        
|                                                                  |                                     | except per share amounts) |        
|Revenue                                                           |                                     |                           |         |             |           |   |         |        
|                                                                  | Financial services revenue          |                           | $       | 557,535     |           |   | $       | 550,001 | 
|                                                                  | Industrial and engineering services |                           |         | 398,475     |           |   |         | 4,770   | 
|                                                                  |                                     |                           |         |             |           |  
|                                                                  |                                     |                           | 956,010 |             |           |   | 554,771 |        
|                                                                  |                                     |                           |         |             |           |  
|Expenses                                                          |                                     |                           |         |             |           |   |         |        
|                                                                  | Financial services                  |                           |         | 502,494     |           |   |         | 508,092 | 
|                                                                  | Industrial and engineering services |                           |         | 326,029     |           |   |         | 829     | 
|                                                                  | General and administrative          |                           |         | 74,257      |           |   |         | 35,154  | 
|                                                                  | Interest                            |                           |         | 9,066       |           |   |         | 4,583   | 
|                                                                  |                                     |                           |         |             |           |  
|                                                                  |                                     |                           | 911,846 |             |           |   | 548,658 |        
|                                                                  |                                     |                           |         |             |           |  
|Income from operations before income taxes and minority interests |                                     |                           | 44,164  |             |           |   | 6,113   | (2)    
|Provision for income taxes                                        |                                     |                           | (3,160  | )           |           |   | (618    | )      
|                                                                  |                                     |                           |         |             |           |  
|Income from operations before minority interests                  |                                     |                           | 41,004  |             |           |   | 5,495   |        
|Minority interests                                                |                                     |                           | (6,807  | )           |           |   | (798    | )      
|                                                                  |                                     |                           |         |             |           |  
|Net income                                                        |                                     | $                         | 34,197  |             |           | $ | 4,697   | (2)    
|                                                                  |                                     |                           |         |             |           |  








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All intercompany transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | KHD shows income from operations before income taxes and
    minority interest of $15.2 million for the financial
    services segment (see Note 20 to our consolidated financial
    statements), which includes our bank subsidiary and our royalty
    interest in an iron ore mine. Mass Financial shows income from
    operations before income taxes and minority interests of
    $6.1 million and net income of $4.7 million, which do
    not include the financial services revenues to be retained by
    KHD.

37



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##### Table of Contents








|       |                      
|------ | ---------------------
|ITEM 9 | The Offer and Listing



|  |                          
|- | -------------------------
|A | Offer and Listing Details



|                          |  |         |       |  |         |  |       | 
|------------------------- |  | ------- | ----- |  | ------- |  | ----- | 
|                          |  | Nasdaq  |      
|                          |  |         |      
|                          |  | High    |       |  | Low     | 
|                          |  |         |       |  |         | 
|                          |  | (U.S.$) |       |  | (U.S.$) | 
|Annual Highs and Lows     |  |         |       |  |         |  |       | 
|2001                      |  |         | 11.60 |  |         |  | 7.13  | 
|2002                      |  |         | 11.51 |  |         |  | 6.45  | 
|2003                      |  |         | 18.42 |  |         |  | 6.81  | 
|2004                      |  |         | 27.65 |  |         |  | 15.25 | 
|2005                      |  |         | 26.52 |  |         |  | 15.50 | 
|Quarterly Highs and Lows  |  |         |       |  |         |  |       | 
|2004                      |  |         |       |  |         |  |       | 
|First Quarter             |  |         | 27.65 |  |         |  | 17.50 | 
|Second Quarter            |  |         | 25.45 |  |         |  | 15.75 | 
|Third Quarter             |  |         | 19.90 |  |         |  | 15.25 | 
|Fourth Quarter            |  |         | 21.69 |  |         |  | 16.55 | 
|2005                      |  |         |       |  |         |  |       | 
|First Quarter             |  |         | 22.97 |  |         |  | 17.03 | 
|Second Quarter            |  |         | 20.02 |  |         |  | 17.05 | 
|Third Quarter             |  |         | 26.52 |  |         |  | 17.59 | 
|Fourth Quarter            |  |         | 25.90 |  |         |  | 18.00 | 
|Monthly Highs and Lows    |  |         |       |  |         |  |       | 
|2005                      |  |         |       |  |         |  |       | 
|October                   |  |         | 25.90 |  |         |  | 21.54 | 
|November                  |  |         | 24.48 |  |         |  | 18.00 | 
|December                  |  |         | 22.47 |  |         |  | 20.55 | 
|2006                      |  |         |       |  |         |  |       | 
|January                   |  |         | 26.46 |  |         |  | 21.29 | 
|February                  |  |         | 26.46 |  |         |  | 20.68 | 
|March (to March 15, 2006) |  |         | 23.78 |  |         |  | 21.88 | 

201-680-5258; 201-680-4604).




|   |                     
|-- | --------------------
|B. | Plan of Distribution





|   |        
|-- | -------
|C. | Markets





|   |                     
|-- | --------------------
|D. | Selling Shareholders





|   |         
|-- | --------
|E. | Dilution





|   |                      
|-- | ---------------------
|F. | Expenses of the Issue



38



---



##### Table of Contents








|        |                       
|------- | ----------------------
|ITEM 10 | Additional Information






|   |              
|-- | -------------
|A. | Share Capital








|   |                                
|-- | -------------------------------
|B. | Notice of Articles and Articles











winding-up




Business
Corporations Act.




Investment Canada Act, Investment Canada Act




39



---



##### Table of Contents










|   |                   
|-- | ------------------
|C. | Material Contracts



  


































40



---



##### Table of Contents
















































41



---



##### Table of Contents












|   |                  
|-- | -----------------
|D. | Exchange Controls



Investment Canada Act, non-Canadians Investment Canada Act This summary is of a general nature only and is not intended
to be, and should not be construed to be, legal advice to any
holder or prospective holder of our common shares, and no
opinion or representation to any holder or prospective holder of
our common shares is hereby made. Accordingly, holders and
prospective holders of our common shares should consult with
their own legal advisors with respect to the consequences of
purchasing and owning our common shares.


Investment Canada Act Investment
Canada Act, Investment Canada
Act member-controlled Investment Canada Act, one-third


Investment Canada
Act, Investment Canada Act non-Canadian


Investment Canada Act,




| |                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) the acquisition of our common shares by a person in the
    ordinary course of that persons business as a trader or
    dealer in securities;                                                                                                                                      
|
| | (b) the acquisition of control of our company in connection
    with the realization of security granted for a loan or other
    financial assistance and not for a purpose related to the
    provisions of the Investment Canada Act; and                                             
|
| | (c) the acquisition of control of our company by reason of
    an amalgamation, merger, consolidation or corporate
    reorganization following which the ultimate direct or indirect
    control in fact of our company, through ownership of our common
    shares, remains unchanged.

42



---



##### Table of Contents








|   |         
|-- | --------
|E. | Taxation



| |                                                 
| | ------------------------------------------------
| | Certain Canadian Federal Income Tax Consequences

Income
Tax Act non-resident


Income Tax Act, Income Tax Act


This summary is of a general nature only and is not intended
to be, and should not be construed to be, legal, business or tax
advice to any particular holder or prospective holder of our
common shares, and no opinion or representation with respect to
the tax consequences to any holder or prospective holder of our
common shares is made. Accordingly, holders and prospective
holders of our common shares should consult their own tax
advisors with respect to the income tax consequences of
purchasing, owning and disposing of our common shares in their
particular circumstances.




| |          
| | ---------
| | Dividends

Income Tax Act Income
Tax Act




| |              
| | -------------
| | Capital Gains

Income
Tax Act Income Tax Act




| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | (a) the non-resident holder;                                                                                
|
| | (b) persons with whom the non-resident holder did not deal
    at arms length; or                          
|
| | (c) the non-resident holder and persons with whom such
    non-resident holder did not deal at arms length,



43



---



##### Table of Contents



Certain United States
Federal Income Tax Consequences






The following discussion is for general information only and
is not intended to be, nor should it be construed to be, legal,
business or tax advice to any holder or prospective holder of
our common shares, and no opinion or representation with respect
to the United States Federal income tax consequences to any such
holder or prospective holder is made. Accordingly, holders and
prospective holders of common shares should consult their own
tax advisors with respect to Federal, state, local, and foreign
tax consequences of purchasing, owning and disposing of our
common shares.




| |           
| | ----------
| | US Holders

tax-exempt broker-dealers, non-resident




| |              
| | -------------
| | Distributions

non-corporate tax-free




| |              
| | -------------
| | Capital Gains

long-term


44



---



##### Table of Contents





| |                   
| | ------------------
| | Backup Withholding







| |                   
| | ------------------
| | Foreign Tax Credit

dollar-for-dollar The availability of the foreign
tax credit and the application of these complex limitations on
the tax credit are fact specific and holders and prospective
holders of our common shares should consult their own tax
advisors regarding their individual circumstances.




| |                                   
| | ----------------------------------
| | Passive Foreign Investment Company





US Holders and prospective holders should consult their own
tax advisors regarding the potential application of the PFIC
rules to their ownership of our common shares.




| |                         
| | ------------------------
| | Corporate Reorganization



45



---



##### Table of Contents



www.sec.gov 6-K




|   |                             
|-- | ----------------------------
|F. | Dividends and paying agents.





|   |                     
|-- | --------------------
|G. | Statement by Experts








|   |                     
|-- | --------------------
|H. | Documents on Display








|   |                       
|-- | ----------------------
|I. | Subsidiary Information



|                                               |  |                 
|---------------------------------------------- |  | ----------------
|                                               |  | Jurisdiction of 
|                                               |  | Incorporation or
|Name of Wholly-Owned Subsidiary                |  | Organization    
|                                               |  |                 
|MFC Merchant Bank S.A.                         |  | Switzerland     
|Robabond Holding AG                            |  | Switzerland     
|MFC Commodities AG                             |  | Switzerland     
|KHD Humboldt Wedag International Holdings GmbH |  | Austria         
|KHD Humboldt Wedag International GmbH          |  | Austria         
|Humboldt Wedag Inc.                            |  | USA             
|Humboldt Wedag India Ltd.                      |  | India           



|                                    |  |                  |         |  |                    |                                       |              |  |         |  
|----------------------------------- |  | ---------------- | ------- |  | ------------------ | ------------------------------------- | ------------ |  | ------- | -
|                                    |  | Jurisdiction of  |         |  |                    |                                       |             
|                                    |  | Incorporation or |         |  |                    |                                       | Our          | 
|Name of Non-Wholly-Owned Subsidiary |  | Organization     |         |  | Owner of Interests |                                       | Shareholding | 
|                                    |  |                  |         |  |                    |                                       |              | 
|Sasamat Capital Corporation         |  |                  | Canada  |  |                    | KHD Humboldt Wedag International Ltd. |              |  | 50.5%(1 | )
|MFC Industrial Holdings AG          |  |                  | Germany |  |                    | KHD Humboldt Wedag International Ltd. |              |  | 97%(1   | )
|KHD Humboldt Wedag GmbH             |  |                  | Germany |  |                    | MFC Industrial Holdings AG            |              |  | 100%(2  | )
|Zementanlagenbau Dessau GmbH        |  |                  | Germany |  |                    | KHD Humboldt Wedag GmbH               |              |  | 100%(2  | )
|Altmark Industriepark AG            |  |                  | Germany |  |                    | KHD Humboldt Wedag GmbH               |              |  | 94.8%(2 | )
|ZAB Industrietechnik & Service GmbH |  |                  | Germany |  |                    | Zementanlagenbau Dessau GmbH          |              |  | 100%(2  | )






|    |                                                           
|--- | ----------------------------------------------------------
|(1) | Representing shareholding by the immediate parent company.
|   
|(2) | Held by our company and/or our subsidiaries.              






|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 11 | Quantitative and Qualitative Disclosures About Market
    Risk



46



---



##### Table of Contents





Derivative Instruments




Interest Rate Risk




|                 |  |                         |        |                       |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            |  |  |   |       |  |  |   |        | 
|---------------- |  | ----------------------- | ------ | --------------------- | ----- | - | ------ | ---- |  | - | ------ |  |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ---------- |  |  | - | ----- |  |  | - | ------ | 
|                 |  | As at December 31, 2005 |       
|                 |  |                         |       
|                 |  |                         |        | Expected Cash Flow(1) |      
|                 |  | Carrying                |        |                       | Fair  |   |        |      | 
|                 |  | Value                   |        |                       | Value |   |        | 2006 |  |   | 2007   |  |  | 2008 |       |  | 2009 |   |       | 2010 |  |   | Thereafter | 
|                 |  |                         |        |                       |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            | 
|                 |  | (In thousands)          |       
|Investments(2)   |  | $                       | 46,687 |                       |       | $ | 46,687 |      |  | $ | 16,798 |  |  | $    | 4,900 |  |      | $ | 4,900 |      |  | $ | 4,900      |  |  | $ | 4,900 |  |  | $ | 34,936 | 
|Loans(3)         |  |                         | 6,820  |                       |       |   | 6,820  |      |  |   | 306    |  |  |      | 478   |  |      |   | 478   |      |  |   | 478        |  |  |   | 478   |  |  |   | 10,213 | 
|Debt obligations |  |                         | 20,240 |                       |       |   | 20,318 |      |  |   | 13,678 |  |  |      | 165   |  |      |   | 781   |      |  |   | 2,720      |  |  |   | 307   |  |  |   | 6,431  | 






|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Including interest and dividends where applicable.         
|   
|(2) | Investments consist of debt securities and preferred stock.
|   
|(3) | Unsecured loans.                                           

|                             |  |                         |        |                       |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            |  |  |   |       |  |  |   |        | 
|---------------------------- |  | ----------------------- | ------ | --------------------- | ----- | - | ------ | ---- |  | - | ------ |  |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ---------- |  |  | - | ----- |  |  | - | ------ | 
|                             |  | As at December 31, 2004 |       
|                             |  |                         |       
|                             |  |                         |        | Expected Cash Flow(1) |      
|                             |  | Carrying                |        |                       | Fair  |   |        |      | 
|                             |  | Value                   |        |                       | Value |   |        | 2005 |  |   | 2006   |  |  | 2007 |       |  | 2008 |   |       | 2009 |  |   | Thereafter | 
|                             |  |                         |        |                       |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            | 
|                             |  | (In thousands)          |       
|Investments(2)               |  | $                       | 50,201 |                       |       | $ | 50,201 |      |  | $ | 19,461 |  |  | $    | 4,900 |  |      | $ | 4,900 |      |  | $ | 4,900      |  |  | $ | 4,900 |  |  | $ | 35,640 | 
|Loans(3)                     |  |                         | 9,667  |                       |       |   | 9,667  |      |  |   | 229    |  |  |      | 3,220 |  |      |   |      |      |  |   |           |  |  |   |      |  |  |   | 11,240 | 
|Debt obligations             |  |                         | 19,133 |                       |       |   | 19,249 |      |  |   | 8,220  |  |  |      | 8,812 |  |      |   | 432   |      |  |   | 723        |  |  |   | 6,976 |  |  |   |       | 
|Interest rate swap liability |  |                         | 93     |                       |       |   | 93     |      |  |   | 87     |  |  |      | 37    |  |      |   |      |      |  |   |           |  |  |   |      |  |  |   |       | 






|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Including interest and dividends where applicable.         
|   
|(2) | Investments consist of debt securities and preferred stock.
|   
|(3) | Unsecured loans.                                           

Foreign Currency Exchange Rate Risk




47



---



##### Table of Contents





|                    |  |                         |        |                       |       |   |        |      |  |   |        |  |  |      |     |  |      |  |     |      |  |  |            |  |  |  |     |  |  |   |        | 
|------------------- |  | ----------------------- | ------ | --------------------- | ----- | - | ------ | ---- |  | - | ------ |  |  | ---- | --- |  | ---- |  | --- | ---- |  |  | ---------- |  |  |  | --- |  |  | - | ------ | 
|                    |  | As at December 31, 2005 |       
|                    |  |                         |       
|                    |  |                         |        | Expected Cash Flow(1) |      
|                    |  | Carrying                |        |                       | Fair  |   |        |      | 
|                    |  | Value                   |        |                       | Value |   |        | 2006 |  |   | 2007   |  |  | 2008 |     |  | 2009 |  |     | 2010 |  |  | Thereafter | 
|                    |  |                         |        |                       |       |   |        |      |  |   |        |  |  |      |     |  |      |  |     |      |  |  |            | 
|                    |  | (In thousands)          |       
|Investments(2)      |  | $                       | 26,117 |                       |       | $ | 26,117 |      |  | $ | 17,055 |  |  |      |    |  |      |  |    |      |  |  |           |  |  |  |    |  |  | $ | 8,906  | 
|Loans(3)            |  |                         | 24,405 |                       |       |   | 24,405 |      |  |   | 18,701 |  |  |      | 478 |  |      |  | 478 |      |  |  | 478        |  |  |  | 478 |  |  |   | 10,213 | 
|Deposits(4)         |  |                         | 16,971 |                       |       |   | 16,971 |      |  |   | 16,971 |  |  |      |    |  |      |  |    |      |  |  |           |  |  |  |    |  |  |   |       | 
|Debt obligations(5) |  |                         | 24,125 |                       |       |   | 24,204 |      |  |   | 17,621 |  |  |      | 165 |  |      |  | 781 |      |  |  | 2,720      |  |  |  | 307 |  |  |   | 6,431  | 






|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Including interest and dividends where applicable.                                                                                         
|   
|(2) | Investments consist of debt securities and equity securities,
    both of which are denominated in U.S. dollars, Euros or
    Swiss francs.
|   
|(3) | Loans are denominated in U.S. dollars, Euros or Swiss
    francs.                                                                          
|   
|(4) | Deposits consist of cash deposits, other than Canadian dollars,
    with MFC Merchant Bank S.A.                                            
|   
|(5) | Debt obligations consist of the bonds and other debt, all of
    which are denominated in U.S. dollars, Euros or Swiss
    francs.         

|                             |  |                         |        |                              |       |   |        |      |  |   |        |  |  |      |       |  |      |   |     |      |  |   |            |  |  |   |       |  |  |   |        | 
|---------------------------- |  | ----------------------- | ------ | ---------------------------- | ----- | - | ------ | ---- |  | - | ------ |  |  | ---- | ----- |  | ---- | - | --- | ---- |  | - | ---------- |  |  | - | ----- |  |  | - | ------ | 
|                             |  | As at December 31, 2004 |       
|                             |  |                         |       
|                             |  |                         |        | Expected Future Cash Flow(1) |      
|                             |  | Carrying                |        |                              | Fair  |   |        |      | 
|                             |  | Value                   |        |                              | Value |   |        | 2005 |  |   | 2006   |  |  | 2007 |       |  | 2008 |   |     | 2009 |  |   | Thereafter | 
|                             |  |                         |        |                              |       |   |        |      |  |   |        |  |  |      |       |  |      |   |     |      |  |   |            | 
|                             |  | (In thousands)          |       
|Investments(2)               |  | $                       | 28,820 |                              |       | $ | 29,321 |      |  | $ | 19,345 |  |  | $    |      |  |      | $ |    |      |  | $ |           |  |  | $ |      |  |  | $ | 9,886  | 
|Loans(3)                     |  |                         | 26,865 |                              |       |   | 26,865 |      |  |   | 10,551 |  |  |      | 8,466 |  |      |   | 110 |      |  |   | 110        |  |  |   | 110   |  |  |   | 14,333 | 
|Deposits(4)                  |  |                         | 37,021 |                              |       |   | 37,021 |      |  |   | 37,021 |  |  |      |      |  |      |   |    |      |  |   |           |  |  |   |      |  |  |   |       | 
|Debt obligations(5)          |  |                         | 40,927 |                              |       |   | 41,042 |      |  |   | 30,666 |  |  |      | 8,812 |  |      |   | 432 |      |  |   | 723        |  |  |   | 6,976 |  |  |   |       | 
|Interest Rate Swap Liability |  |                         | 93     |                              |       |   | 93     |      |  |   | 87     |  |  |      | 37    |  |      |   |    |      |  |   |           |  |  |   |      |  |  |   |       | 






|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Including interest and dividends where applicable.                                                                                         
|   
|(2) | Investments consist of debt securities and equity securities,
    both of which are denominated in U.S. dollars, Euros or
    Swiss francs.
|   
|(3) | Loans are denominated in U.S. dollars, Euros or Swiss
    francs.                                                                          
|   
|(4) | Deposits consist of cash deposits, other than Canadian dollars,
    with MFC Merchant Bank S.A.                                            
|   
|(5) | Debt obligations consist of the bonds and other debt, all of
    which are denominated in U.S. dollars, Euros or Swiss
    francs.         

Equity Price Risk




48



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|               |  |                                               |        |  |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            |  |  |   |       |  |  |   |        | 
|-------------- |  | --------------------------------------------- | ------ |  | ----- | - | ------ | ---- |  | - | ------ |  |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ---------- |  |  | - | ----- |  |  | - | ------ | 
|               |  | As at December 31, 2005 Expected Cash Flow(1) |       
|               |  |                                               |       
|               |  | Carrying                                      |        |  | Fair  |   |        |     
|               |  | Value                                         |        |  | Value |   |        | 2006 |  |   | 2007   |  |  | 2008 |       |  | 2009 |   |       | 2010 |  |   | Thereafter | 
|               |  |                                               |        |  |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            | 
|               |  | (In thousands)                                |       
|Investments(2) |  | $                                             | 51,807 |  |       | $ | 51,810 |      |  | $ | 12,868 |  |  | $    | 4,900 |  |      | $ | 4,900 |      |  | $ | 4,900      |  |  | $ | 4,900 |  |  | $ | 43,842 | 






|    |                                                   
|--- | --------------------------------------------------
|(1) | Including interest and dividends where applicable.
|   
|(2) | Investments consist of equity securities.         

|               |  |                                                      |        |  |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            |  |  |   |       |  |  |   |        | 
|-------------- |  | ---------------------------------------------------- | ------ |  | ----- | - | ------ | ---- |  | - | ------ |  |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ---------- |  |  | - | ----- |  |  | - | ------ | 
|               |  | As at December 31, 2004 Expected Future Cash Flow(1) |       
|               |  |                                                      |       
|               |  | Carrying                                             |        |  | Fair  |   |        |     
|               |  | Value                                                |        |  | Value |   |        | 2005 |  |   | 2006   |  |  | 2007 |       |  | 2008 |   |       | 2009 |  |   | Thereafter | 
|               |  |                                                      |        |  |       |   |        |      |  |   |        |  |  |      |       |  |      |   |       |      |  |   |            | 
|               |  | (In thousands)                                       |       
|Investments(2) |  | $                                                    | 52,658 |  |       | $ | 53,159 |      |  | $ | 12,359 |  |  | $    | 4,900 |  |      | $ | 4,900 |      |  | $ | 4,900      |  |  | $ | 4,900 |  |  | $ | 45,700 | 






|    |                                                   
|--- | --------------------------------------------------
|(1) | Including interest and dividends where applicable.
|   
|(2) | Investments consist of equity securities.         






|        |                                                           
|------- | ----------------------------------------------------------
|ITEM 12 | Description of Securities Other Than Equity
    Securities






PART II







|        |                                                
|------- | -----------------------------------------------
|ITEM 13 | Defaults, Dividend Arrearages and Delinquencies








|        |                                                                                 
|------- | --------------------------------------------------------------------------------
|ITEM 14 | Material Modifications to the Rights of Security Holders
    and Use of Proceeds








|        |                        
|------- | -----------------------
|ITEM 15 | Controls and Procedures

13a-15




49



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##### Table of Contents








|        |           
|------- | ----------
|ITEM 16 | [Reserved]






|         |                                 
|-------- | --------------------------------
|ITEM 16A | Audit Committee Financial Expert








|         |               
|-------- | --------------
|ITEM 16B | Code of Ethics

Code of Ethics






| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) honest and ethical conduct, including the ethical
    handling of actual or apparent conflicts of interest between
    personal and professional relationships;                                                        
|
| | (b) full, fair, accurate, timely, and understandable
    disclosure in reports and documents that we file with, or submit
    to, the Securities and Exchange Commission and in other public
    communications made by us;
|
| | (c) compliance with applicable governmental laws, rules and
    regulations;                                                                                                                                               
|
| | (d) the prompt internal reporting of violations of the Code
    of Business Conduct and Ethics to an appropriate person or
    persons identified in the Code of Business Conduct and
    Ethics; and                      
|
| | (e) accountability for adherence to the Code of Business
    Conduct and Ethics.                                                                                                                                           





20-F


50



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##### Table of Contents








|         |                                       
|-------- | --------------------------------------
|ITEM 16C | Principal Accountant Fees and Services



Audit Fees




Audit Related Fees




Tax Fees




All Other Fees




2-01 S-X.









|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 16D | Exemptions from the Listing Standards for Audit
    Committees








|         |                                                                            
|-------- | ---------------------------------------------------------------------------
|ITEM 16E | Purchases of Equity Securities by Our Company and
    Affiliated Purchasers



|         |  |                     |       |               |          |                     |                  |                 |                   |                     |                       |  |  |  |     | 
|-------- |  | ------------------- | ----- | ------------- | -------- | ------------------- | ---------------- | --------------- | ----------------- | ------------------- | --------------------- |  |  |  | --- | 
|         |  |                     |       |               |          | Total Number of     |                  |                 |                  
|         |  |                     |       |               |          | Shares Purchased as |                  |                 | Maximum Number of |                    
|         |  |                     |       | Average Price |          |                     | Part of Publicly |                 |                   | Shares that May Yet |                      
|         |  | Total Number        |       |               | Paid per |                     |                  | Announced Plans |                   |                     | Be Purchased Under    | 
|Period   |  | of Shares Purchased |       |               | Share    |                     |                  | or Programs     |                   |                     | the Plans or Programs | 
|         |  |                     |       |               |          |                     |                  |                 |                   |                     |                       | 
|May 2005 |  |                     | 1,500 |               |          | U.S.$               | 18.13            |                 |                   |                     | 1,500                 |  |  |  | Nil | 

51



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PART III







|        |                     
|------- | --------------------
|ITEM 17 | Financial Statements

Financial Statements Filed as Part of the Annual Report:




| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Independent Auditors Report of BDO Dunwoody LLP dated
    March 24, 2006 on the Consolidated Financial Statements of
    our company as at December 31, 2005                                           
|
| | Report of Independent Registered Public Accounting Firm Peterson
    Sullivan PLLC dated March 18, 2005 on the Consolidated
    Financial Statements of our company as at December 31, 2004
    and 2003
|
| | Consolidated Balance Sheets at December 31, 2005 and 2004                                                                                                                                               
|
| | Consolidated Statements of Income for the years ended
    December 31, 2005, 2004 and 2003                                                                                                              
|
| | Consolidated Statements of Changes in Shareholders Equity
    for the years ended December 31, 2005, 2004 and 2003                                                                                     
|
| | Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003 Notes to Consolidated
    Financial Statements                                                           






|        |                     
|------- | --------------------
|ITEM 18 | Financial Statements



52



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##### Table of Contents






Auditors Report


















| |                      
| | ---------------------
| | /s/ BDO Dunwoody LLP 
| | Chartered Accountants





53



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM














| |                           
| | --------------------------
| | /s/ Peterson Sullivan PLLC



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


CONSOLIDATED BALANCE SHEETS


December 31, 2005 and 2004


|                                     |                                                              |                             |         |         |         |   |         |         |         | 
|------------------------------------ | ------------------------------------------------------------ | --------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                     |                                                              | 2005                        |         |         | 2004    |  
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | (Canadian Dollars           |        
|                                     |                                                              | in Thousands)               |        
|ASSETS                              
|Current Assets                       |                                                              |                             |         |         |         |   |         |        
|                                     | Cash and cash equivalents                                    |                             | $       | 226,550 |         |   | $       | 215,722 |        
|                                     | Restricted cash                                              |                             |         | 25,669  |         |   |         | 16,496  |        
|                                     | Securities                                                   |                             |         | 18,963  |         |   |         | 21,113  |        
|                                     | Loans                                                        |                             |         | 12,403  |         |   |         | 9,816   |        
|                                     | Receivables, commodities transactions                        |                             |         | 12,184  |         |   |         | 32,959  |        
|                                     | Receivables, industrial and engineering services             |                             |         | 40,326  |         |   |         | 31,449  |        
|                                     | Receivables                                                  |                             |         | 29,769  |         |   |         | 33,718  |        
|                                     | Commodity inventories                                        |                             |         | 28,397  |         |   |         | 25,775  |        
|                                     | Inventories                                                  |                             |         | 45,052  |         |   |         | 11,019  |        
|                                     | Real estate held for sale                                    |                             |         | 32,038  |         |   |         | 42,924  |        
|                                     | Contract deposits, prepaid and other                         |                             |         | 13,059  |         |   |         | 21,819  |        
|                                     | Future income tax assets                                     |                             |         | 8,854   |         |   |         | 8,021   |        
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | Total current assets        |         |         | 493,264 |   |         |         | 470,831 | 
|Non-current Assets                   |                                                              |                             |         |         |         |   |         |        
|                                     | Securities                                                   |                             |         | 9,202   |         |   |         | 9,858   |        
|                                     | Loans                                                        |                             |         | 11,002  |         |   |         | 17,049  |        
|                                     | Property, plant and equipment                                |                             |         | 12,633  |         |   |         | 22,108  |        
|                                     | Investment in resource property                              |                             |         | 35,341  |         |   |         | 35,341  |        
|                                     | Goodwill                                                     |                             |         | 15,141  |         |   |         | 20,445  |        
|                                     | Equity method investments                                    |                             |         | 18,679  |         |   |         | 18,490  |        
|                                     | Future income tax assets                                     |                             |         | 14,569  |         |   |         | 9,577   |        
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | Total non-current assets    |         |         | 116,567 |   |         |         | 132,868 | 
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | $                           | 609,831 |         |         | $ | 603,699 |        
|                                     |                                                              |                             |         |         |         |  
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current Liabilities                  |                                                              |                             |         |         |         |   |         |        
|                                     | Accounts payable and accrued expenses                        |                             | $       | 186,111 |         |   | $       | 160,012 |        
|                                     | Notes payable, commodities transactions                      |                             |         | 11,531  |         |   |         | 7,700   |        
|                                     | Notes payable, industrial and engineering services           |                             |         | 3,432   |         |   |         | 10,671  |        
|                                     | Long-term debt, current portion                              |                             |         | 1,872   |         |   |         | 8,173   |        
|                                     | Pension liabilities                                          |                             |         | 1,736   |         |   |         | 1,874   |        
|                                     | Deposits                                                     |                             |         | 20,202  |         |   |         | 46,523  |        
|                                     | Provision for warranty costs                                 |                             |         | 23,932  |         |   |         | 11,641  |        
|                                     | Future income tax liability                                  |                             |         | 353     |         |   |         | 6,274   |        
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | Total current liabilities   |         |         | 249,169 |   |         |         | 252,868 | 
|Long-term Liabilities                |                                                              |                             |         |         |         |   |         |        
|                                     | Long-term debt, less current portion                         |                             |         | 7,290   |         |   |         | 14,383  |        
|                                     | Pension liabilities                                          |                             |         | 29,828  |         |   |         | 34,918  |        
|                                     | Provision for warranty costs                                 |                             |         | 5,162   |         |   |         | 1,559   |        
|                                     | Future income tax liability                                  |                             |         | 11,838  |         |   |         |        |        
|                                     | Other long-term liabilities                                  |                             |         | 672     |         |   |         | 1,240   |        
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | Total long-term liabilities |         |         | 54,790  |   |         |         | 52,100  | 
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | Total liabilities           |         |         | 303,959 |   |         |         | 304,968 | 
|Minority Interests                   |                                                              |                             | 21,089  |         |         |   | 29,310  |        
|Shareholders Equity                 |                                                              |                             |         |         |         |   |         |        
|                                     | Common stock, without par value; authorized unlimited number |                             |         | 72,847  |         |   |         | 71,512  |        
|                                     | Equity component of convertible debt                         |                             |         | 146     |         |   |         | 146     |        
|                                     | Retained earnings                                            |                             |         | 244,158 |         |   |         | 209,961 |        
|                                     | Currency translation adjustments                             |                             |         | (32,368 | )       |   |         | (12,198 | )      
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | Total shareholders equity  |         |         | 284,783 |   |         |         | 269,421 | 
|                                     |                                                              |                             |         |         |         |  
|                                     |                                                              | $                           | 609,831 |         |         | $ | 603,699 |        
|                                     |                                                              |                             |         |         |         |  



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


CONSOLIDATED STATEMENTS OF INCOME


For the Years Ended December 31, 2005, 2004 and 2003


|                                                                  |                                     |                                        |         |         |      |  |         |         |  |  |         |         | 
|----------------------------------------------------------------- | ----------------------------------- | -------------------------------------- | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                                                                  |                                     | 2005                                   |         |         | 2004 |  |         | 2003    | 
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|                                                                  |                                     | (Canadian Dollars in Thousands, Except |        
|                                                                  |                                     | Earnings Per Share)                    |        
|Revenue                                                           |                                     |                                        |         |         |      |  |         |         |  |  |         |        
|                                                                  | Financial services                  |                                        | $       | 557,535 |      |  | $       | 498,672 |  |  | $       | 409,513 | 
|                                                                  | Industrial and engineering services |                                        |         | 398,475 |      |  |         | 199,092 |  |  |         |        | 
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|                                                                  |                                     |                                        | 956,010 |         |      |  | 697,764 |         |  |  | 409,513 |        
|Expenses                                                          |                                     |                                        |         |         |      |  |         |         |  |  |         |        
|                                                                  | Financial services                  |                                        |         | 502,494 |      |  |         | 430,945 |  |  |         | 329,549 | 
|                                                                  | Industrial and engineering services |                                        |         | 326,029 |      |  |         | 158,329 |  |  |         |        | 
|                                                                  | General and administrative          |                                        |         | 74,257  |      |  |         | 62,632  |  |  |         | 25,187  | 
|                                                                  | Interest                            |                                        |         | 9,066   |      |  |         | 7,443   |  |  |         | 4,392   | 
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|                                                                  |                                     |                                        | 911,846 |         |      |  | 659,349 |         |  |  | 359,128 |        
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|Income from operations before income taxes and minority interests |                                     |                                        | 44,164  |         |      |  | 38,415  |         |  |  | 50,385  |        
|Recovery of (provision for) income taxes                          |                                     |                                        | (3,160  | )       |      |  | 4,168   |         |  |  | (837    | )      
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|Income from operations before minority interests                  |                                     |                                        | 41,004  |         |      |  | 42,583  |         |  |  | 49,548  |        
|Minority interests                                                |                                     |                                        | (6,807  | )       |      |  | (5,632  | )       |  |  | (432    | )      
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|                                                                  | Net income                          |                                        | $       | 34,197  |      |  | $       | 36,951  |  |  | $       | 49,116  | 
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|Earnings per share                                                |                                     |                                        |         |         |      |  |         |         |  |  |         |        
|                                                                  | Basic                               |                                        | $       | 2.51    |      |  | $       | 2.73    |  |  | $       | 3.76    | 
|                                                                  |                                     |                                        |         |         |      |  |         |         | 
|                                                                  | Diluted                             |                                        | $       | 2.50    |      |  | $       | 2.70    |  |  | $       | 3.59    | 
|                                                                  |                                     |                                        |         |         |      |  |         |         | 



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(formerly MFC BANCORP LTD.)


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY


For the Years Ended December 31, 2005, 2004 and 2003


|                                                              |  |                                 |            |   |              |   |             |      |  |          |          |   |             |             |         |   |       |   |         |   |  |   |         |  
|------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------ | - | ----------- | ---- |  | -------- | -------- | - | ----------- | ----------- | ------- | - | ----- | - | ------- | - |  | - | ------- | -
|                                                              |  | Common Stock                    |            |   | Equity       |   |             |      |  |          |          |  
|                                                              |  |                                 |            |   | Component of |   |             |      |  | Currency |          |   |            
|                                                              |  | Number of                       |            |   |              |   | Convertible |      |  | Retained |          |   | Translation |             |         |  
|                                                              |  | Shares                          |            |   | Amount       |   |             | Debt |  |          | Earnings |   |             | Adjustments |         |   | Total |  
|                                                              |  |                                 |            |   |              |   |             |      |  |          |          |   |             |             |         |   |       |  
|                                                              |  | (Canadian Dollars in Thousands) |           
|Balance at December 31, 2002                                  |  |                                 | 12,831,854 |   |              | $ | 70,269      |      |  | $        |         |   |             | $           | 196,288 |   |       | $ | 18,733  |   |  | $ | 285,290 |  
|Net income                                                    |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             | 49,116  |   |       |   |        |   |  |   | 49,116  |  
|Shares issued for exercise of stock options                   |  |                                 | 487,500    |   |              |   | 4,281       |      |  |          |         |   |             |             |        |   |       |   |        |   |  |   | 4,281   |  
|Shares issued for conversion of bonds                         |  |                                 | 72,261     |   |              |   | 1,294       |      |  |          |         |   |             |             |        |   |       |   |        |   |  |   | 1,294   |  
|Repurchase of shares                                          |  |                                 | (672,183   | ) |              |   | (13,953     | )    |  |          |         |   |             |             |        |   |       |   |        |   |  |   | (13,953 | )
|Translation adjustment                                        |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             |        |   |       |   | (35,851 | ) |  |   | (35,851 | )
|Distribution of assets declared, at carrying value            |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             | (71,730 | ) |       |   |        |   |  |   | (71,730 | )
|                                                              |  |                                 |            |   |              |   |             |      |  |          |          |   |             |             |         |   |       |  
|Balance at December 31, 2003                                  |  |                                 | 12,719,432 |   |              |   | 61,891      |      |  |          |         |   |             |             | 173,674 |   |       |   | (17,118 | ) |  |   | 218,447 |  
|Net income                                                    |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             | 36,951  |   |       |   |        |   |  |   | 36,951  |  
|Issuance of convertible debt, equity component                |  |                                 |           |   |              |   |            |      |  |          | 186      |   |             |             |        |   |       |   |        |   |  |   | 186     |  
|Shares issued for conversion of bonds                         |  |                                 | 965,837    |   |              |   | 16,904      |      |  |          | (40      | ) |             |             |        |   |       |   |        |   |  |   | 16,864  |  
|Repurchase of shares                                          |  |                                 | (406,000   | ) |              |   | (10,058     | )    |  |          |         |   |             |             |        |   |       |   |        |   |  |   | (10,058 | )
|Shares re-issued as a result of liquidation of a subsidiary   |  |                                 | 297,877    |   |              |   | 2,775       |      |  |          |         |   |             |             |        |   |       |   |        |   |  |   | 2,775   |  
|Translation adjustment                                        |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             |        |   |       |   | 4,920   |   |  |   | 4,920   |  
|Pre-consolidation income of purchased subsidiaries            |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             | 81      |   |       |   |        |   |  |   | 81      |  
|Adjustment to the recorded value of assets distributed        |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             | (745    | ) |       |   |        |   |  |   | (745    | )
|                                                              |  |                                 |            |   |              |   |             |      |  |          |          |   |             |             |         |   |       |  
|Balance at December 31, 2004                                  |  |                                 | 13,577,146 |   |              | $ | 71,512      |      |  | $        | 146      |   |             | $           | 209,961 |   |       | $ | (12,198 | ) |  | $ | 269,421 |  
|Net income                                                    |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             | 34,197  |   |       |   |        |   |  |   | 34,197  |  
|Repurchase of shares                                          |  |                                 | (1,500     | ) |              |   | (34         | )    |  |          |         |   |             |             |        |   |       |   |        |   |  |   | (34     | )
|Shares issued for increase of equity interest in subsidiaries |  |                                 | 58,743     |   |              |   | 1,353       |      |  |          |         |   |             |             |        |   |       |   |        |   |  |   | 1,353   |  
|Shares issued for cash                                        |  |                                 | 995        |   |              |   | 16          |      |  |          |         |   |             |             |        |   |       |   |        |   |  |   | 16      |  
|Translation adjustment                                        |  |                                 |           |   |              |   |            |      |  |          |         |   |             |             |        |   |       |   | (20,170 | ) |  |   | (20,170 | )
|                                                              |  |                                 |            |   |              |   |             |      |  |          |          |   |             |             |         |   |       |  
|Balance at December 31, 2005                                  |  |                                 | 13,635,384 |   |              | $ | 72,847      |      |  | $        | 146      |   |             | $           | 244,158 |   |       | $ | (32,368 | ) |  | $ | 284,783 |  
|                                                              |  |                                 |            |   |              |   |             |      |  |          |          |   |             |             |         |   |       |  



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Years Ended December 31, 2005, 2004 and 2003


|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |        |         |         |         |         |        |  
|----------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------- | ------ | -
|                                                      |                                                   | 2005                                                                                             |                                       |         | 2004   |         |         | 2003    |       
|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |       
|                                                      |                                                   | (Canadian Dollars in Thousands)                                                                  |                                      
|Cash flows from operating activities                  |                                                   |                                                                                                  |                                       |         |        |         |         |         |        |         |         |        
|                                                      | Net income                                        |                                                                                                  | $                                     | 34,197  |        |         | $       | 36,951  |        |         | $       | 49,116  |        
|                                                      | Adjustments for:                                  |                                                                                                  |                                       |         |        |         |         |         |        |         |         |         |        
|                                                      |                                                   | Gain on debt settlement                                                                          |                                       |         | (3,423 | )       |         |         | (843   | )       |         |         |        |       
|                                                      |                                                   | Loan impairment                                                                                  |                                       |         | 1,000  |         |         |         |       |         |         |         |        |       
|                                                      |                                                   | Amortization and depreciation                                                                    |                                       |         | 3,981  |         |         |         | 10,333 |         |         |         | 1,487   |       
|                                                      |                                                   | Minority interests                                                                               |                                       |         | 6,807  |         |         |         | 5,632  |         |         |         | 432     |       
|                                                      |                                                   | Gain on disposition of subsidiaries                                                              |                                       |         | (9,082 | )       |         |         |       |         |         |         |        |       
|                                                      |                                                   | Financial advisory services revenue                                                              |                                       |         |       |         |         |         |       |         |         |         | (6,089  | )     
|                                                      |                                                   | Gain on short-term securities                                                                    |                                       |         | (1,145 | )       |         |         | (7,225 | )       |         |         | (1,970  | )     
|                                                      |                                                   | Gain on sales of securities and assets, net                                                      |                                       |         |       |         |         |         |       |         |         |         | (17,574 | )     
|                                                      |                                                   | Impairment of a long-term investment                                                             |                                       |         | 3,097  |         |         |         |       |         |         |         |        |       
|                                                      |                                                   | Changes in operating assets and liabilities, net of effects of
    acquisitions and dispositions |                                       |         |        |         |         |         |        |         |         |         |         |       
|                                                      |                                                   |                                                                                                  | Short-term securities                 |         |        | 552     |         |         |        | 18,105  |         |         |         | 8,991  |  
|                                                      |                                                   |                                                                                                  | Restricted cash                       |         |        | (12,784 | )       |         |        | (8,090  | )       |         |         |       |  
|                                                      |                                                   |                                                                                                  | Receivables                           |         |        | (15,096 | )       |         |        | 6,542   |         |         |         | (4,687 | )
|                                                      |                                                   |                                                                                                  | Receivables, commodities transactions |         |        | (1,003  | )       |         |        | 11,753  |         |         |         | 14,146 |  
|                                                      |                                                   |                                                                                                  | Commodity inventories                 |         |        | (22,579 | )       |         |        | (11,531 | )       |         |         | 1,080  |  
|                                                      |                                                   |                                                                                                  | Inventories                           |         |        | (38,589 | )       |         |        | (1,192  | )       |         |         |       |  
|                                                      |                                                   |                                                                                                  | Real estate held for sale             |         |        | 3,208   |         |         |        | (71     | )       |         |         | 1,064  |  
|                                                      |                                                   |                                                                                                  | Accounts payable and accrued expenses |         |        | 94,880  |         |         |        | 25,523  |         |         |         | (2,617 | )
|                                                      |                                                   |                                                                                                  | Provision for warranty costs          |         |        | 19,575  |         |         |        | (1,350  | )       |         |         |       |  
|                                                      |                                                   |                                                                                                  | Future income taxes                   |         |        | (1,659  | )       |         |        | (5,444  | )       |         |         |       |  
|                                                      |                                                   |                                                                                                  | Contract deposits, prepaid and other  |         |        | 5,621   |         |         |        | (18,282 | )       |         |         | (1,572 | )
|                                                      |                                                   | Other                                                                                            |                                       |         | (125   | )       |         |         | (602   | )       |         |         | (4,444  | )     
|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |       
|Cash flows provided by operating activities           |                                                   |                                                                                                  | 67,433                                |         |        |         | 60,209  |         |        |         | 37,363  |        
|Cash flows from investing activities                  |                                                   |                                                                                                  |                                       |         |        |         |         |         |        |         |         |        
|                                                      | Net decrease (increase) in loans                  |                                                                                                  |                                       | (3,575  | )      |         |         | (9,761  | )      |         |         | 52,438  |        
|                                                      | Sales (purchases) of long-term securities, net    |                                                                                                  |                                       | (65     | )      |         |         | (5,118  | )      |         |         | 4,788   |        
|                                                      | Purchases of property, plant and equipment        |                                                                                                  |                                       | (2,952  | )      |         |         | (3,693  | )      |         |         |        |        
|                                                      | Disposition of subsidiaries, net of cash disposed |                                                                                                  |                                       | 1,004   |        |         |         | (207    | )      |         |         |        |        
|                                                      | Purchases of subsidiaries, net of cash acquired   |                                                                                                  |                                       | (4,078  | )      |         |         | 31,133  |        |         |         | (755    | )      
|                                                      | Proceeds from sale of assets                      |                                                                                                  |                                       | 218     |        |         |         |        |        |         |         | 10,634  |        
|                                                      | Distributions from equity method investees        |                                                                                                  |                                       | 4,187   |        |         |         | 1,439   |        |         |         |        |        
|                                                      | Other                                             |                                                                                                  |                                       |        |        |         |         | 358     |        |         |         | (2,175  | )      
|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |       
|Cash flows (used in) provided by investing activities |                                                   |                                                                                                  | (5,261                                | )       |        |         | 14,151  |         |        |         | 64,930  |        
|Cash flows from financing activities                  |                                                   |                                                                                                  |                                       |         |        |         |         |         |        |         |         |        
|                                                      | Net increase (decrease) in deposits               |                                                                                                  |                                       | (18,342 | )      |         |         | 23,842  |        |         |         | (13,516 | )      
|                                                      | Borrowings                                        |                                                                                                  |                                       | 7,696   |        |         |         | 7,937   |        |         |         | 6,649   |        
|                                                      | Debt repayments                                   |                                                                                                  |                                       | (22,566 | )      |         |         | (30,459 | )      |         |         | (6,769  | )      
|                                                      | Notes payable, commodities transactions           |                                                                                                  |                                       | 6,622   |        |         |         | 7,642   |        |         |         | (24,953 | )      
|                                                      | Issuance (repurchase) of common stock, net        |                                                                                                  |                                       | (34     | )      |         |         | (10,058 | )      |         |         | (9,672  | )      
|                                                      | Issuance of shares by a subsidiary                |                                                                                                  |                                       |        |        |         |         | 1,392   |        |         |         |        |        
|                                                      | Other                                             |                                                                                                  |                                       | (466    | )      |         |         | 12      |        |         |         | (31     | )      
|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |       
|Cash flows (used in) provided by financing activities |                                                   |                                                                                                  | (27,090                               | )       |        |         | 308     |         |        |         | (48,292 | )      
|Exchange rate effect on cash and cash equivalents     |                                                   |                                                                                                  | (24,254                               | )       |        |         | (4,398  | )       |        |         | (10,962 | )      
|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |       
|Increase in cash and cash equivalents                 |                                                   |                                                                                                  | 10,828                                |         |        |         | 70,270  |         |        |         | 43,039  |        
|Cash and cash equivalents, beginning of year          |                                                   |                                                                                                  | 215,722                               |         |        |         | 145,452 |         |        |         | 102,413 |        
|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |       
|Cash and cash equivalents, end of year                |                                                   | $                                                                                                | 226,550                               |         |        | $       | 215,722 |         |        | $       | 145,452 |        
|                                                      |                                                   |                                                                                                  |                                       |         |        |         |         |         |       



58



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.     The Company and
Summary of Significant Accounting Policies






| |                     
| | --------------------
| | Nature of Operations









| |                            
| | ---------------------------
| | Principles of Consolidation

Consolidation of Variable Interest
Entities








| |                          
| | -------------------------
| | Cash and Cash Equivalents



59



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                          |  |      |        |  |      |   |        | 
|--------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                                                          |  | 2005 |        |  | 2004 |  
|                                                          |  |      |        |  |      |  
|Security for current industrial and engineering contracts |  | $    | 25,067 |  |      | $ | 11,006 | 
|Collateral for debt currently due                         |  |      | 37     |  |      |   | 5,122  | 
|Other                                                     |  |      | 565    |  |      |   | 368    | 
|                                                          |  |      |        |  |      |  
|                                                          |  | $    | 25,669 |  |      | $ | 16,496 | 
|                                                          |  |      |        |  |      |  



| |           
| | ----------
| | Securities











| |                      
| | ---------------------
| | Loans and Receivables







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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                            
| | ---------------------------
| | Allowance for Credit Losses









| |                                 
| | --------------------------------
| | Derivative Financial Instruments











| |                      
| | ---------------------
| | Commodity Inventories



61



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Inventories

work-in first-in


|                 |  |      |        |  |      |   |        | 
|---------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                 |  | 2005 |        |  | 2004 |  
|                 |  |      |        |  |      |  
|Raw materials    |  | $    | 4,812  |  |      | $ | 4,073  | 
|Work in progress |  |      | 37,536 |  |      |   | 3,907  | 
|Finished goods   |  |      | 2,704  |  |      |   | 3,039  | 
|                 |  |      |        |  |      |  
|                 |  | $    | 45,052 |  |      | $ | 11,019 | 
|                 |  |      |        |  |      |  



| |                          
| | -------------------------
| | Real Estate Held for Sale





| |                              
| | -----------------------------
| | Property, Plant and Equipment



units-of Units-of


|                                       |  |       |                 |  |        |              
|-------------------------------------- |  | ----- | --------------- |  | ------ | -------------
|                                       |  | Lives |                 |  | Method
|                                       |  |       |                 |  |       
|Buildings                              |  |       | 15 to 20  years |  |        | straight-line
|Investment property (building portion) |  |       | 20 years        |  |        | straight-line
|Manufacturing plant equipment          |  |       | 3 to 20 years   |  |        | straight-line
|Office equipment                       |  |       | 3 to 10 years   |  |        | straight-line





| |                             
| | ----------------------------
| | Asset Retirement Obligations

Asset Retirement Obligations.


62



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Goodwill





| |                 
| | ----------------
| | Convertible Debt





| |                    
| | -------------------
| | Revenue Recognition



| |                   
| | ------------------
| | Financial Services





| |                                    
| | -----------------------------------
| | Industrial and Engineering Services







| |                             
| | ----------------------------
| | Provision for Warranty Costs





| |                         
| | ------------------------
| | Employee Future Benefits



63



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                             
| | ----------------------------
| | Foreign Currency Translation







| |                
| | ---------------
| | Taxes on Income





| |                         
| | ------------------------
| | Stock-Based Compensation

Stock-Based Compensation and
Other Stock-Based Payments






| |                   
| | ------------------
| | Earnings Per Share





| |          
| | ---------
| | Estimates



64



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                       
| | ------------------------------------------------------
| | Supplemental Disclosure with Respect to Cash
    Flows









| |                  
| | -----------------
| | Reclassifications





| |                                       
| | --------------------------------------
| | Future Changes to Accounting Standards



| |                      
| | ---------------------
| | Financial Instruments

Financial
Instruments  Recognition and Measurement


Financial
Instruments  Disclosure and Presentation




65



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                     
| | --------------------
| | Comprehensive Income

Comprehensive
Income


Surplus Equity. Comprehensive Income.






| |       
| | ------
| | Hedges

Hedges




| |                          
| | -------------------------
| | Non-Monetary Transactions

Non-Monetary
Transactions




| |                             
| | ----------------------------
| | Asset Retirement Obligations

Conditional Asset Retirement Obligations


Note 2.     Acquisitions and
Dispositions of Subsidiaries






66



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Note 3.     Goodwill




|                               |  |      |        |   |      |   |        | 
|------------------------------ |  | ---- | ------ | - | ---- | - | ------ | 
|                               |  | 2005 |        |   | 2004 |  
|                               |  |      |        |   |      |  
|Balance at beginning of year   |  | $    | 20,445 |   |      | $ | 16,127 | 
|Acquisitions/dispositions, net |  |      | (1,170 | ) |      |   | 4,294  | 
|Impairment                     |  |      | (3     | ) |      |   |       | 
|Exchange rate effect           |  |      | (4,131 | ) |      |   | 24     | 
|                               |  |      |        |   |      |  
|Balance at end of year         |  | $    | 15,141 |   |      | $ | 20,445 | 
|                               |  |      |        |   |      |  



Note 4.     Securities






|                 |  |                             |       |       |            |   |       |            |           |        |   |  |          |       |       |            |       |   |            |  |        |   |     |  |  |   |   |  |  |   |        | 
|---------------- |  | --------------------------- | ----- | ----- | ---------- | - | ----- | ---------- | --------- | ------ | - |  | -------- | ----- | ----- | ---------- | ----- | - | ---------- |  | ------ | - | --- |  |  | - | - |  |  | - | ------ | 
|                 |  | Unrealized Gains and Losses |      
|                 |  |                             |      
|                 |  | 2005                        |       |       | 2004       |  
|                 |  |                             |       |       |            |  
|                 |  |                             |       | Gross |            |   | Gross |            | Estimated |        |   |  |          | Gross |       |            | Gross |   | Estimated  | 
|                 |  | Carrying                    |       |       | Unrealized |   |       | Unrealized |           | Market |   |  | Carrying |       |       | Unrealized |       |   | Unrealized |  | Market |  
|                 |  | Value                       |       |       | Gains      |   |       | Losses     |           | Value  |   |  | Value    |       |       | Gains      |       |   | Losses     |  | Value  |  
|                 |  |                             |       |       |            |   |       |            |           |        |   |  |          |       |       |            |       |   |            |  |        |  
|Preferred shares |  | $                           | 299   |       |            | $ |      |            |           | $      |  |  |          | $     | 299   |            |       | $ | 299        |  |        | $ |    |  |  | $ |  |  |  | $ | 299    | 
|Common shares    |  |                             | 8,903 |       |            |   | 3     |            |           |        |  |  |          |       | 8,906 |            |       |   | 9,559      |  |        |   | 504 |  |  |   |  |  |  |   | 10,063 | 
|                 |  |                             |       |       |            |   |       |            |           |        |   |  |          |       |       |            |       |   |            |  |        |   |     | 
|                 |  | $                           | 9,202 |       |            | $ | 3     |            |           | $      |  |  |          | $     | 9,205 |            |       | $ | 9,858      |  |        | $ | 504 |  |  | $ |  |  |  | $ | 10,362 | 
|                 |  |                             |       |       |            |   |       |            |           |        |   |  |          |       |       |            |       |   |            |  |        |   |     | 







67



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 5.     Loans


|                                                                                                                                                                                                                              |  |      |        |  |      |   |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                                                                                                                                                                                                                              |  | 2005 |        |  | 2004 |  
|                                                                                                                                                                                                                              |  |      |        |  |      |  
|Bank loans, collateralized by traded securities and other
    assets, amounts due from one company of $4,182 and $5,489 at
    December 31, 2005 and 2004, respectively, are
    collateralized by patents                    |  | $    | 4,183  |  |      | $ | 6,382  | 
|Other loans, collateralized by traded securities, receivables,
    inventories and other tangible assets, due from two companies
    $16,731 at December 31, 2005 and due from two companies
    $18,145 at December 31, 2004 |  |      | 19,222 |  |      |   | 20,483 | 
|                                                                                                                                                                                                                              |  |      |        |  |      |  
|                                                                                                                                                                                                                              |  | $    | 23,405 |  |      | $ | 26,865 | 
|                                                                                                                                                                                                                              |  |      |        |  |      |  



|            |  |        |        |  |       |   |       |           |  |   |       |  |  |   |        | 
|----------- |  | ------ | ------ |  | ----- | - | ----- | --------- |  | - | ----- |  |  | - | ------ | 
|            |  | Within |        |  | 1  5 |   |       | More than |  |   | 2005  | 
|            |  | 1 Year |        |  | Years |   |       | 5 Years   |  |   | Total | 
|            |  |        |        |  |       |   |       |           |  |   |       | 
|Bank loans  |  | $      | 1      |  |       | $ | 4,182 |           |  | $ |      |  |  | $ | 4,183  | 
|Other loans |  |        | 12,402 |  |       |   |      |           |  |   | 6,820 |  |  |   | 19,222 | 
|            |  |        |        |  |       |   |       |           |  |   |       | 
|            |  | $      | 12,403 |  |       | $ | 4,182 |           |  | $ | 6,820 |  |  | $ | 23,405 | 
|            |  |        |        |  |       |   |       |           |  |   |       | 





Note 6.     Receivables


|                      |  |      |        |  |      |   |        | 
|--------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                      |  | 2005 |        |  | 2004 |  
|                      |  |      |        |  |      |  
|Sale of a subsidiary  |  | $    | 1,795  |  |      | $ |       | 
|Investment income     |  |      | 1,710  |  |      |   | 5,628  | 
|Pension plan recovery |  |      |       |  |      |   | 1,812  | 
|Government taxes      |  |      | 5,474  |  |      |   | 2,080  | 
|Due from affiliates   |  |      | 14,001 |  |      |   | 16,664 | 
|Other                 |  |      | 6,789  |  |      |   | 7,534  | 
|                      |  |      |        |  |      |  
|                      |  | $    | 29,769 |  |      | $ | 33,718 | 
|                      |  |      |        |  |      |  



Note 7.     Property, Plant and
Equipment


|                                  |  |      |        |             |              |   |          |       |  |   |        |             |  |              |          |  |       |   |         |   |  |   |        | 
|--------------------------------- |  | ---- | ------ | ----------- | ------------ | - | -------- | ----- |  | - | ------ | ----------- |  | ------------ | -------- |  | ----- | - | ------- | - |  | - | ------ | 
|                                  |  | 2005 |        |             | 2004         |  
|                                  |  |      |        |             |              |  
|                                  |  |      |        | Accumulated |              |   | Net Book |       |  |   |        | Accumulated |  |              | Net Book | 
|                                  |  | Cost |        |             | Depreciation |   |          | Value |  |   | Cost   |             |  | Depreciation |          |  | Value |  
|                                  |  |      |        |             |              |   |          |       |  |   |        |             |  |              |          |  |       |  
|Buildings                         |  | $    | 2,083  |             |              | $ | (1,033   | )     |  | $ | 1,050  |             |  | $            | 2,424    |  |       | $ | (1,030  | ) |  | $ | 1,394  | 
|Investment property               |  |      | 12,713 |             |              |   | (4,775   | )     |  |   | 7,938  |             |  |              | 12,232   |  |       |   | (3,657  | ) |  |   | 8,575  | 
|Manufacturing plant and equipment |  |      | 6,633  |             |              |   | (3,775   | )     |  |   | 2,858  |             |  |              | 16,026   |  |       |   | (5,086  | ) |  |   | 10,940 | 
|Office equipment                  |  |      | 2,000  |             |              |   | (1,213   | )     |  |   | 787    |             |  |              | 2,626    |  |       |   | (1,427  | ) |  |   | 1,199  | 
|                                  |  |      |        |             |              |   |          |       |  |   |        |             |  |              |          |  |       |  
|                                  |  | $    | 23,429 |             |              | $ | (10,796  | )     |  | $ | 12,633 |             |  | $            | 33,308   |  |       | $ | (11,200 | ) |  | $ | 22,108 | 
|                                  |  |      |        |             |              |   |          |       |  |   |        |             |  |              |          |  |       |  

68



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Note 8.     Contracts in
Progress




|                                                         |                                                                                                                                         |      |          |         |      |   |          |         |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ---- | -------- | ------- | ---- | - | -------- | ------- | -
|                                                         |                                                                                                                                         | 2005 |          |         | 2004 |  
|                                                         |                                                                                                                                         |      |          |         |      |  
|Costs incurred to date on uncompleted contracts          |                                                                                                                                         | $    | 160,528  |         |      | $ | 68,010   |        
|Estimated earnings recognized to date on these contracts |                                                                                                                                         |      | 33,201   |         |      |   | 13,626   |        
|                                                         |                                                                                                                                         |      |          |         |      |  
|                                                         |                                                                                                                                         |      | 193,729  |         |      |   | 81,636   |        
|Less billings to date                                    |                                                                                                                                         |      | (199,848 | )       |      |   | (117,670 | )      
|                                                         |                                                                                                                                         |      |          |         |      |  
|                                                         |                                                                                                                                         |      | (6,119   | )       |      |   | (36,034  | )      
|Exchange                                                 |                                                                                                                                         |      | 210      |         |      |   | (875     | )      
|                                                         |                                                                                                                                         |      |          |         |      |  
|                                                         |                                                                                                                                         | $    | (5,909   | )       |      | $ | (36,909  | )      
|                                                         |                                                                                                                                         |      |          |         |      |  
|This amount is included in the balance sheet as follows: |                                                                                                                                         |      |          |         |      |   |          |        
|                                                         | Costs and estimated earnings in excess of billings on
    uncompleted contracts (included in inventories)                               |      | $        | 33,945  |      |   | $        | 3,907   |  
|                                                         | Billings in excess of costs and estimated earnings on
    uncompleted contracts (included in accounts payable and accrued
    expenses) |      |          | (39,854 | )    |   |          | (40,816 | )
|                                                         |                                                                                                                                         |      |          |         |      |  
|                                                         |                                                                                                                                         | $    | (5,909   | )       |      | $ | (36,909  | )      
|                                                         |                                                                                                                                         |      |          |         |      |  



|                     |                                             |               |   |         |         |  |   |         |         | 
|-------------------- | ------------------------------------------- | ------------- | - | ------- | ------- |  | - | ------- | ------- | 
|                     |                                             | 2005          |   |         | 2004    | 
|                     |                                             |               |   |         |         | 
|Contracts in process |                                             |               |   |         |         |  |   |        
|                     | Total contract amount                       |               | $ | 477,562 |         |  | $ | 383,054 |        
|                     | Less revenue recognized through December 31 |               |   | (92,667 | )       |  |   | (81,636 | )      
|                     | Exchange                                    |               |   | (13,245 | )       |  |   | 7,315   |        
|                     |                                             |               |   |         |         | 
|                     |                                             | Total backlog |   | $       | 371,650 |  |   | $       | 308,733 | 
|                     |                                             |               |   |         |         | 



69



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 9.     Accounts Payable
and Accrued Expenses


|                                                                                |  |      |         |  |      |   |         | 
|------------------------------------------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                                                                                |  | 2005 |         |  | 2004 |  
|                                                                                |  |      |         |  |      |  
|Accounts payable                                                                |  | $    | 118,487 |  |      | $ | 98,115  | 
|Billings in excess of costs and estimated earnings on
    uncompleted contracts |  |      | 39,854  |  |      |   | 40,816  | 
|Bank overdrafts                                                                 |  |      | 142     |  |      |   | 1,044   | 
|Short-term financing, unsecured and payable on demand, interest
    at Euribor  |  |      | 5,922   |  |      |   |        | 
|Government taxes                                                                |  |      | 6,244   |  |      |   | 4,165   | 
|Affiliates                                                                      |  |      | 3,475   |  |      |   | 906     | 
|Commissions and compensation                                                    |  |      | 6,294   |  |      |   | 1,626   | 
|Interest                                                                        |  |      | 313     |  |      |   | 975     | 
|Other                                                                           |  |      | 5,380   |  |      |   | 12,365  | 
|                                                                                |  |      |         |  |      |  
|                                                                                |  | $    | 186,111 |  |      | $ | 160,012 | 
|                                                                                |  |      |         |  |      |  

Note 10.     Deposits


interest-bearing


Note 11.     Provision for
Warranty Costs




|                                                       |                   |      |        |        |      |   |        |        | 
|------------------------------------------------------ | ----------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                       |                   | 2005 |        |        | 2004 |  
|                                                       |                   |      |        |        |      |  
|Balance at beginning of year                           |                   | $    | 13,200 |        |      | $ |       |       
|Balance at the time of the acquisition of KHD          |                   |      |       |        |      |   | 15,225 |       
|Costs incurred                                         |                   |      | (6,391 | )      |      |   | (3,876 | )     
|Warranty reserves established on completed contracts   |                   |      | 30,160 |        |      |   | 3,625  |       
|Reversal of reserves at end of warranty period         |                   |      | (4,195 | )      |      |   | (1,587 | )     
|Exchange differences                                   |                   |      | (3,680 | )      |      |   | (187   | )     
|                                                       |                   |      |        |        |      |  
|Balance, at end of year                                |                   | $    | 29,094 |        |      | $ | 13,200 |       
|                                                       |                   |      |        |        |      |  
|Included in the consolidated balance sheet as follows: |                   |      |        |        |      |   |        |       
|                                                       | Current portion   |      | $      | 23,932 |      |   | $      | 11,641 | 
|                                                       | Long-term portion |      |        | 5,162  |      |   |        | 1,559  | 
|                                                       |                   |      |        |        |      |  
|                                                       |                   | $    | 29,094 |        |      | $ | 13,200 |       
|                                                       |                   |      |        |        |      |  

Note 12.     Notes Payable





70



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







Note 13.     Long-term
Debt


|                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 2005 |        |   | 2004 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |        |   |      |  
|Bonds payable,
    2,523 at
    December 31, 2005 and 2004, interest at 4.4%, interest due
    annually in December, principal due December 2019, unsecured.
    These bonds are convertible, at holders option, into
    common shares of the Company at various contractually fixed
    prices increasing each year over the next four years ranging
    from 18.23 to
    22.15 per share, until its maturity |  | $    | 3,404  |   |      | $ | 3,995  |  
|Bonds payable, US$869 and US$1,316 at December 31, 2005 and
    2004, respectively, interest at 5%, principal and interest due
    December 2016, unsecured                                                                                                                                                                                                                                                          |  |      | 1,013  |   |      |   | 1,584  |  
|Note payable to a bank,
    5,450 at
    December 31, 2004, interest at six-month Euribor plus 1.5%
    (resulting in a rate of 4.61%), interest and principal payments
    of $2,220 (1,363) due semi-annually beginning June 2003, due in full
    December 2006, secured by commodity transactions receivables.
    Paid in full in 2005                                                                        |  |      |       |   |      |   | 8,880  |  
|Note payable to a corporation, interest at six-month Euribor
    plus 2% (resulting in a rate of 3.98%), interest due annually
    and principal due on demand, secured by cash deposit of $3,421.
    Paid in full in 2005                                                                                                                                                                                          |  |      |       |   |      |   | 3,421  |  
|Note payable to a bank, 1,857 at December 31, 2005, interest at 6% due
    annually and principal due December 2009, collateralized by land                                                                                                                                                                                                                                                                         |  |      | 2,564  |   |      |   | 2,441  |  
|Note payable to a bank,
    964 and
    972 at December 31, 2005 and 2004, respectively,
    interest at 3.5% due annually and principal due March 2006,
    collateralized by land and a building                                                                                                                                                                                                                 |  |      | 1,331  |   |      |   | 1,581  |  
|Other                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | 850    |   |      |   | 654    |  
|                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |        |   |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      | 9,162  |   |      |   | 22,556 |  
|Less current portion                                                                                                                                                                                                                                                                                                                                                                                                 |  |      | (1,872 | ) |      |   | (8,173 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |        |   |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                     |  | $    | 7,290  |   |      | $ | 14,383 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |        |   |      |  



|           |  |        |       | 
|---------- |  | ------ | ----- | 
|Maturity   |  | Amount |      
|           |  |        |      
|2006       |  | $      | 1,872 | 
|2007       |  |        |      | 
|2008       |  |        | 309   | 
|2009       |  |        | 2,564 | 
|2010       |  |        |      | 
|thereafter |  |        | 4,417 | 
|           |  |        |      
|           |  | $      | 9,162 | 
|           |  |        |      



71



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 14.     Income Taxes




|                                                       |                                                              |      |         |        |      |   |         |       |   |   |         |        |  
|------------------------------------------------------ | ------------------------------------------------------------ | ---- | ------- | ------ | ---- | - | ------- | ----- | - | - | ------- | ------ | -
|                                                       |                                                              | 2005 |         |        | 2004 |   |         | 2003  |  
|                                                       |                                                              |      |         |        |      |   |         |       |  
|Income before income taxes and minority interests      |                                                              | $    | 44,164  |        |      | $ | 38,415  |       |   | $ | 50,385  |       
|                                                       |                                                              |      |         |        |      |   |         |       |  
|Computed provision for income taxes at statutory rates |                                                              | $    | (14,185 | )      |      | $ | (12,339 | )     |   | $ | (17,191 | )     
|(Increase) decrease in taxes resulting from:           |                                                              |      |         |        |      |   |         |       |   |   |         |       
|                                                       | Foreign statutory tax rate differences                       |      |         | (157   | )    |   |         | 1,926 |   |   |         | 3,740  |  
|                                                       | Non-taxable income                                           |      |         | 1,691  |      |   |         | 1,733 |   |   |         | 1,695  |  
|                                                       | Permanent differences                                        |      |         | (2,493 | )    |   |         | 933   |   |   |         | 4,731  |  
|                                                       | Recovery of valuation allowance                              |      |         | 13,293 |      |   |         | 3,840 |   |   |         | 12,480 |  
|                                                       | Non-capital loss lost from disposal of subsidiary            |      |         | (1,436 | )    |   |         |      |   |   |         | (5,323 | )
|                                                       | Benefit of other non-capital loss acquired during the period |      |         |       |      |   |         | 8,200 |   |   |         |       |  
|                                                       | Other, net                                                   |      |         | 127    |      |   |         | (125  | ) |   |         | (969   | )
|                                                       |                                                              |      |         |        |      |   |         |       |  
|Recovery of (provision for) income taxes               |                                                              | $    | (3,160  | )      |      | $ | 4,168   |       |   | $ | (837    | )     
|                                                       |                                                              |      |         |        |      |   |         |       |  



|                                                                                        |                                     |                          |        |         |        |   |        |         |        | 
|--------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|                                                                                        |                                     | 2005                     |        |         | 2004   |  
|                                                                                        |                                     |                          |        |         |        |  
|Future income tax assets:                                                               |                                     |                          |        |         |        |   |        |        
|                                                                                        | Non-capital tax loss carryforwards: |                          |        | 53,084  |        |   |        | 44,270  |       
|                                                                                        | Pension liability                   |                          |        | 2,417   |        |   |        | 2,740   |       
|                                                                                        | Other                               |                          |        | 1,363   |        |   |        | 1,570   |       
|                                                                                        |                                     |                          |        |         |        |  
|                                                                                        |                                     |                          | 56,864 |         |        |   | 48,580 |        
|                                                                                        | Valuation allowance                 |                          |        | (33,441 | )      |   |        | (30,982 | )     
|                                                                                        |                                     |                          |        |         |        |  
|                                                                                        |                                     | Future income tax assets |        | $       | 23,423 |   |        | $       | 17,598 | 
|                                                                                        |                                     |                          |        |         |        |  
|Future income tax assets are included in the consolidated
    balance sheet as follows: |                                     |                          |        |         |        |   |        |        
|                                                                                        |                                     | Current                  |        | $       | 8,854  |   |        | $       | 8,021  | 
|                                                                                        |                                     | Non-current              |        |         | 14,569 |   |        |         | 9,577  | 
|                                                                                        |                                     |                          |        |         |        |  
|                                                                                        |                                     | $                        | 23,423 |         |        | $ | 17,598 |        
|                                                                                        |                                     |                          |        |         |        |  

|                                                                                             |                       |                               |         |         |         |   |        |        |        |  
|-------------------------------------------------------------------------------------------- | --------------------- | ----------------------------- | ------- | ------- | ------- | - | ------ | ------ | ------ | -
|                                                                                             |                       | 2005                          |         |         | 2004    |  
|                                                                                             |                       |                               |         |         |         |  
|Future income tax liabilities:                                                               |                       |                               |         |         |         |   |        |       
|                                                                                             | Uncompleted contracts |                               | $       | (11,624 | )       |   | $      | (4,606 | )     
|                                                                                             | Other                 |                               |         | (567    | )       |   |        | (1,668 | )     
|                                                                                             |                       |                               |         |         |         |  
|                                                                                             |                       | Future income tax liabilities |         | $       | (12,191 | ) |        | $      | (6,274 | )
|                                                                                             |                       |                               |         |         |         |  
|Future income tax liabilities are included in the consolidated
    balance sheet as follows: |                       |                               |         |         |         |   |        |       
|                                                                                             |                       | Current                       |         | $       | (353    | ) |        | $      | (6,274 | )
|                                                                                             |                       | Non-current                   |         |         | (11,838 | ) |        |        |       |  
|                                                                                             |                       | $                             | (12,191 | )       |         | $ | (6,274 | )     
|                                                                                             |                       |                               |         |         |         |  



72



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|            |  |        |         |  |                  |  |            | 
|----------- |  | ------ | ------- |  | ---------------- |  | ---------- | 
|Country     |  | Amount |         |  | Expiration dates | 
|            |  |        |         |  |                  | 
|Germany     |  | $      | 114,504 |  |                  |  | Indefinite | 
|Canada      |  |        | 14,883  |  |                  |  | 2007-2012  | 
|Switzerland |  |        | 5,743   |  |                  |  | 2006-2013  | 
|Austria     |  |        | 2,796   |  |                  |  | Indefinite | 
|Barbados    |  |        | 2,665   |  |                  |  | 2009       | 
|Other       |  |        | 151     |  |                  |  | 2010-2020  | 

Note 15.     Earnings Per
Share




|                                                                |  |      |        |  |      |   |        |      |  |   |        | 
|--------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                |  | 2005 |        |  | 2004 |   |        | 2003 | 
|                                                                |  |      |        |  |      |   |        |      | 
|Basic earnings from operations available to common shareholders |  | $    | 34,197 |  |      | $ | 36,951 |      |  | $ | 49,116 | 
|Effect of dilutive securities Interest on convertible bonds     |  |      | 182    |  |      |   | 327    |      |  |   | 1,599  | 
|                                                                |  |      |        |  |      |   |        |      | 
|Diluted earnings from operations                                |  | $    | 34,379 |  |      | $ | 37,278 |      |  | $ | 50,715 | 
|                                                                |  |      |        |  |      |   |        |      | 

|                                                                                   |                   |        |            |         |      |  |            |         |  |  |            |           | 
|---------------------------------------------------------------------------------- | ----------------- | ------ | ---------- | ------- | ---- |  | ---------- | ------- |  |  | ---------- | --------- | 
|                                                                                   |                   | Shares |           
|                                                                                   |                   |        |           
|                                                                                   |                   | 2005   |            |         | 2004 |  |            | 2003    | 
|                                                                                   |                   |        |            |         |      |  |            |         | 
|Basic earnings per share, weighted average number of common
    shares outstanding |                   |        | 13,609,348 |         |      |  | 13,520,221 |         |  |  | 13,054,727 |          
|Effect of dilutive securities:                                                     |                   |        |            |         |      |  |            |         |  |  |            |          
|                                                                                   | Convertible bonds |        |            | 145,345 |      |  |            | 298,153 |  |  |            | 1,020,951 | 
|                                                                                   | Options           |        |            |        |      |  |            |        |  |  |            | 52,943    | 
|                                                                                   |                   |        |            |         |      |  |            |         | 
|Weighted average number of common shares outstanding 
    diluted                 |                   |        | 13,754,693 |         |      |  | 13,818,374 |         |  |  | 14,128,621 |          
|                                                                                   |                   |        |            |         |      |  |            |         | 

Note 16.     Stock Option
Plan






|                                                |           |           |         |                  |                |   |       |        |  
|----------------------------------------------- | --------- | --------- | ------- | ---------------- | -------------- | - | ----- | ------ | -
|                                                |           |           |         | Weighted Average |               
|                                                |           | Number of |         |                  | Exercise Price |  
|                                                |           | Shares    |         |                  | Per Share      |  
|                                                |           |           |         |                  |                |  
|Outstanding at December 31, 2002                |           |           | 495,000 |                  |                | $ | 10.05 |       
|                                                | Exercised |           |         | (487,500         | )              |   |       | (10.04 | )
|                                                | Forfeited |           |         | (7,500           | )              |   |       | (10.50 | )
|                                                |           |           |         |                  |                |  
|Outstanding at December 31, 2003, 2004 and 2005 |           |           |        |                  |                | $ |      |       
|                                                |           |           |         |                  |                |  

73



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##### Table of Contents



KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 17.     Commitments and
Contingencies




| |       
| | ------
| | Leases



|     |  |        |       | 
|---- |  | ------ | ----- | 
|Year |  | Amount |      
|     |  |        |      
|2006 |  | $      | 4,176 | 
|2007 |  |        | 1,013 | 
|2008 |  |        | 945   | 
|2009 |  |        | 694   | 
|2010 |  |        | 614   | 
|     |  |        |      
|     |  | $      | 7,442 | 
|     |  |        |      





| |           
| | ----------
| | Litigation





| |           
| | ----------
| | Guarantees

Disclosure of Guarantees






| |           
| | ----------
| | Commitment





| |            
| | -----------
| | Regulations



74



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##### Table of Contents



KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 18.     Interest Rate
Sensitivity Position




Note 19.     Employee Future
Benefits








|                                              |                                                                             |                       |        |        |       |   |        |        |       | 
|--------------------------------------------- | --------------------------------------------------------------------------- | --------------------- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                              |                                                                             | 2005                  |        |        | 2004  |  
|                                              |                                                                             |                       |        |        |       |  
|Accrued benefit obligation, beginning of year |                                                                             | $                     | 36,792 |        |       | $ |       |       
|                                              | Accrued benefit obligation at the time of acquisition of MFC
    Industrial |                       |        |       |       |   |        | 36,330 |      
|                                              |                                                                             | Current service cost  |        |        | 382   |   |        |        | 33    | 
|                                              |                                                                             | Interest cost         |        |        | 1,598 |   |        |        | 1,389 | 
|                                              |                                                                             | Deferred compensation |        |        | 180   |   |        |        |      | 
|                                              |                                                                             |                       |        |        |       |  
|                                              | Net pension cost                                                            |                       |        | 2,160  |       |   |        | 1,422  |      
|                                              | Cash benefit payments                                                       |                       |        | (1,735 | )     |   |        | (1,468 | )    
|                                              | Exchange difference                                                         |                       |        | (5,653 | )     |   |        | 508    |      
|                                              |                                                                             |                       |        |        |       |  
|Accrued benefit obligation, end of year       |                                                                             | $                     | 31,564 |        |       | $ | 36,792 |       
|                                              |                                                                             |                       |        |        |       |  



|                                        |  |      |     |   |      |  |     |  
|--------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                        |  | 2005 |     |   | 2004 | 
|                                        |  |      |     |   |      | 
|Weighted average discount rate          |  |      | 4.8 | % |      |  | 5.5 | %
|Rate of increase in future compensation |  |      | 0.0 | % |      |  | 1.5 | %





|           |  |        |        | 
|---------- |  | ------ | ------ | 
|Year       |  | Amount |       
|           |  |        |       
|2006       |  | $      | 1,736  | 
|2007       |  |        | 1,874  | 
|2008       |  |        | 1,919  | 
|2009       |  |        | 1,966  | 
|2010       |  |        | 2,021  | 
|Thereafter |  |        | 22,048 | 
|           |  |        |       
|           |  | $      | 31,564 | 
|           |  |        |       

75



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                             
|-------- | ----------------------------
|Note 20. | Business Segment Information



|                                                                             |          |                              |         |       |           |   |         |           |  |   |        |     |  |   |         |       | 
|---------------------------------------------------------------------------- | -------- | ---------------------------- | ------- | ----- | --------- | - | ------- | --------- |  | - | ------ | --- |  | - | ------- | ----- | 
|                                                                             |          | Year ended December 31, 2005 |        
|                                                                             |          |                              |        
|                                                                             |          | Industrial and               |         |       |          
|                                                                             |          | Engineering                  |         |       | Financial |   |         |          
|                                                                             |          | Services                     |         |       | Services  |   |         | Corporate |  |   | Total  |    
|                                                                             |          |                              |         |       |           |   |         |           |  |   |        |    
|Revenues from external customers                                             |          | $                            | 398,475 |       |           | $ | 557,535 |           |  | $ |       |     |  | $ | 956,010 |      
|Intersegment revenues                                                        |          |                              | 303     |       |           |   | 1,455   |           |  |   | 1,438  |     |  |   | 3,196   |      
|Interest expense                                                             |          |                              |         |       |           |   |         |           |  |   |        |     |  |   |         |      
|                                                                             | External |                              |         | 4,218 |           |   |         | 4,659     |  |   |        | 189 |  |   |         | 9,066 | 
|                                                                             | Internal |                              |         | 473   |           |   |         | 144       |  |   |        | 829 |  |   |         | 1,446 | 
|Income (loss) from operations before income taxes and minority
    interests |          |                              | 30,532  |       |           |   | 15,159  |           |  |   | (1,527 | )   |  |   | 44,164  |      

|                                                                             |          |                              |         |       |           |   |         |           |  |   |        |     |  |   |         |       | 
|---------------------------------------------------------------------------- | -------- | ---------------------------- | ------- | ----- | --------- | - | ------- | --------- |  | - | ------ | --- |  | - | ------- | ----- | 
|                                                                             |          | Year ended December 31, 2004 |        
|                                                                             |          |                              |        
|                                                                             |          | Industrial and               |         |       |          
|                                                                             |          | Engineering                  |         |       | Financial |   |         |          
|                                                                             |          | Services                     |         |       | Services  |   |         | Corporate |  |   | Total  |    
|                                                                             |          |                              |         |       |           |   |         |           |  |   |        |    
|Revenues from external customers                                             |          | $                            | 199,092 |       |           | $ | 498,672 |           |  | $ |       |     |  | $ | 697,764 |      
|Intersegment revenues                                                        |          |                              | 120     |       |           |   | 788     |           |  |   | 360    |     |  |   | 1,268   |      
|Interest expense                                                             |          |                              |         |       |           |   |         |           |  |   |        |     |  |   |         |      
|                                                                             | External |                              |         | 3,539 |           |   |         | 3,535     |  |   |        | 369 |  |   |         | 7,443 | 
|                                                                             | Internal |                              |         | 80    |           |   |         | 280       |  |   |        | 714 |  |   |         | 1,074 | 
|Income (loss) from operations before income taxes and minority
    interests |          |                              | 17,056  |       |           |   | 28,775  |           |  |   | (7,416 | )   |  |   | 38,415  |      

|                                                                             |          |                              |   |           |  |   |           |       |  |       |        |       |  |   |         |       | 
|---------------------------------------------------------------------------- | -------- | ---------------------------- | - | --------- |  | - | --------- | ----- |  | ----- | ------ | ----- |  | - | ------- | ----- | 
|                                                                             |          | Year ended December 31, 2003 |  
|                                                                             |          |                              |  
|                                                                             |          | Industrial and               |   |          
|                                                                             |          | Engineering                  |   | Financial |  |   |          
|                                                                             |          | Services                     |   | Services  |  |   | Corporate |       |  | Total |       
|                                                                             |          |                              |   |           |  |   |           |       |  |       |       
|Revenues from external customers                                             |          | $                            |  |           |  | $ | 409,513   |       |  | $     |       |       |  | $ | 409,513 |      
|Intersegment revenues                                                        |          |                              |  |           |  |   | 1,253     |       |  |       | 632    |       |  |   | 1,885   |      
|Interest expense                                                             |          |                              |   |           |  |   |           |       |  |       |        |       |  |   |         |      
|                                                                             | External |                              |   |          |  |   |           | 2,971 |  |       |        | 1,421 |  |   |         | 4,392 | 
|                                                                             | Internal |                              |   |          |  |   |           | 632   |  |       |        | 605   |  |   |         | 1,237 | 
|Income (loss) from operations before income taxes and minority
    interests |          |                              |  |           |  |   | 55,887    |       |  |       | (5,502 | )     |  |   | 50,385  |      

76



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                  |  |                         |         |  |           |   |         |           |  |   |        |  |  |   |          |  
|------------------------------------------------- |  | ----------------------- | ------- |  | --------- | - | ------- | --------- |  | - | ------ |  |  | - | -------- | -
|                                                  |  | As at December 31, 2005 |        
|                                                  |  |                         |        
|                                                  |  | Industrial and          |         |  |          
|                                                  |  | Engineering             |         |  | Financial |   |         |          
|                                                  |  | Services                |         |  | Services  |   |         | Corporate |  |   | Total  | 
|                                                  |  |                         |         |  |           |   |         |           |  |   |        | 
|Segment assets                                    |  | $                       | 344,078 |  |           | $ | 342,329 |           |  | $ | 43,221 |  |  | $ | 729,628  |  
|Less: intercorporate investment                   |  |                         |         |  |           |   |         |           |  |   |        |  |  |   | (119,797 | )
|                                                  |  |                         |         |  |           |   |         |           |  |   |        | 
|Consolidated total assets                         |  |                         |         |  |           |   |         |           |  |   |        |  |  |   | 609,831  |  
|                                                  |  |                         |         |  |           |   |         |           |  |   |        | 
|Equity method investments                         |  |                         | 6,555   |  |           |   | 10,113  |           |  |   | 2,011  |  |  |   | 18,679   |  
|Cash expenditures for capital assets and goodwill |  |                         | 2,792   |  |           |   | 160     |           |  |   |       |  |  |   | 2,952    |  

|                                                  |  |                         |         |  |           |   |         |           |  |   |        |  |  |   |          |  
|------------------------------------------------- |  | ----------------------- | ------- |  | --------- | - | ------- | --------- |  | - | ------ |  |  | - | -------- | -
|                                                  |  | As at December 31, 2004 |        
|                                                  |  |                         |        
|                                                  |  | Industrial and          |         |  |          
|                                                  |  | Engineering             |         |  | Financial |   |         |          
|                                                  |  | Services                |         |  | Services  |   |         | Corporate |  |   | Total  | 
|                                                  |  |                         |         |  |           |   |         |           |  |   |        | 
|Segment assets                                    |  | $                       | 255,896 |  |           | $ | 448,644 |           |  | $ | 40,679 |  |  | $ | 745,219  |  
|Less: intercorporate investment                   |  |                         |         |  |           |   |         |           |  |   |        |  |  |   | (141,520 | )
|                                                  |  |                         |         |  |           |   |         |           |  |   |        | 
|Consolidated total assets                         |  |                         |         |  |           |   |         |           |  |   |        |  |  | $ | 603,699  |  
|                                                  |  |                         |         |  |           |   |         |           |  |   |        | 
|Equity method investments                         |  |                         | 8,137   |  |           |   | 9,283   |           |  |   | 1,070  |  |  |   | 18,490   |  
|Cash expenditures for capital assets and goodwill |  |                         | 2,267   |  |           |   | 1,422   |           |  |   | 4      |  |  |   | 3,693    |  



|              |  |      |         |  |      |   |         |      |  |   |         | 
|------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|              |  | 2005 |         |  | 2004 |   |         | 2003 | 
|              |  |      |         |  |      |   |         |      | 
|Canada        |  | $    | 9,499   |  |      | $ | 10,042  |      |  | $ | 7,872   | 
|Europe        |  |      | 494,915 |  |      |   | 403,804 |      |  |   | 391,282 | 
|United States |  |      | 34,764  |  |      |   | 46,320  |      |  |   | 9,563   | 
|Asia          |  |      | 381,051 |  |      |   | 207,320 |      |  |   |        | 
|Africa        |  |      | 20,350  |  |      |   | 23,522  |      |  |   | 796     | 
|Other         |  |      | 15,431  |  |      |   | 6,756   |      |  |   |        | 
|              |  |      |         |  |      |   |         |      | 
|              |  | $    | 956,010 |  |      | $ | 697,764 |      |  | $ | 409,513 | 
|              |  |      |         |  |      |   |         |      | 



|              |  |      |        |  |      |   |        | 
|------------- |  | ---- | ------ |  | ---- | - | ------ | 
|              |  | 2005 |        |  | 2004 |  
|              |  |      |        |  |      |  
|Canada        |  | $    | 35,344 |  |      | $ | 35,345 | 
|Europe        |  |      | 25,887 |  |      |   | 40,560 | 
|United States |  |      | 264    |  |      |   | 302    | 
|Asia          |  |      | 1,277  |  |      |   | 932    | 
|Africa        |  |      | 111    |  |      |   | 191    | 
|Other         |  |      | 232    |  |      |   | 564    | 
|              |  |      |        |  |      |  
|              |  | $    | 63,115 |  |      | $ | 77,894 | 
|              |  |      |        |  |      |  



77



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                                    
|-------- | -----------------------------------
|Note 21. | Fair Value of Financial Instruments



|                                                      |  |          |         |  |            |   |          |        |  |   |            |  |  |   |         | 
|----------------------------------------------------- |  | -------- | ------- |  | ---------- | - | -------- | ------ |  | - | ---------- |  |  | - | ------- | 
|                                                      |  | 2005     |         |  | 2004       |  
|                                                      |  |          |         |  |            |  
|                                                      |  | Carrying |         |  |            |   | Carrying |        |  |  
|                                                      |  | Amount   |         |  | Fair Value |   |          | Amount |  |   | Fair Value | 
|                                                      |  |          |         |  |            |   |          |        |  |   |            | 
|Cash and cash equivalents (including restricted cash) |  | $        | 252,219 |  |            | $ | 252,219  |        |  | $ | 232,218    |  |  | $ | 232,218 | 
|Short-term securities                                 |  |          | 18,963  |  |            |   | 21,113   |        |  |   | 21,113     |  |  |   | 21,113  | 
|Loans                                                 |  |          | 23,405  |  |            |   | 23,405   |        |  |   | 26,865     |  |  |   | 26,865  | 
|Receivables, total                                    |  |          | 82,279  |  |            |   | 82,279   |        |  |   | 98,126     |  |  |   | 98,126  | 
|Accounts payable and accrued expenses                 |  |          | 186,111 |  |            |   | 186,111  |        |  |   | 160,012    |  |  |   | 160,012 | 
|Deposits                                              |  |          | 20,202  |  |            |   | 20,202   |        |  |   | 46,523     |  |  |   | 46,523  | 
|Notes payable and debt                                |  |          | 24,125  |  |            |   | 24,204   |        |  |   | 40,927     |  |  |   | 41,042  | 
|Interest rate swap derivative contract, liability     |  |          |        |  |            |   |         |        |  |   | 93         |  |  |   | 93      | 





|         |                           
|-------- | --------------------------
|Note 22. | Related Party Transactions









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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|         |                                                       
|-------- | ------------------------------------------------------
|Note 23. | United States Generally Accepted Accounting Principles



|                                                      |  |             |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                      |  | December 31 |        
|                                                      |  |             |        
|                                                      |  | 2005        |         |   | 2004 |   |         | 2003 | 
|                                                      |  |             |         |   |      |   |         |      | 
|Reconciliation of Net Income                          |  |             |         |   |      |   |         |      |  |   |         |  
|Net income in accordance with Canadian GAAP           |  | $           | 34,197  |   |      | $ | 36,951  |      |  | $ | 49,116  |  
|Interest accretion on convertible bonds               |  |             | 15      |   |      |   | 22      |      |  |   |        |  
|Fair value of guarantees issued                       |  |             | (40     | ) |      |   |        |      |  |   |        |  
|Gain on reduction of interest in a subsidiary         |  |             | (8,858  | ) |      |   |        |      |  |   |        |  
|                                                      |  |             |         |   |      |   |         |      | 
|Net income in accordance with U.S. GAAP               |  | $           | 25,314  |   |      | $ | 36,973  |      |  | $ | 49,116  |  
|                                                      |  |             |         |   |      |   |         |      | 
|Basic earnings per common share U.S. GAAP             |  | $           | 1.86    |   |      | $ | 2.73    |      |  | $ | 3.76    |  
|                                                      |  |             |         |   |      |   |         |      | 
|Diluted earnings per common share U.S. GAAP           |  | $           | 1.85    |   |      | $ | 2.70    |      |  | $ | 3.59    |  
|                                                      |  |             |         |   |      |   |         |      | 
|Reconciliation of Shareholders Equity                |  |             |         |   |      |   |         |      |  |   |         |  
|Shareholders equity in accordance with Canadian GAAP |  | $           | 284,783 |   |      | $ | 269,421 |      |  | $ | 218,447 |  
|Deferred income taxes                                 |  |             | (1,530  | ) |      |   | (1,530  | )    |  |   | (1,530  | )
|Equity component of convertible debt                  |  |             | (146    | ) |      |   | (146    | )    |  |   |        |  
|Unrealized gains on available for sale investments    |  |             | 3       |   |      |   | 504     |      |  |   | (3,342  | )
|Fair value of guarantees issued                       |  |             | (40     | ) |      |   |        |      |  |   |        |  
|Interest accretion on convertible bonds               |  |             | 37      |   |      |   | 22      |      |  |   |        |  
|Gain on reduction of interest in a subsidiary         |  |             | (8,858  | ) |      |   |        |      |  |   |        |  
|                                                      |  |             |         |   |      |   |         |      | 
|Retained earnings in accordance with U.S. GAAP        |  | $           | 274,249 |   |      | $ | 268,271 |      |  | $ | 213,575 |  
|                                                      |  |             |         |   |      |   |         |      | 

79



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##### Table of Contents



KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                        |                                          |                                                                                               |         |         |      |   |        |       |       |   |         |         |        |  
|--------------------------------------- | ---------------------------------------- | --------------------------------------------------------------------------------------------- | ------- | ------- | ---- | - | ------ | ----- | ----- | - | ------- | ------- | ------ | -
|                                        |                                          | December 31                                                                                   |        
|                                        |                                          |                                                                                               |        
|                                        |                                          | 2005                                                                                          |         |         | 2004 |   |        | 2003  |      
|                                        |                                          |                                                                                               |         |         |      |   |        |       |      
|Comprehensive Income                    |                                          |                                                                                               |         |         |      |   |        |       |       |   |         |        
|Net income in accordance with U.S. GAAP |                                          | $                                                                                             | 25,314  |         |      | $ | 36,973 |       |       | $ | 49,116  |        
|Other comprehensive income, net of tax  |                                          |                                                                                               |         |         |      |   |        |       |       |   |         |        
|                                        | Foreign currency translation adjustment  |                                                                                               |         | (20,170 | )    |   |        | 4,920 |       |   |         | (35,851 | )     
|                                        | Unrealized gains (losses) on securities: |                                                                                               |         |         |      |   |        |       |       |   |         |         |       
|                                        |                                          | Unrealized holding gains (losses) arising during the year                                     |         |         | (280 | ) |        |       | 647   |   |         |         | (3,524 | )
|                                        |                                          | Reclassification adjustment for gains realized in net income                                  |         |         |     |   |        |       |      |   |         |         | (182   | )
|                                        |                                          | Reclassification adjustment for shares becoming trading
    securities                        |         |         |     |   |        |       | (58   | ) |         |         |       |  
|                                        |                                          | Reclassification adjustment for shares becoming subsidiaries or
    equity method investments |         |         |     |   |        |       | 3,257 |   |         |         |       |  
|                                        |                                          | Reclassification adjustment for other than temporary decline in
    value                     |         |         | (221 | ) |        |       |      |   |         |         | 66     |  
|                                        |                                          |                                                                                               |         |         |      |   |        |       |      
|                                        |                                          | Net unrealized gains (losses) on securities                                                   |         |         | (501 | ) |        |       | 3,846 |   |         |         | (3,640 | )
|                                        |                                          |                                                                                               |         |         |      |   |        |       |      
|                                        |                                          |                                                                                               | (20,671 | )       |      |   | 8,766  |       |       |   | (39,491 | )      
|                                        |                                          |                                                                                               |         |         |      |   |        |       |      
|Comprehensive income                    |                                          | $                                                                                             | 4,643   |         |      | $ | 45,739 |       |       | $ | 9,625   |        
|                                        |                                          |                                                                                               |         |         |      |   |        |       |      



| |           
| | ----------
| | Securities







|                 |  |             |        |  |      |   |        | 
|---------------- |  | ----------- | ------ |  | ---- | - | ------ | 
|                 |  | December 31 |       
|                 |  |             |       
|                 |  | 2005        |        |  | 2004 |  
|                 |  |             |        |  |      |  
|Debt securities  |  | $           | 10,995 |  |      | $ | 13,654 | 
|Preferred shares |  |             | 756    |  |      |   | 903    | 
|Common shares    |  |             | 5,712  |  |      |   | 4,796  | 
|                 |  |             |        |  |      |  
|                 |  | $           | 17,463 |  |      | $ | 19,353 | 
|                 |  |             |        |  |      |  





| |                  
| | -----------------
| | Convertible Bonds



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##### Table of Contents



KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Derivatives
and Hedging Activities, 00-27, Application of Issue
No. 98-5 to
Certain Convertible Instruments


96-19, Debtors Accounting for a Modification or Exchange of
Debt Instruments




| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock Issued to
Employees, Accounting for Stock-based Compensation






| |          
| | ---------
| | Guarantee

Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Other, Contingencies,




| |                                            
| | -------------------------------------------
| | Gain on Reduction of Interest in Subsidiary





| |                                                         
| | --------------------------------------------------------
| | Future Changes to United States Accounting
    Standards

Share-Based Payments, Accounting for Stock
Issued to Employees,


81



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##### Table of Contents



KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Inventory Costs


Accounting Changes and Error
Corrections Accounting
Changes Reporting Accounting
Changes in Interim Financial Statements


The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments other-than-temporary other-than-temporary


05-7, Accounting for Modifications to Conversion Options Embedded
in Debt Instruments and Related Issues 96-19;


05-8, Income Tax Consequences of Issuing Convertible Debt with a
Beneficial Conversion Feature paid-in




|         |                  
|-------- | -----------------
|Note 24. | Subsequent Events



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KHD HUMBOLDT WEDAG INTERNATIONAL LTD. AND SUBSIDIARIES


(Formerly MFC BANCORP LTD.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












83



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##### Table of Contents






ITEM 19     Exhibits


Exhibits Required by
Form 20-F


|        |      |             |  |                                                                                                                                                                                                                                                               
|------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 1.1  |             |  | Articles of Amalgamation.(1)                                                                                                                                                                                                                                  
|        | 1.2  |             |  | By-laws.(1)                                                                                                                                                                                                                                                   
|        | 1.3  |             |  | Certificate of Continuance(6)                                                                                                                                                                                                                                 
|        | 1.4  |             |  | Notice of Articles(6)                                                                                                                                                                                                                                         
|        | 1.5  |             |  | Articles(8)                                                                                                                                                                                                                                                   
|        | 1.6  |             |  | Certificate of Change of Name(9)                                                                                                                                                                                                                              
|        | 2.1  |             |  | Master Trust Indenture between our company and Norwest Bank
    Minnesota, National Association, as trustee, dated
    March 31, 1998.(1)                                                                                                                     
|        | 2.2  |             |  | Trust Indenture between our company and Computershare Trust
    Company of Canada, dated January 7, 2004(7)                                                                                                                                                   
|        | 2.3  |             |  | Supplemental Indenture between our company and Computershare
    Trust Company of Canada, dated October 27, 2005.(9)                                                                                                                                          
|        | 4.1  |             |  | Memorandum of Agreement between our company and Wabush Iron Co.
    Limited, Stelco Inc. and Dofasco Inc. dated November 24,
    1987.(2)                                                                                                                     
|        | 4.2  |             |  | Amendment to Mining Lease between our company and Wabush Iron
    Co. Limited, Stelco Inc. and Dofasco Inc. dated January 1,
    1987.(2)                                                                                                                     
|        | 4.3  |             |  | First Amendment to Memorandum of Agreement between our company
    and Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc.(2)                                                                                                                               
|        | 4.4  |             |  | Assignment Agreement between our company and Prada Holdings Ltd.
    Dated as of January 1 1992.(1)                                                                                                                                                           
|        | 4.5  |             |  | Separation Agreement between Mercer International Inc. and our
    company dated for reference March 29, 1996.(1)                                                                                                                                             
|        | 4.6  |             |  | Purchase Agreement between our company and Volendam
    Securities C.V. dated for reference May 17, 1996.(1)                                                                                                                                                  
|        | 4.7  |             |  | Purchase Agreement between our company and Volendam
    Securities C.V. dated for reference May 27, 1996.(1)                                                                                                                                                  
|        | 4.8  |             |  | Share Purchase Agreement between our company and Frederick Wong
    dated June 6, 1996.(1)                                                                                                                                                                    
|        | 4.9  |             |  | Subscription Agreement between our company and Drummond
    Financial Corporation dated June 20, 1996.(1)                                                                                                                                                     
|        | 4.10 |             |  | Share Purchase Agreement between our company and Med Net
    International Ltd. Dated June 20, 1996.(1)                                                                                                                                                       
|        | 4.11 |             |  | Share Purchase Agreement among our company and various
    shareholders of Logan International Corp. dated June 20,
    1996.(1)                                                                                                                              
|        | 4.12 |             |  | Subscription Agreement between Drummond Financial Corporation
    and Logan International Corp. dated June 20, 1996.
    Incorporate by reference to Logan International Corp.s
    Form 8-K dated June 27, 1996.                                            
|        | 4.13 |             |  | Share Purchase Agreement between Lehman Brothers
    Bankhats AG and our company dated October 3, 1996.(1)                                                                                                                                                    
|        | 4.14 |             |  | Purchase Agreement between our company and Robabond
    Holding AG dated June 27, 1997.(1)                                                                                                                                                                    
|        | 4.15 |             |  | Share Purchase Agreement between our company and Procom Holding
    AG dated September 22, 1997.(1)                                                                                                                                                           
|        | 4.16 |             |  | Supplementary Agreement to Share Purchase Agreement between our
    company and Procom Holding AG dated September 22, 1997.(1)                                                                                                                                
|        | 4.17 |             |  | Agreement between our company and the holders of our
    companys Class A Preferred Shares dated
    December 1, 1996.(1)                                                                                                                                    
|        | 4.18 |             |  | Subscription Agreement between our company and Logan
    International Corp. dated December 2, 1996. Incorporated by
    reference to our companys Schedule 13D/A (Amendment
    No. 1) dated December 16, 1996 with respect to Logan
    International Corp.
|        | 4.19 |             |  | Shareholder Protection Rights Plan Agreement between our company
    and Montreal Trust Company of Canada dated as of May 18,
    1993.(1)                                                                                                                    

84



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|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                   
|------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4.20 |             |  | Amended 1997 Stock Option Plan of our company.(1)                                                                                                                                                                                                                                                                                                 
|        | 4.21 |             |  | Amended and Restated Employment Agreement between our company
    and Michael J. Smith made effective as of November 20,
    2000.(1)                                                                                                                                                                                                             
|        | 4.22 |             |  | Directors Indemnity Agreement between our company and
    Michael J. Smith dated for reference November 20,
    2000.(1)                                                                                                                                                                                                                         
|        | 4.23 |             |  | Indemnity Agreement between our company and Roy Zanatta dated
    for reference November 20, 2000.(1)                                                                                                                                                                                                                                             
|        | 4.24 |             |  | Investment and Restructuring Agreement among Sutton Park
    International Limited, Garda Investments Corp., our company,
    Glamiox Beteiligungsverwaltunds GmbH, Hovis GmbH,
    Jurriaan J. Hovis, Johannes Hovis and Ferdinand Steinbauer
    dated for reference October 1, 2001.(1)                                                        
|        | 4.25 |             |  | Owners Agreement among Garda Investments Corp., Glamiox
    Beteiligungsverwaltunds GmbH, Jurriaan J. Hovis and Ferdinand
    Steinbauer dated for reference October 1, 2004.(1)                                                                                                                                                                 
|        | 4.26 |             |  | Dividend Trust Settlement Agreement between our company and
    The Dividend Trust Committee of the Board of Directors of our
    company dated for reference December 21, 2001.(1)                                                                                                                                                               
|        | 4.27 |             |  | Share Sale Agreement among Newmont Australia Limited, Newmont
    LaSource S.A.S., and our company dated August 7,
    2002.(4)                                                                                                                                                                                                                   
|        | 4.28 |             |  | Royalty Deed among our company, Newmont Australia Limited and
    Newmont LaSource S.A.S. dated August 7, 2002.(4)                                                                                                                                                                                                                                
|        | 4.29 |             |  | Arrangement Agreement between Trimble Resources Corporation
    Resources Corporation and our company dated May 17, 2002.(4)                                                                                                                                                                                                                      
|        | 4.30 |             |  | Stock Purchase Agreement among Occidental (East Shabwa) LLC,
    Intercap Yemen, Inc. and our company dated July 23, 2002.(4)                                                                                                                                                                                                                     
|        | 4.31 |             |  | Share Purchase Agreement between Mazak Ltd. and Trident Alloys
    Ltd. dated July 24, 2003(5)                                                                                                                                                                                                                                                    
|        | 4.32 |             |  | Trust Indenture, dated January 7, 2004, between our company
    and Computershare Trust Company of Canada, as Trustee, for the
    issuance of 4.4% Convertible Unsecured Subordinated Bonds
    due December 31, 2009.(8)                                                                                                                        
|        | 4.33 |             |  | General Security Agreement made as of October 11, 2004
    between Med Net International Ltd., as Debtor, and our company,
    MFC Commodities GmbH and Sutton Park International Ltd., as
    Secured Parties, as security for the present and future
    indebtedness of the Debtor and as a supplement to the existing
    demand guarantee.(8)
|        | 4.34 |             |  | Share Pledge Agreement made as of October 12, 2004 between
    Med Net International Ltd., as Pledgor, and our company, MFC
    Commodities GmbH and Sutton Park International Ltd., as
    additional security for the Secured Liabilities.(8)                                                                                                   
|        | 4.35 |             |  | General Security Agreement made as of October 12, 2004
    between Lasernet Limited, as Debtor, and our company, MFC
    Commodities GmbH and Sutton Park International Ltd., as Secured
    Parties, as security for the present and future indebtedness of
    the Debtor and as a supplement to the existing demand
    guarantee.(8)          
|        | 4.36 |             |  | Share Pledge Agreement made as of October 12, 2004 between
    Lasernet Limited, as Pledgor, and our company, MFC Commodities
    GmbH and Sutton Park International Ltd., as additional security
    for the Secured Liabilities.(8)                                                                                                             
|        | 4.37 |             |  | Variation Agreement dated December 22, 2004 between our
    company and Sutton Park International Limited varying our
    companys interest obligation to Sutton Park International
    Limited in respect of the 4.4% Convertible Unsecured
    Subordinated Bond in the principal amount of
    6,786,436, maturing December 31, 2009.(8)     
|        | 4.38 |             |  | Restructuring Agreement dated December 29, 2005 between our
    company and Mass Financial Corp. for the restructuring of our
    company.(9)                                                                                                                                                                                                     
|        | 4.39 |             |  | Share Exchange Agreement dated December 29, 2005 between
    our company and Mass Financial Corp. for the restructuring of
    our company.(9)                                                                                                                                                                                                    
|        | 4.40 |             |  | Services Agreement dated February 1, 2006 between our
    company and Mass Financial Corp.(9)                                                                                                                                                                                                                                                     

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|        |      |             |  |                                                                                        
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 8.1  |             |  | Significant subsidiaries of our company as at March 31,
    2006:                      
|        |      |             |  | MFC Merchant Bank S.A.                                                                 
|        |      |             |  | Robabond Holding AG                                                                    
|        |      |             |  | MFC Commodities AG                                                                     
|        |      |             |  | KHD Humboldt Wedag International Holdings GmbH                                         
|        |      |             |  | KHD Humboldt Wedag International GmbH                                                  
|        |      |             |  | Humboldt Wedag Inc.                                                                    
|        |      |             |  | Humboldt Wedag India Ltd.                                                              
|        |      |             |  | Sasamat Capital Corporation                                                            
|        |      |             |  | MFC Industrial Holdings AG                                                             
|        |      |             |  | KHD Humboldt Wedag GmbH                                                                
|        |      |             |  | Zementanlagenbau Dessau GmbH                                                           
|        |      |             |  | Altmark Industriepark AG                                                               
|        |      |             |  | ZAB Industrietechnik & Service GmbH                                                    
|        | 11.1 |             |  | Code of Ethics(7)                                                                      
|        | 12.1 |             |  | Section 302 Certification under Sarbanes-Oxley Act of 2002
    for Michael J. Smith.(9)
|        | 12.2 |             |  | Section 302 Certification under Sarbanes-Oxley Act of 2002
    for James B. Busche.(9) 
|        | 13.1 |             |  | Section 906 Certification under Sarbanes-Oxley Act of 2002
    for Michael J. Smith(9) 
|        | 13.2 |             |  | Section 906 Certification under Sarbanes-Oxley Act of 2002
    for James B. Busche(9)  
|        | 99.1 |             |  | Audit Committee Charter(9)                                                             






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our
    Form 20-Fs
    filed in prior years.                                                   
|   
|(2) | Incorporated by reference to our
    Form 10-K for the
    year ended December 31, 1989.                                     
|   
|(3) | Incorporated by reference to our Schedule 13D dated
    June 27, 1996 with respect to Logan International Corp.              
|   
|(4) | Incorporated by reference to our
    Form 20-F filed
    with the Securities and Exchange Commission on April 28,
    2003.  
|   
|(5) | Incorporated by reference to our
    Form 6-K filed
    with the Securities and Exchange Commission on August 7,
    2003.   
|   
|(6) | Incorporated by reference to our
    Form 6-K filed
    with the Securities and Exchange Commission on November 23,
    2004.
|   
|(7) | Incorporated by reference to our
    Form 20-F filed
    with the Securities and Exchange Commission on April 26,
    2004.  
|   
|(8) | Incorporated by reference to our
    Form 20-F filed
    with the Securities and Exchange Commission on April 6,
    2005.   
|   
|(9) | Filed herewith.                                                                                                              

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SIGNATURES


20-F




| |                                             
| | --------------------------------------------
| | KHD Humboldt Wedag International Ltd.       
|
| | /s/ Michael J. Smith                        
| |                                             
| | Michael J. Smith                            
| | Chairman, Chief Financial Officer,          
| | Secretary and Director                      
| | (Principal Financial and Accounting Officer)



87