UNITED
                STATES SECURITIES AND EXCHANGE COMMISSION
              **WASHINGTON,
                D.C. 20549****FORM
                20-F**oREGISTRATION
                STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                ACT
                OF 1934
              
              ORxANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
              
              ORoTRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934
              
              ORoSHELL
                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 No.**001-14835****ADB
                SYSTEMS INTERNATIONAL LTD****.**
              (Exact
                name of Registrant as specified in its charter)**Not
                Applicable**
              (Translation
                of Registrant’s name into English)**ONTARIO,
                CANADA**
              (Jurisdiction
                of incorporation or organization)**302
                The East Mall, Suite 300 Toronto, Ontario M9B 6C7**
              (Address
                of principal executive offices)Securities
                registered or to be registered pursuant to Section 12(b) of the
                Act.
              **None**Securities
                registered or to be registered pursuant to Section 12(g) of the
                Act.
              **Common
                Shares**Securities
                for which there is a reporting obligation pursuant to Section 15(d)
                of the
                Act.
              **None**Indicate
                the number of outstanding shares of each of the issuer’s classes of
                capital or common stock as of the close of the period covered by
                the
                Annual Report.**74,120,131
                Common Shares as of December 31, 2005**Indicate
                by check mark if the registrant is a well-known seasoned issuer as
                defined
                in Rule 405 of the Securities Act
              Yes
                oNo
                x




If
                this report is an annual or transition report, indicate by check
                mark if
                the registrant is not required to file reports pursuant to Section
                13 or
                15 (d) of the Securities Exchange Act of 1934.
              Yes oNo
                xIndicate
                by check mark whether the registrant (1) has filed all reports required
                to
                be filed by Section 13 or 15(d) of the Securities Exchange Act of
                1934
                during the preceding 12 months (or for such shorter period that the
                registrant was required to file such reports), and (2) has been subject
                to
                such filing requirements for the past 90 days.Yes xNo
                oIndicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, or a non-accelerated filer. See definition of
                “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                Exchange Act. (Check one):
              Large
                Accelerated filer o  Accelerated
                filer o  Non-accelerated
                filer xIndicate
                by check mark which financial statement item the registrant has elected
                to
                follow.Item
                17 o  Item
                18xIf
                this an annual report, indicate by check mark whether the registrant
                is a
                shell company (as determined in Rule 12b-2 of the Exchange
                Act).
              Yes o  No
x


















**ADB
      SYSTEMS INTERNATIONAL LTD.**




**A****nnual
      Report on Form 20-F for the Fiscal Year**


**Ended
      December 31, 2005**







FORWARD
      LOOKING STATEMENTS




From
      time to time, we make oral and written statements that may be considered
      "forward looking statements" (rather than historical facts). We are taking
      advantage of the "safe-harbour" provisions of the Private Securities Litigation
      Reform Act of 1995 for any forward-looking statements we may make from time
      to
      time, including the forward-looking statements in this Annual
      Report.




You
      can identify these statements when you see words such as "may", "expect",
      "anticipate", "estimate", "believe", "intend", and other similar expressions.
      These forward-looking statements relate, among other items to:




•
            our
                future capital needs;•
            future
                expectations as to profitability and operating results;•
            our
                ability to further develop business relationships and
                revenues;•
            our
                expectations about the markets for our products and
                services;•
            acceptance
                of our products and services;•
            competitive
                factors;•
            our
                ability to repay debt;•
            our
                ability to attract and retain employees;•
            new
                products and technological changes;•
            our
                ability to develop appropriate strategic alliances;•
            protection
                of our proprietary technology;•
            our
                ability to acquire complementary products or businesses and integrate
                them
                into our business; and•
            geographic
                expansion of our business.







We
      have based these forward-looking statements largely on our current plans and
      expectations. Forward-looking statements are subject to risks and uncertainties,
      some of which are beyond our control. Our actual results could differ materially
      from those described in our forward-looking statements as a result of the
      factors described in the “Risk Factors” included elsewhere in this Annual
      Report, including, among others:




•
            the
                timing of our future capital needs and our ability to raise additional
                capital when needed;•
            our
                limited operating history in our current business as a combined
                entity;•
            increasingly
                longer sales cycles;•
            increasingly
                longer collection cycles;•
            potential
                fluctuations in our financial results and our difficulties in
                forecasting;•
            volatility
                of the stock markets and fluctuations in the market price of our
                stock;•
            your
                ability to buy and sell our shares on the Over the Counter Bulletin
                Board;






2




•
            our
                ability to compete with other companies in our
                industry;•
            our
                ability to repay our debt to lenders;•
            our
                ability to retain and attract key personnel;•
            risk
                of significant delays in product development;•
            failure
                to timely develop or license new
                technologies;


•
            risks
                relating to any requirement to correct or delay the release of products
                due to software bugs or errors;•
            risk
                of system failure or interruption;•
            problems
                which may arise in connection with the acquisition or integration
                of new
                businesses, products, services, technologies or other strategic
                relationships;•
            risks
                associated with international operations;•
            risks
                associated with protecting our intellectual property, and potentially
                infringing the intellectual property rights of others;
                and•
            sensitivity
                to the overall economic
                environment.







We
      do not have, and do not undertake, any obligation to publicly update or revise
      any forward-looking statements contained in this Annual Report, whether as
      a
      result of new information, future events or otherwise. Because of these risks
      and uncertainties, the forward-looking statements and circumstances discussed
      in
      this Annual Report might not transpire.




Trademarks
      or trade names which we own and are used in this Annual Report include: ADBTM;
      PROCUREMATETM; WORKMATETM; BID BUDDYTM; SEARCH BUDDYTM; DYNAMIC BUYERTM and DYNAMIC
      SELLERTM. Each trademark, trade name, or service mark of any other company
      appearing in this Annual Report belongs to its holder.






3






**TABLE
      OF CONTENTS**




PagePART
                      I
                  
                  
                  7ITEM
                      1 -
                  IDENTITY
                      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
                  7ITEM
                      2 -
                  OFFER
                      STATISTICS AND EXPECTED TIMETABLE
                  7ITEM
                      3 -
                  KEY
                      INFORMATION
                  7A. Selected
                      Financial Data
                  7B. Capitalization
                      and Indebtedness
                  9C. Reasons
                      For The Offer And Use Of Proceeds
                  9D. Risk
                      Factors
                  9ITEM
                      4 -
                  INFORMATION
                      ON THE COMPANY
                  16A. History
                      and Development of the Company
                  16B.Business
                      Overview
                  20C. Organizational
                      Structure
                  29D.Property,
                      Plants and Equipment
                  29ITEM
                      4A -
                  UNRESOLVED
                      STAFF COMMENTS
                  29ITEM
                      5 -
                  OPERATING
                      AND FINANCIAL REVIEW AND PROSPECTS - MANAGEMENT’S DISCUSSION AND ANALYSIS
                      OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  29A.Operating
                      Results
                  32B.Liquidity
                      and Capital Resources
                  39C.Customer
                      Service and Technology
                  41D.Trend
                      Information
                  41E.Off-Balance
                      Sheet Arrangements
                  42F.Tabular
                      Disclosure of Contractual Obligations
                  42ITEM
                      6 -
                  DIRECTORS,
                      SENIOR MANAGEMENT AND EMPLOYEES
                  43A.Directors
                      And Senior Management
                  43B.Compensation
                  45C.Board
                      Practices
                  46D.Employees
                  47E.Share
                      Ownership
                  48ITEM
                      7 -
                  MAJOR
                      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
                  49A.Major
                      Shareholders
                  49B.Related
                      Party Transactions
                  50ITEM
                      8 -
                  FINANCIAL
                      INFORMATION
                  51ITEM
                      9 -
                  THE
                      OFFER AND LISTING
                  51
   4
  ITEM
                      10 -
                  ADDITIONAL
                      INFORMATION
                  54A.Share
                      Capital
                  54B.Memorandum
                      and Articles of Association
                  54C.Material
                      Contracts
                  57D.Exchange
                      Controls
                  59E.Taxation
                  59F.Dividends
                      and Paying Agents
                  65G.Statements
                      by Experts
                  65H.Documents
                      on Display
                  65I.Subsidiary
                      Information
                  65ITEM
                      11 -
                  QUANTITATIVE
                      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
                  65ITEM
                      12 -
                  DESCRIPTION
                      OF SECURITIES OTHER THAN EQUITY SECURITIES
                  66PART
                      II
                  
                  
                  66ITEM
                      13 -
                  DEFAULT,
                      DIVIDEND ARREARAGES AND DELINQUENCIES
                  66ITEM
                      14 -
                  MATERIAL
                      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
                      PROCEEDS
                  66ITEM
                      15 -
                  CONTROLS
                      AND PROCEDURES
                  66ITEM
                      16 -
                  [RESERVED]
                  66ITEM
                      16 -
                  
                  66A.Audit
                      Committee Financial Expert
                  66B.Code
                      of Ethics
                  66C.Principal
                      Accountant Fees and Services
                  66D.Exemptions
                      from the Listing Standards For Audit Committees
                  67E.Purchases
                      of Equity Securities by the Issuer and Affiliated
                      Purchasers
                  67PART
                      III
                  
                  
                  67ITEM
                      17 -
                  FINANCIAL
                      STATEMENTS
                  67ITEM
                      18 -
                  FINANCIAL
                      STATEMENTS
                  67ITEM
                      19 -
                  EXHIBITS
                  67


5





Unless
      otherwise indicated, all references in this Annual Report to “dollars” or “$”
are references to Canadian dollars. Our financial statements are expressed
      in
      Canadian dollars. Except as otherwise noted, certain financial information
      presented in this Annual Report has been translated from Canadian dollars to
      U.S. dollars at an exchange rate of Cdn$1.1656 to US$1.00 (or US$ 0.8579 to
      Cdn
      1.00), the noon buying rate in New York City on December 31, 2005 for cable
      transfers in Canadian dollars as certified for customs purposes by the Federal
      Reserve Bank of New York. These translations are not intended to suggest that
      Canadian dollars have been or could be converted into U.S. dollars at that
      or
      any other rate.




*On
      October 11, 2001, our shareholders approved a two-for-one share consolidation.
      Unless otherwise indicated, all share and option figures in this Annual Report
      that relate to the period prior to October 11, 2001 have been adjusted
      retroactively to reflect the share consolidation.*




*References
      to the “Company” and “ADB” refer to ADB Systems International Ltd., as successor
      to ADB Systems International Inc. as a result of the implementation of the
      plan
      of arrangement described on page 17 under the heading “Major
      Developments.”*




**PART
      I**




**ITEM
      1 -** **IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS**




Not
      applicable.




**ITEM
      2 -** **OFFER
      STATISTICS AND EXPECTED TIMETABLE**




Not
      applicable.




**ITEM
      3 -** **KEY
      INFORMATION**




**A.**
            **SELECTED
                FINANCIAL DATA**




The
      selected financial data set forth below should be read in conjunction with,
      and
      is qualified by reference to, our consolidated financial statements and the
      related notes, and the section "Operating and Financial Review and Prospects"
      included elsewhere in this Annual Report. The consolidated statement of
      operations data for the years ended December 31, 2005, 2004, and 2003 and
      consolidated balance sheet data as of December 31, 2005 and 2004, as set
      forth below, are derived from our audited consolidated financial statements
      and
      the related notes included elsewhere in this Annual Report. The consolidated
      statement of operations data for the years ended December 31, 2002 and 2001
      and
      the consolidated balance sheet data as at December 31, 2003, 2002, and 2001
      have been derived from our audited consolidated financial statements for those
      years, which are not included in this Annual Report.




We
      have prepared our consolidated financial statements in accordance with
      accounting principles generally accepted in Canada, which differ in certain
      respects from accounting principles generally accepted in the United States.
      However, as applied to us, for all fiscal periods for which financial data
      is
      presented in this Annual Report, Canadian GAAP and U.S. GAAP were substantially
      identical in all material respects, except as disclosed in Note 23 of our
      consolidated financial statements.




Historical
      results are not necessarily indicative of results to be expected for any future
      period.






6







**Statement
                of Operations Data:**
            
            **Year
                Ended December 31****2005**
              **(Cdn$)**
            
            **2004**
              **(Cdn$)**
            
            **2003**
              **(Cdn$)**
            
            **2002**
              **(Cdn$)**
            
            **2001**
              **(Cdn$)****(Audited)****(in
                thousands except for per share data)**Revenue
            
            
            5,775
            
            
            4,930
            
            
            5,853
            
            
            5,780
            
            
            4,455Less:
                Customer acquisition costs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (60
            )Net
                Revenue
            
            
            5,775
            
            
            4,930
            
            
            5,853
            
            
            5,780
            
            
            4,395ExpensesGeneral
                and administrative
            
            
            4,204
            
            
            4,365
            
            
            4,648
            
            
            6,288
            
            
            7,622Sales
                and marketing
            
            
            534
            
            
            749
            
            
            1,098
            
            
            1,875
            
            
            4,040Software
                development and technology
            
            
            3,587
            
            
            3,257
            
            
            2,817
            
            
            4,101
            
            
            3,691Employee
                stock options
            
            
            154
            
            
            39
            
            
            193
            
            
            -Depreciation
                and amortization
            
            
            132
            
            
            1,190
            
            
            1,901
            
            
            2,602
            
            
            1,572Interest
                expense
            
            
            707
            
            
            433
            
            
            280
            
            
            155
            
            
            (345
            )Total
                expenses
            
            
            9,318
            
            
            10,033
            
            
            10,937
            
            
            15,021
            
            
            16,580Loss
                from operations
            
            
            3,543
            
            
            (5,103
            )
            
            (5,084
            )
            
            (9,241
            )
            
            (12,185
            )**Loss
                from continuing operations**Net
                Loss
            
            
            3,501
            
            
            (5,104
            )
            
            (2,815
            )
            
            (9,364
            )
            
            (18,714
            )Loss
                per common share(1)
            
            
            (0.05
            )
            
            (0.08
            )
            
            (0.05
            )
            
            (0.22
            )
            
            (0.64
            )Weighted
                average number of common shares(2)
            
            
            72,904
            
            
            61,938
            
            
            54,324
            
            
            41,968
            
            
            29,130







**Balance
                Sheet Data:****(3)****As
                at December 31****2005**
              **(Cdn$)**
            
            **2004**
              **(Cdn$)**
            
            **2003**
              **(Cdn$)**
            
            **2002**
              **(Cdn$)**
            
            **2001**
              **(Cdn$)****(Audited)****(in
                thousands)**Working
                capital
            
            
            (1,164
            )
            
            381
            
            
            486
            
            
            (1,757
            )
            
            3,115Total
                assets
            
            
            1,843
            
            
            2,493
            
            
            3,211
            
            
            6,355
            
            
            10,592Shareholders’
                (deficiency) equity
            
            
            (2,710
            )
            
            (1,009
            )
            
            1,026
            
            
            1,198
            
            
            8,014


(1)
              For each fiscal year, the Company
                excluded
                the effect of all convertible debt, stock options and share-purchase
                warrants, as their impact would have been anti-dilutive.(2)
              In October 2001, our shareholders
                approved a
                2 for 1 share consolidation. All per share amounts have been adjusted
                retroactively to reflect the consolidation. See Note 9(d) of our
                consolidated financial statements for a discussion regarding the
                calculation of common shares outstanding and loss per common share.(3)
              We have not paid dividends since our
                formation.






7




EXCHANGE
      RATES




The
      following tables set forth, for the periods indicated, certain exchange rates
      based on the noon buying rate in New York City for cable transfers in Canadian
      dollars, as certified for customs purposes by the Federal Reserve Bank of New
      York. Such rates are the number of U.S. dollars per one Canadian dollar and
      are
      the inverse of the rates quoted by the Federal Reserve Board of New York for
      Canadian Dollars per U.S. $1.00. On May 31, 2006, the exchange rate was US$1.00
      = Cdn$0.9069 **.**




Year
                  Ended December 31,Rate
              
              2005
              
              2004
              
              2003
              
              2002
              
              2001Average
                  (1) during year
              
              
              0.8254
              
              
              0.7702
              
              
              0.7205
              
              
              0.6344
              
              
              0.6449





(1)The
                average rate is the average of the exchange rates on the last day
                of each
                month during the year.






Month
            
            High
                during month
            
            Low
                during monthDecember
                2005
            
            
            0.86900
            
            
            0.8521January
                2006
            
            
            0.8744
            
            
            0.8528February
                2006
            
            
            0.8788
            
            
            0.8634March
                2006
            
            
            0.8834
            
            
            0.8531April
                2006
            
            
            0.8926
            
            
            0.8534May
                2006
            
            
            0.9100
            
            
            0.8903




**B.**
            **CAPITALIZATION
                AND INDEBTEDNESS**




Not
      applicable.




**C.**
            **REASONS
                FOR THE OFFER AND USE OF
                PROCEEDS.**




Not
      applicable.




**D.**
            **RISK
                FACTORS**




The
      following is a summary of certain risks and uncertainties which we face in
      our
      business. This summary is not meant to be exhaustive. These Risk Factors should
      be read in conjunction with other cautionary statements which we make in this
      Annual Report and in our other public reports, registration statements and
      public announcements.




WE
      WILL NEED ADDITIONAL CAPITAL AND IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING
      WHEN WE NEED IT, WE MAY BE REQUIRED TO SIGNIFICANTLY CURTAIL OR CEASE OUR
      OPERATIONS.




We
      have not yet realized profitable operations and have relied on non-operational
      sources of financing to fund our operations. Since we began our operations,
      we
      have been funded primarily through the sale of securities to investors in a
      series of private placements, convertible debt instruments, sales of equity
      to,
      and investments from, strategic partners, gains from investments, option
      exercises and, to a limited extent, through cash flow from operations. While
      our
      Company’s financial statements for the year-ended December 31, 2005, have been
      prepared on the basis of accounting principles applicable to a going concern,
      certain adverse conditions and events cast substantial doubt upon the validity
      of this assumption. The Company has not yet realized profitable operations
      and






8




has
      relied on non-operational sources of financing to fund operations. Our ability
      to continue as a going concern will be dependent on management’s ability to
      successfully execute its business plan including a substantial increase in
      revenue as well as maintaining operating expenses at or near the same level
      as
      2005. Management’s 2006 business plan includes an increase in revenue and
      operating cash flow primarily from major new contracts in North America. The
      Company cannot provide assurance that it will be able to execute on its business
      plan or assure that efforts to raise additional financings would be successful.




Management
      believes that continued existence beyond 2005 is dependent on its ability to
      increase revenue from existing products, and to expand the scope of its product
      offering which entails a combination of internally developed software and
      partnerships with third parties. As of May 31, 2006, we had cash on hand and
      marketable securities of approximately $969,000.




We
      do not have any committed sources of additional financing at this time and
      we
      are uncertain whether additional funding will be available when we need it
      on
      terms that will be acceptable to us or at all. If we are not able to obtain
      financing when we need it, we would be unable to carry out our business plan
      and
      would have to significantly curtail or cease our operations. We have included
      in
      Note 2 to our financial statements for the year ended December 31, 2005, a
      discussion about the ability of our company to continue as a going concern.
      Potential sources of financing include strategic relationships, public or
      private sales of our shares, debt, convertible securities or other arrangements.
      If we raise funds by selling additional shares, including common shares or
      other
      securities convertible into common shares, the ownership interests of our
      existing shareholders will be diluted. If we raise funds by selling preferred
      shares, such shares may carry more voting rights, higher dividend payments
      or
      more favorable rights upon distribution than those for the common shares. If
      we
      incur debt, the holders of such debt may be granted security interests in our
      assets. Because of our potential long-term capital requirements, we may seek
      to
      access the public or private equity or debt markets whenever conditions are
      favorable, even if we do not have an immediate need for additional capital
      at
      that time. The auditors’ report on our 2005 consolidated financial statements
      includes additional comments for US readers that refers to this uncertainty
      with
      respect to our ability to continue as a going concern.




WE
      ARE NOT PROFITABLE AND WE MAY NEVER BECOME PROFITABLE.




We
      have accumulated net losses of approximately $108.4 million as of December
      31,
      2005. For the year ended December 31, 2005 our net loss was $3.5 million.
      We have never been profitable and expect to continue to incur losses for the
      foreseeable future. We cannot assure you that we will earn profits or generate
      positive cash flows from operations in the future.




OUR
      LIMITED OPERATING HISTORY IN OUR CURRENT BUSINESS AS A COMBINED ENTITY AND
      OUR
      JOINT VENTURE WITH GE COMMERCIAL FINANCE MAKES EVALUATING OUR BUSINESS
      DIFFICULT.




Since
      we were founded in September 1995 and until 1999 we operated solely as an online
      retailer of computer and other goods. In 2000, we shifted our focus to providing
      dynamic pricing solutions. In October 2001, we acquired ADB Systemer ASA of
      Norway, a provider of enterprise asset management and electronic procurement
      software and services.




In
      December 2003 we formed the joint venture, GE Asset Manager LLC, with GE
      Commercial Finance, Capital Solutions. Growing this business venture has
      required us to shift focus from a broad spectrum of customers to focusing on
      a
      small number of large clients. By further investing in our relationship with
      GE
      Commercial Finance, Capital Solutions we are increasing our business risk by
      becoming substantially dependent on the business generated by the joint venture.




Our
      business and prospects must be considered in light of the risks, uncertainties
      and expenses frequently encountered by companies in their early stages of
      development, particularly companies in new and rapidly evolving markets. Our
      business strategy may not be successful and we may not successfully address
      those risks.






9




WE
      MAY EXPERIENCE INCREASINGLY LONGER SALES CYCLES.




A
      significant portion of our revenue in any quarter is derived from a relatively
      small number of contracts. We often experience sales cycles of six (6) to
      eighteen (18) months. If the length of our sales cycles increases, our revenues
      may decrease and our quarterly results would be adversely affected. In addition,
      our current and future expense levels are based largely on our investment plans
      and estimates of future revenues and are, to a large extent, fixed. We may
      be
      unable to adjust spending in a timely manner to compensate for any unexpected
      revenue shortfall. Any significant shortfall in revenues relative to our planned
      expenditures would have a material adverse effect on our business, financial
      condition, cash flows and results of operations.




POTENTIAL
      FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKE FINANCIAL FORECASTING
      DIFFICULT.




Our
      operating results have varied on a quarterly basis in the past and may fluctuate
      significantly as a result of a variety of factors, many of which are outside
      our
      control. Factors that may affect our quarterly operating results include:




•
            general
                economic conditions as well as economic conditions specific to our
                industry;•
            long
                sales cycles, which characterize our industry;•
            implementation
                delays, which can affect payment and recognition of
                revenue;•
            any
                decision by us to reduce prices for our solutions in response to
                price
                reductions by competitors;•
            the
                amount and timing of operating costs and capital expenditures relating
                to
                monitoring or expanding our business, operations and infrastructure;
                and•
            the
                timing of, and our ability to integrate, any future acquisition,
                technologies or products or any strategic investments or relationships
                into which we may enter.




Due
      to these factors, our quarterly revenues and operating results are difficult
      to
      forecast. We believe that period-to-period comparisons of our operating results
      may not be meaningful and should not be relied upon as an indication of future
      performance. In addition, it is likely that in one or more future quarters,
      our
      operating results will fall below the expectations of securities analysts and
      investors. In such event, the trading price of our common shares would almost
      certainly be materially adversely affected.




OUR
      SHARE PRICE HAS FLUCTUATED SUBSTANTIALLY AND MAY CONTINUE TO DO SO.




The
      trading price of our common shares on The Toronto Stock Exchange and on the
      Nasdaq Over the Counter Bulletin Board (“OTCBB”) has fluctuated significantly in
      the past and could be subject to wide fluctuations in the future. The market
      prices for securities of technology companies have been highly volatile. These
      companies have experienced extreme price and volume fluctuations that have
      often
      been unrelated or disproportionate to their operating performance. Broad market
      and industry factors may materially and adversely affect the market price of
      our
      common shares, regardless of our operating performance. In addition,
      fluctuations in our operating results and concerns regarding our competitive
      position can have an adverse and unpredictable effect on the market price of
      our
      shares.




In
      the past, following periods of volatility in the market price of a company’s
      securities, securities class-action litigation has often been instituted against
      that company. Such litigation, if instituted against us, could result in
      substantial costs and a diversion of management’s attention and resources, which
      could have a material adverse effect on our business, results of operations,
      cash flow, financial condition and prospects.




YOUR
      ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED.




On
      June 3, 2002, we transferred the listing of our common shares from the Nasdaq
      National Market to the Nasdaq SmallCap Market (now known as the Nasdaq Capital
      Market). On August 22, 2002, our common shares were delisted from the Nasdaq
      SmallCap Market because we did not satisfy the minimum bid price per share
      requirement for continued listing on that market. Our common shares immediately
      became eligible for and began trading on the OTCBB. The OTCBB is generally
      considered to be a less efficient market than the Nasdaq






10




National
      Market or the Nasdaq SmallCap Market on which our shares previously traded.
      As a
      result, your ability to buy or sell our common shares on the OTCBB may be
      limited. In addition, since our shares are no longer listed on the Nasdaq
      National Market or Nasdaq SmallCap Market, our shares may be subject to the
      “penny stock” regulations described below. De-listing from the Nasdaq National
      Market and the Nasdaq SmallCap Market will not affect the listing of the common
      shares on The Toronto Stock Exchange.




OUR
      COMMON SHARES ARE SUBJECT TO “PENNY STOCK” REGULATIONS WHICH MAY AFFECT YOUR
      ABILITY TO BUY OR SELL OUR COMMON SHARES.




Our
      common shares have traded on the Nasdaq National and Small Cap Markets and
      on
      the OTCBB at prices below US$5.00 since April 2000 (on a pre-consolidation
      basis). As a result, our shares are characterized as “penny stocks” which may
      severely affect market liquidity. The Securities Enforcement and Penny Stock
      Reform Act of 1990 requires additional disclosure relating to the market for
      penny stocks in connection with trades in any stock defined as a penny
      stock.




Securities
      and Exchange Commission regulations generally define a penny stock to be an
      equity security that has a market price of less than US$5.00 per share, subject
      to certain exceptions. The regulations require, prior to any transaction
      involving a penny stock, delivery of a disclosure schedule explaining the penny
      stock market and the risks associated therewith. The penny stock regulations
      may
      adversely affect the market liquidity of our common shares by limiting the
      ability of broker/dealers to trade the shares and the ability of purchasers
      of
      our common shares to sell in the secondary market. Certain institutions and
      investors will not invest in penny stocks.




THE
      MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE.




The
      market for asset lifecycle management solutions is rapidly evolving and
      intensely competitive. We face significant competition in each segment of our
      business (sourcing, procurement, enterprise asset management and asset
      disposition). We expect that competition will further intensify as new companies
      enter the different segments of our market and larger existing companies expand
      their product lines. If the global economy continues to lag, we could face
      increased competition, particularly in the form of lower prices.




Many
      of our competitors have longer operating histories, larger customer bases,
      greater brand recognition and significantly greater financial, marketing and
      other resources than we. We cannot assure you that we will be able to compete
      with them effectively. If we fail to do so, it would have a material adverse
      effect on our business, financial condition, cash flows and results of
      operations.




WE
      MAY NOT BE ABLE TO RETAIN OR ATTRACT THE HIGHLY SKILLED PERSONNEL WE NEED,
      IN
      PARTICULAR AS A RESULT OF OUR RECENT WORKFORCE REDUCTIONS.




Our
      success is substantially dependent on the ability and experience of our senior
      management and other key personnel. We do not have long-term employment
      agreements with any of our key personnel and maintain no “key person” life
      insurance policies.




The
      number of our employees as of May 31, 2006 represents a 6% decrease in our
      workforce as compared with the number of our employees as of May 31, 2005.
      We
      may need to hire new or additional personnel to respond to attrition or future
      growth of our business. However, there is significant competition for qualified
      personnel. We cannot be certain we will be able to retain existing personnel
      or
      hire additional, qualified personnel when needed.




SIGNIFICANT
      DELAYS IN PRODUCT DEVELOPMENT WOULD HARM OUR REPUTATION AND RESULT IN LOSS
      OF
      REVENUE.




If
      we experience significant product development delays, our position in the market
      would be harmed, and our revenues could be substantially reduced, which would
      adversely affect our operating results. As a result of the complexities inherent
      in our software, major new product enhancements and new products often require
      long development and test periods before they are released. On occasion, we
      have
      experienced delays in the scheduled release date of new or enhanced products,
      and we may experience delays in the future. Delays may occur for many reasons,
      including an inability to hire a sufficient number of developers, discovery
      of
      bugs and errors or a failure of our current or future products to conform to
      industry requirements. Any such delay, or the failure of new products




11




or
      enhancements in achieving market acceptance, could materially impact our
      business and reputation and result in a decrease in our revenues.




WE
      MAY HAVE TO EXPEND SIGNIFICANT RESOURCES TO KEEP PACE WITH RAPID TECHNOLOGICAL
      CHANGE.




Our
      industry is characterized by rapid technological change, changes in user and
      customer requirements, frequent new service or product introductions embodying
      new technologies and the emergence of new industry standards and practices.
      Any
      of these could hamper our ability to compete or render our proprietary
      technology obsolete. Our future success will depend, in part, on our ability
      to:




•
            develop
                new proprietary technology that addresses the increasingly sophisticated
                and varied needs of our existing and prospective
                customers;•
            anticipate
                and respond to technological advances and emerging industry standards
                and
                practices on a timely and cost-effective basis;•
            continually
                improve the performance, features and reliability of our products
                in
                response to evolving market demands; and•
            license
                leading technologies.




We
      may be required to make substantial expenditures to accomplish the foregoing
      or
      to modify or adapt our services or infrastructure.




OUR
      BUSINESS COULD BE SUBSTANTIALLY HARMED IF WE HAVE TO CORRECT OR DELAY THE
      RELEASE OF PRODUCTS DUE TO SOFTWARE BUGS OR ERRORS.




We
      sell complex software products. Our software products may contain undetected
      errors or bugs when first introduced or as new versions are released. Our
      software products may also contain undetected viruses. Further, software we
      license from third parties and incorporate into our products may contain errors,
      bugs or viruses. Errors, bugs and viruses may result in any of the
      following:




•
            adverse
                customer reactions;•
            negative
                publicity regarding our business and our products;•
            harm
                to our reputation;•
            loss
                of or delay in market acceptance;•
            loss
                of revenue or required product changes;•
            diversion
                of development resources and increased development expenses;•
            increased
                service and warranty costs;•
            legal
                action by our customers; and•
            increased
                insurance costs.




SYSTEMS
      DEFECTS, FAILURES OR BREACHES OF SECURITY COULD CAUSE A SIGNIFICANT DISRUPTION
      TO OUR BUSINESS, DAMAGE OUR REPUTATION AND EXPOSE US TO LIABILITY.




We
      host certain websites and sub-sites for our customers. Our systems are
      vulnerable to a number of factors that may cause interruptions in our ability
      to
      enable or host solutions for third parties, including, among
      others:




•
            damage
                from human error, tampering and vandalism;•
            breaches
                of security;






12




•
            fire
                and power losses;•
            telecommunications
                failures and capacity limitations; and•
            software
                or hardware defects.




Despite
      the precautions we have taken and plan to take, the occurrence of any of these
      events or other unanticipated problems could result in service interruptions,
      which could damage our reputation, and subject us to loss of business and
      significant repair costs. Certain of our contracts require that we pay penalties
      or permit a customer to terminate the contract if we are unable to maintain
      minimum performance levels. Although we continue to take steps to enhance the
      security of our systems and ensure that appropriate back-up systems are in
      place, our systems are not now, nor will they ever be, fully
      secure.






OUR
      BUSINESS HAS UNDERGONE DRAMATIC EXPANSION AND RETRACTION PHASES SINCE OUR
      FORMATION. WE MAY NOT BE ABLE TO MANAGE FURTHER DRAMATIC EXPANSIONS AND
      RETRACTIONS IN THE FUTURE.




Our
      business has undergone dramatic expansion and retraction since our formation,
      which has placed significant strain on our management resources. If we should
      grow or retract dramatically in the future, there may be further significant
      demands on our management, administrative, operating and financial resources.
      In
      order to manage these demands effectively, we will need to expand and improve
      our operational, financial and management information systems and motivate,
      manage and retain employees. We cannot assure you that we will be able to do
      so,
      that our management, personnel or systems will be adequate, or that we will
      be
      able to achieve levels of revenue commensurate with the resulting levels of
      operating expenses.




INTERNATIONAL
      SALES ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE, WHICH EXPOSES US TO
      CERTAIN RISKS.




We
      currently operate in Canada, Norway, Ireland, the United States and England.
      In
      the 2005 fiscal year, sales to customers outside North America represented
      approximately 88.6% of our revenues. There are risks inherent in doing business
      on a global level, including:




•
            difficulties
                in managing and staffing an organization spread across several
                continents;•
            differing
                laws and regulatory requirements;•
            political
                and economic risks;•
            currency
                and foreign exchange fluctuations and controls;•
            tariffs,
                customs, duties and other trade barriers;•
            longer
                payment cycles and problems in collecting accounts receivable in
                certain
                countries;•
            export
                and import restrictions;•
            the
                need for product compliance with local language and business
                customs;•
            seasonal
                reductions in business activity during the summer months in Europe
                and
                elsewhere; and•
            potentially
                adverse tax consequences.Any
                of these risks could adversely affect the success of our global
                operations.




ACQUISITIONS
      OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND/OR
      DISTRACTIONS FOR OUR MANAGEMENT.




We
      acquired ADB Systemer ASA (“ADB Systemer”) of Norway in October 2001. On May 18,
      2006, the Company entered into an agreement with ADB Systemer Holding AS to
      sell
      100 percent of its shares in ADB Systemer. For additional information regarding
      the sale of ADB Systemer see Item 4. B under the heading “BUSINESS
      OVERVIEW.”






13




In
      the future, we may seek to acquire other businesses or make investments in
      complementary businesses or technologies. We may not be able to acquire or
      manage additional businesses profitably or successfully integrate any acquired
      businesses with our business. Businesses that we acquire may have liabilities
      that we underestimate or do not discover during our pre-acquisition
      investigations. Certain liabilities, even if we do not expressly assume them,
      may be imposed on us as the successor to the business. Further, each acquisition
      may involve other special risks that could cause the acquired businesses to
      fail
      to meet our expectations. For example:




•
            the
                acquired businesses may not achieve expected results;•
            we
                may not be able to retain key personnel of the acquired
                businesses;•
            we
                may incur substantial, unanticipated costs, delays or other operational
                or
                financial problems when we try to integrate businesses we acquire
                with our
                own;•
            our
                management’s attention may be diverted; or•
            our
                management may not be able to manage the combined entity effectively
                or to
                make acquisitions and grow our business internally at the same
                time.




The
      occurrence of one or more of these factors could have a material adverse effect
      on our business, financial condition, cash flows and results of operations.
      In
      addition, we may incur debt or issue equity securities to pay for any future
      acquisitions or investments, which could dilute the ownership interest of our
      existing shareholders.




IF
      WE ARE UNABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY OR OBTAIN
      CERTAIN LICENSES, OUR COMPETITIVE POSITION MAY BE WEAKENED.




Our
      performance and ability to compete are dependent in part on our technology.
      We
      rely on a combination of patent, copyright, trademark and trade secret laws
      as
      well as confidentiality agreements and technical measures, to establish and
      protect our rights in the technology we develop. We cannot guarantee that any
      patents issued to us will afford meaningful protection for our technology.
      Competitors may develop similar technologies which do not conflict with our
      patents. Others may challenge our patents and, as a result, our patents could
      be
      narrowed or invalidated.




Our
      software is protected by common law copyright laws, as opposed to registration
      under copyright statutes. Common law protection may be narrower than that which
      we could obtain under registered copyrights. As a result, we may experience
      difficulty in enforcing our copyrights against certain third parties. The source
      code for our proprietary software is protected as a trade secret. As part of
      our
      confidentiality protection procedures, we generally enter into agreements with
      our employees and consultants and limit access to, and distribution of, our
      software, documentation and other proprietary information. We cannot assure
      you
      that the steps we take will prevent misappropriation of our technology or that
      agreements entered into for that purpose will be enforceable. In order to
      protect our intellectual property, it may be necessary for us to sue one or
      more
      third parties. While this has not been necessary to date, there can be no
      guarantee that we will not be required to do so in future to protect our rights.
      The laws of other countries may afford us little or no protection for our
      intellectual property.




We
      also rely on a variety of technology that we license from third parties,
      including our database and Internet server software, which is used to perform
      key functions. These third-party technology licenses may not continue to be
      available to us on commercially reasonable terms, or at all. If we are unable
      to
      maintain these licenses or obtain upgrades to these licenses, we could be
      delayed in completing or prevented from offering some products or
      services.




OTHERS
      COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY
      RESULT IN COSTLY AND TIME-CONSUMING LITIGATION.




Our
      success will also depend partly on our ability to operate without infringing
      upon the proprietary rights of others, as well as our ability to prevent others
      from infringing on our proprietary rights. We may be required at times to take
      legal action in order to protect our proprietary rights. Also, from time to
      time, we may receive notice from third parties claiming that we infringe their
      patent or other proprietary rights. In the past, a certain third party claimed
      that certain of our technology infringed their intellectual property rights. The
      Company does not believe it






14




does
      or ever has infringed the intellectual property rights of any third party.
      The
      claim with the particular third party has been resolved through a licensing
      arrangement. There
      can be no assurances that other third parties will not make similar claims
      in
      the future.




We
      believe that infringement claims will increase in the technology sector as
      competition intensifies. Despite our best efforts, we may be sued for infringing
      on the patent or other proprietary rights of others. Such litigation is costly,
      and even if we prevail, the cost of such litigation could harm us. If we do
      not
      prevail or cannot fund a complete defense, in addition to any damages we might
      have to pay, we could be required to stop the infringing activity or obtain
      a
      license. We cannot be certain that any required license would be available
      to us
      on acceptable terms, or at all. If we fail to obtain a license, or if the terms
      of a license are burdensome to us, this could have a material adverse effect
      on
      our business, financial condition, cash flows and results of
      operations.




OUR
      BUSINESS IS SENSITIVE TO THE OVERALL ECONOMIC ENVIRONMENT. ANY SLOWDOWN IN
      INFORMATION TECHNOLOGY SPENDING BUDGETS COULD HARM OUR OPERATING
      RESULTS.




Any
      significant downturn in our customers' markets or in general economic conditions
      that results in reduced information technology spending budgets would likely
      result in a decreased demand for our products and services, longer selling
      cycles and lower prices, any of which may harm our business.




WE
      ARE
      SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS.




Substantially
      all of our revenues are in European currencies or U.S. dollars, while the
      majority of our operating expenses are in Canadian dollars and Norwegian kroner.
      We do not have any hedging programs in place to manage the potential exposure
      to
      fluctuations in the Canadian dollar and Norwegian kroner exchange rates.
      Fluctuations in the exchange rates of these currencies or the exchange rate
      of
      other currencies against the Canadian dollar or Norwegian kroner could have
      a
      material adverse effect on our business, financial condition, cash flows and
      results of operations.




OUR
      PREFERRED SHARES COULD PREVENT OR DELAY A TAKEOVER THAT SOME OR A MAJORITY
      OF
      SHAREHOLDERS CONSIDER FAVORABLE.




Our
      Board of Directors, without any further vote of our shareholders, may issue
      preference shares and determine the price, preferences, rights and restrictions
      of those shares. The rights of the holders of common shares will be subject
      to,
      and may be adversely affected by, the rights of the holders of any series of
      preference shares that may be issued in the future. That means, for example,
      that we can issue preference shares with more voting rights, higher dividend
      payments or more favorable rights upon distribution than those for our common
      shares. If we issue certain types of preference shares in the future, it may
      also be more difficult for a third party to acquire a majority of our
      outstanding voting shares and such issuance may, in certain circumstances,
      deter
      or delay mergers, tender offers or other possible transactions that may be
      favored by some or a majority of our shareholders.




IT
      MAY BE
      DIFFICULT FOR YOU TO ENFORCE LEGAL CLAIMS AGAINST US OR OUR OFFICERS OR
      DIRECTORS.




We
      are incorporated under the laws of the Province of Ontario, Canada. Certain
      of
      our directors and officers are residents of Canada and Norway and substantially
      all of our assets and the assets of such persons are located outside the United
      States. As a result, it may be difficult for holders of common shares to effect
      service of legal process within the United States upon those directors and
      officers who are not residents of the United States. It may also be difficult
      to
      realize in the United States upon judgments of courts of the United States
      without enforcing such judgments in our home jurisdiction or the jurisdiction
      of
      residence of the director or officer concerned.




**ITEM
      4 -** **INFORMATION** **ON THE COMPANY**




**A.
      HISTORY AND DEVELOPMENT OF THE COMPANY**




The
      name of the company is ADB Systems International Ltd (“ADB,” “ADB Systems” or
      the “Company”). The Company was formed pursuant to the *Business
      Corporations Act* (Ontario). The business began as Internet






15
 
  Liquidators
        Inc. (“IL Inc.”), a business corporation formed under the laws of Ontario,
        Canada, in September 1995 and after a series of corporate reorganizations,
        as
        described below, developed into the present Company. In May 1996, Internet
        Liquidators International Inc. (“ILI Inc.”), also an Ontario company, acquired
        all of the shares of IL Inc. These two companies were amalgamated on January
        9,
        1997. By articles of amendment dated June 25 1998, ILI Inc. changed its name
        to
        Bid.Com International Inc.




Prior
      to October 24, 2000, we operated two national business-to-consumer auction
      sites
      at www.bid.com, one in the United States and one in Canada. Following an
      extensive strategic review by ADB’s Board of Directors and management, ADB
      decided late in 2000 to focus on its software business.




On
      October 11, 2001, Bid.Com acquired substantially all of the shares of ADB
      Systemer ASA, a public limited liability company organized under the laws of
      the
      Kingdom of Norway. As part of the acquisition of ADB Systemer, Bid.Com completed
      a two for one share consolidation and changed its name to ADB Systems
      International Inc. (“ADB Inc.”) by articles of amendment dated October 11,
      2001.




During
      2002, ADB Systems International Inc. (“ADB Inc.”), entered into a series of
      agreements with the Brick Warehouse Corporation (“The Brick”), which are
      described below under the heading “The Brick Transaction” and subsequently ADB
      Inc. changed its name to Bid.com International Ltd.




On
      August 20, 2002, ADB Systems International Ltd., was incorporated by certificate
      and Articles of Incorporation. On October 31, 2002, the shareholders of ADB
      Inc.
      exchanged their shares of ADB Inc. for shares of the Company on a one-for-one
      basis. This exchange was implemented pursuant to a plan of arrangement approved
      by the shareholders of ADB Inc. on October 22, 2002 and by the Ontario Superior
      Court of Justice on October 24, 2002 (which we refer to in this form as the
      “Arrangement”). As a result of the Arrangement, the business of ADB Inc.,
      including all assets and liabilities of ADB Inc. (other than those related
      to
      retail activities), was transferred to the Company in the form of a return
      of
      capital. ADB Inc. subsequently changed its name to Bid.Com International
      Ltd.




The
      principal place of business and registered office of the Company is located
      at
      302 The East Mall, Suite 300 Toronto, Ontario, Canada, M9B 6C7 and our telephone
      number is (416) 640-0400. In Norway, our principal business offices are located
      at Vingveien 2, 4050 Sola, Norway and our telephone number is +47 51 64 71
      00.





Our
      shares trade on the Toronto Stock Exchange under the symbol “ADY” and are traded
      on the OTCBB under the symbol “ADBYF”. Additional information about the Company
      can be obtained at our web site - www.adbsys.com. The information contained
      on
      our web site is not deemed to be part of this Annual Report.




**MAJOR
      DEVELOPMENTS**




***Fiscal
      2005***




•
            Throughout
                2005, ADB expanded existing customer relationships while making efforts
                to
                add new customer organizations. Cross selling of ancillary software
                and
                services within established customer relationships continued and
                ADB was
                able to expand its working relationship with National Health Service
                (UK),
                Paramount (Canada), and GE Commercial Finance, Capital Solutions
                (US) (“GE
                CS”), among others. New customers included Mesta as (Norway), Star Energy
                (UK) and Trilogy (Canada).•
            In
                North America, ADB continued to focus on the expansion of activities
                related to GE’s Asset Manager, LLC, (GEAM) the joint venture co-owned by
                ADB Systems and GE CS. Incrementally through the year, software was
                refined in order to expand GEAM’s array of offerings to its clients and
                sales efforts broadened to include the appraisal industry, a commercial
                segment vital to the valuation and financing of assets. In this area,
                the
                joint venture successfully established a co-operation agreement with
                the
                North American Auctioneers Association (“NAA”) for the provision of
                appraisal services online.•
            ADB
                undertook a number of software development initiatives in 2005 to
                ensure
                continued technology leadership. The most substantial single project
                involved the re-architecture of certain WorkMate elements and resulted
                in
                enhanced functionality for a number of
                customers.







16






***Fiscal
      2004***




•
            ADB
                was engaged in a number of activities aimed at expanding our relationships
                with existing customers and developing relationships with new customer
                organizations. Through these efforts, which included the introduction
                of
                new technology enhancements to our suite of product offerings, the
                cross
                selling of ancillary applications, and the increase in the number
                of users
                of our technology, ADB was able to expand our working relationships
                with
                BP the National Health Services (UK), and GE CEF, among others.•
            In
                North America, the primary thrust of our activities in 2004 concentrated
                on the rollout of*Asset
                Manager*from GE, our joint venture with GE Commercial Finance. This joint
                venture
                is designed to combine GE’s equipment financing and asset management
                expertise together with our experience in providing mission-critical
                technology solutions for asset lifecycle management. Together, we
                have
                developed web-based solutions to help our
                customers:





•
            Track
                and re-deploy assets more effectively;•
            Automate
                equipment appraisals;•
            Efficiently
                market and sell surplus equipment; and•
            Automate
                sourcing and tendering processes.




•
            Through
                the joint venture, we signed a customer agreement with Kraft Foods
                Global,
                Inc. (“Kraft”) and continued to service our customer agreement with the
                General Electric Company, acting through its GE Aircraft Engines
                division
                (“GE Aircraft Engines”).•
            ADB
                made a number of enhancements to our suite of technology product
                offerings
                in 2004. These enhancements, which centered on re-architecting the
                under-lying platform of our Dyn@mic Buyer solution and expanding
                the
                functionality of our WorkMate and Material Transfer applications,
                allow us
                to stay current with the latest technology trends while maintaining
                a
                competitive advantage.•
            A
                key cornerstone of our technology activities focused on the development
                of
                Asset Tracker, a new, web-based asset-tracking offering that is delivered
                through our joint venture with GE.•
            Effective
                November 15, 2004 our stock symbol on the OTCBB was changed to ADBYF.
                The
                addition of the F to the symbol was a requirement of the OTCBB to
                signify
                that we are a foreign issuer.




***The
      Brick Transaction***




On
      August 30, 2002, we entered into a series of agreements with The Brick Warehouse
      Corporation (“The Brick”) which contemplated a series of transactions among The
      Brick, ADB Systems International Inc. (“Old ADB”) and ADB. We refer to those
      transactions in this Form 20-F Annual Report as “The Brick Transaction”.




Pursuant
      to The Brick Transaction:




•
            The
                Brick made a $2.0 million secured loan to Old ADB and ADB at an interest
                rate of 12% per year;•
            ADB
                and Old ADB agreed to enter into the an arrangement agreement (the
                “Arrangement”); and•
            The
                Brick and Old ADB agreed to utilize the online retail technology,
                experience and expertise of ADB developed and operated under the
                name
                “Bid.Com International Inc.” for the online sale of consumer products to
                be supplied by The Brick (which we refer to in this report as the
“Retail
                Business”).




The
      $2.0 million secured loan made by The Brick matured on June 30, 2003. At
      maturity, ADB had the right, at its option, to: (i) repay the loan in cash
      or
      (ii) transfer to The Brick all of the issued shares of Old ADB owned by ADB
      in
      satisfaction of the outstanding principal amount and accrued interest then
      owing
      to The Brick. The obligations of Old ADB and ADB were secured by a general
      security agreement delivered by ADB to The






17




Brick 
      covering all the property and assets of ADB. On June 30, 2003, ADB exercised
      its
      option to transfer to The Brick all of the issued shares of Old ADB in
      satisfaction of the outstanding principal amount and accrued interest then
      owing
      to The Brick.




The
      principal consequences of the Arrangement, which was effective as of October
      31,
      2002, are as follows:




1.
            Shareholders
                of Old ADB received from ADB one common share of ADB in exchange
                for each
                of their common shares of Old ADB. As a result (i) Old ADB became
                a wholly
                owned subsidiary of ADB and (ii) each former shareholder of Old ADB
                owns
                the same number of shares in ADB that it owned in Old ADB prior to
                the
                exchange.2.
            Old
                ADB transferred all of its assets to ADB and ADB assumed all of the
                liabilities and obligations of Old ADB, except that Old ADB retained
                specific assets and liabilities of the Retail Business.3.
            The
                registered office, articles of incorporation, by-laws, directors
                and
                executive officers of Old ADB immediately prior to the Arrangement
                became
                the registered office, articles, by-laws, directors and executive
                officers
                of ADB upon consummation of the Arrangement.4.
            ADB
                adopted the Stock Option Plan of Old ADB. Upon consummation of the
                Arrangement, all options, warrants or debt that was exercisable or
                convertible into shares of Old ADB became convertible into the same
                number
                of shares of ADB.5.
            The
                articles of amalgamation of Old ADB were amended to: (i) change the
                name
                of Old ADB to Bid.Com International Ltd. and (ii) delete the authorized
                Preference Shares (as defined in such articles) and the rights,
                preferences and restrictions on the transfer of such Preference
                Shares.




Upon
      completion of the Arrangement, the Toronto Stock Exchange approved the listing
      of the ADB common shares issued in exchange for Old ADB common shares or
      issuable upon the exercise of options or warrants or conversion of debt. ADB
      common shares are listed on the Toronto Stock Exchange for trading under the
      symbol “ADY”. The shares of Old ADB ceased trading on the Toronto Stock Exchange
      on November 5, 2002. On April 2, 2003 an order was issued by the Ontario
      Securities Commission pursuant to which Old ADB has ceased to be a reporting
      issuer in all jurisdictions in Canada in which it was a reporting
      issuer.




***Joint
      Venture with******GE Commercial Finance, Commercial
      Equipment Financing***




On
      December 31, 2003 ADB Systems USA, Inc. (“ADB USA”), a wholly owned subsidiary
      of ADB, entered into an Amended and Restated Operating Agreement (the “Operating
      Agreement”) with General Electric Capital Corporation through is business
      division GE Commercial Finance, Capital Solutions (then, GE Commercial Finance,
      Commercial Equipment Financing) (“GE Commercial Finance”). This agreement was
      entered into in connection with the establishment of GE Asset Manager, LLC
      a
      joint business venture in which both GE Commercial Finance and ADB USA hold
      a
      50% interest. Pursuant to this business venture, GE Commercial Finance and
      ADB
      USA also entered into the following agreements: ADB License Agreement, ADB
      Services Agreement, GE License Agreement and GE Service Agreement. GE
      Asset Manager LLC, which carries on business under the name GE Commercial
      Finance Asset Manager (“ *Asset
      Manager* ”),
      is an integrated, web-based business enabling mid- and large-size organizations
      to reduce operating costs by simplifying and consolidating their asset
      management programs. *Asset
      Manager* features all-in-one capabilities designed for sourcing of new equipment,
      tracking and reallocation of existing assets, automated appraisal management
      and
      disposition of surplus equipment.




**PRINCIPAL
      CAPITAL EXPENDITURES AND DIVESTITURES**




For
      a description of principal capital expenditures and divestitures, see Item
      5 - OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS - REALIZED GAINS AND LOSSES ON MARKETABLE
      SECURITIES AND STRATEGIC INVESTMENTS and CAPITAL
      ASSETS .
      As of May 31, 2006 we do not have any significant current capital divestitures
      or any current capital expenditures so far in 2006.






18




**B.
      BUSINESS OVERVIEW**




ADB
      Systems develops and sells software products and services that allow our
      customers to source, buy, track, manage and sell assets, primarily in asset
      intensive industries. We refer to our product and services suite as asset
      lifecycle management solutions. Our solutions can reduce sourcing, procurement
      and tracking costs, improve tracking and monitoring of asset performance and
      reduce operational downtime.




We
      acquired ADB Systemer ASA (“ADB Systemer”), in October 2001. For more than ten
      years, ADB Systemer provided enterprise asset management solutions (EAM) to
      customers in Norway and Europe. For the past three years, we have provided
      EAM
      solutions to customers in North America and Europe and during the past two
      years
      we have introduced sourcing and procurement solutions to customers in North
      America and Europe.




On
      May 18, 2006, the Company entered into an agreement with ADB Holding AS (the
      "Buyer") to sell 100 percent of the Company's interest in its Norwegian
      subsidiary ADB Systemer AS, (ADB Systemer") for NOK 15,000,000 or approximately
      Canadian $2.80 million in cash subject to shareholder approval. On June 21,
      2006
      the Company received approval from shareholders at its annual general meeting
      to
      proceed with the Share Sale, which is scheduled to close on June 30, 2006.
      Sale
      of the shares of ADB Systemer include sale of the ADB Systems name. Following
      the sale of ADB Systemer, the Company will retain access to all existing
      technology that will be used to service existing customers. In addition, the
      Company obtained Shareholder approval to change its name to Northcore
      Technologies Inc. by filing Articles of Amendment upon closing of the Share
      Sale
      transaction.




Our
      customers include a number of leading organizations, such as BP p.l.c. (“BP”),
      GE Commercial Finance, Capital Solutions (“GE CS”) **,** National Health Service (UK), permanent TSB (the retail banking division of
      Irish Life Permanent p.l.c.) Talisman Energy Inc. (North Sea) (“Talisman
      Energy”), Vesta Insurance Group, Inc. (Norway) (“Vesta Insurance”), Paramount
      Resources Ltd. (Canada) (“Paramount”), Trilogy Energy Trust (Canada)
      (“Trilogy”), AS Vinmonopolet (Norway) (“Vinmonopolet”), Mesta as (Norway) and
      Star Energy HG Gas Storage Limited (UK)(“Star Energy”).




**INDUSTRY
      BACKGROUND AND OVERVIEW**




Asset
      management software has existed for more than thirty years, initially through
      computerized maintenance management systems (CMMS), and more recently including
      more comprehensive and robust enterprise asset management (EAM) and enterprise
      resource planning (ERP) solutions. The early CMMS systems automated daily
      management of assets, while ERP solutions consolidate basic asset information
      with financial information at the corporate level. EAM solutions encompass
      elements of both, serving as the next evolution of CMMS solutions by bridging
      the gap between asset management and corporate-level planning and tracking
      requirements.




The
      key value proposition for EAM solutions is that they can provide a quick and
      quantifiable return on investment (ROI) and return on assets (ROA). Cost and
      productivity improvements can immediately and measurably benefit organizations,
      and thus are highly desirable to potential customers, particularly in difficult
      economic times where the focus is increasingly bottom line
      oriented.




In
      addition to EAM solutions, we offer sourcing and procurement solutions as well
      as sales solutions. These are natural extensions to EAM solutions, as
      organizations seek to extend asset management and corporate-level planning
      and
      tracking onto other elements of the asset lifecycle.




**PRODUCTS
      AND SERVICES**





ADB
      offers solutions to manage all aspects of the asset lifecycle -
      sourcing/procurement, maintenance, materials management and disposition. Below
      is a detailed description of our products/services:






19




*WorkMate* (TM)




The
      Company’s flagship solution, WorkMate provides integrated capabilities for
      enterprise asset management. WorkMate is a client-server solution that operates
      as an extension of (and can be fully integrated with) a customer’s existing ERP
      system. The most advanced version of WorkMate incorporates asset maintenance,
      asset tracking, materials management and procurement functionality.




WorkMate
      is designed for use by customers in asset intensive industries - typically
      those
      where maintenance, repair and operations purchases outnumber raw material
      purchases by more than ten to one on a transaction volume basis. Examples of
      asset intensive industries are oil and gas, process industries (such as mining)
      and the utilities sector.




The
      three main modules (procurement, materials management and maintenance
      functionality) may be licensed independently or together as a fully integrated
      system:




•
            Procurement
                Module - for sophisticated domestic and international purchasing
                operations. Key capabilities include: order requisitioning, quotations,
                purchase orders, contracts, cost controls and vendor catalogues.
                The
                procurement module also monitors supplier performance in terms of
                accuracy, punctuality and cost.•
            Materials
                Management Module - for managing inventory and logistics operations.
                Key
                features include: inventory status, goods receipt, stock issue,
                reordering, packing/unpacking, transportation, goods return and equipment
                rentals. This Module will log all movements of an item and generates
                the
                necessary financial transactions.•
            Maintenance
                Module - for all types of maintenance, including corrective, preventive
                or
                condition-based activities. Customers can automate manual routines
                and
                track maintenance costs and equipment history.




Each
      WorkMate module also includes workflow and reporting tools.




WorkMate
      is a licensed client-server application and pricing is based on the number
      of
      users named by the customer. Service fees are charged separately for
      implementation, systems integration, training and other consulting activities.
      Our WorkMate customers include some of the largest global players in the oil
      and
      gas sector, such as: BP (Norway), Halliburton Productous, Prosafe, Talisman
      Energy (Canada)., Paramount Resources and Mesta AS.




*ProcureMate* (TM)




ProcureMate
      is our web-based business-to-business e-Procurement solution designed to reduce
      purchase costs, improve purchasing efficiencies and reduce maverick buying.
      ProcureMate allows users to select goods for purchase from a web-based catalog
      and automatically issue purchase orders to their suppliers.




Key
      features of ProcureMate include:




•
            The
                ability to notify suppliers automatically of purchase orders requiring
                processing.•
            Functionality
                for allowing on-line dialogue to take place between buyers and
                suppliers.•
            The
                ability to integrate to enterprise resource planning and financial
                systems, reducing manual efforts for processing and consolidating
                purchase
                orders, goods receipt and payment activities.•
            Functionality
                for facilitating direct payment and electronic funds
                transfer.•
            The
                ability to integrate user workflow and approvals into the procurement
                process.




ProcureMate
      is licensed to customers and license fees for ProcureMate are based on the
      number of users named by the customer. Service fees are charged separately
      for
      implementation, systems integration, training and other consulting activities.
      ProcureMate can be bundled with our other on-line purchasing solutions or used
      separately depending on customer requirements. Existing ProcureMate customers
      include BP (Norway), National Health Services (UK), Vesta Insurance,
      Vinmonopolet, Norway’s government-run retailer of wine and spirits and Hordaland
      HFK County, a large local government entity in Norway.




*Dyn@mic
      Buyer* (TM)




An
      on-line sourcing solution,
      Dyn@mic Buyer automates the tendering process, and can be used to improve the
      decision-making process involved in sourcing goods by providing automated
      analysis and selection




20




among
      competing bids, based on a variety of pre-determined factors. The current
      release of Dyn@mic Buyer can be delivered on a hosted or client-server
      (licensed) basis.




Key
      features of the product include:




•
            The
                ability for buyers to create tenders using automated tools that accelerate
                the purchasing process and reduce procurement costs.•
            Capabilities
                for buyers to post and distribute their tenders on-line to qualified
                suppliers.•
            The
                ability for buyers to assign values to criteria involved in the purchase
                decision, such as price, product availability, post-sales support
                and
                certification standards. Suppliers’ responses to tender questions are then
                weighed for evaluation by buyers.•
            Functionality
                that allows for the posting of detailed technical information, question
                and answer forums, and automatic e-mail notification of amended or
                new
                buyer-posted documents.•
            Capabilities
                to allow for the use of sealed bid sourcing formats enabling users
                to post
                their product or service requirements to selected vendors. The sealed
                bid
                system differs from the request for quotation in that the vendors
                only
                have one opportunity to supply a bid. Only after the close of the
                auction
                is the user able to view the vendor
                bids.




Dyn@mic
      Buyer is licensed to our customers. Fees for Dyn@mic Buyer are determined on
      an
      annual basis, depending on the number of sourcing events identified by
      customers. Service fees are charged separately for implementation, systems
      integration, training and other consulting activities. Dyn@mic Buyer can be
      bundled with our procurement solutions or used separately depending on customer
      requirements. Current customers using Dyn@mic Buyer include the National Health
      Services (UK) and Vesta Insurance.




*Dyn@mic
      Seller* (TM)




Dyn@mic
      Seller is an on-line sales solution designed to help our customers with the
      disposition of surplus assets and equipment. Dyn@mic Seller integrates multiple
      pricing methods, such as fixed priced, top bid (auction), dutch (declining
      price) and hybrids, through private-labeled websites. Dyn@mic Seller is
      delivered through an application service provider model. (remotely through
      the
      internet).




Key
      capabilities of the product include:




•
            Traditional
                rising price auctions, where the highest bids win the items being
                sold.
                The rising price auction allows participants to competitively bid
                on
                available products by incrementally adjusting their bid amounts.
                Our user
                interface allows users to easily identify current leading bidders,
                minimum
                new bids and initial bid pricing. Participants are informed of their
                bid
                status, stating whether they have won, been outbid, approved or declined
                via electronic mail.•
            A
                patented Dutch (declining) auction format, in which a starting price
                is
                set and a limited time period is allocated for a fixed quantity of
                the
                product to be sold. As time advances, the price drops in small increments
                until the asset is sold. The declining bid auction allows participants
                to
                bid in a real-time format utilizing on-screen data which provides
                the time
                and quantity remaining as well as the falling price of the items
                for sale.•
            Hybrid
                auction formats that blend multiple pricing formats to meet a customer’s
                particular needs.•
            Fixed
                price sales where assets are sold in a catalogue or directory format.
                The
                purchaser cannot bid on the price, but merely elects whether or not
                to
                purchase the good or service.




Our
      customers pay monthly hosting fees for use of Dyn@mic Seller and typically
      also
      enter into a revenue sharing arrangement with us. Service fees for
      implementation, systems integration, training and other consulting activities
      are charged separately. Current customers of Dyn@mic Seller include GE Capital
      Solutions. and permanent TSB (Ireland).




**Related
      Services**




In
      connection with our software offerings, we provide the following services to
      our
      customers:




*Consulting* .
      A significant number of our customers request our advice regarding their
      business and technical processes, often in conjunction with a scoping exercise
      conducted both before and after the execution of a contract. This advice can
      relate to development or streamline of assorted business processes, such as
      sourcing or






21
 
  procurement
        activities, assisting in the development of technical specifications, and
        recommendations regarding internal workflow activities.




*Customization
      and Implementation* .
      Based generally upon the up-front scoping activities, we are able to customize
      our solutions as required to meet the customer's particular needs. This process
      can vary in length depending on the degree of customization, the resources
      applied by the customer and the customer's business requirements. We work
      closely with our customers to ensure that new features and functionality meet
      their expectations. We also provide the professional services work required
      for
      the implementation of our customer solutions, including loading of data,
      identification of business processes, and integration to other systems
      applications.




*Training* .
      Upon completion of implementation (and often during implementation), we train
      customer personnel to utilize our Solutions through our administrative tools.
      Training can be conducted in one-on-one or group situations. We also conduct
      “train the trainer” sessions.




*Maintenance
      and Support* .
      We provide regular software upgrades and ongoing support to our
      customers.





**GE’s
      Asset Manager**




GE's
      Asset Manager is a joint venture between GE Commercial Finance, Capital
      Solutions and ADB Systems International Ltd. that combines GE’s equipment
      financing and asset management expertise together with ADB's experience in
      providing mission critical technology solutions for asset lifecycle
      management.




With
      organizations needing to generate improved bottom-line results and comply with
      new financial regulatory requirements, GE's Asset Manager has introduced a
      new
      suite of integrated, web-based solutions that are designed to help organizations
      gain greater control of their capital assets and implement new process
      efficiencies to their operational activities.




Our
      industry-proven solutions enable our customers to:


•
            Track
                and re-deploy assets more effectively•
            Automate
                equipment appraisals•
            Efficiently
                market and sell surplus equipment•
            Automate
                sourcing and tendering processes




The
      four key components to Asset Manager’s offerings are as follows:




***Asset
      Tracker***




Designed
      to allow organizations to more effectively utilize their assets, Asset Manager
      is a web-based solution for keeping track of the location, details and status
      of
      capital equipment - regardless of where the equipment is being
      deployed.




Using
      a dedicated tracking site that is password protected, Asset Manager provides
      users the ability to search and locate capital assets throughout their
      organization. Users can search for equipment in a number of ways. Assets can
      be
      searched by business unit, function, or by specific piece of equipment
      category.




Once
      an asset is located, users can determine its status and take appropriate action.
      Idle or under-utilized assets, for example, can be re-deployed, helping to
      increase their value to the organization and reducing capital spending on new
      equipment.




Assets
      no longer required or deemed surplus can be earmarked for disposition through
      traditional or on-line sales methods, such as Asset Seller.




With
      Asset Tracker, users can:


•
            Search
                and request for capital equipment within their organization, across
                multiple locations or facilities


•
            Review
                asset details, such as equipment description, image, financial
                information, and contact information•
            Add
                new asset details by uploading data from spreadsheet
                applications•
            Extract
                asset details and generate asset management reports•
            Instantly
                determine the status of capital equipment•
            Transfer
                and re-deploy idle assets






22




•
            Dispose
                of unnecessary or surplus equipment





***Asset
      Appraiser***




Asset
      Appraiser is a web-based solution that allows organizations to more effectively
      manage the capital equipment appraisal process. With Asset Appraiser
      organizations can create an appraisal scope, source, confirm appraisal data,
      distribute documents and data collection tools, compile appraisal results and
      access stored appraisals on-line in a protected environment.




Asset
      Appraiser allows users to:




•
            Create
                the full scope of appraisals on-line•
            Automate
                and accelerate the appraisal process using web-based
                tools•
            Gain
                instant access to ongoing project details from anywhere in the
                world•
            Store
                asset data in a secure repository for future reference, retrieval
                and
                analysis•
            Confirm
                appraisal details via electronic drafts•
            Access
                appraisals in a 24 x 7 environment•
            Capture
                all relevant data through drop down text boxes•
            Store
                and review appraisals in a secure environment•
            Download
                spreadsheet templates into reports•
            Add
                attachments, such as image, text or movie files, to reports•
            Ability
                to add an addendum to a completed appraisal report•
            An
                aid to Sarbanes-Oxley compliance•
            Ensure
                compliance with the Uniform Standards of Professional Appraisal
                Practice





***Asset
      Seller***




Asset
      Seller facilitates instant and global access to a buying community by presenting
      your surplus equipment or inventory on geasset.com, GE's off-lease equipment
      re-marketing website. Asset Seller is a proven take-to-market solution that
      will
      connect your company's equipment to a global community of qualified
      organizational buyers using multiple sales platforms, all developed to help
      maximize asset recovery value and improve cycle time.




Asset
      Seller brings together multiple sales platforms into one integrated on-line
      environment, providing flexibility, while maximizing the yield for your surplus
      equipment.




Asset
      Seller's
      direct sale platform features equipment showcases that are designed to promote
      private treaty sales. Other sales platforms available through Asset Seller
      include ranked sealed bid and top bid sale events that enable you to market
      equipment in an auction-like environment.




Utilizing
      GE's patent pending ranked sealed bid method, Asset Seller encourages multiple
      bids and retains buyer anonymity, creating competitive sales environments that
      generate a higher recovery for asset investment.




Asset
      Seller also enables organizations to feature equipment specifications, photos,
      videos and contact information, and allows them to coordinate off-line sales
      activities such as equipment inspections.




***Asset
      Buyer***




Asset
      Buyer is a web-based solution designed for automating sourcing activities and
      improving purchasing decisions. Using Asset Buyer, purchasers can determine
      the
      factors that are the most important to their procurement decisions and identify
      suppliers that deliver the greatest value - from the lowest price to the ability
      to match exact specification requirements.




Asset
      Buyer also streamlines the procurement process, making it easier to create
      and
      distribute tenders, select vendors and negotiate with suppliers.




With
      Asset Buyer, organizations can:


•
            generate
                cost savings on sourcing activities






23




•
            reduce
                purchasing cycle times•
            take
                advantage of multiple sourcing formats including request for proposals,
                reverse auction, and sealed bid•
            rank
                suppliers based on their ability to match buying
                criteria•
            improve
                relations with suppliers through on-line
                collaborations.




**Third
      Party Partnerships**




In
      addition to the sale of our core solutions and services, we have entered into
      marketing or co-marketing agreements with a number of companies that offer
      services that are complementary to our products and services. We market these
      complementary services to our customers and prospects and can earn a referral
      fee if these services are purchased. In some cases our marketing partner has
      agreed to market our solutions to its customers and prospects and can earn
      a
      referral fee. Our marketing partners include:




Partner
            Service
                or OfferingAMEC
                Services Limited
            Engineering
                ServicesProduction
                Access, Inc.
            Oil
                and Gas Data Management Solutions




**Business
      Cycles**




We
      experience some seasonality as a result of lower activity in European markets
      during the summer months. Additional information on seasonality and trends
      is
      set out under the heading “Seasonality and Trends” in Part I - Item 5.




** In
      addition since many of our customers are large, multinational organizations
      or
      quasi-governmental entities, we may experience increasingly longer sales and
      collection cycles. For additional information regarding business cycles, see
      Part I - Item 5 under the heading “OPERATING AND FINANCIAL REVIEW AND PROSPECTS
      - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS”.




**STRATEGY**




Our
      business strategy is to expand our customer base, particularly in the oil and
      gas, health, public authorities, and financial services sectors, through
      superior software functionality and through the industry expertise of our
      employees. In particular, our strategy is comprised of the following key
      components:




***Expand
      joint venture with GE and increase our customer base***




Since
      the launch of GE’s Asset Manager, we have focused our efforts on increasing the
      number of joint venture customers and enhancing our portfolio of asset
      management technology. This focus will be a cornerstone of our efforts in
      2006.




***Strengthen
      our position as an EAM vendor and improve our visibility among target
      sectors.***




ADB
      has been ranked by a respected industry analyst as an emerging provider of
      enterprise asset management solutions. While we have expanded our customer
      base
      and increased the number of users of our technology, ADB is committed to
      solidifying our position as an EAM, particularly among the oil and gas,
      government, healthcare, and financial services sectors.




***Maintain
      and Enhance Our Technology.***




Based
      on the relative pricing and functionality of our products as compared with
      those
      of our competitors, we consider our proprietary software offerings to be
      competitive, however it is critical that we continue to maintain and enhance
      our
      technology.






24




***Enter
      into and Maximize Alliances.***




We
      have marketing and other relationships with AMEC Services Limited, Production
      Access, Inc. and a number of other leading companies in a broad range of
      industries. We believe that these and future relationships will help provide
      us
      with access to important industry participants and will help increase our brand
      awareness.




***Seeking
      Acquisitions and Strategic Investments*** **.**




We
      plan to expand by seeking technologies, products, and services that complement
      our existing business. If appropriate opportunities are available, we may
      acquire businesses, technologies or products or enter into strategic
      relationships that may further diversify revenue sources and product offerings,
      expand our customer base or enhance our technology platform.




**CUSTOMERS**




We
      provide our solutions to customers in a variety of industries, including: oil
      and gas, healthcare, public authorities, and financial services.




The
      revenue structures and particular services provided vary depending upon the
      needs of the customer and the solution concerned. For licensed offerings we
      generally collect a license fee based on number of users, service fees for
      implementation and training, and support and maintenance fees. For hosted
      offerings, we generally collect an up-front implementation fee, monthly hosting
      fee, and a share of revenue or transaction volumes.




The
      following is a representative list of some of the customers for whom we have
      implemented or are implementing our solutions:




**Customer**
            **Solution(s)**
            **Industry
                Segment**
            **Geographic
                Location**AmecFluor
                (Korean National Oil Company)
            WorkMate
            Oil
                and Gas
            KoreaBP
                Norway AS
            ProcureMate;
                WorkMate
            Oil
                and Gas
            NorwayGE
                Capital Solutions
            Dyn@mic
                Seller
            Financial
                Services
            USHalliburton
                Productos (Halliburton)
            WorkMate
            Oil
                and Gas
            BrazilHordaland
                fylkeskommune (HFK)
            ProcureMate
            Public
                Authority
            NorwayNational
                Health Service (UK)
            ProcureMate
            Healthcare
            UKParamount
            WorkMate
            Oil
                and Gas
            CanadaStar
                Energy HG Gas Storage Limited
            WorkMate
            Oil
                and Gas
            UKTalisman
                Energy Inc.
            WorkMate
            Oil
                and Gas
            Canada,
                UKParamount
                Resources
              Trilogy
                Energy Trust
            WorkMate
            Oil
                and Gas
            Canada




**Customers
                serviced by our joint venture, Asset Manager**Kraft
                Foods Global, Inc.
            Asset
                Tracker
            Manufacturing
            USGE
                Aviation
            Asset
                Tracker
            Manufacturing
            US




For
      information regarding the regional market segments in which the Company
      competes, see Note 24 to the Consolidated Financial Statements in Item
      18.




The
      Company operates in three reportable geographic segments (North America,
      Ireland/United Kingdom, and Norway). The Company has in the past earned revenue
      from both retail and non-retail customers. Currently all our revenue is derived
      from our current business of software licensing, and computer system support
      and
      implementation, and no revenue is derived from retail activity.






25




Net
                Revenue From Licenses and Services
              by
                Geographic Segment
            
            2005
            2004(in
                thousands)North
                America
            Licenses
            $60
            $27Services
            $596
            $769$656
            $796Ireland
                and U.K.
            Licenses
            $61
            $228Services
            $567
            $453$628
            $681Norway
            Licenses
            $351
            $71Services
            $4,140
            $3,382$4,491
            $3,453$5,775
            $4,930





**SALES
      AND MARKETING**




We
      market our solutions primarily through our direct sales force. Our sales
      organization is regional with personnel located in our principal offices in
      Toronto (Canada), Dublin (Ireland), London (UK), Birmingham (UK), Tampa
      (Florida, USA) and Stavanger (Norway).




Our
      marketing efforts are focused on targeted marketing campaigns, rather than
      broad-based "awareness" campaigns. Potential customers are identified through
      direct contact, responses to requests for information, attendance at trade
      shows
      and through industry contacts. We principally focus on trade show participation,
      seminar series for specific industries or professionals and ongoing lead
      generation through our sales force.




The
      GE sales force takes the lead in the sales and marketing efforts of the Asset
      Manager joint venture.




We
      use reference customers to assist us in our marketing efforts, both through
      direct contact with potential customers and through site branding and case
      studies. We also rely on our co-marketing partners to assist in our marketing
      efforts.





**TECHNOLOGY
      PLATFORM**




ADB
      has devoted significant resources to developing its proprietary software
      technology. The technology platform is constructed using distributed software
      technologies which allow for rapid redevelopment and deployment of new software
      technology in order to take advantage of emerging business opportunities.




Our
      company's core technology platform is based on Microsoft applications, including
      the Windows NT operating system and a SQL server relational database, all
      residing on scaleable hardware. The software is constructed using an advanced
      proprietary XML framework and resides on an N-tier architecture. The support
      of
      open systems allows integration with a large variety of existing commercial,
      proprietary and legacy applications. Other applications, which are also
      operational in a Microsoft NT environment, have been developed using Power
      Builder and are dependent on an Oracle relational database.




**CUSTOMER
      SERVICE AND TECHNOLOGY**




Based
      on the relative pricing and functionality of our products as compared with
      those
      of competitors, we believe that our proprietary software provides a competitive
      advantage, and that our future success depends, in part, on our ability to
      continue developing and enhancing that software. Therefore, we have focused
      our
      customer service and technology efforts on the continued development of our
      proprietary software offerings. Over the past year, 16 of our staff members
      were
      dedicated to product development and maintenance.






Our
      ongoing customer service and technology efforts are aimed at the continued
      “productization” of specific elements of our software, enhancing the features
      and functionality of our existing software components, the development of new
      software components, and the integration of superior third party technology
      into
      our






26
 
  environment.
        Productization involves the development of reusable applications to reduce
        programming time and costs for customer implementations.




Our
      customer service and technology expenditures were approximately $3.5 million
      for
      the year ended December 31, 2005, $3.2 million for the year ended
      December 31, 2004 and $2.8 million for the year ended December 31, 2003,
      including salaries and related expenses of our personnel engaged in research
      and
      development. Research and development activities in 2005 included the
      development of Version 3.0 of WorkMate, ADB’s core application for asset
      management activities, and the development of Version 3.0 of Procurement
      Manager, ADB’s electronic procurement application.




Our
      customer service
      and technology activities in 2005 included the ongoing development of a new
      applications framework implemented in Microsoft .Net. The new framework will
      be
      used as the foundation of all future Web based products. There was also a
      substantial amount of time devoted to the extension of our integration tool
      set,
      which allows us to connect our core product suite to pre-existing customer
      owned
      third party applications.




**INTELLECTUAL
      PROPERTY**




We
      rely on a combination of patent, copyright, trademark and trade secret laws,
      as
      well as confidentiality agreements and technical measures, to establish and
      protect our proprietary rights.




In
      March 1999 and July 2001, we received patents from the U.S. Patent and Trademark
      Office covering the process whereby we conduct Dutch auctions over electronic
      distribution channels. We have patent applications pending in Canada covering
      the same technology. We also continue to explore other patent opportunities,
      and
      may have other applications pending from time to time. We do not believe,
      however, that our ability to obtain patents is material to our success or
      results.




Our
      proprietary software is subject to common law copyright protection, but we
      do
      not have, and do not intend to pursue, any registered copyrights. Common law
      protection may be narrower than that which we could obtain under registered
      copyrights. As a result, we may experience difficulty in enforcing our
      copyrights against certain third party infringements. The source code for our
      proprietary software is protected as a trade secret.




Our
      major trademarks or tradenames include: ADBTM; POWERED BY ADBTM; PROCUREMATETM,
      WORKMATETM, DYN@MIC SELLERTM and DYN@MIC BUYERTM. Except for DYN@MIC SELLERTM and
      DYN@MIC BUYERTM, which are unregistered, all of these trademarks and tradenames
      are the subject of pending applications for registration in one or all of the
      United States, Canada and Norway. We also claim rights in other unregistered
      trademarks.




Our
      competitive position is also dependent upon our unpatented trade secrets. In
      an
      effort to protect our trade secrets, and as part of our confidentiality
      procedures, we generally enter into confidentiality and non-disclosure
      agreements with our employees and consultants and generally limit access to
      and
      distribution of our software, documentation and other proprietary information.
      Additionally, we limit physical access to our premises, software and hardware
      and employ security measures to protect against damage or theft.




The
      Company entered into a Patent License Agreement with NCR Corporation on April
      29th, 2002. The agreement provides the Company with access to specific
      technology patents over a seven-year period for US$100,000
      annually.




**COMPETITION**




The
      market for each solution comprising our asset lifecycle management suite is
      intensely competitive. Many of the companies we compete with have much greater
      financial, technical, research and development resources than us.




To
      remain and become more competitive, we will need to make continued investments
      in product development and improve our market visibility and financial
      situation.






27




Although
      we offer a broad range of asset lifecycle management solutions, we face
      significant competition in each of the component product areas from the
      following companies:




•
            Sourcing
                - Procuri, Inc., B2E Markets, Inc., Emptoris, Inc.,•
            Procurement
                - MRO Software, Inc., Ariba, Inc., and broader ERP solution providers
                such
                as SAP AG, and Oracle•
            EAM
                - Datastream Ltd., MRO Software, Inc., Indus International Inc.,
                Mincom
                Ltd., and broader ERP solution providers such as SAP AG, and Oracle•
            Sales
                solutions - eBay Inc.




In
      addition, many organizations use in-house developers to develop solutions for
      certain elements of the asset lifecycle.




**C.
      ORGANIZATIONAL STRUCTURE**





The
      Company has the following organizational structure, which include the
      subsidiaries set out below:








**D.
      PROPERTY, PLANT AND EQUIPMENT**





The
      table below lists the locations of our facilities, all of which are held by
      us
      pursuant to lease agreements, and summarizes certain information about each
      location.





Location
            Use
            Square
                Feet
              (Approximate)
            Term
                of Lease302
                The East Mall, Suite
              300
                Toronto, Ontario
            Executive,
                Administrative,
              Engineering
                and Marketing
            5,435
            Expires
                Oct. 2009Vingveien
                2,
              4050,
                Sola Norway
            Executive,
                Administrative,
              Engineering
                and Marketing
            8,234
            Expires
                July 2008




We
      believe that we have adequate space for our current needs. As we expand, we
      expect that suitable additional space will be available on commercially
      reasonable terms. We do not own any real estate nor do we currently own or
      lease
      warehouse space.





**ITEM
      4A - UNRESOLVED STAFF COMMENTS**





Not
      Applicable.





**ITEM
      5** - **OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS** **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND** **RESULTS
      OF OPERATIONS**





YOU
      SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH "ITEM
      3.A
      - SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE
      RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. IN ADDITION TO
      HISTORICAL






28




INFORMATION,
      THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
      INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR
      PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. SEE "FORWARD-LOOKING
      STATEMENTS".




Overview







We
      develop and sell software solutions and services that allow our customers to
      source, manage, and sell their assets and capital equipment. We refer to our
      product and services suite as asset lifecycle management solutions. Our
      solutions help our customers reduce sourcing, procurement and maintenance costs,
      improve asset utilization, reduce operational downtime, and generate higher
      yields for surplus equipment.




We
      operate in three reportable geographic segments: North America, Ireland and
      the
      United Kingdom, and Norway. We have also in the past earned revenue from both
      retail and non-retail customers.




Our
      company is headquartered in Toronto (Canada), and maintains offices in Tampa
      (U.S.), Dublin (Ireland), London (U.K.), and Stavanger (Norway).





Our
      shares trade on both the Toronto Stock Exchange (TSX: ADY) and the OTC Bulletin
      Board (OTCBB: ADBYF).





**SELECTED
      ANNUAL INFORMATION**


(in
      thousands of Canadian dollars)


**2005**
            
            **2004**
            
            **2003**License
                revenue
            
            $
            472
            
            $
            326
            
            $
            533Service
                revenue
            
            
            5,303
            
            
            4,604
            
            
            5,320Total
                revenue
            
            $
            5,775
            
            $
            4,930
            
            $
            5,853Operating
                expenses:General
                and administrative
            
            
            4,204
            
            
            4,488
            
            
            4,753Customer
                service and technology
            
            
            3,587
            
            
            3,134
            
            
            2,712Sales
                and marketing
            
            
            534
            
            
            749
            
            
            1,098Employee
                stock options
            
            
            154
            
            
            39
            
            
            193Depreciation
                and amortization
            
            
            132
            
            
            1,190
            
            
            1,901Losses
                (gains) on disposal of capital assets and strategic investment
            
            
            -
            
            
            1
            
            
            (7
            )Other
                income
            
            
            (42
            )
            
            -
            
            
            (67
            )Total
                operating expenses
            
            
            8,569
            
            
            9,601
            
            
            10,583Loss
                from operations
            
            
            (2,794
            )
            
            (4,671
            )
            
            (4,730
            )Interest
                expense:Cash
                interest expense
            
            
            312
            
            
            173
            
            
            177Accretion
                of secured subordinated notes
            
            
            405
            
            
            266
            
            
            112Interest
                income
            
            
            (10
            )
            
            (6
            )
            
            (9
            )707
            
            
            433
            
            
            280Loss
                before the undernoted
            
            
            (3,501
            )
            
            (5,104
            )
            
            (5,010
            )Gain
                on settlement of demand loan
            
            
            -
            
            
            -
            
            
            2,195NNET
                LOSS FOR THE YEAR
            
            $
            (3,501
            )
            $
            (5,104
            )
            $
            (2,815
            )**LOSS
                PER SHARE, BASIC AND DILUTED**
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            0.05
            )






29





**RECONCILIATION
      OF NET LOSS TO EBITDA**


Year
                ended (In thousand of Canadian dollars)
            
            Dec.
                31, 2005
            
            Dec.
                31, 2004
            
            Dec.
                31, 2003Net
                loss for the year, as per above
            
            $
            (3,501
            )
            $
            (5,104
            )
            $
            (2,815
            )Reconciling
                items:Employee
                stock options
            
            
            154
            
            
            39
            
            
            193Interest
                expense:Cash
                interest expense
            
            
            312
            
            
            173
            
            
            177Accretion
                of
                secured subordinated notes
            
            
            405
            
            
            266
            
            
            112Depreciation
                and amortization
            
            
            132
            
            
            1,190
            
            
            1,901Losses
                (gains) on disposal of capital assets and strategic investment
            
            
            -
            
            
            1
            
            
            (7
            )Other
                income
            
            
            (42
            )
            
            -
            
            
            (67
            )Interest
                income
            
            
            (10
            )
            
            (6
            )
            
            (9
            )Gain
                on settlement of demand loan
            
            
            -
            
            
            -
            
            
            (2,195
            )EBITDA
            
            $
            (2,550
            )
            $
            (3,441
            )
            $
            (2,710
            )




Year
                ended (In thousand of Canadian dollars)
            
            Dec.
                31, 2005
            
            Dec.31,
                2004
            
            Dec.
                31, 2003Total
                Assets
            
            $
            1,843
            
            $
            2,493
            
            $
            3,211Total
                Long-term liabilities
            
            $
            1,800
            
            $
            1,684
            
            $
            721






30





**A. 
      OPERATING RESULTS**





*Comparison
      of Years Ended December 31, 2005 and December 31, 2004*





**Net
      Loss.** Our net loss for the year ended December 31, 2005 was $3.501 million, a decrease
      of 31.4 percent from the net loss of $5.104 million reported for the year ended
      December 31, 2004.





The
      loss before employee stock options, depreciation and amortization, interest
      expense and interest income (“EBITDA”) was $2.550 million for 2005 as compared
      to $3.441 million for 2004, a decrease of 25.9 percent. The Company considers
      EBITDA to be a meaningful performance measure as it provides an approximation
      of
      operating cash flows. This decrease was the result of a $845,000 increase in
      revenue from $4.930 million in 2004 to $5.775 million in 2005 and a $46,000
      decrease in the associated expenses (general and administrative, customer
      service and technology and sales and marketing) from $8.371 million in 2004
      to
      $8.325 million in 2005. The reduction in expenses of 0.5 percent in 2005 when
      compared to 2004 was achieved in the areas of general and administrative
      expenses by $284,000 and sales and marketing expenses by $215,000, partially
      offset by an increase in customer service and technology expenses of $453,000.





**Revenue.** Revenue is comprised of software license sales and service fees for consulting,
      implementation, application hosting, training, maintenance and support
      activities.





Revenue
      increased to $5.775 million for the year ended December 31, 2005 from $4.930
      million for the year ended December 31, 2004, representing a growth of 17.1
      percent. This growth was attributable to the increased revenue in Norway of
      $1.038 million, partially offset by reduced revenue in North America of $140,000
      and reduced revenue in Ireland/U.K. of $53,000.





Norway’s
      revenue growth was based mainly on the new customer relationship with MESTA
      AS.




In
      North America, continued focus on GE Asset Manager, LLC joint venture activities
      in preparation for long-term growth resulted in the decline in current year’s
      revenue.





**General
      and Administrative.** General and administrative expenses include, primarily: all salaries and related
      expenses (including benefits and payroll taxes) other than technology staff
      compensation (which is included in customer service and technology expenses),
      and sales and marketing staff compensation (which is included in sales and
      marketing expenses), occupancy costs, foreign exchange gains or losses,
      professional fees, insurance, investor relations, regulatory filing fees, and
      travel and related costs.





General
      and administrative expenses decreased by $284,000 to $4.204 million for the
      year
      ended December 31, 2005, as compared to $4.488 million for the year ended
      December 31, 2004, representing a decline of 6.3 percent.





Year-over-year
      savings in the amount of $115,000 resulted from salary expense reductions
      arising from a smaller administrative workforce and favourable Canadian dollar
      exchange rates pertaining to US dollar-denominated salaries. These savings
      were
      partially offset by increased professional fees ($95,000) due largely to
      increased reliance on outside contractors in Norway. Continued cost containment
      efforts resulted in $38,000 savings in travel expenses, savings in investor
      relations of $84,000 and a reduction in connectivity and occupancy costs of
      $128,000 largely due to the relocation of the North American head office and
      the
      administrative office in Ireland.





**Sales
      and Marketing.** Sales and marketing costs include all salaries and related expenses of sales
      and
      marketing personnel as well as business development expenses such as
      advertising, sales support materials, and trade show costs.





Sales
      and marketing costs for the year ended December 31, 2005 amounted to $534,000,
      as compared to $749,000 for 2004, a decrease of 28.7 percent. This decrease
      is
      attributable to lower staffing levels in the sales department combined with
      decreased advertising and tradeshow activities and related travel expenses
      throughout 2005.






31




**Customer
      Service and Technology.** Customer service and technology expenses consist of costs associated with
      acquired and internally developed software, and research and development
      expenses, including fees to independent contractors and salaries and related
      expenses of personnel engaged in these activities.





Customer
      service and technology expenses increased to $3.587 million for the year ended
      December 31, 2005 from $3.134 million for the year ended December 31, 2004,
      an
      increase of 14.5 percent. The increase in costs is due primarily to an increase
      in staffing levels over last year in Norway and North America, coupled with
      an
      increase in salary levels and an increase in recruiting fees ($462,000).





**Employee
      Stock Options.** Effective January 1, 2003, the Company adopted the accounting recommendations
      contained in the CICA handbook Section 3870 - “Stock-based Compensation and
      Other Stock-based Compensation Payments”. As a result, the Company recorded an
      employee stock option expense of $154,000 for the year ended December 31, 2005
      and $39,000 for the year ended December 31, 2004, an increase of 294.9 percent.
      The increase in employee stock option expense was due to the vesting of stock
      options that were granted in early 2005. No employee stock options were granted
      in 2004. The 2004 expense arises from the vesting of stock options that were
      granted in 2003. No stock compensation expense is recognized for employee grants
      made before January 1, 2003.





**Depreciation
      and Amortization.** Depreciation and amortization expense was $132,000 for the year ended December
      31, 2005 as compared to $1.190 million for the year ended December 31, 2004,
      a
      decrease of 88.9 percent. This decrease reflects software acquired in the
      acquisition of ADB Systemer which was fully amortized by the end of the third
      quarter of 2004.





**Interest
      Expense.** Interest expense reflects interest incurred from debt instruments and loans.
      Interest expense for the year ended December 31, 2005 was $717,000 compared
      to
      $439,000 for December 31, 2004. During 2005, cash interest expense of $312,000
      and non-cash interest expense of $405,000 was incurred related to secured
      subordinated notes. Comparatively, cash interest expense of $173,000 and
      non-cash interest expense of $266,000 was recorded in 2004. The increase in
      interest expense was due to the increase in secured subordinated notes
      outstanding during 2005.





**Interest
      Income.** Interest income reflects interest from investments in cash and marketable
      securities. Interest income was negligible for both years ended December 31,
      2005 and 2004.





**Other
      Income.** During the year ended December 31, 2005, the Company received a $42,000 refund
      from a U.S.-based credit card institution formally engaged by the Company when
      it operated its on-line retail activities in the U.S. No similar refunds were
      received in 2004.





*Comparison
      of Years Ended December 31, 2004 and December 31, 2003*





**Net
      Loss.** Our net loss for the year ended December 31, 2004 was $5.104 million, an
      increase of 81.3 percent over the net loss of $2.815 million reported for the
      year ended December 31, 2003. The net loss for 2003, however, included a gain
      of
      $2.195 million from the settlement of a demand loan and revenue from retail
      activities. Excluding these items outside of the normal course of operations
      (although not considered extraordinary items), our 2004 loss of $5.104 million
      represents a 0.5 percent increase over the 2003 loss of $5.077 million.





The
      loss before employee stock options, depreciation and amortization, interest
      expense and interest income (“EBITDA”) was $3.441 million for 2004 as compared
      to $2.710 million for 2003, an increase of 27.0 percent. The Company considers
      EBITDA to be a meaningful performance measure as it provides an approximation
      of
      operating cash flows. This increase was the result of a $923,000 decrease in
      revenue from $5.853 million in 2003 to $4.930 million in 2004, partially offset
      by a $192,000 decrease in the associated expenses of $8.563 million in 2003
      to
      $8.371 million in 2004. The reduction in expenses of 2.2 percent in 2004 when
      compared to 2003 was achieved in the areas of general and administrative
      expenses by $283,000 and sales and marketing expenses by $349,000, partially
      offset by an increase in customer service and technology expenses of $440,000.





**Revenue.** Revenue is comprised of software license sales, service fees for consulting,
      implementation, application hosting, training, maintenance and support
      activities and transaction fees from on-line activities performed for customers.







32




Revenue
      decreased to $4.930 million for the year ended December 31, 2004 from $5.853
      million for the year ended December 31, 2003, representing a decline of 15.8
      percent. This decline was attributable to reduced revenue in North America
      of
      $415,000 and reduced revenue in Ireland/U.K. of $557,000. Revenue from Norway
      increased by $50,000 in 2004 as compared to 2003.





In
      North America, re-targeting of resources towards the GE CEF joint venture
      efforts in 2004 resulted in a decline in development, hosting and transactional
      revenue of approximately $408,000.




In
      the Ireland/UK region we did not experience an increase in customer acquisitions
      and activity in 2004 as we did 2003. The year-over-year revenue decline was
      primarily the result of reduced sales by the amount of $532,000 to customers
      in
      non-healthcare industry sectors.





**General
      and Administrative.** General and administrative expenses include, primarily: all salaries and related
      expenses (including benefits and payroll taxes) other than technology staff
      compensation (which is included in customer service and technology expenses),
      and sales and marketing staff compensation (which is included in sales and
      marketing expenses), occupancy costs, foreign exchange gains or losses,
      professional fees, insurance, investor relations, regulatory filing fees, and
      travel and related costs.





General
      and administrative expenses decreased by $265,000 to $4.488 million for the
      year
      ended December 31, 2004, as compared to $4.753 million for the year ended
      December 31, 2003, representing a decline of 5.6 percent.





Year-over-year
      savings in the amount of $183,000 resulted from salary expense reductions
      arising from a smaller administrative workforce and favourable Canadian dollar
      exchange rates pertaining to US dollar-denominated salaries. Continued cost
      containment efforts resulted in $67,000 savings in travel expenses and the
      reduction of occupancy and connectivity costs in the amount of $47,000
      associated with the change of North American office locations and decreased
      utility costs as the result of Norway office leases renegotiations. Reductions
      in foreign exchange losses of $59,000 and in insurance costs of $41,000 also
      added to the savings. Expense reductions were partially offset by increased
      investor relation costs in the areas of consulting ($96,000) and increased
      professional services expenses associated with regulatory filings ($23,000).








33




**Sales
      and Marketing.** Sales and marketing costs include all salaries and related expenses of sales
      and
      marketing personnel as well as business development expenses such as
      advertising, sales support materials, and trade show costs.





Sales
      and marketing costs for the year ended December 31, 2004 amounted to $749,000,
      as compared to $1.098 million for 2003, a decrease of 31.8 percent. This
      decrease is attributable to lower staffing levels in the sales department
      combined with decreased advertising and tradeshow activities and related travel
      expenses throughout 2004.





**Customer
      Service and Technology.** Customer service and technology expenses consist of costs associated with
      acquired and internally developed software, and research and development
      expenses, including fees to independent contractors and salaries and related
      expenses of personnel engaged in these activities.





Customer
      service and technology expenses increased to $3.134 million for the year ended
      December 31, 2004 from $2.712 million for the year ended December 31, 2003,
      an
      increase of 15.6 percent. This increase is attributable to increased salary
      expenses resulting largely from increases in the number of technology personnel
      in Ireland/UK and Norway.





**Employee
      Stock Options.** Effective January 1, 2003, the Company adopted the accounting recommendations
      contained in the CICA handbook Section 3870 - “Stock-based Compensation and
      Other Stock-based Compensation Payments”. As a result, the Company recorded an
      employee stock option expense of $39,000 for the year ended December 31, 2004
      and $193,000 for the year ended December 31, 2003. No employee stock options
      were granted in 2004. The 2004 expense arises from the vesting of stock options
      that were granted in 2003.





**Depreciation
      and Amortization.** Depreciation and amortization expense was $1.190 million for the year ended
      December 31, 2004 as compared to $1.901 million for the year ended December
      31,
      2003, a decrease of 37.4 percent. This decrease reflects a $499,000 reduction
      in
      the amortization of deferred charges as deferred financing charges relating
      to a
      demand loan were fully amortized in 2003. Additionally, software acquired in
      the
      acquisition of ADB Systemer was fully amortized by the end of the third quarter
      of 2004, resulting in an amortization expense for the year that was $282,000
      lower than that for fiscal 2003.





**Interest
      Expense.** Interest expense reflects interest incurred from debt instruments and loans.
      Interest expense for the year ended December 31, 2004 was $439,000 compared
      to
      $289,000 for December 31, 2003. During 2004, cash interest expense of $173,000
      and non-cash interest expense of $266,000 was incurred related to secured
      subordinated notes. Comparatively, cash interest expense of $50,000 and non-cash
      interest expense of $112,000 was recorded in 2003. The interest expense for
      fiscal 2003 also included interest related to a demand loan of
      $126,000.





**Interest
      Income.** Interest income reflects interest from investments in cash and marketable
      securities. Interest income was negligible for both years ended December 31,
      2004 and 2003.





**Realized
      Gain on Settlement of Demand Loan.** On
      June 30, 2003, the Company settled an outstanding demand loan through the
      transfer of its investment in an associated Company. The investment had a
      nominal carrying value and the transfer resulted in a gain on settlement of
      the
      demand loan in the amount of $2.195 million.





**Other
      Income.** During 2003, the Company received a $67,000 refund from a U.S.-based credit
      card
      institution formally engaged by the Company when it operated its on-line retail
      activities in the U.S. No similar refunds were received in 2004.





**SIGNIFICANT
      ACCOUNTING POLICIES**





**Critical
      Accounting Policies**


We
      prepare the consolidated financial statements of ADB in conformity with
      accounting principles generally accepted in Canada. As such, we are required
      to
      make certain estimates, judgments and assumptions that we believe are reasonable
      based upon the information available. These estimates and assumptions affect the
      reported amounts of assets, liabilities and shareholders’ equity at the date of
      the financial statements and the reported amounts of






34




revenue
      and expenses during the periods presented. The significant accounting policies
      employed by ADB are described in our 2005 Annual Report within Note 3 to the
      Consolidated Financial Statements. The significant accounting policies which
      we
      believe are the most critical to aid in fully understanding and evaluating
      our
      reported financial results include the following:





**Continuation
      of the Business**


The
      Company’s ability to continue as a going concern will be dependent on
      management’s ability to successfully execute its business plan including a
      substantial increase in revenue as well as maintaining operating expenses at
      or
      near the same level as 2005. Our 2006 business plan includes a significant
      increase in revenue and operating cash flow primarily from major new contracts
      in Norway, the UK and North America. Management believes that it has the ability
      to raise additional financing if required. The Company cannot provide assurance
      that it will be able to execute on its business plan or assure that efforts
      to
      raise additional financings would be successful.





**Revenue
      Recognition**


The
      Company’s revenues are derived from software license fees, implementation,
      training and consulting services, product maintenance and customer support,
      software development, and hosting fees. Fees for services are billed separately
      from licenses of the Company’s product. The Company recognizes revenue in
      accordance with Canadian GAAP, which in the Company’s circumstances, are not
      materially different from the amounts that would be determined under provisions
      of the American Institute of Certified Public Accountants Statements of Position
      (SOP) No. 97-2, “ Software Revenue Recognition”, and as amended by Statement of
      Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With
      Respect to Certain Transactions”. The Company also considers the provisions of
      The Canadian Institute of Chartered Accountants (“CICA”) EIC 141, which is
      analogous to Staff Accounting Bulletin (SAB) 104, “Revenue Recognition in
      Financial Statements”, and CICA EIC 142, which is analogous to the Emerging
      Issues Task Force consensus on EITF 00-21, “Accounting for Revenue Arrangements
      with Multiple Elements,” in determining the appropriate revenue recognition
      methodology.





**Software
      License Revenue**


The
      Company recognizes software license revenue in accordance with the terms of
      the
      license agreement and when the following criteria as set out in SOP No. 97-2
      are
      met:


•
            persuasive
                evidence of an arrangement exists,•
            delivery
                has occurred,•
            the
                fee is fixed or determinable, and•
            collectibility
                is probable.


Software
      license revenue consists of fixed license fee agreements involving perpetual
      licenses.





Software
      license agreements may be part of multiple element arrangements that include
      consulting and implementation services. When these services are considered
      essential to the functionality of the license, the associated revenue is
      recognized on the basis of the percentage of completion method as specified
      by
      contract accounting principles. When these services are not considered essential
      to the functionality of the license, the entire arrangement fee is allocated
      to
      each element in the arrangement based on the respective vendor specific
      objective evidence (“VSOE”) of the fair value of each element. VSOE used in
      determining the fair value of license revenues is based on the price charged
      by
      the Company when the same element is sold in similar quantities to a customer
      of
      a similar size and nature. VSOE used in determining fair value for installation,
      implementation and training based on the standard daily rates for the type
      of
      service being provided multiplied by the estimated time to complete each task.
      VSOE used in determining the fair value of maintenance and support is based
      on
      the annual renewal rates. The revenue allocable to the software license is
      recognized when the revenue criteria are met. The revenue allocable to the
      consulting services is recognized as the services are performed.





**Implementation,
      Training & Consulting Service Fees**


The
      Company receives revenue from implementation of its product offerings,
      consulting services and training services. Customers are charged a fee based
      on
      time and expenses. Revenue from implementation, consulting service and training
      fees is recognized as the services are performed or deferred until contractually
      defined milestones are achieved or until customer acceptance has occurred,
      as
      the case may be, for such contracts.





35




**Product
      Maintenance & Customer Support Fees**


The
      Company receives revenue from maintaining its products and the provision of
      on-going support services to customers. The maintenance and support fees are
      typically equal to a specified percentage of the customers’ license fee. If
      associated with the fixed fee license model, the maintenance revenues received
      are recorded as deferred revenue and recognized on a straight-line basis over
      the contract period.





Services
      revenue from maintenance and support is recognized when the services are
      performed. Maintenance and support revenues paid in advance are non-refundable
      and are recognized on a straight-line basis over the term of the agreement,
      which typically is 12 months.





**Software
      Development Fees**


Typically,
      development of software for our customers is provided based on a predetermined
      fixed rate basis. Revenue is recognized as time is incurred throughout the
      development process.





**Hosting
      Fees**


The
      Company earns revenue from the hosting of customer websites. Under our existing
      hosting contracts, we charge customers a recurring periodic flat fee. The fees
      are recognized as the hosting services are provided.





**Deferred
      Revenue**


Deferred
      revenue is comprised of the unrecognized portion of consulting and
      implementation fees received from maintenance and support e-commerce enabling
      agreements, and the unrecognized portion of license, installation, and
      consulting revenue on the sale of software licenses and related
      services.





**Customer
      Acquisition Costs**


Customer
      acquisition costs are comprised of the calculated fair value of common share
      purchase warrants issued to customers in return for certain agreements. These
      amounts are deducted from gross revenue to the extent that revenue is earned,
      and are otherwise included in general and administrative expenses. The fair
      value of these warrants is calculated based on the Cox-Rubinstein binomial
      valuation model.





**Deferred
      Charges**


Deferred
      charges are comprised of expenditures incurred in the issuance of secured
      subordinated notes. The deferred charges are amortized over the term of the
      underlying notes on a straight-line basis. In accordance with Canadian GAAP,
      conversion of the underlying notes results in the allocation of the associated
      unamortized deferred charge to shareholders’ deficiency. Under U.S. GAAP, note
      conversion results in the expensing of the associated unamortized deferred
      charge. The impact of this difference in Canadian GAAP from U.S. GAAP is
      disclosed in these notes to the consolidated financial statements under Canadian
      and United States accounting policy differences (See Note 23 to the Consolidated
      Financial Statements.)





**Secured
      Subordinated Notes**


Financial
      instruments that contain both a liability and an equity element are required
      to
      have the instrument’s component parts classified separately under Canadian GAAP.
      The Company uses the Cox-Rubinstein binomial valuation model to determine the
      fair value of the conversion feature at the issue dates of convertible secured
      subordinated notes and discloses the liability and equity components separately
      on its balance sheet. U.S. GAAP does not permit separate disclosure of different
      elements of a financial instrument in the financial statements. The impact
      of
      this difference in U.S. GAAP from Canadian GAAP is disclosed in the notes to
      these consolidated financial statements under Canadian and United States
      accounting policy differences (See Note 23 to the Consolidated Financial
      Statements for the year ended December 31, 2005 at Item 18).





**Adoption
      of New Accounting Pronouncements:**





(i)
      CONSOLIDATION OF VARIABLE INTEREST ENTITIES


Effective
      January 1, 2005, the Company adopted Accounting Guideline 15, Consolidation
      of
      Variable Interest Entities (“AcG-15”). AcG-15 addresses the application of
      consolidation principles to certain entities that are subject to control on
      a
      basis other than ownership of voting interests. AcG-15 addresses when an
      enterprise should include the assets, liabilities and results of activities
      of
      such an entity in its consolidated financial statements. There was no impact
      to
      the consolidated financial statements of the Company as a result of adopting
      this standard since the






36




Company
      does not have an interest in any entities that is subject to control on a basis
      other than ownership of voting interests.





(ii)
      ARRANGEMENTS CONTAINING A LEASE


Effective
      January 1, 2005, the Company adopted CICA EIC 150, Determining whether an
      Arrangement Contains a Lease (“EIC 150”). EIC 150 addresses a situation where an
      entity enters into an arrangement, comprising a transaction that does not take
      the legal form of a lease but conveys a right to use a tangible asset in return
      for a payment or series of payments. There was no impact to the consolidated
      financial statements of the Company as a result of the adoption of this new
      standard since the Company has not entered into such arrangements.





**Recent
      Canadian**  **Accounting
      Pronouncements:**





(i)
      NON-MONETARY TRANSACTIONS


In
      2005, the CICA issued Handbook Section 3831, Non-monetary transactions (“CICA
      3831”), replacing Section 3830, Non-monetary transactions. CICA 3831 requires
      that an asset exchanged or transferred in a non-monetary transaction must be
      measured at its fair value except when: the transaction lacks commercial
      substance; the transaction is an exchange of a product or property held for
      sale
      in the ordinary course of business for a product or property to be sold in
      the
      same line of business to facilitate sales to customers other than the parties
      to
      the exchange; neither the fair value of the asset received nor the fair value
      of
      the asset given up is reliably measurable; or the transaction is a non-monetary
      nonreciprocal transfer to owners that represents a spin-off or other form of
      restructuring or liquidation. In these cases the transaction must be measured
      at
      the carrying value. The new requirements are effective for transactions
      occurring on or after January 1, 2006. The Company does not expect that this
      new
      standard will have a material impact on its consolidated financial
      statements.





(ii)
      FINANCIAL INSTRUMENTS


In
      2005, the CICA issued Handbook Section 3855, Financial Instruments - Recognition
      and Measurement, Handbook Section 1530, Comprehensive Income, and Handbook
      Section 3865, Hedges. The new standards will be effective for interim and annual
      financial statements commencing in 2007. Earlier adoption is permitted. The
      new
      standards will require presentation of a separate statement of comprehensive
      income. Derivative financial instruments will be recorded in the balance sheet
      at fair value and the changes in fair value of derivatives designated as cash
      flow hedges will be reported in comprehensive income. The existing hedging
      principles of AcG-13 will be substantially unchanged. The Company is assessing
      the impact of these new standards.







37








**B.
      LIQUIDITY AND CAPITAL RESOURCES**





**LIQUIDITY**


The
      Company has been funded to date primarily through a series of private placements
      of equity and convertible debentures, sales of equity to and investments from
      strategic partners, gains from investments and option exercises. Since
      inception, the Company has received aggregate net proceeds of $89.4 million
      from
      debt and equity financing and has realized $23.7 million in gains on investment
      disposals. The Company has not earned profits to date and, at December 31,
      2005,
      has an accumulated deficit of $108.367 million. The Company expects to incur
      losses into 2006 and there can be no assurance that it will ever achieve
      profitability. Operating results have varied on a quarterly basis in the past
      and may fluctuate significantly in the future as a result of a variety of
      factors, many of which are outside of the Company’s control.





The
      Company has incurred negative annual cash flows from operations since inception
      and expects to continue to expend substantial funds to continue to develop
      technology, build an infrastructure to support business development efforts
      and
      expand other areas of business including the acquisition of, or strategic
      investments in, complementary products, businesses or technologies. The Company
      has historically relied on non-operational sources of financing to fund its
      operations. The Company’s ability to continue as a going concern will be
      dependent on management’s ability to successfully execute its business plan
      including a substantial increase in revenue as well as maintaining operating
      expenses at or near the same level as 2005. Management’s 2006 business plan
      includes a significant increase in revenue and operating cash flow primarily
      from major new contracts in Norway, the UK and North America. Management’s 2006
      business plan indicates that approximately $1.5 million in non-operational
      funding will be required, in addition to the $755,000 in gross proceeds raised
      from Series J notes in February 2006. Management believes that it has the
      ability to raise additional financing as required. The Company cannot provide
      assurance that it will be able to execute on its business plan or assure that
      efforts to raise additional financings would be successful.





Cash
      and cash equivalents decreased by $162,000 to $291,000 as at December 31, 2005
      from $453,000 as at December 31, 2004.





Current
      assets of $1.586 million is below current liabilities (excluding deferred
      revenue) of $2.609 million in the current fiscal year by $1.023 million. Current
      assets of $2.196 million exceeded current liabilities (excluding deferred
      revenue) of $1.680 million by $516,000 in the prior year. Deferred revenue
      has
      been excluded from current liabilities as it is expected to be settled by
      resources other than cash.





As
      of May 31, 2006 we had case on hand and marketable securities of approximately
      $969,000. Management believes it has the ability to raise additional financing
      if required.





**Cash
      Flows**


*i)
      Operating:*


Cash
      outflows from operating activities decreased significantly to $1.9 million
      in
      the current fiscal year compared to cash outflows from operating activities
      of
      $3.3 million in the prior year.


Non-cash
      working capital resulted in inflows of $910,000 in fiscal 2005 as compared
      to
      inflows of $322,000 in fiscal 2004, an increase of $588,000, as summarized
      in
      the following table:





**2005**
            
            **2004**
            
            **Difference****(in
                thousands)**Accounts
                receivable
            
            $
            381
            
            $
            (151
            )
            $
            532Deposits
                and prepaid expenses
            
            
            67
            
            
            (8
            )
            
            75Accounts
                payable
            
            
            372
            
            
            288
            
            
            84Accrued
                liabilities
            
            
            101
            
            
            139
            
            
            (38
            )Deferred
                revenue
            
            
            6
            
            
            44
            
            
            (38
            )Effect
                of currency translation
            
            
            (17
            )
            
            10
            
            
            (27
            )$
            910
            
            $
            322
            
            $
            588







38




*ii)
      Investing:*


No
      significant cash flows resulted from investing activities in fiscal 2005. In
      2005, $36,000 was spent on capital asset acquisitions as compared to $40,000
      in
      expenditures for 2004. In 2005, proceeds in the amount of $4,000 were earned
      from the disposal of capital assets. No such proceeds were earned in 2004.





*iii)
      Financing:*


Cash
      flows generated as the result of financing activities totaled $1.8 million
      in
      fiscal 2005. The sources of cash included an equity private placement, issuance
      of convertible debt and advances from related parties, which was slightly offset
      by deferred financing costs related to the convertible debt issuance. Cash
      flows
      generated in financing activities were $3.3 million for 2004, including an
      equity private placement and issuance of convertible debt, which was slightly
      offset by deferred financing costs related to the convertible debt issuance.





*iv)
      Contractual Obligations:*


As
      at December 31, 2005 the Company's contractual obligations, including payments
      due by periods over the next five years, are as follows:





**(in
                thousands of Canadian dollars)**
            
            **Total**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
              **and
                thereafter**Operating
                leases
            
            $
            1,670
            
            $
            401
            
            $
            376
            
            $
            325
            
            $
            276
            
            $
            146
            
            $
            146License
                agreements
            
            
            390
            
            
            120
            
            
            120
            
            
            120
            
            
            30
            
            
            -
            
            
            -Secured
                subordinated notes -principal repayment(a)
            
            
            3,455
            
            
            375
            
            
            1,880
            
            
            -
            
            
            -
            
            
            1,200
            
            
            -Secured
                subordinated notes -interest
                payment(a)
                (b)
            
            
            1,306
            
            
            158
            
            
            620
            
            
            -
            
            
            -
            
            
            528
            
            
            -$
            6,821
            
            $
            1,054
            
            $
            2,996
            
            $
            445
            
            $
            306
            
            $
            1,874
            
            $
            146





(a)
      Assumes secured subordinated notes are held to maturity.


(b)
      Assumes interest in the amount of $132,000 related to Series I note is payable
      in common shares in 2006.





**CAPITAL
      RESOURCES**


There
      were minor additions to capital assets during the years ended December 31,
      2005
      and 2004.




During
      2005, the Company incurred $32,000 of costs associated with the issuance of
      secured subordinated notes, which were recorded as deferred financing charges,
      as compared to $167,000 in 2004. The deferred financing charges are being
      amortized on a straight-line basis over the term of the underlying
      notes.





**Funding**


**Overview.** The Company has been funded to date primarily through a series of private
      placements of equity and convertible debentures, sales of equity to and
      investments from strategic partners, gains from investments and option
      exercises. Since inception, the Company has received aggregate net proceeds
      of
      $89.4 million from debt and equity financing and has realized $23.7 million
      in
      gains on investment disposals.





**Funding
      - 2006**


On
      February 8, 2006, the Company completed a transaction resulting in the issuance
      of Series J secured subordinated notes with a face value of $755,000. The Series
      J notes were issued to private investors including an amount totaling $105,000
      issued to three directors/officers of the Company. The Series J notes mature
      February 8, 2011, have an annual interest rate of 11 percent and are convertible
      into equity units at a price of $0.15 per unit. Interest for the first year
      is
      payable in shares of the Company with interest payable for the remaining term
      of
      the notes payable in cash upon the earlier of maturity and conversion. Each
      equity unit consists of one common share






39




and
      one share-purchase warrant with an exercise price of $0.20. The warrants expire
      on the earlier of (i) February 8, 2009 and (ii) the date which is sixty days
      following the issuance of a notice by the Company to holders confirming that
      the
      closing price of the Company’s common shares, on the Toronto Stock Exchange, was
      greater than or equal to $0.35 for any 10 consecutive trading days. The
      conversion provisions are subject to a four month and one day hold period.
      The
      Series J notes are secured by a general security agreement on the assets of
      the
      Company, subordinated to the security claims provided to the holders of
      previously issued notes.





**Funding
      - 2005**


On
      February 23, 2005, the Company completed a transaction resulting in the issuance
      of 2.5 million equity units at a price of $0.23 per unit for net proceeds of
      $570,000. Each equity unit consists of one common share and one common
      share-purchase warrant with an exercise price of $0.40 each. The warrants expire
      on February 22, 2009.





On
      September 12, 2005, the Company issued Series I secured subordinated notes
      with
      a face value of $1,200,000 for net proceeds of $1,063,000. The Series I notes
      were issued to private investors including an amount totaling $110,000 issued
      to
      four directors/officers of the Company. The Series I notes mature September
      12,
      2010, have an annual interest rate of 11 percent and are convertible into equity
      units at a price of $0.15 per unit. Interest for the first year is payable
      in
      shares with the provision that the total number of shares issued as interest
      payment cannot exceed 974,000 shares. Any of the first year interest not paid
      through the issuance of shares will be paid in cash. Interest payable for the
      remaining term of the notes is payable in cash upon the earlier of maturity
      and
      conversion. Each equity unit consists of one common share and one share-purchase
      warrant with an exercise price of $0.20. The warrants expire on September 12,
      2010. The Series I notes are secured by a general security agreement on the
      assets of the Company, subordinated to the security claims provided to the
      holders of previously issued notes.





**C.
      CUSTOMER SERVICE AND TECHNOLOGY**





For
      a discussion of the Company’s customer service and technology policies for the
      last three years, see Item 4 - B. BUSINESS OVERVIEW under the heading “CUSTOMER
      SERVICE AND TECHNOLOGY”.





**D.** **TREND
      INFORMATION**





**Seasonality
      and Trends**





Historically,
      revenues have remained relatively consistent when compared with the same quarter
      of the prior year; however; there was a significant growth in the 2005 first
      quarter revenue of $352,000, third quarter revenue of $233,000, and fourth
      quarter revenue of $301,000 when compared to the same quarter of 2004. Overall,
      2005 revenue increased by $845,000, representing a 17.1 percent growth from
      2004.





The
      growth in revenue during 2005 was primarily attributable to increased revenue
      in
      Norway of $1.038 million, partially offset by reduced revenue from North America
      of $140,000 and Ireland/U.K. of $53,000. The Company continued to focus time
      and
      resources on building the joint venture with GE, which has resulted in
      short term opportunity cost but is believed to be in our best interests in
      2006
      and beyond.  Early in 2005 ADB also saw slower than expected activity
      related to the NHS (UK) but experienced growth in late Q3 and through the Q4
      ending on December 31, 2005.  Through 2005 the Company maintained cost
      controls as evidenced by total year-over-year operational expense reduction
      of
      about $1.032 million.  In the ADB business model, revenue growth requires
      very minimal corresponding increases in expenses.





**Foreign
      Exchange Risk**


The
      Company’s revenue from software licensing and related services and e-commerce
      enabling agreements is transacted in various currencies including the Canadian
      dollar, U.S. dollar, UK pound, EURO, and Norwegian krone. Correspondingly,
      operating expenses related to these activities are transacted in the
      above-denoted currencies. The Company does not use derivative instruments to
      manage exposure to foreign exchange fluctuations.





**Interest
      Rate Risk**


The
      Company has limited exposure to fluctuations in interest rates. The Company
      does
      not use derivative instruments to reduce its exposure to interest rate risk.






40





**Credit
      Risk**


Credit
      risk arises from the potential that a customer will fail to meet its contractual
      obligations under a software licensing and related services agreement or an
      e-commerce enabling agreement.





At
      December 31, 2005, one customer accounted for 40 percent of total accounts
      receivable. At December 31, 2004, there were three customers that accounted
      for
      18 percent, 13 percent and 11 percent, respectively, of total accounts
      receivable. The Company does not have a history of non-payment.





**Net
      Operating Losses for Tax Purposes** **.**


We
      have available an aggregate of approximately $23 million of net operating losses
      for tax purposes that may be used to reduce taxable income in future years,
      of
      which $1.4 million expires in 2008, $3.8 million expires in 2009, $3.0 million
      expires in 2010, and $3.5 million expires in 2015. In addition, there is $11.3
      million that do not expire related to tax losses in Ireland. Our net operating
      losses are subject to assessment of our tax returns by taxation
      authorities.





**E.
      OFF-BALANCE SHEET ARRANGEMENTS**





The
      Company does not have any off-balance sheet special purpose entities or other
      off-balance sheet arrangements.





**F.
      TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS**





As
      at December 31, 2005 the Company's contractual obligations, including payments
      due by periods over the next five years, are as follows:





**(in
                thousands of Canadian dollars)**
            
            **Total**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
              **and
                thereafter**Operating
                leases
            
            $
            1,670
            
            $
            401
            
            $
            376
            
            $
            325
            
            $
            276
            
            $
            146
            
            $
            146License
                agreements
            
            
            390
            
            
            120
            
            
            120
            
            
            120
            
            
            30
            
            
            -
            
            
            -Secured
                subordinated notes -principal repayment(a)
            
            
            3,455
            
            
            375
            
            
            1,880
            
            
            -
            
            
            -
            
            
            1,200
            
            
            -Secured
                subordinated notes - interest payment (a) (b)
            
            
            1,306
            
            
            158
            
            
            620
            
            
            -
            
            
            -
            
            
            528
            
            
            -$
            6,821
            
            $
            1,054
            
            $
            2,996
            
            $
            445
            
            $
            306
            
            $
            1,874
            
            $
            146





(a)
      Assumes secured subordinated notes are held to maturity.


(b)
      Assumes interest in the amount of $132,000 related to Series I note is payable
      in common shares in 2006.








41





**ITEM
      6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**





A.DIRECTORS
      AND SENIOR MANAGEMENT





The
      following table sets forth the name, age and position of each of the individuals
      who served as a director and/or an executive officer during the past year.
      This
      list includes the dates of resignation and appointment, as applicable, of
      individuals who resigned or were appointed directors or officers during the
      past
      year. This information is supplied based on our records and information
      furnished by our executive officers and directors.




Name
            Age
            Position*Directors*Jeffrey
                Lymburner
            49
            Director
                and Chief Executive OfficerT.
                Christopher Bulger(1),(2),(3)
            49
            Director
                and Chairman of the BoardJim
                Moskos
            43
            Director
                and President, ADB Technology GroupDarroch
                (Rick) Robertson(3)
            54
            DirectorDuncan
                G. Copeland(1),(2),(3)
            49
            DirectorDavid
                Gelineau(1),(2)(4)
            47
            DirectorPaul
                Godin,(5)
            53
            Former
                Director




*Executive
                Officers*
              *(other
                than Messrs. Lymburner, and Moskos)*Jan
                Pedersen(6)
            48
            President,
                Norwegian Operations and Former DirectorMichael
                Robb(7)
            43
            Former
                Chief Financial Officer and Corporate SecretaryAidan
                Rowsome(8)
            44
            Former
                Vice-President, Global Sales


________________________




(1)  Member
      of the Management Resources and Compensation Committee.


(2)  Member
      of the Corporate Governance Committee.


(3)  Member
      of Audit Committee.


(4) Appointed
      September 23, 2005.


(5) Resigned
      September 23, 2005.


(6) Resigned
      as Director September 30, 2005, currently President, Norwegian
      Operations.


(7) Resigned
      October 14, 2005.


(8) Resigned February 25, 2005.




The
      business experience of each of our current directors and executive officers
      for
      at least the last five years is as follows:




*Directors*
  **JEFFREY
        LYMBURNER** ,
        Oldsmar, Florida
 Director
        since May 28, 1996
 *Chief
        Executive Officer*
  Mr.
        Lymburner **** has
        been our Chief Executive Officer since August 1, 1999 and was a founding
        shareholder of our company. He was President of our company from its founding
        in
        1995 to October 11, 2001. Prior to the founding of our company, Mr. Lymburner
        was President of Completely Mobile Inc., a cellular and wireless data company,
        from 1990 to 1995.
 
  42
  **T.
        CHRISTOPHER BULGER** , Toronto, Ontario
 Director
        since May 28, 1996
 *Chairman
        of the Board of Directors and Chairman of the Management Resources and
        Compensation Committee*
 
 Mr.
        Bulger has been our Chairman of the Board since October 14, 2005 and a director
        of the Company since May 28, 1996. Mr. Bulger is Chairman and Chief Executive
        Officer of Megawheels Inc., a software and solutions provider to the online
        classified advertising industry, listed on the Canadian Venture Exchange.
        From
        December 1999 to December 2001, Mr. Bulger was President and Chief Executive
        Officer of eLab Technology Ventures Inc. Mr. Bulger served as Executive Vice
        President of our Company from September 1998 to December 1999 and Chief
        Financial Officer of the Company from April 1996 to September 1998. Mr. Bulger
        is a CFA and holds an MBA from INSEAD, France and an HBA from The Richard
        Ivey
        School of Business, Canada.
 
 **JIM
        MOSKOS** ,
        Toronto, Ontario
 Director
        since June 7, 1999
 
 Mr.
        Moskos **** has
        been President of the ADB Technology Group since October 19, 1999. Mr. Moskos
        served as Vice President - Technology of our company from September 1997
        to
        October 19, 1999. From September 1994 to August 1997, Mr. Moskos was Senior
        Technology Manager for the Canadian Department of Indian Affairs and Northern
        Development responsible for setting the technical direction for all aspects
        of
        application development.
 
 **DARROCH
        (RICK) ROBERTSON** ,
        London, Ontario
 Director
        since June 25, 2003
 *Chairman
        of the Audit Committee*
  Mr.
        Robertson has been an Associate Professor of Business at the Richard Ivey
        School
        of Business, The University of Western Ontario, for the past five years.
        He is
        currently the Director of MBA program and was the Director of the undergraduate
        HBA program at the Ivey School. Mr. Robertson was also a director and chair
        of
        the audit committee of Stackpole Limited, a TSX listed company. Mr. Robertson
        has also served as an elected member of council for the Institute of Chartered
        Accountants of Ontario, where he was chair on the audit committee and by-laws
        committee. Mr. Robertson is a CA and holds an MBA and PhD (Business) from
        the
        University of Western Ontario.
 
 **DUNCAN
        COPELAND**
 Director
        since June 23, 2004
 *Chair
        of the Corporate Governance Committee and a Member of the Audit and Management
        Resources and Compensation Committees*
 
 Mr.
        Copeland is President of Copeland and Company, a consultancy based in Potomac,
        Maryland. He has been a Director of the Company since its inception, except
        for
        the period from 2001-2004. Mr. Copeland has been a member of the faculties
        of
        the Richard Ivey School of Business, The University of Western Ontario and
        the
        Robert Emmett McDonough School of Business, Georgetown University. He is
        a
        trustee of the Charles Babbage Foundation. Mr. Copeland holds a doctorate
        from
        the Harvard Business School.
 
 ***Executive
        Officer***
 ***(other
        than Messrs. Lymburner and Moskos)***
  **JAN
        PEDERSEN** ,
        Stavanger, Norway
 Director
        June 12, 2002 - Resigned September 30, 2005
  Mr.
        Pedersen has been President of our Norwegian Operations since October 11,
        2001.
        Prior to that, Mr. Pedersen founded and acted as CEO of ADB Systemer ASA
        since
        1988. From October 11, 2001 until May 18, 2005 Mr. Pedersen was responsible
        for
        the Company’s European operations. Mr. Pedersen has broad software experience
        with clients such as Saga Petroleum, Statoil, BP Norway, Elf Petroleum and
        the
        Norwegian Petroleum Directorate. He holds a Master Science degree in Civil
        Engineering, the technical university in Trondheim, Norway.
   43
  **B.**  **COMPENSATION**
  **Summary
        Compensation Table**
 
 The
        following table provides a summary of compensation earned during the most
        recently completed fiscal year by our Chief Executive Officer and our four
        highest paid executives, other than the Chief Executive Officer, who earned
        in
        excess of $100,000.
 
 **Annual
                  Compensation**
              **Awards****Other
                  Annual**
              **Options/SARs****Salary**
              **Bonus**
              **Compensation**
              **Granted****Name
                  And Principal
                  Position**
              **Year**
              **($)**
              **($)**
              **($)****(1)**
              **(#)****(2)**Jeffrey
                  Lymburner
              2005
              116,300
              Nil
              13,950
              155,300CEO(3)
              2004
              130,130
              Nil
              15,616
              Nil2003
              140,150
              $3,503
              16,818
              NilMike
                  Robb
              2005
              180,000
              Nil
              12,000
              100,000CFO(4)
              2004
              144,583
              Nil
              6,600
              Nil2003
              76,250
              Nil
              5,362
              NilJames
                  Moskos
              2005
              200,000
              Nil
              12,000
              650,000President,
                  Technology Group
              2004
              190,000
              Nil
              12,000
              Nil2003
              193,333
              15,000
              12,000
              220,202Jan
                  Pedersen
              2005
              172,800
              Nil
              Nil
              150,000President,
                  Norwegian Operations
              2004
              201,657
              Nil
              Nil
              Nil2003
              181,843
              40,358
              Nil
              22,378Aidan
                  Rowsome
              2005
              185,167
              Nil
              16,517
              NilVice-President,
                  Global Sales(5)
              2004
              205,166
              1,020
              16,955
              Nil2003
              173,430
              10,033
              17,747
              122,580
 (1)
                The
                    Company’s provision of automotive related expenses and
                    options.
  (2)
                All
                    numbers have been adjusted to reflect the two for one consolidation
                    of our
                    shares in October, 2001.
  (3)
                Mr.
                    Lymburner’s salary is U.S. $100,000.
  (4)
                Joined
                    the Company on Feb 26, 2003 as Director of Finance. He was appointed
                    as
                    CFO and Corporate Secretary on August 12, 2003 and resigned from
                    the
                    Company effective October 14, 2005.
  (5)
                Aidan
                    Rowsome resigned from the Company effective March 1,
                    2005.
  Messrs.
          Lymburner, Moskos, Pedersen and Rowsome volunteered salary reductions in
          the
          2002 and 2003 calendar years, ranging from fifteen percent to fifty percent.
          In
          exchange for the foregone salary, the executives were granted stock options,
          vesting quarterly in arrears, in an amount equal to the amount of foregone
          salary divided by the exercise price of the options (being the market price
          of
          the Company’s shares on the day prior to the date of the grant). These salary
          reductions took effect January 1, 2002. The salary reductions will not
          affect
          any severance entitlement for the individuals concerned.
  Our
          company has a stock option plan which provides for the issuance of stock
          options
          to employees, which may expire as much as 10 years from the date of grant,
          at
          prices not less than the fair market value of the common shares on the
          date of
          grant. The Management Resources and Compensation Committee of the Board
          of
          Directors reserves the right to attach vesting periods to stock options
          granted.
          For options granted to directors and senior
   44
 
  management
            during the fiscal year ended December 31, 2005 see Compensation Table
            above. For
            option grants to outside directors during the fiscal year ended December
            31,
            2005, not included in the above mentioned compensation table, see the
            table
            below under the heading Compensation of Directors.
  During
        2005, we did not provide any pension, retirement or similar benefits to our
        directors and officers as a group. Our employees based in Ireland and the
        United
        Kingdom participate in a retirement savings arrangement where employee
        contributions to personal retirement savings accounts are matched by the
        Company
        to a maximum of six percent of salary. This arrangement does not represent
        a
        future pension obligation to the Company. Mr. Rowsome participates in this
        plan.
  Jeff
        Lymburner has entered into a non-competition and salary protection agreement
        with our company, dated February 21, 1997, which provides, among other
        things, that he (i) will not compete with our company for a period of 12
        months, which may be extended by us to 24 months, following the termination
        of
        his employment with our company, in consideration of which we will pay his
        full
        annual salary during such period; and (ii) if his employment with us is
        terminated other than by reason of death, disability or cause (as such terms
        are
        defined in such agreements), we will continue to pay his full annual salary
        for
        12 months (or 24 months if we exercise our option to extend the non-competition
        restrictions for 24 months) following the date of termination.
  Jan
        Pedersen entered into a new employment agreement with our company in 2003
        which
        sets out his salary and benefits as the Company’s President of Norwegian
        operations, as described in Item 6. The new agreement does not provide for
        termination payments or retention bonuses.
  **Compensation
        of Directors**
 
 Our
        directors receive no fees for meetings of the Board or committees of the
        Board
        which they attend, and no fee for the signing of any resolution of directors
        or
        documents on behalf of our company. Upon joining the Board directors are
        granted
        25,000 stock options plus an additional 5,000 options per committee they
        are
        members of, all priced at the closing price of the Company’s common shares on
        the Toronto Stock Exchange on the last business day preceding the date on
        which
        the option is approved. The following table provides a summary of the option
        grants to outside directors during 2005, which were not included in the previous
        compensation table.
  **Stock
                    Option Grants to Outside Directors during the fiscal year ended
                    December
                    31, 2005**
  Name:
                
                #
                    Options
                  Granted
                
                Price
                  CDN$
                
                Date
                    of
                  Grant
                
                Expiry
                    Date
                  of
                    OptionChris
                    Bulger
                
                
                70,000
                
                
                0.22
                
                
                Jan.
                    25, 2005
                
                
                Jan.
                    25, 2010400,000
                
                
                0.16
                
                
                Dec.
                    22, 2005
                
                
                Dec.
                    22, 2010Duncan
                    Copeland
                
                
                70,000
                
                
                0.22
                
                
                Jan.
                    25, 2005
                
                
                Jan.
                    25, 201040,000
                
                
                0.17
                
                
                Nov.
                    15, 2005
                
                
                Nov.
                    15, 2008Darroch
                    Robertson
                
                
                80,000
                
                
                0.22
                
                
                Jan.
                    25, 2005
                
                
                Jan.
                    25, 2010David
                    Gelineau
                
                
                35,000
                
                
                0.17
                
                
                Nov.
                    15, 2005
                
                
                Nov.
                    15, 2008
 All
        directors are reimbursed for reasonable out-of-pocket travel and other expenses
        incurred by them in attending Board meetings or Committee meetings.
 
 **C.**  **BOARD
        PRACTICES**
  Our
        articles of incorporation currently provide for a Board of Directors consisting
        of not less than 3 and not more than 15 directors, to be elected annually.
        The *Business
        Corporations Act* (Ontario) provides that, where a minimum and maximum number of directors
        is
        provided for in the articles of a company, the directors of that company
        may, if
        empowered by special resolution of the shareholders, by a resolution determine
        the number of directors to be elected at each annual meeting of the
        shareholders. Our Board of Directors has the authority to fix the number
        of
        directors to a number within the minimum and maximum number of directors
        as set
        forth in the articles, and has determined by resolution that the size of
        the
        Board is 6 directors.
  45
  
 Our
        Board of Directors presently consists of 6 directors. Under Canadian law,
        a
        majority of our Board of directors and of each of our Board Committees must
        be
        residents of Canada, subject to certain exceptions. Each of our directors
        holds
        office until the next annual meeting of shareholders, until his successor
        has
        been elected and qualified, or his earlier resignation or removal. Our executive
        officers are appointed by our Board of directors and serve at the discretion
        of
        our Board of Directors.
  Except
        for Jeffrey Lymburner's salary protection agreements, no director has any
        contract or arrangement entitling them to benefits upon termination of their
        directorship.
  The
        three committees of the Board are the Audit Committee, Management Resources
        and
        Compensation Committee, and the Corporate Governance Committee.
 
 The
        Audit Committee, all of whose members are unrelated as defined by the TSX
        Corporate Governance Guidelines and Independent Nasdaq Rules, meets with
        our
        management and our auditors on a periodic basis, before the release of quarterly
        results and before submission of our annual financial statements to the Board.
        The committee is responsible for the review and assessment of our audit
        practices, financial reporting and internal controls, inquiry of the auditors
        as
        to cooperation in access and disclosure by our management and the ultimate
        approval of our annual financial statements for submission to the Board and
        to
        the shareholders. The committee is also responsible for the appointment,
        compensation and oversight of the work of our auditors (including resolution
        of
        disagreements between management and our auditors regarding financial
        reporting). Our Audit Committee consists of Darroch Robertson (Chairman),
        Chris
        Bulger and Duncan Copeland.
 
 The
        Management Resources and Compensation Committee, all of whose members are
        unrelated as defined by the TSX Corporate Governance Guidelines, is responsible
        for recommendations to the Board regarding the appointment or removal of
        executive officers, reviewing the performance of the executive officers and
        fixing their compensation. The committee is also responsible for administering
        our stock option plan and ensuring that salary and benefit programs are
        continuously suitable for attracting, retaining and encouraging the development
        of knowledgeable, experienced and capable management and employees. The
        Management Resources and Compensation Committee of our Company consists of
        Christopher Bulger (Chairman), Duncan Copeland, and David Gelineau all of
        whom
        are directors of our Company. The composition of the committee changed during
        fiscal 2005 due to the resignation of Paul Godin from the board of directors
        effective September 23, 2005. Mr. Gelineau was appointed in Mr. Godin’s
        place.
 
 The
        Corporate Governance Committee, all of whose members are unrelated as defined
        by
        the TSX Corporate Governance Guidelines, oversees the implementation of our
        governance practices. The committee also oversees the process for nominations
        to
        the Board and assesses the overall effectiveness of the Board. The Corporate
        Governance Committee consists of Duncan Copeland (Chairman), Chris Bulger,
        and
        David Gelineau all of whom are directors of our Company. The composition
        of the
        committee changed during fiscal 2005 due to the resignation of Paul Godin
        from
        the board of directors effective September 23, 2005. Mr. Gelineau was appointed
        in Mr. Godin’s place.
 
 **D.**  **EMPLOYEES**
  As
        of May 31, 2006 we employed a total of 46 full-time employees and one part-time
        employee as follows:
  North
                  America
              Ireland
                  and UK
              NorwaySales
                  and Marketing
              4
              1
              2Technical
                  Services
              4
              0
              12Product
                  Group
              3
              0
              12Finance
                  and Admin
              3
              0
              2Executive
              2
              0
              1TOTAL
              16
              1
              29
  
   46
   The
        number of our employees as of May 31, 2006 represents a 6% decrease in our
        workforce as compared with the number of our employees as of December 31,
        2005.
  As
        of December 31, 2005 we employed a total of 49 full-time employees and one
        part-time employee as follows:
  North
                  America
              Ireland
                  and UK
              NorwaySales
                  and Marketing
              4
              2
              2Technical
                  Services
              4
              0
              12Product
                  Group
              4
              0
              12Finance
                  and Admin
              4
              0
              2Executive
              2
              0
              1TOTAL
              18
              2
              29
  As
        of December 31, 2004 we employed a total of 46 full-time employees and one
        part-time employee as follows:
  North
                  America
              Ireland
                  and UK
              NorwaySales
                  and Marketing
              4
              1
              2Technical
                  Services
              4
              2
              9Product
                  Group
              4
              0
              10Finance
                  and Admin
              3
              1
              2Executive
              3
              1
              1TOTAL
              18
              5
              24
  As
        of December 31, 2003 we employed a total of 50 full-time employees and no
        part-time employees as follows:
  North
                  America
              Ireland
                  and UK
              NorwaySales
                  and Marketing
              5
              1
              1Technical
                  Services
              5
              2
              12Product
                  Group
              2
              0
              10Finance
                  and Admin
              4
              1
              2Executive
              3
              1
              1TOTAL
              19
              5
              26
  None
        of our employees are represented by a labor union, and we consider our employee
        relations to be good **.**
  **E.
        SHARE OWNERSHIP**
  The
        following table sets forth information concerning share and option ownership
        of
        each of our current directors and officers and includes individuals who resigned
        as an officer or director during 2005, as of May 31, 2006:
   47
  
 **Name**
              
              **Number
                  of**
                **Common
                  Shares**
                **Owned****(1)(2)**
              
              **Number
                  of**
                **Common
                  Underlying**
                **Options****(3)**
              
              **Range
                  of Exercise**
                **Prices
                  of Options**
              
              **Range
                  of Expiration**
                **Dates
                  of Options**
              
              **Percentage
                  of**
                **Common
                  Shares**
                **Beneficially**
                **Owned****(4)**Jeffrey
                  Lymburner
              
              
              4,211,975
              
              
              155,300
              
              
              $0.22
              
              
              1/25/10
              
              
              5
              %T.
                  Christopher Bulger
              
              
              265,000
              
              
              475,000
              
              
              $0.16-$0.37
              
              
              07/03/06
                  - 12/22/10
              
              
              *Jim
                  Moskos
              
              
              21,375
              
              
              870,202
              
              
              $0.16-$0.35
              
              
              07/03/06
                  - 12/22/10
              
              
              *Darroch
                  Robertson
              
              
              5,000
              
              
              110,000
              
              
              $0.22-$0.37
              
              
              07/03/06
                  - 1/25/10
              
              
              *Duncan
                  Copeland
              
              
              87,050
              
              
              110,000
              
              
              $0.17-$0.22
              
              
              11/15/08
                  - 1/25/10
              
              
              *David
                  Gelineau
              
              
              1,400
              
              
              35,000
              
              
              $0.17
              
              
              11/15/08
              
              
              *Jan
                  Pedersen(5)
              
              
              681,010
              
              
              172,378
              
              
              $0.22-$0.33
              
              
              07/03/06
                  - 1/25/10
              
              
              *Michael
                  Robb(6)
              
              
              Nil
              
              
              Nil
              
              
              -
              
              
              -
              
              
              *Aidan
                  Rowsome(7)
              
              
              *
              
              
              Nil
              
              
              -
              
              
              -
              
              
              *
  *
          Represents less
          than 1%.
  (1)
                  All
                      numbers adjusted to reflect the two for one consolidation of
                      our shares in
                      October 2001.  (2)
                  Represents
                      shares owned beneficially by the named individual other than
                      those shares
                      which may be acquired under our Company's option plans. Unless
                      otherwise
                      noted, all persons referred to above have sole voting and sole
                      investment
                      power.  (3)
                  Includes
                      all shares which the named individual has the right to acquire
                      under all
                      vested and unvested options and warrants granted to such individual
                      under
                      the Company's option plan.  (4)
                  This
                      information is based on 80,480,838 common shares outstanding
                      as of May 31,
                      2006. Common shares subject to options exercisable within 60
                      days are
                      deemed outstanding for computing the percentage ownership of
                      the person
                      holding the options but are not deemed outstanding for computing
                      the
                      percentage ownership of any other person.  (5)
                  Jan
                      Pedersen resigned as a Director September 30, 2005, and is
                      currently
                      President, Norwegian Operations.
  (6)
                  Michael
                      Robb resigned as CFO and Corporate Secretary of the Company
                      effective
                      October 14, 2005.
  (7)
                  Aidan
                      Rowsome resigned as Vice-President, Global Sales of the Company
                      effective
                      March 1, 2005.
  **ITEM
        7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**
 
 **A.**
              **MAJOR
                  SHAREHOLDERS**
 
 On
        February 9, 2006 Pinetree Income Partnership (“Pinetree”) acquired ownership of
        a $300,000 convertible debenture (the “ADB Debenture”), which debenture is
        convertible into 2,000,000 common shares of ADB and 2,000,000 ADB warrants
        (the
“ADB Warrants”). Each ADB Warrant is convertible into one common share of ADB.
        Collectively, the 2,000,000 common shares issuable upon conversion of the
        ADB
        Debenture and the 2,000,000 common shares issued pursuant to the exercise
        of the
        ADB Warrants represent approximately 5.4% of the issued and outstanding common
        shares of ADB, calculated on a partially diluted basis assuming the exercise
        of
        the ADB Debenture and the ADB Warrants only.
  Pinetree
        and its related parties own an aggregate of securities convertible into
        11,493,332 common shares of ADB. If all of the convertible securities of
        ADB
        which Pinetree and its related parties owned as of February 9, 2006 were
        exercised, Pinetree, together with its related parties, would own an aggregate
        of 11,493,332 common shares of ADB, representing approximately 14.2% of the
        issued and outstanding common shares of ADB, calculated on a partially diluted
        basis assuming the exercise of securities convertible into 11,493,332 common
        shares only.
  This
        information is based on our records, information provided to us by directors
        and
        executive officers and a review of any Schedules 13D and 13G filed by our
        shareholders with the Securities and Exchange Commission prior to June 1,
        2006,
        and insider reports filed with the Ontario Securities Commission. The Company’s
        major shareholders do not have any voting rights that differ from the rights
        of
        our other shareholders.
  As
        at May 31, 2006 the shareholders of record held 80,480,838 common shares.
   48
  We
        are not aware of any other corporation, foreign government, or other person
        or
        entity that directly or indirectly owns or controls our Company, severally
        or
        jointly. We are not aware of any arrangements which may at a later date result
        in a change in control of our Company.
 
 **B.**
              **RELATED
                  PARTY TRANSACTIONS**
 
 On
        May 9, 2003, the Company issued 666,666 common shares to Jeff Lymburner,
        CEO of
        the Company, in consideration of gross proceeds of $200,000 as part of a
        private
        placement financing.
  On
        August 19, 2003, the Company issued secured subordinated notes (Series E
        notes)
        to a group of private investors for total gross proceeds of $1.0 million.
        The
        following officers and directors purchased the Series E notes: Paul Godin,
        a
        director of the Company, purchased $50,000 of Series E notes that have not
        yet
        been converted into common shares. Jim Moskos, President Technology Group
        and a
        director of the Company, purchased $35,000 of Series E notes that have not
        yet
        been converted. Michael Robb, (the CFO and Corporate Secretary of the Company,
        at the time of the transaction), purchased $15,000 of Series E notes that
        have
        not yet been converted.
  On
        June 15, 2004 the Company issued to private investors Series G secured
        subordinated notes in the aggregate principal amount of $1.71 million for
        net
        proceeds of $1.48 million. The following officers and directors purchased
        Series
        G notes: Jeff Lymburner, CEO of the Company, purchased $100,000 of Series
        G
        notes that have not yet been converted; Jan Pedersen, President,
        Norwegian **** Operations
        and a director of the Company, purchased $60,000 of Series G notes that have
        not
        yet been converted; and Jim Moskos, President Technology Group and a director
        of
        the Company, purchased $10,000 of Series G notes that have not yet been
        converted.
  On
        October 21, 2004 the Company issued to private investors Series H secured
        subordinated notes in the aggregate principal amount of $520,000 for net
        proceeds of $477,000. A total of $270,000 of the principal amount of Series
        H
        notes was issued to the following directors and/or senior officers of the
        Company: Jeffrey Lymburner, an officer and director of the Company, purchased
        Series H notes in the principal amount of $200,000; Paul Godin, a director
        of
        the Company (at the time of the transaction) purchased Series H notes in
        the
        principal amount of $50,000; and James Moskos, an officer and director of
        the
        Company purchased Series G notes in the principal amount of
        $20,000.
  On
        December 6, 2004, the Company completed a private placement resulting in
        the
        issuance of 5,000,000 shares at a price of $0.20 per share and 5,000,000
        common
        share-purchase warrants exercisable into one common share at a price of $0.35
        for gross proceeds of $1.0 million. Included in this private placement were
        100,000 shares issued to Paul Godin, a director of the Company for gross
        proceeds of $20,000. The warrants were issued for a four year term and will
        expire on December 6, 2008.
  On
        September 12, 2005 the Company issued Series I secured subordinated notes
        with a
        face value of $1,200,000 for net proceeds of $1,063,000. The following officers
        and directors purchased Series I notes: Jeff Lymburner, CEO of the Company,
        purchased $20,000 of Series I notes that have not yet been converted; Jim
        Moskos, President, Technology Group and a director of the Company, purchased
        $10,000 of Series I notes that have not yet been converted; Chris Bulger,
        Chairman of the Board, purchased $20,000 of Series I notes that have not
        yet
        been converted and Duncan Copeland, a director of the Company, purchased
        $60,000
        of Series I notes that have not yet been converted.
 
 During
        the year ended December 31, 2005, the Company received advances from three
        of
        its directors/officers of which $137,000 was outstanding as at December 31,
        2005. The total advances include $66,000 that pay interest at a rate of 12%
        per
        annum, are secured by a general security agreement on the assets of the Company
        and mature as follows:
 •  $44,000
        maturing on July 29, 2006;
 •  $5,000
        maturing on August 12, 2006; and
 •  $17,000
        maturing on August 15, 2006.
  The
        remaining amount of $71,000 is interest free and has no specific terms of
        repayment.
 As
        at December 31, 2005, accrued liabilities included $5,000 (2004 - $nil) in
        interest payable relating to the above amounts due to related parties. During
        2005, interest expense on amount owing to related parties was $5,000 (2004
        -$nil).
  49
  On
        February 8, 2006, the Company issued Series J secured subordinated notes
        with a
        face value of $755,000. The Series J notes were issued to private investors
        including an amount totaling $105,000 issued to three directors/officers
        of the
        Company. The following officers and directors purchased Series J notes: Jeff
        Lymburner, CEO of the Company, purchased $36,250 principal amount of Series
        J
        notes that have not yet been converted; Jim Moskos, President, Technology
        Group
        and a director of the Company, purchased $12,500 principal amount of Series
        J
        notes that have not yet been converted; and Chris Bulger, Chairman of the
        Board,
        purchased $56,250 principal amount of Series J notes that have not yet been
        converted.
 
 On
        May 18, 2006, the Company entered into a share purchase agreement with ADB
        Systemer Holdings AS (the “Buyer”) to sell 100 percent of its shares in its
        Norwegian subsidiary ADB Systemer AS, (“ADB Systemer”) for NOK 15,000,000 in
        cash and debt settlement (the “Share Sale”). The Share Sale is subject to
        Toronto Stock Exchange and shareholder approval. Six of the shareholders
        of the
        Buyer are current employees or executive officers of ADB Systemer.
  Two
        of the non-arm’s length shareholders of the Buyer, also hold shares in the
        Company and will not be eligible to vote for the approval of the Share Sale.
        It
        is expected that approximately 703,144 Common Shares of the Company will
        be
        excluded from voting as not being eligible to vote.
  For
        additional information regarding related party transactions, see Note 6 and
        7 to
        the Consolidated Financial Statements.
  **ITEM
        8 - FINANCIAL INFORMATION**
 
 See
        the Consolidated Financial Statements and notes thereto accompanying this
        Annual
        Report beginning on page F-1. All contingencies and commitments set out in
        the
        Financial Statements have been reviewed and updated as at the date of filing
        this Annual Report.
  **LEGAL
        PROCEEDINGS**
  Neither
        we, nor any of our subsidiaries, is a party to, or the subject of, any material
        legal proceedings.
  **DIVIDEND
        POLICY**
  We
        have not declared or paid any cash dividends on our common shares. We currently
        intend to retain any future earnings for use in the operation and expansion
        of
        our business. We do not anticipate paying any cash dividends on our common
        shares in the foreseeable future.
  We
        have not issued any preference shares. The dividend entitlement of any
        preference shares issued will be determined by our Board of
        Directors.
  **SIGNIFICANT
        CHANGES**
  On
        May 18, 2006, the Company entered into an agreement with ADB Systemer Holding
        AS
        (the "Buyer") to sell 100 percent of the Company's interest in its Norwegian
        subsidiary ADB Systemer AS, (“ADB Systemer") for NOK 15,000,000 or approximately
        Canadian $2.80 million in cash subject to shareholder approval (the “Share
        Sale”). On June 21, 2006 the Company received approval from shareholders at its
        annual general meeting to proceed with the Share Sale, which is scheduled
        to
        close on June 30, 2006. Sale of the shares of ADB Systemer include sale of
        the
        ADB Systems name. Following the sale of ADB Systemer, the Company will retain
        access to all existing technology that will be used to service existing
        customers. In addition, the Company obtained Shareholder approval to change
        its
        name to Northcore Technologies Inc. by filing Articles of Amendment upon
        closing
        of the Share Sale transaction.
  **ITEM
        9 - THE OFFER AND LISTING**
  Our
        common shares are listed on The Toronto Stock Exchange and are quoted for
        trading on the OTCBB. Our common shares were quoted on the Nasdaq National
        Market from April 20, 1999 until June 3, 2002 and were quoted on the Nasdaq
        SmallCap Market from June 3, 2002 until August 21, 2002 at which time they
        were
        delisted because we did not satisfy the minimum bid price per share requirement
        for continued listing on that market. The
   50
  shares
        were listed on the Nasdaq exchanges from April 20, 1999 until October 17,
        2001
        under the symbol “BIDS” and from October 18, 2001 until August 21, 2002 under
        the symbol “ADBI”. Our common shares have been quoted for trading on the OTCBB
        since August 22, 2002 under the symbol “ADBY”. Effective November 15, 2004 our
        stock symbol on the OTCBB was changed to “ADBYF”. The addition of the F to the
        symbol was a requirement of the OTCBB to signify that we are a foreign
        issuer.
  From
        June 6, 1996 to February 8, 1998, our common shares were quoted for trading
        on
        the Canadian Dealing Network under the symbol “ILII.” Our common shares were
        traded on The Toronto Stock Exchange from February 9, 1998 to July 17, 1998
        under the symbol “ILI” and from July 18, 1998 to October 17, 2001 under the
        symbol “BII”. Since October 18, 2001, our common shares have been traded on the
        Toronto Stock Exchange under the symbol “ADY”.
  For
        additional information about the trading of our common shares, see Item 3-D
        -
        Risk Factors - YOUR
        ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED .
  The
        following tables set forth the range of high and low sales prices (rounded
        to
        the nearest hundredth) as reported by The Toronto Stock Exchange, the OTCBB
        (beginning June 4, 2002) and Nasdaq (until June 3, 2002) during the calendar
        years and quarters indicated. Note that all numbers have been adjusted to
        reflect the two-for-one share consolidation completed in October
        2001.
   51
  THE
        TORONTO STOCK EXCHANGE
  High
              Low(Cdn
                  $)
              (Cdn
                  $)ANNUAL
                  MARKET PRICES2001
                  Calendar Year
              3.40
              0.292002
                  Calendar Year
              0.93
              0.072003
                  Calendar Year
              0.85
              0.172004
                  Calendar Year
              0.52
              0.162005
                  Calendar Year
              0.36
              0.14QUARTERLY
                  MARKET PRICES2004
                  CALENDAR YEARFirst
                  Quarter
              0.52
              0.34Second
                  Quarter
              0.38
              0.25Third
                  Quarter
              0.36
              0.19Fourth
                  Quarter
              0.28
              0.162005
                  CALENDAR YEARFirst
                  Quarter
              0.36
              0.19Second
                  Quarter
              0.29
              0.15Third
                  Quarter
              0.23
              0.16Fourth
                  Quarter
              0.23
              0.142006
                  CALENDAR YEARFirst
                  Quarter
              0.19
              0.14MONTHLY
                  MARKET PRICESNovember
                  2005
              0.23
              0.14December
                  2005
              0.18
              0.14January
                  2006
              0.19
              0.14February
                  2006
              0.17
              0.14March
                  2006
              0.17
              0.14April
                  2006
              0.19
              0.14May
                  2006
              0.24
              0.16
 
   52
  NASDAQ
        AND OTCBB
  High
              Low
              High
              Low(Cdn
                  $)
              (Cdn
                  $)
              (U.S.
                  $)
              (U.S.
                  $)ANNUAL
                  MARKET PRICES2001
                  Calendar Year
              3.30
              0.30
              2.18
              0.192002
                  Calendar Year
              0.93
              0.06
              0.59
              0.042003
                  Calendar Year
              0.79
              0.16
              0.54
              0.112004
                  Calendar Year
              0.54
              0.14
              0.41
              0.122005
                  Calendar Year
              
              
              0.29
              0.11QUARTERLY
                  MARKET PRICES2004
                  CALENDAR YEARFirst
                  Quarter
              0.54
              0.34
              0.41
              0.26Second
                  Quarter
              0.39
              0.24
              0.29
              0.18Third
                  Quarter
              0.35
              0.19
              0.27
              0.15Fourth
                  Quarter
              0.27
              0.14
              0.22
              0.122005
                  CALENDAR YEARFirst
                  Quarter
              0.36
              0.18
              0.29
              0.15Second
                  Quarter
              
              
              0.25
              0.16Third
                  Quarter
              
              
              0.28
              0.13Fourth
                  Quarter
              
              
              0.18
              0.112006
                  CALENDAR YEARFirst
                  Quarter
              
              
              0.15
              0.12MONTHLY
                  MARKET PRICESNovember 2005
              
              
              0.18
              0.11December 2005
              
              
              0.15
              0.12January 2006
              
              
              0.15
              0.12February 2006
              
              
              0.15
              0.12March
                  2006
              
              
              0.15
              0.12April
                  2006
              
              
              0.16
              0.12May
                  2006
              
              
              0.27
              0.15
  United
        States dollar amounts are converted to Canadian dollars at the noon buying
        rate
        in New York City for cable transfers in Canadian dollars as certified for
        customs purposes by the Federal Reserve Bank of New York for the date of
        such
        sales prices.
  **ITEM
        10 - ADDITIONAL INFORMATION**
  **A.**
              **Share
                  Capital**
  Not
        applicable.
  **B.**
              **Memorandum
                  and Articles of Association**
  The
        Articles of Arrangement for ADB are on file with the Ministry of Consumer
        and
        Commercial Relations for the Province of Ontario under Ontario Corporation
        Number 1539169. Our articles do not include a stated purpose.
   53
  *Directors*
 
 Directors
        of our Company need not be shareholders. In accordance with our by-laws and
        the *Business
        Corporations Act* (Ontario), a majority of our directors must be residents of Canada, subject
        to
        certain exceptions. In addition, directors must be at least 18 years of age,
        of
        sound mind, and not bankrupt. Neither our articles or by-laws, nor the *Business
        Corporations Act* (Ontario), impose any mandatory retirement age for directors.
  A
        director who is a party to, or who is a director or officer of or has a material
        interest in any person who is a party to, a material contract or transaction
        or
        proposed material contract or transaction with our Company shall disclose
        to our
        Company the nature and extent of his interest at the time and in the manner
        provided by the *Business
        Corporations Act* (Ontario). The *Business
        Corporations Act* (Ontario) prohibits such a director from voting on any resolution to approve
        the
        contract or transaction unless the contract or transaction:
 
 •
              is
                  an arrangement by way of security for money lent to or obligations
                  undertaken by the director for the benefit of our Company or an
                  affiliate;
 
 •
              relates
                  primarily to his or her remuneration as a director, officer, employee
                  or
                  agent of our Company or an affiliate;
 
 •
              is
                  for indemnity or insurance; or
 
 •
              is
                  with an affiliate.
 
 Our
        Board of Directors may, on behalf of our Company and without authorization
        of
        our shareholders:
 
 •
              borrow
                  money upon the credit of our Company;
 
 •
              issue,
                  reissue, sell or pledge bonds, debentures, notes or other evidences
                  or
                  indebtedness or guarantees of our Company, either secured or
                  unsecured;
 
 •
              subject
                  to certain disclosure requirements of the*Business
                  Corporations Act*(Ontario), give, directly or indirectly, financial assistance to
                  any
                  person by means of a loan, a guarantee or otherwise on behalf of
                  our
                  Company to secure performance or any present or future indebtedness,
                  liability or obligation of any person;
                  and
 
 •
              mortgage,
                  hypothecate, pledge or otherwise create a security interest in
                  all or any
                  currently owned or subsequently acquired real or personal property
                  of our
                  Company, movable or immovable, including without limitation book
                  debts,
                  rights, powers, franchises and undertakings, to secure any bonds,
                  debentures, notes or other evidences of indebtedness or guarantee
                  or any
                  other obligation of our Company.
 
 *Common
        Shares*
 
 Our
        articles authorize the issuance of an unlimited number of common shares.
        The
        holders of the common shares of our Company are entitled to receive notice
        of
        and to attend all meetings of the shareholders of our Company and have one
        vote
        for each common share held at all meetings of the shareholders of our Company,
        except for meetings at which only holders of another specified class or series
        of shares of our Company are entitled to vote separately as a class or series.
        Subject to the prior rights of the holders of preference shares of our Company
        and to any other shares ranking senior to the common shares with respect
        to
        priority in the payment of dividends, the holders of common shares are entitled
        to receive dividends and our Company will pay dividends, as and when declared
        by
        our Board of Directors, out of moneys properly applicable to the payment
        of
        dividends, in such amount and in such form as our Board of Directors may
        from
        time to time determine, and all dividends which our Board of Directors may
        declare on the common shares shall be declared and paid in equal amounts
        per
        share on all common shares at the time outstanding. In the event of the
        dissolution, liquidation or winding-up of our Company, whether voluntary
        or
        involuntary, or any other distribution of assets of our Company among its
        shareholders for the purpose of winding up its affairs, subject to the prior
        rights of the holders of preference shares and to any other shares ranking
        senior to
  54
  the
        common shares with respect to priority in the distribution of assets upon
        dissolution, liquidation or winding-up, the holders of the common shares
        will be
        entitled to receive the remaining property and assets of our Company. There
        are
        no redemption or sinking-fund provisions that attach to the common shares,
        nor
        are there any provisions that discriminate against existing or prospective
        holders of common shares as a result of owning a substantial number of shares.
        The holders of our common shares are not liable to further capital calls
        by our
        Company.
 
 *Preference
        Shares*
 
 Our
        articles of incorporation authorize the issuance of an unlimited number of
        preference shares, in one or more series. The Ontario Business Corporations
        Act
        does not impose restrictions upon our Board of Directors issuing preference
        shares of the type authorized by our articles of incorporation. Our Board
        of
        Directors may fix, before issuing, the number of preference shares of each
        series, the designation, rights, privileges, restrictions and conditions
        attaching to the preference shares of each series, including any voting rights,
        any right to receive dividends (which may be cumulative or non-cumulative
        and
        variable or fixed) or the means of determining the dividends, the dates of
        payment, any terms and conditions of redemption or purchase, any conversion
        rights, and any rights on the liquidation, dissolution or winding-up of our
        Company, any sinking fund or other provisions, the whole to be subject to
        the
        issue of a Certificate of Amendment setting forth the designation, rights,
        privileges, restrictions and conditions attaching to the preference shares
        of
        the series. Our articles of incorporation require that preference shares
        of each
        series must, with respect to the payment of dividends and the distribution
        of
        assets or the return of capital in the event of the liquidation, dissolution
        or
        winding-up of our Company, whether voluntary or involuntary, rank on a parity
        with the preference shares of every other series and be entitled to preference
        over the common shares and over any other shares ranking junior to the
        preference shares. The preference shares of one series shall participate
        ratably
        with the preference shares of every other series in respect of all dividends
        and
        similar amounts. The holders of our preference shares are not liable to further
        capital calls by our Company. None of our preference shares are currently
        issued
        or outstanding.
 
 *Action
        Necessary to Change the Rights of Shareholders*
 
 In
        order to change the rights of our shareholders, we would need to amend our
        articles of incorporation to effect the change. Such an amendment would require
        the approval of holders of two-thirds of the shares cast at a duly called
        special meeting. If we wish to amend the rights of holders of a specific
        class
        of shares, such approval would also be required from the holders of that
        class.
        A shareholder is entitled to dissent in respect of such a resolution and,
        if the
        resolution is adopted and our Company implements such changes, demand payment
        of
        the fair value of its shares.
 
 *Meetings
        of Shareholders*
 
 An
        annual meeting of shareholders is held each year for the purpose of considering
        the financial statements and reports, electing directors, appointing auditors
        and for the transaction of other business as may be brought before the meeting.
        The President, the Chairman of the Board or the Board of Directors has the
        power
        to call a special meeting of shareholders at any time. Notice of the time
        and
        place of each meeting of shareholders must be given not less than 21 days,
        nor
        more than 50 days, before the date of each meeting to each director, to the
        auditor and to each shareholder who at the close of business on the record
        date
        for notice is entered in the securities register as the holder of one or
        more
        shares carrying the right to vote at the meeting. Notice of a meeting of
        shareholders called for any other purpose other than consideration of financial
        statements and auditors’ report, election of directors and reappointment of the
        incumbent auditor, must state the nature of the business in sufficient detail
        to
        permit the shareholder to form a reasoned judgment on, and must state the
        text
        of, any special resolution or by-law to be submitted to the meeting. The
        only
        persons entitled to be present at a meeting of shareholders are those entitled
        to vote thereat, the directors of our Company, the auditor of our Company
        and
        others who although not entitled to vote are entitled or required to be present
        at the meeting. Any other person may be admitted only on the invitation of
        the
        chairman of the meeting or with the consent of the meeting. If a corporation
        is
        winding-up, the *Business
        Corporations Act* (Ontario) permits a liquidator appointed by the shareholders, during the
        continuance of a voluntary winding-up, to call and attend meetings of the
        shareholders. In circumstances where a court orders a meeting of shareholders,
        the court may direct how the meeting may be held, including the parties
        entitled, or required, to attend the meeting.
 
  55
  *Limitations
        on Rights to Own Securities*
 
 There
        is no limitation imposed by Canadian law or by the articles or other charter
        documents on the right of a non-resident to hold or vote common shares or
        preference shares with voting rights, other than as provided in the Investment
        Canada Act, as amended by the World Trade Organization Agreement Implementation
        Act. The Investment Canada Act generally prohibits implementation of a
        reviewable investment by an individual, government or agency thereof,
        corporation, partnership, trust or joint venture that is not a “Canadian,” as
        defined in the Investment Canada Act (a “non-Canadian”), unless, after review,
        the minister responsible for the Investment Act is satisfied that the investment
        is likely to be a net benefit to Canada.
  An
        investment in our voting shares by a non-Canadian (other than a “World Trade
        Organization Investor,” as defined below) would be reviewable under the
        Investment Canada Act if it were an investment to acquire direct control
        of our
        Company, and the value of our assets were $5.0 million or more. An investment
        in
        our voting shares by a World Trade Organization Investor would be reviewable
        under the Investment Canada Act if it were an investment to acquire direct
        control of our Company, and the value of our assets equaled or exceeded $209
        million. A non-Canadian, whether a World Trade Organization Investor or
        otherwise, would acquire control of us for purposes of the Investment Canada
        Act
        if he or she acquired a majority of our voting shares. The acquisition of
        less
        than a majority, but at least one-third of our voting shares, would be presumed
        to be an acquisition of control of our Company, unless it could be established
        that we were not controlled in fact by the acquirer through the ownership
        of
        voting shares. In general, an individual is a World Trade Organization Investor
        if he or she is a “national” of a country (other than Canada) that is a member
        of the World Trade Organization (“World Trade Organization Member”) or has a
        right of permanent residence in a World Trade Organization Member. A corporation
        or other entity will be a World Trade Organization investor if it is a “World
        Trade Organization investor-controlled entity” pursuant to detailed rules set
        out in the Investment Canada Act. The United States is a World Trade
        Organization Member.
  Certain
        transactions involving our voting shares would be exempt from the Investment
        Canada Act, including: (a) an acquisition of our voting shares if the
        acquisition were made in connection with the person’s business as a trader or
        dealer in securities; (b) an acquisition of control of our Company in connection
        with the realization of a security interest granted for a loan or other
        financial assistance and not for any purpose related to the provisions of
        the
        Investment Canada Act; and (c) an 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 the ownership of voting interests, remains unchanged.
  *Change
        of Control*
 
 Our
        authorized capital consists of an unlimited number of common shares and an
        unlimited number of preference shares. The Board of Directors, without any
        further vote by the common shareholders, has the authority to issue preference
        shares and to determine the price, preferences, rights and restrictions,
        including voting and dividend rights, of these shares. The rights of the
        holders
        of common shares are subject to the rights of holders of any preference shares
        that the Board of Directors may issue in the future. That means, for example,
        that we can issue preference shares with more voting rights, higher dividend
        payments or more favorable rights upon dissolution, than the common shares.
        If
        we issued certain types of preference shares in the future, it may also be
        more
        difficult for a third-party to acquire a majority of our outstanding voting
        shares.
 
 Our
        articles do not contain any provisions that govern the ownership threshold
        above
        which shareholder ownership must be disclosed.
 
 **C.**  **Material
        Contracts**
  The
        following is a summary of our Company’s material contracts entered into since
        January 1, 2004.
  1.
              SERIES
                  F NOTES: On May 19, 2004, the Company issued Series F secured subordinated
                  notes with a face value of $500,000 for net proceeds of $474,000.
                  The
                  Series F notes have an annual rate of interest of 7 percent paid
                  quarterly
                  in arrears, mature May 19, 2007 and are convertible into equity
                  units at a
                  price of $0.31 per unit. Each equity unit consists of one common
                  share and
                  one half of a common share purchase warrant with an
   56
   exercise price of $0.50. The
                  warrants
                  expire on May 19, 2007. The Series F secured subordinated notes
                  will
                  automatically convert into units when the share price of the Company
                  closes above $0.70 for five consecutive trading days during the
                  term.
                  Holders may convert the notes into units at anytime following a
                  four-month
                  hold period. If the holder does not convert and no automatic conversion
                  takes place, the Company must repay the principal amount in cash.
                  The
                  Series F notes are secured by a general security agreement on the
                  assets
                  of the Company, subordinated to the security claims provided to
                  the
                  holders of previously issued notes.  2.
              SERIES
                  G NOTES: On June 15, 2004, the Company issued Series G secured
                  subordinated notes with a face value of $1,710,000 for net proceeds
                  of
                  $1,624,000. The Series G notes mature June 15, 2007, have an annual
                  rate
                  of interest of 11 percent (as amended October 21, 2004) payable
                  upon the
                  earlier of maturity and conversion and are convertible into equity
                  units
                  at a price of $0.31 per unit. Each equity unit consists of one
                  common
                  share and one half of a common share purchase warrant with an exercise
                  price of $0.50. The warrants expire on June 15, 2008. The Series
                  G secured
                  subordinated notes will automatically convert into units when the
                  volume-weighted average share price of the Company closes above
                  $0.70 for
                  20 consecutive trading days during the term. Holders may convert
                  the notes
                  into units at anytime following a four-month hold period. If the
                  holder
                  does not convert and no automatic conversion takes place, the Company
                  must
                  repay the principal amount in cash. The Series G notes are secured
                  by a
                  general security agreement on the assets of the Company, subordinated
                  to
                  the security claims provided to the holders of previously issued
                  notes.
  3.
              SERIES
                  H NOTES: On October 21, 2004, the Company issued Series H secured
                  subordinated notes with a face value of $520,000 for net proceeds
                  of
                  $500,000. The Series H notes mature October 21, 2007, have an annual
                  rate
                  of interest of 11 percent payable upon the earlier of maturity
                  and
                  conversion and are convertible into equity units at a price of
                  $0.20 per
                  unit. Each equity unit consists of one common share and one half
                  of a
                  common share purchase warrant with an exercise price of $0.40.
                  The
                  warrants expire on October 21, 2008. The Series H secured subordinated
                  notes will automatically convert into units when the share price
                  of the
                  Company closes at or above $0.45 for 10 consecutive trading days
                  during
                  the term. Holders may convert the notes into units at anytime following
                  a
                  four-month hold period. If the holder does not convert and no automatic
                  conversion takes place, the Company must repay the principal amount
                  in
                  cash. In order to obtain the required approvals to issue the Series
                  H
                  notes, the Company retroactively increased the interest rate on
                  the Series
                  G notes from an annual rate of 7 percent to an annual rate of 11
                  percent.
                  The Series H notes are secured by a general security agreement
                  on the
                  assets of the Company, subordinated to the security claims provided
                  to the
                  holders of previously issued notes.
  4.
              EQUITY
                  PRIVATE PLACEMENT: On November 25 and December 6, 2004, the Company
                  completed a transaction resulting in the issuance of 5,000,000
                  shares at a
                  price of $0.20 per share and 5,000,000 common share-purchase warrants
                  exercisable into one common share at a price of $0.35 for gross
                  proceeds
                  of $1,000,000. The warrants expire on December 6, 2008. Gross proceeds
                  were comprised of $800,000 in cash and $200,000 in legal services.
                  Issuance costs in the amount of $70,000 were incurred, including
                  $19,000
                  representing the fair value of 150,000 compensation options issued
                  to
                  First Associates Investments Inc. The compensation options are
                  exercisable
                  into 150,000 equity units at a price of $0.20 per unit. Each equity
                  unit
                  consists of one common share and one common share-purchase warrant
                  with an
                  exercise price of $0.35 and an expiry date of December 6, 2008.
                  The
                  compensation options expire on December 6, 2006. Included in this
                  private
                  placement were 100,000 shares issued to a director of the Company
                  for net
                  proceeds of $20,000.
  5.
              EQUITY
                  PRIVATE PLACEMENT: On February 23, 2005, the Company competed a
                  transaction resulting in the issuance of 2,500,000 units (“Units”) of the
                  Company, each Unit consisting of one common share of the Company
                  and one
                  half of one non-transferable Common Share purchase Warrant, at
                  a price of
                  $0.23 per Unit, each whole Warrant entitling the holder to acquire
                  one
                  Common Share at an exercise price of $0.40. The Warrants comprising
                  part
                  of the Units were issued for a term of 4 years and will expire
                  on February
                  23, 2009. The aggregate consideration in money received by our
                  Company
                  from the subscribers for Units was
                  $575,000.
  6.
              SERIES
                  I NOTES: On September 12, 2005, the Company issued Series I secured
                  subordinated notes with a face value of $1,200,000 for net proceeds
                  of
                  $1,063,000. The Series I notes were issued to private investors
                  including
                  an amount totaling $110,000 issued to four directors/officers of
                  the
                  Company. The Series I notes mature September 12, 2010, have an
                  annual
                  interest rate of 11 percent and are convertible into equity units
                  at a
                  price of $0.15 per unit. Interest for the first year is payable
                  in shares
                  with the provision that the total number of
   57
    shares issued as interest payment
                  cannot
                  exceed 974,000 shares. Any of the first year interest not paid
                  through the
                  issuance of shares will be paid in cash. Interest payable for the
                  remaining term of the notes is payable in cash upon the earlier
                  of
                  maturity and conversion. Each equity unit consists of one common
                  share and
                  one share-purchase warrant with an exercise price of $0.20. The
                  warrants
                  expire on September 12, 2010. The Series I notes are secured by
                  a general
                  security agreement on the assets of the Company, subordinated to
                  the
                  security claims provided to the holders of previously issued
                  notes.  7.
              SERIES
                  J NOTES: On February 8, 2006, the Company completed a transaction
                  resulting in the issuance of Series J secured subordinated notes
                  with a
                  face value of $755,000. The Series J notes were issued to private
                  investors including an amount totaling $105,000 issued to three
                  directors/officers of the Company. The Series J notes mature February
                  8,
                  2011, have an annual interest rate of 11 percent and are convertible
                  into
                  equity units at a price of $0.15 per unit. Interest for the first
                  year is
                  payable in shares of the Company with interest payable for the
                  remaining
                  term of the notes payable in cash upon the earlier of maturity
                  and
                  conversion. Each equity unit consists of one common share and one
                  share-purchase warrant with an exercise price of $0.20. The warrants
                  expire on the earlier of (i) February 8, 2009 and (ii) the date
                  which is
                  sixty days following the issuance of a notice by the Company to
                  holders
                  confirming that the closing price of the Company’s common shares, on the
                  Toronto Stock Exchange, was greater than or equal to $0.35 for
                  any 10
                  consecutive trading days. The afore-mentioned conversion provisions
                  are
                  subject to a four month and one day hold period. The Series J notes
                  are
                  secured by a general security agreement on the assets of the Company,
                  subordinated to the security claims provided to the holders of
                  previously
                  issued notes.
  8.
              SHARE
                  PURCHASE AGREEMENT: On May 18, 2006, the Company entered into a
                  share
                  purchase agreement with ADB Systemer Holdings Inc. to sell 100
                  percent of
                  its shares in its Norwegian subsidiary ADB Systemer AS, (“ADB Systemer”)
                  for NOK 15,000,000, or approximately Canadian $2.80 million in
                  cash in
                  cash (the “Share Sale”). The Share Sale is subject to Toronto Stock
                  Exchange and shareholder approval.
  **C.**
              **Exchange
                  Controls**
  There
        is no law, government decree or regulation in Canada restricting the export
        or
        import of capital or affecting the remittance of dividends, interest or other
        payments to a non-resident holder of common shares, other than withholding
        tax
        requirements.
  **D.**
              **Taxation**
  The
        following summary describes material Canadian federal income tax consequences
        generally applicable to a holder of our common shares who is not a resident
        of
        Canada, and who, for purposes of the Income Tax Act (Canada), (i) holds such
        shares as capital property and (ii) deals at arm’s length with us. Generally,
        common shares will be considered capital property to a holder provided that
        such
        holder does not hold such securities in the course of carrying on a business
        and
        has not acquired such securities in a transaction or transactions considered
        to
        be an adventure or concern in the nature of trade which includes a transaction
        or transactions of the same kind and carried on in the same manner as a
        transaction or transactions of an ordinary trader or dealer in property of
        the
        same kind.
  This
        summary is based upon the current provisions of the Income Tax Act and the
        regulations thereunder and on an understanding of the published administrative
        practices of the Canadian Customs and Revenue Agency. This summary does not
        take
        into account or anticipate any possible changes in law, or the administration
        thereof, whether by legislative, governmental or judicial action, except
        proposals for specific amendment thereto which have been publicly announced
        by
        the Canadian Minister of Finance prior to the date hereof.
  This
        summary does not address all aspects of Canadian federal income tax law that
        may
        be relevant to shareholders based upon their particular circumstances, and
        does
        not deal with provincial, territorial or foreign income tax consequences,
        which
        might differ significantly from the consequences under Canadian federal income
        tax law.
   58
  Shareholders
        are advised to consult their tax advisors regarding the application of the
        Canadian federal income tax law to their particular circumstances, as well
        as
        any Canadian provincial, territorial or other tax consequences or any U.S.
        federal, state or local tax consequences or other foreign income tax
        consequences of the acquisition, ownership and disposition of our common
        shares.
  ***Taxation
        of Dividends.***
  A
        holder of a common share who is not resident in Canada for purposes of the
        Income Tax Act will be subject to Canadian withholding tax on dividends paid
        or
        credited, or deemed under the Income Tax Act to be paid or credited, to the
        holder of the common share. The rate of withholding tax under the Income
        Tax Act
        on dividends is 25% of the amount of the dividend. Such rate may be reduced
        under the provisions of an applicable international tax treaty to which Canada
        is a party. Under the tax treaty that Canada has entered into with the United
        States, the rate of Canadian withholding tax applicable in respect of dividends
        paid or credited by a Canadian corporation to a shareholder resident in the
        United States, is generally reduced to 15%, or 5% in the case of a corporate
        holder which owns 10% or more of the voting shares. A foreign tax credit
        for the
        tax withheld may be available under applicable US tax law to a US holder
        against
        U.S. federal income tax liability. Moreover, pursuant to Article XXI of the
        Canada-U.S. Treaty, an exemption from Canadian withholding tax generally
        is
        available in respect of dividends received by certain trusts, companies and
        other organizations whose income is exempt from tax under the laws of the
        United
        States.
  ***Disposition
        of common shares.***
  A
        non-resident holder of a common share will not be subject to tax under the
        Income Tax Act in respect of a capital gain realized on the disposition of
        a
        common share unless the common share constitutes or is deemed to constitute
        “taxable Canadian property” as defined in the Income Tax Act. Shares of a
        corporation that are listed on a prescribed stock exchange (which includes
        shares traded on certain U.S. stock exchanges, including the Nasdaq National
        Market), are generally not considered to be taxable Canadian property. However,
        such shares are considered taxable Canadian property in the hands of a
        non-resident holder if, at any time during the 60-month period immediately
        preceding disposition by the holder, 25% or more of our issued shares of
        any
        class were owned by the non-resident holder together with persons with whom
        the
        non-resident did not deal at arm’s length.
  An
        interest in or option in respect of common shares or other securities
        convertible into or exchangeable for common shares could constitute taxable
        Canadian property if the common shares that could be acquired upon the exercise
        of the option, the conversion or exchange rights or in which there is such
        interest are themselves taxable Canadian property. Taxable Canadian property
        also includes any common share held by a non-resident if the non-resident
        used
        the common share in carrying on a business (other than an insurance business)
        in
        Canada, or, if the non-resident is a non-resident insurer, any common share
        that
        is its “designated insurance property” for the year. A non-resident whose common
        shares constitute or are deemed to constitute taxable Canadian property will
        realize upon the disposition or deemed disposition of a common share, a capital
        gain (or a capital loss) to the extent that the proceeds of disposition are
        greater than (or less than) the aggregate of the adjusted cost base to the
        holder of a common share and any reasonable costs of disposition.
  One-half
        of any capital gain realized by a holder (a taxable capital gain) will be
        included in computing the holder’s income. One-half of any capital loss realized
        by a holder may, subject to certain restrictions applicable to holders that
        are
        corporations, normally be deducted from the holder’s taxable capital gains
        realized in the year of disposition, the three preceding taxation years or
        any
        subsequent taxation years, subject to detailed rules contained in the Income
        Tax
        Act.
  A
        purchase by us of our common shares (other than a purchase of our common
        shares
        on the open market in a manner in which shares would normally be purchased
        by
        any member of the public in the open market) will give rise to a deemed dividend
        under the Income Tax Act equal to the difference between the amount we paid
        on
        the purchase and the paid-up capital of such shares determined in accordance
        with the Income Tax Act. The paid-up capital of such shares may be less than
        the
        cost of such shares to the holder. Any such dividend deemed to have been
        received by a non-resident holder will be subject to non-resident withholding
        tax as described above. The amount of any such deemed dividend will reduce
        the
        proceeds of disposition of the common share to the non-resident holder for
        the
        purpose of computing the amount of the non-resident holder’s capital gain or
        loss under the Income Tax Act.
   59
  Even
        if the common shares constitute taxable Canadian property to a non-resident
        holder and their disposition would give rise to a capital gain, an exemption
        from tax under the Income Tax Act may be available under the terms of an
        applicable international tax treaty to which Canada is a party. A holder
        resident in the United States for purposes of the Canada-U.S. Treaty will
        generally be exempt from Canadian tax in respect of a gain on the disposition
        of
        common shares provided that the value of the common shares is not derived
        principally from real property situated in Canada. Our common shares would
        qualify for this exemption, however Article XIII paragraph 5 of the Canada-U.S.
        Treaty provides that the treaty exemption does not apply where the U.S. resident
        holder was an individual who was a Canadian resident for 120 months during
        any
        period of 20 consecutive years preceding the time of the sale and was resident
        in Canada at any time during the ten years immediately preceding the sale
        and
        owned the shares at the time he/she ceased to be resident in Canada. If the
        exemption from such Canadian tax in respect of such gain is not available
        under
        the Canada-U.S. Treaty, a foreign tax credit may be available under applicable
        US tax law for U.S. federal income tax purposes. Non-residents are advised
        to
        consult their tax advisers with regard to the availability of a treaty
        exemption.
 
 **U.S.
        Federal Income Tax Considerations**
 
 The
        following summary describes material United States federal income tax
        consequences arising from the purchase, ownership and sale of common shares.
        This summary is based on the provisions of the Internal Revenue Code of 1986,
        as
        amended, final, temporary and proposed United States Treasury Regulations
        and
        revenue rulings and administrative pronouncements of the Internal Revenue
        Service and court decisions, all as in effect as of the date of this Annual
        Report and all of which are subject to change, possibly on a retroactive
        basis.
        The consequences to any particular shareholder may differ from those described
        below by reason of that shareholder's particular circumstances. This summary
        does not address the considerations that may be applicable to any particular
        shareholder based on such shareholder's particular circumstances (including
        potential application of the alternative minimum tax), to particular classes
        of
        shareholders (including financial institutions, broker-dealers, insurance
        companies, shareholders who have elected mark-to-market accounting, tax-exempt
        organizations, shareholders who hold ordinary shares as part of a straddle,
        "hedge" or "conversion transaction" with other investments, shareholders
        who own
        (directly, indirectly or through attribution) 10% or more of our Company's
        outstanding voting shares, shareholders whose functional currency is not
        the
        U.S. dollar, persons who are not citizens or residents of the United States,
        or
        persons which are foreign corporations, foreign partnerships or foreign estates
        or trusts as to the United States, or any aspect of state, local or non-United
        States tax laws and shareholders who acquired their common shares pursuant
        to
        the exercise of employee stock options or rights or otherwise as compensation.
        Additionally, the discussion does not consider the tax treatment of persons
        who
        hold common shares through a partnership or other pass-through entity or
        the
        possible application of United States federal gift or estate tax. This summary
        is addressed only to a holder of common shares who is (i) a citizen or resident
        of the United States who owns less than 10% of our Company's outstanding
        voting
        shares, (ii) a corporation organized in the United States or under the laws
        of
        the United States or any state thereof, (iii) an estate, the income of which
        is
        includable in gross income for United States federal income tax purposes
        regardless of source, or (iv) a trust, if (1) a court within the United
        States is able to exercise primary supervision over the administration of
        the
        trust and one or more U.S. persons have the authority to control all substantial
        decisions of the trust or (2) has a valid election in effect under applicable
        United States Treasury Regulations to be treated as a U.S. person (each,
        a "U.S.
        Holder"). This summary is for general information purposes only and does
        not
        purport to be a comprehensive description of all of the tax considerations
        that
        may be relevant to a decision to purchase common shares. This summary generally
        considers only U.S. Holders that will own their common shares as capital
        assets.
 
 Each
        shareholder should consult with such shareholder's own tax advisor as to
        the
        particular tax consequences to such shareholder of the purchase, ownership
        and
        sale of their common shares including the effects of applicable state, local,
        foreign or other tax laws and possible changes in the tax laws.
 
 **Treatment
        of Dividend Distributions**
 
 Subject
        to the discussion below under "Tax Status Of The Company - *Passive
        Foreign Investment Companies* ,"
        a distribution by our Company to a U.S. Holder in respect of the common shares
        (including the amount of any Canadian taxes withheld thereon) will generally
        be
        treated for United States federal income tax purposes as a dividend to the
        extent of our Company's current and accumulated earnings and profits, as
        determined under United States federal income tax principles. To the extent,
        if
        any, that the amount of any such distribution exceeds our
  60
  Company's
        current and accumulated earnings and profits, as so computed, it will first
        reduce the U.S. Holder's tax basis in the common shares owned by him, and
        to the
        extent it exceeds such tax basis, it will be treated as capital gain from
        the
        sale of common shares.
 
 While
        it is not anticipated that our Company will pay dividends in the foreseeable
        future, the gross amount of any distribution from our Company received by
        a U.S.
        Holder which is treated as a dividend for United States federal income tax
        purposes (before reduction for any Canadian tax withheld at source) will
        be
        included in such U.S. Holder's gross income as ordinary income and generally
        will not qualify for the dividends received deduction applicable in certain
        cases to United States corporations. If you are an individual, dividends
        that we
        pay you through 2008 will be subject to tax at long-term capital gain rates,
        provided certain holding period and other requirements are satisfied and
        provided that in the year such dividends are paid, or the preceding taxable
        year, we are not a foreign personal holding Company, a foreign investment
        Company or a passive foreign investment Company. For United States federal
        income tax purposes, the amount of any dividend paid in Canadian dollars
        by our
        Company to a U.S. Holder will equal the U.S. dollar value of the amount of
        the
        dividend paid in Canadian dollars, at the exchange rate in effect on the
        date of
        the distribution, regardless of whether the Canadian dollars are actually
        converted into United States dollars at that time. Canadian dollars received
        by
        a U.S. Holder will have a tax basis equal to the U.S. dollar value thereof
        determined at the exchange rate on the date of the distribution. Currency
        exchange gain or loss, if any, recognized by a U.S. Holder on the conversion
        of
        Canadian dollars into U.S. dollars will generally be treated as U.S. source
        ordinary income or loss to such holder. U.S. Holders should consult their
        own
        tax advisors concerning the treatment of foreign currency gain or loss, if
        any,
        on any Canadian dollars received which are converted into dollars subsequent
        to
        distribution.
 
 A
        U.S. Holder generally will be entitled to deduct any Canadian taxes withheld
        from dividends in computing United States taxable income, or to credit such
        withheld taxes against the United States federal income tax imposed on such
        U.S.
        Holder's dividend income. No deduction for Canadian taxes may be claimed,
        however, by an individual (noncorporate) U.S. Holder that does not itemize
        deductions. The amount of foreign taxes for which a U.S. Holder may claim
        a
        credit in any year is subject to complex limitations and restrictions, which
        must be determined on an individual basis by each shareholder. Distributions
        with respect to common shares that are taxable as dividends will generally
        constitute foreign source income for purposes of the foreign tax credit
        limitation. The limitation on foreign taxes eligible for credit is calculated
        separately with respect to specific classes of income. For this purpose,
        dividends distributed by our Company with respect to the common shares will
        generally constitute "passive income." Foreign income taxes exceeding a
        shareholder's credit limitation for the year of payment or accrual of such
        tax
        can be carried back for two taxable years and forward for five taxable years,
        subject to the credit limitation applicable in each of such years. Additionally,
        the foreign tax credit in any taxable year may not offset more than 90% of
        a
        shareholder's liability for United States individual or corporate alternative
        minimum tax. The total amount of allowable foreign tax credits in any year
        generally cannot exceed regular U.S. tax liability for the year attributable
        to
        foreign source taxable income. A U.S. Holder will be denied a foreign tax
        credit
        with respect to Canadian income tax withheld from dividends received on the
        common shares to the extent such U.S. Holder has not held the ordinary shares
        for at least 16 days of the 30-day period beginning on the date which is
        15 days
        before the ex-dividend date or to the extent such U.S. Holder is under an
        obligation to make certain related payments with respect to substantially
        similar or related property. Any days during which a U.S. Holder has
        substantially diminished its risk of loss on the common shares are not counted
        toward meeting the 16 day holding period required by the statute.
 
 **Sale
        or Exchange of a Common Share**
 
 Subject
        to the discussion below under "Tax Status Of The Company - *Passive
        Foreign Investment Companies* ,"
        the sale or exchange by a U.S. Holder of a common share generally will result
        in
        the recognition of gain or loss by the U.S. Holder in an amount equal to
        the
        difference between the amount realized and the U.S. Holder's basis in the
        common
        share sold. Such gain or loss will be capital gain or loss provided that
        the
        common share is a capital asset in the hands of the holder. The gain or loss
        realized by an individual (noncorporate) U.S. Holder on the sale or exchange
        of
        a common share will be long-term capital gain or loss subject to a reduced
        rate
        of tax if the common share had been held for more than one year. If the common
        share had been held by such individual U.S. Holder for not more than one
        year,
        such gain will be short-term capital gain. Gains recognized by a U.S. Holder
        on
        a sale, exchange or other disposition of common shares generally will be
        treated
        as United States source income for United States foreign tax credit purposes.
        A
        loss recognized by a U.S. Holder on the sale,
  61
  exchange
        or other disposition of common shares generally is allocated to U.S. source
        income. However, such loss must be allocated to foreign source income to
        the
        extent certain dividends were received by the U.S. Holder within the 24-month
        period preceding the date on which the U.S. Holder recognized the loss. The
        deductibility of a capital loss recognized on the sale, exchange or other
        disposition of common shares is subject to limitations. A U.S. Holder that
        receives foreign currency upon disposition of common shares and subsequently
        converts the foreign currency into U.S. dollars generally will have foreign
        exchange gain or loss based on any appreciation or depreciation in the value
        of
        the foreign currency against the U.S. dollar. U.S. Holders should consult
        their
        own tax advisors regarding treatment of any foreign currency gain or loss
        on any
        Canadian dollars received in respect of the sale, exchange or other disposition
        of common shares.
 
 **Tax
        Status of the Company**
 
 *Personal
        Holding Companies.* A
        non-U.S. corporation may be classified as a personal holding company for
        United
        States federal income tax purposes if both of the following two tests are
        satisfied: (i) if at any time during the last half of the company's taxable
        year, five or fewer individuals (without regard to their citizenship or
        residency) own or are deemed to own (under certain attribution rules) more
        than
        50% of the stock of the corporation by value and (ii) 60% or more of such
        non-U.S. corporation's gross income derived from U.S. sources or effectively
        connected with a U.S. trade or business, as specifically adjusted, is from
        certain passive sources such as dividends and royalty payments. Such a
        corporation generally is taxed on the amounts of such passive source income,
        after making adjustments such as deducting dividends paid and income taxes,
        that
        are not distributed to shareholders. We believe that our Company was not
        a
        personal holding company in 2005 and is not currently a personal holding
        company. However, no assurance can be given that either test will not be
        satisfied in the future.
 
 *Foreign
        Personal Holding Companies.* A
        non-U.S. corporation will be classified as a foreign personal holding company
        for United States federal income tax purposes if both of the two following
        tests
        are satisfied: (i) five or fewer individuals who are United States citizens
        or
        residents own or are deemed to own (under certain attribution rules) more
        than
        50% of all classes of the corporation's stock measured by voting power or
        value
        and (ii) the corporation receives at least 60% (50% if previously a foreign
        personal holding company) of its gross income (regardless of source), as
        specifically adjusted, from certain passive sources. If such a corporation
        is
        classified as a foreign personal holding company, a portion of its
        "undistributed foreign personal holding company income" (as defined for United
        States federal income tax purposes) would be imputed to all of its shareholders
        who are U.S. Holders on the last taxable day of the corporation's taxable
        year,
        or, if earlier, the last day on which it is classifiable as a foreign personal
        holding company. Such income would be taxable as a dividend, even if no cash
        dividend is actually paid. U.S. Holders who dispose of their shares prior
        to
        such date would not be subject to tax under these rules. We believe that
        our
        Company was not a foreign personal holding company in 2005 and is not currently
        a foreign personal holding company. However, no assurance can be given that
        our
        Company will not qualify as a foreign personal holding company in the future.
 
 *Passive
        Foreign Investment Companies.* A
        company will be a passive foreign investment company if 75% or more of its
        gross
        income (including the pro rata share of the gross income of any company (United
        States or foreign) in which the company is considered to own 25% or more
        of the
        shares (determined by market value)) in a taxable year is passive income.
        Alternatively, the company will be considered to be a passive foreign investment
        company if at least 50% of the value of the company's assets (averaged over
        the
        year) (including the pro rata share of the value of the assets of any company
        in
        which the company is considered to own 25% or more of the shares (determined
        by
        market value)) in a taxable year are held for the production of, or produce,
        passive income. For these purposes, the value of our assets is calculated
        based
        on our market capitalization. Passive income generally includes, among others,
        interest, dividends, royalties, rents and annuities.
 
 If
        our Company is a passive foreign investment company for any taxable year,
        a U.S.
        Holder, in the absence of an election by such U.S. Holder to treat our Company
        as a "qualified electing fund" (a "QEF election"), as discussed below, would,
        upon certain distributions by our Company and upon disposition of the common
        shares at a gain, be liable to pay tax at the highest tax rate on ordinary
        income in effect for each period to which the income is allocated, plus interest
        on the tax, as if the distribution or gain had been recognized ratably over
        the
        days in the U.S. Holder's holding period for the common shares during which
        our
        Company was a passive foreign investment company. Additionally, if our Company
        is a passive foreign investment company, U.S. Holders who acquire ordinary
        shares from decedents would be denied the normally available step-up of the
        income tax basis for such
  62
  common
        shares to fair market value at the date of death and instead would have a
        tax
        basis equal to the decedent's basis, if lower.
 
 If
        our Company is treated as a passive foreign investment company for any taxable
        year, U.S. Holders should consider whether to make a QEF election for United
        States federal income tax purposes. If a U.S. Holder has a QEF election in
        effect for all taxable years that such U.S. Holder has held the common shares
        and our Company was a passive foreign investment company, distributions and
        gain
        will not be recognized ratably over the U.S. Holder's holding period or subject
        to an interest charge, gain on the sale of common shares will be characterized
        as capital gain and the denial of basis step-up at death described above
        would
        not apply. Instead, each such U.S. Holder is required for each taxable year
        that
        our Company is a qualified electing fund to include in income a pro rata
        share
        of the ordinary earnings of our Company as ordinary income and a pro rata
        share
        of the net capital gain of our Company as long-term capital gain, subject
        to a
        separate election to defer payment of taxes, which deferral is subject to
        an
        interest charge. Consequently, in order to comply with the requirements of
        a QEF
        election, a U.S. Holder must receive from our Company certain information.
        We
        intend to supply U.S. Holders with the information needed to report income
        and
        gain pursuant to a QEF election in the event our Company is classified as
        a
        passive foreign investment company. The QEF election is made on a
        shareholder-by-shareholder basis and can be revoked only with the consent
        of the
        Internal Revenue Service. A shareholder makes a QEF election by attaching
        a
        completed IRS Form 8621 (including the passive foreign investment company
        annual
        information statement) to a timely filed United States federal income tax
        return
        and by filing such form with the IRS Service Center in Philadelphia,
        Pennsylvania. Even if a QEF election is not made, a shareholder in a passive
        foreign investment company who is a U.S. Holder must file a completed IRS
        Form
        8621 every year.
 
 As
        an alternative to making a QEF election, a U.S. Holder may elect to make
        a
        mark-to-market election with respect to the common shares owned by him if
        such
        stock qualifies as “marketable stock.” To qualify as “marketable stock,” the
        stock must be regularly traded on a qualified exchange. Under applicable
        Treasury regulations, a “qualified exchange” includes a national securities
        exchange that is registered with the SEC or the national market system
        established under the Securities Exchange Act of 1934 and certain foreign
        securities exchanges. Under applicable Treasury Regulations, PFIC stock traded
        on a qualified exchange is regularly traded on such exchange for any calendar
        year during which such stock is traded, other than in *de*  *minimis* quantities, on at least 15 days during each calendar quarter. We cannot assure
        U.S. Holders that our common shares will be treated as regularly traded stock
        on
        a qualified exchange. If the mark-to-market election were made, then the
        rules
        set forth above would not apply for periods covered by the election. Under
        such
        election, a U.S. Holder includes in income each year an amount equal to fair
        market value of the common shares owned by such U.S. Holder as of the close
        of
        the taxable year over the U.S. Holder's adjusted basis in such shares. The
        U.S.
        Holder would be entitled to a deduction for the excess, if any, of such U.S.
        Holder's adjusted basis in his common shares over the fair market value of
        such
        shares as of the close of the taxable year; provided however, that such
        deduction would be limited to the extent of any net mark-to-market gains
        with
        respect to the common shares included by the U.S. Holder under the election
        for
        prior taxable years. The U.S. Holder's basis in his common shares is adjusted
        to
        reflect the amounts included or deducted pursuant to this election. Amounts
        included in income pursuant to the mark-to-market election, as well as gain
        on
        the sale or exchange of the common shares, will be treated as ordinary income.
        Ordinary loss treatment applies to the deductible portion of any mark-to-market
        loss, as well as to any loss realized on the actual sale or exchange of the
        common shares to the extent that the amount of such loss does not exceed
        the net
        mark-to-market gains previously included with respect to such common shares.
 
 The
        mark-to-market election applies to the tax year for which the election is
        made
        and all later tax years, unless the common shares cease to be marketable
        or the
        IRS consents to the revocation of the election.
 
 We
        do not believe our Company was a passive foreign investment company during
        2005.
        However, there can be no assurance that our Company will not be classified
        as a
        passive foreign investment company in 2005 or thereafter because the tests
        for
        determining passive foreign investment company status are applied annually
        and
        it is difficult to make accurate predictions of future income and assets,
        which
        are relevant to this determination. U.S. Holders who hold common shares during
        a
        period when our Company is a passive foreign investment company will be subject
        to the foregoing rules, even if our Company ceases to be a passive foreign
        investment company, subject to certain exceptions for U.S. Holders who made
        a
        QEF election. U.S. Holders are urged to consult with their own tax advisors
        about making a QEF election or mark-to-market election and other aspects
        of the
        passive foreign investment company rules.
  63
  
 **Back-Up
        Withholding and Information Reporting**
 
 U.S.
        Holders generally are subject to information reporting requirements and back-up
        withholding with respect to dividends paid in the United States on common
        shares, or proceeds paid from the disposition of common shares, unless the
        U.S.
        Holder provides an IRS Form W-9 or otherwise establishes an
        exemption.
 
 The
        amount of any back-up withholding will be allowed as a credit against a U.S.
        Holder’s federal income tax liability and may entitle such holder to a refund,
        provided that certain required information is furnished to the IRS.
 
 **F.** **Dividends
        and Paying Agents**
  Not
        applicable.
  **G.**
              **Statements
                  by Experts**
  Not
        applicable.
  **H.**
              **Documents
                  on display.**
  We
        have filed this Annual Report on Form 20-F with the Securities and Exchange
        Commission under the Securities Exchange Act of 1934. Statements made in
        this
        Annual Report as to the contents of any contract, agreement or other document
        referred to are not necessarily complete. With respect to each such contract,
        agreement or other document filed as an exhibit to this Annual Report, reference
        is made to the exhibit for a more complete description of the matter involved,
        and each such statement shall be deemed qualified in its entirety by such
        reference.
  We
        are subject to the informational requirements of the Exchange Act and file
        reports and other information with the Securities and Exchange Commission.
        Reports and other information which we file with the Securities and Exchange
        Commission, including this Annual Report on Form 20-F, may be inspected and
        copied at the public reference facilities of the Securities and Exchange
        Commission at:
  450
                  Fifth Street N.W.
                Room
                  1024
                Washington
                  D.C. 20549
              500
                  West Madison Street
                Suite
                  1400
                Chicago,
                  Illinois 60661
  You
        can also obtain copies of this material by mail from the Public Reference
        Section of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
        Washington, D.C. 20549, at prescribed rates. Additionally, copies of this
        material may also be obtained from the Securities and Exchange Commission’s
        Internet site at http://www.sec.gov. The Commission’s telephone number is
        1-800-SEC-0330.
  **I.**
              **Subsidiary
                  Information.**
  Not
        applicable.
  **ITEM
        11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**
  (a)  Quantitative
        Information about Market Risk
  See
        Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital
        Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment
        Risk.
  (b)  Qualitative
        Information about Market Risk
   64
  See
        Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital
        Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment
        Risk.
  **ITEM
        12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY
        SECURITIES**
 
 Not
        applicable.
 
 **PART
        II**
 
 **ITEM
        13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES**
 
 There
        were no material defaults, and no dividend arrearages or delinquencies during
        the fiscal year ended December 31, 2005.
 
 **ITEM
        14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
        PROCEEDS**
 
 There
        were no material modifications to the rights of our security holders during
        the
        fiscal year ended December 31, 2005.
 
 **ITEM
        15 - CONTROLS AND PROCEDURES**
 
 The
        Company’s management, with the participation of the Company’s Chief Executive
        Officer and its Corporate Controller and the Chairman of the Board has evaluated
        the effectiveness of the Company’s disclosure controls and procedures as of
        December 31, 2005. Based on that evaluation, the Company’s management, including
        the Chief Executive Officer and the Chairman of the Board, concluded that
        the
        Company’s disclosure controls and procedures were effective.
 
 Although
        the Company continues to refine its disclosure controls and procedures from
        time
        to time, the CEO and Chairman of the Board have concluded that, as of December
        31, 2005, the process was effective enough to ensure material information
        relating to the Company and its consolidated subsidiaries was accumulated
        and
        communicated up to management in sufficient time for management to make
        decisions regarding the Company's disclosure as required by securities
        legislation. ****
  The
        Company's management did not identify any change in the Company's internal
        control over financial reporting that occurred during the Company's last
        fiscal
        year that has materially affected, or is reasonably likely to materially
        affect,
        the Company's internal control over financial reporting.
 
 **ITEM
          16 - [RESERVED]**
 
 **ITEM
          16A - AUDIT COMMITTEE FINANCIAL EXPERT**
 
 The
          Company’s Board of Directors has determined that it has at least one audit
          committee financial expert serving on its audit committee. The Board of
          Directors has determined that Darroch Robertson is an audit committee financial
          expert. The Board of directors has determined that Mr. Robertson is independent,
          as that term is defined under Rule 4200-1(a)(14) of the Nasdaq Stock Market
          Rules. **** Mr.
          Robertson has been an Associate Professor of Business at the Richard Ivey
          School
          of Business, The University of Western Ontario, for the past five years.
          He is
          currently the Director of the MBA program and was the Director of the
          undergraduate HBA program at the Ivey School. Mr. Robertson was also a
          director
          and chair of the audit committee of Stackpole Ltd., a TSX-listed company.
          Mr.
          Robertson has also served as an elected member of council for the Institute
          of
          Chartered Accountants of Ontario, where he was chair of the audit committee
          and
          by-laws committee.
  **ITEM
        16B - CODE OF ETHICS**
 
 The
        Company has adopted a Code of Ethics that applies to its principal executive
        officer, principal financial officer, principal accounting officer, controller
        and persons performing similar functions. The Code of Ethics is attached
        as an
        exhibit to this report. We did not amend, modify or grant any waiver from
        any
        provision of our Code of Ethics during the last fiscal year.
  65
  
 **ITEM
        16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 The
        following table sets forth the aggregate fees billed for each of the last
        two
        fiscal years for professional services rendered by our auditors for the audit
        of
        our annual financial statements and other services.
 
 **FEES
        OF AUDITORS**
  **Year**
              
              *AUDIT
                  FEES(1)*
              
              **Audit
                  Related Fees****(2)**
              
              **Tax
                  Fees****(3)**2004
              
              $
              310,000
              
              $
              6,000
              
              $
              41,0002005
              
              $
              239,700
              
              $
              -
              
              $
              -
 
 (1)
              Audit
                  Fees represent costs associated with the audit of the Company’s financial
                  statements including review of securities filings, U.S. GAAP and
                  U.S.
                  GAAS.
 
 (2)
              Audit
                  Related Fees represent costs associated with reviews of the Company’s
                  interim financial statements.
 
 (3)
              Tax
                  Fees represent costs associated with the preparation of the Company’s
                  annual tax filings, tax planning &
advice.
 
 (4)
              Other
                  fees represent costs associated with consultation on complicated
                  contracts
                  or arrangements.
 
 Before
        the Company’s auditor is engaged by the Company to render audit or non-audit
        services, the engagement is approved by the Audit Committee. 100% of the
        audit
        and non-audit services provided by the Company’s auditor were pre-approved by
        the Audit Committee pursuant to the Audit Committee’s pre-approval
        policy.
 
 **ITEM
        16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
        COMMITTEES**
 
 Not
        applicable. ****
 
 **ITEM
        16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
        PURCHASERS**
 
 During
        the last fiscal year, there were no purchases by or on behalf of the Company
        or
        any affiliated purchaser of any class of the Company’s equity securities
        registered under Section 12 of the Exchange Act.
  **PART
        III**
 
 **ITEM
        17- FINANCIAL STATEMENTS**
 
 Not
        applicable.
 
 **ITEM
        18 - FINANCIAL STATEMENTS**
 
 See
        the Index to Consolidated Financial Statements accompanying this report on
        page
        F-1.
 
 **ITEM
        19 - EXHIBITS**
 
 Exhibits
        filed as part of this Annual Report.
 
 1.1
              Articles
                  of Arrangement of the Company filed with the Ontario Ministry of
                  Consumer
                  and Business Services on October 31, 2002.(1)1.2
              By-laws
                  of the Company.(2)2.1
              Form
                  of Convertible Secured Note.(6)2.2
              Registration
                  Rights Agreement, dated as of June 16, 2000, between Bid.Com International
                  and Acqua Wellington Value Fund Ltd.(4)
  66
  
  2.3
              Form
                  of Warrant issued or issuable upon exercise of Convertible Secured
                  Notes.(6)4.1
              Salary
                  Protection Letter, dated February 12, 1997, between the Company
                  and
                  Jeffrey Lymburner.(3)4.2
              Option
                  Agreement dated February 19, 2001 between Bid.Com International
                  Inc. and
                  Wendell Willick.(5)4.3
              Amendment
                  to Option Agreement dated May 2, 2001 between Bid.Com International
                  Inc.
                  and Wendell Willick.(5)4.4
              Board
                  Support Agreement, dated as of September 7, 2001 between Bid.Com
                  International Inc. and ADB Systemer ASA.(5)4.5
              Board
                  Representation Agreement, dated as of September 7, 2001 between
                  Bid.Com
                  International Inc. and LimeRock Partners LLC, Jan Pedersen, Sandnes
                  Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein
                  Gjersvik.(5)4.6
              Employment
                  Agreement, dated as of September 18, 2001 between Bid.Com International
                  Inc. and Jan Pedersen.(5)4.7
              Subscription
                  Agreement, dated as of April 25, 2002, between ADB Systems International
                  Inc. and Stonestreet Limited Partnership.(5)4.8
              Arrangement
                  Agreement, dated as of August 23, 2002, between ADB Systems International
                  Inc. and ADB Systems International Ltd.(1)4.9
              General
                  Conveyance and Assumption Agreement, dated August 23, 2002, between
                  ADB
                  Systems International Inc. and ADB Systems International Ltd.(2)4.10
              Loan
                  Agreement, dated August 23, 2002, and Loan Agreement Amending Agreement
                  entered into as of August 30, 2002 among The Brick Warehouse Corporation,
                  ADB Systems International Inc. and ADB Systems International
                  Ltd.(6)4.11
              Form
                  of Supply Services and Licensing Agreement, dated August 23, 2002,
                  among
                  The Brick Warehouse Corporation, ADB Systems International Inc.,
                  and ADB
                  Systems International Ltd.(6)4.12
              Form
                  of General Security Agreement, dated as of April 30, 2002, between
                  ADB
                  Systems International Inc. and each of Stonestreet Limited Partnership
                  and
                  Greenwich Growth Fund Ltd.(6)4.13
              Form
                  of Subscription Agreement, dated August 30, 2002, between ADB Systems
                  International Inc. and Stonestreet Limited Partnership.(6)4.14
              Form
                  of Subscription Agreement, dated August 30, 2002, between ADB Systems
                  International Inc. and Greenwich Growth Fund Ltd.(6)4.15
              Co-operation
                  Agreement made as of August 23, 2002 between ADB Systems International
                  Inc., ADB Systems International Ltd. and The Brick Warehouse
                  Corporation.(6)4.16
              Agency
                  Agreement dated June 15, 2004 between ADB Systems International
                  Ltd. and
                  First Associates Investments Inc.(7)4.17
              General
                  Security Agreement dated as of May 19, 2004 between ADB Systems
                  International Ltd. and Stonestreet Limited Partnership.(7)4.18
              Form
                  of Subscription Agreement between ADB Systems International Ltd.
                  and First
                  Associates Investments Inc.(7)4.19
              Subscription
                  Agreement dated May 19, 2004 between ADB Systems International
                  Ltd. and
                  Stonestreet Limited Partnership.(7)4.20
              Formof
                  Subscription Agreement for Equity Private Placements(8)4.21
              Form
                  of Subscription Agreement for Series I Convertible Secured
                  Debenture.*
  67
  
  4.22
              Form
                  of Series I Convertible Secured Debenture.*4.23
              Form
                  of Subscription Agreement for Series J Convertible Secured
                  Debenture.*4.24
              Form
                  of Series J Convertible Secured Debenture.*4.25
              Share
                  Purchase Agreement between ADB Systems International Ltd. and ADB
                  Systemer
                  Holding as, dated May 18, 2006.(9)8.1
              List
                  of Subsidiaries.*11.1
              Code
                  of Ethics of ADB Systems International Ltd.(7)12.
                  1
              CEO
                  Certification.*12.
                  2
              Chairman
                  Certification.*13.1
              Certification
                  pursuant to 18 U.S.C. Section 1350.*13.2
              Certification
                  pursuant to 18 U.S.C. Section
                  1350.*
 **_________________________________________________________________________**
  *
              Filed
                  herewith(1)
              Incorporated
                  by reference from Exhibit 1 to the Company’s Current Report on Form 6-K,
                  Filing No. 1 for the Month of November 2002, filed with the Securities
                  and
                  Exchange Commission on November 5, 2002.(2)
              Incorporated
                  by reference from Exhibit 1.2 of Amendment No. 1 to the Company’s
                  Registration Statement on Form 20-F, File No. 001-14835, filed
                  with the
                  Securities and Exchange Commission on March 30, 1999.(3)
              Incorporated
                  by reference from Exhibit 3.27 of Amendment No. 1 to the Company’s
                  Registration Statement on Form 20-F, File No. 001-14835, filed
                  with the
                  Securities and Exchange Commission on March 30, 1999.(4)
              Incorporated
                  by reference from the Exhibits to the Company’s Annual Report on Form
                  20-F, File No. 001-14835, filed with the Securities and Exchange
                  Commission on May 23, 2001.(5)
              Incorporated
                  by reference from the Exhibits to the Company’s Annual Report on Form
                  20-F, File No. 001-14835, filed with the Securities and Exchange
                  Commission on May 17, 2002.(6)
              Incorporated
                  by reference from Exhibits to the Company’s Annual Report on Form 20-F,
                  File No. 001-14835, filed with the Securities and Exchange Commission
                  on
                  May 20, 2003.(7)
              Incorporated
                  by reference from Exhibits to the Company’s Annual Report on Form 20-F,
                  File No. 001-14835, filed with the Securities and Exchange Commission
                  on
                  June 30, 2004.(8)
              Incorporated
                  by reference from Exhibits to the Company’s Annual Report on Form 20-F,
                  File No. 001-14835, filed with the Securities and Exchange Commission
                  on
                  June 30, 2005.(9)
              Incorporated
                  by reference from Exhibit 99.6 to the Company’s Filing No. 1 for the Month
                  of May on Form 6-K, File No. 001-14835 filed with the Securities
                  and
                  Exchange Commission on May 31,
                  2006.
 
  68
  SIGNATURES
 
 The
        registrant hereby certifies that it meets all of the requirements for filing
        on
        Form 20-F and has duly caused and authorized the undersigned to sign this
        Annual
        Report on its behalf.
  **ADB
                  SYSTEMS INTERNATIONAL LTD.**By:
              /s/
                  Jeffrey LymburnerName: Jeffrey
                  LymburnerTitle:  
                  Chief Executive OfficerDated:
                  June 28, 2006
              By:
              /s/
                  Christopher BulgerName: Christopher
                  BulgerTitle: Chairman
                  of the
                  Board
  
  
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  Audited
        Consolidated Financial Statements for the years ended December 31, 2005,
        2004,
        2003,
 
 Management’s
                  Report and Auditors’ Report to the Directors
              
              
              F-1Consolidated
                  Balance Sheets as at December 31, 2005 and 2004
              
              
              F-3Consolidated
                  Statements of Operations for the years ended December 31, 2005,
                  2004, and
                  2003
              
              
              F-4Consolidated
                  Statements of Deficit for the years ended December 31, 2005, 2004
                  and
                  2003
              
              
              F-5Consolidated
                  Statements of Cash Flows for the years ended December 31, 2005,
                  2004, and
                  2003
              
              
              F-6Notes
                  to Consolidated Financial Statements
              
              
              F-7
 
 **Management’s
        Report**
 March
        27, 2006
  Preparation
        of the consolidated financial statements accompanying this annual report
        and the
        presentation of all other information in this report is the responsibility
        of
        management. The financial statements have been prepared in accordance with
        appropriate and generally accepted accounting principles and reflect
        management’s best estimates and judgments. All other financial information in
        the report is consistent with that contained in the financial statements.
        The
        Company maintains appropriate systems of internal control, policies and
        procedures which provide management with reasonable assurance that assets
        are
        safeguarded and that financial records are reliable and form a proper basis
        for
        preparation of financial statements.
 
 The
        Board of Directors ensures that management fulfills its responsibilities
        for
        financial reporting and internal control through an Audit Committee which
        is
        composed of non-executive directors. The Audit Committee reviewed the
        consolidated financial statements with management and external auditors and
        recommended their approval by the Board of Directors. The consolidated financial
        statements have been audited by KPMG LLP, Chartered Accountants. Their report
        stating the scope of their audit and their opinion on the consolidated financial
        statements is presented below.
 
 
 Jeffrey
                  Lymburner
              Christopher
                  BulgerCEO
              Chairman
                  of the Board of Directors
 
 **AUDITORS’
        REPORT TO THE DIRECTORS**
  We
        have audited the consolidated balance sheets of ADB Systems International
        Ltd.
        as at December 31, 2005 and the consolidated statement of operations, deficit
        and cash flows for the year then ended. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audit.
 
 We
        conducted our audit in accordance with Canadian generally accepted auditing
        standards and the standards of the Public Company Accounting Oversight Board
        (United States). Those standards require that we plan and perform an audit
        to
        obtain reasonable assurance whether the financial statements are free of
        material misstatement. An audit includes examining, on a test basis, evidence
        supporting the amounts and disclosures in the financial statements. An audit
        also includes assessing the accounting principles used and significant estimates
        made by management, as well as evaluating the overall financial statement
        presentation.
 
 In
        our opinion, the consolidated financial statement present fairly, in all
        material respects, the financial position of the Company as at December 31,
        2005
        and the results of its operations and its cash flows for the year then ended,
        in
        accordance with Canadian generally accepted accounting principles.
 
 Canadian
        generally accepted accounting principles vary in certain significant respects
        from accounting principles generally accepted in the United States of America.
        Information relating to the nature and effect of such differences is presented
        in note 23 to the consolidated financial statements.
 
 The
        comparative figures for December 31, 2004 and 2003 were reported on by another
        firm of chartered accountants.
  
 Chartered
        Accountants,
 Toronto,
        Canada, March 27, 2006, except as to note 25(b) which is as of June 21,
        2006




ADB
        Systems International Ltd. **2005 Annual Report**  F-1
 
 
 
  **COMMENTS
        BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING
        DIFFERENCE**
  In
        the United States, reporting standards for auditors require the addition
        of an
        explanatory paragraph (following the opinion paragraph) when the financial
        statements are affected by conditions and events that cast substantial doubt
        on
        the Company’s ability to continue as a going concern, such as those described in
        note 2 to the consolidated financial statements. Our report to the directors
        dated March 27, 2006, except as to note 25(b) which is as of June 21, 2006,
        is
        expressed in accordance with Canadian reporting standards which do not permit
        a
        reference to such events and conditions in the auditors’ report when these are
        adequately disclosed in the financial statements.
  
 Chartered
        Accountants,
 Toronto,
        Canada, March 27, 2006 except as to note 25(b) which is as of June 21,
        2006


ADB
        Systems International Ltd. **2005 Annual Report**  F-2











**Consolidated
      Balance Sheets**


**December
      31, 2005 and 2004**


**(in
      thousands of Canadian dollars)**







**2005**
            
            **2004****ASSETS**CURRENTCash
            
            $
            278
            
            $
            440Marketable
                securities
            
            
            13
            
            
            13Accounts
                receivable
            
            
            1,154
            
            
            1,535Deposits
                and prepaid expenses
            
            
            141
            
            
            2081,586
            
            
            2,196CAPITAL
                ASSETS (Note 4)
            
            
            101
            
            
            142DEFERRED
                CHARGES (Note 5)
            
            
            156
            
            
            155$
            1,843
            
            $
            2,493**LIABILITIES**CURRENTAccounts
                payable
            
            $
            1,218
            
            $
            870Accrued
                liabilities
            
            
            911
            
            
            810Due
                to
                related parties (Note 6)
            
            
            137
            
            
            -Deferred
                revenue
            
            
            141
            
            
            135Current
                portion of secured subordinated notes (Note 7)
            
            
            343
            
            
            -2,750
            
            
            1,815SECURED
                SUBORDINATED NOTES (Note 7)
            
            
            1,800
            
            
            1,6844,550
            
            
            3,499NON-CONTROLLING
                INTEREST
            
            
            3
            
            
            3**SHAREHOLDERS’
                DEFICIENCY**Share
                capital (Note 9)
            
            
            100,859
            
            
            100,052Contributed
                surplus (Note 10)
            
            
            1,555
            
            
            1,282Warrants
                (Note 11)
            
            
            278
            
            
            405Stock
                options (Note 12)
            
            
            1,091
            
            
            936Other
                options (Note 13)
            
            
            271
            
            
            78Conversion
                features on secured subordinated notes (Note 7)
            
            
            1,513
            
            
            992Cumulative
                translation account
            
            
            90
            
            
            112Deficit
            
            
            (108,367
            )
            
            (104,866
            )(2,710
            )
            
            (1,009
            )$
            1,843
            
            $
            2,493





Continuation
      of the business (Note 2)


Commitments
      and contingencies (Note 15)


Canadian
      and United States accounting policy differences (Note 23)


Subsequent
      event (Note 25)




On
      behalf of the Board:





Jeffrey
                Lymburner
            James
                MoskosDirector
            Director




See
      accompanying notes to consolidated financial statements.








ADB
              Systems International Ltd. **2005 Annual
              Report**F-3





**Consolidated
                Statements of Operations**
              **Years
                ended December 31, 2005, 2004 and 2003**
              **(in
                thousands of****Canadian
                dollars, except per share
                amounts)**




**2005**
              
              **2004**
              
              **2003**License
                  revenue
              
              $
              472
              
              $
              326
              
              $
              533Service
                  revenue
              
              
              5,303
              
              
              4,604
              
              
              5,320Total
                  revenue
              
              
              5,775
              
              
              4,930
              
              
              5,853Operating
                  expenses:General
                  and administrative
              
              
              4,204
              
              
              4,488
              
              
              4,753Customer
                  service and technology
              
              
              3,587
              
              
              3,134
              
              
              2,712Sales
                  and marketing
              
              
              534
              
              
              749
              
              
              1,098Employee
                  stock options (Note 12)
              
              
              154
              
              
              39
              
              
              193Depreciation
                  and amortization
              
              
              132
              
              
              1,190
              
              
              1,901Losses
                  (gains) on disposal of capital assets and strategic investment
                  (Note
                  18)
              
              
              -
              
              
              1
              
              
              (7
              )Other
                  income (Note 17)
              
              
              (42
              )
              
              -
              
              
              (67
              )Total
                  operating expenses
              
              
              8,569
              
              
              9,601
              
              
              10,583Loss
                  from operations
              
              
              (2,794
              )
              
              (4,671
              )
              
              (4,730
              )Interest
                  expense:Cash
                  interest expense
              
              
              312
              
              
              173
              
              
              177Accretion
                  of
                  secured subordinated notes
              
              
              405
              
              
              266
              
              
              112Interest
                  income
              
              
              (10
              )
              
              (6
              )
              
              (9
              )707
              
              
              433
              
              
              280Loss
                  before the undernoted
              
              
              (3,501
              )
              
              (5,104
              )
              
              (5,010
              )Gain
                  on settlement of demand loan (Note 19)
              
              
              -
              
              
              -
              
              
              2,195NET
                  LOSS FOR THE YEAR
              
              $
              (3,501
              )
              $
              (5,104
              )
              $
              (2,815
              )LOSS
                  PER SHARE, BASIC AND DILUTED (Note 9(d))
              
              $
              (0.05
              )
              $
              (0.08
              )
              $
              (0.05
              )Weighted
                  average number of shares outstanding, basic and diluted
                  (000’s)
              
              
              72,904
              
              
              61,938
              
              
              54,324





See
      accompanying notes to consolidated financial statements.





ADB
              Systems International Ltd. **2005 Annual
              Report**F-4





**Consolidated
                Statements of Deficit**
              **Years
                ended December 31, 2005, 2004 and 2003**
              **(in
                thousands of Canadian
                dollars)**





**2005**
            
            **2004**
            
            **2003**DEFICIT,
                BEGINNING OF YEAR
            
            $
            (104,866
            )
            $
            (99,762
            )
            $
            (96,947
            )NET
                LOSS FOR THE YEAR
            
            
            (3,501
            )
            
            (5,104
            )
            
            (2,815
            )DEFICIT,
                END OF YEAR
            
            $
            (108,367
            )
            $
            (104,866
            )
            $
            (99,762
            )





See
      accompanying notes to consolidated financial statements.








ADB
              Systems International Ltd. **2005 Annual
              Report**F-5





**Consolidated
                Statements of Cash Flows**
              **Years
                ended December 31, 2005, 2004 and 2003**
              **(in
                thousands of Canadian
                dollars)**





**2005**
            
            **2004**
            
            **2003****NET
                INFLOW (OUTFLOW) OF CASH****RELATED TO THE FOLLOWING
                ACTIVITIES****OPERATING**Net
                loss for the year
            
            $
            (3,501
            )
            $
            (5,104
            )
            $
            (2,815
            )Items
                not affecting cashEmployee stock options
            
            
            154
            
            
            39
            
            
            193Depreciation
                and amortization
            
            
            132
            
            
            1,190
            
            
            1,901Accretion
                of secured subordinated notes
            
            
            405
            
            
            266
            
            
            112Interest
                on settled demand loan
            
            
            -
            
            
            -
            
            
            127Non-cash
                customer acquisition costs
            
            
            -
            
            
            -
            
            
            38Gain
                on settlement of demand loan (Note 19)
            
            
            -
            
            
            -
            
            
            (2,195
            )Losses
                (gains) on disposal of capital assets and strategic investments (Note
                18)
            
            
            -
            
            
            1
            
            
            (7
            )(2,810
            )
            
            (3,608
            )
            
            (2,646
            )Changes
                in non cash operating working capital (Note 16)
            
            
            910
            
            
            322
            
            
            (728
            )(1,900
            )
            
            (3,286
            )
            
            (3,374
            )**INVESTING**Capital
                assets
            
            
            (36
            )
            
            (40
            )
            
            (45
            )Proceeds
                from disposal of capital assets
            
            
            4
            
            
            -
            
            
            34Marketable
                securities
            
            
            -
            
            
            -
            
            
            8Proceeds
                from disposal strategic investments (Note 18)
            
            
            -
            
            
            -
            
            
            20(32
            )
            
            (40
            )
            
            17**FINANCING**Advance
                from related parties (Note 6)
            
            
            137
            
            
            -
            
            
            -Secured
                subordinated notes, net (Note 7)
            
            
            1,095
            
            
            2,598
            
            
            994Deferred
                charges (Note 5)
            
            
            (32
            )
            
            (167
            )
            
            -Issuance
                of common shares, net (Note 9 (b))
            
            
            570
            
            
            903
            
            
            1,4581,770
            
            
            3,334
            
            
            2,452NET
                CASH INFLOW (OUTFLOW) DURING THE YEAR
            
            
            (162
            )
            
            8
            
            
            (905
            )CASH,
                BEGINNING OF YEAR
            
            
            440
            
            
            432
            
            
            1,337CASH,
                END OF YEAR
            
            $
            278
            
            $
            440
            
            $
            432





SUPPLEMENTAL
      DISCLOSURE OF CASH PAYMENTS


Interest
                paid
            
            $
            53
            
            $
            60
            
            $
            48Income
                taxes
            
            $
            -
            
            $
            -
            
            $
            -





SUPPLEMENTAL
      DISCLOSURE OF NON-CASH FINANCING ACTIVITIES - See Note 16





See
      accompanying notes to consolidated financial statements.







ADB
            Systems International Ltd. **2005 Annual
            Report**F-6
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**





**1.** **DESCRIPTION
      OF BUSINESS**





ADB
      Systems International Ltd. (“ADB” or the “Company”) delivers asset lifecycle
      management solutions that enable companies to source, manage and sell assets
      for
      maximum value. ADB works with a growing number of customers and partners in
      a
      variety of sectors including the asset-intensive oil and gas industry to improve
      operational efficiencies. ADB also enables customers in government,
      manufacturing and financial services sectors to reduce purchasing costs and
      improve procurement processes. The Company has wholly owned subsidiaries in
      United States, United Kingdom and Ireland and a majority owned subsidiary (i.e.
      approximately 99.5%) in Norway. In addition, the Company has a 50 percent
      interest in a joint venture with GE Commercial Equipment Financing.




**2.** **CONTINUATION
      OF THE BUSINESS**





While
      the accompanying consolidated financial statements have been prepared on the
      basis of accounting principles applicable to a going concern, certain adverse
      conditions and events cast substantial doubt upon the validity of this
      assumption. The going concern basis of presentation assumes that the Company
      will continue in operation for the foreseeable future and be able to realize
      its
      assets and discharge its liabilities and commitments in the normal course of
      operations. The Company has not yet realized profitable operations and has
      relied on non-operational sources of financing to fund operations. The Company’s
      ability to continue as a going concern will be dependent on management’s ability
      to successfully execute its business plan including a substantial increase
      in
      revenue as well as maintaining operating expenses at or near the same level
      as
      2005. Management’s 2006 business plan includes a significant increase in revenue
      and operating cash flow primarily from major new contracts in North America.
      Management believes that it has the ability to raise additional financing if
      required. The Company cannot provide assurance that it will be able to execute
      on its business plan or assure that efforts to raise additional financings
      would
      be successful.





These
      consolidated financial statements do not include adjustments or disclosures
      that
      may result from the Company’s inability to continue as a going concern. If the
      going concern assumption were not appropriate for these consolidated financial
      statements, then adjustments would be necessary in the carrying values of assets
      and liabilities, the reported net losses and the balance sheet classifications
      used.




Management
      believes that continued existence beyond 2005 is dependent on its ability to
      increase revenue from existing products, and to expand the scope of its product
      offering which entails a combination of internally developed software and
      partnerships with third parties.





**3.** **SIGNIFICANT
      ACCOUNTING POLICIES**





The
      accompanying consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in Canada (Canadian GAAP), which are
      substantially the same as generally accepted accounting principles in the United
      States (U.S. GAAP), except as disclosed in Note 23. The accompanying
      consolidated financial statements are prepared using accounting principles
      applicable to a going concern, which assumes that the Company will continue
      in
      operation for a reasonable period of time and will be able to realize its assets
      and discharge its liabilities in the normal course of operations (See Note
      2).





PRINCIPLES
      OF CONSOLIDATION


The
      accompanying consolidated financial statements include the accounts of the
      Company and subsidiaries over which it exercises control. Business acquisitions
      are accounted for under the purchase method and operating results are included
      in the consolidated financial statements as of the date of the acquisition
      of
      control. All inter-company balances and transactions have been eliminated on
      consolidation.





INVESTMENT
      IN JOINTLY CONTROLLED COMPANY


On
      September 23, 2003 the Company established a joint venture with GE Commercial
      Equipment Financing, a unit of GE Commercial Finance, with each entity holding
      a
      50 percent interest in the joint venture. The joint venture operates under
      the
      name of GE Asset Manager LLC. The consolidated financial statements of





ADB
            Systems International Ltd. **2005 Annual
            Report**F-7
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**





the
      Company reflect the Company’s pro rata share of the joint venture’s assets,
      liabilities, and results of operations in accordance with the proportionate
      consolidation method of accounting (See Note 20).





INVESTMENT
      IN ASSOCIATED COMPANY


The
      investment in Bid.Com Ltd. was accounted for under the equity method (See Note
      21). This method was considered appropriate based upon management’s inability to
      determine the strategic operating policies of the associated company without
      the
      cooperation of others, its inability to obtain future economic benefits from
      the
      associated company, and its lack of exposure to the related risks of ownership.
      U.S. GAAP required consolidation of the investment in associated company. The
      impact of this difference in U.S. GAAP from Canadian GAAP is disclosed in these
      consolidated financial statements in Note 23 - Canadian and US GAAP accounting
      policy differences.





MARKETABLE
      SECURITIES


Marketable
      securities are comprised of interest-bearing certificates carried at cost plus
      accrued interest which approximate market value.





CAPITAL
      ASSETS AND AMORTIZATION


Capital
      assets are recorded at cost less accumulated amortization. Amortization is
      calculated on a straight-line basis in amounts sufficient to amortize the cost
      of capital assets over their estimated useful lives as follows:




Computer
                hardware
            3
                yearsComputer
                software
            1
                year or life of the licenseFurniture
                and fixtures
            5
                yearsLeasehold
                improvements
            life
                of the lease





SOFTWARE
      DEVELOPMENT COSTS


The
      cost of software internally developed for client applications through e-commerce
      enabling agreements and software licensing is expensed as incurred.





ACQUIRED
      SOFTWARE


The
      cost of core software acquired as a result of the acquisition of ADB Systemer
      ASA was capitalized and amortized over three years, the estimated useful life
      of
      the software (See Note 22).





ACQUIRED
      AGREEMENTS


Acquired
      agreements were capitalized based on the estimated fair value of common share
      purchase warrants issued in exchange for entering into certain agreements and
      were amortized over the initial term of the agreements. The fair values of
      these
      warrants were calculated based on the Cox-Rubinstein binomial valuation model
      (See Note 22).





TRADEMARKS
      AND INTELLECTUAL PROPERTY


Trademarks
      and intellectual property were recorded at cost and amortized on a straight-line
      basis over two years. Trademarks and intellectual property acquired as a result
      of the acquisition of ADB Systemer ASA, and directly attributable to core
      software products, were capitalized and have been amortized over three years,
      the estimated useful life of the related software (See Note 22).





TRANSLATION
      OF FOREIGN CURRENCIES


The
      accompanying consolidated financial statements are prepared in Canadian dollars.
      The Company’s foreign subsidiaries in the United States, Ireland and the United
      Kingdom are classified as fully integrated with the functional currency being
      the Canadian dollar. The Company uses the temporal method of foreign currency
      translation for these operations. Monetary assets and liabilities are translated
      at the exchange rates in effect on the balance sheet date. Non-monetary assets
      are translated at historic exchange rates. Revenue and expense amounts are
      translated using the average monthly exchange rates except amortization of
      capital assets which is translated at historic exchange rates. Gains and losses
      from foreign exchange translations are included in the statement of operations.








ADB
            Systems International Ltd. **2005 Annual
            Report**F-8
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








The
      Company’s subsidiary in Norway is classified as a self-sustaining operation
      whereby the functional currency of the operation is the Norwegian krone. The
      Company uses the current rate method of translation for these operations. Assets
      and liabilities are translated at the rate of exchange in effect at the balance
      sheet date. Revenue and expenses (including depreciation and amortization)
      are
      translated using the monthly average exchange rate. Gains and losses from
      foreign exchange translations are included as a separate component of
      shareholders’ deficiency.





LOSS
      PER SHARE


The
      treasury stock method of calculating diluted loss per share is used. For the
      years presented, all stock options, convertible debentures and warrants are
      anti-dilutive, therefore diluted loss per share is equal to basic loss per
      share. The basic loss per share calculation is based on the weighted average
      number of shares outstanding during the year.





REVENUE
      RECOGNITION


The
      Company’s revenues are derived from software license fees, implementation,
      training and consulting services, product maintenance and customer support,
      software development, and hosting fees. Fees for services are billed separately
      from licenses of the Company’s product. The Company recognizes revenue in
      accordance with Canadian GAAP, which in the Company’s circumstances, are not
      materially different from the amounts that would be determined under provisions
      of the American Institute of Certified Public Accountants Statements of Position
      (SOP) No. 97-2, “ Software Revenue Recognition”, and as amended by Statement of
      Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With
      Respect to Certain Transactions”. The Company also considers the provisions of
      The Canadian Institute of Chartered Accountants (“CICA”) EIC 141, which is
      analogous to Staff Accounting Bulletin (SAB) 104, “Revenue Recognition in
      Financial Statements”, and CICA EIC 142, which is analogous to the Emerging
      Issues Task Force consensus on EITF 00-21, “Accounting for Revenue Arrangements
      with Multiple Elements,” in determining the appropriate revenue recognition
      methodology.





SOFTWARE
      LICENSE REVENUE


The
      Company recognizes software license revenue in accordance with the terms of
      the
      license agreement and when the following criteria as set out in SOP No. 97-2
      are
      met:


•
            persuasive
                evidence of an arrangement exists;


•
            delivery
                has occurred;


•
            the
                fee is fixed or determinable; and


•
            collectibility
                is probable.




Software
      license revenue consists of fixed license fee agreements involving perpetual
      licenses.





Software
      license agreements may be part of multiple element arrangements that include
      consulting and implementation services. When these services are considered
      essential to the functionality of the license, the associated revenue is
      recognized on the basis of the percentage of completion method as specified
      by
      contract accounting principles. When these services are not considered essential
      to the functionality of the license, the entire arrangement fee is allocated
      to
      each element in the arrangement based on the respective vendor specific
      objective evidence (“VSOE”) of the fair value of each element. VSOE used in
      determining the fair value of license revenues is based on the price charged
      by
      the Company when the same element is sold in similar quantities to a customer
      of
      a similar size and nature. VSOE used in determining fair value for installation,
      implementation and training based on the standard daily rates for the type
      of
      service being provided multiplied by the estimated time to complete each task.
      VSOE used in determining the fair value of maintenance and support is based
      on
      the annual renewal rates. The revenue allocable to the software license is
      recognized when the revenue recognition criteria are met. The revenue allocable
      to the consulting services is recognized as the services are performed.





IMPLEMENTATION,
      TRAINING AND CONSULTING SERVICE FEES


The
      Company receives revenue from implementation of its product offerings,
      consulting services and training services. Customers are charged a fee based
      on
      time and expenses. Revenue from implementation, consulting service and training
      fees is recognized as the services are performed or deferred until contractually
      defined milestones are achieved or until customer acceptance has occurred,
      as
      the case may be, for such contracts.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-9
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








PRODUCT
      MAINTENANCE AND CUSTOMER SUPPORT FEES


The
      Company receives revenue from maintaining its products and the provision of
      on-going support services to customers. The maintenance and support fees are
      typically equal to a specified percentage of the customers’ license fee. If
      associated with the fixed fee license model, the maintenance revenues received
      are recorded as deferred revenue and recognized on a straight-line basis over
      the contract period.





Services
      revenue from maintenance and support is recognized when the services are
      performed. Maintenance and support revenues paid in advance are non-refundable
      and are recognized on a straight-line basis over the term of the agreement,
      which typically is 12 months.





SOFTWARE
      DEVELOPMENT FEES


Typically,
      development of software for our customers is provided based on a predetermined
      fixed rate basis. Revenue is recognized as time is incurred throughout the
      development process.





HOSTING
      FEES


The
      Company earns revenue from the hosting of customer websites. Under existing
      hosting contracts, the Company charge customers a recurring periodic flat fee.
      The fees are recognized as the hosting services are provided.





DEFERRED
      REVENUE


Deferred
      revenue is comprised of the unrecognized portion of consulting and
      implementation fees received from maintenance and support e-commerce enabling
      agreements, and the unrecognized portion of license, installation, and
      consulting revenue on the sale of software licenses and related
      services.




CUSTOMER
      ACQUISITION COSTS


Customer
      acquisition costs are comprised of the calculated fair value of common share
      purchase warrants issued to customers in return for certain agreements. These
      amounts are deducted from gross revenue to the extent that revenue is earned,
      and are otherwise included in general and administrative expenses. The fair
      value of these warrants is calculated based on the Cox-Rubinstein binomial
      valuation model.





DEFERRED
      CHARGES


Deferred
      charges are comprised of expenditures incurred in the issuance of secured
      subordinated notes. The deferred charges are amortized over the term of the
      underlying notes on a straight-line basis. In accordance with Canadian GAAP,
      conversion of the underlying notes results in the allocation of the associated
      unamortized deferred charge to shareholders’ deficiency. Under U.S. GAAP, note
      conversion results in the expensing of the associated unamortized deferred
      charge. The impact of this difference in Canadian GAAP from U.S. GAAP is
      disclosed in these notes to the consolidated financial statements under Canadian
      and United States accounting policy differences (See Note 23).





SECURED
      SUBORDINATED NOTES


Financial
      instruments that contain both a liability and an equity element are required
      to
      have the instrument’s component parts classified separately under Canadian GAAP.
      The Company uses the Cox-Rubinstein binomial valuation model to determine the
      fair value of the conversion feature at the issue dates of convertible secured
      subordinated notes and discloses the liability and equity components separately
      on its balance sheet. U.S. GAAP does not permit separate disclosure of different
      elements of a financial instrument in the financial statements. The impact
      of
      this difference in U.S. GAAP from Canadian GAAP is disclosed in the notes to
      these consolidated financial statements under Canadian and United States
      accounting policy differences (See Note 23).





STOCK-BASED
      COMPENSATION


The
      CICA issued Handbook section 3870, “Stock-based Compensation and Other
      Stock-based Payments,” effective January 1, 2002. During the fourth quarter of
      fiscal 2003, the Company elected to adopt the fair value method for stock-based
      compensation on a prospective basis. As a result, the annual consolidated
      financial statements reflect the cost of stock-based compensation to employees
      effective January 1, 2003. The impact of this standard is disclosed in Note
      12
      to the consolidated financial statements. The impact of Statement of Financial
      Accounting Standards (SFAS) 123, “Accounting for Stock-Based Compensation,” is
      disclosed in the notes to these consolidated financial statements under Canadian
      and United States accounting policy differences (See Note 23).







ADB
            Systems International Ltd. **2005 Annual
            Report**F-10
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**










Prior
      to January 1, 2003, under Canadian GAAP, stock options granted to employees
      were
      not required to be recorded in the accounts of the Company. Stock options to
      employees under U.S. GAAP are accounted for in accordance with the provisions
      of
      Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued
      to Employees”. Because options granted to employees have been fixed options with
      the exercise price equal to the market price of stock, under U.S. GAAP no
      accounting recognition was given to stock options granted to employees at fair
      market value until they are exercised.





Stock-based
      compensation to third parties is recognized and recorded in the accounts of
      the
      Company at the fair market value of the equity instrument as determined by
      the
      Cox-Rubinstein binomial valuation model.





INCOME
      TAXES


The
      Company accounts for income taxes in accordance with the asset and liability
      method. The determination of future tax assets and liabilities is based on
      differences between the financial statement and income tax bases of assets
      and
      liabilities, using substantively enacted tax rates in effect for the year in
      which the differences are expected to reverse. Future tax assets are recorded
      to
      recognize tax benefits only to the extent that, based on available evidence,
      it
      is more likely than not that they will be realized.




USE
      OF SIGNIFICANT ACCOUNTING ESTIMATES


The
      preparation of consolidated financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the consolidated
      financial statements and the reported amounts of revenue and expenses during
      the
      reporting years. Estimates are used when determining items such as the allowance
      for doubtful accounts, the fair value assigned to the debt and equity components
      of the secured subordinated notes and the expected requirements for
      non-operational funding in 2006. Actual results could differ from those
      estimates.





RECLASSIFICATIONS


Certain
      prior year amounts have been reclassified to conform to current year
      presentations.





ADOPTION
      OF NEW ACCOUNTING PRONOUNCEMENTS:





(i)
      CONSOLIDATION OF VARIABLE INTEREST ENTITIES


Effective
      January 1, 2005, the Company adopted Accounting Guideline 15, Consolidation
      of
      Variable Interest Entities (“AcG-15”). AcG-15 addresses the application of
      consolidation principles to certain entities that are subject to control on
      a
      basis other than ownership of voting interests. AcG-15 addresses when an
      enterprise should include the assets, liabilities and results of activities
      of
      such an entity in its consolidated financial statements. There was no impact
      to
      the consolidated financial statements of the Company as a result of adopting
      this standard since the Company does not have an interest in any entities that
      are subject to control on a basis other than ownership of voting interests.





(ii)
      ARRANGEMENTS CONTAINING A LEASE


Effective
      January 1, 2005, the Company adopted CICA EIC 150, Determining whether an
      Arrangement Contains a Lease (“EIC 150”). EIC 150 addresses a situation where an
      entity enters into an arrangement, comprising a transaction that does not take
      the legal form of a lease but conveys a right to use a tangible asset in return
      for a payment or series of payments. There was no impact to the consolidated
      financial statements of the Company as a result of the adoption of this new
      standard since the Company has not entered into such arrangements.





RECENT
      CANADIAN
      ACCOUNTING PRONOUNCEMENTS





(i)
      NON-MONETARY TRANSACTIONS


In
      2005, the CICA issued Handbook Section 3831, Non-monetary transactions (“CICA
      3831”), replacing Section 3830, Non-monetary transactions. CICA 3831 requires
      that an asset exchanged or transferred in a non-monetary transaction must be
      measured at its fair value except when: the transaction lacks commercial
      substance; the transaction is an exchange of a product or property held for
      sale
      in the ordinary course of business for a product or property to be sold in
      the
      same line of business to facilitate sales to customers other





ADB
            Systems International Ltd. **2005 Annual
            Report**F-11
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








than
      the parties to the exchange; neither the fair
      value of the asset received nor the fair value of the asset given up is reliably
      measurable; or the transaction is a non-monetary nonreciprocal transfer to
      owners that represents a spin-off or other form of restructuring or liquidation.
      In these cases the transaction must be measured at the carrying value. The
      new
      requirements are effective for transactions occurring on or after January 1,
      2006. The Company does not expect that this new standard will have a material
      impact on its consolidated financial statements.




(ii)
      FINANCIAL INSTRUMENTS


In
      2005, the CICA issued Handbook Section 3855, Financial Instruments - Recognition
      and Measurement, Handbook Section 1530, Comprehensive Income, and Handbook
      Section 3865, Hedges. The new standards will be effective for interim and annual
      financial statements commencing in 2007. Earlier adoption is permitted. The
      new
      standards will require presentation of a separate statement of comprehensive
      income. Derivative financial instruments will be recorded in the balance sheet
      at fair value and the changes in fair value of derivatives designated as cash
      flow hedges will be reported in comprehensive income. The existing hedging
      principles of AcG-13 will be substantially unchanged. The Company is assessing
      the impact of these new standards.





**4.** **CAPITAL
      ASSETS**





**2005**
            
            **2004**Cost
            
            Accumulated
              Amortization
            
            Net
                Book
              Value
            
            Cost
            
            Accumulated
              Amortization
            
            Net
                Book
              Value(in
                thousands)Computer
                hardware
            
            $
            2,522
            
            $
            2,470
            
            $
            52
            
            $
            2,601
            
            $
            2,547
            
            $
            54Computer
                software
            
            
            13
            
            
            11
            
            
            2
            
            
            28
            
            
            28
            
            
            -Furniture
                and fixtures
            
            
            384
            
            
            358
            
            
            26
            
            
            405
            
            
            343
            
            
            62Leasehold
                improvements
            
            
            27
            
            
            6
            
            
            21
            
            
            27
            
            
            1
            
            
            26$
            2,946
            
            $
            2,845
            
            $
            101
            
            $
            3,061
            
            $
            2,919
            
            $
            142




During
      2005, the Company recorded capital asset amortization in the amount of $69,000
      (2004 - $160,000, 2003 - $162,000).




**5.** **DEFERRED
      CHARGES**





During
      the year ended December 31, 2005, financing costs in the amount of $77,000
      associated with the liability component of the Series I notes were recorded
      as
      deferred charges. These financing costs include $45,000 representing the
      allocation of the fair value of commission options issued in conjunction with
      these notes (See Note 7(a)). The deferred charges are being amortized on a
      straight-line basis over the term of the underlying debt.





During
      2004, financing costs in the amount of $15,000, $162,000 and $23,000 associated
      with the liability component of the Series F, Series G and Series H notes,
      respectively were recorded as deferred charges. The financing costs for the
      Series G notes include $33,000 representing the allocation of the fair value
      of
      compensation options issued in conjunction with these notes (See Note 7(c)).





During
      the year ended December 31, 2005, conversion of the Series H notes (2004 -
      Series F notes) resulted in the allocation of $13,000 (2004 - $13,000) in
      unamortized deferred charges to contributed surplus.





During
      the year ended December 31, 2005, amortization of deferred charges in the amount
      of $63,000 (2004 - $32,000, 2003 - $nil) was recorded and included in
      depreciation and amortization expense.




The
      following table summarizes the transactions
      within deferred charges.











ADB
            Systems International Ltd. **2005 Annual
            Report**F-12
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**













**2005**
            
            **2004**(in
                thousands)Opening
                balance
            
            $
            155
            
            $
            -Series
                F financing costs
            
            
            -
            
            
            15Series
                G financing costs
            
            
            -
            
            
            162Series
                H financing costs
            
            
            -
            
            
            23Series
                I financing costs
            
            
            77
            
            
            -Amortization
            
            
            (63
            )
            
            (32
            )Allocation
                to contributed surplus
            
            
            (13
            )
            
            (13
            )Closing
                balance
            
            $
            156
            
            $
            155





**6.** **DUE
      TO RELATED PARTIES**





During
      the year ended December 31, 2005, the Company received advances from three
      of
      its directors/officers of which $137,000 (2004 - $nil) was outstanding as at
      December 31, 2005. The total advances include $66,000 that pay interest at
      a
      rate of 12% per annum, are secured by a general security agreement on the assets
      of the Company and matures as follows:


•
            $44,000
                maturing on July 29, 2006;


•
            $5,000
                maturing on August 12, 2006; and


•
            $17,000
                maturing on August 15, 2006.


The
      remaining amount of $71,000 is interest free and has no specific terms of
      repayment.





As
      at December 31, 2005, accrued liabilities included $5,000 (2004 - $nil) in
      interest payable relating to the above amounts due to related parties. During
      2005, interest expense on advances from related parties was $5,000 (2004
      -$nil).




**7.** **SECURED
      SUBORDINATED NOTES**





a)
      During the year ended December 31, 2005, the Company issued Series I secured
      subordinated notes with a face value of $1,200,000. The Series I notes were
      issued to private investors including an amount totaling $110,000 issued to
      four
      directors/officers of the Company. The Series I notes mature September 12,
      2010,
      have an annual interest rate of 11 percent and are convertible into equity
      units
      at a price of $0.15 per unit. Interest for the first year is payable in shares
      with the provision that the total number of shares issued as interest payment
      cannot exceed 974,000 shares. Any of the first year interest not paid through
      the issuance of shares will be paid in cash. Interest payable for the remaining
      term of the notes is payable in cash upon the earlier of maturity and
      conversion. Each equity unit consists of one common share and one share-purchase
      warrant with an exercise price of $0.20. The warrants expire on September 12,
      2010. The Series I notes are secured by a general security agreement on the
      assets of the Company, subordinated to the security claims provided to the
      holders of previously issued notes.




As
      required by Canadian GAAP, the Company separated the liability and equity
      components of the Series I secured subordinated notes. The Company determined
      the fair value of the liability component of the Series I notes by calculating
      the present value of the associated cash flows, using a discount rate that
      reflects the Company’s underlying rate of borrowing. The Company determined the
      fair value of the conversion feature at the issue date of the Series I notes
      using the Cox-Rubinstein binomial valuation model. The resulting pro rata fair
      values of the liability component of the notes and the conversion features
      of
      the units, comprised of shares and attached warrants, was $280,000, $472,000
      and
      $448,000, respectively. The liability component will be accreted to $1,200,000
      over the term of the Series I notes through the recording of a non-cash interest
      expense until such date at which the underlying notes are converted into common
      shares.




Cash
      financing costs in the amount of $137,000 were incurred in the issuance of
      the
      Series I notes. A portion of these financing costs, in the amount of $32,000
      attributed to the liability component of the notes was allocated to deferred
      charges (See Note 5). The remaining financing costs of $105,000 attributed
      to
      the equity portions of the notes were recorded as a reduction to the conversion
      feature on secured subordinated notes amount within shareholders’
deficiency.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-13
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**











In
      addition to the financing costs described above, the Company issued to the
      financing agent, PowerOne Capital Markets Limited (“PowerOne”), an option to
      purchase up to 747,000 equity units at a purchase price of $0.15 per unit.
      The
      option expires on September 12, 2010. Each equity unit consists of one common
      share and one share-purchase warrant with an exercise price of $0.20. The
      share-purchase warrants expire on September 12, 2010. Using the Cox-Rubinstein
      binomial valuation model, the Company has determined the fair value of these
      equity units to be $193,000 and included this amount in other options. The
      portion of the fair value of this option, in the amount of $45,000, attributable
      to the liability component of the notes was allocated to deferred charges.
      The
      remaining portion, in the amount of $148,000, attributable to the equity
      components of the notes was recorded as a reduction to the conversion feature
      on
      secured subordinated notes amount within shareholders’ deficiency.





b)
      During the year ended December 31, 2004, the Company issued Series F secured
      subordinated notes with a face value of $500,000. The Series F notes had an
      annual rate of interest of 7 percent paid quarterly in arrears, matured May
      19,
      2007 and were convertible into equity units at a price of $0.31 per unit. Each
      equity unit consists of one common share and one half of a share-purchase
      warrant with an exercise price of $0.50. The share-purchase warrants expire
      on
      May 19, 2007. The Series F secured subordinated notes will automatically convert
      into units when the share price of the Company closes above $0.70 for five
      consecutive trading days during the term. Holders may convert the notes into
      units at anytime following a four-month hold period. If the holder does not
      convert and no automatic conversion takes place, the Company must repay the
      principal amount in cash. The
      Series F notes are secured by a general security agreement on the assets of
      the
      Company, subordinated to the security claims provided to the holders of
      previously issued notes.





As
      required by Canadian GAAP, the Company has separated the liability and equity
      components of the Series F secured subordinated notes. The Company has
      determined the fair value of the liability component of the Series F notes
      by
      calculating the present value of the associated cash flows, using a discount
      rate that reflects the Company’s underlying rate of borrowing. The Company has
      determined the fair value of the conversion feature at the issue date of the
      Series F notes using the Cox-Rubinstein binomial valuation model. The resulting
      pro rata fair values of the liability component of the notes and the conversion
      features of the units, comprised of shares and attached warrants, was $286,000,
      $159,000 and $55,000, respectively. The liability component will be accreted
      to
      $500,000 over the term of the Series F notes through the recording of a non-cash
      interest expense until such date at which the underlying notes are converted
      into common shares.





Financing
      costs in the amount of $26,000 were incurred in the issuance of the Series
      F
      notes. Financing costs of $15,000 attributed to the liability component of
      the
      notes were allocated to deferred charges (See Note 5). Financing costs of
      $11,000 attributed to the equity portions of the notes were recorded as an
      increase to shareholders’ deficiency.





During
      2004, all of the Series F notes were converted into equity units (See table
      below).





c)
      During the year ended December 31, 2004, the Company issued Series G secured
      subordinated notes with a face value of $1,710,000. The Series G notes were
      issued to private investors including an amount totaling $170,000 issued to
      directors of the Company. The Series G notes mature June 15, 2007, have an
      annual rate of interest of 7 percent payable upon the earlier of maturity and
      conversion and are convertible into equity units at a price of $0.31 per unit.
      Each equity unit consists of one common share and one half of a share-purchase
      warrant with an exercise price of $0.50. The share-purchase warrants expire
      on
      June 15, 2008. The Series G secured subordinated notes will automatically
      convert into units when the volume-weighted average share price of the Company
      closes above $0.70 for 20 consecutive trading days during the term. Holders
      may
      convert the notes into units at anytime following a four-month hold period.
      If
      the holder does not convert and no automatic conversion takes place, the Company
      must repay the principal amount in cash. The Series G notes are secured by
      a
      general security agreement on the assets of the Company, subordinated to the
      security claims provided to the holders of previously issued notes.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-14
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**












As
      required by Canadian GAAP, the Company has separated the liability and equity
      components of the Series G secured subordinated notes. The Company has
      determined the fair value of the liability component of the Series G notes
      by
      calculating the present value of the associated cash flows, using a discount
      rate that reflects the Company’s underlying rate of borrowing. The Company has
      determined the fair value of the conversion feature at the issue date of the
      Series G notes using the Cox-Rubinstein binomial valuation model. The resulting
      pro rata fair values of the liability component of the notes and the conversion
      features of the units, comprised of shares and attached warrants, was $959,000,
      $539,000 and $212,000, respectively. The liability component will be accreted
      to
      $1,710,000 over the term of the Series G notes through the recording of a
      non-cash interest expense until such date at which the underlying notes are
      converted into common shares.





Financing
      costs in the amount of $230,000 were incurred in the issuance of the Series
      G
      notes. Financing costs of $129,000 attributed to the liability component of
      the
      notes were allocated to deferred charges (See Note 5). Financing costs of
      $101,000 attributed to the equity portions of the notes were recorded as an
      increase to shareholders’ deficiency.





In
      addition to the financing costs described above, the Company issued to First
      Associates Investment Inc. (“First Associates”) an option to purchase up to
      485,000 equity units at a purchase price of $0.31 per unit. The option expires
      on June 15, 2006. Each equity unit consists of one common share and one half
      of
      a share-purchase warrant with an exercise price of $0.50. The share-purchase
      warrants expire on June 15, 2008. Using the Cox-Rubinstein binomial valuation
      model, the Company has determined the fair value of these equity units to be
      $59,000. The portion of the fair value of these options, in the amount of
      $33,000, attributable to the liability component of the notes was allocated
      to
      deferred charges. The remaining portion, in the amount of $26,000, attributable
      to the equity components of the notes was recorded as an increase to
      shareholders’ deficiency.





Subsequent
      to the issuance of the Series G notes, the interest rate payable on the notes
      was retroactively increased to 11 percent. The increase in the interest rate
      was
      a condition of the issuance of the Series H notes (See (d) below).





d)
      During the year ended December 31, 2004, the Company issued Series H secured
      subordinated notes with a face value of $520,000. The Series H notes were issued
      to private investors including an amount totaling $270,000 issued to directors
      of the Company. The Series H notes mature October 21, 2007, have an annual
      rate
      of interest of 11 percent payable upon the earlier of maturity and conversion
      and are convertible into equity units at a price of $0.20 per unit. Each equity
      unit consists of one common share and one half of a share-purchase warrant
      with
      an exercise price of $0.40. The share-purchase warrants expire on October 21,
      2008. The Series H secured subordinated notes will automatically convert into
      units when the share price of the Company closes at or above $0.45 for 10
      consecutive trading days during the term. Holders may convert the notes into
      units at anytime following a four-month hold period. If the holder does not
      convert and no automatic conversion takes place, the Company must repay the
      principal amount in cash. In order to obtain the required approvals to issue
      the
      Series H notes, the Company retroactively increased the interest rate on the
      Series G notes from an annual rate of 7 percent to an annual rate of 11 percent.
      The Series H notes are secured by a general security agreement on the assets
      of
      the Company, subordinated to the security claims provided to the holders of
      previously issued notes.





As
      required by Canadian GAAP, the Company has separated the liability and equity
      components of the Series H secured subordinated notes. The Company has
      determined the fair value of the liability component of the Series H notes
      by
      calculating the present value of the associated cash flows, using a discount
      rate that reflects the Company’s underlying rate of borrowing. The Company has
      determined the fair value of the conversion feature at the issue date of the
      Series H notes using the Cox-Rubinstein binomial valuation model. The resulting
      pro rata fair values of the liability component of the notes and the conversion
      features of the units, comprised of shares and attached warrants, was $282,000,
      $184,000 and $54,000, respectively. The liability component will be accreted
      to
      $520,000 over the term of the Series H notes through the recording of a non-cash
      interest expense until such date at which the underlying notes are converted
      into common shares. Financing costs in the amount of $43,000 were incurred
      in
      the issuance of the Series H notes. Included in the financing costs was the
      incremental interest expense associated with the retroactive increase of the
      interest rate on the Series G notes. Financing costs of $23,000 attributed
      to
      the liability component of the notes were allocated to deferred charges (See
      Note 5). Financing costs of $20,000 attributed to the equity portions of the
      notes were recorded as an increase to shareholders’ deficiency.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-15
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








e)
      During the year ended December 31, 2003, the Company issued Series E secured
      subordinated notes with a face value of $1.0 million for net proceeds of
      $994,000. The Series E notes have an annual rate of interest of 11 percent
      that
      is paid quarterly in arrears, mature August 19, 2006 and are convertible into
      equity units at a price of $0.35 per unit. Each equity unit consists of one
      common share and one half of a share-purchase warrant with an exercise price
      of
      $0.50. The Series E secured subordinated notes will automatically convert into
      units when the share price of the Company closes above $0.70 for five
      consecutive trading days during the term. Note holders may convert into units
      at
      anytime following a four-month hold period. If the holder does not convert
      and
      no automatic conversion takes place, the Company must repay the principal amount
      to the holders of the Series E secured subordinated notes in cash. As part
      of
      this private placement, the Company issued 30,000 common share-purchase warrants
      to an associate of Stonestreet Limited Partnership (“Stonestreet”) in
      consideration for professional fees. Each such warrant entitles the holder
      to
      purchase one common share of the Company for $0.50 at any time up to and
      including August 18, 2006. The Series E notes are secured by a general security
      agreement on the assets of the Company, subordinated to the security claims
      provided to the holders of previously issued notes.





The
      Series E notes were issued to private investors including an amount totaling
      $100,000 issued to directors and/or senior officers of the Company. Costs in
      the
      amount of $6,000 associated with the issuance of the Series E secured
      subordinated notes were recorded as a reduction of the equity component of
      these
      notes.





As
      required by Canadian GAAP, the Company has separated the liability and equity
      components of the Series E secured subordinated notes. The Company has
      determined the fair value of the debt component of the Series E notes by
      calculating the present value of the associated cash flows, using a discount
      rate that reflects the Company’s underlying rate of borrowing. The Company has
      determined the fair value of the conversion feature at the issue date of the
      Series E notes using the Cox-Rubinstein binomial valuation model. The resulting
      pro rata fair value of the liability component of the secured subordinated
      notes
      and the conversion features of the units, comprised of shares and attached
      warrants, was $596,000, $292,000 and $106,000, respectively. The liability
      component will be accreted to $1 million over the term of the Series E notes
      through the recording of non-cash interest expense until such date at which
      the
      underlying notes are converted into common shares.





f)
      During the year ended December 31, 2005 the Company recorded cash interest
      expense aggregating $312,000 (2004 - $173,000, 2003 - $177,000) and interest
      accretion of $405,000 (2004 - $266,000, 2003 - $112,000).





g)
      As at December 31, 2005, accrued liabilities include $363,000 (2004 - $122,000)
      of unpaid interest payable relating to the secured subordinated
      notes.





h)
      Accrued liabilities include accrued interest payable to related parties as
      follows:





**(in
                thousands**)
            
            **2005**
            
            **2004**Series
                E
            
            $
            1
            
            $
            3Series
                G
            
            
            29
            
            
            10Series
                H
            
            
            1
            
            
            3Series
                I
            
            
            3
            
            
            -Total
            
            $
            34
            
            $
            16





i)
      Interest payments relating to the secured subordinated notes totaling $15,000
      and $12,000, respectively, were made to related parties during the years ended
      December 31, 2005 and December 31, 2004.




j)
      The following summarizes the face and fair values
      of the liability and equity components of the secured subordinated
      notes.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-16
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**













**Secured
                subordinated notes**
            
            **2005**
            
            **2004****Face
                Value**
            
            **Fair
                Value**
            
            **Face
                Value**
            
            **Fair
                Value**(in
                thousands)Opening
                balance
            
            $
            2,605
            
            $
            1,684
            
            $
            1,115
            
            $
            721Issuance
                of notes:Series
                F
            
            
            -
            
            
            -
            
            
            500
            
            
            286Series
                G
            
            
            -
            
            
            -
            
            
            1,710
            
            
            959Series
                H
            
            
            -
            
            
            -
            
            
            520
            
            
            282Series
                I
            
            
            1,200
            
            
            280
            
            
            -
            
            
            -Accreted
                (non-cash) interest
            
            
            -
            
            
            405
            
            
            -
            
            
            266Conversion
                of notes:Series
                D
            
            
            -
            
            
            -
            
            
            (115
            )
            
            (96
            )Series
                E
            
            
            -
            
            
            -
            
            
            (625
            )
            
            (428
            )Series
                F
            
            
            -
            
            
            -
            
            
            (500
            )
            
            (306
            )Series
                H
            
            
            (350
            )
            
            (226
            )
            
            -
            
            
            -Closing
                balance
            
            $
            3,455
            
            $
            2,143
            
            $
            2,605
            
            $
            1,684


Current
                  portion of notes
              
              $
              375
              
              $
              343
              
              $
              -
              
              $
              -Long-term
                  portion of notes
              
              
              3,080
              
              
              1,800
              
              
              2,605
              
              
              1,684Closing
                  balance
              
              $
              3,455
              
              $
              2,143
              
              $
              2,605
              
              $
              1,684




**Conversion
                  features on secured subordinated notes including conversion of
                  attached
                  warrants**
              
              **2005**
              
              **2004****Common
                  Shares**
              
              **Fair
                  Value**
              
              **Common
                  Shares**
              
              **Fair
                  Value**(in
                  thousands)Opening
                  balance
              
              
              13,781
              
              $
              992
              
              
              5,723
              
              $
              497Issuance
                  of notes:Series
                  F
              
              
              -
              
              
              -
              
              
              2,419
              
              
              203Series
                  G
              
              
              -
              
              
              -
              
              
              8,274
              
              
              624Series
                  H
              
              
              -
              
              
              -
              
              
              3,900
              
              
              218Series
                  I
              
              
              16,000
              
              
              668
              
              
              -
              
              
              -Conversion
                  of notes:Series
                  D
              
              
              -
              
              
              -
              
              
              (1,437
              )
              
              (99
              )Series
                  E
              
              
              -
              
              
              -
              
              
              (2,679
              )
              
              (248
              )Series
                  F
              
              
              -
              
              
              -
              
              
              (2,419
              )
              
              (203
              )Series
                  H
              
              
              (2,625
              )
              
              (147
              )
              
              -
              
              
              -Closing
                  balance
              
              
              27,156
              
              $
              1,513
              
              
              13,781
              
              $
              992














ADB
            Systems International Ltd. **2005 Annual
            Report**F-17
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**







**8.** **INCOME
      TAXES**





The
      Company accounts for income taxes under the asset and liability method. Under
      the asset and liability method, a future tax asset is recorded based upon tax
      losses carried forward and differences in tax and accounting values in the
      Company’s assets and liabilities. The tax asset is reduced by a valuation
      allowance to the extent that it is more likely than not that the asset would
      not
      be realized. The valuation allowance is reviewed and adjusted as appropriate
      for
      each reporting period. At December 31, 2005 and 2004, the Company established
      the valuation allowance at 100 percent of the future tax asset.




**2005**
            
            **2004**(in
                thousands)FUTURE
                TAX ASSETTax
                losses carried forward
            
            $
            6,807
            
            $
            5,618Difference
                in tax and accounting valuations for capital assets and
                investments
            
            
            288
            
            
            2077,095
            
            
            5,825Valuation
                allowance
            
            
            (7,095
            )
            
            (5,825
            )Future
                tax asset
            
            $
            -
            
            $
            -PROVISION
                FOR INCOME TAXESIncome
                taxes at statutory rate
            
            $
            (1,232
            )
            $
            (1,633
            )Foreign
                losses affected at lower rates
            
            
            27
            
            
            246Adjustments
                to tax losses
            
            
            -
            
            
            (908
            )Stock-based
                compensation not deducted for tax
            
            
            31
            
            
            5Difference
                    in tax and accounting valuations  for capital
                    assets and investments
            
            
            (81
            )
            
            (152
            )Other,
                net
            
            
            (15
            )
            
            (99
            )(1,270
            )
            
            (2,541
            )Change
                to valuation allowance
            
            
            1,270
            
            
            2,541Provision
                for income taxes
            
            $
            -
            
            $
            -





The
      provision for income taxes differs from the amount computed by applying the
      combined Canadian Federal and Provincial statutory income tax rate of 36.12%
      (2004 - 36.12%) to loss before income taxes. The sources and tax effects of
      the
      differences are indicated above.





Tax
      loss carry-forwards at December 31, 2005 expire as follows:




**(in
                thousands)**2008
            
            $
            1,4082009
            
            
            3,7822010
            
            
            3,0472011
            
            
            -2012
            
            
            -2013
            
            
            -2014
            
            
            -2015
            
            
            3,510Tax
                loss carry-forwards that do not expire
            
            
            11,290$
            23,037




The
      Company has Canadian net operating loss carry forwards of $11,747,000 that
      expires in years 2008 through 2015, and indefinite loss carry forwards of
      $11,290,000, of which $5,495,000 and $5,432,000 relate to Norway and Ireland
      respectively. Also included in the indefinite loss carry forwards are capital
      losses of $363,000 from Canadian operations.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-18
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








**9.** **SHARE
      CAPITAL**





*a)*
            AUTHORIZED




Unlimited number of common sharesUnlimited number of preference shares - issuable in
                series


*b)*
            COMMON
                SHARES




**2005**
              
              **2004**Number
              
              Amount
              
              Number
              
              Amount(in
                  thousands of shares and dollars)Opening
                  balance
              
              
              69,870
              
              $
              100,052
              
              
              59,423
              
              $
              97,674Shares
                  issued pursuant to:Private
                  placement
              
              
              2,500
              
              
              468
              
              
              5,000
              
              
              930Conversion
                  of debentures
              
              
              1,750
              
              
              339
              
              
              4,357
              
              
              1,227Exercise
                  of warrants
              
              
              -
              
              
              -
              
              
              920
              
              
              195Exercise
                  of options
              
              
              -
              
              
              -
              
              
              72
              
              
              26Re-issuance
                  of treasury shares
              
              
              -
              
              
              -
              
              
              98
              
              
              -Closing
                  balance
              
              
              74,120
              
              $
              100,859
              
              
              69,870
              
              $
              100,052




During
      2005, the issuance of common shares generated net cash proceeds of $570,000
      from
      a private placement (See Note 9(c)). During 2004, the issuance of common shares
      generated cash proceeds of $903,000 as follows: $749,000 from private placement
      issuances, $129,000 from the exercise of warrants and $25,000 from the exercise
      of options.




In
      2004, an unclaimed certificate for 98,000 common shares previously issued from
      treasury in the 2001 acquisition of ADB Systemer ASA, and not included in the
      number of shares outstanding, was reissued.




The
      conversion of the remaining secured subordinated notes would result in the
      issuance of 1,071,000 (2004 - 1,071,000) common shares for Series E notes,
      5,516,000 (2004 - 5,516,000) common shares for Series G notes, 850,000 (2004
      -
      2,600,000) common shares for Series H notes and 8,000,000 (2004 - nil) common
      shares for Series I notes.




*c)*
            PRIVATE
                COMMON SHARE PLACEMENT





On
      February 23, 2005, the Company completed a transaction resulting in the issuance
      of 2.5 million common shares at a price of $0.23 per share and 1.25 million
      share-purchase warrants, exercisable into one common share at a price of $0.40
      per warrant, for gross proceeds of $575,000 and net proceeds of $570,000. Net
      proceeds of $444,000 were allocated to the common shares and the balance of
      $126,000 to warrants (See Note 11). The warrants expire on February 23,
      2009.




In
      the third quarter of 2005, a reduction to the financing costs related to a
      private share placement in December 2004, resulted in a $24,000 increase to
      the
      amount of share capital.





On
      December 6, 2004, the Company completed a transaction resulting in the issuance
      of 5,000,000 shares at a price of $0.20 per share and 5,000,000 common
      share-purchase warrants exercisable into one common share at a price of $0.35
      per warrant for gross proceeds of $1,000,000. The warrants expire on December
      6,
      2008. Gross proceeds were comprised of $800,000 in cash and $200,000 in legal
      services. The $200,000 was applied, in part, to outstanding payables and the
      remainder was recorded as a prepaid retainer for legal services. Issuance costs
      in the amount of $70,000 were incurred, including $19,000 representing the
      fair
      value of 150,000 compensation options issued to First Associates. The
      compensation options are exercisable into 150,000 equity units at a price of
      $0.20 per unit. Each equity unit consists of one common share and one common
      share-purchase warrant with an exercise price of $0.35 per warrant and an expiry
      date of December 6, 2008. The compensation options expire on December 6, 2006.
      Included in this private placement were 100,000 shares issued to a director
      of
      the Company for gross proceeds of $20,000.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-19
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**












*d)*
            The
                following table sets forth the computation of basic and diluted loss
                per
                share.





**2005**
            
            **2004**
            
            **2003**(in
                thousands, except per share amounts)**Numerator:**Net
                loss for the year (numerator for basic loss per share applicable
                to common
                shares)
            
            $
            (3,501
            )
            $
            (5,104
            )
            $
            (2,815
            )**Denominator:**Weighted
                average shares (denominator for basic loss per share)
            
            
            72,904
            
            
            61,938
            
            
            54,324Basic
                and diluted loss per share
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            (0.05
            )





For
      each fiscal year, the Company excluded the effect of all convertible debt,
      stock
      options and share-purchase warrants, as their impact would have been
      anti-dilutive.




**10.** **CONTRIBUTED
      SURPLUS**





*a)*
            The
                following table summarizes the transactions within contributed
                surplus.





**2005**
            
            **2004**(in
                thousands)Opening
                balance
            
            $
            1,282
            
            $
            1,289Allocation
                of unamortized deferred charges upon conversion of secured subordinated
                notes (Note 10(b))
            
            
            (13
            )
            
            (13
            )Allocation
                of recorded value of expired warrants (Note 10(c))
            
            
            286
            
            
            6Closing
                balance
            
            $
            1,555
            
            $
            1,282




*b)*
            During
                the year ended December 31, 2005, conversion of the Series H secured
                subordinated notes resulted in the reduction of contributed surplus
                by
                $13,000 due to the allocation of unamortized deferred charges (See
                Note
                5).




During
      the year ended December 31, 2004, conversion of the Series F secured
      subordinated notes resulted in the reduction of contributed surplus by $13,000
      due to the allocation of unamortized deferred charges (See Note 5).




*c)*
            During
                the year ended December 31, 2005, recorded value of $286,000 (2004
                -
                $6,000) related to expired warrants was allocated from warrants to
                contributed surplus (See Note 11
                (c)).




























ADB
            Systems International Ltd. **2005 Annual
            Report**F-20
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








**11.** **WARRANTS**





*a)*
            A
                summary of changes in the warrants issued and vested for the two
                years
                ended December 31, 2005 is as
                follows:





**2005**
            
            **2004**Number
            
            Amount
            
            Number
            
            Amount(in
                thousands)Opening
                balance
            
            
            11,512
            
            $
            405
            
            
            5,338
            
            $
            324Issued
                in private equity placement (Note 9(c))
            
            
            1,250
            
            
            126
            
            
            5,000
            
            
            -Issued
                upon conversion of debt (Note 11(b))
            
            
            875
            
            
            33
            
            
            2,178
            
            
            153Expired/cancelled
                (Note 11(c))
            
            
            (4,783
            )
            
            (286
            )
            
            (84
            )
            
            (6
            )Exercised
            
            
            -
            
            
            -
            
            
            (920
            )
            
            (66
            )Closing
                balance
            
            
            8,854
            
            $
            278
            
            
            11,512
            
            $
            405





The
      conversion of the remaining secured subordinated notes would result in the
      issuance of 536,000 (2004 - 536,000) common share-purchase warrants for Series
      E
      notes, 2,758,000 (2004 - 2,758,000) common share-purchase warrants for Series
      G
      notes, 425,000 (2004 - 1,300,000) common share-purchase warrants for Series
      H
      notes and 8,000,000 (2004 - nil) common share-purchase warrants for Series
      I
      notes.




*b)* CONVERTIBLE
      SECURED SUBORDINATED DEBENTURES




During
      2005, the Company issued a total of 875,000 common share-purchase warrants
      with
      an exercise price of $0.40 per warrant and an expiry date of October 21, 2008,
      as the result of the conversion of Series H notes.




During
      2004, the Company issued a total of 2,178,000 share-purchase warrants as
      follows: 479,000 with an exercise price of $0.14 per warrant and 1,699,000
      with
      an exercise price of $0.50 per warrant as the result of the conversion of
      secured subordinated notes.




*c)* EXPIRED/CANCELLED
      WARRANTS




During
      the year ended December 31, 2002, the Company had issued to a customer, 2
      million warrants convertible into common shares of the Company at an exercise
      price of $0.45 per warrant. These warrants, of which 1.25 million had vested,
      expired on January 5, 2005. Accordingly, these warrants were
      cancelled.




Also
      during the year ended December 31, 2002 the Company had issued 50,000
      share-purchase warrants, with an exercise price of U.S. $0.35 per warrant,
      to a
      service provider in relation to an equity private placement. These warrants
      expired on April 25, 2005 and were accordingly cancelled.




On
      June 13, 2005, the Company extended the expiry date of 2,733,000 warrants,
      with
      an exercise price of $0.40 per warrant, that were issued on June 26, 2003.
      The
      original expiry date of June 26, 2005 was extended to September 26, 2005. These
      warrants expired unexercised on September 26, 2005 and, as a result, were
      cancelled.




During
      the year ended December 31, 2004, 84,000 share-purchase warrants, that arose
      from of the conversion of Series D secured subordinated notes, expired and
      as a
      result were cancelled.

















ADB
            Systems International Ltd. **2005 Annual
            Report**F-21
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**







**12.** **STOCK
      OPTIONS**





*a)* Stock
      options are comprised of the following components:





**2005**
            
            **2004**Number
            
            Amount
            
            Number
            
            Amount(in
                thousands of options and dollars)Employees
            
            
            2,997
            
            $
            975
            
            
            853
            
            $
            820Non-employees
            
            
            -
            
            
            116
            
            
            -
            
            
            116Total
            
            
            2,997
            
            $
            1,091
            
            
            853
            
            $
            936





*b)* EMPLOYEE
      STOCK OPTIONS





The
      Company has a stock option plan which provides for the issuance of stock options
      to employees, which may expire as much as 10 years from the date of grant,
      at
      prices not less than the fair market value of the common shares on the date
      of
      grant. A total of 5.35 million options has been authorized by the Company’s
      shareholders for issuance under the stock option plan.





The
      aggregate exercise price for employee options outstanding at December 31, 2005
      was approximately $678,000 (2004 - $296,000). The Management Resources and
      Compensation Committee of the Board of Directors reserves the right to determine
      the vesting periods to stock options granted. The options expire between 2006
      and 2010.





A
      summary of changes in the stock option plan for the two years ended December
      31,
      2005 is as follows:





**Number
                  of**
                **Options**
              
              **Weighted
                  Average**
                **Exercise
                  Price****2005**
              
              **2004**
              
              **2005**
              
              **2004**(in
                  thousands)Opening
                  balance
              
              
              853
              
              
              2,645
              
              $
              0.35
              
              $
              0.68Granted
              
              
              2,575
              
              
              -
              
              
              0.20
              
              
              -Exercised
              
              
              -
              
              
              (72
              )
              
              -
              
              
              0.34Cancelled
              
              
              (431
              )
              
              (1,720
              )
              
              0.28
              
              
              0.84Closing
                  balance
              
              
              2,997
              
              
              853
              
              $
              0.23
              
              $
              0.35Exercisable,
                  end of year
              
              
              1,498
              
              
              853
              
              $
              0.27
              
              $
              0.35




On
      January 25, 2005, the Company granted 1.5 million stock options to employees,
      officers and directors. The options have an exercise price of $0.22 and expire
      on January 25, 2010. The options are comprised of two categories:
      non-performance based options and performance based options. The non-performance
      based options account for 1,361,000 of the options granted. These options vest
      quarterly over a six-quarter period commencing with the quarter ended March
      31,
      2005. The remaining 139,000 performance-based options were granted to certain
      Company officers and will vest upon the achievement of specific Company
      performance objectives. None of these performance-based options have vested
      as
      at December 31, 2005.




On
      November 15, 2005, the Company granted 75,000 stock options to directors of
      the
      Company. The options have an exercise price of $0.17 and expire on November
      15,
      2008. The options vested on the date of grant.







ADB
            Systems International Ltd. **2005 Annual
            Report**    F-22
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








On
      December 22, 2005, the Company granted 1.0 million stock options to certain
      employees, officers and directors of the Company. The options have an exercise
      price of $0.16 and expire on December 22, 2008. The options are comprised of
      two
      categories: non-performance based options and performance based options. The
      non-performance based options account for 500,000 of the options granted. Of
      these options, 400,000 vest quarterly over a four-quarter period and 100,000
      vest quarterly over a six-quarter period. The remaining 500,000
      performance-based options were granted to an officer and director of the Company
      and will vest upon the achievement of specific Company performance objectives.
      None of these performance-based options have vested as at December 31, 2005.




A
      summary of the status of the Company’s outstanding options at December 31, 2005
      is as follows:




**Exercise
                  Prices**
              
              **Number
                  of Options**
                **Outstanding**
                **(in
                  thousands)**
              
              **Remaining**
                **Contractual
                  Life**
                **in
                  years**
              
              **Number
                  of Options**
                **Exercisable**
                **(in
                  thousands)**$0.16
              
              
              1,000
              
              
              3.0
              
              
              -$0.17
              
              
              75
              
              
              2.9
              
              
              75$0.22
              
              
              1,282
              
              
              4.1
              
              
              783$0.33
              
              
              90
              
              
              0.5
              
              
              90$0.35
              
              
              515
              
              
              0.6
              
              
              515$0.37
              
              
              35
              
              
              0.5
              
              
              352,997
              
              
              
              
              
              1,498




The
      Company determined the fair value of employee stock option grants using the
      Cox-Rubinstein binomial valuation model with the following assumptions on a
      weighted average basis:





**2005**
            
            **2004**
            
            **2003**Dividend
                yield
            
            
            -
            
            
            N/A
            
            
            -Risk
                free interest rate
            
            
            3.86
            %
            
            N/A
            
            
            3.53
            %Volatility
            
            
            86.66
            %
            
            N/A
            
            
            137.51
            %Expected
                term, in years
            
            
            4.07
            
            
            N/A
            
            
            2.94




For
      the year ended December 31, 2005, the employee stock option expense was $154,000
      (2004 - $39,000; 2003 - $193,000). The weighted average grant date fair values
      of the options issued during the year was $0.16 (2004 - $nil, 2003 -
      $0.28)





During
      the fourth quarter of fiscal 2003, the Company adopted the accounting
      recommendations contained in the CICA Handbook Section 3870 - “Stock-based
      Compensation and Other Stock-based Payments” effective January 1, 2003. This
      Section establishes standards for the recognition, measurement and disclosure
      of
      stock-based compensation and other stock-based payments made in exchange for
      goods and services, and applies to transactions, including non-reciprocal
      transactions, in which an enterprise grants shares of common stock, stock
      options, or other equity instruments, or incurs liabilities based on the price
      of common stock or other equity instruments. Commencing in fiscal 2003, the
      Company recorded a compensation expense for stock options granted to employees
      on or after January 1, 2003, based on the fair value method of accounting.





For
      the year ended December 31, 2002, the Company did not record a compensation
      expense for stock options granted to employees. Instead, the Company disclosed
      the pro forma net income (loss) and the pro forma income (loss) per share had
      the Company adopted the fair value method of accounting for stock-based
      compensation awarded on or after January 1, 2002.


























ADB
            Systems International Ltd. **2005 Annual
            Report**F-23
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








For
      the years ended December 31, 2005, 2004 and 2003, the amortization of the value
      of the stock-based compensation granted by the Company to employees in 2002,
      over the vesting period of the awards as specified under CICA 3870, would have
      resulted in the following pro forma loss attributable to common shareholders
      and
      pro forma basic and diluted loss per share:





**2005**
            
            **2004**
            
            **2003**(in
                thousands)Loss
                attributable to common shareholdersAs
                reported
            
            $
            (3,501
            )
            $
            (5,104
            )
            $
            (2,815
            )Pro
                forma
            
            $
            (3,501
            )
            $
            (5,104
            )
            $
            (2,956
            )Basic
                and diluted net loss per share:As
                reported
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            (0.05
            )Pro
                forma
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            (0.05
            )




*c)* NON-EMPLOYEE
      STOCK OPTIONS





The
      Company had no stock options outstanding to non-employees at December 31, 2005.
      A summary of changes in the stock options to non-employees for the two years
      ended December 31, 2005 is as follows:





**Number
                of Options**
            
            **Weighted
                Average Exercise Price****2005**
            
            **2004**
            
            **2005**
            
            **2004**(in
                thousands)Opening
                balance
            
            
            -
            
            
            27
            
            $
            -
            
            $
            2.56Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancelled
            
            
            -
            
            
            (27
            )
            
            -
            
            
            2.56Closing
                balance
            
            
            -
            
            
            -
            
            $
            -
            
            $
            -Exercisable,
                end of year
            
            
            -
            
            
            -
            
            $
            -
            
            $
            -




**13.**
            **OTHER
                OPTIONS**





During
      the year ended December 31, 2005, the Company issued 747,000 compensation
      options with a fair value of $193,000 relating to the issuance of Series I
      secured subordinated notes (See Note 7(a)). The options entitle the holder
      to
      purchase an equity unit at a purchase price of $0.15 per unit. The options
      expire on September 12, 2010. Each equity unit consists of one common share
      and
      one share-purchase warrant with an exercise price of $0.20. The share-purchase
      warrants expire on September 12, 2010.





During
      the year ended December 31, 2004, the Company issued 485,000 compensation
      options with a fair value of $59,000 relating to the issuance of Series G
      secured subordinated notes (See Note 7(c)). The options entitle the holder
      to
      purchase an equity unit at a purchase price of $0.31 per unit. The options
      expire on June 15, 2006. Each equity unit consists of one common share and
      one
      half of a share-purchase warrant with an exercise price of $0.50. The
      share-purchase warrants expire on June 15, 2008.





Also
      during the year ended December 31, 2004, the Company issued 150,000 compensation
      options with a fair value of $19,000 relating to the December private equity
      placement (See Note 9(c)). The options entitle the holder to purchase an equity
      unit at a purchase price of $0.20 per unit and expire on December 6, 2006.
      Each
      equity unit consists of one common share and one share-purchase warrant with
      an
      exercise price of $0.35. The share-purchase warrants expire on December 6,
      2008.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-24
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








**14.** **FINANCIAL
      INSTRUMENTS**





*Foreign exchange risk*


The
      Company’s revenue from software licensing and related services and e-commerce
      enabling agreements is transacted in various currencies including the Canadian
      dollar, U.S. dollar, UK pound, EURO, and Norwegian krone. Correspondingly,
      operating expenses related to these activities are transacted in the
      above-denoted currencies. The Company does not use derivative instruments to
      manage exposure to foreign exchange fluctuations. During the year ended December
      31, 2005, the Company incurred foreign exchange losses in the amount of $16,000
      (2004 - $24,000, 2003 - $84,000).




*Interest rate risk*


The
      Company has limited exposure to fluctuations in interest rates. The Company
      does
      not use derivative instruments to reduce its exposure to interest rate risk.




*Credit risk*


Credit
      risk arises from the potential that a customer will fail to meet its contractual
      obligations under a software licensing and related services agreement or an
      e-commerce enabling agreement.





In
      2005, two customers accounted for 37 percent and 17 percent, respectively,
      (2004
      - one customer accounted for 31 percent, 2003 - two customers accounted for
      26
      percent and 15 percent respectively) of total revenues. At December 31, 2005,
      one customer accounted for 40 percent of total accounts receivable. At December
      31, 2004, there were three customers that accounted for 18 percent, 13 percent
      and 11 percent, respectively, of total accounts receivable.





*Fair value*


The
      fair value of monetary assets and liabilities approximates amounts at which
      they
      would be exchanged between knowledgeable and unrelated persons. The amounts
      recorded in the consolidated financial statements approximate fair value, with
      the exception of the secured subordinated series E, G and H notes as it is
      not
      practical to determine the fair value of the notes as at December 31, 2005,
      considering that they are not publicly traded.





**15.** **COMMITMENTS
      AND CONTINGENCIES**





(a)
            Minimum
                payments under operating leases during the next five years and thereafter
                are as follows:




**Years**
            
            **Amount**(in
              thousands)2006
            
            $
            4012007
            
            
            3772008
            
            
            3262009
            
            
            2762010
            
            
            1462011
                and thereafter
            
            
            146




(b)
            As
                a result of a review of statutory reporting obligations regarding
                employee
                benefits, the Company has identified a potential for non-compliance.
                The
                employees and regulators concerned have been notified. The probability
                and
                amount of any potential liability relating to this situation is presently
                not determinable.




(c)
            The
                Company has entered into compensation arrangements with certain of
                its
                employees. In the event of involuntary termination, the Company may
                be
                liable for potential payments totaling $131,000 to these
                employees.




(d)
            The
                Company entered into a licensing agreement with NCR Corporation on
                April
                29th, 2002. The agreement provides the Company with access to specific
                technology patents over a seven-year period for US $100,000 annually
                up to
                a cumulative maximum of US
                $5,000,000.







ADB
            Systems International Ltd. **2005 Annual
            Report**F-25
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**







(e)
            In
                the normal course of operations, the Company provides indemnification
                agreements to counterparties in transactions such as purchase contracts,
                service agreements and leasing transactions. These indemnification
                agreements may require the Company to compensate the counterparties
                for
                costs incurred as a result of changes in laws and regulations (including
                tax legislation) or as a result of litigation claims or statutory
                sanctions that may be suffered by the counterparty as a consequence
                of the
                transaction. The terms of these indemnification agreements will vary
                based
                upon the contract. The nature of the indemnification agreements prevents
                the Company from making a reasonable estimate of the maximum potential
                amount it could be required to pay to counterparties. Historically,
                the
                Company has not made any significant payments under such indemnification.
                No amount has been accrued in the consolidated financial statements
                with
                respect to these indemnification
                agreements.








**16.** **CHANGES
      IN NON-CASH OPERATING WORKING CAPITAL**





The
      following table sets forth the changes in non-cash operating working capital
      items resulting from the inflow (outflow) of cash in the year.





**2005**
            
            **2004**
            
            **2003**(in
                thousands)Accounts
                receivable
            
            $
            381
            
            $
            (151
            )
            $
            444Deposits
                and prepaid expenses
            
            
            67
            
            
            (8
            )
            
            60Accounts
                payable
            
            
            372
            
            
            288
            
            
            (87
            )Accrued
                liabilities
            
            
            101
            
            
            139
            
            
            (491
            )Deferred
                revenue
            
            
            6
            
            
            44
            
            
            (741
            )Effect
                of currency translation
            
            
            (17
            )
            
            10
            
            
            87$
            910
            
            $
            322
            
            $
            (728
            )




The
      following table summarizes the non-cash financing activities of the
      Company





**2005**
            
            **2004**
            
            **2003**Issuance
                of common shares in settlement of accounts payable (Note
                9(c))
            
            $
            24
            
            $
            118
            
            $
            272Issuance
                of common shares in return for prepaid services (Note
                9(c))
            
            
            -
            
            
            82
            
            
            -Reduction
                in debt from conversion of secured subordinated notes (Note
                7(i))
            
            
            (226
            )
            
            (830
            )
            
            (21
            )Reduction
                in conversion feature from conversion of secured subordinated notes
                (Note
                7(j))
            
            
            (147
            )
            
            (550
            )
            
            (76
            )Settlement
                of demand loan by transfer of Bid.Com Ltd. Shares (Note
                19)
            
            
            -
            
            
            -
            
            
            (2,000
            )Settlement
                of accrued liability by transfer of Bid.Com Ltd. shares
            
            
            -
            
            
            -
            
            
            (68
            )Issuance
                of compensation options relating to issuance of secured subordinated
                notes
                (Note 13)
            
            
            (193
            )
            
            (59
            )
            
            -Issuance
                of compensation options relating to equity private placement (Note
                13)
            
            
            -
            
            
            19
            
            
            -




















ADB
            Systems International Ltd. **2005 Annual
            Report**F-26
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








**17.**
            **OTHER
                INCOME**





The
      Company ceased its on-line retail activities in October 2000; however, during
      2005, the Company received non-recurring proceeds of $42,000 (2004 - $nil,
      2003
      - $67,000) related to on-line retail activities that had been carried out prior
      to October 2000.




**18.** **LOSSES
      (GAINS) ON DISPOSAL OF CAPITAL ASSETS AND STRATEGIC
      INVESTMENT**





**2005**
            
            **2004**
            
            **2003**(in
                thousands)Loss
                on disposal of capital assets (a)
            
            $
            -
            
            $
            1
            
            $
            13(Gain)
                on disposal of strategic investment (b)
            
            
            -
            
            
            -
            
            
            (20
            )$
            -
            
            $
            1
            
            $
            (7
            )




(a)
            During
                2004, the Company disposed of capital assets that were no longer
                required
                resulting in a loss of $1,000. Similar disposals in 2003 resulted
                in a
                loss of $13,000.





(b)
            During
                2003, the Company sold shares in Megawheels Technologies Inc. for
                proceeds
                and a gain of $20,000.





**19.** **GAIN
      ON SETTLEMENT OF DEMAND LOAN**





During
      the year ended December 31, 2002, the Company completed a series of transactions
      whereby the Company received a secured demand loan in the aggregate principal
      amount of $2,000,000. The loan carried an interest rate of 12 percent compounded
      monthly, and was secured by a general security agreement on the assets of the
      Company and a pledge of the shares of the Company’s Norwegian subsidiary. The
      loan matured on June 30, 2003. The Company could, at its discretion, repay
      the
      loan in cash or transfer to the lender 100 percent of the issued shares of
      its
      investment in Bid.Com Ltd. in full settlement of the outstanding principal
      amount and accrued interest then owing to the lender.





On
      June 30, 2003, the Company exercised its option to transfer its investment
      in
      Bid.Com Ltd., which had a nominal carrying value, to the lender in full
      settlement of the outstanding principal and accrued interest amounts. This
      transfer resulted in a gain on settlement of the demand loan in the amount
      of
      $2,195,000.





**20.** **INVESTMENT
      IN JOINTLY CONTROLLED COMPANY**





On
      September 23, 2003 the Company established a joint venture with GE Commercial
      Equipment Financing, a unit of GE Commercial Finance, with each entity holding
      a
      50 percent interest in the joint venture. The joint venture operates under
      the
      name of GE Asset Manager, LLC. The joint business venture develops and markets
      asset management technology to customers in a broad range of industries. Upon
      the establishment of this joint venture, 1 million share-purchase warrants
      issued by ADB to GE Capital Corporation vested. The fair value of these warrants
      of $188,000, calculated at the vesting date, was reflected on the consolidated
      balance sheets as an acquired agreement. This acquired agreement was fully
      amortized as of December 2004.





The
      consolidated financial statements of the Company reflect the Company’s pro rata
      share of the joint venture’s assets, liabilities, and results of operations in
      accordance with the proportionate consolidation method of accounting. The effect
      of proportionate consolidation of the joint venture on the Company’s
      consolidated financial statements is summarized as follows:





ADB
            Systems International Ltd. **2005 Annual
            Report**F-27
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








**For
                the years ended December 31**
            
            **2005**
            
            **2004**
            
            **2003**(in
                thousands)**Consolidated
                statements of operations**Operating
                revenues
            
            $
            9
            
            $
            -
            
            $
            -Operating
                expenses
            
            
            (1
            )
            
            -
            
            
            -Net
                income
            
            $
            8
            
            $
            -
            
            $
            -**Consolidated
                balance sheets**Current
                assets
            
            $
            35
            
            $
            -
            
            $
            -Current
                liabilities
            
            
            (27
            )
            
            -
            
            
            -Net
                investment
            
            $
            8
            
            $
            -
            
            $
            -**Consolidated
                statements of cash flows**Operating
                activities
            
            $
            35
            
            $
            -
            
            $
            -Net
                cash inflow
            
            $
            35
            
            $
            -
            
            $
            -




**21.** **INVESTMENT
      IN BID.COM LTD.**





On
      August 30, 2002, the Company entered into a series of agreements with a lender,
      an unrelated party, whereby the lender granted to the Company a secured loan
      in
      the aggregate principal amount of $2 million (See Note 19). The Company and
      the
      same unrelated party also entered into an agreement whereby on-line retail
      operations were to be conducted by Bid.Com Ltd. These operations utilized the
      on-line retail technology, experience and expertise of the Company developed
      and
      operated under the name “Bid.Com International Inc.” in the on-line selling of
      consumer products supplied by the lender.




On
      June 30, 2003, the Company exercised its option to transfer 100 percent of
      the
      issued shares of Bid.Com Ltd. in full settlement of the outstanding principal
      and accrued interest owed to the lender.




The
      Company owned 100 percent of the issued and outstanding shares of Bid.Com Ltd.,
      but determined that, for accounting purposes, consolidation of Bid.Com Ltd.
      was
      not appropriate. This determination was based upon the Company’s inability to
      determine the strategic operating policies of Bid.Com Ltd. without the
      cooperation of others, its inability to obtain the future economic benefits
      from
      the resources of Bid.Com Ltd., and its lack of exposure to the related risk
      of
      ownership. Therefore, the Company accounted for its investment in Bid.Com Ltd.
      on the equity basis. The Company was not exposed to losses incurred by Bid.Com
      Ltd., and accordingly this investment was carried at a nominal amount. U.S.
      GAAP
      required consolidation of the investment in Bid.Com Ltd. in the Company’s
      consolidated financial statements. The impact of this difference in Canadian
      GAAP from U.S. GAAP is disclosed in these notes to the consolidated financial
      statements under Canadian and United States accounting policy differences (See
      Note 23).




Condensed
      income statement and cash flow information for Bid.Com Ltd. for the six-month
      period ended June 30, 2003 is as follows:




**2003**(in
                thousands)Revenue
            
            $
            3,614Net
                income
            
            
            208Change
                in cash resources
            
            
            (358
            )





Revenue
      of $35,000 related to web-site development, support and maintenance services
      provided to Bid.com Ltd. was included in the consolidated results of the Company
      for the six months ended June 30, 2003. In addition, the Company charged
      overhead-related costs of $76,000 for rent, connectivity and management fees
      to
      Bid.com Ltd. for the six-month period ended June 30, 2003. These overhead
      charges were recorded as a reduction of expenses in the consolidated financial
      statements for the year ended December 31, 2003.







ADB
            Systems International Ltd. **2005 Annual
            Report**F-28
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**







**22.** **ACQUISITION
      OF ADB SYSTEMER ASA**





On
      October 11, 2001, the Company acquired 98.3 per cent of the outstanding shares
      of ADB Systemer ASA of Sola, Norway. ADB Systemer was a publicly traded software
      vendor focused on enterprise asset management and integrated electronic
      procurement. At the time of acquisition, ADB Systemer had wholly-owned
      subsidiaries in the United States and in the United Kingdom.





The
      purchase price for 12,518,493 of the outstanding ADB Systemer common shares
      was
      $13.762 million. The purchase price was comprised of $2.293 million in cash,
      $9.844 million of common stock issued from treasury, acquisition costs of
      $765,000, employee stock options with a fair market value of $576,000 granted
      to
      ADB Systemer employees as replacement options and warrants with a fair market
      value of $284,000 issued to ADB Systemer warrant holders as replacement
      warrants. Common stock issued from treasury totaled 10,866,052 shares
      (21,732,104 pre-consolidation) with a value of $9.844 million based on a
      five-day trading average before and after September 10, 2001, the date the
      acquisition was announced to the general public. The purchase price for ADB
      Systemer did not include any contingent payments, options, or commitments.
      The
      purchase price of $13.762 million was allocated as follows:





**2001**(in
                thousands)Net
                monetary assets (including cash of $814)
            
            $
            418Capital
                assets
            
            
            308Contractual
                agreements
            
            
            177Acquired
                software and related intellectual property
            
            
            3,383Goodwill
            
            
            9,476Total
                purchase price
            
            $
            13,762





ADB
      Systemer’s operations were consolidated after the effective date of the
      acquisition, October 11, 2001.





The
      amortization periods for contractual agreements and software and related
      intellectual property are 12 and 36 months respectively. Amortization expense
      relating to software in the amount of $nil (2004 - $846,000, 2003 - $1,128,000)
      was recorded. At the end of fiscal 2004, acquired software had been fully
      amortized.





Goodwill
      was not amortized, but was subject to an impairment test where the carrying
      value of goodwill was compared to its fair value. In the event the carrying
      value of goodwill exceeded its fair value, a goodwill impairment would be
      recorded. At December 31, 2001, the carrying value of goodwill was tested for
      impairment, and it was determined that a goodwill impairment of $9.476 million
      was required. Goodwill is not deductible for income tax purposes.





**23.** **CANADIAN
      AND UNITED STATES ACCOUNTING POLICY DIFFERENCES**





The
      consolidated financial statements of the Company have been prepared in
      accordance with generally accepted accounting principles as applied in Canada,
      which conform in all material respects with generally accepted accounting
      principles in the United States, except as noted below.





(a)
      STOCK-BASED COMPENSATION TO EMPLOYEES





In
      fiscal 2003, the Company adopted the accounting recommendations contained in
      the
      CICA Handbook Section 3870 - “Stock-based Compensation and Other Stock-based
      Payments” effective January 1, 2003 regarding expensing of employee stock-based
      compensation. Accordingly, commencing in fiscal 2003, the Company records a
      compensation expense for stock options granted to employees on or after January
      1, 2003, based on the fair value method of accounting.








ADB
            Systems International Ltd. **2005 Annual
            Report**F-29
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








Under
      U.S. GAAP stock-based compensation granted to employees is accounted for in
      accordance with the provisions of Accounting Principles Board (APB) Opinion
      No.
      25, "Accounting for Stock Issued to Employees," or in accordance with SFAS
      123
“Accounting for Stock-Based Compensation.” Prior to 2003, under United States
      GAAP the Company elected to follow APB 25 and no accounting recognition was
      given to stock options granted having exercise price of market value at the
      date
      of grant. Upon exercise, the proceeds were credited to shareholders’ equity. In
      December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based
      Compensation - Transition and Disclosure,” an amendment of FASB Statement No.
      123. This Statement amends FASB Statement No. 123, “Accounting for Stock- Based
      Compensation,” to provide alternative methods of transition for a voluntary
      change to fair value method of accounting for stock-based employee compensation.
      In fiscal 2003, the Company elected to prospectively adopt the fair value method
      for stock-based compensation as prescribed in SFAS No. 123 using the transition
      provision in SFAS No. 148. Under CICA 3870 and SFAS No. 123, the fair value
      of
      stock-based awards to employees is calculated through the use of option pricing
      models, even though such models were developed to estimate the fair value of
      freely tradable, fully transferable options without vesting restrictions, which
      significantly differ from the Company’s stock option awards. The Company’s
      calculations for employee grants were made using the Cox-Rubinstein binomial
      valuation model with weighted average assumptions as described in the following
      table. As a result, the 2005 annual consolidated financial statements under
      Canadian GAAP and U.S. GAAP reflect a stock-based compensation expense to
      employees of $154,000 (2004 - $39,000; 2003 - $193,000) for options granted
      on
      or after January 1, 2003.




For
      grants made prior to fiscal 2003, SFAS No. 123, "Accounting for Stock-Based
      Compensation," requires the disclosure of pro forma net income (loss) and
      earnings (loss) per share had the Company adopted the fair value method from
      the
      date the standard was applicable. The calculations for the pro forma disclosures
      of stock options granted prior to 2005 are reported below and were made using
      the Cox-Rubinstein binomial valuation model with the following weighted average
      assumptions:





**2005**
            
            **2004**
            
            **2003**Dividend
                yield
            
            
            -
            
            
            N/A
            
            
            -Risk
                free interest rate
            
            
            3.86
            %
            
            N/A
            
            
            3.53
            %Volatility
            
            
            86.66
            %
            
            N/A
            
            
            137.51
            %Expected
                term, in years
            
            
            4.07
            
            
            N/A
            
            
            2.94




If
      the estimated fair values of the Company’s stock options granted to employees
      had been amortized to expense over the vesting period of the awards as specified
      under SFAS No. 123, the loss attributable to common shareholders and the basic
      and diluted loss per share on a pro forma basis (as compared to such items
      as
      reported) would have been:




**2005**
            
            **2004**
            
            **2003**(in
                thousands)Loss
                attributable to common shareholders under U.S. GAAPAs
                calculated (Note 23(h))
            
            $
            (3,298
            )
            $
            (5,013
            )
            $
            (2,572
            )Stock-based
                compensation included in net loss
            
            
            154
            
            
            39
            
            
            193(3,144
            )
            
            (4,974
            )
            
            (2,379
            )Stock-based
                compensation if fair value applied to all awards
            
            
            (154
            )
            
            (39
            )
            
            (337
            )Pro
                forma net loss as if fair value applied to all awards
            
            $
            (3,298
            )
            $
            5,013
            )
            $
            (2,716
            )Basic
                and diluted net loss per share:As
                calculated
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            (0.05
            )Pro
                forma
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            (0.05
            )




(b)
      COMPREHENSIVE INCOME





Financial
      Accounting Standards Board Statement of Financial Accounting Standards No.
      130,
      "Reporting Comprehensive Income," requires disclosure of comprehensive income,
      which includes reported net earnings adjusted for other comprehensive income.
      Comprehensive income is defined as the change in net assets of a business
      enterprise during a period from transactions and other events and circumstances
      from non-owner sources.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-30
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**










Under
      Canadian GAAP, gains and losses from foreign exchange translations of
      subsidiaries classified as self-sustaining are included in the foreign
      cumulative translation account component of shareholders’ deficiency. Under U.S.
      GAAP, these gains and losses are included as a component of comprehensive income
      (loss).




(c)
      MARKETABLE SECURITIES




U.S.
      GAAP requires that the Company disclose marketable securities into one of three
      categories: held to maturity; available for sale; or trading. As at December
      31,
      2005 and 2004, the marketable securities held were classified as
      follows:




**2005**
            
            **2004**(in
                thousands)Available
                for sale
            
            $
            13
            
            $
            13





(d)
      FINANCIAL INSTRUMENTS WITH LIABILITY AND EQUITY ELEMENTS





Under
      Canadian GAAP, the secured subordinated notes (See Note 7) are recorded based
      upon the relative fair values of the liability and equity components of the
      instruments. The liability component is accreted to the face value of the
      subordinated notes over the term to maturity until the underlying notes are
      converted into common shares. Under U.S. GAAP, upon issuance, the secured
      subordinated notes would have been recorded as a liability and reclassified
      to
      equity only upon conversion. Accordingly, the interest accretion of $405,000
      (2004 - $266,000, 2003 - $112,000) that is recorded under Canadian GAAP is
      reversed under U.S. GAAP.





Additionally,
      under Canadian GAAP, the financing costs arising from the issuance of the
      convertible notes are allocated between the liability and equity components
      of
      the notes. The financing costs associated with the liability component of the
      notes are deferred and amortized over the term of the underlying debt (See
      Note
      5). The financing costs associated with the equity component of the notes are
      charged to shareholders’ deficiency. Under U.S. GAAP, all of the financing costs
      are deferred and amortized over the term of the underlying debt. As a result,
      the 2005 amortization expense under U.S GAAP is $125,000 (2004 - $58,000)
      compared to an amortization expense of $63,000 (2004 - $32,000) under Canadian
      GAAP. Furthermore, under Canadian GAAP, conversion of debt results in the
      allocation of any unamortized deferred financing charges associated with that
      debt to shareholders’ deficiency. Under U.S. GAAP, such unamortized financing
      charges are expensed upon conversion of the associated debt. Accordingly, under
      U.S. GAAP, an additional amount of $23,000 (2004 - $23,000), representing the
      unamortized financing charges associated with the conversion of the Series
      H
      notes (2004 - Series F notes), is expensed. The unamortized financing charges
      under Canadian GAAP, in the amount of $12,000 (2004 - $13,000), were allocated
      to contributed surplus upon the conversion of the Series H notes (2004 - Series
      F notes).





Further,
      under U.S. GAAP, the beneficial conversion feature represented by the excess
      of
      the fair value of the shares issuable on conversion of the subordinated notes,
      measured on the commitment date, over the amount of the loan proceeds to be
      allocated to the common shares upon conversion would be allocated to additional
      paid in capital. This results in a discount on the subordinated notes that
      is
      recognized as additional interest expense over the term of the subordinated
      notes and any unamortized balance is expensed immediately upon conversion of
      the
      subordinated notes. Accordingly, for U.S. GAAP purposes, the Company has
      recognized a beneficial conversion feature in the amount of $664,000 relating
      to
      the Series I subordinated notes. In 2004, the Company recognized beneficial
      conversion features of $20,000, $90,000 and $49,000 relating to Series F
      subordinated notes, Series G subordinated notes and Series H subordinated notes,
      respectively. In 2003, the Company recognized a beneficial conversion feature
      of
      $96,000 with respect to the Series E subordinated notes. An interest expense
      of
      $117,000 (2004 - $126,000, 2003 - $64,000) results from the amortization of
      the
      discount over the term to maturity of those subordinated notes as well as the
      unamortized discount for those subordinated notes converted during the year.
      Canadian GAAP does not require the recognition of any beneficial conversion
      feature.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-31
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**










(e)
            INVESTMENT
                IN JOINTLY CONTROLLED COMPANY





Canadian
      GAAP requires the proportionate consolidation of investments in joint ventures.
      Proportionate consolidation is not permitted under U.S. GAAP; instead
      investments in joint ventures are accounted for in accordance with the equity
      basis of accounting.





Although
      the application of proportionate consolidation has no impact on the Company’s
      net loss or shareholders’ deficiency, it does increase the amounts reported for
      the Company’s current assets, current liabilities, revenue, expenses and cash
      flow from operations as compared to the amounts that would otherwise be reported
      under U.S. GAAP. As allowed under the rules of the Securities and Exchange
      Commission, this difference has not been reflected in the table of certain
      consolidated balance sheet items presented below.





(f)
      ADDITIONAL DISCLOSURES AS REQUIRED IN ACCORDANCE WITH UNITED STATES GAAP





U.S.
      GAAP requires the disclosure of the allowance for doubtful accounts. The
      accounts receivable balance reported on the consolidated balance sheet at
      December 31, 2005, includes an allowance for doubtful accounts in the amount
      of
      $59,000 (2004 - $51,000).





U.S.
      GAAP requires the disclosure of accrued liabilities that exceed five percent
      of
      current liabilities. Included in accrued liabilities at December 31, 2005 are
      accrued interest payable of $363,000 (2004 - $122,000), accrued vacation pay
      of
      $293,000 (2004 - $274,000), and accrued audit fees of $140,000 (2004 -
      $193,000).





U.S.
      GAAP requires the disclosure of non-cash interest components incurred during
      the
      year. In 2005, the Company incurred $97,000 (2004 - $126,000, 2003 - $64,000)
      in
      non-cash interest expense associated with secured subordinated notes. In 2003,
      the Company incurred $126,000 in non-cash interest expense associated with
      a
      demand loan that was settled through the transfer of the investment in an
      associated company (See Note 19).





Under
      U.S. GAAP, EITF 01-09 requires, in certain circumstances, that the warrants
      issued to customers be recorded as a reduction of revenue. Accordingly, in
      2005,
      depreciation and amortization and revenue were reduced by $nil (2004 - $150,000,
      2003 - $38,000) under U.S. GAAP. During 2005, comparable guidance was issued
      in
      Canada, which is effective in 2006.





(g)
      INVESTMENT IN ASSOCIATED COMPANY/DISCONTINUED OPERATIONS





U.S.
      GAAP requires consolidation of the Company’s investment in the associated
      company described in Note 21. Furthermore, under FAS 144, the Bid.Com Ltd.
      component would be classified as an asset held for sale and be subject to the
      reporting requirements for discontinued operations in 2003.





Consolidation
      of this associated company results in a decrease in the net loss attributable
      to
      common shareholders due to income from discontinued operations in the amount
      of
      $nil (2004 - $nil, 2003 - $195,000). Revenue in the amount of $nil (2004 -
      $nil,
      2003 - $1.1 million) is included in the income from discontinued operations.





For
      fiscal 2005, the impact of consolidation of the associated company on cash
      flows
      was to decrease cash flows as a result of cash outflows from discontinued
      operations in the amount of $nil (2004 - $nil, 2003 - $358,000).





(h)
      The effect of the above differences described in
      Note 23(b), (d) and (g) on the Company’s consolidated financial statements are
      set out below:





ADB
            Systems International Ltd. **2005 Annual
            Report**F-32
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**







**Consolidated
      Balance Sheets**


**2005**
            
            **2004**(in
                thousands)Cash
                and marketable securities
            
            $
            292
            
            $
            453Accounts
                receivable
            
            
            1,154
            
            
            1,535Deposits
                and prepaid expense
            
            
            141
            
            
            208Capital
                assets
            
            
            101
            
            
            142Deferred
                charges
            
            
            459
            
            
            277Accounts
                payable and accrued liabilities
            
            
            2,129
            
            
            1,680Due
                to related parties
            
            
            137
            
            
            -Deferred
                revenue
            
            
            141
            
            
            135Current
                portion of secured subordinated notes
            
            
            367
            
            
            -Secured
                subordinated notes
            
            
            2,402
            
            
            2,465Non-controlling
                interest
            
            
            3
            
            
            3Shareholders’
                equity
            
            $
            (3,032
            )
            $
            (1,668
            )





**Consolidated
      Statements of Operations**





**2005**
            
            **2004**
            
            **2003**(in
                thousands, except per share amounts)Net
                loss for the year as reported under Canadian GAAP
            
            $
            (3,501
            )
            $
            (5,104
            )
            $
            (2,815
            )Adjustments:Accretion of interest on secured subordinated notes (Note
                23(d))
            
            
            405
            
            
            266
            
            
            112Gain
                on settlement of demand loan (Note 23(g))
            
            
            -
            
            
            -
            
            
            (2,195
            )Amortization
                of deferred charges relating to secured subordinated notes under
                Canadian
                GAAP (Note 23(d))
            
            
            63
            
            
            32
            
            
            -Amortization
                of deferred charges relating to secured subordinated notes under
                U.S. GAAP
                (Note 23(d))
            
            
            (148
            )
            
            (81
            )
            
            -Amortization
                of beneficial conversion feature (Note 23(d))
            
            
            (117
            )
            
            (126
            )
            
            (64
            )Net
                loss from continuing operations for the year as reported under U.S.
                GAAP
            
            
            (3,298
            )
            
            (5,013
            )
            
            (4,962
            )Income
                (loss) from discontinued operations (Note 23(g))
            
            
            -
            
            
            -
            
            
            2,390Net
                loss for the year as reported under U.S. GAAP
            
            $
            (3,298
            )
            $
            (5,013
            )
            $
            (2,572
            )Net
                loss attributable to common shareholders under U.S. GAAP
            
            $
            (3,298
            )
            $
            (5,013
            )
            $
            (2,572
            )Net
                loss for the year as reported under U.S. GAAP
            
            $
            (3,298
            )
            $
            (5,013
            )
            $
            (2,572
            )Other
                comprehensive income (loss) (Note 23(b))
            
            
            (22
            )
            
            6
            
            
            74Comprehensive
                income (loss) as reported under U.S. GAAP
            
            $
            (3,320
            )
            $
            (5,007
            )
            $
            (2,498
            )Basic
                and diluted loss per share from continuing operations
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            (0.09
            )Basic
                and diluted net loss per share
            
            $
            (0.05
            )
            $
            (0.08
            )
            $
            (0.05
            )








ADB
            Systems International Ltd. **2005 Annual
            Report**F-33
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








(i)
      IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS




In
      May 2005, FASB issued Statement of Financial Accounting Standards No. 154,
      Accounting Changes and Error Corrections  - a replacement of APB Opinion
      No. 20 and FASB Statement No. 3 (“SFAS 154”). This statement
      applies to all voluntary changes in accounting principle and changes required
      by
      an accounting pronouncement where no specific transition provisions are
      included. SFAS 154 requires retrospective application to prior periods’
financial statements of changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change. Retrospective application is limited to the direct effects
      of the change; the indirect effects should be recognized in the period of the
      change. This statement carries forward without change the guidance contained
      in
      Opinion 20 for reporting the correction of an error in previously issued
      financial statements and a change in accounting estimate. However, SFAS 154
      redefines restatement as the revising of previously issued financial statements
      to reflect the correction of an error. The provisions of SFAS 154 are
      effective for accounting changes and correction of errors made in fiscal periods
      that begin after December 15, 2005, although early adoption is permitted.
      The Company does not anticipate that the implementation of this standard will
      have a material impact on its financial position, results of operations or
      cash
      flows.





In
      December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets
      -
      An Amendment of APB Opinion No. 29 ("APB No. 29"), Accounting for Non-monetary
      Transactions. SFAS No. 153 eliminates the exception from fair value measurement
      for non-monetary exchanges of similar productive assets in paragraph 21(b)
      of
      APB No. 29, and replaces it with an exception for exchanges that do not have
      commercial substance. SFAS No. 153 specifies that a non-monetary exchange
      has commercial substance if the future cash flows of the entity are expected
      to
      change significantly as a result of the exchange. SFAS No. 153 is effective
      for fiscal periods beginning after June 15, 2005. The Company does not expect
      the adoption of SFAS No. 153 to have a material impact on its consolidated
      financial statements.





In
      December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment". SFAS
      No. 123(R) requires employee stock options and rights to purchase shares
      under stock participation plans to be accounted for under the fair value method,
      and eliminates the ability to account for these instruments under the intrinsic
      value method prescribed by APB Opinion No. 25, as allowed under the original
      provisions of SFAS No. 123. SFAS No. 123(R) requires the use of an option
      pricing model for estimating fair value, which is amortized to expense over
      the
      service periods. The requirements of SFAS No. 123(R) are effective for the
      first
      fiscal year beginning after June 15, 2005. SFAS No. 123(R) allows for either
      prospective recognition of compensation expense or retrospective recognition,
      which may be back to the original issuance of SFAS No. 123. The Company is
      currently evaluating the impact of the adoption of SFAS No. 123(R).





In
      March 2005, the SEC staff issued guidance on SFAS No. 123(R). Staff Accounting
      Bulletin No. 107 ("SAB 107") was issued to assist preparers by simplifying
      some
      of the implementation challenges of SFAS No. 123(R) while enhancing the
      information that investors receive. SAB 107 creates a framework that is premised
      on two overarching themes: (i) considerable judgment will be required by
      preparers to successfully implement SFAS No. 123(R), specifically when
      valuing employee stock options; and (ii) reasonable individuals, acting in
      good
      faith, may conclude differently on the fair value of employee stock options.
      Key
      topics covered by SAB 107 include: (a) valuation models - SAB 107 reinforces
      the
      flexibility allowed by SFAS No. 123(R) to choose an option pricing model that
      meets the standard's fair value measurement objective; (b) expected volatility
      -
      SAB 107 provides guidance on when it would be appropriate to rely exclusively
      on
      either historical or implied volatility in estimating expected volatility;
      and
      (c) expected term the new guidance includes examples and some simplified
      approaches to determining the expected term under certain circumstances. The
      Company will apply the principles of SAB 107 in conjunction with its adoption
      of
      SFAS No. 123(R) in the Canadian and United States Accounting Policy Differences
      note to financial statements in fiscal year 2006. Management continues to assess
      the implications of this revised standard, which will impact the Company’s
      results of operations for the purposes of the Canadian and United States
      Accounting Policy Differences note to financial statements in fiscal year
      2006.





ADB
            Systems International Ltd. **2005 Annual
            Report**F-34
 
 **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**








(j)
      OPERATING LOSS




U.S.
      GAAP requires that the Company disclose operating loss. Operating loss of the
      Company for the year was $3.3 million (2004 - $5.0 million, 2003 - $5.0
      million).




**24. **SEGMENTED
        INFORMATION****





The
      Company operates in a single reportable operating segment, that is, the design
      and delivery of software solutions for use by its customers. The single
      reportable operating segment derives its revenues from the sale of software
      and
      related services. Sales for each regional segment are based on the location
      of
      3 rd party customer.





The
      Company operates in the following reportable geographic segments: North America,
      Ireland and the United Kingdom, and Norway. Information about the Company’s
      geographical net revenues and assets is set forth below:





Assets
      by geographic region:





**2005**
            
            **2004**(in
                thousands)Capital
                Assets
            
            Intangible
                and
              Other
                Assets
            
            Capital
                Assets
            
            Intangible
                and
              Other
                AssetsNorth
                America
            
            $
            42
            
            $
            156
            
            $
            39
            
            $
            155Ireland
                and U.K.
            
            
            3
            
            
            -
            
            
            6
            
            
            -Norway
            
            
            56
            
            
            -
            
            
            97
            
            
            -$
            101
            
            $
            156
            
            $
            142
            
            $
            155




Net
      revenue by geographic region:





**2005**
            
            **2004**
            
            **2003**(in
                thousands)North
                America
            
            $
            656
            
            $
            796
            
            $
            1,211Ireland
                and U.K.
            
            
            628
            
            
            681
            
            
            1,239Norway
            
            
            4,491
            
            
            3,453
            
            
            3,403$
            5,775
            
            $
            4,930
            
            $
            5,853




**25.  
        SUBSEQUENT EVENTS**
  (a)
                On
                    February 8, 2006, the Company completed a transaction resulting
                    in the
                    issuance of Series J secured subordinated notes with a face value
                    of
                    $755,000. The Series J notes were issued to private investors
                    including an
                    amount totaling $105,000 issued to three directors/officers of
                    the
                    Company. The Series J notes mature February 8, 2011, have an
                    annual
                    interest rate of 11 percent and are convertible into equity units
                    at a
                    price of $0.15 per unit. Interest for the first year is payable
                    in shares
                    of the Company with interest payable for the remaining term of
                    the notes
                    payable in cash upon the earlier of maturity and conversion.
                    Each equity
                    unit consists of one common share and one share-purchase warrant
                    with an
                    exercise price of $0.20 per warrant. The warrants expire on the
                    earlier of
                    (i) February 8, 2009 and (ii) the date which is sixty days following
                    the
                    issuance of a notice by the Company to holders confirming that
                    the closing
                    price of the Company’s common shares, on the Toronto Stock Exchange, was
                    greater than or equal to $0.35 for any 10 consecutive trading
                    days. The
                    afore-mentioned conversion provisions are subject to a four month
                    and one
                    day hold period. The Series J notes are secured by a general
                    security
                    agreement on the assets of the Company, subordinated to the security
                    claims provided to the holders of previously issued
                    notes.
     ADB
            Systems International Ltd.  **2005 Annual
            Report**     F-35
    
   **Notes
            to the Consolidated Financial Statements**
 **Years
            ended December 31, 2005, 2004 and 2003**
 **(in
            Canadian dollars)**
 
   (b)
                On
                    May 18, 2006, the Company entered into an agreement with ADB
                    Systemer
                    Holding AS (the "Buyer") to sell 100 percent of the Company's
                    interest in
                    its Norwegian subsidiary ADB Systemer AS, (“ADB Systemer") for NOK
                    15,000,000 or approximately Canadian $2.80 million in cash subject
                    to
                    shareholder approval. On June 21, 2006 the Company received approval
                    from
                    shareholders at its annual general meeting to proceed with the
                    Share Sale
                    which is scheduled to close on June 30, 2006. Sale of the shares
                    of ADB
                    Systemer include sale of the ADB Systems name. Following the
                    sale of ADB
                    Systemer, the Company will retain access to all existing technology
                    that
                    will be used to service existing customers. In addition, the
                    Company
                    obtained Shareholder approval to change its name to Northcore
                    Technologies
                    Inc. by filing Articles of Amendment upon closing of the Share
                    Sale
                    transaction.








ADB
        Systems International Ltd. **2005 Annual Report**  F-36