UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 20-F

[  ]

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934

OR

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 1-12570

OR

[  ]

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report..

For the transition period from ________________ to ________________

CE FRANKLIN LTD.

(Exact name of Registrant as specified in its charter)

ALBERTA, CANADA

(Jurisdiction of incorporation or organization)

Suite 1900

300 - 5th Avenue S.W.

Calgary, Alberta, Canada T2P 3C4

(Address of principal executive offices)

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

Title of each class

Name of each exchange on which registered

Common shares, no par value

American Stock Exchange

Common shares, no par value

Toronto Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.  None.

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 Companys classes of capital or common shares as of the close of the period covered by the annual report.

As of December 31, 2005, there were 17,804,554shares of common shares outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ]

No [X]



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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 [  ]

No [X]

Note  checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate 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 [X]

No [  ]

Indicate 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 [  ] Accelerated filer  [X] Non-accelerated  [  ]

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [  ]

Item 18 [X]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]

No [X]



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|Content |                                                       |                                                      | Page
|------- | ----------------------------------------------------- | ---------------------------------------------------- | ----
|PART I  |                                                       |                                                      |     
|Item 1: | Identity of Directors, Senior Management and Advisors |                                                      | 5   
|Item 2: | Offer Statistics and Expected Timetable               |                                                      | 5   
|Item 3: | Key Information                                       |                                                      | 5   
|        | A.                                                    | Selected financial data                              |     
|        | B.                                                    | Capitalization and indebtedness                      |     
|        | C.                                                    | Reason for the offer and use of proceeds             |     
|        | D.                                                    | Risk factors                                         |     
|Item 4: | Information on the Company                            |                                                      | 10  
|        | A.                                                    | History and development of the Company               |     
|        | B.                                                    | Business overview                                    |     
|        | C.                                                    | Organizational structure                             |     
|        | D.                                                    | Property, plant and equipment                        |     
|Item 5: | Operating and Financial Review and Prospects          |                                                      | 14  
|        | A.                                                    | Operating results                                    |     
|        | B.                                                    | Liquidity and capital resources                      |     
|        | C.                                                    | Research and development, patents and licenses, etc. |     
|        | D.                                                    | Trend information                                    |     
|        | E.                                                    | Off-balance sheet arrangements                       |     
|        | F.                                                    | Tabular disclosure of contractual obligations        |     
|        | G.                                                    | Safe harbor                                          |     
|Item 6: | Directors, Senior Management and Employees            |                                                      | 28  
|        | A.                                                    | Directors and senior management                      |     
|        | B.                                                    | Compensation                                         |     
|        | C.                                                    | Board practices                                      |     
|        | D.                                                    | Employees                                            |     
|        | E.                                                    | Share ownership                                      |     
|Item 7: | Major Shareholders and Related Party Transactions     |                                                      | 35  
|        | A.                                                    | Major shareholders                                   |     
|        | B.                                                    | Related party transactions                           |     
|        | C.                                                    | Interests of experts and counsel                     |     
|Item 8: | Financial Information                                 |                                                      | 36  
|        | A.                                                    | Financial statements and other financial information |     
|        | B.                                                    | Significant changes                                  |     





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|Content        |                                                                        |                                        | Page
|-------------- | ---------------------------------------------------------------------- | -------------------------------------- | ----
|PART I (cont') |                                                                        |                                        |     
|Item 9:        | The Offer and Listing                                                  |                                        | 37  
|               | A.                                                                     | Offer and listing details              |     
|               | B.                                                                     | Plan of distribution                   |     
|               | C.                                                                     | Markets                                |     
|               | D.                                                                     | Selling shareholders                   |     
|               | E.                                                                     | Dilution                               |     
|               | F.                                                                     | Expenses of the issue                  |     
|Item 10:       | Additional Information                                                 |                                        | 37  
|               | A.                                                                     | Share capital                          |     
|               | B.                                                                     | Memorandum and articles of association |     
|               | C.                                                                     | Material contracts                     |     
|               | D.                                                                     | Exchange controls                      |     
|               | E.                                                                     | Taxation                               |     
|               | F.                                                                     | Dividends and paying agents            |     
|               | G.                                                                     | Statements by experts                  |     
|               | H.                                                                     | Documents on display                   |     
|               | I.                                                                     | Subsidiary information                 |     
|Item 11:       | Quanititive and Qualitative Disclosures About Market Risk              |                                        | 40  
|Item 12:       | Description of Securities Other than Equity Securities                 |                                        | 41  
|PART II        |                                                                        |                                        |     
|Item 13:       | Defaults, Dividend Arrearages and Delinquencies                        |                                        | 41  
|Item 14:       | Material Modifications to the Rights of Security Holders and Use of    |                                        | 41  
|               | Proceeds                                                               |                                        |     
|Item 15:       | Controls and Procedures                                                |                                        | 41  
|Item 16:       | Reserved                                                               |                                        | 41  
|Item 16A:      | Audit Committee Financial Expert                                       |                                        | 41  
|Item 16B:      | Code of Ethics                                                         |                                        | 41  
|Item 16C:      | Principal Accountant Fees and Services                                 |                                        | 41  
|Item 16D:      | Exemptions from the Listing Standards for Audit Committees             |                                        | 42  
|Item 16E:      | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |                                        | 42  
|PART III       |                                                                        |                                        |     
|Item 17:       | Financial Statements                                                   |                                        | 42  
|Item 18:       | Financial Statements                                                   |                                        | 42  
|Item 19:       | Exhibits                                                               |                                        | 60  





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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 presented below for the five years ended December 31, 2005 is derived from CE Franklin Ltd. (CE Franklin or the Company) financial statements that were examined by the Company's independent auditors.  The information set forth below should be read in conjunction with the financial statements of CE Franklin (including notes thereto) included under Item 18 and "Operating and Financial Review and Prospects" included under Item 5.  The selected financial data presented below is presented in Canadian dollars and in accordance with Canadian generally accepted accounting principles or (Canadian GAAP).

As at and for the Year Ended December 31CANADIAN GAAP
	2005
	2004
	2003
	2002
	2001(in millions of Cdn. dollars except percentages, shares and per share data)Statements of Operations:Sales
	482.4
	338.7
	257.1
	255.1
	371.1Gross Profit
	91.3
	60.2
	43.6
	35.0
	42.0% of sales
	18.9
	17.8
	16.9
	13.7
	11.3Income (loss) from continuing operations
	18.9
	6.1
	1.3
	(2.0)
	(1.1)Income (loss) from discontinued operations
	-
	(0.0)
	(0.9)
	(0.5)
	1.7Net Income (loss)
	18.9
	6.1
	0.4
	(2.5)
	0.6% of Sales
	3.9
	1.8
	0.2
	(1.0)
	0.2Net income (loss) per share from continuingoperationsBasic
	1.09
	0.36
	0.07
	(0.12)
	(0.06)Diluted
	1.01
	0.35
	0.07
	(0.12)
	(0.06)Net income (loss) per shareBasic
	1.09
	0.36
	0.02
	(0.15)
	0.04Diluted
	1.01
	0.35
	0.02
	(0.15)
	0.04Balance Sheets:Total Assets
	192.5
	145.5
	117.6
	99.5
	112.9Capital Stock
	21.9
	19.3
	19.3
	19.3
	19.2Shareholders' Equity
	75.9
	54.1
	47.6
	47.2
	50.0Number of Shares Outstanding
	17,804,554
	17,194,934
	17,178,696
	17,178,696
	17,158,091Dividends Declared
	nil
	nil
	nil
	nil
	nil




Net income (loss), shareholders equity, and other balance sheet amounts as determined in accordance with Canadian GAAP differ from those determined in accordance with United States generally accepted accounting principles (U.S. GAAP), due principally to the recording of certain restructuring expenditures such as goodwill, the realization of certain deferred tax benefits, the change in tax rates and the transitional provision in 2002 with respect to impairment of goodwill.  Under U.S. GAAP, the restructuring expenditures, the change in tax rates and the transitional provision with respect to goodwill would have been recorded in the statement of operations and the benefit of the deferred tax assets would have been recorded as a reduction of goodwill.  See Note 17 to the December 31, 2005 financial statements included under Item 18.



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AMOUNTS IN ACCORDANCE WITH U.S. GAAP

As at and for the Year Ended December 312005
	2004
	2003
	2002
	2001(in millions of Cdn. dollars except per share data)Net Income (loss)
	18.9
	6.1
	0.4
	(2.9)
	1.3Net Income (loss) Per ShareBasic earnings per shareContinuing operations
	1.09
	0.36
	0.07
	(0.14)
	(0.02)Net income (loss)
	1.09
	0.36
	0.02
	(0.17)
	0.08Diluted earnings per shareContinuing operations
	1.01
	0.35
	0.07
	(0.14)
	(0.02)Net income (loss)
	1.01
	0.35
	0.02
	(0.17)
	0.08Total Assets
	191.1
	144.1
	116.3
	98.2
	111.5Shareholders' Equity
	74.6
	52.7
	46.2
	45.8
	48.6




All dollar amounts set forth in the Annual Report on Form 20-F are in Canadian dollars, except where otherwise indicated.  The following tables set forth (i) the closing exchange rate at the end of the period, the average exchange rate during the period based on the closing exchange rate on the last day of each month and the high and low closing exchange rates based on the closing exchange rate on the last day of each month, (ii) the closing exchange rate at the end of each period, the average exchange rate during the period and the high and low exchange rates based on the closing exchange rate for each day during the month and (iii) the closing exchange rate for the day.  The rates used are based on Bank of Canada foreign exchange rates.

(i)

Year Ended December 31,2005
	2004
	2003
	2002
	2001Rate at end of period
	0.8598
	0.8319
	0.7713
	0.6339
	0.6278Average rate during period
	0.8271
	0.7716
	0.7195
	0.6376
	0.6448High
	0.8601
	0.8432
	0.7713
	0.6595
	0.6672Low
	0.7946
	0.7288
	0.6572
	0.6242
	0.6278




(ii)

2006
	
	
	2005February
	January
	December
	November
	October
	SeptemberRate at end of period
	0.8798
	0.8780
	0.8598
	0.8570
	0.8466
	0.8601Average rate during period
	0.8704
	0.8645
	0.8612
	0.8468
	0.8491
	0.8493High
	0.8798
	0.8780
	0.8682
	0.8570
	0.8586
	0.8601Low
	0.8633
	0.8543
	0.8524
	0.8377
	0.8416
	0.8412


(iii)On March 22, 2006, the closing rate in Canadian dollars was US $0.8576 = Cdn. $1.00.

B.

Capitalization and indebtedness

Not applicable.

C.

Reasons for the offer and use of proceeds

Not applicable.



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D.

Risk factors

In addition to the information set forth elsewhere in this Form 20-F, the following factors should be carefully considered when evaluating CE Franklin.

Fluctuations in oil and gas prices could affect the demand for CE Franklins products and services and, therefore, CE Franklins sales, cash flows and profitability.CE Franklins operations are materially dependent upon the level of activity in oil and gas exploration, development and production.  Both short-term and long-term trends in oil and gas prices affect the level of such activity.  Oil and gas prices and, therefore, the level of drilling, exploration and production activity can be volatile.  Factors that can cause price fluctuations include:

·

relatively minor changes in, or threats to, the worldwide supply of and demand for oil and natural gas;

·

the ability of the members of the Organization of Petroleum Exporting Countries (OPEC) to maintain price stability through voluntary production limits;

·

the level of production by non-OPEC countries;

·

North American demand for gas;

·

the movement of the Canadian dollar relative to its U.S. counterpart (crude oil and natural gas exports are traded in U.S. dollars);

·

general economic and political conditions in North America and worldwide; and

·

the presence or absence of drilling incentives such as Canadian provincial royalty holidays, fluctuation in the value of the Canadian dollar, availability of new leases and concessions and government regulations regarding, among other things, export controls, environmental protection, taxation, price controls and product allocation.

CE Franklin believes that any prolonged reduction in oil and gas prices would depress the level of exploration and production activity.  This would likely result in a corresponding decline in the demand for CE Franklins products and services and could have a material adverse effect on CE Franklins sales, cash flows and profitability.  There can be no assurances as to the future level of demand for CE Franklins products and services or future conditions in the oil and gas and oilfield supply industries.

Adverse weather conditions could temporarily decrease the demand for CE Franklins products and services.CE Franklins financial performance is tied closely to the seasonality of drilling activity.  Higher drilling activity in Canada is generally experienced in the winter months.  In the spring and early summer, drilling activity slows due to the difficulty in moving equipment during the spring thaws.  To the extent that unseasonable weather conditions such as excessive rain or unusually warm winters affect the ability of CE Franklins customers to access their oil and gas wells, then the demand for CE Franklins products and services would temporarily decrease and the Companys sales, cash flows and profitability would be adversely affected.

CE Franklin operates in a highly competitive industry, which may adversely affect CE Franklins sales, cash flows and profitability.The Canadian oilfield supply industry in which CE Franklin operates is very competitive.  The Company believes that its future profitability is partially influenced by competitive factors beyond its control, including:

·

the ability of some customers to purchase pipe, valves, flanges, fittings, production equipment, tubular products and other general oilfield supplies directly from the manufacturer rather than from the Company;

·

the ability of new brokers and distributors to enter the market if the oil and gas industry were to experience significant growth;

·

price competition among major supply companies;

·

cost of goods being subject to rising or declining commodity prices, such as the price of steel, and the inability of CE Franklin to pass these price increases on to customers, or the risk CE Franklin may have higher-cost inventory during declining commodity prices resulting in a deterioration in gross profit margins.



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CE Franklin and its largest competitors generally operate at low profit margins due to price competition.  Price competition is due in part to customer price pressure, in addition to the major supply companies competing for the same business.

The loss of CE Franklins major supplier for tubular products could adversely affect the Companys sales and gross profit.  A portion of CE Franklins business is the sale of tubular products that are primarily obtained from one supplier.  Although the Company believes that it has historically had and continues to have a good relationship with its supplier, there can be no assurance that such relationship will continue.  In the event the Company is unable to source tubular products from its existing supplier, then CE Franklin would need to search for an alternate supplier of these goods.  There can be no assurance that a suitable alternate supplier for such goods would be found.

Labour shortages could adversely affect the Companys ability to service its customers.The Company faces the challenge of attracting and retaining workers to meet any increase in demand for its products and services.  In a highly competitive market for employees, the Company may experience periods of high employee turnover that could result in higher training costs or reduced levels of service to customers.  This could result in increased costs or the loss of customers and market share.

During periods of high demand for products and services, the Company may experience product shortages.  The frequency and duration of the shortages may impact the financial performance of the Company.  Product shortages may impact profit margins or could result in the loss of customers.

The Company is exposed to market risks from changes in the Canadian prime interest rate and foreign exchange rates with respect to the Canadian dollar and the U.S. dollar for products it purchases outside Canada.  The Company may enter into foreign currency forward exchange contracts and interest rate contracts to hedge the risks associated with foreign currency and interest rate fluctuations.  Gain or losses with respect to such hedge contracts may materially affect net income.

The majority of the Companys sales are generated from customers in the energy sector.  This includes major multinational and independent oil companies, pipeline companies and contract drilling companies operating in Canada.  In addition, for the year ended December 31, 2005 11% of sales (2004  12%; 2003  14%) were derived from sales to one customer.  No other customer accounted for more than 10% of the Companys sales.

The Company may experience a financial loss if its significant customers fail to pay CE Franklin for its products or services.The Companys ability to collect the proceeds from the sale of its products and services from its customers depends on the payment ability of its customer base, which includes a significant customer who constitutes 11% of its annual sales. If this customer fails to pay CE Franklin for any reason, the Company could experience a material loss.

Significant downtime at the Companys 100,000 square foot centralized distribution centre located in Edmonton, Alberta could materially impact net income and cash flow from operations.  The Company operates a hub and spoke distribution model with the distribution centre strategically located within reasonable proximity to a majority of its vendors.  In addition, the distribution centre acts as a hub for its 41 branches.  Significant downtime at this facility would impact the Companys gross profit margins net income and cash flow from operations.

A substantial portion of the Companys sales to customers will depend on written contracts that are cancelable at any time, or will be based on verbal agreements.  The key factors which will determine whether a customer will continue to use the Company are pricing, service quality and availability, strategically located service centers and technical knowledge and experience.  There can be no assurance that the Companys relationships with its customers will continue, and a significant reduction or total loss of business from these customers, if not offset by increased sales to new or existing customers, could have a material adverse effect on the Companys net income or cash flow from operations.

If the Company is unable to successfully address potential material weakness in its internal controls, or any other control deficiencies, its ability to report its financial results on a timely and accurate basis and to comply with disclosure and other requirements may be adversely affected.  The Company is not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002,



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and are therefore not required to make an assessment of the effectiveness of its internal controls over financial reporting for that purpose. A material weakness is defined as a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

CE Franklin will continue to monitor the effectiveness of these and other processes, procedures and controls and will make any further changes management determines appropriate, including to effect compliance with Section 404 of the Sarbanes-Oxley Act of 2002 when required to make an assessment of internal controls under Section 404 for fiscal 2006.The steps CE Franklin has taken and will take in the future may not remediate the material weakness. In addition, the Company may identify material weaknesses or other deficiencies in our internal controls in the future.

Any material weaknesses or other deficiencies in the Companys control systems may affect its ability to comply with reporting requirements and listing standards or cause its financial statements to contain material misstatements, which could negatively affect the market price and trading liquidity of its common stock, cause investors to lose confidence in the Companys reported financial information, as well as subject CE Franklin to civil or criminal investigations and penalties.

There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.While CE Franklin has taken actions designed to address compliance with the internal control, disclosure control and other requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the SEC implementing these requirements, there are inherent limitations in the Companys ability to control all circumstances. Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Companys internal controls and disclosure controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions, such as growth of the Company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

If the Company loses key management and technical personnel, its business may suffer.  CE Franklin relies upon a relatively small group of key management and technical personnel. Mr. West, in particular, has extensive experience in oilfield supply and distribution.  The Company does not maintain any key man insurance and it cannot assure you that these individuals will remain with us in the future. An unexpected partial or total loss of their services may harm the Companys business.

The Companys share ownership is highly concentrated and, as a result, CE Franklins principal shareholder effectively controls the Companys business.  As at the date of this Form 20F, CE Franklins largest shareholder, Smith International, owned approximately 53.3% of the Companys common outstanding shares.  As a result, Smith International has the voting power to significantly influence the Companys policies, business and affairs and the outcome of any corporate transaction or other matter, including mergers, consolidations and the sale of all, or substantially all, of the Companys assets.

In addition, the concentration of the Companys ownership may have the effect of delaying; deterring or preventing a change in control that otherwise could result in a premium in the price of the Companys common shares.



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The Company is at risk for certain operating hazards.  CE Franklins operations are subject to hazards present in the oil and natural gas industry which can cause personal injury and damage to property or the environment. Litigation arising from an accident at a location where its products or services are used or provided may cause the Company to be named as a defendant in lawsuits asserting potentially large claims. CE Franklin has insurance coverage against operating hazards, which the Company believes is customary in the industry.  This insurance has deductibles and contains certain coverage exclusions and limitations. The Companys insurance premiums can be increased or decreased based on the claims it makes on its insurance policies. Results of operations could be adversely affected by unexpected claims not covered by insurance.

Item 4:

Information on the Company

A.

History and development of the Company

In November 1993, Franklin Supply Company Ltd. (Franklin), a Canadian company, completed its initial public offering and its shares were listed on the American Stock Exchange.

CE Franklin is the result of the combination by reverse takeover of Franklin and Continental Emsco Company Limited (CEL) on November 3, 1995. On January 1, 1996, Franklin Supply and its wholly owned subsidiary CEL amalgamated, resulting in CE Franklin.  On September 26, 1996, the common shares of CE Franklin began trading on the Toronto Stock Exchange under the symbol CFT.  CE Franklin also trades on the American Stock Exchange under the symbol CFK.

On January 1, 1998, Brittania Compression Sales Ltd., Domino Machine Ltd. and Northstar Industrial Ltd. were amalgamated into a new, wholly owned subsidiary, CEF Technologies Ltd.  On January 1, 1998 BWM Supply and Service Ltd. was amalgamated with CE Franklin Ltd.  As a result of these transactions, on January 1, 1998 CE Franklin had one wholly owned subsidiary, CEF Technologies Ltd.

On May 29, 1999, Smith International, Inc. (Smith) acquired all the common shares previously held by Continental Emsco Company, which constituted 51.2% of the Companys outstanding common shares.  As of March 22, 2006 Smith owned 53.3% of the Companys outstanding common shares.

On February 1, 2002, CE Franklin amalgamated with its wholly owned subsidiary CEF Technologies Ltd.

On January 31, 2003 the Company transferred the property, equipment and operations of its small horsepower compression operations into a wholly owned subsidiary.  Subsequently a 50% interest in the new subsidiary was sold for $538,000.

On March 31, 2004 the Company sold its remaining 50% interest in its small horsepower compression operations for cash proceeds of $961,000.

The Company is registered in the province of Alberta in the country of Canada.  The principal address and telephone number of the Company are as follows:

CE Franklin Ltd.

Suite 1900

300  5th Avenue S.W.

Calgary, Alberta Canada

T2P 3C4

403-531-5600

Principal Capital Expenditures and Divestitures

On January 31, 2003 the Company transferred the property, equipment and operations of its small horsepower compression operations into a wholly owned subsidiary.  Subsequently, a 50% interest in the new subsidiary was sold for $538,000.  On March 31, 2004, the Company sold its remaining 50% interest for cash proceeds of $961,000.  No gain or loss on disposition resulted from the divestitures.

On December 18, 2001 the Company sold its Domino Machine operations for net cash proceeds of $7,924,000 resulting in a net after tax gain of $1,102,000.  Domino Machine provided custom machining services to the energy industry and was not considered a core operation to the Company.  The net proceeds from this transaction were used to reduce the Companys outstanding bank operating loan.



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CE Franklin did not acquire or divest any businesses from 2001 to 2005 other than those disclosed above.

The Company has discussed the possible acquisition of complementary businesses and competitors.  The Company has not entered into any agreement with respect to any prospective acquisition.  The Company intends to continue discussions and to make acquisitions in the future when they are deemed advantageous to the Company.  There can be no assurance that the Company will be able to expand its Canadian operations by further acquisitions.  In addition, if the Company makes acquisitions, there can be no assurance that such transactions will prove to be profitable for the Company.

B.

Business overview

Distribution

CE Franklin distributes pipe, valves, flanges, fittings, production equipment, tubular products and other general oilfield supplies to producers of oil and gas in Canada through its 41 branches and tubular stocking points which are situated in towns and cities that serve particular oil and gas fields of the western Canadian sedimentary basin.  In addition, the Company distributes general oilfield supplies to the oilsands, refining, heavy oil and petrochemical and non-oilfield related industries such as the forestry and mining industries.

CE Franklin, from time to time, will open or close branches or tubular stocking points to meet customers requirements and fluctuating market conditions.  During 2005, the Company opened new branches in Rocky Mountain House, Strathmore and Grande Cache, Alberta.  The branches not only act as the retail one stop shop for the oil and gas industry by providing over 25,000 regularly-stocked Stock Keeping Units (SKUs) of product, but they also provide the field with services to support the oil and gas producers.  The branches provide materials management services to enable the customers to get the right products at the right time.  Should the branch not have a particular product in stock, it has overnight access to the centralized distribution centre in Edmonton, Alberta.

Other services provided by the branches include pump repair, customized pump designs and testing, convenient hours and locations and 24-hour on call service.  In addition, CE Franklin provides well optimization analysis and onsite project management.

CE Franklin manages its buying and distribution through a 100,000 square-foot centralized distribution centre (the Distribution Centre) located in Edmonton, Alberta.  The Distribution Centre is strategically located within reasonable proximity to a majority of vendors and acts as the hub for the branches.  Its location reduces freight costs through effective consolidation of shipments.  It provides a cross-dock function that minimizes inventory levels and maximizes service through automatic stock replenishment. The Distribution Centre is International Organization for Standardization 9001 - 2000 (ISO) certified, which is required by a growing number of CE Franklins customers in conformance with their own ISO programs.

For the supply chain to be effective, strong relationships must be cultivated between the Company and its customers.  Several customers have looked to CE Franklin for its expertise in materials management and other service support.  The formal arrangement between the Company and its customers is referred to as an alliance or an enhanced business relationship.

Through building alliances, the Company now manages approximately 50 warehousesfor its customers.  The trend is for customers to focus on their core competencies and outsource non-core areas.

A significant portion of the tubular products sold by the Company are products manufactured by a Canadian steel manufacturer with manufacturing facilities located in western Canada.  The Company relies on this Canadian steel mill for the supply of tubular products that comprise a material portion of its



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sales.  The Company believes that it has historically had and continues to have a good relationship with this supplier.  The Company will import tubular products from overseas manufacturers to supplement its inventory.

Business and Operating Strategy

The Companys business and operating strategy includes improving the Companys value offering and service to its customers, increasing market share, maximizing gross profit margins through procurement practices, rationalizing expenses through process improvement efficiencies and improving earnings.  CE Franklin has rebuilt its value offering for its customer base and is leveraging its relationship with Wilson International, Inc. (Wilson Supply), a wholly owned subsidiary of Smith in the United States to offer a North American solution to its customer base.  The Company will continue to focus on continuous improvement in the areas of customer service and operational effectiveness.  CE Franklin will continue in its efforts to strengthen and grow its market share.

Operations

CE Franklins operations are divided into: sales, which includes product and account management and inside sales functions; marketing and supply, which include central purchasing and product pricing; operations, which includes branches and tubular stocking points strategically located to optimize customer service, the Distribution Centre, and information technologies; customer service, safety and quality; finance and administration; and business effectiveness (human resources).

The product management function includes technical and sales personnel who specialize in providing product sales and service for the Companys specialized product lines, such as bottom hole pumps and other production equipment, steel and fiberglass tubulars and valves.

To ensure coordination and close contact with all of the Companys major customers a sales group, working out of Calgary, Alberta where many customer head offices are located, act as account managers with specific individual responsibilities for managing the Companys business and alliance relationships with its customers.  In addition, the Company has regional area sales representatives who are responsible for coordinating sales and activities in the field.  The inside sales group is responsible for coordination and preparation of hundreds of competitive bid packages each year for Canadian and international sales.

Individual branch managers are responsible for the branch in their district.  The branch is the front line interface with the customer.  The Distribution Centre provides centralized materials management services for CE Franklins branches and where practical will ship product directly to customers.  The information technologies group is a fundamental component of providing service to customers and is responsible for maintaining the Companys enterprise and electronic commerce systems.  The marketing and supply group is responsible for inventory procurement, pricing and margins.  Customer service, safety and quality ensure processes and procedures are in place to deliver superior customer service while maintaining a safe work environment for the Companys employees.

Competition

The Canadian oilfield supply industry is highly competitive and fragmented.  CE Franklin and its largest competitors generally operate at low profit margins due to price competition.  Price competition is due to customer price pressure and to competition among the major supply companies for the same business.  Costs of goods may not be subject to competitive pressures due to the ability of manufacturers of certain products, particularly tubular products, to hold the prices at which they sell their products.  The Company believes that its future profitability is partially influenced by additional competitive factors beyond its control, including the ability of some customers to purchase products directly from the manufacturer rather than from independent oilfield supply distributors.  In addition, if the oil and gas industry were to experience significant growth in drilling activity, new competitors could arise due to the low capital investment required.

There are approximately 250 oilfield supply stores in Canada operated by seven large companies and many smaller ones, and there are approximately 25 dealers in oilfield tubulars.  The oilfield supply market is part of the larger industrial supply market, which is also served in part by numerous other competitors.



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Some of CE Franklins major competitors have manufacturing divisions or affiliates that produce some of their product lines.  This vertical integration may place the Company at a cost disadvantage.  The market is further fragmented by (i) companies that specialize in the sales of certain products, (ii) general industrial supply houses that overlap with the oilfield suppliers particularly in the area of pipe, valves and fittings, (iii) manufacturers who sell directly to the oil and gas industry and (iv) major oil companies that sometimes purchase directly from manufacturers on large orders.

Smith, which owns 53.3% of the Company as of March 22, 2006, and its affiliates, including Wilson Supply, have verbally indicated that they will not compete with CE Franklin in Canada.  CE Franklin has verbally agreed not to compete with Smith or Wilson Supply in the United States.  However, there are no assurances that these agreements will not change at a future date.

In many of the established oil and gas producing countries outside of North America, oilfield equipment and supplies are sold and supplied differently and, accordingly, North American-style branches are not common.  As a result of price competition in Canada, profit margins in the industry are typically not high and profitability is achieved by continuously improving the effectiveness of personnel and the efficiency of systems.

Adverse weather conditions could temporarily decrease the demand for CE Franklins products and services.  CE Franklins financial performance is tied closely to the seasonality of drilling activity.  Higher drilling activity in Canada is generally experienced in the winter months.  In the spring and early summer, drilling activity slows due to the difficulty in moving equipment during the spring thaws.  To the extent that unseasonable weather conditions such as excessive rain or unusually warm winters affect the ability of CE Franklins customers to access their oil and gas wells, then the demand for CE Franklins products and services would temporarily decrease and the Companys revenues, cash flows and profitability would be adversely affected.

C.

Organizational structure

On February 1, 2002, CE Franklin amalgamated with its wholly owned subsidiary, CEF Technologies Ltd.  The Company operated as one legal entity, CE Franklin Ltd. from February 1, 2002 to January 31, 2003.

On January 31, 2003, the Company transferred the property, equipment and operations of its small horsepower compression operations into a wholly owned subsidiary.  Subsequently, a 50% interest in the new subsidiary was sold for $538,000.

On March 31, 2004 the Company sold its remaining 50% interest in its small horsepower compression operations for cash proceeds of $961,000.

D.

Property, plant and equipment

Description of Property

The Companys headquarters is located in Calgary, Alberta and its Distribution Centre is based in Edmonton, Alberta.  The Company has 26 branches in Alberta, six in Saskatchewan, seven in British Columbia, one in Manitoba and one in Ontario.  The Company owns three locations and leases the remaining locations.  The owned properties represent two branches in Alberta, and one branch in Saskatchewan.  The owned properties are subject to a general security agreement in favor of the Companys principal lender.  The Company will either lease or purchase facilities in certain areas after evaluating the economics of both alternatives.

The current capacity at the Companys branches and Distribution Centre is considered adequate to meet current market demand.  In the past, the Company has been able to secure new operating facilities, as required.

The Company is not aware of any environmental issues that could have a material impact on any of its properties.

Property and equipment decreased 42.0% to $3.5 million as at December 31, 2005.  This decrease reflects amortization expense of $4.4 million offset by capital expenditures of $587,000 and $1.2 million in additions to rental equipment assets and capital leases.  As at December 31, 2005, approximately



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$388,000 in property and equipment (original cost of $16 million) relates to the Companys investment in its enterprise and electronic commerce systems.  This accounted for $2.3 million in amortization expense for the year-ended December 31, 2005.  As at December 31, 2005 the majority of these assets have been fully amortized and, as a result, the $2.3 million in amortization expense incurred in 2005 will decrease to $388,000 in 2006.  The Company anticipates that its enterprise and electronic commerce systems will operate beyond 2006 without any significant costs for upgrades.  However, there can be no assurances in this regard.

Item 5:

Operating and Financial Review and Prospects

Managements Discussion and Analysis as at February 2, 2006

The following Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided to assist readers in understanding CE Franklins financial performance during the periods presented and significant trends that may impact future performance of CE Franklin.  This discussion should be read in conjunction with the financial statements of CE Franklin and the related notes thereto.

The selected financial data presented below is presented in Canadian dollars and in accordance with Canadian GAAP.

For a discussion of the principal differences between CE Franklins financial results as calculated under Canadian GAAP and U.S. GAAP, see Note 17 to the financial statements of CE Franklin.

OVERVIEW

CE Franklin distributes pipe, valves, flanges, fittings, production equipment, tubular products and other general oilfield supplies to producers of oil and gas in Canada through its 41 branches and tubular stocking points which are situated in towns and cities that serve particular oil and gas fields of the western Canadian sedimentary basin.  In addition, the Company distributes general oilfield supplies to the oilsands, refining, heavy oil and petrochemical and non-oilfield related industries such as the forestry and mining industries.

The Company operates its business in only one operating segment, which is the distribution of pipe, valves, flanges, fittings, tubular products, production equipment and general oilfield supplies to the producers of oil and gas in Canada.  CE Franklin considers all of the products it distributes to have similar economic characteristics, and are sold to the same class of customers being producers of oil and gas.  Operating results by product lines, geographic area or other lower level components or units of operations are not regularly reviewed by our chief operating decisions makers to make decisions about the allocation of resources to, or the assessment of performance of, such product lines, geographic areas or components or units of operations.

SALES

The Companys sales are dependent upon the level of oil and gas exploration and production activity in the western Canadian sedimentary basin, including the oilsands.  This activity is cyclical and is primarily influenced by worldwide energy prices, but may also be affected by expectations related to the worldwide supply of and demand for oil and natural gas, finding and development costs, economic and political events and uncertainties and environmental concerns.  The Company mitigates the cyclical nature of its business by adjusting its variable and fixed (primarily salaries and benefits) selling, general and administrative costs (SG&A) as activity levels change.

The Company generates sales principally from the distribution of pipe, valves, flanges, fittings, production equipment, general oilfield supplies and tubular products to producers of oil and gas in the western Canadian sedimentary basin.  The Companys sales for the year ended December 31, 2005 were $482.4 million, compared to $338.7 million for the year ended December 31, 2004 and $257.1 million for the year ended December 31, 2003.  The sales growth is attributable to an increase in market activity and an



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increase in market share.

Commodity prices generally remained high in 2005.  The price of oil and the price of gas as at December 31, 2005 were U.S. $61.04 per bbl (West Texas Intermediate) and Cdn. $9.01 per gj (AECO spot) respectively, and the average price of oil and the average price of gas for the year ended December 31, 2005 were U.S. $56.57 per bbl and Cdn $8.31 per gj respectively.  This compares to U.S. $43.45 per bbl for oil and Cdn. $5.90 per gj for gas as at December 31, 2004, and to an average of U.S. $41.37 per bbl for oil and an average of Cdn. $6.22 per gj for gas for the year ended December 31, 2004.  As at December 31, 2003 the price of oil and the price of gas were U.S. $32.79 per bbl and Cdn $6.88 per gj respectively, and the average price of oil and the average price for gas for the year ended December 31, 2003 were U.S. $31.04 per bbl and Cdn. $6.32 per gj respectively.  The strong commodity prices resulted in Canadian oil and gas producers having increased cash flow which enabled them to increase capital spending on exploration and production activities.

The Company uses oil and gas well completions and average rig counts as industry activity measures.  Oil and gas well completions require the products sold by the Company and therefore are a good general indicator of market activity.  Average rig counts provide a general indication of energy industry activity levels.

For the year ended December 31, 2005 the total number of wells completed (excluding dry and service wells) in western Canada increased 0.6% to 20,238 wells compared to 20,118 wells for the year ended December 31, 2004.

For the year ended December 31, 2004, the total number of wells completed (excluding dry and service wells) in western Canada increased 12.4% to 20,118 wells, compared to 17,905 wells for the year ended December 31, 2003.

The average rig count for the year ended December 31, 2005 increased 26.4% to 469 average rigs as compared to 371 average rigs for the year ended December 31, 2004.

The average rig count for the year ended December 31, 2004 was 371 average rigs, which is the same as the average rig count for the year ended December 31, 2003.

The Companys sales are also affected by weather conditions.  Many exploration and production areas in the northern portion of the western Canadian sedimentary basin are accessible only in the winter months when the ground is frozen.  As warm weather returns in the spring (April/May of each year), the ground thaws, rendering many secondary roads incapable of supporting the weight of the heavy equipment necessary for exploration and production activities in that region until they have dried out.  As a result, the first and fourth quarters typically represent the busiest time and highest sales activity for the Company.  Sales levels drop dramatically during the second quarter until such time as the roads have dried and road bans have been lifted.  This typically results in a significant reduction in earnings during the second quarter as the Company does not reduce its SG&A expenses during the second quarter to offset the reduction in sales.

The Company distributes its products through 41 branches and tubular stocking points, which are situated in the towns and cities that serve particular oil and gas fields of the western Canadian sedimentary basin.  The Company will, from time to time, open or close branches to meet customers requirements and fluctuating market conditions, which will impact the Companys sales.  The Company also has a 100,000 square-foot centralized distribution centre located in Edmonton, Alberta.  The distribution centre is strategically located within reasonable proximity to a majority of vendors and acts as the hub for its operations.

The Companys sales, which are almost entirely comprised of product sales, are generally subject to arrangements which specify price and general terms and conditions.  The Company recognizes product sales when title and the related risk of loss transfers to customers. Several customers have looked to the Company for its expertise in materials management and other service support. Through these alliances, the Company manages approximately 50 warehouses for its customers.  CE Franklin consigns inventory to these customer warehouses and recognizes sales when the customer uses the products stored at these warehouses.  The sales and profits from customer warehouses are insignificant from a financial perspective as compared to total sales and profitability.  The trend is for the Companys customers to



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focus on their core competencies and outsource non-core supply chain areas to the Company.

The Companys sales depend to a large extent on the Companys strong relationships with its customers.  To ensure coordination and close contact with all of the Companys major customers, a sales group working out of Calgary, Alberta (where many of the head offices of the Companys customers are located) act as account managers with specific individual responsibilities for managing the Companys business and alliance relationships with its customers.  In addition, the Company has regional area sales representatives that coordinate sales and activities in the field.

CE Franklin has two vendors with which it does significant business. If either of those relationships were terminated it could have a material effect on the Companys sales, business and financial condition. The Company believes that it has historically had, and continues to have, a good relationship with these two suppliers, and alternate sources of supply are available for the products purchased from the supplier. Customers reaching a certain tonnage of tubular products, for the most part, could have the volume to bypass distribution companies such as CE Franklin and purchase directly from steel mills. Loss of such tubular product customers could have a material effect on the Companys sales.

EXPENSES

The Companys expenses are comprised of cost of sales, selling, general and administrative expenses, amortization expense, interest expense relating to the Companys demand bank operating loan and obligations under capital leases, and other income and expenses.  Each of the items is discussed below in detail.

Cost of Sales

Cost of sales is comprised of the average cost of products purchased from various manufacturers and sold to the Companys customers, net of vendor rebates from suppliers, freight expense and inventory obsolescence and shrink expenses.  The Companys 41 branches, and distribution centre stock 25,000 regularly-stocked Stock Keeping Units (SKUs) of product/inventory for its customers.  In addition, the Company will purchase and resell non-regularly stocked products as required by its customers.  These products are purchased from various manufacturers at prices reflecting the volume of product purchased from the manufacturers.  Inventories are valued at the lower of average cost or net realizable value.

Selling, General and Administrative Expenses

SG&A is comprised of certain fixed expenses such as employee salaries and benefits, sales and marketing costs, occupancy and warehouse costs, office and vehicle costs, as well as certain variable expenses such as agents commissions, which are paid to branch agents based on a percentage of gross profit dollars earned by the branch agent, and performance pay incentives to employees.

For the year-ended December 31, 2005, fixed expenses were approximately 68% of total SG&A (2004  75%; 2003  86%).

In 2006, SG&A expenses will include costs associated with the Companys SOX404 certification (outside consulting and audit fees).  It is anticipated that the SOX404 certification will cost the Company approximately $1.5 million to $2.0 million or $0.05 to $0.07 per share, diluted, in 2006.

Amortization

Amortization expense relates to the Companys investment in property and equipment, which is recorded at cost, less related accumulated amortization.  The Companys property and equipment is comprised of investments in its enterprise and electronic commerce systems, building and leasehold improvements, equipment and machinery and furniture and office equipment relating to its 41 branch locations, its centralized distribution facility, and its corporate head office.

Property and equipment decreased 42.0% to $3.5 million as at December 31, 2005.  This decrease reflects amortization expense of $4.4 million offset by capital expenditures of $587,000 and $1.2 million in additions to rental equipment assets and capital leases.  As at December 31, 2005, approximately $388,000 in property and equipment (original cost of $16 million) relates to the Companys investment in its enterprise and electronic commerce systems.  This accounted for $2.3 million in amortization expense



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for the year-ended December 31, 2005.  As at December 31, 2005 the majority of these assets have been fully amortized and, as a result, the $2.3 million amortization expense incurred in 2005 will decrease to $388,000 in 2006 resulting in an increase in net income of approximately $0.06 per share diluted.  The Company anticipates that its enterprise and electronic commerce systems will operate beyond 2006 without any significant costs for upgrades.  However, there can be no assurances in this regard.

Interest

Interest expense is comprised of interest on the Companys demand bank operating facility, and interest expense related to obligations under capital leases. The Company finances its working capital requirements, accounts receivable, inventory, bank overdraft, accounts payable and accrued liabilities with its bank operating loan. The Company will fund capital expenditures from cash flow from operating activities and capital leases where available.

Other Expenses (Income)

Other expenses include foreign exchange gains or losses relating to the purchase of inventory from U.S. and international suppliers, and gains or losses on the sale of property and equipment.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  The Company evaluates its estimates on an ongoing basis, based on historical experience and other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions and conditions.

The Company believes the following describes the significant judgments and estimates used in the preparation of its financial statements.

Accounts Receivable and SG&A Expenses

The Company extends credit to customers and other parties in the normal course of business. Management regularly reviews outstanding accounts receivable and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of the established allowance, management makes judgments regarding the parties ability to make required payments, economic events and other factors.  As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required.  These adjustments, if required, would result in a decrease in accounts receivable and an increase in bad debt expense included under SG&A.  The effect on the overall performance of the Company would be dependent on the size of the customer in relation to the Companys sales.  For the three years ended December 31, 2005, 2004 and 2003, the Companys bad debt expense has been $459,000, $244,000 and $266,000, respectively.

Carrying Value of Inventory and Cost of Sales

The Company has made significant investments in inventory to service its customers.  On a routine basis, the Company uses judgments in determining the level of write-downs required to record inventory at the lower of average cost or market. Managements estimates are primarily influenced by technological innovations, market activity levels and the physical condition of products.  Changes in these or other factors may result in a write-down in the carrying value of inventory that would result in an increase in cost of sales and a reduction in inventories.  For the three years ended December 31, 2005, 2004 and 2003 inventory write-downs included in cost of sales were $280,000, $1.5 million and $1.5 million respectively.  Inventory write-downs declined dramatically in 2005 due to the Company focusing on the sale of its core products.

Future Tax Assets and Liabilities

Future tax assets and liabilities are recognized for differences between the book value and tax value of the net assets of the Company. In providing for future taxes, management considers current tax regulations, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value



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of future tax assets and liabilities may be required. See note 7 to the financial statements for the significant components of the future income tax assets and liabilities, and a reconciliation of the Companys income tax provision.

Stock-based Compensation

As of January 1, 2003, the Company adopted prospectively the fair value based method of accounting for stock options, which means that the amount expensed in each period for common share options granted to employees, officers and directors is the fair value of the options, calculated using the Black-Scholes options-pricing model and net of options forfeited in the period, amortized over the vesting period of the options.  Compensation expense of $552,000 was recorded in 2005, $256,000 in 2004 and $36,000 was recorded in 2003.  See note 8b to the financial statements for a description of the effect on the financial statements if the fair value method had been adopted for options awarded prior to January 1, 2003.

Goodwill

The Company acquired certain operations during the past decade, which has resulted in the recording of a material amount of goodwill on the balance sheet.  In accordance with Canadian GAAP, the Company is required to perform an annual goodwill impairment evaluation, which is largely influenced by future cash flow projections, earnings and cash flow multiples.  Estimating future cash flows of the Companys operations, earnings and cash flow multiples requires management to make judgments about future operating results and working capital requirements.  The majority of the Companys goodwill is the result of the combination by reverse takeover of Franklin Supply and Continental Emsco Company Limited on November 3, 1995.



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A.

OPERATING RESULTS

The following table summarizes CE Franklins results of operations.

(in thousands of Cdn. dollars except per share data)For the years ended December 31
	
	2005
	
	2004
	
	2003Statements of OperationsSales
	$
	482,403
	$
	338,701
	$
	257,125Gross Profit
	
	91,314
	
	60,243
	
	43,550Gross Profit - %
	
	18.9%
	
	17.8%
	
	16.9%Other expenses (income)Selling, general and administrative expenses
	
	55,303
	
	44,299
	
	36,416Amortization
	
	4,393
	
	4,328
	
	4,130Interest
	
	1,945
	
	1,455
	
	959Other
	
	8
	
	16
	
	(749)61,649
	
	50,098
	
	40,756Income before income taxes
	
	29,665
	
	10,145
	
	2,794Income tax expense
	
	10,801
	
	4,003
	
	1,494Income from continuing operations
	
	18,864
	
	6,142
	
	1,300Loss from discontinued operations
	
	-
	
	(27)
	
	(879)Net income
	$
	18,864
	$
	6,115
	$
	421EBITDA(1)
	
	36,003
	
	15,928
	
	7,883EBITDA as a % of sales
	
	7.5%
	
	4.7%
	
	3.1%Net income per shareBasic
	$
	1.09
	$
	0.36
	$
	0.02Diluted
	$
	1.01
	$
	0.35
	$
	0.02




(1) EBITDA represents income from continuing operations before interest, taxes, depreciation and amortization.  EBITDA is a supplemental non-GAAP financial measure used by management, as well as industry analysts, to evaluate operations.  Management believes that EBITDA, as presented, represents a useful means of assessing the performance of the Companys ongoing operating activities, as it reflects the Companys earnings trends without showing the impact of certain charges.  The Company is also presenting EBITDA, incremental flow through to EBITDA and EBITDA as a percentage of sales because it is used by management as a supplemental measure of profitability. The use of EBITDA by the Company has certain material limitations because it excludes the recurring expenditures of interest, income tax, and amortization expenses.  Interest expense is a necessary component of the Companys expenses because the Company borrows money to finance its working capital and capital expenditures.  Income tax expense is a necessary component of the Companys expenses because the Company is required to pay cash income taxes.  Amortization expense is a necessary component of the Companys expenses because the Company uses property and equipment to generate sales.  Management compensates for these limitations to the use of EBITDA by using EBITDA as only a supplementary measure of profitability.  EBITDA is not used by management as an alternative to net income as an indicator of the Companys operating performance, as an alternative to any other measure of performance in conformity with generally accepted accounting principles or as an alternative to cash flow from operating activities as a measure of liquidity.  Not all companies calculate EBITDA in the same manner and EBITDA does not have a standardized meaning prescribed by GAAP.  Accordingly, EBITDA, as the term is used herein, is unlikely to be comparable to EBITDA as reported by other entities.

The following is a reconciliation of income from continuing operations to EBITDA:

(in thousands of Cdn. dollars)For the years ended December 31
	
	2005
	
	2004
	
	2003Income from continuing operations
	$
	18,864
	$
	6,142
	$
	1,300Interest expense
	
	1,945
	
	1,455
	
	959Income tax expense
	
	10,801
	
	4,003
	
	1,494Amortization
	
	4,393
	
	4,328
	
	4,130EBITDA
	$
	36,003
	$
	15,928
	$
	7,883






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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Sales

Sales for the year ended December 31, 2005 increased 42.4% or $143.7 million to $482.4 million from $338.7 million for the year ended December 31, 2004.  The sales increase was due to strong commodity prices which resulted in improved industry economics coupled with an increase in market share from sales to new customers and increased sales to existing customers.  Sales also increased due to increasing supplier prices reflecting energy, raw materials and operational costs.

Gross Profit

Gross profit increased 51.6% to $91.3 million for the year ended December 31, 2005 from $60.2 million for the year ended December 31, 2004.  Gross profit margins increased to 18.9% for the year ended December 31, 2005 from 17.8% for the year ended December 31, 2004.

The overall improvement in gross profit margins for the year ended December 31, 2005 is a result of a reduction in inventory write-downs from $1.5 million in 2004 to $280,000 in 2005, coupled with margin initiatives implemented by the Company in 2003, which include offshore procurement, standardization of certain product lines and a more disciplined procurement practice.  The Company did not implement price increases to customers in 2004 and 2005 over and above price increases by the Companys suppliers as a result of the rise in supplier pricing.

Selling, General and Administrative Costs

SG&A costs increased $11.0 million or 24.8% to $55.3 million for the year ended December 31, 2005 from $44.3 million for the year ended December 31, 2004.  The increase in SG&A for the year ended December 31, 2005 related to salaries and benefits for new employees hired to support the increase in sales for the year, employee performance pay incentives and agents commissions due to the increase in sales and gross profit.  Fixed expenses, which exclude agents commissions and employee performance pay incentives, increased 15.8% as compared to 2004.

The total number of employees increased 16.8% to 383 employees as at December 31, 2005 compared to 328 employees as at December 31, 2004.  Revenue per employee based on December 31, 2005 and 2004 employee counts increased 22.0% to $1.26 million per employee as compared to $1.03 million per employee the previous year.  The improvement reflects standardization of processes and procedures, whereby all internal processes are performed consistently throughout the Companys operations resulting in process improvement efficiencies.

EBITDA(1)

EBITDA for the year ended December 31, 2005 increased $20.1 million or 126.0% to $36.0 million compared to $15.9 million for the year ended December 31, 2004.  The $143.7 million increase in sales resulted in a 14.0% incremental flow through to EBITDA.  EBITDA as a percentage of sales was 7.5% for the year ended December 31, 2005 versus 4.7% for the year ended December 31, 2004.  EBITDA is a supplemental non-GAAP financial measure used by management, as well as industry analysts, to evaluate operations.  For a reconciliation of income from continuing operations to EBITDA, please see page 19.

Income Before Income Taxes

Income before income taxes improved $19.6 million to $29.7 million for the year ended December 31, 2005 compared to $10.1 million for the year ended December 31, 2004.  The improvement is a result of the $31.1 million increase in gross profit offset by the $11.0 million increase in SG&A and an increase of $547,000 in other costs. Other costs include amortization, interest expense and foreign exchange. The $143.7 million increase in sales for the year ended December 31, 2005 resulted in a 13.6% incremental flow through to income before income taxes.

Income Taxes

The Companys effective tax rate for the year ended December 31, 2005 was 36.4%, as compared to an effective tax rate of 39.5% for the year ended December 31, 2004.  The Companys combined federal and provincial statutory tax rate for the period ended December 31, 2005 was 34.4%, compared to 34.6% for



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the period ended December 31, 2004.  The reduction in the effective tax rate for the year ended December 31, 2005 is due to non-deductible items and capital and other taxes totaling $608,000 (2004 - $493,000) becoming a smaller component of the overall income tax charge in 2005 due to the increase in income before income taxes.  See note 7a to the financial statements for a detailed reconciliation of the effective tax rate.

Loss from Discontinued Operations

On March 31, 2004, the Company sold its 50% interest in its small horsepower compression operations for cash proceeds of $961,000. No gain or loss on disposition resulted from this transaction.

Loss from discontinued operations for the year ended December 31, 2004 was $27,000.

Net Income and Earnings Per Share

Net income increased 208% to $18.9 million or $1.01 per share (diluted) for the year ended December 31, 2005 as compared to $6.1 million or $0.35 per share (diluted) for the year ended December 31, 2004.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Sales

Sales for the year ended December 31, 2004 increased 31.7% or $81.6 million to $338.7 million from $257.1 million for the year ended December 31, 2003. The sales increase was due to a 12.4% increase in well completions, as well as an increase in market share from new customers and increased sales to existing customers.  Sales revenues also increased due to an increase in prices to customers to reflect the increase in the price of steel, which is used in many of the products the Company distributes.

Gross Profit

Gross profit increased 38.3% to $60.2 million for the year ended December 31, 2004 from $43.6 million for the year ended December 31, 2003.  Gross profit margins increased to 17.8% for the year ended December 31, 2004 from 16.9% for the year ended December 31, 2003.

The improvement in gross profit margins is a result of margin initiatives implemented by the Company in 2003, which include offshore procurement, standardization of certain product lines and a more disciplined procurement practice.  The Company did not implement price increases to customers in 2004 over and above price increases by the Companys suppliers as a result of the rise in steel prices described above.

Selling, General and Administrative Costs

SG&A costs increased $7.9 million or 21.6% to $44.3 million for the year ended December 31, 2004 from $36.4 million for the year ended December 31, 2003. The majority of the increase in SG&A relates to variable expenses such as performance pay incentives to employees and agents commissions that are a result of the 31.7% increase in sales for the year ended December 31, 2004. Excluding these variable expenses, which will fluctuate with sales and gross profit, fixed SG&A increased 6.7% due primarily to an increase in salaries and benefits and occupancy costs.

The total number of employees increased 12.7% as at December 31, 2004 to 328 employees compared to 291 employees at the end of 2003.

Revenue per employee based on the December 31, 2004 and 2003 employee counts increased 16.7% to $1.03 million per employee as compared to $884,000 per employee for 2003.  The improvement reflects standardization of processes and procedures, whereby all critical processes are performed consistently throughout the Companys operations resulting in process improvement efficiencies.



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EBITDA(1)

EBITDA for the year ended December 31, 2004 increased $8.0 million or 102.1% to $15.9 million compared to $7.9 million for the year ended December 31, 2003. The $81.6 million increase in sales resulted in a 9.9% incremental flow through to EBITDA.  EBITDA is a supplemental non-GAAP financial measure used by management, as well as industry analysts, to evaluate operations.  For a reconciliation of net income to EBITDA, please see page 19.

EBITDA as a percentage of sales was 4.7% for the year ended December 31, 2004 versus 3.1% for the year ended 2003.

Income Before Income Taxes

Income before income taxes improved $7.4 million to $10.1 million for the year ended December 31, 2004 compared to $2.8 million for the year ended December 31, 2003.  The improvement is a result of the $16.7 million increase in gross profit offset by the $7.9 million increase in SG&A and  $1.4 million increase in other costs. Other costs include an increase in amortization of $198,000, an increase in interest expense of $496,000 from investments in accounts receivables and inventories with the increased activity levels resulting in an overall increase in the demand bank operating loan, a decrease in foreign exchange gains of $551,000 and a decrease in other income of $214,000.  The decrease in foreign exchange gains is due to a relatively lower level of movement in the Canadian dollar in 2004 as compared to 2003, which saw significant improvement in the Canadian dollar over the same period.

The $81.6 million increase in sales resulted in a 9.0% incremental flow through to income before income taxes.

Income Taxes

The Companys effective tax rate for the year ended December 31, 2004 was 39.5%, as compared to an effective tax rate of 53.5% for the year ended December 31, 2003.  The Companys combined federal and provincial statutory tax rate for the year ended December 31, 2004 was 34.6%, compared to 37.1% for the year ended December 31, 2003.  The reduction in the effective tax rate in 2004 is due to non-deductible items and capital and other taxes totaling $493,000 (2003 - $457,000) that were a smaller component of the overall income tax charge in 2004 due to the increase in income before income taxes.

Income from Continuing Operations

Income from continuing operations increased to $6.1 million or $0.35 per share (diluted) compared to $1.3 million or $0.07 per share (diluted) for the year ended December 31, 2003.

Loss from Discontinued Operations

On March 31, 2004, the Company sold its 50% interest in its small horsepower compression operations for cash proceeds of $961,000. No gain or loss on disposition resulted from this transaction.

Loss from discontinued operations for the year ended December 31, 2004 was $27,000 as compared to a loss of $879,000 for the year ended December 31, 2003.

Net Income and Earnings per Share

Net income for the year ended December 31, 2004 was $6.1 million or $0.35 per share (diluted) as compared to $421,000 or $0.02 per share (diluted) for the year ended December 31, 2003.  This represents an income improvement of $5.7 million or $0.33 per share (diluted).

SUMMARY OF QUARTERLY FINANCIAL DATA

The selected quarterly financial data presented below is presented in Canadian dollars and in accordance with Canadian GAAP.  There are no Statements of Operations differences between Canadian and U.S. GAAP.



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(in thousands of Cdn. dollars except per share data)Unaudited
	Q1
	Q2
	Q3
	Q4
	Q1
	Q2
	Q3
	Q42004
	2004
	2004
	2004
	2005
	2005
	2005
	2005Sales
	89,032
	67,002
	78,232
	104,435
	128,372
	91,899
	121,809
	140,323Net income fromcontinuing operations
	1,587
	518
	1,198
	2,839
	5,804
	2,543
	4,214
	6,303Loss from discontinuedoperations
	(27)
	-
	-
	-
	-
	-
	-
	-Net income
	1,560
	518
	1,198
	2,839
	5,804
	2,543
	4,214
	6,303EBITDA(1)
	4,148
	2,401
	3,421
	5,958
	10,745
	5,897
	8,300
	11,061EBITDA(1)as a % of sales
	4.7%
	3.6%
	4.4%
	5.7%
	8.4%
	6.4%
	6.8%
	7.9%Net income as a % of sales
	1.8%
	0.8%
	1.5%
	2.7%
	4.5%
	2.8%
	3.5%
	4.5%Net income per shareBasic
	$ 0.09
	$ 0.03
	$ 0.07
	$ 0.17
	$ 0.34
	$ 0.14
	$ 0.25
	$ 0.36Diluted
	$ 0.09
	$ 0.03
	$ 0.07
	$ 0.16
	$ 0.32
	$ 0.14
	$ 0.22
	$ 0.33




The Companys sales levels are affected by weather conditions.  As warm weather returns in the spring each year the winters frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have dried out.  In addition, many exploration and production areas in northern Canada are accessible only in the winter months when the ground is frozen.  As a result, the first and fourth quarters typically represent the busiest time and highest sales activity for the Company.  Sales levels drop dramatically during the second quarter until such time as the roads have dried and road bans have been lifted.

Sales for the quarter ended December 31, 2005 increased 34.4% to $140.3 million from $104.4 million for the quarter ended December 31, 2004 reflecting a general increase in activity levels coupled with an increase in market share.  The $35.9 million increase in sales resulted in an incremental flow through to EBITDA of 14.2% and 9.7% to net income.  Net income was $6.3 million or $0.33 per share (diluted) for the quarter ended December 31, 2005 compared to $2.8 million or $0.16 per share (diluted) for the quarter ended December 31, 2004.

As indicated above the first and fourth quarters typically represent the busiest time and highest sales activity for the Company.  Sales for the quarter ended December 31, 2005 was $140.3 million as compared to sales for the quarter ended March 31, 2005 of $128.4 million.  Net income for the quarter ended December 31, 2005 was $6.3 million or $0.33 per share (diluted) versus $5.8 million or $0.32 per share (diluted) for the quarter ended March 31, 2005.  The $12.0 million increase in sales resulted in an incremental flow through of 4.2% to net income.  This was due to a 74.5% increase in variable SG&A cost (agents commissions and employee performance pay incentives) and a 10.3% increase in fixed SG&A costs Q4 2005 versus Q1 2005, respectively.

B.

LIQUIDITY AND CAPITAL RESOURCES

In 2005, the Company generated $21.9 million in cash from cash flow from operating activities, before net change in non-cash working capital balances, and $2.5 million in the issuance of capital stock from the exercise of employee stock options.  This was offset by a $26.5 million increase in working capital (including bank overdraft but excluding the bank operating loan), $587,000 in capital and other expenditures and $261,000 in repayments on capital leases.  These activities resulted in a  $2.9 million increase in the bank operating loan.

In 2004, the Company generated $11.4 million in cash from cash flow from operating activities, before net change in non-cash working capital balances, $50,000 from proceeds on the disposal of property and equipment, and $961,000 from proceeds on the sale of its 50% interest in its small horsepower compression operations.  This was offset by a $14.1 million increase in working capital (including bank overdraft and cash but excluding the bank operating loan), $861,000 in capital and other expenditures



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and $327,000 in repayments on capital leases.  These activities resulted in a $2.8 million increase in the bank operating loan.

In 2003, the Company generated $4.7 million in cash flow from operating activities, before net change in non-cash working capital balances, $247,000 from proceeds on disposal of property and equipment and $538,000 from the sale of a 50% interest in its small horsepower compression operations. This was offset by a $6.2 million increase in working capital (including bank overdraft and cash but excluding the bank operating loan), $881,000 in capital and other expenditures and $343,000 in repayments on capital leases.  These activities resulted in a $1.9 million increase in the bank operating loan.

The Companys primary internal source of liquidity is cash flow from operating activities, before net change in non-cash working capital balances, which increased to $21.9 million for the year ended December 31, 2005, an improvement of $10.5 million as compared to 2004.  The improvement reflects improvement in profitability of the Company during 2005 due to the increase in the level of exploration and production activity in the western Canadian sedimentary basin, increased market share and gross profit margin improvement.

The $21.9 million in cash flow from operating activities in 2005 was reinvested into accounts receivable, inventories and other current assets, net of accounts payable and accrued liabilities and other current liabilities.  The 42.4% increase in sales in 2005 required a reinvestment in accounts receivable and inventories in order to maintain activity levels.

As at December 31, 2005 accounts receivable increased $29.9 million or 45.0% to $96.5 million from $66.6 million as at December 31, 2004.  The increase in accounts receivable reflects a 34.4% increase in sales to $140.3 million during the fourth quarter of 2005 as compared to $104.4 million for the fourth quarter of 2004.  Average days sales outstanding (DSO) for the quarter ended December 31, 2005 was 56.2 days as compared to 50.9 days for the quarter ended December 31, 2004.  The deterioration in DSO for the quarter reflects, in part, slower approval and processing of paper by both the Company and its customers due to the high volume of activity.

DSO was 53.4 days in 2005 as compared to 52.7 days in 2004.  Accounts receivable greater than 90 days old was 3.3% of accounts receivable as at December 31, 2005 versus 1.5% as at December 31, 2004.  Trade accounts receivables are tightly managed by the Company with daily calls to customers to solve payment issues.  In addition, the Companys accounts receivable team works closely with customers to help simplify payment and approval processes.  Bad debt expense in 2005 was $459,000 (0.1% of sales) as compared to $244,000 (0.1% of sales) for the year ended December 31, 2004 and $266,000 (0.1% of sales) for the year ended December 31, 2003.  Although accounts greater than 90 days old increased as compared to the previous year, bad debt expense remained within acceptable levels.

Total inventory for the Company increased 25.2% to $80.5 million as at December 31, 2005 as compared to $64.3 million as at December 31, 2004.  The increase in inventory levels reflects the 34.4% increase in sales during Q4 2005 as compared to the previous year.  Also, the Company has increased its inventory of high turning items in anticipation of higher activity levels in the first quarter of 2006.

The Company measures inventory efficiency by using an inventory turns calculation, because the higher the inventory turns, the better the Companys inventory is managed. Inventory turns are calculated by taking cost of sales for the year divided by average inventory.  Inventory turned 5.3 times in 2005, compared to 4.9 times in 2004 and 5.0 times in 2003. CE Franklin targets inventory turns of 5.0 times.  The Company monitors its inventory on a daily basis in order to reduce surplus, improve turns and reduce obsolescence.  The Companys inventory write-down expense declined substantially in 2005 to $280,000 (approximately 0.1% of sales) compared to $1.5 million (0.4% of sales) in 2004 and $1.5 million (0.6% of sales) in 2003.

Accounts payable, accrued liabilities and bank overdraft have increased $18.2 million to $79.0 million as at December 31, 2005 as compared to the previous year.  The increase reflects increased inventory purchases due to higher activity levels during Q4 2005, as compared to the previous year, coupled with the increase in inventory levels at year-end in anticipation of high activity levels in the first quarter of 2006.



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Property and equipment decreased 42.0% to $3.5 million from $6.1 million.  This decrease reflects amortization expense of $4.4 million offset by capital expenditures of $587,000 and $1.2 million in additions to rental equipment assets, through transfers from inventory, and capital leases. As at December 31, 2005, approximately $388,000 in property and equipment (original cost of $16.0 million) relates to the Companys investment in its enterprise software and electronic commerce systems.  For the year-ended December 31, 2005, $2.3 million in amortization expense was incurred relating to these assets.  This will decrease to $388,000 in 2006.  The Company currently anticipates that its enterprise and electronic commerce systems will operate beyond 2006 without any significant costs for upgrades in the range of its initial investments.  However, there can be no assurances in this regard.

As at December 31, 2005 the Companys total capitalization (financed debt plus equity) was comprised of debt of 28.1% compared to 33.3% as at December 31, 2004 and equity of 71.9% compared to 66.7% as at December 31, 2004.

On July 29, 2005, the Company renewed its 364 day bank operating facility.  The facility has been increased to $60.0 million, bears interest at rates between prime plus 0.5% and prime plus 0.875%.  The Companys borrowing capacity under its 364 day bank operating facility is dependent on maintaining compliance with certain financial covenants and a borrowing base formula applied to accounts receivable and inventories.  As at December 31, 2005, the Company was well within the covenant compliance thresholds and was able to draw up to $60.0 million against its bank operating line based on the borrowing base formula.

The Company will fund capital expenditures from cash flow from operating activities and capital leases where available.  The Company anticipates its capital expenditures in 2006 to be related to standard upgrades to its enterprise systems, purchase of new locations if leasing of these facilities prove to be uneconomical, as well as leasehold improvements to its 41 locations, and potential increases to its rental assets.

RECENT ACCOUNTING PRONOUNCEMENTS

Canadian Pronouncements

The following changes in accounting policies are new standards by the Canadian Institute of Chartered Accountants (CICA), which the Company implemented in accordance with their terms.

Effective January 1, 2004, the Company adopted, prospectively, the new accounting guideline relating to hedging relationships.  In the normal course of business, the Company enters into foreign currency forward exchange contracts with financial institutions to fix the value of liabilities or future commitments.  These foreign currency exchange contracts are not designated as hedges for accounting purposes.  The value of the contract is marked to market and the change in value is recognized in the Statements of Operations.

As of January 1, 2003 the Company adopted prospectively, the fair value method of accounting for common share options granted.  Under this method, the Company recognizes a compensation expense based on the fair value of the options on the date of grant that is determined by using the Black-Scholes options pricing model.  The fair value of the options is recognized over the vesting period of the options granted as compensation expense and contributed surplus.  The contributed surplus balance is reduced as options are exercised and the amount initially recorded for the options in contributed surplus is credited to capital stock.  Compensation expense of $552,000 was recorded in 2005, $256,000 was recorded in 2004 and $36,000 was recorded in 2003.

No compensation expense is recorded for stock options awarded prior to January 1, 2003 as the Company applied the intrinsic method of accounting for stock options granted.  The consideration paid by option holders on the exercise of these options is and will be credited to capital stock.  See Note 8b to the financial statements for the effect on the financial statements if the fair value method was adopted for these options.

From time to time, the CICA issues new accounting pronouncements.  These accounting pronouncements are discussed in Note 17 to the financial statements.  Management believes that these new pronouncements will not have a material impact on the financial statements.



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U.S. Pronouncements

From time to time, the Financial Accounting Standards Board (FASB) issues new accounting pronouncements.  New FASB accounting pronouncements are discussed Note 17 to the financial statements.  As discussed in note 17 to the financial statements, management believes the impact of recently issued standards, which are not yet effective, will not have a material impact on the financial statements upon adoption.

OTHER ITEMS

The Companys Form 20-F is available on SEDAR at www.sedar.com.

CE Franklin has authorized an unlimited number of common shares with no par value.  As at December 31, 2005 the Company had 17,804,554 common shares outstanding.

As at December 31, 2005 options to purchase 1,295,036 common shares were outstanding at an average exercise price of $3.65 per common share.  Under the Companys existing stock option plan the Board of Directors may grant an additional 299,419 options to purchase common shares.

C.

Research and Development, Patents and Licenses, etc.

Not applicable.

D.

Trend Information

See Item 4B and Item 5A.

E.

Off-balance Sheet Arrangements

The Company has not engaged in off-balance sheet financing arrangements through special purpose entities.

F.

Tabular Disclosure of Contractual Obligations

Capital Lease
	Operating LeasePeriod Due
	Obligations
	Commitments
	Total(thousands of Canadian dollars)2006
	217
	3,452
	3,6692007
	186
	3,084
	3,2702008
	179
	2,361
	2,5402009
	73
	2,046
	2,1192010
	-
	1,749
	1,749thereafter
	-
	5,250
	5,250655
	17,942
	18,597




As at December 31, 2005 the Company had issued and outstanding letters of credit totaling $229,000 (December 31, 2004 - $4.7 million) to secure offshore inventory purchases.

G.

Safe Harbor

Forward Looking Statements

The information in this Form 20-F, including this Item 5, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  All statements, other than statements of historical facts, that address activities, events, outcomes and other matters that CE Franklin plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements.  These forward-looking statements are based on managements current belief, based on currently available information, as to the outcome and timing of future events.  When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 20-F, including those in Item 3D under the caption Risk factors.



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Forward-looking statements appear in a number of places and include statements with respect to, among other things:

·

the continued efficacy of the Companys enterprise and electronic commerce systems;

·

the anticipated increase in drilling activity levels during the first quarter of 2006;

·

the planned decrease in amounts outstanding under the Companys bank operating loan;

·

planned capital expenditures and working capital and availability of capital resources to fund capital expenditures and working capital;

·

the Companys future financial condition or results of operations and future revenues and expenses;

·

the Companys estimate of amortization savings in 2006;

·

the Companys future gross profit and net profit margins;

·

the Companys estimate of SOX404 compliance costs in 2006;

·

the Companys business strategy and other plans and objectives for future operations;

·

fluctuations in worldwide prices and demand for oil and gas;

·

fluctuations in levels of gas and oil exploration and development activities; and

·

fluctuations in the demand for the Companys products and services.

We caution you that these forward-looking statements are subject to risks and uncertainties, many of which are beyond CE Franklins control.  These risks include, but are not limited to, economic conditions, seasonality of drilling activity, commodity price volatility for oil and gas, currency fluctuations, inflation, regulatory changes and the other risks described in Item 3D under the caption Risk factors.

Should one or more of the risks or uncertainties described above or elsewhere in this Form 20-F occur, or should underlying assumptions prove incorrect, the Companys actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements expressed or implied, included in this Form 20-F and attributable to CE Franklin are qualified in their entirety by this cautionary statement.  This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that CE Franklin or persons acting on its behalf might issue.  CE Franklin does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of filing this Form 20-F with the Securities and Exchange Commission, except as required by law.



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Item 6:

Directors, Senior Management and Employees

A.

Directors and Senior Management

The following table sets forth certain information about our directors and leadership team, as of March 22, 2006.



Name and Municipality of Residence
	Age
	Position with CE Franklin Ltd.Michael S. West
	43
	Chairman, President and ChiefCalgary, Alberta
	
	Executive Officer and DirectorJames E. Baumgartner
	51
	Vice President, OperationsEdmonton, AlbertaMaurice (Ron) Brown
	54
	Vice President, SalesCalgary, AlbertaBrent W. Greenwood
	51
	Vice President,Calgary, Alberta
	
	Marketing and SupplyRonald L. Koper
	47
	Vice President,Calgary, Alberta
	
	Business EffectivenessTimothy M. Ritchie
	35
	Vice President, Strategic InitiativesCalgary, AlbertaSalvatore Secreti
	46
	Vice President andCalgary, Alberta
	
	Chief Financial OfficerRoderick H. Tatham
	47
	Director of Quality andCalgary, Alberta
	
	Customer ServiceDavid A. Dyck(1)(2)(3)
	44
	DirectorCalgary, AlbertaJohn J. Kennedy(4)
	53
	DirectorHouston, TexasS. Douglas Martin(4)
	74
	DirectorCalgary, AlbertaDouglas L. Rock(1)(2)
	59
	DirectorHouston, TexasGordon R. Schnell(1)(3)(4)
	73
	DirectorSydney, British ColumbiaVictor Stobbe(2)(3)
	64
	DirectorDeWinton, Alberta




Notes:

1)

Member of Corporate Governance and Nominating Committee.

2)

Member of Compensation Committee.

3)

Member of Audit Committee.

4)

Member of Environment, Health & Safety Committee.



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The directors are elected annually at the Companys annual general meeting.  The 2006 annual general meeting will be held on May 2, 2006.  The following is a summary of the background of each director and member of the Companys leadership team.

Michael S. West

Mr. West is Chairman, President and Chief Executive Officer of CE Franklin Ltd. He was appointed President and Chief Executive Officer and to CE Franklin's Board of Directors in January 2002 and was appointed Chairman in December 2003.  Mr. West has held executive positions in the oilfield supply and distribution business for nine (9) years. Prior to joining the oil and gas sector in 1996, he worked for 11 years in various capacities in the automotive aftermarkets industry.

James E. Baumgartner

Mr. Baumgartner is Vice President, Operations and has been with the Company since 2001.  Prior to joining CE Franklin Mr. Baumgartner was the General Manager for a competitor in the oilfield and industrial project supply distribution business.  He has over 25 years experience in distribution of pipe, valves and fittings to the energy industry in Canada as well as internationally.

Maurice (Ron) Brown

Mr. Brown is Vice President, Sales.  He joined the company in 2002 bringing with him over 22 years of experience in the oilfield distribution business.  Prior to joining CE Franklin Mr. Brown worked with Nutron/Flow Control as the Vice President and General Manager.  Mr. Brown also served with the RCMP in British Columbia for eight years.

Brent W. Greenwood

Mr. Greenwood is Vice President, Marketing and Supply.  He started his career with Franklin Supply in 1980 and has held various positions with the Company over the past 25 years.  Mr. Greenwood graduated from the University of Saskatchewan with a Masters of Arts in History and from the University of Calgary in 1999 with a Masters of Business Administration (MBA).

Ronald L. Koper

Mr. Koperis Vice President, Business Effectiveness and joined the Company in 2000.  He has worked with a variety of large and mid-sized corporations in the human resources and organizational development profession.  Mr. Koper graduated from the University of Calgary in 1984 with a Bachelor of Commerce degree.

Timothy M. Ritchie

Mr. Ritchie is Vice President, Strategic Initiatives.  He began his career with Franklin Supply in the field over 11 years ago and has progressively taken on roles that are more senior for the Company.  Mr. Ritchie graduated from the University of Lethbridge with a Bachelor of Arts in 1993 and in 2000 earned his Masters of Business Administration (MBA) from the University of Calgary.

Salvatore Secreti

Mr. Secreti is Vice President and Chief Financial Officer and joined the Company in January 2001.  Since leaving public practice in 1985, he has been the Controller or Chief Financial Officer at various public and private companies in a variety of industries.  Mr. Secreti graduated from the University of Calgary with a Bachelor of Commerce degree in 1981 and earned his Chartered Accountant (CA) designation in 1985.  On January 16, 2006, Mr. Secreti announced that he would be resigning as Vice President and Chief Financial Officer of the Company effective May 31, 2006.

Roderick H. Tatham

Mr. Tatham is Director of Customer Service and Quality.  He is responsible and accountable for the redesign and implementation of all business processes related to customer service and operational performance. Prior to joining CE Franklin in May 2002, he worked in various capacities as Manager of Business Process & Quality, Branch Manager, Quality Assurance Manager and Materials Coordinator.



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David A. Dyck

Mr. Dyck was appointed to the Board in May 2004.  Mr. Dyck, a resident of Calgary, Alberta, is the Senior Vice President, Finance and Chief Financial Officer of Western Oil Sands. Prior to joining Western Oilsands in April 2000, Mr. Dyck spent 12 years with Summit Resources Limited where he served in successively senior roles, finally as Senior Vice-President Finance & Administration and Chief Financial Officer.He is a member of the Alberta and Canadian Institutes of Chartered Accountants, the Financial Executives Institute, and is a Mentor with The Haskayne School of Business in Calgary.

John J. Kennedy

Mr. Kennedy was appointed to the Board of Directors of CE Franklin in May 1999.  He is currently President and Chief Executive Officer of Wilson, the distribution unit of Smith.  Previously, Mr. Kennedy was Senior Vice President and Chief Financial Officer of Smith.  Mr. Kennedy has worked in the energy industry for over 27 years in various executive and management positions.  Mr. Kennedy is a member of several professional bodies in both the United Kingdom and United States, including the Energy Institute and the Association of Corporate Treasurers.

S. Douglas Martin

Mr. Martin became a Director of Franklin Supply in 1993 and a Director of CE Franklin in 1995 and was Chairman of CE Franklin from October 2001 to December 2003. Mr. Martin has over 48 years of experience in the energy industry in both the United States and Canada. His broad range of experience has been with energy supply and distribution companies as well as exploration and production companies.  Mr. Martin graduated from the University of Oklahoma with a Bachelor of Business Administration.

Douglas L. Rock

Mr. Rock has been a Director of CE Franklin since 1999.  He began his career with Smith in 1974 and since then has held numerous positions. He has been Chairman and Chief Executive Officer of Smith since 1991.

Gordon R. Schnell

Mr. Schnell has been a Director of CE Franklin since 1995.  Mr. Schnell is the President of Monashee Spring Water (Calgary). Prior to this, he was the President and Chief Operating Officer of CE Franklin from 1995 to 1998. He started his career with Continental Supply Company in 1956 where he took on increasingly senior roles and eventually became the President and Chief Operating Officer of Continental Emsco Company Limited in 1988.

Victor J. Stobbe

Mr. Stobbe has been a Director of CE Franklin since May 2003.  Mr. Stobbe is the Chief Financial Officer of Wave Energy Ltd., a private oil and gas company, and a Director of Trican Well Service Ltd. where he serves as Chairman of the Audit Committee. Formerly he was President of American Leduc Petroleums Ltd. from October 1997 to October 2003. Mr. Stobbe, a chartered accountant, has served as a senior officer and/or a director of a number of public companies.



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B.

Compensation

The following table sets forth the compensation paid by the Company to the Chairman, President and Chief Executive Officer, the Vice President and Chief Financial Officer and the three next highly compensated executive officers whose total salary and bonus exceed $150,000 in 2005 and who served in such capacities at December 31, 2005 (collectively, the Named Executive Officers) for services rendered to the Company for the periods indicated:

Annual Compensation
	Long-Term CompensationAwards
PayoutsSecurities
	RestrictedUnder
	Shares orOther Annual
	Options/
	Restricted
	LTIP
	All OtherName and Principal
	
	Salary
	Bonus(1)Compensation(2)
	SARs
	Share
	Payouts CompensationPosition
	Year
	($)
	($)
	($)
	Granted (#)
	Units ($)
	($)
	($)Michael S. West
	2005
	350,000
	426,740
	23,827
	52,405
	--
	--
	--Chairman,
	2004
	217,769
	243,450
	21,291
	--
	--
	--
	--President and
	2003
	200,000
	--
	20,094
	76,044
	--
	--
	--ChiefExecutive Officer(3)Salvatore Secreti
	2005
	190,000
	171,950
	22,182
	38,430
	--
	--
	--Vice President
	2004
	191,632
	178,000
	21,274
	--
	--
	--
	--and Chief Financial
	2003
	176,000
	--
	19,374
	55,766
	--
	--
	--Officer(4)Timothy M. Ritchie
	2005
	144,000
	226,860
	21,156
	28,823
	--
	--
	--Vice President,
	2004
	138,600
	134,300
	19,875
	--
	--
	--
	--Strategic Initiatives
	2003
	132,000
	--
	14,094
	41,824
	--
	--
	----
	--
	--Brent W. Greenwood
	2005
	131,000
	226,860
	20,750
	26,203
	--
	--
	--Vice President,
	2004
	126,000
	121,550
	18,677
	--
	--
	--
	--Marketing and
	2003
	120,000
	--
	14,094
	38,022
	--
	--
	--Supply
	
	
	
	
	
	--
	--
	----
	--
	--James E. Baumgartner
	2005
	160,000
	226,860
	17,288
	26,203
	--
	--
	--Vice President,
	2004
	126,000
	121,550
	14,664
	--
	--
	--
	--Operations
	2003
	120,000
	--
	13,200
	38,022
	--
	--
	--




(1)

Bonus amounts are disclosed in the year in which they are earned, not in the year in which they were paid.

(2)

For 2005, amounts in this column include $9,600 for a car allowance, $4,610 for parking and $9,617 for contributions to a group RRSP plan for Mr. West; $9,600 for a car allowance, $4,610 for parking and $7,972 for contributions to a group RRSP plan for Mr. Secreti; $9,600 for a car allowance, $3,868 for parking and $7,688 for contributions to a group RRSP plan for Mr. Ritchie; $9,600 for a car allowance, $4,610 for parking and $6,540 for contributions to a group RRSP for Mr. Greenwood; and $9,600 for a car allowance and $7,688 for contributions to a group RRSP plan for Mr. Baumgartner.

(3)

Mr. West was appointed Chairman on December 31, 2003.

(4)

Mr. Secreti announced that he will resign from the Corporation effective May 31, 2006.

Aggregate Option Exercises During 2005 and Option Values at December 31, 2005

The following table sets forth information in respect of the aggregate stock options exercised by the Named Executive Officers during 2005 and the value of unexercised, in-the-money options as at December 31, 2005.  The actual value of the unexercised in-the-money options will be determined by the market price of the Corporations common shares on the date such options may be exercised by any of the Named Executive Officers. There is no assurance that the values of such in-the-money options shown in this table will be realized.



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Value of Unexercised in-the-MoneyUnexercised Options/SARs at
	Options/SARs at December 31,December 31, 2005
	2005(1)Securities
	AggregateAcquired on
	Value Realized
	Exercisable
	Unexercisable
	ExercisableName
	Exercise (#)
	($)
	(#)
	(#)
	($)
	Unexercisable ($)Michael S. West
	180,000
	2,191,604
	82,444
	77,500
	1,044,116
	938,931Salvatore Secreti
	62,907
	523,174
	97,446
	56,833
	1,258,123
	688,545Timothy M. Ritchie
	37,987
	384,493
	56,161
	42,625
	730,328
	516,411Brent W. Greenwood
	37,572
	497,414
	53,614
	38,750
	696,198
	469,464James E. Baumgartner
	10,000
	123,300
	81,223
	38,750
	1,044,071
	469,464




(1)

The "Value of Unexercised In-The-Money Options at December 31, 2005" was calculated by determining the difference between the market value of the securities underlying the option at the end of the financial year and the exercise price of such options.  At the end of the most recently completed financial year, the closing price of the Company's common shares on the Toronto Stock Exchange was $16.10.

Stock Options Granted During 2005

% of TotalOptions/SARs
	
	Market Value of SecuritiesSecurities Under
	Granted to
	Exercise or
	Underlying Options/SARsOptions/SARs
	Employees in
	Base Price
	on the Date of GrantName
	Granted (#)
	Financial Year
	($/Security)
	($/Security)
	Expiration DateMichael S. West
	52,405
	12.7
	4.60
	4.60
	January 11, 2015Salvatore Secreti
	38,430
	9.3
	4.60
	4.60
	January 11, 2015Timothy M. Ritchie
	28,823
	7.0
	4.60
	4.60
	January 11, 2015Brent W.Greenwood
	26,203
	6.3
	4.60
	4.60
	January 11, 2015James E. Baumgartner
	26,203
	6.3
	4.60
	4.60
	January 11, 2015




Employment Contracts

The Company has entered into employment contracts with the Chairman, President and Chief Executive Officer and the Vice President and Chief Financial Officer that provides for payment of up to 24 months and 12 months; respectively, salary if employment is terminated without cause.  Mr. Secretis resignation from the Company will not entitle him to a termination payment under his contract.

Mr. Wests employment contract also entitles him to terminate his employment and receive a payment of 24 months salary in the event that certain change of control provisions are triggered.

Compensation of Directors

Mr. West, President and Chief Executive Officer of the Company, does not receive any additional compensation for being a member and Chairman of the Board of Directors for the Company.  In addition, Mr. Rock and Mr. Kennedy, as nominees of Smith, do not receive compensation for being members of the board of Directors of the company.

During 2005, directors were compensated based on a flat fee of $12,000 plus meeting fees for which they were in attendance of $1,000 per meeting for board meetings, $750 per meeting for committee meetings, and $250 for meetings that they were in attendance by phone.

In addition, during 2004 and 2005 a special committee was established to evaluate the proposed transaction to purchase Wilson from Smith.  The discussions with respect to this acquisition terminated on April 4, 2005.  Mr. Stobbe and Mr. Dyck were each paid a flat fee of $21,250 and $20,500 respectively, in 2005 and $40,000 in 2004 as members of the special committee.



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Mr. Schnell and Mr. Martin were paid $27,750 and $23,250 in 2005, respectively.  Mr. Dyck and Mr. Stobbe were paid $48,000 and $50,750 respectively (including Special Committee fees).  Directors are also reimbursed for their expenses incurred in respect of each meeting of the directors or special service.

Employees of the Company receive no additional compensation for acting as directors of the Corporation.  During 2005 Directors who are not officers of the Corporation or an affiliate of the Corporation were granted 80,000 options to purchase common shares at a grant price of $4.60 per share.  No compensation was paid to any director of the Corporation for their services as consultants or experts to the Corporation.

Mr. Schnell and Mr. Martin will be retiring from the Board of Directors effective May 2, 2006, and therefore will not be standing for re-election.  The board has agreed to vest, as of May 2, 2006, all 35,050 of their stock options to purchase Common Shares.

C.

Board practices

Directors are elected at each annual meeting to hold office for a term expiring at the close of the next annual meeting of shareholders.  No specific term of office is applicable to executive officers; however, they are normally re-appointed annually.  The last annual meeting was held May 3, 2005, and the next annual meeting is expected to be held on May 2, 2006.

The attendance record for each director for all Board of Directors meetings held for the financial year ended December 31, 2005, is set out below.

Number of Meetings Attended

CorporateGovernance and
	Environment,Board of
	Audit
	Compensation
	Nominating
	Health andName of Director
	Directors
	Committee
	Committee
	Committee
	Safety CommitteeMichael S. West
	7 of
	7
	N/A
	N/A
	N/A
	N/ADavid A. Dyck
	7 of
	7
	7 of 7
	1 of 1
	1 of 1
	N/AJohn J. Kennedy
	2 of
	7(1)
	N/A
	N/A
	N/A
	1 of 1S. Douglas Martin
	7 of
	7
	N/A
	N/A
	N/A
	1 of 1Douglas L. Rock
	0 of
	7(1)
	N/A
	0 of 1(1)
	1 of 1
	N/AGordon R. Schnell
	7 of
	7
	7 of 7
	N/A
	1 of 1
	1 of 1Victor J. Stobbe
	7 of
	7
	7 of 7
	1 of 1
	N/A
	N/A




(1) Messrs. Rock and Kennedy did not attend Board of Directors or Committee meetings while CE Franklin was in discussions with Smith with respect to the proposed acquisition of Wilson from Smith.

Board Committees

The Board has established four committees: the Audit Committee; the Compensation Committee; the Corporate Governance and Nominating Committee; and the Environment, Health and Safety Committee. The Company does not have an Executive Committee and utilizes in its place ad hoc committees on an as required basis.

The following is a brief description of the mandate and composition of each Committee other than the special committee.

Audit Committee

The Audit Committee is composed entirely of independent directors - David A. Dyck, Gordon R. Schnell and Victor J. Stobbe. The Audit Committee is responsible for, among other matters, reviewing the Company's financial reporting process (including reviewing annual and quarterly Financial Statements) and enquiring as to the adequacy of internal controls. Although it is management's responsibility to design and implement an effective internal control system, the Audit Committee ensures that management has properly done so. The Audit Committee is also responsible for reviewing the performance of external



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auditors. The Audit Committee has direct communication channels with the Company's external auditors and meets with them on a regular basis without management of CE Franklin present.  The Audit Committee met seven times during 2005.

Compensation Committee

The Compensation Committee is composed of independent directors, being David A. Dyck and Victor J. Stobbe; and Douglas L. Rock, who is a representative of Smith.  The Compensation Committee is responsible for, among other matters, formulating and making recommendations to the Board on compensation issues relating to the directors and senior management, including establishing the compensation philosophy, reviewing the performance of the Chief Executive Officer, and recommending compensation for the Chief Executive officer and the leadership team. The Compensation Committee also approves the terms and granting of stock options to the leadership team and employees of the Company. The Compensation Committee met oncein 2005.

Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee is comprised of two independent directors being David A. Dyck and Gordon R. Schnell; and Douglas L. Rock who is a representative of Smith.  The Corporate Governance and Nominating Committee is responsible for, among other matters: monitoring and managing the corporate governance process of the Board, including recommending the number of directors to be elected; recommending nominees, including candidates to fill vacancies; and reviewing the performance and effectiveness of the Board and each member of the Board. The Corporate Governance and Nominating Committee assesses the suitability of potential candidates by way of a selection assessment that includes a wide array of factors deemed appropriate all in the context of the perceived needs of the Board and the Corporation at the time.  The Company provides formal education programs for new directors and provides such orientation and information as individual directors may request on an ongoing basis.  The Corporate Governance and Nominating Committee met once in 2005.

Environment, Health and Safety Committee

The Environment, Health and Safety Committee is comprised of two independent directors being Gordon R. Schnell and S. Douglas Martin; and John J. Kennedy, who is a representative of Smith.  The Environment, Heath and Safety Committee is responsible for, among other matters, monitoring the management of the Company's environmental, health and safety risks, liabilities, policies, practices and procedures. The Environment, Health and Safety Committee met once during 2005.

Expectation of Management

The Board relies on management to provide the information that the Board requires to properly perform its duties and expects management to keep it apprised of matters affecting the Company, significant risks and opportunities available to the Company. While the Board has not established specific position descriptions for the Board, Chairman and Chief Executive Officer, determined specific corporate objectives that the Chief Executive Officer is responsible for meeting or adopted a written mandate, the Board does not feel that the lack of such specific descriptions, objectives or mandate compromises the effectiveness of the governance of the Company. Due to the relatively small size of the Board and of the Company, the effectiveness of management generally and of the Chief Executive Officer specifically can be determined on a more informal basis.

Shareholder Feedback

The Company has one employee, Cheryl Bourget, Executive Assistant, with designated responsibility for investor relations. Every shareholder enquiry receives a prompt response and significant shareholder concerns are reported to management and, where appropriate, the Board.

D.

Employees

Year
	Number of Employees as at December 31,
	% in Field
	% in Head Office2005
	383
	80%
	20%2004
	328
	82%
	18%2003
	291
	79%
	21%






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As of December 31, 2005, the Company had 383 employees, including part-time and hourly, all employed in Canada.  The Company does not anticipate any material changes in its employee structure.  CE Franklins personnel are not unionized, and there is very little union activity in the Canadian oilfield supply industry.  The Company does not employ a significant number of temporary employees.

E.

Share ownership

As at March 22, 2006 no individual Director or individual listed under item 6A holds greater than 1% of the common shares outstanding.

Options Granted.  As at March 22, 2006, the following options were outstanding under the Companys 2001 stock option plan:



|Holder       | Number of Options | Exercise Price - Cdn$ | Date of Grant     | Expiry Date      
|------------ | ----------------- | --------------------- | ----------------- | -----------------
|Directors    |                   |                       |                   |                  
|(current)(1) | 20,217            | 3.50                  | January 1, 2002   | January 1, 2012  
|             | 57,928            | 3.49                  | December 13, 2002 | December 13, 2012
|             | 45,994            | 2.70                  | December 12, 2003 | December 12, 2013
|             | 125,805           | 4.60                  | January 11, 2005  | January 11, 2015 
|             | 249,944           |                       |                   |                  
|Employees    | 4,200             | 3.28                  | August 20, 2001   | August 20, 2011  
|             | 79,628            | 3.50                  | January 1, 2002   | January 1, 2012  
|             | 213,510           | 3.49                  | December 13, 2002 | December 13, 2012
|             | 20,770            | 3.30                  | February 17, 2003 | February 17, 2013
|             | 375,123           | 2.70                  | December 12, 2003 | December 12, 2013
|             | 274,865           | 4.60                  | January 11, 2005  | January 11, 2015 
|             | 2,010             | 4.90                  | January 26, 2005  | January 26, 2015 
|             | 500               | 7.20                  | February 2, 2005  | February 2, 2015 
|             | 970,606           |                       |                   |                  
|TOTAL        | 1,220,550         |                       |                   |                  



The Companys stock option plan (the Plan) was established on September 14, 1993 and was amended on November 21, 1994, October 24, 1995, September 10, 1996, February 12, 1998, April 30, 1998 and May 1, 2001.  The total number of common shares available to be issued under the Plan is 2,240,925 common shares.  The Plan provides that the Board of Directors of the Company may grant options, subject to the terms of the Plan, to directors, officers and employees of, and to persons and corporations who provide management or consulting services to, the Company and its subsidiaries.  All stock options after issue vest one-third per year commencing on the first anniversary date after grant.  As at December 31, 2005, the Board of Directors may grant an additional 299,419 options to purchase common shares.

(1)

The number of options held by Directors includes Michael West, Chairman, President and Chief Executive Officer.

Item 7:

Major Shareholders and Related Party Transactions

A.

Major shareholders

The following table sets forth information, as ofMarch 22, 2006, ownership of the Companys outstanding voting securities by any person known by the Company to own more than 5% of such voting securities:

Title of ClassIdentity of GroupAmount OwnedPercent of Class(1)Common sharesSmith International9,524,882(2)53.3Common sharesBear Stearns Asset Management Inc.1,183,131(3)6.6


(1)

Percentage ownership is based on 17,879,040 shares of common shares outstanding as of March 22, 2006.

(2)

Based on confirmation received from Smith.



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(3)

See Bear Stearns Asset Management Inc. SEC filing of SC 13G February 14, 2006.

At March 22, 2006, Smith held 53.3% of the issued and outstanding shares of CE Franklin.  Smith has, by virtue of holding over 50% of the outstanding common shares, the power to elect the board of directors of the Company; however, it has agreed that at least two independent directors will be elected.  Smith has the same per share voting rights as other shareholders.

F.

Related party transactions

Messrs. Douglas L. Rock and John L. Kennedy, directors of the Corporation, are directors or officers of, or otherwise interested in, Smith.

The Company is the exclusive distributor of bottom hole pump production equipment manufactured by Wilson, a wholly-owned subsidiary of its principal shareholder, Smith, which owns 53.3% of the Companys outstanding common shares.  The transactions are in the normal course of business and at commercial rates.  Included in inventory at December 31, 2005 and December 31, 2004 was $3,166,000 and $3,185,000, respectively, of this bottom hole pump production equipment purchased from Wilson.  For the years ended December 31, 2005, 2004 and 2003, cost of sales includes $7,830,000, $6,427,000 and $6,612,000, respectively, relating to the inventory purchased from Wilson.  Accounts payable and accrued liabilities, which are non-interest bearing and are payable within commercial supplier payment terms, include $1,083,000 and $930,000 for the years ended December 31, 2005 and 2004, respectively, owing to Wilson.  As at December 31, 2004 accounts receivable includes $1,840,000 owing from Smith which relates to acquisition costs incurred by the Company.  In 2005 the proposed transaction was discontinued and the amounts owing were reimbursed.

C.

Interests of Experts and Counsel

Not applicable.

Item 8:

Financial Information

CE Franklins financial statements are stated in Canadian Dollars (Cdn. $) and are prepared in accordance with Canadian GAAP with reconciliation to U.S. GAAP included under Note 17 to the financial statements under Item 18.  In this Form 20-F, unless otherwise specified, all amounts are expressed in Canadian dollars.

A.

Financial Statements and Other Financial Information

The financial statements of CE Franklin as at and for the Years Ended December 31, 2005, 2004 and 2003, are audited by PricewaterhouseCoopers LLP and include the following:

·

Managements Report dated February 2, 2006

·

An Auditors Report dated February 2, 2006

·

Balance Sheets as at December 31, 2005 and 2004

·

Statements of Changes in Shareholders Equity for the years ended December 31, 2005, 2004 and 2003

·

Statements of Operations for the years ended December 31, 2005, 2004 and 2003

·

Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003

·

Notes to the financial statements

See Part III, Item 18 for detailed information.

Dividend Distributions

In accordance with the terms and conditions of the Companys credit facility with its primary lender, holders of common shares are not entitled to receive dividends without prior approval of the Companys primary lender.

B.

Significant Changes

There have been no significant changes since December 31, 2005.



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Item 9:

The Offer and Listing

A.

Offer and Listing Details

The following table sets forth the reporting of the high and low closing prices for the CE Franklin shares on the TSX an the AMEX for the periods indicated.

Toronto Stock Exchange ($CDN)
	American Stock Exchange ($US)High
	Low
	High
	Low2001
	
	6.85
	2.62
	4.62
	1.652002
	
	5.08
	3.10
	3.34
	1.952003
	
	3.10
	2.61
	2.36
	1.982004
	
	5.88
	2.70
	4.58
	2.192005
	First Quarter
	9.03
	4.58
	7.24
	3.75Second Quarter
	9.00
	5.85
	7.17
	4.88Third Quarter
	13.77
	8.79
	11.88
	7.47Fourth Quarter
	18.33
	11.38
	15.25
	9.592005
	July
	10.50
	8.90
	8.55
	7.47August
	11.45
	8.79
	9.39
	7.55September
	13.77
	10.47
	11.88
	8.88October
	14.45
	11.38
	12.58
	9.59November
	14.83
	12.09
	12.47
	10.23December
	18.33
	14.25
	15.25
	12.252006
	January
	19.40
	16.42
	17.04
	14.10February
	19.40
	13.85
	16.85
	12.32




On March 22, 2006, the closing price for the Companys common shares was Cdn. $15.50 per share on the TSX and US $13.21 per share on the AMEX.  As of, March 22, 2006, the Company had 17,879,040 of common shares outstanding and 45 holders of record of the common shares, of whom 24 were located in the United States, one was located in Mexico and 20 were located in Canada.

B.

Plan of Distribution

Not applicable.

C.

Markets

The Companys common shares are traded on the Toronto Stock Exchange (TSX) under the symbol CFT and also on the American Stock Exchange (AMEX) under the symbol CFK.  The table above in Item 9A sets forth the range of high and low prices per share for the common shares on both the AMEX and TSX.  The Company was initially listed on the AMEX on November 18, 1993, and subsequently began trading on the TSX on September 26, 1996.

D.

Selling shareholders

Not applicable.

E.

Dilution

Not applicable.

F.

Expenses of the issue

Not applicable.

Item 10:

Additional Information

A.

Share capital

Not applicable.



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B.

Memorandum and articles of association

The Company was created by an amalgamation pursuant to the Business Corporations Act (Alberta) (ABCA) on December 20, 1997.  On February 1, 2002 the Company amalgamated with its wholly owned subsidiary CEF Technologies Ltd.

The Articles of the Company place no restrictions on business the Company may carry on.

The Articles of the Company and By-Law No. 1 of the Company may be viewed at the Company's registered office, which is 3700, 400  3rd Avenue S.W., Calgary, Alberta, T2P 4H2.

Directors

Directors need not hold shares in the Company to qualify and be appointed or elected as a director of the Company.  The Articles of the Company provide that the minimum number of directors of the Company shall be one and the maximum number of directors of the Company shall be 15.

Pursuant to the ABCA, the directors of the Company are required to disclose to the board of the directors of the Company any personal interest that they may have in any material contract prior to the approval of such contract and are required to abstain from voting as a director for the approval of such contract.  A director's compensation must be approved by ordinary resolution of the board of directors and the directors are permitted to vote on their own compensation.  Any new credit arrangements with lenders must be approved by ordinary resolution of the board of directors.

Every director of the Company is entitled to be indemnified out of the assets of the Company against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director of the Company.

Shareholders Rights

The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in series.

The holders of any common shares are entitled to dividends if, as and when declared by the directors, to one vote per share at meetings of the holders of common shares of the Company and, upon liquidation, to receive such assets of the Company as are distributable to the holders of the common shares.

Holders of the preferred shares are not entitled to vote except at meetings of the holders of preferred shares or as required by the ABCA.  The holders of the preferred shares are entitled to dividends in priority to the holders of common shares.  Upon liquidation, dissolution or winding up of the Company or other distribution of assets of the Company, holders of preferred shares shall be entitled to receive payments or distributions before any amount shall be paid or distributed to the holders of the common shares.

Amendments to the rights of the shareholders of the Company can only be effected by alteration of the Articles of the Company, which requires a special resolution of the shareholders of the Company.  There are no limitations on the rights to own securities of the Company other than pursuant to the Investment Canada Act (Canada) described elsewhere in this Form 20-F.

Shareholders Meetings

The requirements to hold meetings of the shareholders of Company are prescribed by the ABCA and By-Law No. 1 of the Company and the Articles of the Company.  Shareholders meetings may be held at any place within the Province of Alberta or in Toronto, New York, Chicago or San Francisco.  The time and place of shareholders meetings is determined by a resolution of the board of directors.

In certain circumstances, and subject to the provisions of the ABCA, shareholders may requisition a meeting of the shareholders without a resolution of the board of directors of the Company.

The calling of shareholder meetings is also subject to securities legislation in Canada, which prescribes the process by which the Company must send proxy materials to its shareholders.  Under such securities legislation, proxy materials will generally be mailed to shareholders not less than 21 days before the date of the shareholders meeting.



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The proxy materials relating to any shareholders meeting will include a notice of the meeting setting out the time and place of the meeting and the nature of the business to be transacted at the meeting, a form of proxy and management proxy circular containing, together with certain other prescribed information, sufficient description of the matters to be considered at the meeting such that the shareholder can form a reasoned judgment concerning such matters.

Change of Control

Neither the Articles nor By-Laws of the Company restrict the transfer of shares.  Therefore, any change of control of the Company or merger, acquisition or corporate restructuring involving the Company would only be subject to generally applicable laws.

C.

Material contracts

See Note 4 Bank Operating Loan to the Companys December 31, 2005 financial statements included under Item 18 for a description of the Companys bank operating loan.

D.

Exchange controls

There are no Canadian laws that restrict the export or import of capital, including foreign exchange controls, or that affect the payment of dividends to non-resident holders, except as described in Item 10 E below.  The acquisition of control of the Company by non-Canadians is subject to the Investment Canada Act (the Act).  The Act provides, among other things, that any non-Canadian, as defined in the Act, proposing to acquire control of a Canadian business such as the Company through the direct or indirect acquisition of voting interests or the acquisition of all or substantially all the assets of the Canadian business, must give notice in the prescribed form to Investment Canada, an agency of the Canadian government, and may be required to obtain approval from Investment Canada prior to implementation of such acquisition.  The term non-Canadian is defined in the Act to include an individual who is neither a citizen nor a permanent resident of Canada, a foreign government, or any corporation or other entity that is not Canadian-controlled.

The Act deems that the acquisition of a majority of the voting interests of the Company, or entity that controls the Company, by a non-Canadian constitutes acquisition of control of the Company.  The acquisition of one-third or more (but less than a majority) of the voting interests of the Company, or entity that controls the Company, by a non-Canadian is presumed to be an acquisition of control of the Company unless it can be established that the acquirer(s) do(es) not in fact control the Company through the ownership of voting interests.  The acquisition of less than one-third of the voting shares of the Company is deemed not to be an acquisition of control of the Company.  If an acquisition is made in contravention of the Act, a court of competent jurisdiction may make any order it thinks fit including requiring the acquirer to divest its common shares of the Company.

Except as described above, statutes in Canada and the Province of Alberta and the charter documents of the Company do not restrict the right of non-resident or foreign owners to hold or vote common shares of the Company.

E.

Taxation

The following is a summary of certain Canadian federal income tax considerations, pursuant to the Income Tax Act (Canada) (the Tax Act), generally applicable to holders of common shares who, for purposes of the Tax Act, are not resident and are not deemed to be resident in Canada, do not carry on an insurance business in Canada, hold the common shares as capital property and do not use or hold, and are not deemed to use or hold, common shares in the course of carrying on a business in Canada (Non-Resident Holders).

Non-Resident Holders will not be subject to Canadian federal income tax on dispositions of common shares unless such holder, together with non-arms length persons, owned 25% or more of the shares of any class of capital stock of the Company at any time within the previous 5 years.  Where the Non-Resident Holder, together with such non-arms length persons, has held 25% or more of the shares of any class of capital stock of the Company in the previous 5 year period, such holder will be subject to Canadian income tax on such dispositions unless the applicable tax treaty (if any) between Canada and the country in which such holder resides provides that Canadian income tax is not applicable.  The



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Canada-U.S. Income Tax Convention (1980) (the Canada-US Treaty) provides that Canadian income tax will not be applicable on a disposition of common shares by a holder thereof who is resident in the United States for the purposes of the Canada-U.S. Treaty.

Dividends paid or credited, or deemed to be paid or credited, to Non-Resident Holders will be subject to Canadian withholding tax.  The rate of Canadian withholding tax under the Tax Act is 25%, subject to any reduction in the provisions of a tax treaty between Canada and the country in which the recipient is resident.  The Canada-U.S. Treaty provides for a reduction in the rate of Canadian withholding tax to persons who are residents of the United States for the purpose of the Canada-U.S. Treaty.  The withholding tax rate on dividends paid to such United States residents, who are beneficial owners of the dividends, is reduced to 15% by the provisions of the Canada-U.S. Treaty.  The withholding rate is further reduced to 5% in the case of a recipient that is a United States corporation that beneficially owns at least 10% of the voting stock of the Canadian corporation.

F.

Dividends and paying agents

Not applicable.

G.

Statements by experts

Not applicable.

H.

Documents on display

The articles of the Company and By-Law No. 1 of the Company and the other documents referred to in this Form 20-F may be viewed at the Companys registered office which is 3700, 400  3rd Avenue S.W., Calgary, Alberta, Canada, T2P 4H2.

I.

Subsidiary Information

Not applicable.

Item 11:

Quantitative and Qualitative Disclosures about Market Risk

Quantitative Information about Market Risk

As at December 31, 2005(thousands of Canadian dollars)
	2006
	2007
	2008
	2009
	2010
	Total
	Fair ValueLiabilitiesBank operating loan
	$ 29,062
	$  -
	$    -
	$    -
	$    -
	$ 29,062
	$ 29,062Average interest rate
	Cdn. Prime plus 0.5% to Cdn. prime plus 0.875% up to $60.0 millionObligations under capital lease
	$ 217
	$ 186
	$ 179
	$  73
	-
	$ 655
	$ 703Average fixed interest rate
	7%
	8%
	9%
	8%
	-
	8%
	5.5%




The Company finances its working capital requirements with a 364 day bank operating loan facility in the amount of $60.0 million (2004  $50.0 million).  Amounts drawn against this facility bear interest at rates between prime plus 0.5% and prime plus 0.875% (2004  prime plus 0.875%).  The prime rate as at December 31, 2005 was 5.00% (2004  4.25%).  The weighted average interest rate as at December 31, 2005 was 5.55% (2004  5.15%).

Obligations under capital leases are payable in equal monthly installments of $26,000 including principal and interest at various rates up to 8%.

Qualitative Information about Market Risk

The Company is exposed to market risks from changes in the Canadian prime interest rate and foreign exchange rates with respect to the Canadian dollar and the U.S. dollar.  The Company will enter into foreign currency forward exchange contracts with financial institutions to fix the value of liabilities on future commitments.  The Company entered into such contracts in 2005, the impact of which were not considered material.  No contracts were outstanding as at December 31, 2005.



Page 40 of 64



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The Company has exposure to interest rate fluctuations on its demand operating loan.  The Company has, in the past, entered into interest rate contracts to hedge its interest rate risk associated with the demand-operating loan.  No such contracts were in place for 2005, 2004 or 2003.  The Company does not use financial instruments for speculative purposes.

As at December 31, 2005 there were no unrecognized gains or losses associated with the above instruments.

Item 12:

Description of Securities Other than Equity Securities

Not applicable.

PART II

Item 13:

Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14:

Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

Item 15:

Controls and Procedures

The Company maintains disclosure controls and procedures and internal control over financial reporting designed to ensure that information required to be disclosed in the Companys filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time frame specified in the Securities and Exchange Commissions rules and regulations.  CE Franklins principal executive and financial officers have evaluated the Companys disclosure controls and procedures as at December 31, 2005 and have determined that such disclosure controls and procedures are effective.  A control system, no matter how well designed and operated cannot provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected.

There were no significant changes in the Companys internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting subsequent to the evaluation date.

Item 16:

Reserved

Item 16A:

Audit Committee Financial Expert

The Companys audit committee has two financial experts, Mr. David Dyck and Mr. Victor Stobbe.  Both are considered independent directors.

Item 16B:

Code of Ethics

The Company has adopted a formal written code of ethics for its principal executive, financial and accounting officers, as well as the Companys leadership team.

For a copy of the code of ethics please email
info@cefranklin.com or visit www.cefranklin.com.

Item 16C:

Principal Accountant Fees and Services

The following table discloses accounting fees and services of the Company:



Year-Ended December 31,
	
	2005
	
	2004(thousands of Cdn. Dollars)Audit fees(1)
	$
	231
	$
	173Audit related fees(2)
	
	39
	
	163Tax fees(3)
	
	197
	
	52$
	467
	$
	388




(1)

Audit fees include professional services for the audit of financial statements, review of quarterly financial statements and annual filing documents.  The Audit Committee approved 100% of these fees.



Page 42 of 64



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(2)

Audit related fees consist of due diligence services provided for the proposed transaction to acquire Wilson and services performed in 2005 in connection with compliance with section 404 of the Sarbanes-Oxley Act.  The Audit Committee approved 100% of these fees.

(3)

Tax fees include professional services with respect to reviewing tax returns, tax advice, tax planning and tax due diligence services provided for the proposed transaction to acquire Wilson.  The Audit Committee approved 100% of these fees.

The Companys audit committee policy states all auditing services and non-audit services provided to the Company by the Companys auditors shall, to the extent and in the manner required by applicable law or regulation, be pre-approved by the Audit Committee of the Company.  In no circumstances, shall the Companys auditor provide any non-audit services that are prohibited by applicable law or regulation.

Item 16D:

Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E:

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

PART III

Item 17:

Financial Statements

See Item 18.

Item 18:

Financial Statements

|Index to Financial Statements                                     | Page
|----------------------------------------------------------------- | ----
|Managements' Report                                               | 43  
|Auditors' Report                                                  | 44  
|Balance Sheets at December 31, 2005 and December 31, 2004         | 45  
|Statements of Changes in Shareholders' Equity for the years-ended | 46  
|December 31, 2005, December 31, 2004 and December 31, 2003        |     
|Statements of Operations for the years-ended                      | 47  
|December 31, 2005, December 31, 2004 and December 31, 2003        |     
|Statements of Cash Flows for the years-ended                      | 48  
|December 31, 2005, December 31, 2004 and December 31, 2003        |     
|Notes to Financial Statements                                     | 49  





Page 42 of 64



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MANAGEMENTS REPORT

The preparation and presentation of the accompanying financial statements are the responsibility of the management of the Company.  The statements have been prepared in accordance with Canadian generally accepted accounting principles as described in note 1 to the financial statements.  The financial information elsewhere in the annual report has been reviewed to ensure consistency with that in the financial statements.

Management acknowledges responsibility for the integrity of its financial information. Where appropriate, management has made informed judgments and estimates in accounting for transactions, which were not complete at the balance sheet date.  The Company maintains disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in the financial statements and annual report is recorded, processed, summarized and reported properly.  CE Franklins Chief Executive Officer and Chief Financial Officer evaluated the Companys disclosure controls and procedures as at December 31, 2005 to ensure that such disclosure controls and procedures are effective.  There were no significant changes in the Companys internal controls or in other factors that could significantly affect those controls subsequent to the evaluation date.

The Board of Directors has appointed an Audit Committee that consists of three directors who are not officers or employees of the Company and have no direct or indirect material relationship with the Company.  The committee meets with management and the Companys external auditors to discuss internal control, accounting policies and financial reporting matters. The Audit Committee has reviewed the financial statements. The Board of Directors has approved the financial statements on the recommendation of the Audit Committee.

"signed"

"signed"



|                            |                                           
|--------------------------- | ------------------------------------------
|Michael West                | Salvatore Secreti                         
|Chairman, President and CEO | Vice President and Chief Financial Officer
|February 2, 2006            | February 2, 2006                          





Page 43 of 64



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AUDITORS REPORT

To the Shareholders of CE Franklin Ltd.

We have audited the balance sheets of CE Franklin Ltd.as at December 31, 2005 and 2004 and the statements of operations, changes in shareholders equity and cash flows for each of the years in the three-year period ended December 31, 2005. 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 audits.

We conducted our audits 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, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in accordance with Canadian generally accepted accounting principles.

"signed"



Calgary, Alberta, Canada

PricewaterhouseCoopers LLP

February 2, 2006

Chartered Accountants



Page 44 of 64



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CE Franklin Ltd.

Balance Sheets

As at December 31

(in thousands of Canadian dollars)

|                                                            | 2005    | 2004   
|----------------------------------------------------------- | ------- | -------
|Assets                                                      |         |        
|Current assets                                              |         |        
|Accounts receivable (note 2 and 12)                         | 96,508  | 66,573 
|Inventories (note 12)                                       | 80,482  | 64,282 
|Other                                                       | 2,998   | 552    
|                                                            | 179,988 | 131,407
|Property and equipment(note 3)                              | 3,537   | 6,097  
|Goodwill                                                    | 7,765   | 7,765  
|Future income taxes(note 7)                                 | 1,038   | -      
|Other                                                       | 180     | 240    
|                                                            | 192,508 | 145,509
|Liabilities                                                 |         |        
|Current liabilities                                         |         |        
|Bank overdraft                                              | 14,090  | 5,270  
|Bank operating loan (note 4)                                | 29,062  | 26,140 
|Accounts payable (note 12)                                  | 29,575  | 29,381 
|Accrued liabilities (note 5 and 12)                         | 35,354  | 26,136 
|Income taxes payable                                        | 7,840   | 3,074  
|Current portion of obligations under capital lease (note 6) | 217     | 204    
|                                                            | 116,138 | 90,205 
|Obligations under capital lease(note 6)                     | 438     | 626    
|Future income taxes(note 7)                                 | -       | 612    
|                                                            | 116,576 | 91,443 
|Commitments and contingencies(note 13)                      |         |        
|Shareholders equity                                        |         |        
|Capital stock (note 8)                                      | 21,914  | 19,335 
|Contributed surplus                                         | 14,281  | 13,858 
|Retained earnings                                           | 39,737  | 20,873 
|                                                            | 75,932  | 54,066 
|                                                            | 192,508 | 145,509



The accompanying notes are an integral part of these financial statements.

|                          |         
|------------------------- | --------
|Approved by the Board:    |         
|"signed"
Victor J. Stobbe | Director
|"signed"
David A. Dyck    | Director



Page 45 of 64



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CE Franklin Ltd.

Statements of Changes in Shareholders Equity

(in thousands of Canadian dollars, except number of shares)



Capital StockNumber of
	
	Contributed
	Retained
	Shareholders'Shares
	$
	Surplus
	Earnings
	EquityDecember 31, 2002
	17,178,696
	19,268
	13,566
	14,337
	47,171Stock options granted(note 8)
	-
	-
	36
	-
	36Net income
	-
	-
	-
	421
	421December 31, 2003
	17,178,696
	19,268
	13,602
	14,758
	47,628Stock options excercised(note 8)
	16,238
	67
	-
	-
	67Stock options granted(note 8)
	-
	-
	256
	-
	256Net income
	-
	-
	-
	6,115
	6,115December 31, 2004
	17,194,934
	19,335
	13,858
	20,873
	54,066Stock options exercised(note 8)
	609,620
	2,579
	(129)
	-
	2,450Stock options granted(note 8)
	-
	-
	552
	-
	552Net income
	-
	-
	-
	18,864
	18,864December 31, 2005
	17,804,554
	21,914
	14,281
	39,737
	75,932




The accompanying notes are an integral part of these financial statements.



Page 46 of 64



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CE Franklin Ltd.

Statements of Operations

For the years ended December 31

(in thousands of Canadian dollars, except shares and per share amounts)



2005
	2004
	2003Sales
	482,403
	338,701
	257,125Cost of sales
	391,089
	278,458
	213,575Gross Profit
	91,314
	60,243
	43,550Other expenses (income)Selling, general and administrative expenses (note 9)
	55,303
	44,299
	36,416Amortization
	4,393
	4,328
	4,130Interest expense
	1,945
	1,455
	959Foreign exchange loss (gain)
	18
	28
	(523)Other income
	(10)
	(12)
	(226)61,649
	50,098
	40,756Income before income taxes
	29,665
	10,145
	2,794Income tax expense (recovery)(note 7)Current
	12,451
	4,804
	2,462Future
	(1,650)
	(801)
	(968)10,801
	4,003
	1,494Income from continuing operations
	18,864
	6,142
	1,300Loss from discontinued operations(note 10)
	-
	(27)
	(879)Net income for the year
	18,864
	6,115
	421Net income per shareContinuing operationsBasic
	1.09
	0.36
	0.07Diluted
	1.01
	0.35
	0.07Discontinued operationsBasic
	-
	0.00
	(0.05)Diluted
	-
	0.00
	(0.05)Net income per shareBasic
	1.09
	0.36
	0.02Diluted
	1.01
	0.35
	0.02Weighted average number of shares outstandingBasic
	17,326,637
	17,187,720
	17,178,696Diluted
	18,680,002
	17,605,599
	17,233,326




The accompanying notes are an integral part of these financial statements.



Page 47 of 64



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CE Franklin Ltd.

Statements of Cash Flows

For the years ended December 31



(in thousands of Canadian dollars)
	2005
	2004
	2003Cash flows from operating activitiesIncome from continuing operations
	18,864
	6,142
	1,300Items not affecting cashAmortization
	4,393
	4,328
	4,130Gain on disposal of property and equipment
	(9)
	(6)
	(223)Future income tax recovery
	(1,650)
	(801)
	(968)Increase (decrease) in inventory write-downs
	(207)
	1,528
	450Stock options granted (note 8)
	552
	256
	3621,943
	11,447
	4,725Net change in non-cash working capital balances related tooperations(note 11)
	(35,317)
	(24,232)
	(676)Net cash flow from continuing operations
	(13,374)
	(12,785)
	4,049Net cash flow from discontinued operations (note 10)
	-
	(26)
	560(13,374)
	(12,811)
	4,609Cash flows from financing activitiesIssuance of capital stock
	2,450
	67
	-Increase in bank operating loan
	2,922
	2,772
	1,868Increase (decrease) in bank overdraft
	8,820
	5,270
	(1,166)Decrease in obligations under capital lease
	(261)
	(327)
	(343)Net cash flow from continuing operations
	13,931
	7,782
	359Net cash flow from discontinued operations (note 10)
	-
	-
	1813,931
	7,782
	377Cash flows from investing activitiesPurchase of property and equipment
	(587)
	(861)
	(581)Proceeds on disposal of property and equipment
	30
	50
	247Proceeds on sale of compression operations (note 10)
	-
	961
	538Other
	-
	-
	(300)Net cash flow from continuing operations
	(557)
	150
	(96)Net cash flow from discontinued operations (note 10)
	-
	(2)
	(9)(557)
	148
	(105)Change in cash and cash equivalents during the year
	-
	(4,881)
	4,881Cash and cash equivalents  beginning of year
	-
	4,881
	-Cash and cash equivalents  end of year
	-
	-
	4,881Cash paid during the yearInterest on bank operating loan
	1,899
	1,419
	1,077Interest on obligations under capital lease
	46
	50
	36Income taxes
	7,685
	3,249
	356






The accompanying notes are an integral part of these financial statements.



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



1.

Accounting Policies

Generally accepted accounting principles

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Canada.  These principles differ in certain respects from accounting principles generally accepted in the United States (U.S.).  The material differences that affect the Companys financial statements are described in note 17.

Certain comparative figures have been reclassified to conform with the current years presentation.

Use of estimates

The preparation of the 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 dates of the financial statements and the reported amounts of sales and expenses during the reporting periods.

Management believes the most significant estimates and assumptions are associated with the valuation of accounts receivable, inventories, future tax assets (liability), stock based compensation and goodwill.  If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying financial statements.

Basis of presentation

On March 31, 2004, the Company sold its remaining 50% interest in its small horsepower compression operations to its joint venture partner for cash proceeds of $961,000 (see note 10).

On January 31, 2003 the Company transferred the property and equipment and operations of its small horsepower compression operations into a wholly owned subsidiary.  Subsequently, a 50% interest in this subsidiary was sold for cash proceeds of $538,000.

Allowance for doubtful accounts

The Company maintains an allowance for doubtful accounts to provide for receivables which may ultimately be uncollectible.  Reserves are determined in light of a number of factors including customer specific conditions, economic events and the Companys historical loss experience.

Inventories

Inventories, consisting primarily of goods purchased and held for resale, are valued at the lower of average cost or net realizable value.

Foreign currency translation

Monetary assets and liabilities are translated into Canadian dollars at year-end exchange rates and gains or losses from translation are recognized in the Statements of Operations.  Sales and expenses are translated at the exchange rate prevailing on the date the transaction occurs.

Hedging relationships

Effective January 1, 2004, the Company adopted, prospectively, the new accounting guideline relating to hedging relationships.  In the normal course of business, the Company enters into foreign currency forward exchange contracts with financial institutions to fix the value of liabilities or future commitments.  These foreign currency exchange contracts are not designated as hedges for accounting purposes.  The value of the contract is marked to market and the change in value is recognized in the Statements of Operations.



Page
49 of 64



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



Property and equipment

Property and equipment are recorded at cost less related accumulated amortization.  The Company provides for amortization of property and equipment using rates as follows:

Buildings5% to 10%straight lineLeasehold improvementsover the term of the leasestraight lineComputer equipment and software15% to 33%straight lineEquipment and machinery10% to 100%straight lineFurniture and office equipment15% to 20%straight lineAutomotive equipment30%straight line


Assets held under capital lease are amortized by the straight-line method over the term of the lease or the estimated useful life of the assets; whichever is shorter.

The Company reviews property and equipment for impairment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  If an evaluation is required, the estimated undiscounted future cash flows associated with the asset will be compared to the assets carrying amount to determine if an impairment exists.

Goodwill and other intangibles

Goodwill represents the excess of the cost over the fair value of net assets acquired related to an acquisition.  In accordance with generally accepted accounting principles goodwill is not amortized but instead evaluated annually for a permanent impairment, or when events and circumstances indicate that there might be an impairment.  The goodwill valuation is prepared during the second quarter of each calendar year, and is valued using a multiple of cash flow and earnings.

Intangible assets are amortized on a straight line basis over the periods expected to be beneficial from the intangible asset.  The intangible asset recorded under other assets in the Balance Sheets is comprised of a five-year exclusive distribution agreement to sell certain products.

Revenue recognition

The Companys revenue, which is comprised of product sales, is generally subject to contractual arrangements, which specify price and general terms and conditions.  The Company recognizes product sales when title and the related risk of loss transfers to the customers.

Vendor rebates

Vendor rebates consist of volume discount incentives earned in the purchase of selected products during the year from specified vendors.  These discounts are based on contractual agreements with the vendors which outline price, volume and general terms and conditions.  The Company recognizes vendor rebates as a reduction of cost of sales.

Freight

The Company incurs freight expenses related to purchasing its inventory from vendors and shipping its product to its customers.  All freight expenses, net of reimbursements from customers, are included as a component of cost of goods sold in the statements of operations.

Earnings per share

Earnings per share is computed based on the weighted average basic number of shares outstanding for the period. Diluted earnings per share have been calculated using the treasury stock method, whereby diluted earnings per share are calculated as if options were exercised at the beginning of the year and funds received were used to purchase the Companys common shares on the open market.



Page
50 of 64



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



Income taxes

The Company uses the liability method of accounting for income taxes under which future tax assets and liabilities are recognized when there are differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Future tax assets and liabilities are measured using substantively enacted tax rates in effect in the period in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date.

Cash and cash equivalents

Cash and cash equivalents are defined as cash and short-term, highly liquid investments, which have a maturity of less than 90 days at the time of purchase.

Stock options

The Company operates a stock option plan that is described in note 8b.  As of January 1, 2003 the Company adopted prospectively, the fair value method of accounting for common share options granted.  Under this method, the Company recognizes a compensation expense based on the fair value of the options on the date of grant which is determined by using the Black-Scholes options pricing model.  The fair value of the options is recognized over the vesting period of the options granted as compensation expense and contributed surplus.  The contributed surplus balance is reduced as options are exercised and the amount initially recorded for the options in contributed surplus is credited to capital stock.

In accordance with the transitionary provisions of this new accounting pronouncement, no compensation expense is recorded for stock options awarded prior to January 1, 2003 and the Company has continued to apply the intrinsic method of accounting for stock options granted (see note 8b).  The consideration paid by option holders on the exercise of these options is and will be credited to capital stock.

2.

Accounts Receivable

As at December 31
	2005
	2004Trade
	92,136
	63,017Allowance for doubtful accounts
	(625)
	(544)91,511
	62,473Due from related party(note 12)
	-
	1,840Other
	4,997
	2,26096,508
	66,573




Concentration of credit risk

The majority of the Companys sales are generated from customers in the energy sector, which includes major multi-national and independent oil companies, pipeline companies and contract drilling companies operating in Canada.

The Companys sales are derived from uncollateralized customer sales.  The significant energy industry concentration in Canada has the potential to impact the Companys exposure to credit risk, either positively or negatively, because customers may be similarly affected by changes in economic or other conditions.  The Company has experienced limited credit losses on such accounts receivable.



Page
51 of 64



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



3.

Property and Equipment

AccumulatedAs at December 31, 2005
	Cost
	Amortization
	NetLand, buildings and leasehold improvements
	4,112
	2,985
	1,127Computer equipment and software
	22,135
	20,685
	1,450Equipment and machinery
	4,207
	3,526
	681Furniture and office equipment
	1,735
	1,456
	279Automotive equipment
	40
	40
	-32,229
	28,692
	3,537AccumulatedAs at December 31, 2004
	Cost
	Amortization
	NetLand, buildings and leasehold improvements
	4,195
	2,872
	1,323Computer equipment and software
	21,779
	17,890
	3,889Equipment and machinery
	3,401
	2,708
	693Furniture and office equipment
	1,575
	1,383
	192Automotive equipment
	40
	40
	-30,990
	24,893
	6,097




Included in computer equipment and software at December 31, 2005 is leased computer equipment with a cost of $1,048,000 (2004  $962,000) and related accumulated amortization of $439,000 (2004  $193,000).

4.

Bank Operating Loan

The Company finances its working capital requirements with a 364 day bank operating loan facility in the amount of $60.0 million (2004  $50.0 million).  Amounts drawn against this facility bear interest at rates between prime plus 0.5% and prime plus 0.875% (2004  prime plus 0.875%).  The prime rate as at December 31, 2005 was 5.00% (2004  4.25%).  The weighted average interest rate as at December 31, 2005 was 5.55% (2004  5.15%).  The maximum amount available under this facility is subject to a borrowing base formula applied to accounts receivable and inventories.  As at December 31, 2005, the maximum available under this facility, based on the borrowing base formula, was $60.0 million (2004  $50.0 million).

The facility is collateralized by general security agreement covering all present and after-acquired property of the Company including accounts receivable, inventories and property and equipment.

This facility contains certain restrictive covenants which include, among others, maintenance of certain financial ratios and to obtain approval prior to payment of dividends, repurchase or redemption of shares.  As at December 31, 2005 the Company is in compliance with its bank covenants.

5.

Accrued Liabilities



As at December 31
	2005
	2004Trade payables not yet invoiced
	25,028
	16,560Employee performance incentives
	5,738
	3,343Other
	4,588
	6,23335,354
	26,136






Page
52 of 64



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)





6.

Obligations Under Capital Lease



As at December 31
	2005
	2004Obligations under capital lease
	655
	830Less: Current portion
	(217)
	(204)438
	626




The capital leases are payable in equal monthly installments of $26,000 including principal and interest and bear interest at various rates of up to 8% (2004  8%).  The leases are collateralized by the underlying assets and expire between May 2006 and June 2009.

Principal repayments of obligations under capital lease are as follows:



Year ending December 312006
	2172007
	1862008
	1792009
	73655






7.

Income Taxes

a)

Reconciliation of the income tax provision

The difference between the income tax provision recorded and the provision obtained by applying the combined federal and provincial statutory rates is as follows:



For the Years Ended December 31
	2005
	%
	2004
	%
	2003
	%Income before income taxes
	29,665
	
	10,145
	
	2,794Income taxes calculated at expectedrates
	10,193
	34.4
	3,510
	34.6
	1,037
	37.1Non-deductible items
	634
	2.1
	290
	2.9
	168
	6.0Difference in tax rates
	-
	-
	(19)
	(0.2)
	22
	0.8Capital and large corporations taxes
	66
	0.2
	61
	0.6
	145
	5.2Other
	(92)
	(0.3)
	161
	1.6
	122
	4.410,801
	36.4
	4,003
	39.5
	1,494
	53.5






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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



b)

Significant components of future income tax assets and liabilities are as follows:

As at December 31
	2005
	2004AssetsFinancing charges
	909
	109Property and equipment
	479
	-Other
	199
	1351,587
	244LiabilitiesProperty and equipment
	-
	303Goodwill and other
	549
	553549
	856Net future income tax liability (asset)
	(1,038)
	612




The Company believes it is more likely than not that all future income tax assets will be realized.

8.

Capital Stock

a)

The Company has authorized an unlimited number of common shares with no par value.

b)

The Board of Directors may grant options to purchase common shares to substantially all employees, officers and directors and to persons or corporations who provide management or consulting services to the Company.  The exercise period and the vesting schedule after the grant date are not to exceed 10 years and are to be established by the Compensation Committee of the Board of Directors.  As at December 31, 2005 the Board of Directors may grant an additional 299,419 options to purchase common shares.

Option activity for each of the years ended December 31 was as follows:

|                                | 2005      | 2004           | 2003     
|------------------------------- | --------- | -------------- | ---------
|                                |           |                |          
|                                |           | Weighted       |          
|                                |           | average        |          
|                                | Number of | exercise price | Number of
|                                | Options   | per share      | Options  
|Outstanding  beginning of year | 1,626,701 | 3.63           | 1,750,439
|Granted                         | 413,745   | 4.61           | -        
|Exercised                       | (609,620) | 4.02           | (16,238) 
|Cancelled or expired            | (135,790) | 7.62           | (107,500)
|Outstanding  end of year       | 1,295,036 | 3.65           | 1,626,701
|Exercisable  end of year       | 729,878   | 3.31           | 1,021,169



A summary of stock options outstanding at December 31, 2005 is set out below:



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



Outstanding stock optionsWeighted average remaining
	ExercisableExercise price
	Number
	contractual life
	stock options$2.70
	429,010
	7.95 years
	286,006$3.28
	4,200
	5.63 years
	4,200$3.30
	26,728
	7.13 years
	17,819$3.49
	284,516
	6.95 years
	284,516$3.50
	99,845
	6.00 years
	99,845$4.60
	409,745
	9.03 years
	-$4.90
	3,000
	9.07 years
	-$6.05
	37,492
	0.13 years
	37,492$7.20
	500
	9.09 years
	-1,295,036
	7.67 years
	729,878






The fair value of common share options granted in 2005 was $898,372.  This amount will be amortized over three years which is the current vesting period for these options.  The compensation expense recorded in 2005 was $552,000 (2004  $256,000; 2003  $36,000).  The fair value of common share options granted is estimated as at the grant date using the Black-Scholes option-pricing model, using the following assumptions:

200520042003Dividend yieldnilnilnilRisk-free interest rate4.08%4.50%4.50%Expected life5 years5 years5 yearsExpected volatility56%65%65%




For all stock options issued prior to January 1, 2003 the Company applied the intrinsic method of accounting for common share options granted to employees, officers and directors.  Accordingly, no compensation expense has been recognized in the Statements of Operations.  Had the Company adopted the fair value based method of accounting, the amount expensed in each period would be the fair value of the options, calculated using the Black-Scholes options-pricing model and net of options forfeited in the period, amortized over the expected life of the options.  The proforma net income (loss) and proforma net income (loss) per share attributable to common shareholders of the Company would be as follows:



2005
	2004
	2003Net income (loss)As reported
	18,864
	6,115
	421Compensation expense
	551
	798
	843Proforma
	18,313
	5,317
	(422)Net income (loss) per shareBasicAs reported
	1.09
	0.36
	0.02Proforma
	1.06
	0.31
	(0.02)DilutedAs reported
	1.01
	0.35
	0.02Proforma
	0.98
	0.30
	(0.02)




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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



Selling, General and Administrative Expenses

Selling, general and administrative expenses include the following amounts:



For the years ended December 31
	2005
	2004
	2003Bad debt expense
	459
	244
	266Rental expense
	4,050
	3,746
	3,646




10.

Discontinued Operations

On March 31, 2004, the Company sold its 50% interest in its small horsepower compression operations to its joint venture partner for cash proceeds of $961,000.  No gain or loss on disposition resulted from the transaction.  The proceeds from this transaction were used to reduce the Companys bank operating loan.  The results of discontinued operations for the years ended December 31 were as follows:



For the years ended December 31
	2004
	2003Sales
	444
	2,432Loss before interest and taxes
	(49)
	(1,173)Interest expense
	(14)
	(158)Income tax recovery
	36
	452Loss for the year
	(27)
	(879)Total assets
	-
	1,623Total liabilities
	-
	663




11.

Net Change in Non-cash Working Capital Balances Related to Operations



For the years ended December 31
	2005
	2004
	2003Accounts receivable
	(29,935)
	(20,730)
	(8,462)Inventories
	(17,114)
	(18,364)
	(10,152)Other current assets
	(2,446)
	335
	449Accounts payable
	194
	1,385
	11,467Accrued liabilities
	9,218
	11,623
	4,467Income taxes payable
	4,766
	1,519
	1,555(35,317)
	(24,232)
	(676)




12.

Related Parties

During the year, the Company purchased inventory from Wilson, a wholly-owned subsidiary of its principal shareholder, who owns 53.2% of the outstanding common shares as at December 31, 2005.  Included in inventory at December 31, 2005 is $3,166,000 (2004  $3,185,000) of inventory purchased from Wilson.  Cost of sales includes $7,830,000 (2004  $6,427,000; 2003  $6,612,000) of inventory purchased from its principal shareholder.  Accounts payable and accrued liabilities include $1,083,000 (2004  $930,000) owing to Wilson.  Transactions with related parties are in the normal course of business and are recorded at the exchange amount.  Accounts payable and accrued liabilities are non-interest bearing and are payable within commercial supplier payment terms.  As at December 31, 2004 account receivables include $1,840,000 owing from its principal



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



shareholder, which relates to acquisition costs incurred by the Company.  In 2005 the proposed transaction was discontinued and the amounts owing were reimbursed.

13.

Commitments and Contingencies

a)

The Company leases certain office, warehouse and store facilities and automobiles under long-term operating leases.  Commitments for such non-cancellable operating leases for the next five years are as follows:



Year ending December 31,
	2006
	3,4522007
	3,0842008
	2,3612009
	2,0462010
	1,749Thereafter
	5,25017,942




b)

As at December 31, 2005 the Company had issued letters of credit to procure inventory, in the normal course of business, in the amount of $229,000 (2004 - $4,683,000).

c)

The Company is involved in various lawsuits, the losses from which, if any, are not anticipated to be material to the financial statements.

14.

Financial Instruments

The Companys financial instruments recognized in the Balance Sheets consist of cash, accounts receivable, bank overdraft, accounts payable, accrued liabilities, bank operating loan and obligations under capital lease.  The fair values of these recognized financial instruments, excluding the bank operating loan and obligations under capital lease, approximate their carrying amounts due to the short-term maturity of these instruments.  At December 31, 2005 the fair value of the bank operating loan and obligations under capital lease approximated their carrying values since the cost of the Companys borrowing approximated the current market rate of such borrowings.

The Company is exposed to market risks from changes in the Canadian prime interest rate and foreign exchange rates with respect to the Canadian dollar and the U.S. dollar.  From time to time the Company enters into foreign exchange forward contracts to fix the value of its liabilities and future commitments.  No contracts were outstanding as of December 31, 2005.  The Company has, in the past, entered into interest rate contracts to hedge its interest rate risk associated with the bank operating loan.  No contracts were outstanding as of December 31, 2005.

15.

Economic Dependency

In respect of the Companys sales, 11% (2004  12%; 2003  14%) is derived from sales to one customer.

In respect of the Companys suppliers, 20% (2004  22%; 2003  20%) of the Companys sales is derived from the sale of oilfield tubular goods, where the majority of these products are purchased from one supplier.

16.

Defined Contribution Pension Plan

The Company has a defined contribution pension plan for eligible employees and contributes amounts based on employee salaries to a maximum of 6% (5% in 2004; 3% in 2003) and the amount deductible under the Income Tax Act, to the individuals registered retirement savings plans.  Contributions in respect of this plan incurred during the year were $557,000 (2004  $322,000; 2003  $216,000).



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



17.

Reconciliation of Canadian and United States Generally Accepted Accounting Principles (GAAP)

These financial statements have been prepared in accordance with Canadian GAAP.  The Companys accounting policies are consistent with U.S. GAAP with the following exceptions:

a)

Statements of Changes in Shareholders Equity



As at December 31
	2005
	2004
	2003Shareholders equity under Canadian GAAP
	75,932
	54,066
	47,628Restructuring provision adjustment (i)
	(324)
	(324)
	(324)Benefit of deferred tax assets applied to goodwill (ii)
	(1,058)
	(1,058)
	(1,058)Shareholders equity under U.S. GAAP
	74,550
	52,684
	46,246




i)

The restructuring provision adjustment relates to a 1995 transaction where $379,386 in restructuring expenditures were recorded in the purchase equation as goodwill under Canadian GAAP but were recorded in the statement of operations for U.S. GAAP.

ii)

In 1996, the Company realized the benefit of certain deferred tax assets on which a 100% valuation provision had been recorded in 1995.  This benefit was recorded as a reduction of goodwill for U.S. GAAP.

b)

Balance Sheets

The following table indicates the restated amounts for the items in the Balance Sheets of the company that would be affected had the financial statements been prepared in accordance with U.S. GAAP.



As at December 31
	2005
	2004Goodwill (a)(i) and (a)(ii)
	6,383
	6,383Retained earnings (a)(i) and (a)(ii)
	38,355
	19,491




c)

Statements Of Cash Flows

Under U.S. GAAP, the disclosure of total cash flows from operating activities prior to changes in non-cash working capital balances related to operations is not permitted.

d)

Recent Accounting Pronouncements

Under the Securities and Exchange Commissions (SEC) Staff Accounting Bulletin No. 74 (SAB 74), the Company is required to disclose certain information related to recently issued accounting standards.  SAB 74 requires that when a new accounting standard has been issued but has not yet been adopted, the registrant should discuss the effect that the new standard will have on the registrants financial statements when adopted.  The SAB 74 disclosure requirement applies not only to the U. S. GAAP information presented by foreign registrants, but also to the GAAP used to prepare the primary financial statements included in SEC filings.



US GAAP pronouncements

(i)

FAS 123R  Share-based payment

Under FAS 123R, all forms of share-based payment to employees result in compensation cost recognized in financial statements.  FAS 123R is effective for annual reporting periods beginning after June 15, 2005.  The Company does not expect that the adoption of this pronouncement will have an impact on its financial statements.



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CE Franklin Ltd.

Notes to Financial Statements

December 31, 2005, 2004 and 2003

(tabular amounts in thousands of Canadian dollars except share and per share amounts)



(ii)

FAS 151  Inventory Costs

This pronouncement clarifies the accounting for abnormal idle facility expense, freight, handling costs and waste material (spoilage) and fixed production overhead.  Effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The Company does not expect that the adoption of this pronouncement will have an impact on its financial statements.

(iii)

FAS 153  Exchanges of non-monetary assets

Requires exchanges of certain non-monetary assets to be measured at fair value unless the exchange lacks commercial substance.  Effective for exchanges occurring in fiscal periods beginning after June 15, 2005.  The Company does not expect that the adoption of this pronouncement will have an impact on its financial statements.

(iv)

FAS 154  Accounting changes and error corrections

Establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle.  Effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The Company does not expect that the adoption of this pronouncement will have an impact on its financial statements.

Canadian GAAP pronouncements

(i)

CICA 3831  Non-monetary transactions

Revises existing CICA 3830 on non-monetary transactions, replacing the current exception from measurement of a non-monetary transaction at fair value with an exception based on whether the transaction has commercial substance.  Applies to all non-monetary transactions initiated in periods beginning on or after January 1, 2006.  The Company does not expect that the adoption of this pronouncement will have an impact on its financial statements.

(ii)

CICA 3855  Financial Instruments  recognition and measurement

This new CICA section addresses the recognition and measurement of financial instruments at fair market value whereby financial assets and financial liabilities are accounted for at fair value when an entity becomes a party to the contractual provisions of the financial instrument.  This section applies to fiscal years starting on or after October 1, 2006.  The Company does not expect that the adoption of this section will have an impact on its financial statements.

(iii)

CICA 3861  Financial Instruments  disclosure and presentation

This section replaces old CICA Section 3860 and it applies to interim and annual financial statements for fiscal years beginning on or after October 1, 2006.  CICA 3861 revises the requirements for accounting policy disclosures, and specifies new requirements for disclosures about fair value.  The Company does not expect that the adoption of this pronouncement will have an impact on its financial statements.



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Item 19.

Exhibits

The following exhibits are filed as part of this report on Form 20-F and are incorporated by reference:

1.1

Certificate and Articles of Amalgamation as amended, incorporated herein by reference to Exhibit 3.1 to the Companys Registration Statement on Form F-1, as amended (33-68944).

1.2

Bylaws incorporated herein by reference to Exhibit 3.2 to the Companys Registration Statement on Form F-1, as amended (33-68944).

12.1

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1

Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

13.2

Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



signed

Name:  Salvatore Secreti

Title:

Vice President and

Chief Financial Officer



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Exhibit 12.1

Certification of Principal Executive Officer

I, Michael West, certify that:

1.

I have reviewed this annual report on Form 20-F of CE Franklin Ltd.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.

The Companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and

5.

The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting.

Date:

February 2, 2006



By:

signed

Name:

Michael West

Title:

Chairman, President and

Chief Executive Officer



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Exhibit 12.2

Certification of Principal Financial Officer

I, Salvatore Secreti, certify that:

1.

I have reviewed this annual report on Form 20-F of CE Franklin Ltd.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.

The Companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and

5.

The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting.

Date:

February 2, 2006



By:

signed

Name:

Salvatore Secreti

Title:

Vice President and

Chief Financial Officer



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Exhibit 13.1



Certification of the Chief Executive Officer



In connection with the annual report of CE Franklin Ltd. (the Company) on Form 20-F for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Michael West, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



signed

Name:

Michael West
Title:

Chairman, President and

Chief Executive Officer

Date:

February 2, 2006



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Exhibit 13.2



Certification of the Chief Financial Officer



In connection with the annual report of CE Franklin Ltd. (the Company) on Form 20-F for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Salvatore Secreti, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



signed

Name:

Salvatore Secreti
Title:

Vice President and

Chief Financial Officer

Date:

February 2, 2006





Page
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