20-F

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

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

OR

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

OR

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

For the transition period from                   to                  .

Commission File No. 001-14835

ADB SYSTEMS INTERNATIONAL LTD.

(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant’s name into English)

ONTARIO, CANADA

(Jurisdiction of incorporation or organization)

6725 Airport Road, Suite 201
Mississauga, Ontario L4V 1V2
CANADA
(Address of principal executive offices)

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

None

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

Common Shares

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

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.

59,422,779 Common Shares as of December 31, 2003

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 ý No o

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

Item 17 o Item 18 ý

ADB SYSTEMS INTERNATIONAL LTD.

Annual Report on Form 20-F for the Fiscal Year

Ended December 31, 2003

FORWARD LOOKING STATEMENTS

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

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

•our future capital needs;

•future expectations as to profitability and operating results;

•our ability to further develop business relationships and revenues;

•our expectations about the markets for our products and services;

•acceptance of our products and services;

•competitive factors;

•our ability to repay debt;

•our ability to attract and retain employees;

•new products and technological changes;

•our ability to develop appropriate strategic alliances;

•protection of our proprietary technology;

•our ability to acquire complementary products or businesses and integrate them into our business; and

•geographic expansion of our business.

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

•the timing of our future capital needs and our ability to raise additional capital when needed;

•our limited operating history in our current business as a combined entity;

•increasingly longer sales cycles;

•potential fluctuations in our financial results and our difficulties in forecasting;

•volatility of the stock markets and fluctuations in the market price of our stock;

•your ability to buy and sell our shares on the Over the Counter Bulletin Board;

•our ability to compete with other companies in our industry;

•our ability to repay our debt to lenders;

•our ability to retain and attract key personnel;

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•risk of significant delays in product development;

•failure to timely develop or license new technologies;

•risks relating to any requirement to correct or delay the release of products due to software bugs or errors;

•risk of system failure or interruption;

•problems which may arise in connection with the acquisition or integration of new businesses, products, services, technologies or other strategic relationships;

•risks associated with international operations;

•risks associated with protecting our intellectual property, and potentially infringing the intellectual property rights of others;

•uncertainty about the continued acceptance of the Internet as a viable commercial medium; and

•sensitivity to the overall economic environment.

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

Trademarks or trade names which we own and are used in this Annual Report include:  ADB™; PROCUREMATE™; WORKMATE™; BID BUDDY™; SEARCH BUDDY™; DYNAMIC BUYER™ and DYNAMIC SELLER™. Each trademark, trade name, or service mark of any other company appearing in this Annual Report belongs to its holder.

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TABLE OF CONTENTS

PART I
	ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS			6
	ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE			6
	ITEM 3 - KEY INFORMATION			6
		A.	Selected Financial Data	6
		B.	Capitalization and Indebtedness	8
		C.	Reasons For The Offer And Use Of Proceeds	8
		D.	Risk Factors	8
	ITEM 4 - INFORMATION ON THE COMPANY			16
	ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS			25
	ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			35
		A.	Directors And Senior Management	35
		B.	Compensation	37
		C.	Board Practices	39
		D.	Employees	40
		E.	Share Ownership	41
	ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			42
		A.	Major Shareholders	42
		B.	Related Party Transactions	42
	ITEM 8 - FINANCIAL INFORMATION			43
	ITEM 9 - THE OFFER AND LISTING			43
	ITEM 10 - ADDITIONAL INFORMATION			45
		A.	Share Capital	45
		B.	Memorandum and Articles of Association	45
		C.	Material Contracts	48
		D.	Exchange Controls	50
		E.	Taxation	50
		F.	Dividends and Paying Agents	55
		G.	Statements by Experts	55
		H.	Documents on Display	55

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		I.	Subsidiary Information	56
	ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			56
	ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES			56
PART II				56
	ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES			56
	ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			56
	ITEM 15 – CONTROLS AND PROCEDURES			56
	ITEM 16A – AUDIT COMMITTEE FINANCIAL EXPERT			57
	ITEM 16B – CODE OF ETHICS			57
	ITEM 16C – PRINCIPAL ACCOUNTANT FEES AND SERVICES			57
PART III				57
	ITEM 17- FINANCIAL STATEMENTS			57
	ITEM 18 - FINANCIAL STATEMENTS			57
	ITEM 19 – EXHIBITS			58

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Unless otherwise indicated, all references in this Annual Report to “dollars” or “$” are references to Canadian dollars.  Our financial statements are expressed in Canadian dollars.  Except as otherwise noted, certain financial information presented in this Annual Report has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$1.29 to US$1.00, the noon buying rate in New York City on December 31, 2003 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York.  These translations are not intended to suggest that Canadian dollars have been or could be converted into U.S. dollars at that or any other rate.

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

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

PART I

ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3 - KEY INFORMATION

A.SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and the related notes, and the section “Operating and Financial Review and Prospects” included elsewhere in this Annual Report.  The consolidated statement of operations data for the years ended December 31, 2003, 2002 and 2001 and consolidated balance sheet data as of December 31, 2003 and 2002, as set forth below, are derived from our consolidated audited financial statements and the related notes included elsewhere in this Annual Report.  The consolidated statement of operations data for the years ended December 31, 2000 and 1999 and the consolidated balance sheet data as at December 31, 2001, 2000 and 1999 have been derived from our consolidated audited financial statements for those years, which are not included in this Annual Report.

We have prepared our audited financial statements in accordance with accounting principles generally accepted in Canada, which differ in certain respects from accounting principles generally accepted in the United States.  However, as applied to us, for all fiscal periods for which financial data is presented in this Annual Report, Canadian GAAP and U.S. GAAP were substantially identical in all material respects, except as disclosed in Note 20 of our consolidated financial statements.

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

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STATEMENT OF OPERATIONS

DATA:

	Year Ended December 31
	2003		2003		2002		2001		2000		1999
	(Cdn$)		(U.S.$) (1)		(Cdn$)		(Cdn$)		(Cdn$)		(Cdn$)
	(Audited) (in thousands except for per share data)
Revenue	5,853		4,537		5,780		4,455		12,497		31,001
Less:  Customer Acquisition Costs	—		—		—		(60	)	(157	)	—
Net Revenue	5,853		4,537		5,780		4,395		12,340		31,001
Expenses Direct expenses	—		—		—		—		11,460		26,696
Advertising and promotion	—		—		—		—		5,040		11,870
General and administrative	4,648		3,603		6,288		7,622		16,236		12,405
Sales and marketing	1,098		851		1,875		4,040		3,161		—
Software development and technology	2,817		2,183		4,101		3,691		1,802		1,001
Employee stock options	193		150		—		—		—		—
Depreciation and amortization	1,901		1,474		2,602		1,572		1,130		621
Interest expense	280		217		155		(345	)	(467	)	(767	)
Total expenses	10,937		8,478		15,021		16,580		38,362		51,826
Loss from operations	(5,084	)	(3,941	)	(9,241	)	(12,185	)	(26,022	)	(20,825	)
Net Loss	(2,815	)	(2,182	)	(9,364	)	(18,714	)	(20,366	)	(20,825	)
Loss per common share(2)	(0.05	)	(0.04	)	(0.22	)	(0.64	)	(0.76	)	(0.84	)
Weighted average number of common shares(2)	54,324		54,324		41,968		29,130		26,844		24,792

BALANCE SHEET DATA:(3)

	As at December 31
	2003	2003	2002		2001	2000	1999
	(Cdn$)	(U.S.$(1)	(Cdn$)		(Cdn$)	(Cdn$)	(Cdn$)
	(Audited)
	(in thousands)
Working capital	486	376	(1,757	)	3,115	13,671	21,523
Total assets	3,211	2,488	6,355		10,592	20,801	36,743
Long-term Deferred Revenue	—	—	—		33	1,195	1,289
Shareholders equity	1,026	794	1,198		8,014	15,860	28,985

(1)Convenience translation into U.S. $. See Note 24 of our consolidated financial statements.

(2)In October 2001, our shareholders approved a 2 for 1 share consolidation.  All per share amounts have been adjusted retroactively to reflect the consolidation.  See Note 9(g) of our consolidated financial statements for a discussion regarding the calculation of common shares outstanding and loss per common share.

(3)We have not paid dividends since our formation.

EXCHANGE RATES

The following tables set forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York.  Such rates are the number of U.S. dollars per one Canadian dollar and are the inverse

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of the rates quoted by the Federal Reserve Board of New York for Canadian Dollars per U.S. $1.00.  On June 3, 2004, the exchange rate was US$1.00 = Cdn$1.3606.

	Year Ended December 31,
Rate	2003	2002	2001	2000	1999
Average (1) during year	.7205	.6344	.6449	.6725	.6744

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

Month	High during month	Low during month
November 2003	.7692	.7484
December 2003	.7738	.7522
January 2004	.7880	.7496
February 2004	.7629	.7439
March 2004	.7645	.7418
April 2004	.7633	.7293
May 2004	.7364	.7158

B.CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.REASONS FOR THE OFFER AND USE OF PROCEEDS.

Not applicable.

D.RISK FACTORS

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

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

The Company is not yet profitable.  Since we began our operations, we have been funded primarily through the sale of securities to investors in a series of private placements, sales of equity to, and investments from, strategic partners, gains from investments, option exercises, convertible debt instruments and, to a limited extent, through cash flow from operations. The Company’s ability to continue as a going concern will be dependent on management’s ability to successfully execute its business plan, increase revenue and obtain additional forms of debt or equity financing.  As of June 18, 2004, we had cash and marketable securities of approximately $1.23 million dollars. The Company expects that additional debt or equity financing such as the issuance of loans or debentures, issuance of shares, conversion of warrants and exercise of options in the amount of $3.7 million will be required in order for the Company to be able to fund its operations through 2004.  The Company cannot provide assurance that efforts to raise such additional financings will be successful.

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Management believes that continued existence beyond 2004 is dependent on its ability to increase revenue from sales of existing products, and expand the scope of its product offering through the expansion of internally developed software and partnerships with third parties.

We do not have any committed sources of additional financing at this time and we are uncertain whether additional funding will be available when we need it on terms that will be acceptable to us or at all. If we are not able to obtain financing when we need it, we would be unable to carry out our business plan and would have to significantly curtail or cease our operations. We have included in Note 2 to our financial statements, a discussion about the ability of our company to continue as a going concern.

Potential sources of financing include strategic relationships, public or private sales of our shares, debt, convertible securities or other arrangements. If we raise funds by selling additional shares, including common shares or other securities convertible into common shares, the ownership interests of our existing shareholders will be diluted.  If we raise funds by selling preference shares, such shares may carry more voting rights, higher dividend payments or more favorable rights upon distribution than those for the common shares.  If we incur debt, the holders of such debt may be granted security interests in our assets.  Because of our potential long term capital requirements, we may seek to access the public or private equity or debt markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.

WE ARE NOT PROFITABLE AND WE MAY NEVER BECOME PROFITABLE.

We have accumulated net losses of approximately $99.8 million as of December 31, 2003.  For the year ended December 31, 2003 our net loss was $2.8 million.  We have never been profitable and expect to continue to incur losses for the foreseeable future.  We cannot assure you that we will earn profits or generate positive cash flows from operations in the future.

OUR LIMITED OPERATING HISTORY IN OUR CURRENT BUSINESS AS A COMBINED ENTITY MAKES EVALUATING OUR BUSINESS DIFFICULT.

From the time we were founded in September, 1995 until 1999 we operated solely as an online retailer of computer and other goods.  Since 1999 we have shifted our focus to providing dynamic pricing  solutions..  In October 2001 we acquired ADB Systemer ASA of Norway, a provider of enterprise asset management and electronic procurement software and services.   While ADB Systemer has operated since 1988, we have only a limited operating history as a combined entity on which you can base your evaluation of our business and prospects.

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

WE MAY EXPERIENCE INCREASINGLY LONGER SALES CYCLES

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

POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKE FINANCIAL FORECASTING DIFFICULT

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

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•general economic conditions as well as economic conditions specific to our industry;

•long sales cycles, which characterize our industry;

•implementation delays, which can affect payment and recognition of revenue;

•any decision by us to reduce prices for our solutions in response to price reductions by competitors;

•the amount and timing of operating costs and capital expenditures relating to monitoring or expanding our business, operations and infrastructure; and

•the timing of, and our ability to integrate, any future acquisition, technologies or products or any strategic investments or relationships into which we may enter.

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

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

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

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

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

On June 3, 2002, we transferred the listing of our common shares from the Nasdaq National Market to the Nasdaq SmallCap Market.  On August 22, 2002, our common shares were delisted from the Nasdaq SmallCap Market because we did not satisfy the minimum bid price per share requirement for continued listing on that market.  Our common shares immediately became eligible for and began trading on the OTCBB.  The OTCBB is generally considered to be a less efficient market than the Nasdaq National Market or the Nasdaq SmallCap Market on which our shares previously traded.  As a result, your ability to buy or sell our common shares on the OTCBB may be limited.  In addition, since our shares are no longer listed on the Nasdaq National Market or Nasdaq SmallCap Market, our shares may be subject to the “penny stock” regulations described below.  De-listing from the Nasdaq National Market and the Nasdaq SmallCap Market will not affect the listing of the common shares on The Toronto Stock Exchange.

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

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

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Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than US$5.00 per share, subject to certain exceptions.  Such exceptions include any equity security listed on Nasdaq or a national securities exchange and any equity security issued by an issuer that has:

•net tangible assets of at least US$2,000,000, if such issuer has been in continuous operation for three years;

•net tangible assets of at least US$5,000,000, if such issuer has been in continuous operation for less than three years; or

•average annual revenue of at least US$6,000,000, if such issuer has been in continuous operation for less than three years.

Unless an exception is available, the regulations require, prior to any transaction involving a penny stock, delivery of a disclosure schedule explaining the penny stock market and the risks associated therewith.  The penny stock regulations would adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market.  Certain institutions and investors will not invest in penny stocks.

THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE.

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

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

WE MAY NOT BE ABLE TO RETAIN OR ATTRACT THE HIGHLY SKILLED PERSONNEL WE NEED.

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

In 2002, we implemented a workforce reduction.  We  experienced some attrition during 2003 as a result of the reduction. We may need to hire new or additional personnel to respond to attrition or future growth of our business.  However, there is significant competition for qualified personnel. We cannot be certain we will be able to retain existing personnel or hire additional, qualified personnel when needed.

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

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

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

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

•develop new proprietary technology that addresses the increasingly sophisticated and varied needs of our existing and prospective customers;

•anticipate and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis;

•continually improve the performance, features and reliability of our products in response to evolving market demands; and

•license leading technologies.

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

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

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

•adverse customer reactions;

•negative publicity regarding our business and our products;

•harm to our reputation;

•loss of or delay in market acceptance;

•loss of revenue or required product changes;

•diversion of development resources and increased development expenses;

•increased service and warranty costs;

•legal action by our customers; and

•increased insurance costs.

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

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

•damage from human error, tampering and vandalism;

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•breaches of security;

•fire and power losses;

•telecommunications failures and capacity limitations; and

•software or hardware defects.

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

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

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

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

We currently operate in Canada, Norway, Ireland, the United States and England.  In the 2003 fiscal year, sales to customers outside North America represented approximately 79% of our revenues. There are risks inherent in doing business on a global level, including:

•difficulties in managing and staffing an organization spread across several continents;

•differing laws and regulatory requirements;

•political and economic risks;

•currency and foreign exchange fluctuations and controls;

•tariffs, customs, duties and other trade barriers;

•longer payment cycles and problems in collecting accounts receivable in certain countries;

•export and import restrictions;

•the need for product compliance with local language and business customs;

•seasonal reductions in business activity during the summer months in Europe and elsewhere; and

•potentially adverse tax consequences.

Any of these risks could adversely affect the success of our global operations.

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

We acquired ADB Systemer ASA of Norway in October 2001.  In the future, we may seek to acquire other businesses or make investments in complementary businesses or technologies. We may not be able to acquire or

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

•the acquired businesses may not achieve expected results;

•we may not be able to retain key personnel of the acquired businesses;

•we may incur substantial, unanticipated costs, delays or other operational or financial problems when we try to integrate businesses we acquire with our own;

•our management’s attention may be diverted; or

•our management may not be able to manage the combined entity effectively or to make acquisitions and grow our business internally at the same time.

The occurrence of one or more of these factors could have a material adverse effect on our business, financial condition, cash flows and results of operations.

In addition, we may incur debt or issue equity securities to pay for any future acquisitions or investments, which could dilute the ownership interest of our existing shareholders.

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

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

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

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

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

Our success will also depend partly on our ability to operate without infringing upon the proprietary rights of others, as well as our ability to prevent others from infringing on our proprietary rights.  We may be required at times to take legal action in order to protect our proprietary rights.  Also, from time to time, we may receive notice from third parties claiming that we infringe their patent or other proprietary rights.  In the past, a certain third party

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has claimed that certain of our technology infringed their intellectual property rights, which claim has been resolved through a licensing arrangement that remains in effect. There can be no assurances that other third parties will not make similar claims in the future.

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

OUR PRODUCT STRATEGY IS PARTIALLY DEPENDENT UPON THE CONTINUED ACCEPTANCE AND USE OF THE INTERNET AS A MEDIUM OF COMMERCE.

Our success depends in part on the continued growth of the Internet and reliance on and use of the Internet by businesses.  Because use of the Internet as a source of information, products and services is a relatively recent phenomenon, it is difficult to predict whether the number of users drawn to the Internet will continue to increase and whether the market for commercial use of the Internet will continue to develop and expand.

The Internet may not be commercially viable for a number of reasons, including potentially inadequate development of the necessary network infrastructure, delayed development of enabling technologies and inadequate performance improvements.  In addition, the Internet’s viability as a commercial marketplace could be adversely affected by delays in the development of services or due to increased government regulation.    Moreover, concern about the security of transactions conducted on the Internet and the privacy of users may also inhibit the growth of commerce on the Internet. If the use of the Internet does not continue to grow or grows more slowly than expected, or if the infrastructure for the Internet does not effectively support growth that may occur, our business would be materially and adversely affected.

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

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

WE ARE SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS.

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

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

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

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our outstanding voting shares and such issuance may, in certain circumstances, deter or delay mergers, tender offers or other possible transactions that may be favored by some or a majority of our shareholders.

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

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

ITEM 4 - INFORMATION ON THE COMPANY

OVERVIEW

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

In October, 2001, we acquired ADB Systemer ASA (“ADB Systemer”), a Norway-based software company with more than 10 years of experience developing enterprise asset management solutions to customers primarily involved in the oil and gas industry.  Since the acquisition, ADB Systems has maintained sales and development offices in Canada, the United States, the United Kingdom, Ireland and Norway.

We work with a growing number of customers and partners in a variety of sectors including oil and gas, government, healthcare, manufacturing and financial services.   Current customers include BP, GE Commercial Equipment Financing, Halliburton Energy Resources, National Health Service, permanent TSB, Talisman Energy, and Vesta Insurance.

COMPANY BACKGROUND

The name of our company is ADB Systems International Ltd.  We are formed as a business corporation under the laws of Ontario, Canada.  Our business began as Internet Liquidators Inc., a business corporation formed under the laws of Ontario, Canada, in September 1995.  In May 1996, Internet Liquidators International Inc., also an Ontario company, acquired all of the shares of Internet Liquidators Inc.  These two companies were amalgamated in January 1997.  In June 1998, we changed our name from Internet Liquidators International Inc. to Bid.Com International Inc.

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

On October 11, 2001, we acquired substantially all of the shares of ADB Systemer, a Norway-based provider of enterprise asset management and electronic procurement software.  As part of the acquisition of ADB Systemer, we changed our name to ADB Systems International Inc. and completed a two for one share consolidation.  In this report, we refer to ADB Systems International Inc. as “Old ADB.”

On August 30, 2002 we formed a new company called ADB Systems International Ltd., which we refer to in this report as the “Company” or “ADB” or “we” or “our company”.  On October 31, 2002, the shareholders of Old ADB exchanged their shares of Old ADB for shares of the Company on a one-for-one basis.  This exchange was

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implemented pursuant to a plan of arrangement approved by the shareholders of Old ADB on October 22, 2002 and by the Ontario Superior Court of Justice on October 24, 2002 (which we refer to in this report as the “Arrangement”).  As a result of the Arrangement, the business of Old ADB, including all assets and liabilities of Old ADB (other than those related to retail activities), was transferred to the Company in the form of a return of capital.  Old ADB subsequently changed its name to Bid.Com International Ltd. .  In late 2002, Bid.Com International Ltd. resumed on-line retail activities. For more details on the Arrangement, see the next section under the heading “Major Developments”.

We are governed by the Ontario Business Corporations Act. Our principal business offices in North America are located at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, Canada and our telephone number is (905) 672-7467.   In Norway, our principal business offices are located at Vingveien 2, 4050 Sola, Norway and our telephone number is +47 51 64 71 00.  In the United States, our principal business office is located at 3001 North Rocky Point Drive East, Suite 200, Tampa, Florida 33607 and our telephone number is (813) 281-4825.

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

MAJOR DEVELOPMENTS

On August 30, 2002, we entered into a series of agreements with The Brick Warehouse Corporation (“The Brick”) which contemplated a series of transactions among The Brick , Old ADB and ADB. We refer to those transactions in this report as “The Brick Transaction”.

Pursuant to The Brick Transaction:

•The Brick made a $2.0 million secured loan to Old ADB and ADB at an interest rate of 12% per annum;

•ADB and Old ADB agreed to enter into Arrangement; and

•The Brick and Old ADB agreed to utilize the online retail technology, experience and expertise of ADB developed and operated under the name “Bid.Com International Inc.” for the online sale of consumer products to be supplied by The Brick (which we refer to in this report as the “Retail Business”).

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

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

1.Shareholders of Old ADB received from ADB one common share of ADB in exchange for each of their common shares of Old ADB.  As a result (i) Old ADB became a wholly-owned subsidiary of ADB and (ii) each former shareholder of Old ADB owns the same number of shares in ADB that it owned in Old ADB prior to the exchange.

2.Old ADB transferred all of its assets to ADB and ADB assumed all of the liabilities and obligations of Old ADB, except that Old ADB retained specific assets and liabilities of the Retail Business.

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3.The registered office, articles of incorporation, by-laws, directors and executive officers of Old ADB immediately prior to the Arrangement became the registered office, articles, by-laws, directors and executive officers of ADB upon consummation of the Arrangement.

4.ADB adopted the Stock Option Plan of Old ADB.  Upon consummation of the Arrangement, all options, warrants or debt that was exercisable or convertible into shares of Old ADB became convertible into the same number of shares of ADB.

5.The articles of amalgamation of Old ADB were amended to: (i) change the name of Old ADB to Bid.Com International Ltd. and (ii) delete the authorized Preference Shares (as defined in such articles) and the rights, preferences and restrictions on the transfer of such Preference Shares.

The following diagrams illustrate the corporate structure of our Company prior to the Arrangement and following the Arrangement.

Prior to Arrangement

Following Arrangement

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

On December 31, 2003 ADB Systems USA, Inc. (“ADB USA”), a wholly-owned subsidiary of ADB, entered into an Amended and Restated Operating Agreement (the “Operating Agreement”) with General Electric Capital Corporation (“GE Capital”).  This agreement was entered into in connection with the establishment of GE Asset Manager, LLC a joint business venture in which both GE Capital and ADB USA each hold a 50% interest.  Pursuant to this business venture, GE Capital and ADB USA also entered into the following agreements that are included as exhibits to the Operating Agreement:  ADB License Agreement, ADB Services Agreement, GE License

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Agreement and GE Service Agreement. GE Asset Manager LLC, is an integrated, web-based business enabling mid- and large-size organizations to reduce operating costs by simplifying and consolidating their asset management programs. GE Asset Manager will feature all-in-one capabilities designed for sourcing of new equipment, tracking and reallocation of existing assets, automated appraisal management and disposition of surplus equipment.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

For a description of principal capital expenditures and divestitures, see Item 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS - REALIZED GAINS AND LOSSES ON MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS and CAPITAL ASSETS.

INDUSTRY BACKGROUND AND OVERVIEW

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

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

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

OUR PRODUCTS AND OFFERINGS

SOFTWARE SOLUTIONS

We offer solutions to manage all aspects of the asset lifecycle – sourcing/procurement, maintenance, materials management and disposition.  Below is a detailed description of our offerings:

Dyn@mic Buyer (TM) An on-line sourcing solution, Dyn@mic Buyer automates the tendering process, and can be used to improve the decision-making process involved in sourcing goods by providing automated analysis and selection among competing bids, based on a variety of pre-determined factors. The current release of Dyn@mic Buyer can be delivered on a hosted or client-server (licensed) basis.

Key features include:

•The ability for buyers to create tenders using automated tools that accelerate the purchasing process and reduce procurement costs.

•Capabilities for buyers to post and distribute their tenders on-line to qualified suppliers

•The ability for buyers to assign values to criteria involved in the purchase decision, such as price, product availability, post-sales support and certification standards.  Suppliers’ responses to tender questions are then weighed for evaluation by buyers.

•Functionality that allows for the posting of detailed technical information, question and answer forums, and automatic e-mail notification of amended or new buyer-posted documents.

•Capabilities to allow for the use of sealed bid sourcing formats enabling users to post their product or service requirements to selected vendors.  The sealed bid system differs from the request for quotation in that the vendors only have one opportunity to supply a bid.  Only after the close of the auction is the user able to view the vendor bids.

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

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

Key features of ProcureMate include:

•The ability to notify suppliers automatically of purchase orders requiring processing.

•Functionality for allowing on-line dialogue to take place between buyers and suppliers.

•The ability to integrate to enterprise resource planning and financial systems, reducing manual efforts for processing and consolidating purchase orders, goods receipt and payment activities.

•Functionality for facilitating direct payment and electronic funds transfer.

•The ability to integrate user workflow and approvals into the procurement process.

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

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

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

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

•Procurement Module – for sophisticated domestic and international purchasing operations.  Key capabilities include: order requisitioning, quotations, purchase orders, contracts, cost controls and vendor catalogues.  The procurement module also monitors supplier performance in terms of accuracy, punctuality and cost.

•Materials Management Module – for managing inventory and logistics operations.  Key features include: inventory status, goods receipt, stock issue, reordering, packing/unpacking, transportation, goods return and equipment rentals.  This Module will log all movements of an item and generates the necessary financial transactions.

•Maintenance Module – for all types of maintenance, including corrective, preventive or condition-based activities. Customers can automate manual routines and track maintenance costs and equipment history. 

Each WorkMate module also includes workflow and reporting tools.

WorkMate is a licensed client-server application and pricing is based on the number of users named by the customer.  Service fees are charged separately for implementation, systems integration, training and other consulting

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activities.  Our WorkMate customers include some of the largest global players in the oil and gas sector, such as: BP (Norway), Halliburton Productus, Prosafe, and Talisman Energy (Canada).

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

Key capabilities include:

•Traditional rising price auctions, where the highest bids win the items being sold. The rising price auction allows participants to competitively bid on available products by incrementally adjusting their bid amounts.  Our user interface allows users to easily identify current leading bidders, minimum new bids and initial bid pricing.  Participants are informed of their bid status, stating whether they have won, been outbid, approved or declined via electronic mail.

•A patented Dutch (declining) auction format, in which a starting price is set and a limited time period is allocated for a fixed quantity of the product to be sold.  As time advances, the price drops in small increments until the asset is sold.  The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale.

•Hybrid auction formats that blend multiple pricing formats to meet a customer’s particular needs.

•Fixed price sales where assets are sold in a catalogue or directory format.  The purchaser cannot bid on the price, but merely elects whether or not to purchase the good or service.

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

RELATED SERVICES

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

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

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

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

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

THIRD PARTY OFFERINGS

In addition to the sale of our core solutions and services, we have entered into marketing or co-marketing agreements with a number of companies that offer services that are complementary to our offerings.  We market

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these complementary services to our customers and prospects and can earn a referral fee if these services are purchased.  In some cases our marketing partner has agreed to market our solutions to its customers and prospects and can earn a referral fee.  Our marketing partners include:

Partner	Service or Offering
AMEC Services Limited	Engineering Services
RBT Consulting	Healthcare Consulting Services
Production Access, Inc.	Oil and Gas Data Management Solutions

Seasonality

We experience some seasonality as a result of lower activity in European markets during the summer months.

STRATEGY

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

Strengthen our position as an EAM vendor and improve our visibility in other areas of the asset lifecycle.  Gartner Group ranked ADB within their ‘magic quadrant’ of sixteen leading asset intensive mid-market EAM vendors globally in April 2002.  Based on the relative pricing and functionality of our products as compared with those of our competitors, we believe our procurement and sourcing offerings are competitive, and we will strive to improve our ranking and visibility in our core industry sectors.

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

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

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

CUSTOMERS

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

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

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

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Customer	Solution(s)	Industry Segment	Geographic Location
BP Norway AS	ProcureMate; WorkMate	Oil and Gas	Norway
Prosafe Drilling Company (Prosafe)	WorkMate	Oil and Gas	Norway
Halliburton Productos (Halliburton)	WorkMate	Oil and Gas	Brazil
AmecFluor	WorkMate	Oil and Gas	Korea
Talisman Energy	WorkMate	Oil and Gas	Canada, UK
Hordaland fylkeskommune (HFK)	ProcureMate	Public Authority	Norway
GE Commercial Equipment Financing (GE)	Dyn@mic Seller	Financial Services	US
Healthcare Purchasing Consortium (The NHS)	ProcureMate	Health	UK
permanent TSB	Dyn@mic Seller	Financial Services	Ireland

For information regarding the principal market segments in which the Company competes, see Note 21 to the Financial Statements.

SALES AND MARKETING

We market our solutions primarily through our direct sales force. Our sales organization is regional with personnel located in our principal offices in Toronto, Dublin, London, Tampa and Stavanger.

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

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

TECHNOLOGY PLATFORM

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

Our company’s technology platform is based on Microsoft core applications, including the Windows NT operating system and a SQL server relational database, all residing on scaleable hardware.  The software is constructed using an advanced proprietary XML framework and resides on an N-tier architecture.  The support of open systems allows integration with a large variety of existing commercial, proprietary and legacy applications.

RESEARCH AND DEVELOPMENT

Based on the relative pricing and functionality of our products as compared with those of competitors, we believe that our proprietary software provides a competitive advantage, and that our future success depends, in part, on our ability to continue developing and enhancing that software.  Therefore, we have focused our research and development efforts on the continued development of our proprietary software offerings.  Presently, 12 of our staff members are dedicated to product development.

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Our ongoing research and development efforts are aimed at the continued ‘productization’ of specific elements of our software, enhancing the features and functionality of our existing software components, the development of new software components, and the integration of superior third party technology into our environment.  Productization involves the development of ‘generic’ applications to reduce programming time and costs for customer implementations.

Our research and development expenditures were approximately $2.817 million for the year ended December 31, 2003,  $4.101 million for the year ended December 31, 2002, and $3.691 million for the year ended December 31, 2001, including salaries and related expenses of our personnel engaged in research and development. Research and development activities in 2002 included the development of version 2.0 of our DYNAMIC BUYER Solution and the development of a new materials tracking module within our WorkMate application.

Research and development activities in 2003 included development of a new applications framework implemented in Microsoft .Net. The new framework will be used as the foundation all future Web based products. A substantial amount of time was also devoted to the extension of our integration tool set, which allows us to connect our core product suite to pre-existing customer owned third party applications. In addition, version 1.0 of new asset tracking and document management products were released.

INTELLECTUAL PROPERTY

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

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

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

Our major trademarks or tradenames include: ADB; POWERED BY ADB; PROCUREMATE, WORKMATE, DYNAMIC SELLER and DYNAMIC BUYER. Except for DYNAMIC SELLER and DYNAMIC BUYER, which are unregistered, all of these trademarks and tradenames are the subject of pending applications for registration in one or all of the United States, Canada and Norway. We also claim rights in other unregistered trademarks.

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

COMPETITION

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

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

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

Sourcing – FreeMarkets, Inc., Procuri, Inc., B2E Markets, Inc., Emptoris, Inc., Moai Technologies, Inc.

Procurement – MRO Software, Inc., Ariba, Inc., Commerce One Operations, Inc. and broader ERP solution providers such as SAP AG, and Oracle Corporation

EAM – related solutions – Datastream, MRO Software, Inc., Indus International Inc., Mincom Ltd.,  (and broader ERP solution providers such as SAP AG, and Oracle Corporation)

Sales solutions – eBay inc.

In addition, many organizations use in-house developers to develop solutions for certain elements of the asset lifecycle, or use third-party exchanges or industry-specific exchanges.

PROPERTY, PLANT AND EQUIPMENT

The table below lists the locations of our facilities and summarizes certain information about each location.

Location	Use	Square Feet (Approximate)	Term of Lease
6725 Airport Road, Suite 201 Mississauga, Ontario	Executive, Administrative, Engineering and Marketing	10,165	Expires October 2004
Vingveien 2, 4050, Sola Norway	Executive, Administrative, Engineering and Marketing	8,234 (1)	Expires July 2008
AS Kontorsenter 2 Tonsberg, Norway	Not in Use	2,851	Expires October 2005
52 Broomhill Rd., Suite 112 & 113 Broomhill Industrial Estate Tallaght, Dublin 24 Ireland	Administrative, Engineering and Marketing	500	Expires December 2004
3000 Cathedral Hill Guildford, Surrey, England	Marketing	no dedicated space	Month-by-Month
3001 North Rocky Point Drive East, Tampa, Florida	Executive	143	Month-by-Month

(1) We have sublet a portion (consisting of approximately 1,272 square feet) of these premises to a third party.

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

ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH “ITEM 3.A - SELECTED FINANCIAL DATA” AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.  IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING

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STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.  SEE “FORWARD-LOOKING STATEMENTS”.

History and Overview

ADB Systems delivers asset lifecycle management solutions that help organizations source, manage and sell their capital assets and equipment.  ADB works with a growing number of customers and partners in a variety of sectors including oil and gas, government, healthcare and financial services. Current customers and partners include BP, GE, Halliburton Energy Resources, National Health Service (U.K.), permanent TSB, Talisman Energy and Vesta Insurance.

In October 2001, ADB Systemer ASA (“ADB Systemer”) was acquired by Bid.Com International Inc. (“Bid.Com”), a provider of business-to-business software solutions for the on-line sourcing and disposition of assets.  Following the acquisition, the Company became known as ADB Systems International Ltd.

ADB Systems is headquartered in Mississauga (Canada), and maintains offices in Tampa (U.S.), Dublin (Ireland), London (U.K.), and Stanvanger (Norway).

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

Comparison of Years Ended December 31, 2003 and December 31, 2002

Net Income (Loss).  Our net loss for the year ended December 31, 2003 was $2.815 million, an improvement of 69.9 percent over the net loss of $9.364 million reported for the year ended December 31, 2002.  Excluding items outside of the normal course of operations, our loss was $5.084 million, as compared to $9.241 million in 2002, an improvement of 45.0 percent.  The improvement in expenses of more than $4.0 million was achieved in 2003 when compared to 2002 in the areas of general and administrative of $1.6 million, sales and marketing of $777,000, software development and technology of $1.3 million and $700,000 in depreciation and amortization.  In addition, during 2003 the Company recorded a realized gain on the settlement of a demand loan of $2.2 million.

Revenue.  Revenue is derived from software licensing and related services from consulting, implementation, application hosting, training, maintenance and support activities.

Revenue increased to $5.853 million for the year ended December 31, 2003 from $5.780 million for the year ended December 31, 2002, representing an increase of 1.3 percent.

Revenue outside North America was $4.642 million for the year ended December 31, 2003, compared to $3.598 million for the year ended December 31, 2002.  The increase in revenue outside North America is primarily attributable to an increase in customer acquisitions and activity in our Ireland/UK region that resulted in year-over-year revenue improvement of almost $800,000.

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

General and administrative expenses decreased to $4.648 million for the year ended December 31, 2003, as compared to $6.288 million for the year ended December 31, 2002, representing a decline of 26.1 percent.

Year-over-year savings resulting from salary reductions and a smaller workforce totaled $401,000.  Continued cost containment efforts and greater reliance on internal staff resulted in $503,000 savings in professional fees and $271,000 in investor relations costs.  In addition, savings were achieved in rent and occupancy costs of $325,000 as office space was reduced in Norway as well as the closing of a U.K. office in 2002.

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

Sales and marketing costs for the year ended December 31, 2003 amounted to $1.098 million, as compared to $1.875 million for 2002, a decrease of 41.4 percent.  This decrease is attributable to lower staffing levels in the sales department combined with decreased advertising and tradeshow activities throughout 2003.

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

Software development and technology expenses decreased to $2.817 million for the year ended December 31, 2003 from $4.101 million for the year ended December 31, 2002, a decrease of 31.3 percent.  This decrease is attributable to government research and development claims made by the Company and a decrease in technology personnel.

Employee Stock Options.  Effective January 1, 2003, the Company adopted the accounting recommendations contained in the CICA handbook Section 3870 – “Stock-based Compensation and Other Stock-based Compensation Payments”.  As a result, the Company recorded an employee stock option expense of $193,000 for the year ended December 31, 2003.  Prior to 2003, no accounting recognition was required for stock-based compensation expense however; the Company was required to disclose the impact of stock option related expenses for previous years on a pro-forma basis.  In 2002, a pro-forma impact of $244,000 and $141,000 in 2003 related to options granted prior to January 1, 2003 is disclosed (Note 9(j)).

Depreciation and Amortization.  Depreciation and amortization expense was $1.901 million for the year ended December 31, 2003 as compared to $2.602 million for the year ended December 31, 2002, a decrease of 26.9 percent.  This decrease reflects a maturing asset pool.

Interest Expense.  Interest expense reflects interest incurred from debt instruments and loans.

Interest expense for the year ended December 31, 2003 was $289,000 compared to $200,000 for December 31, 2002.  During 2003, cash interest expense of $50,000 and non-cash interest expense of $112,000 was incurred related to secured subordinated notes.  Comparatively, cash interest expense of $23,000 and non-cash interest expense of $108,000 was recorded in 2002.  Interest related to the demand loan was $126,000 in 2003 compared to $68,000 in 2002.

Interest Income.  Interest income reflects interest from investments in cash and marketable securities.

Interest income was $9,000 for the year ended December 31, 2003, as compared to $45,000 for the year ended December 31, 2002, a decline of 80.0 percent.  This decline was largely attributable to lower cash deposits and money market funds on hand throughout 2003.

Realized Gains and Losses on Disposal of Marketable Securities, Strategic Investments and Capital Assets, and Recovery of Assets.  Realized gains on disposal of marketable securities and strategic investments amounted to $20,000 for the year ended December 31, 2003, compared to a loss of $108,000 for the year ended December 31, 2002.  The gain recorded in 2003 resulted from the sale of shares of MegaWheels Technology Inc.  These gains and losses are outside of the normal course of operations but are not considered extraordinary items.

During 2002, the Company disposed of its remaining shares in America Online Inc. (“AOL”) resulting in a realized loss of $143,000.  Realized gains in 2002 included $41,000 from the sale of strategic investments in SCS Solars and MegaWheels.  In 2003, the Company realized a loss from the disposal of surplus capital assets in the amount of $13,000 compared to a gain of $23,000 in 2002.

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Unrealized Gains and Losses on Revaluation of Strategic Investments, and Provision for Impairment of Assets.  Unrealized gains and losses on strategic investments, and provisions for impairment of assets are the result of an assessment by management as to the recoverability of the value of certain assets and are not realized losses.  Unrealized gains and losses are outside the normal course of operations but are not considered extraordinary.

Unrealized losses for the year ended December 31, 2002 were $24,000.  We conduct an assessment of our strategic investment portfolio at the end of each fiscal period by analyzing the financial performance of the companies we invested in as well as general market conditions.  In 2002, we recorded impairment provisions totaling approximately $24,000.  As our investments were all in companies in the technology sector, the market performance of these holdings had been dramatically affected by economic conditions.  In 2003, the Company did not record an impairment provision as a result of the assessment.

Goodwill Impairment.  There was no goodwill impairment recorded in 2003 as compared to $14,000 at December 31, 2002.  The goodwill impairment recorded in 2002 relates to a change in goodwill arising on purchase of shares from minority interests during the year.

Retail Activities.  During 2003, the Company received a $67,000 refund from a U.S.-based credit card institution formally engaged by the Company when it operated its on-line retail activities in the U.S.  No similar refunds were received in 2002.

Comparison of Years Ended December 31, 2002 and December 31, 2001

Acquisition of ADB Systemer ASA. On October 11, 2001, we acquired substantially all of the shares of ADB Systemer, a Norway-based provider of enterprise asset management and electronic procurement software.

The acquisition of ADB Systemer resulted in a significant broadening of our product offerings, customer base, and ability to penetrate new markets. The cost of the acquisition was $13.762 million, including a $2.293 million cash outlay. Approximately 93 percent of the purchase price was attributed to software and related intellectual property and goodwill, valued at $3.383 million and $9.476 million respectively.

In 2001, the acquisition contributed $818,000 in revenue and improved expense control through the integration and restructuring of worldwide operations.

With the adoption of new standards in accounting for business combinations and goodwill, we were required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment of $9.476 million be recorded. This impairment charge represented a non-cash expense. No future goodwill amortization expense will be required to be recorded.

Net Income (Loss). Our net loss for the year ended December 31, 2002 was $9.364 million, an improvement of 50.0 percent over the net loss of $18.714 million reported for the year ended December 31, 2001. Excluding items outside of the normal course of operations, our loss was $9.241 million, as compared to $12.185 million in 2001, an improvement of 24.2 percent.

The 2002 year represented our first full year of operations as ADB Systems International Ltd.  Expenses for the combined entity for 2002 were substantially lower when compared to 2001 due to synergies achieved as a result of the acquisition of ADB Systemer in Norway along with significant cost reduction that remained in effect since implementation in 2001.  In addition, the inclusion of the first full year of revenues generated from our acquisition of ADB Systemer in Norway resulted in increased revenue in 2002 when compared to 2001.

As compared to 2001, we experienced a net savings of $2.165 million in sales and marketing costs and $1.334 million in general and administrative expenses primarily due to the impact of cost reductions for the full year that were implemented in 2001.

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Revenue. Revenue is derived from software licensing and related services from consulting, implementation, application hosting, training, maintenance and support activities. Revenue increased to $5.780 million for the year ended December 31, 2002 from $4.455 million for the year ended December 31, 2001, representing an increase of 29.7 percent.

As mentioned, the increase in revenue is primarily due to the inclusion of the first full year of revenue generated from our acquisition of ADB Systemer in Norway.  Revenues generated in Norway for 2002 accounted for $3.126 million compared to $741,000 in 2001. Revenue declined in both North America and Ireland and UK during 2002 compared to 2001 as these existing businesses refocused their marketing efforts on the new product offerings made available by the acquisition of ADB Systemer.

Revenue outside North America was $3.598 million for the year ended December 31, 2002, compared to $1.634 million for the year ended December 31, 2001.  As mentioned above the acquisition of ADB Systemer in Norway contributed to the significant increase in revenue outside North America.

Customer Acquisition Costs. Customer acquisition costs reflect non-cash expenses incurred in securing customer agreements. Specifically, these costs represent the calculated value of share purchase warrants issued to GE Capital in return for certain contracts using the Cox-Rubinstein binomial valuation model.

There were no customer acquisition costs recorded in 2002 compared to $60,000 for the year ended December 31, 2001.

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

General and administrative expenses decreased to $6.288 million for the year ended December 31, 2002, as compared to $7.622 million for the year ended December 31, 2001, representing a decline of 17.5 percent.

As indicated previously, the organization-wide restructuring plan implemented during the 2001 year resulted in substantial reductions that were maintained throughout the entire 2002 year. Savings resulting from the reduction in our workforce totaled $860,000. Cost containment efforts and greater reliance on internal staff resulted in $437,000 savings in professional fees. Rent and occupancies costs were also reduced by $136,000 as offices were closed in the U.S. and the U.K.

Sales and Marketing. Sales and marketing costs include all salaries and related expenses of sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs. For the year ended December 31, 2002, sales and marketing costs amounted to $1.875 million, as compared to $4.040 million for 2001, a decrease of 53.6 percent. This decrease is attributable to lower  staffing levels in the sales department combined with decreased advertising, tradeshow and lead generation activities throughout 2002.

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

Software development and technology expenses increased to $4.101 million for the year ended December 31, 2002 from $3.691 million for the year ended December 31, 2001, an increase of 11.1 percent. The increase in software development expenses was largely attributable to the acquisition of ADB Systemer ASA in 2001.  A large portion of the Norwegian subsidiary’s expenses related to software development and technology even after staff reductions and budget cuts were implemented.

Depreciation and Amortization. Depreciation and amortization expense was $2.602 million for the year ended December 31, 2002 as compared to $1.572 million for the year ended December 31, 2001, an increase of 65.5 percent. This increase was primarily due to the continued depreciation of certain software acquired as a result of the ADB Systemer acquisition.

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Interest Expense. Interest expense reflects interest incurred from debt instruments and loans.

Interest expense for the year ended December 31, 2002 was $200,000. Accrued interest of $68,000 was recorded during the year related to a demand loan while $132,000 related to interest charges on secured subordinated notes.

Interest Income. Interest income reflects interest from investments in cash and marketable securities.

Interest income was $45,000 for the year ended December 31, 2002, as compared to $345,000 for the year ended December 31, 2001, a decline of 87.0 percent. This decline was largely attributable to lower cash deposits and money market funds on hand throughout 2002.

Realized Gains and Losses on Disposal of Marketable Securities, Strategic Investments and Capital Assets, and Recovery of Assets. Realized losses on disposal of marketable securities and strategic investments amounted to $85,000 for the year ended December 31, 2002, compared to a gain of $6.722 million for the year ended December 31, 2001. These losses are outside of the normal course of operations but are not considered extraordinary items.

Realized gains generated in 2001 resulted from the disposal of equity interest in Point2 Internet Systems Inc. and disposal of most of our shares in America Online Inc. (AOL). During 2002, the Company disposed of its remaining shares in AOL resulting in a realized loss of $143,000. Realized gains in 2002 included $41,000 from the sale of strategic investments in SCS Solars and MegaWheels and $23,000 from the sale of capital assets.

Unrealized Gains and Losses on Revaluation of Marketable Securities and Strategic Investments, and Provision for Impairment of Assets. Unrealized gains and losses on marketable securities and strategic investments, and provisions for impairment of assets are the result of an assessment by management as to the recoverability of the value of certain assets and are not realized losses. Unrealized gains and losses are outside the normal course of operations but are not considered extraordinary.

Unrealized losses for the year ended December 31, 2002 were $24,000 , compared to a loss of $2.435 million for the year ended December 31, 2001. We conduct an assessment of our strategic investment portfolio at the end of each fiscal period by analyzing the financial performance of the companies we invested in as well as general market conditions. In 2002, we recorded impairment provisions totaling approximately $24,000 compared to $1.510 million 2001. As our investments are all in companies in the technology sector, the market performance of these holdings has been dramatically affected by economic conditions.

Goodwill Impairment. Goodwill impairment in 2002 was $14,000 compared to $9.476 million in 2001. The goodwill impairment recorded in 2001 was a result of our acquisition of ADB Systemer for a total consideration of $13.762 million. Of this amount, we attributed $9.476 million to goodwill. With the adoption of new accounting standards for business combinations and goodwill, we were required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment loss of $9.476 million be recorded. This impairment charge is a non-cash expense, and no future goodwill amortization expense will be recorded relating to this transaction.

The goodwill impairment recorded in 2002 relates to a change in goodwill arising on purchase of shares from minority interests during the year.

Restructuring Charges. In April and September, 2001 we implemented cost-reduction measures intended to ensure future viability. The $959,000 in restructuring charges for 2001 relate to these staff reductions and associated measures. As there was no formal restructuring announcement in 2002, these charges were minimal and therefore included in general and administrative expenses.

Retail Activities Settlement. The Company ceased its on-line retail activities in October 2000, however, in 2001 it was required to settle certain amounts payable relating to product sales of previous years. These amounts, which totaled $381,000, were not previously anticipated and did not reoccur in 2002.

The Company’s non-consolidated subsidiary, Bid.Com Ltd., recommenced on-line retail activities in 2002.

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Critical Accounting Policies. The accounting policies followed by the Company have a critical effect on the financial reporting of the Company. These policies involve complex judgments and estimates which affect the amount of revenue recognized, the recognition and amortization of assets and liabilities and the recoverability of assets. The valuation and recoverability of assets is generally based on the projected cash flows from these assets. These significant accounting policies are discussed in Notes 2, 3 and 20 of the financial statements. The Company does not have any off-balance sheet special purpose entities.

Liquidity and Capital Resources

Liquidity.  The Company has been funded to date primarily through a series of private placements of equity and convertible debentures, sales of equity to and investments from strategic partners, gains from investments and option exercises.  Since inception, the Company has received aggregate net proceeds of $84.2 million from debt and equity financing and has realized $23.7 million in gains on investment disposals.

Cash, cash equivalents and marketable securities decreased by $912,000 to $445,000 as at December 31, 2003 from $1.357 million as at December 31, 2002.

Current assets of $1.947 million exceeded current liabilities (excluding deferred revenue) of $1.370 million in the current fiscal year by $577,000.  Current assets of $3.363 million exceeded current liabilities (excluding deferred revenue and demand loan) of $2.288 million by $1.075 million in the prior year.  Deferred revenue and demand loan have been excluded from current liabilities as they are expected to be settled by resources other than cash.

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i) Operating:

Cash outflows from operating activities were $3.4 million in the current fiscal year compared to cash outflows from operating activities of $6.4 million in the prior year.  The primary factor in the reduction was the decrease in expenses related to general and administrative, sales and marketing and software development and technology from the prior year.

Non-cash working capital resulted in outflows of $728,000 in fiscal 2003 versus cash inflows of $61,000 in the prior year, a decrease of $789,000, as summarized in the following table:

	2003			2002			Working capital inflows (outflows)
	(in thousands)
Accounts receivable	$	424		$	(522	)	$	946
Deposits and prepaid expenses	56			(45		)	101
Accounts payable	(63		)	224			(287		)
Accrued liabilities	(453		)	427			(880		)
Deferred revenue	(692		)	(23		)	(669		)
	$	(728	)	$	61		$	(789	)

ii) Investing:

No significant cash flows were generated from investing activities in 2003.  Cash flows generated in the prior year from investing activities were $1.8 million, including $1.3 million in proceeds received from the disposition of shares held in America Online Inc. (“AOL”).

iii) Financing:

Cash flows generated in financing activities were $2.5 million for 2003, including an equity private placement and a convertible debt private placement.  Cash flows generated in financing activities for fiscal 2002 were $3.4 million included a equity private placement, a demand loan and a convertible debt private placement.

Capital Resources.  There were no significant additions to capital assets for the year ended December 31, 2003.  Redundant capital assets were liquidated to improve the Company’s working capital position.  Net proceeds from disposal of capital assets totaled $34,000 for the year ended December 31, 2003 as compared to $167,000 for the year ended December 31, 2002.

During 2002, the Company incurred $1,024,000 of costs associated with obtaining a demand loan and convertible debenture, which were recorded to deferred financing charges.  The deferred financing charges were fully amortized by June 30, 2003 on a straight-line basis to coincide with the maturing of the demand loan.  No additional deferred charges were incurred in 2003.

Funding

Funding - Overview.  The Company has been funded to date primarily through a series of private placements of equity and convertible debentures, sales of equity to and investments from strategic partners, gains from investments and option exercises.  Since inception, the Company has received aggregate net proceeds of $84.2 million from debt and equity financing and has realized $23.7 million in gains on investment disposals.

Funding - 2003.  During the period from January 1 to June 26, 2003, the Company issued 4,879,000 common shares at a price of $0.24 per share and 2,733,000 common share-purchase warrants exercisable into one common share at $0.40 for net proceeds of $1.148 million.  The warrants expire on June 26, 2005.  Included in this private placement were 2,146,000 shares issued to a director and officer of the Company for total net proceeds of $505,000.  None of the 2,733,000 warrants had been converted into common shares at December 31, 2003.

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On August 19, 2003 the Company issued Series E secured subordinated notes with a face value of $1.0 million for net proceeds of $994,000.  The Series E notes have an annual rate of interest of 11 percent that is paid quarterly in arrears, mature in August 2006 and are convertible into equity units at a price of $0.35 per unit.  Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50.  The Series E secured subordinated notes will automatically convert into units when the share price of the Company closes above $0.70 for five consecutive trading days during the term.  The holders of this Series E may convert at anytime following a four-month hold period.  If the holder does not convert and no automatic conversion takes place, the Company must repay the principle amount to the holders of the Series E secured subordinated notes in cash.  As part of this private placement, the Company issued 30,000 common share-purchase warrants to an associate of Stonestreet Limited Partnership (“Stonestreet”) in consideration for professional fees.  Each such warrant entitles the holder to purchase one common share of the Company for $0.50 at any time up to and including August 18, 2006.  The Series E notes were issued to private investors including an amount totaling $100,000 issued to directors and/or senior officers of the Company.

Funding – 2002.  On April 25, 2002, the Company entered into an agreement with Stonestreet for a $1.1 million private placement.  The Company issued 3.3 million common shares at US $0.21 per share and warrants exercisable into 1 million common shares at US $0.35 per share.  The warrants were exercised on December 17, 2002, providing an additional $550,000 in gross proceeds to the Company.

On August 30, 2002, the Company entered into a private placement agreement of secured subordinated notes (Series A, B and D notes) with Stonestreet and a group of private investors for total gross proceeds of  $1 million.

Pursuant to the agreement with Stonestreet dated April 25, 2002, on August 30, 2002, the Company also issued a $120,000 secured subordinated note (Series C note) in exchange for the waiver of certain US registration rights granted to Stonestreet.

On August 30, 2002, ADB entered into a series of agreements with a lender, an unrelated party, whereby the lender granted to ADB and ADB Systems International Inc. (“Old ADB”) a secured loan in the aggregate principal amount of $2,000,000 and bearing interest at the rate of 12 percent per annum.  As part of this transaction, ADB and Old ADB implemented the Arrangement  (as defined below).

ADB Systems International Ltd. was created on August 30, 2002.  Upon implementation of a plan of arrangement approved by the shareholders of ADB on October 22, 2002 and approved by the Ontario Superior Court of Justice effective October 31, 2002 (the Arrangement), the shareholders of ADB exchanged their shares for shares of the Company on a one-for-one basis.  All assets and liabilities of ADB, other than those related to its retail activities, were transferred to the Company as of that date in the form of a return of capital.  Old ADB subsequently changed its name to Bid.com International Ltd. (“Bid.Com Ltd.”)

The Company and the lender entered into an arrangement whereby online retail operations utilizing the online retail technology, experience and expertise of ADB developed and operated under the name “Bid.Com International Inc.” in the on-line selling of consumer products to be supplied by the lender would be conducted by Bid.Com Ltd.  The loan matured on June 30, 2003 or upon earlier demand and the Company had the right after the earlier of June 1, 2003 and demand for payment to repay the loan in cash or to transfer to the lender 100 percent of the issued shared of Bid.Com Ltd. acquired by the Company as a consequence of the Arrangement for proceeds equal to the outstanding principal amount and accrued interest then owing to the lender.  The obligations of the Company and Bid.Com Ltd. were secured by a general security agreement delivered by the Company to the lender and a pledge of the shares of the Company’s Norwegian subsidiary.

On December 31, 2002 the Company owned 100 percent of the issued and outstanding shares of Bid.Com Ltd., but had determined that, for accounting purposes, consolidation of Bid.Com Ltd. was not appropriate.  This determination was based upon the Company’s evaluation of its continuing ability to determine the strategic operating policies of Bid.Com Ltd. without the cooperation of others, its ability to obtain future economic benefits from the resources of Bid.Com Ltd., and its exposure to the related risks of ownership.  Therefore, the Company accounted for its investment in Bid.Com Ltd. on the equity basis.  On October 22, 2002, after obtaining shareholder approval, the above-noted debt instruments became convertible into units at $0.12 per unit at the option of the holder.  Each Series A, B, and D unit consists of one common share and one-half common share purchase warrant.  Series C notes also

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became convertible into common shares at a conversion price of $0.12 per share at the option of the holder or at the option of the Company.  Upon conversion, the Company will issue 9.333 million common shares for no additional consideration and 4.167 million warrants exercisable into an equal number of common shares at $0.14 per share.

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

Funding – 2001.  During 2001, the Company continued to liquidate its AOL position to fund operations.  In addition, the Company disposed of its equity position in Point2 for $2.6 million and recovered an $811,000 receivable from Point2 that had been provided for in 2000.

In October 2001, with the acquisition of ADB Systemer, the Company paid $2.293 million in cash to the shareholders of ADB Systemer in connection with the acquisition.  As a result of that acquisition, cash of  $814,000 held by ADB Systemer was acquired.

Trending Into Fiscal 2004

The Company has not earned profits to date and, at December 31, 2003, has an accumulated deficit of $99.762 million.  The Company expects to incur losses in 2004 and there can be no assurance that it will ever achieve profitability.  Operating results have varied on a quarterly basis in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of the Company’s control.

The Company has incurred negative annual cash flows from operations since inception and expects to continue to expend substantial funds to continue to develop technology, build an infrastructure to support business development efforts and expand other areas of business including the acquisition of, or strategic investments in, complementary products, businesses or technologies.  Although the Company achieved positive cash flows from operations for the three months ended March 31, 2004, we estimate that additional working capital in the amount of $3.7 million will be required for 2004.  The Company expects to obtain the additional working capital through additional debt or equity financings such as issuance of loans or debentures, issuance of shares, conversion of warrants and exercise options.  However, the Company cannot provide assurance that efforts to raise such additional financings will be successful.  The actual amount of funds that will be required during the interim period will be determined by many factors, some of which are beyond the Company’s control.  As a result, it may require funds sooner or in greater amounts than currently anticipated.

Aggregate Contractual Obligations

As at December 31, 2003 the Company’s contractual obligations, including payments due by periods over the next six years, are as follows:

	Total			2004		2005		2006		2007		2008		2009
	(in thousands)
Operating leases	$		436	$	232	$	113	$	43	$	24	$	24	—
License agreements	677			129		129		129		129		129		32
Secured subordinated notes(a)	715			115		—		600		—		—		—
	$	1,828		$	476	$	242	$	772	$	153	$	153	$	32

(a)These amounts do not include interest and the notes are assumed to be held to maturity.  Subsequent to December 31, 2003, Notes with a face value of $400,000 were converted into equity units, and accordingly this amount is excluded from table above.

Foreign Currency Rate Fluctuations. While the Company’s financial statements are in Canadian dollars, revenue is also generated in Norwegian krone, US dollars and other currencies.  The Company incurs the majority of its expenses in Canadian dollars and Norwegian krone.  As a result, the Company may suffer losses due to fluctuations in exchange rates between the Canadian dollar or Norwegian krone and currencies of other countries. The Company does not currently engage in foreign exchange hedging activities or use other financial instruments in this regard.

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Interest Rate and Investment Risk.  The primary objective of the Company’s investment activities is to preserve principal while at the same time maximizing income received from investments without significantly increasing risk.  The investment portfolio is primarily comprised of cash, marketable securities, and short-term interest bearing certificates.

Net Operating Losses for Tax Purposes.  We have available an aggregate of approximately $13.5 million of net operating losses for tax purposes that may be used to reduce taxable income in future years, of which $3.157 million expires in 2009, 3.424 million expires in 2010, $1.116 million expires in 2011, $966,000 expires in 2012, and $282,000 expires in 2013.  In addition, there is $4.581 million that do not expire related to tax losses in Ireland. Our net operating losses are subject to assessment of our tax returns by taxation authorities.

ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth the name, age and position of each of our directors and executive officers.  This information is supplied based on our records and information furnished by our executive officers and directors.

Name	Age	Position
Directors
Jeffrey Lymburner(1)	47	Director and Chief Executive Officer
T. Christopher Bulger(2)(3)	47	Director
Paul Godin,(3)	51	Director
Jim Moskos	41	Director and President, ADB Technology Group
Darroch (Rick) Robertson (2)	52	Director
Jan Pedersen(4)	46	Director and President, Norwegian Operations
Glen Whyte	47	Director
Executive Officers (other than Messrs. Lymburner, Pedersen and Moskos)
Michael Robb	41	Chief Financial Officer and Corporate Secretary
Aidan Rowsome	43	Vice-President, Global Sales

(1) Mr. Lymburner is acting Chairman of the Board of Directors.

(2) Member of Audit Committee.

(3) Member of the Management Resources and Compensation Committee

(4) Nominee of certain of the prior shareholders of ADB Systemer ASA pursuant to a Board Representation Agreement.  See “Board Practices” below.

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

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Directors 

JEFFREY LYMBURNER, Oldsmar, Florida

Director since May 28, 1996

Acting Chairman

Mr. Lymburnerhas been our Chief Executive Officer since August 1, 1999 and was a founding shareholder of our company. He was President of our company from its founding in 1995 to October 11, 2001. Prior to the founding of our company, Mr. Lymburner was President of Completely Mobile Inc., a cellular and wireless data company, from 1990 to 1995.

T. CHRISTOPHER BULGER, Toronto, Ontario

Director since May 28, 1996

Chairman of the Management Resources and Compensation Committee and Member of the Audit Committee

Mr. Bulger is the Chairman and CEO of Megawheels Technologies Inc., a web-centric classified advertising platform provider for newspapers, with enterprise systems for retailers in the automotive and real estate sectors. Mr. Bulger served as Executive Vice President of our company from September 1998 to December 1999 and Chief Financial Officer of our company from April 1996 to September 1998.

PAUL GODIN, Kleinburg, Ontario

Director since May 28, 1996

Member of the Management Resources and Compensation Committee and Member of the Audit Committee

Mr. Godin is a private investor.  From September 1999 to March 2001, Mr. Godin was the Chairman of The Art Vault International Limited.  Aside from being one of the founding shareholders of our company, Mr. Godinwas Chief Executive Officer from our company’s inception to August 1, 1999, and Chairman of the Board of Directors from June 17, 1996 to June 14, 2000. Prior to the founding of our company in September, 1995, Mr. Godin was Senior Vice-President, Corporate Sales and Marketing for Completely Mobile Inc., a Canadian company which designed and implemented wireless data systems.

JIM MOSKOS, Toronto, Ontario

Director since June 7, 1999

Mr. Moskoshas been President of the ADB Technology Group since October 19, 1999. Mr. Moskos served as Vice President - Technology of our company from September 1997 to October 19, 1999.  From September 1994 to August 1997, Mr. Moskos was Senior Technology Manager for the Canadian Department of Indian Affairs and Northern Development responsible for setting the technical direction for all aspects of application development.

JAN PEDERSEN, Stavanger, Norway

Director since June 12, 2002

Mr. Pedersen has been a director of our company since June 2002 and President of our Norwegian Operations since October 2001. Prior to that, Mr. Pedersen founded and acted as CEO of ADB Systemer ASA since 1988.

DARROCH (RICK) ROBERTSON, London, Ontario

Director since June 25, 2003

Chairman of the Audit Committee

Mr. Robertson has been an Associate Professor of Buisness at the Richard Ivey School of Business, The University of Western Ontario, for the past five years. He is also the Director of the undergraduate HBA program at the Ivey School. Mr. Robertson is a director and chair of the audit committee of Stackpole Limited, a TSX listed company. Mr. Robertson is also an elected member of the council for the Institute of Chartered Accountants of Ontario, where he currently serves on the audit committee and by-laws committee.

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GLEN WHYTE, Toronto, Ontario

Director since April 16, 2003

Mr. Whyte is Associate Dean, Curriculum, Rotman School of Management, University of Toronto - a position he was appointed to in 2001. In 2000, Mr. Whyte was the Conway Chair in Business Ethics, Rotman School of Management.  From 1998 to 1999, Mr. Whyte was the Simon Reisman Chair at the Treasury Board of Canada Secretariat.  In 1998, Mr. Whyte was Full Professor, Organizational Behaviour and Human Resource Management, Rotman School of Management.

Executive Officers

(other than Messrs. Lymburner,  Moskos, and Pedersen)

Michael Robb,joined the Company in November 2002 and was appointed as Chief Financial Officer on August 19, 2003 and Corporate Secretary on October 21, 2003.  From June 2001 to June 2002, Mr. Robb served as Vice President of Finance for Westaim Partners, a Toronto venture capital firm. Mr. Robb was Director of Finance for Classwave Wireless Inc. fromOctober 2000 to June 2001 and Director of Finance for Bid.Com. from January 1999 to October 2001.

Aidan Rowsome, our Vice-President, Global Sales, has been with our company since August 1999 when he joined as Managing Director, Europe. From June 1998 to July 1999, Mr. Rowsome was Chief Operations Officer for Nua Internet Consultancy, responsible for all project operations. Prior to that, Mr. Rowsome spent 8 years as General Manager, European Operations for Quarterdeck Corporation, now part of the Symantec Group.

For a discussion of certain transactions involving directors and executive officers, see Item 7 – MAJOR SHAREHOLDERS and RELATED PARTY TRANSACTIONS and Note 19 to Consolidated Financial Statements.

B.COMPENSATION

Summary Compensation Table

The following table provides a summary of compensation earned during the most recently completed fiscal year by our Chief Executive Officer and our four highest paid executives, other than the Chief Executive Officer, who earned in excess of $100,000.

					Awards
						Restricted
		Annual Compensation			Options/	Shares or	Payouts
				Other Annual	SARs	Restricted	LTIP	All Other
		Salary	Bonus	Compensation	Granted	Share Units	Payout	Compensation
Name And Principal Position	Year	($)	($)	($)(1)	(#) (2)	($)	($)	($)
Jeffrey Lymburner	2003	140,150	3,503	16,818	Nil	Nil	Nil	Nil
CEO (3)	2002	157,760	Nil	25,242	110,000	Nil	Nil	Nil
	2001	317,987	Nil	12,720	271,875	Nil	Nil	Nil
Mark Wallace	2003	181,846	Nil	7,731	Nil	Nil	Nil	Nil
President (4)	2002	200,000	Nil	22,800	226,667	Nil	Nil	Nil
	2001	250,000	Nil	12,000	115,625	Nil	Nil	Nil
James Moskos	2003	193,333	15,000	12,000	220,202	Nil	Nil	Nil
President, Technology Group	2002	200,000	Nil	12,000	214,167	Nil	Nil	Nil
	2001	250,000	Nil	12,000	115,625	Nil	Nil	Nil
Jan Pedersen	2003	181,843	40,358	Nil	Nil	Nil	Nil	Nil
President, Norwegian Operations (5)	2002	165,500	47,000	Nil	214,167	Nil	Nil	Nil
	2001	205,276	2,953	4,000	37,500	Nil	Nil	Nil
Aidan Rowsome	2003	173,430	10,033	17,747	122,580	Nil	Nil	Nil
Vice-President, Global Sales (6)	2002	168,000	5,500	16,500	163,125	Nil	Nil	Nil
	2001	200,140	75,163	15,595	44,530	Nil	Nil	Nil

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1.Received on account of car reimbursement expenses, income derived from the exercise of options and automobile leases.

2.All numbers have been adjusted to reflect the two for one consolidation of our shares in October, 2001.

3.Mr. Lymburner’s salary is U.S. $100,000.  He also served as President from August, 1998 to October, 2001.

4.Joined our company on May 17, 1999.  Mr. Wallace was Executive Vice President, General Counsel and Corporate Secretary from May 1999 to November 1999 and Chief Operating Officer from November 1999 to October, 2001. Mr. Wallace resigned from our company on August 22, 2003.

5.Joined our company on October 11, 2001, upon  the acquisition of ADB Systemer.

6.Joined our company as Managing Director, Europe in August 1999. Became our Vice-President, Global Sales in October 2001.

Messrs. Lymburner, Moskos, Pedersen and Rowsome have volunteered salary reductions  in the 2002 and 2003 calendar years, ranging from fifteen percent to fifty percent.  In exchange for the foregone salary, the executives were granted stock options, vesting quarterly in arrears, in an amount equal to the amount of foregone salary divided by the exercise price of the options (being the market price of the Company’s shares on the day prior to the date of the grant). These salary reductions took effect January 1, 2002 and the options were granted during 2002.  The salary reductions will not affect any severance entitlement for the individuals concerned.

The following table sets forth details of the option grants to our Chief Executive Officer and our four highest paid executives, other than the Chief Executive Officer, who earned in excess of $100,000 during the fiscal year ended December 31, 2003.

Name	Securities Under Options/SARs Granted (#)		% of Total Options/SARs Granted to Employees in Financial Year		Exercise or Base Price ($/Security)	Market Value of Securities Underlying Options/SARs on the Date of Grant ($/Security)	Expiration Date
Jeffrey Lymburner	Nil		Nil		Nil	Nil	Nil
Mark Wallace	Nil		Nil		Nil	Nil	Nil
James Moskos	20,202	(1)	1.8	%	0.33	0.33	7/03/06
	100,000	(2)	9.1	%	0.35	0.35	8/15/06
	100,000		9.1	%	0.35	0.35	8/15/06
Jan Pedersen	22,378	(1)	2.0	%	0.33	0.33	7/03/06
Aidan Rowsome	22,580	(1)	2.1	%	0.33	0.33	7/03/06
	100,000		9.1	%	0.35	0.35	8/15/06

(1) These options were granted in respect of the salary reductions on the terms described above.

(2) These options were performance incentive options, most of which vest only upon the attainment of specified business and financial results and some of which vested and became exercisable the date of their grant.

During 2003, we did not provide any pension, retirement or similar benefits to our directors and officers as a group.  Our employees based in Ireland and the United Kingdom participate in a retirement savings arrangement where employee contributions to personal retirement savings accounts are matched by the Company to a maximum

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of six percent of salary.  This arrangement does not represent a future pension obligation to the Company.  Mr. Rowsome participates in this plan.

Jeff Lymburner has entered into a non-competition and salary protection agreement with our company, dated February 21, 1997, which provides, among other things, that he (i) will not compete with our company for a period of 12 months, which may be extended by us to 24 months, following the termination of his employment with our company, in consideration of which we will pay his full annual salary during such period; and (ii) if his employment with us is terminated other than by reason of death, disability or cause (as such terms are defined in such agreements), we will continue to pay his full annual salary for 12 months (or 24 months if we exercise our option to extend the non-competition restrictions for 24 months) following the date of termination.

Jan Pedersen entered into a new employment agreement with our company in 2003 which sets out his salary and benefits as the Company’s President of Norwegian operations, as described in Item 6. The new agreement does not provide for termination payments or retention bonuses.

Compensation of Directors

Our directors presently receive no fees or other compensation for acting as directors, attending meetings of the Board or committees of the Board or for the signing of any resolution of directors or documents on behalf of the Company.   All directors are reimbursed for reasonable out-of-pocket travel and other expenses incurred by them in attending meetings of the Board or committees of the Board.

C.BOARD PRACTICES

Our articles of incorporation currently provide for a Board of Directors consisting of not less than 3 and not more than 15 directors, to be elected annually. The Ontario Business Corporations Act provides that, where a minimum and maximum number of directors is provided for in the articles of a company, the directors of that company may, if empowered by special resolution of the shareholders, by a resolution determine the number of directors to be elected at each annual meeting of the shareholders. Our Board of Directors has the authority to fix the number of directors to a number within the minimum and maximum number of directors as set forth in the articles, and has determined by resolution that the size of the Board is 7 directors.

On September 7, 2001, we entered into an agreement (the “Board Representation Agreement”) with LimeRock Partners LLC (“LR”), Jan Pedersen (“Pedersen”), and Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik (together, the “Other Nominating Shareholders”) in connection with the acquisition of ADB Systemer ASA of Sola, Norway.  LR, Pedersen and the Other Nominating Shareholders were the largest shareholders of ADB Systemer.

Pursuant to the Board Representation Agreement, LR and Pedersen were entitled, immediately following the acquisition of ADB Systemer, to nominate one person each to our Board of Directors.  Also pursuant to the Board Representation Agreement, the Other Nominating Shareholders as a group were entitled to nominate one person to our Board of Directors effective at our 2002 annual shareholders meeting on June 12, 2002.

The Board representation rights conferred on LR, Pedersen and the Other Nominating Shareholders are subject to their continued ownership of at least 50% of the shares received by them upon the acquisition of ADB Systemer.  These rights are also subject to the satisfaction of Canadian residency and other regulatory issues.

LR has sold all of its shareholdings in ADB and, therefore, pursuant to the Board Representation Agreement, no longer has a right to nominate a person to the Board of Directors.

Our Board of Directors presently consists of 7 directors. Under Canadian law, a majority of our Board of directors and of each of our Board Committees must be residents of Canada, subject to certain exceptions.  Each of our directors holds office until the next annual meeting of shareholders, until his successor has been elected and qualified, or his earlier resignation or removal.  Our executive officers are appointed by our Board of directors and serve at the discretion of our Board of Directors.

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Except for Jeff Lymburner’s salary protection agreements, no director has any contract or arrangement with us entitling them to benefits upon termination of their directorship.

The three committees of the Board are the Audit Committee, Management Resources and Compensation Committee, and the Corporate Governance Committee.

The Audit Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines, meets with our management and our auditors on a periodic basis, before the release of quarterly results and before submission of our annual financial statements to the Board. The committee is responsible for the review and assessment of our audit practices, financial reporting and internal controls, inquiry of the auditors as to cooperation in access and disclosure by our management and the ultimate approval of our annual financial statements for submission to the Board and to the shareholders. The committee is also responsible for the appointment, compensation and oversight of the work of our auditors (including resolution of disagreements between management and our auditors regarding financial reporting).

The Management Resources and Compensation Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines, is responsible for recommendations to the Board regarding the appointment or removal of executive officers, reviewing the performance of the executive officers and fixing their compensation. The committee is also responsible for administering our stock option plan and ensuring that salary and benefit programs are continuously suitable for acquiring, retaining and motivating employees.

The Corporate Governance Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines, oversees the implementation of our governance guidelines described above and, where it deems appropriate, will develop modifications to such guidelines. The committee also oversees the process for nominations to the Board and assesses the overall effectiveness of the Board.

D.EMPLOYEES

As of December 31, 2003 we employed a total of 50 full-time employees and no part-time employees as follows: 

	North America	Ireland and UK	Norway
Sales and Marketing	5	1	1
Technical Services	5	2	12
Product Group	2	0	10
Finance and Admin	4	1	2
Executive	3	1	1
TOTAL	19	5	26

As of December 31, 2002 we employed a total of 49 full-time employees and no part-time employees as follows:

	North America	Ireland and UK	Norway
Sales and Marketing	5	1	2
Technical Services	5	1	9
Product Group	3	Nil	10
Finance and Admin	5	1	2
Executive	3	1	1
TOTAL	21	4	24

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As of December 31, 2001 we employed a total of 68 full-time employees and no part-time employees as follows: 

	North America	Ireland and UK	Norway
Sales and Marketing	6	4	2
Technical Services	9	2	12
Product Group	6	Nil	12
Finance and Admin	6	1	2
Executive	4	1	1
TOTAL	31	8	29

The number of our employees as of December 31, 2003 represents a 27.9% decrease in our workforce as compared with the number of our employees as of December 31, 2001.

None of our employees is represented by a labor union, and we consider our employee relations to be good.

E.SHARE OWNERSHIP

The following table sets forth certain information concerning share and option ownership of each of our directors and officers as of May 7, 2004:

Name	Number of Common Shares Owned (1)	Number of Common Underlying Options (2)	Range ofexercise prices of options	Range of Expiration Dates of Options	Percentage of Common  Shares Beneficially Owned (3)
Christopher Bulger	15,000	62,000	$0.36-$0.48	05/10/04-07/03/06	*
Paul Godin	232,667	25,000	$0.36 - $0.48	05/10/04-07/03/06	*
Jeffrey Lymburner	3,211,975	50,000	$0.36-$0.48	05/10/04/11/27/04	5.2	%
Jim Moskos	21,375	434,369	$0.33-$0.48	05/10/04-08/15/09	*
Rick Robertson	5,000	30,000	$0.37-	07/03/06	*
Glen Whyte	208,333	Nil	N/A	N/A	*
Michael Robb	Nil	43,250	$0.22-$0.48	11/27/04-08/15/06	*
Jan Pedersen	767,019	206,545	$033-$0.48	05/10/04-07/03/06	1.6	%
Aidan Rowsome	Nil	255,705	$0.33 - $0.48	05/10/04-08/15/06	*

* Represents less than 1%.

(1)All numbers adjusted to reflect the two for one consolidation of our shares in October 2001.

(2)Represents shares owned beneficially by the named individual other than those shares which may be acquired under our company’s option plans.  Unless otherwise noted, all persons referred to above have sole voting and sole investment power.

(3)Includes all shares which the named individual has the right to acquire under all vested and unvested options and warrants granted to such individual under our company’s option plan.

(4)This information is based on 61,420,621 common shares outstanding as of May 7, 2004. Common shares subject to options exercisable within 60 days are deemed outstanding for computing the percentage ownership of the person holding the options but are not deemed outstanding for computing the percentage ownership of any other person.

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ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.MAJOR SHAREHOLDERS

To our knowledge, no person other than Jeffrey Lymburner beneficially owns, directly or indirectly, or exercises control or direction over more than 5% of our issued and outstanding common shares.

This information is based on our records, information provided to us by directors and executive officers and a review of any Schedules 13D and 13G filed prior to June 14, 2004, by our shareholders with the Securities and Exchange Commission and insider reports filed with the Ontario Securities Commission.  The Company’s major shareholders do not have any voting rights that differ from the rights of our other shareholders.

As of May 7, 2004, we had 1,210 shareholders of record holding 61,420,621 common shares, of which 765 shareholders holding 3,743,124 common shares had an address of record in the United States.  Common shares held by CEDE & Co. in the United States on such date amounted to 3,612,236 or 5.88% of our issued common shares, which shares are held for participants’ accounts.

We are not aware of any other corporation, foreign government, or other person or entity that directly or indirectly owns or controls our company, severally or jointly. We are not aware of any arrangements which may result in a change in control of our company.

B.RELATED PARTY TRANSACTIONS

On April 4, 2000, we completed a transaction with The Art Vault International Limited, a company previously listed on the Canadian Venture Exchange, under which we agreed to provide our online auction technology and related services to enable the implementation of The Art Vault’s online auction of art and antiquities.  In consideration for our license and services, we received 2,500,000 shares of The Art Vault and a share of future profits. Paul Godin, a director of our company, was the founding shareholder, an executive officer and a director of The Art Vault. Azim Fancy, then one of our directors, was a director and shareholder of The Art Vault. Charles Walker and James Moskos, also directors of our company, were shareholders of The Art Vault.  In March 2001, The Art Vault made an assignment in bankruptcy under the laws of the Province of Ontario, due to economic conditions and a lack of available funding.  As their license and services agreements were fully paid up, the assignment had no material economic effect on these agreements.  Our investment in The Art Vault was written down to zero.

On August 30, 2002, the Company entered into a private placement agreement of secured subordinated notes (Series A, B and D notes) with a group of private investors for total gross proceeds of  $1.12 million.   The notes are secured by a general security agreement on the property and assets of ADB.

The following officers and directors purchased the Series D notes: Chris Bulger, a director of the Company, purchased $20,000 of Series D notes that have not yet been converted.  Paul Godin, a director of the Company, purchased $25,000 of Series D notes that were converted on December 13, 2002 to 208,333 common shares and 104,167 share purchase warrants. Jeff Lymburner, CEO and a director of the Company, purchased $75,000 of Series D notesof which $54,750 were converted on April 1, 2004  to 456,250 shares and 228,125 share purchase warrants The 228,125 common share purchase warrants were exercised into an equal number of common shares by April 19, 2004. The remaining $20,250 of Series D notes have yet to be converted as of June 18, 2004. Aidan Rowsome, VP Global Sales of the Company, purchased $15,000 of Series D notes that were converted on February 3, 2003 to 125,000 common shares and 62,500 share purchase warrants.

On May 9, 2003, the Company issued 666,666 common shares to Jeff Lymburner, CEO of the Company, in consideration of gross proceeds of $200,000 as part of a private placement financing.

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On August 19, 2003, the Company entered into a private placement agreement of secured subordinated notes (Series E notes) with a group of private investors for total gross proceeds of  $1.0 million.   The notes are secured by a general security agreement on the property and assets of ADB.

The following officers and directors purchased the Series E notes: Paul Godin, a director of the Company, purchased $50,000 of Series E notes that have not yet been converted. Jim Moskos, President Technology Group  and a director of the Company, purchased $35,000 of Series E notes that have not yet been converted. Michael Robb, CFO and Corporate Secretary of the Company, purchased $15,000 of Series E notes that have not yet been converted.

The following officers and directors purchased Series G notes: Jeff Lymburner, CEO of the Company, purchased $100,000 of Series G notes that have not yet been converted; Jan Pedersen, President, European Operations and a director of the Company, purchased $60,000 of Series G notes that have not yet been converted; and Jim Moskos, President Technology Group and a director of the Company, purchased $10,000 of Series G notes that have not yet been converted.

For additional information regarding related party transactions, see Part I - Item 5 under the heading “OPERATING AND FINANCIAL REVIEW AND PROSPECTS – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and see Note 7(b) to Notes Consolidated Financial Statements.

For additional information regarding related party transactions, see Part I – Item 4 under the heading “MAJOR DEVELOPMENTS” and Note 19 to Notes to Consolidated Financial Statements.

ITEM 8 - FINANCIAL INFORMATION

See the Consolidated Financial Statements and notes thereto accompanying this Annual Report beginning on page F-1.

LEGAL PROCEEDINGS

Neither we, nor any of our subsidiaries, is a party to, or the subject of, any material legal proceedings.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our common shares.  We currently intend to retain any future earnings for use in the operation and expansion of our business.  We do not anticipate paying any cash dividends on our common shares in the foreseeable future.

We have not issued any preference shares.  The dividend entitlement of any preference shares issued will be determined by our Board of Directors.

SIGNIFICANT CHANGES

None.

ITEM 9 - THE OFFER AND LISTING

Our common shares are listed on The Toronto Stock Exchange and are quoted for trading on the OTCBB.  Our common shares were quoted on the Nasdaq National Market from April 20, 1999 until June 3, 2002 and were quoted on the Nasdaq SmallCap Market from June 3, 2002 until August 21, 2002 at which time they were delisted because we did not satisfy the minimum bid price per share requirement for continued listing on that market.  The shares were listed on the Nasdaq exchanges from April 20, 1999 until October 17, 2001 under the symbol “BIDS” and from October 18, 2001 until August 21, 2002 under the symbol “ADBI”.  Our common shares have been quoted for trading on the OTCBB since August 22, 2002 under the symbol “ADBY”.

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From June 6, 1996 to February 8, 1998, our common shares were quoted for trading on the Canadian Dealing Network under the symbol “ILII.”  Our common shares were traded on The Toronto Stock Exchange from February 9, 1998 to July 17, 1998 under the symbol “ILI” and from July 18, 1998 to October 17, 2001 under the symbol “BII”.  Since October 18, 2001, our common shares have been traded on the Toronto Stock Exchange under the symbol “ADY”.

For additional information about the trading of our common shares, see Item 3-D - Risk Factors - YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB  MAY BE LIMITED.

The following tables set forth the range of high and low sales prices (rounded to the nearest hundredth) as reported by The Toronto Stock Exchange and Nasdaq (beginning April 20, 1999) during the calendar years and quarters indicated. Note that all numbers have been adjusted to reflect the two-for-one share consolidation completed in October 2001.

THE TORONTO STOCK EXCHANGE

	High	Low
	(Cdn $)	(Cdn $)
ANNUAL MARKET PRICES
1999 Calendar Year	67.30	7.30
2000 Calendar Year	26.20	1.94
2001 Calendar Year	3.40	0.29
2002 Calendar Year	0.93	0.07
2003 Calendar Year	0.85	0.17
QUARTERLY MARKET PRICES
2002 CALENDAR YEAR
First Quarter	0.50	0.28
Second Quarter	0.45	0.22
Third Quarter	0.25	0.09
Fourth Quarter	0.93	0.07
2003 CALENDAR YEAR
First Quarter	0.85	0.17
Second Quarter	0.41	0.19
Third Quarter	0.55	0.31
Fourth Quarter	0.54	0.37
2004 CALENDAR YEAR
First Quarter	0.52	0.34
MONTHLY MARKET PRICES
November 2003	0.53	0.37
December 2003	0.48	0.39
January 2004	0.45	0.39
February 2004	0.52	0.39
March 2004	0.42	0.34
April 2004	0.38	0.32
May 2004	0.38	0.25

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NASDAQ AND OTCBB

	High	Low	High	Low
	(Cdn $)	(Cdn $)	(U.S. $)	(U.S. $)
ANNUAL MARKET PRICES
1999 Calendar Year	57.12	11.18	38.62	7.50
2000 Calendar Year	26.60	1.60	19.26	1.06
2001 Calendar Year	3.30	0.30	2.18	0.19
2002 Calendar Year	0.93	0.06	0.59	0.04
2003 Calendar Year
QUARTERLY MARKET PRICES
2002 CALENDAR YEAR
First Quarter	0.53	0.27	0.34	0.17
Second Quarter	0.42	0.22	0.27	0.16
Third Quarter	0.25	0.06	0.16	0.04
Fourth Quarter	0.93	0.08	0.59	0.05
2003 CALENDAR YEAR
First Quarter	0.79	0.16	0.54	0.11
Second Quarter	0.39	0.16	0.29	0.12
Third Quarter	0.57	0.27	0.42	0.20
Fourth Quarter	0.58	0.34	0.45	0.26
2004 CALENDAR YEAR
First Quarter	0.54	0.34	0.41	0.26
MONTHLY MARKET PRICES
November 2003	0.52	0.38	0.40	0.29
December 2003	0.45	0.36	0.35	0.28
January 2004	0.48	0.40	0.36	0.28
February 2004	0.55	0.40	0.41	0.30
March 2004	0.42	0.34	0.32	0.26
April 2004	0.44	0.34	0.32	0.25
May 2004	0.38	0.27	0.28	0.20

United States dollar amounts are converted to Canadian dollars at the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York for the date of such sales prices.

ITEM 10 - ADDITIONAL INFORMATION

A.Share Capital

Not applicable.

B.Memorandum and Articles of Association

The Articles of Arrangement for ADB are on file with the Ministry of Consumer and Commercial Relations for the Province of Ontario under Ontario Corporation Number 1539169.  Our articles do not include a stated purpose.

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Directors

Directors of our company need not be shareholders.  In accordance with our by-laws and the Ontario Business Corporations Act, a majority of our directors must be residents of Canada, subject to certain exceptions.  In addition, directors must be at least 18 years of age, of sound mind, and not bankrupt.  Neither our articles or by-laws, nor the Ontario Business Corporations Act, impose any mandatory retirement age for directors.

A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with our company shall disclose to our company the nature and extent of his interest at the time and in the manner provided by the Ontario Business Corporations Act. The Ontario Business Corporations Act prohibits such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction:

•is  an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of our company or an affiliate;

•relates primarily to his or her remuneration as a director, officer, employee or agent of our company or an affiliate;

•is for indemnity or insurance; or

•is with an affiliate.

Our Board of Directors may, on behalf of our company and without authorization of our shareholders:

•borrow money upon the credit of our company;

•issue, reissue, sell or pledge bonds, debentures, notes or other evidences or indebtedness or guarantees of our company, either secured or unsecured;

•subject to certain disclosure requirements of the Ontario Business Corporations Act, give, directly or indirectly, financial assistance to any person by means of a loan, a guarantee or otherwise on behalf of our company to secure performance or any present or future indebtedness, liability or obligation of any person; and

•mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal property of our company, movable or immovable, including without limitation book debts, rights, powers, franchises and undertakings, to secure any bonds, debentures, notes or other evidences of indebtedness or guarantee or any other obligation of our company.

Common Shares

Our articles authorize the issuance of an unlimited number of common shares. The holders of the common shares of our company are entitled to receive notice of and to attend all meetings of the shareholders of our company and have one vote for each common share held at all meetings of the shareholders of our company, except for meetings at which only holders of another specified class or series of shares of our company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of preference shares of our company and to any other shares ranking senior to the common shares with respect to priority in the payment of dividends, the holders of common shares are entitled to receive dividends and our company will pay dividends, as and when declared by our Board of Directors, out of moneys properly applicable to the payment of dividends, in such amount and in such form as our Board of Directors may from time to time determine, and all dividends which our Board of Directors may declare on the common shares shall be declared and paid in equal amounts per share on all common shares at the time outstanding. In the event of the dissolution, liquidation or winding-up of our company, whether voluntary or involuntary, or any other distribution of assets of our company among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of preference shares and to any other shares ranking senior to the common shares with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the common shares will be entitled to receive the remaining property and assets of our company.  There

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are no redemption or sinking-fund provisions that attach to the common shares, nor are there any provisions that discriminate against existing or prospective holders of common shares as a result of owning a substantial number of shares.  The holders of our common shares are not liable to further capital calls by our company.

Preference Shares

Our articles of incorporation authorize the issuance of an unlimited number of preference shares, in one or more series. The Ontario Business Corporations Act does not impose restrictions upon our Board of Directors issuing preference shares of the type authorized by our articles of incorporation. Our Board of Directors may fix, before issuing, the number of preference shares of each series, the designation, rights, privileges, restrictions and conditions attaching to the preference shares of each series, including any voting rights, any right to receive dividends (which may be cumulative or non-cumulative and variable or fixed) or the means of determining the dividends, the dates of payment, any terms and conditions of redemption or purchase, any conversion rights, and any rights on the liquidation, dissolution or winding-up of our company, any sinking fund or other provisions, the whole to be subject to the issue of a Certificate of Amendment setting forth the designation, rights, privileges, restrictions and conditions attaching to the preference shares of the series. Our articles of incorporation require that preference shares of each series must, with respect to the payment of dividends and the distribution of assets or the return of capital in the event of the liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares ranking junior to the preference shares. The preference shares of one series shall participate ratably with the preference shares of every other series in respect of all dividends and similar amounts.  The holders of our preference shares are not liable to further capital calls by our company.  None of our preference shares are currently issued or outstanding.

Action Necessary to Change the Rights of Shareholders

In order to change the rights of our shareholders, we would need to amend our articles of incorporation to effect the change.  Such an amendment would require the approval of holders of two-thirds of the shares cast at a duly called special meeting. If we wish to amend the rights of holders of a specific class of shares, such approval would also be required from the holders of that class. A shareholder is entitled to dissent in respect of such a resolution and, if the resolution is adopted and our company implements such changes, demand payment of the fair value of its shares.

Meetings of Shareholders

An annual meeting of shareholders is held each year for the purpose of considering the financial statements and reports, electing directors, appointing auditors and for the transaction of other business as may be brought before the meeting. The President, the Chairman of the Board or the Board of Directors has the power to call a special meeting of shareholders at any time. Notice of the time and place of each meeting of shareholders must be given not less than 21 days, nor more than 50 days, before the date of each meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any other purpose other than consideration of financial statements and auditors’ report, election of directors and reappointment of the incumbent auditor, must state the nature of the business in sufficient detail to permit the shareholder to form a reasoned judgment on, and must state the text of, any special resolution or by-law to be submitted to the meeting. The only persons entitled to be present at a meeting of shareholders are those entitled to vote thereat, the directors of our company, the auditor of our company and others who although not entitled to vote are entitled or required to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. If a corporation is winding-up, the Ontario Business Corporations Act permits a liquidator appointed by the shareholders, during the continuance of a voluntary winding-up, to call and attend meetings of the shareholders. In circumstances where a court orders a meeting of shareholders, the court may direct how the meeting may be held, including the parties entitled, or required, to attend the meeting.

Limitations on Rights to Own Securities

There is no limitation imposed by Canadian law or by the articles or other charter documents on the right of a non-resident to hold or vote common shares or preference shares with voting rights, other than as provided in the

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Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act.  The Investment Canada Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian,” as defined in the Investment Canada Act (a “non-Canadian”), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be a net benefit to Canada.

An investment in our voting shares by a non-Canadian (other than a “World Trade Organization Investor,” as defined below) would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our company, and the value of our assets were $5.0 million or more.  An investment in our voting shares by a World Trade Organization Investor would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our company, and the value of our assets equaled or exceeded $209 million.  A non-Canadian, whether a World Trade Organization Investor or otherwise, would acquire control of us for purposes of the Investment Canada Act if he or she acquired a majority of our voting shares.  The acquisition of less than a majority, but at least one-third of our voting shares, would be presumed to be an acquisition of control of our company, unless it could be established that we were not controlled in fact by the acquirer through the ownership of voting shares.  In general, an individual is a World Trade Organization Investor if he or she is a “national” of a country (other than Canada) that is a member of the World Trade Organization (“World Trade Organization Member”) or has a right of permanent residence in a World Trade Organization Member.  A corporation or other entity will be a World Trade Organization investor if it is a “World Trade Organization investor-controlled entity” pursuant to detailed rules set out in the Investment Canada Act.  The United States is a World Trade Organization Member.

Certain transactions involving our voting shares would be exempt from the Investment Canada Act, including:  (a) an acquisition of our voting shares if the acquisition were made in connection with the person’s business as a trader or dealer in securities; (b) an acquisition of control of our company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and (c) an acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our company, through the ownership of voting interests, remains unchanged.

Change of Control

Our authorized capital consists of an unlimited number of common shares and an unlimited number of preference shares. The Board of Directors, without any further vote by the common shareholders, has the authority to issue preference shares and to determine the price, preferences, rights and restrictions, including voting and dividend rights, of these shares. The rights of the holders of common shares are subject to the rights of holders of any preference shares that the Board of Directors may issue in the future. That means, for example, that we can issue preference shares with more voting rights, higher dividend payments or more favorable rights upon dissolution, than the common shares. If we issued certain types of preference shares in the future, it may also be more difficult for a third-party to acquire a majority of our outstanding voting shares.

Our articles do not contain any provisions that govern the ownership threshold above which shareholder ownership must be disclosed.

C.Material Contracts

The following is a summary of our company’s material contracts entered into since January 1, 2002.

1.  Subscription Agreement, dated as of April 25, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership, whereby we agreed to issue 3.3 million common shares at a purchase price of US $0.21 per share, and warrants exercisable into 1,050,000 common shares at an exercise price of US $0.35 per share. The warrants have a term of three years.  We agreed to register the shares and warrants with the Securities and Exchange Commission. The purchase price was determined in the context of the market.

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2.Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc.  entitling the holder to acquire 1 million common shares of ADB at an exercise price of US $0.35 per share. The warrant had a term of three years and was exercised in full on December 17, 2002.

3.Warrant issued April 25, 2002 to Stonestreet Limited Corporation by ADB Systems International Inc. entitling the holder to acquire 50,000 common shares of ADB at an exercise price of US $0.35 per share. The warrant has a term of three years and as of June 18, 2004 have not been exercised.

4.As part of the Arrangement and pursuant to a general conveyance and assumption agreement (the “General Conveyance and Assumption Agreement”) dated as of August 30, 2002 between Old ADB and ADB, Old ADB transferred all of its assets (excluding only the assets of the Retail Business) to ADB and ADB assumed all of the liabilities of Old ADB (excluding only specified liabilities in connection with the Retail Business), including Old ADB’s liabilities under the Loan Agreement.

5.Under the terms of a supply, services and licensing agreement (the “Supply Services and Licensing Agreement”) dated as of August 23, 2002 between ADB Systems International Inc. (“Bid.Com”) and The Brick Warehouse Corporation (“The Brick”), ADB will provide administrative and technical services to Old ADB for the Bid.Com  online retailing activities.

6.Pursuant to subscription agreements dated August 30, 2002, ADB issued a total of CDN$1,120,000 principal amount of secured subordinated convertible notes in four series, Series A, B, C, and D. For a description of the material terms and conditions attaching to each series, see part I – Item 5 under the heading ‘OPERATING AND FINANCIAL REVIEW AND PROSPECTS – MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and see Note 7(b) to Notes to Consolidated Financial Statements.

7.On  May 19, 2004, the Company issued Series F secured subordinated notes with a face value of C$500,000 to a private investor.  The Series F notes mature May 19, 2007, have an annual rate of interest of 7% paid quarterly in arrears, and are convertible into equity units at a price of $0.31 per unit.  Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50.  The warrants have an expiry date of May 19, 2007.  The Series F notes are secured by a general security agreement granting a security interest in all of the Company’s property and assets and by a direction to pay proceeds under the Company’s receivable insurance policy with Export Development Canada.  Holders may convert the notes into units at anytime following a four-month hold period.  These notes will automatically convert into units when the share price of the Company closes above $0.70 for five consecutive trading days during the term, following the hold period.  If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash.

8.On May 11, 2004, ADB entered into an Agreeement with First Associates Investments Inc. (“FAI”) as sole agent and exclusive financial advisor for an offering of securities of ADB of up to C$5 million on a best efforts basis. If an offering is completed with gross proceeds of C$1 million or more, ADB will grant a right of first refusal to provide services to lead any future Canadian-led financing for a period set out as follows; a) one year if gross proceeds are at least C$1 million but less than $2 million and b) two years if gross proceeds are at least C$2 million.

9.On June 15, 2004, the Company issued Series G secured subordinated notes with a face value of $1,600,000 through their agent, First Associates Investments Inc. (“FAI”).  The Series G notes mature June 15, 2007 and have an interest rate of 7% calculated annually and paid on the earlier of conversion or maturity.  The notes are convertible into equity units at a price of $0.31 per unit.  Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50.  The warrants have an expiry date of May 19, 2008.  The Series G notes are secured by a general security agreement granting a security interest in all of the Company’s property and assets.  Holders may convert the notes into units at anytime following a four-month hold period.  These notes will automatically convert into units when the weighted average trading price of the Company’s common shares reaches $0.70 for ten consecutive trading days during the term, following the hold period.  If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash.

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Issuance costs associated with the Series G notes include a commission payable to FAI equal to eight percent of the gross proceeds from non-designated purchasers and four percent of the gross proceeds from designated purchasers.  Additionally, FAI received an option to purchase 139,500 equity units, as described above, at a price of $0.31 per unit.

The Series G notes were issued to private investors, including an amount totaling $170,000 issued to directors and/or senior officers of the Company.

D.Exchange Controls

There is no law, government decree or regulation in Canada restricting the export or import of capital or affecting the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements.

E.Taxation

Canadian Federal Income Tax Considerations

The following summary describes material Canadian federal income tax consequences generally applicable to a holder of our common shares who is not a resident of Canada, and who, for purposes of the Income Tax Act (Canada), (i) holds such shares as capital property and (ii) deals at arm’s length with us.  Generally, common shares will be considered capital property to a holder provided that such holder does not hold such securities in the course of carrying on a business and has not acquired such securities in a transaction or transactions considered to be an adventure or concern in the nature of trade which includes a transaction or transactions of the same kind and carried on in the same manner as a transaction or transactions of an ordinary trader or dealer in property of the same kind.

This summary is based upon the current provisions of the Income Tax Act and the regulations thereunder and on an understanding of the published administrative practices of the Canadian Customs and Revenue Agency. This summary does not take into account or anticipate any possible changes in law, or the administration thereof, whether by legislative, governmental or judicial action, except proposals for specific amendment thereto which have been publicly announced by the Canadian Minister of Finance prior to the date hereof.

This summary does not address all aspects of Canadian federal income tax law that may be relevant to shareholders based upon their particular circumstances, and does not deal with provincial, territorial or foreign income tax consequences, which might differ significantly from the consequences under Canadian federal income tax law.

Shareholders are advised to consult their tax advisors regarding the application of the Canadian federal income tax law to their particular circumstances, as well as any Canadian provincial, territorial or other tax consequences or any U.S. federal, state or local tax consequences or other foreign income tax consequences of the acquisition, ownership and disposition of our common shares.

Taxation of Dividends.

A holder of a common share who is not resident in Canada for purposes of the Income Tax Act will be subject to Canadian withholding tax on dividends paid or credited, or deemed under the Income Tax Act to be paid or credited, to the holder of the common share. The rate of withholding tax under the Income Tax Act on dividends is 25% of the amount of the dividend. Such rate may be reduced under the provisions of an applicable international tax treaty to which Canada is a party. Under the tax treaty that Canada has entered into with the United States, the rate of Canadian withholding tax applicable in respect of dividends paid or credited by a Canadian corporation to a shareholder resident in the United States, is generally reduced to 15%, or 5% in the case of a corporate holder which owns 10% or more of the voting shares. A foreign tax credit for the tax withheld may be available under applicable US tax law to a US holder against U.S. federal income tax liability.  Moreover, pursuant to Article XXI of the Canada-U.S. Treaty, an exemption from Canadian withholding tax generally is available in respect of dividends

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received by certain trusts, companies and other organizations whose income is exempt from tax under the laws of the United States.

Disposition of common shares.

A non-resident holder of a common share will not be subject to tax under the Income Tax Act in respect of a capital gain realized on the disposition of a common share unless the common share constitutes or is deemed to constitute “taxable Canadian property” as defined in the Income Tax Act. Shares of a corporation that are listed on a prescribed stock exchange (which includes shares traded on certain U.S. stock exchanges, including the Nasdaq National Market), are generally not considered to be taxable Canadian property. However, such shares are considered taxable Canadian property in the hands of a non-resident holder if, at any time during the 60-month period immediately preceding disposition by the holder, 25% or more of our issued shares of any class were owned by the non-resident holder together with persons with whom the non-resident did not deal at arm’s length.

An interest in or option in respect of common shares or other securities convertible into or exchangeable for common shares could constitute taxable Canadian property if the common shares that could be acquired upon the exercise of the option, the conversion or exchange rights or in which there is such interest are themselves taxable Canadian property.  Taxable Canadian property also includes any common share held by a non-resident if the non-resident used the common share in carrying on a business (other than an insurance business) in Canada, or, if the non-resident is a non-resident insurer, any common share that is its “designated insurance property” for the year. A non-resident whose common shares constitute or are deemed to constitute taxable Canadian property will realize upon the disposition or deemed disposition of a common share, a capital gain (or a capital loss) to the extent that the proceeds of disposition are greater than (or less than) the aggregate of the adjusted cost base to the holder of a common share and any reasonable costs of disposition.

One-half of any capital gain realized by a holder (a taxable capital gain) will be included in computing the holder’s income. One-half of any capital loss realized by a holder may, subject to certain restrictions applicable to holders that are corporations, normally be deducted from the holder’s taxable capital gains realized in the year of disposition, the three preceding taxation years or any subsequent taxation years, subject to detailed rules contained in the Income Tax Act.

A purchase by us of our common shares (other than a purchase of our common shares on the open market in a manner in which shares would normally be purchased by any member of the public in the open market) will give rise to a deemed dividend under the Income Tax Act equal to the difference between the amount we paid on the purchase and the paid-up capital of such shares determined in accordance with the Income Tax Act. The paid-up capital of such shares may be less than the cost of such shares to the holder. Any such dividend deemed to have been received by a non-resident holder will be subject to non-resident withholding tax as described above. The amount of any such deemed dividend will reduce the proceeds of disposition of the common share to the non-resident holder for the purpose of computing the amount of the non-resident holder’s capital gain or loss under the Income Tax Act.

Even if the common shares constitute taxable Canadian property to a non-resident holder and their disposition would give rise to a capital gain, an exemption from tax under the Income Tax Act may be available under the terms of an applicable international tax treaty to which Canada is a party. A holder resident in the United States for purposes of the Canada-U.S. Treaty will generally be exempt from Canadian tax in respect of a gain on the disposition of common shares provided that the value of the common shares is not derived principally from real property situated in Canada. Our common shares would qualify for this exemption, however Article XIII paragraph 5 of the Canada-U.S. Treaty provides that the treaty exemption does not apply where the U.S. resident holder was an individual who was a Canadian resident for 120 months during any period of 20 consecutive years preceding the time of the sale and was resident in Canada at any time during the ten years immediately preceding the sale and owned the shares at the time he/she ceased to be resident in Canada. If the exemption from such Canadian tax in respect of such gain is not available under the Canada-U.S. Treaty, a foreign tax credit may be available under applicable US tax law for U.S. federal income tax purposes. Non-residents are advised to consult their tax advisers with regard to the availability of a treaty exemption.

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U.S. Federal Income Tax Considerations

The following summary describes material United States federal income tax consequences arising from the purchase, ownership and sale of common shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, final, temporary and proposed United States Treasury Regulations and the administrative and judicial interpretations of the regulations, all as in effect as of the date of this Annual Report and all of which are subject to change, possibly on a retroactive basis. The consequences to any particular shareholder may differ from those described below by reason of that shareholder’s particular circumstances. This summary does not address the considerations that may be applicable to any particular shareholder based on such shareholder’s particular circumstances (including potential application of the alternative minimum tax), to particular classes of shareholders (including financial institutions, broker-dealers, insurance companies, shareholders who have elected mark-to-market accounting, tax-exempt organizations, shareholders who hold ordinary shares as part of a straddle, “hedge” or “conversion transaction” with other investments, shareholders who own (directly, indirectly or through attribution) 10% or more of our company’s outstanding voting shares, shareholders whose functional currency is not the U.S. dollar, persons who are not citizens or residents of the United States, or persons which are foreign corporations, foreign partnerships or foreign estates or trusts as to the United States, or any aspect of state, local or non-United States tax laws. Additionally, the discussion does not consider the tax treatment of persons who hold common shares through a partnership or other pass-through entity or the possible application of United States federal gift or estate tax. This summary is addressed only to a holder of common shares who is (i) a citizen or resident of the United States who owns less than 10% of our company’s outstanding voting shares, (ii) a corporation organized in the United States or under the laws of the United States or any state thereof, (iii) an estate, the income of which is includable in gross income for United States federal income tax purposes regardless of source, or (iv) a trust, if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury Regulations to be treated as a U.S. person (a “U.S. Holder”). This summary is for general information purposes only and does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase common shares. This summary generally considers only U.S. Holders that will own their common shares as capital assets.

Each shareholder should consult with such shareholder’s own tax advisor as to the particular tax consequences to such shareholder of the purchase, ownership and sale of their common shares including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.

Treatment of Dividend Distributions

Subject to the discussion below under “Tax Status Of The Company – Passive Foreign Investment Companies,” a distribution by our company to a U.S. Holder in respect of the common shares (including the amount of any Canadian taxes withheld thereon) will generally be treated for United States federal income tax purposes as a dividend to the extent of our company’s current and accumulated earnings and profits, as determined under United States federal income tax principles. To the extent, if any, that the amount of any such distribution exceeds our company’s current and accumulated earnings and profits, as so computed, it will first reduce the U.S. Holder’s tax basis in the common shares owned by him, and to the extent it exceeds such tax basis, it will be treated as capital gain from the sale of common shares.

While it is not anticipated that our company will pay dividends in the foreseeable future, the gross amount of any distribution from our company received by a U.S. Holder which is treated as a dividend for United States federal income tax purposes (before reduction for any Canadian tax withheld at source) will be included in such U.S. Holder’s gross income as ordinary income and generally will not qualify for the dividends received deduction applicable in certain cases to United States corporations. Pursuant to recently enacted legislation, if you are an individual, dividends that we pay you through 2008 will be subject to tax at long-term capital gain rates, provided certain holding period and other requirements are satisfied and provided that in the year such dividends are paid, or the preceding taxable year, we are not a foreign personal holding company, a foreign investment company or a passive foreign investment company. For United States federal income tax purposes, the amount of any dividend paid in Canadian dollars by our company to a U.S. Holder will equal the U.S. dollar value of the amount of the dividend paid in Canadian dollars, at the exchange rate in effect on the date of the distribution, regardless of whether the Canadian dollars are actually converted into United States dollars at that time. Canadian dollars received by a U.S. Holder will have a tax basis equal to the U.S. dollar value thereof determined at the exchange rate on the date of the distribution. Currency exchange gain or loss, if any, recognized by a U.S. Holder on the conversion of

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Canadian dollars into U.S. dollars will generally be treated as U.S. source ordinary income or loss to such holder. U.S. Holders should consult their own tax advisors concerning the treatment of foreign currency gain or loss, if any, on any Canadian dollars received which are converted into dollars subsequent to distribution.

A U.S. Holder generally will be entitled to deduct any Canadian taxes withheld from dividends in computing United States taxable income, or to credit such withheld taxes against the United States federal income tax imposed on such U.S. Holder’s dividend income. No deduction for Canadian taxes may be claimed, however, by an individual (noncorporate) U.S. Holder that does not itemize deductions. The amount of foreign taxes for which a U.S. Holder may claim a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder. Distributions with respect to common shares that are taxable as dividends will generally constitute foreign source income for purposes of the foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by our company with respect to the common shares will generally constitute “passive income.” Foreign income taxes exceeding a shareholder’s credit limitation for the year of payment or accrual of such tax can be carried back for two taxable years and forward for five taxable years, subject to the credit limitation applicable in each of such years. Additionally, the foreign tax credit in any taxable year may not offset more than 90% of a shareholder’s liability for United States individual or corporate alternative minimum tax. The total amount of allowable foreign tax credits in any year generally cannot exceed regular U.S. tax liability for the year attributable to foreign source taxable income. A U.S. Holder will be denied a foreign tax credit with respect to Canadian income tax withheld from dividends received on the common shares to the extent such U.S. Holder has not held the ordinary shares for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make certain related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the common shares are not counted toward meeting the 16 day holding period required by the statute.

Sale or Exchange of a Common Share

Subject to the discussion below under “Tax Status Of The Company – Passive Foreign Investment Companies,” the sale or exchange by a U.S. Holder of a common share generally will result in the recognition of gain or loss by the U.S. Holder in an amount equal to the difference between the amount realized and the U.S. Holder’s basis in the common share sold. Such gain or loss will be capital gain or loss provided that the common share is a capital asset in the hands of the holder. The gain or loss realized by an individual (noncorporate) U.S. Holder on the sale or exchange of a common share will be long-term capital gain or loss subject to a reduced rate of tax if the common share had been held for more than one year.  If the common share had been held by such individual U.S. Holder for not more than one year, such gain will be short-term capital gain.  Gains recognized by a U.S. Holder on a sale, exchange or other disposition of common shares generally will be treated as United States source income for United States foreign tax credit purposes. A loss recognized by a U.S. Holder on the sale, exchange or other disposition of common shares generally is allocated to U.S. source income.  However, such loss must be allocated to foreign source income to the extent certain dividends were received by the U.S. Holder within the 24-month period preceding the date on which the U.S. Holder recognized the loss. The deductibility of a capital loss recognized on the sale, exchange or other disposition of common shares is subject to limitations. A U.S. Holder that receives foreign currency upon disposition of common shares and subsequently converts the foreign currency into U.S. dollars generally will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar. U.S. Holders should consult their own tax advisors regarding treatment of any foreign currency gain or loss on any Canadian dollars received in respect of the sale, exchange or other disposition of common shares.

Tax Status of the Company

Personal Holding Companies.  A non-U.S. corporation may be classified as a personal holding company for United States federal income tax purposes if both of the following two tests are satisfied: (i) if at any time during the last half of the company’s taxable year, five or fewer individuals (without regard to their citizenship or residency) own or are deemed to own (under certain attribution rules) more than 50% of the stock of the corporation by value and (ii) 60% or more of such non-U.S. corporation’s gross income derived from U.S. sources or effectively connected with a U.S. trade or business, as specifically adjusted, is from certain passive sources such as dividends

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and royalty payments. Such a corporation generally is taxed on the amounts of such passive source income, after making adjustments such as deducting dividends paid and income taxes, that are not distributed to shareholders. We believe that our company was not a personal holding company in 2003 and is not currently a personal holding company.  However, no assurance can be given that either test will not be satisfied in the future.

Foreign Personal Holding Companies.  A non-U.S. corporation will be classified as a foreign personal holding company for United States federal income tax purposes if both of the two following tests are satisfied: (i) five or fewer individuals who are United States citizens or residents own or are deemed to own (under certain attribution rules) more than 50% of all classes of the corporation’s stock measured by voting power or value and (ii) the corporation receives at least 60% (50% if previously an foreign personal holding company) of its gross income (regardless of source), as specifically adjusted, from certain passive sources. If such a corporation is classified as a foreign personal holding company, a portion of its “undistributed foreign personal holding company income” (as defined for United States federal income tax purposes) would be imputed to all of its shareholders who are U.S. Holders on the last taxable day of the corporation’s taxable year, or, if earlier, the last day on which it is classifiable as a foreign personal holding company. Such income would be taxable as a dividend, even if no cash dividend is actually paid. U.S. Holders who dispose of their shares prior to such date would not be subject to tax under these rules. We believe that our company was not a foreign personal holding company in 2003 and is not currently a foreign personal holding company. However, no assurance can be given that our company will not qualify as a foreign personal holding company in the future.

Passive Foreign Investment Companies.  A company will be a passive foreign investment company if 75% or more of its gross income (including the pro rata share of the gross income of any company (United States or foreign) in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year is passive income. Alternatively, the company will be considered to be a passive foreign investment company if at least 50% of the value of the company’s assets (averaged over the year) (including the pro rata share of the value of the assets of any company in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year are held for the production of, or produce, passive income. For these purposes, the value of our assets is calculated based on our market capitalization. Passive income generally includes, among others, interest, dividends, royalties, rents and annuities.

If our company is a passive foreign investment company for any taxable year, a U.S. Holder, in the absence of an election by such U.S. Holder to treat our company as a “qualified electing fund” (a “QEF election”), as discussed below, would, upon certain distributions by our company and upon disposition of the common shares at a gain, be liable to pay tax at the highest tax rate on ordinary income in effect for each period to which the income is allocated, plus interest on the tax, as if the distribution or gain had been recognized ratably over the days in the U.S. Holder’s holding period for the common shares during which our company was a passive foreign investment company. Additionally, if our company is a passive foreign investment company, U.S. Holders who acquire ordinary shares from decedents would be denied the normally available step-up of the income tax basis for such common shares to fair market value at the date of death and instead would have a tax basis equal to the decedent’s basis, if lower.

If our company is treated as a passive foreign investment company for any taxable year, U.S. Holders should consider whether to make a QEF election for United States federal income tax purposes. If a U.S. Holder has a QEF election in effect for all taxable years that such U.S. Holder has held the common shares and our company was a passive foreign investment company, distributions and gain will not be recognized ratably over the U.S. Holder’s holding period or subject to an interest charge, gain on the sale of common shares will be characterized as capital gain and the denial of basis step-up at death described above would not apply. Instead, each such U.S. Holder is required for each taxable year that our company is a qualified electing fund to include in income a pro rata share of the ordinary earnings of our company as ordinary income and a pro rata share of the net capital gain of our company as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. Consequently, in order to comply with the requirements of a QEF election, a U.S. Holder must receive from our company certain information. We intend to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election in the event our company is classified as a passive foreign investment company. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service.  A shareholder makes a QEF election by attaching a completed IRS Form 8621 (including the passive foreign investment company annual information statement) to a timely filed

54

United States federal income tax return and by filing such form with the IRS Service Center in Philadelphia, Pennsylvania. Even if a QEF election is not made, a shareholder in a passive foreign investment company who is a U.S. Holder must file a completed IRS Form 8621 every year.

As an alternative to making a QEF election, a U.S. Holder may elect to make a mark-to-market election with respect to the common shares owned by him. If the mark-to-market election were made, then the rules set forth above would not apply for periods covered by the election. Under such election, a U.S. Holder includes in income each year an amount equal to fair market value of the common shares owned by such U.S. Holder as of the close of the taxable year over the U.S. Holder’s adjusted basis in such shares. The U.S. Holder would be entitled to a deduction for the excess, if any, of such U.S. Holder’s adjusted basis in his common shares over the fair market value of such shares as of the close of the taxable year; provided however, that such deduction would be limited to the extent of any net mark-to-market gains with respect to the common shares included by the U.S. Holder under the election for prior taxable years. The U.S. Holder’s basis in his common shares is adjusted to reflect the amounts included or deducted pursuant to this election. Amounts included in income pursuant to the mark-to-market election, as well as gain on the sale or exchange of the common shares, will be treated as ordinary income. Ordinary loss treatment applies to the deductible portion of any mark-to-market loss, as well as to any loss realized on the actual sale or exchange of the common shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect to such common shares.

The mark-to-market election applies to the tax year for which the election is made and all later tax years, unless the common shares cease to be marketable or the IRS consents to the revocation of the election.

We do not believe our company was a passive foreign investment company during 2003. However, there can be no assurance that our company will not be classified as a passive foreign investment company in 2004 or thereafter because the tests for determining passive foreign investment company status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. U.S. Holders who hold common shares during a period when our company is a passive foreign investment company will be subject to the foregoing rules, even if our company ceases to be a passive foreign investment company, subject to certain exceptions for U.S. Holders who made a QEF election. U.S. Holders are urged to consult with their own tax advisors about making a QEF election or mark-to-market election and other aspects of the passive foreign investment company rules.

Back-Up Withholding and Information Reporting

U.S. Holders generally are subject to information reporting requirements and back-up withholding with respect to dividends paid in the United States on common shares, or proceeds paid from the disposition of common shares, unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption.

The amount of any back-up withholding will be allowed as a credit against a U.S. Holder’s federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the IRS.

F.Dividends and Paying Agents

Not applicable.

G.Statements by Experts

Not applicable.

H.Documents on display.

We have filed this Annual Report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Statements made in this Annual Report as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete

55

description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission.  Reports and other information which we file with the Securities and Exchange Commission, including this Annual Report on Form 20-F, may be inspected and copied at the public reference facilities of the Securities and Exchange Commission at:

450 Fifth Street N.W.
Room 1024
Washington D.C.  20549 500 West Madison Street
Suite 1400
Chicago, Illinois 60661

You can also obtain copies of this material by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.  Additionally, copies of this material may also be obtained from the Securities and Exchange Commission’s Internet site at http://www.sec.gov.  The Commission’s telephone number is 1-800-SEC-0330.

I.Subsidiary Information.

Not applicable.

ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

(a)Quantitative Information about Market Risk

See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk.

(b)Qualitative Information about Market Risk

See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk.

ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES

Not applicable.

PART II

ITEM 13 - - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

There were no material modifications to the rights of our security holders during the fiscal year ended December 31, 2003.

ITEM 15 – CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and its Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2003.  Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

The Company’s management did not identify any change in the Company’s internal control over financial

56

reporting that occurred during the Company’s last fiscal year that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 16A – AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s Board of Directors has determined that it has at least one audit committee financial expert serving on its audit committee.  The Board of Directors has determined that Darroch Robertson is an audit committee financial expert.  Mr. Robertson has been an Associate Professor of Business at the Richard Ivey School of Business, The University of Western Ontario, for the past five years. He is also the Director of the undergraduate HBA program at the Ivey School. Mr. Robertson is a director and chair of the audit committee of Stackpole Ltd., a TSX-listed company. Mr. Robertson is also an elected member of council for the Institute of Chartered Accountants of Ontario, where he currently serves on the audit committee and by-laws committee

ITEM 16B – CODE OF ETHICS

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions. The Code of Ethics is attached as an exhibit to this report.

ITEM 16C – PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services rendered by our auditors for the audit of our annual financial statements and other services.

FEES OF AUDITORS

Year	Audit Fees(1)		Review Fees(2)		Tax Fees(3)		Other Fees(4)
2002	$	184,500	$	54,000	$	31,203	$	18,190
2003	$	160,000	$	66,000	$	71,450	$	18,750

(1)Audit Fees represent costs associated with the audit of the Company’s financial statements including U.S. GAAP and U.S. GAAS.

(2)Review Fees represent costs associated with reviews of the Company’s quarterly financial press releases and shareholders reports.

(3)Tax Fees represent costs associated with the preparation of the Company’s annual tax filings.

(4)Other fees represent costs associated with the review and recommended accounting treatment related to complicated contracts or arrangements.

ITEM 16D – EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

PART III

ITEM 17- FINANCIAL STATEMENTS

Not applicable.

ITEM 18 - FINANCIAL STATEMENTS

See the Index to Consolidated Financial Statements accompanying this report on page F-1.

57

ITEM 19 - - EXHIBITS

Exhibits filed as part of this Annual Report.

1.1	Articles of Arrangement of the Company filed with the Ontario Ministry of Consumer and Business Services on October 31, 2002. (1)
1.2	By-laws of the Company. (2)
2.1	Form of Series D Note. (6)
2.2	Registration Rights Agreement, dated as of June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd. (4)
2.3	Form of Series G Convertible Secured Note.*
2.4	Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc. (5)
2.5	Warrant issued April 25, 2002 to Stonestreet Corporation by ADB Systems International Inc. (5)
2.6	Form of Warrant issued or issuable upon the exercise of the Series A Notes, Series B Notes, Series C Notes and Series D Notes. (6)
2.7	Series F Convertible Secured Note dated May 19, 2004 between ADB Systems International Ltd. and Stonestreet Limited Partnership.*
2.8	Form of Warrant issued or issuable upon exercise of the Series F Notes.*
4.1	Salary Protection Letter, dated February 12, 1997, between the Company and Jeffrey Lymburner. (3)
4.2	Option Agreement dated February 19, 2001 between Bid.Com International Inc. and Wendell Willick. (5)
4.3	Amendment to Option Agreement dated May 2, 2001 between Bid.Com International Inc. and Wendell Willick. (5)
4.4	Board Support Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and ADB Systemer ASA. (5)
4.5	Board Representation Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and LimeRock Partners LLC, Jan Pedersen, Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik. (5)
4.6	Employment Agreement, dated as of September 18, 2001 between Bid.Com International Inc. and Jan Pedersen.(5)
4.7	Subscription Agreement, dated as of April 25, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership. (5)
4.8	Arrangement Agreement, dated as of August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd. (1)
4.9	General Conveyance and Assumption Agreement, dated August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd. (2)
4.10	Loan Agreement, dated August 23, 2002, and Loan Agreement Amending Agreement entered into as of August 30, 2002 among The Brick Warehouse Corporation, ADB Systems International Inc., and ADB Systems International Ltd. (6)
4.11	Form of Supply Services and Licensing Agreement, dated August 23, 2002, among The Brick Warehouse Corporation, ADB Systems International Inc., and ADB Systems International Ltd. (6)
4.12	Form of General Security Agreement, dated as of April 30, 2002, between ADB Systems International Inc. and each of Stonestreet Limited Partnership and Greenwich Growth Fund Ltd. (6)

58

4.13	Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership. (6)
4.14	Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Greenwich Growth Fund Ltd. (6)
4.15	Co-operation Agreement made as of August 23, 2002 between ADB Systems International Inc., ADB Systems International Ltd. and The Brick Warehouse Corporation. (6)
4.16	Agency Agreement dated June 15, 2004 between ADB Systems International Ltd. and First Associates Investments Inc.*
4.17	General Security Agreement, dated as of May 19, 2004 between ADB Systems International and Stonestreet Limited Partnership.*
4.18	Subscription Agreement, dated June 3, 2004, between ADB Systems International and First Associates Investments Inc.*
4.19	Subscription Agreement, dated June 1, 2004, between ADB Systems International and First Associates Investments Inc.*
4.20	Subscription Agreement, dated May 19, 2004, between ADB Systems International and Stonestreet Limited Partnership.*
8.1	List of Subsidiaries.*
10.1	Certification pursuant to 18 U.S.C. Section 1350.*
11.1	Code Of Ethics for ADB Systems International Ltd.*

*	Filed herewith
(1)	Incorporated by reference from Exhibit 1 to the Company’s Current Report on Form 6-K, Filing No. 1 for the Month of November 2002, filed with the Securities and Exchange Commission on November 5, 2002.
(2)	Incorporated by reference from Exhibit 1.2 of Amendment No. 1 to the Company’s Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999.
(3)	Incorporated by reference from Exhibit 3.27 of Amendment No. 1 to the Company’s Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999.
(4)	Incorporated by reference from the Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 23, 2001.
(5)	Incorporated by reference from the Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 17, 2002.
(6)	Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 20, 2003.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

59

	ADB SYSTEMS INTERNATIONAL INC.
	By:		/s/ Jeffrey Lymburner
		Name:		Jeffrey Lymburner
		Title:		Chief Executive Officer
Dated: June 29, 2004	By:		/s/ Michael Robb
		Name:		Michael Robb
		Title:		Chief Financial Officer and
				Corporate Secretary

60

Certification

I, Jeffrey Lymburner, certify that:

1.  I have reviewed the annual report on Form 20-F of ADB Systems International 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 officers 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) not applicable;

c) 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

d) 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 officers 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.

Dated:  June 29, 2004	/s/ Jeffrey Lymburner
	Jeffrey Lymburner
	Chief Executive Officer

61

Certification

I, Michael Robb, certify that:

1.  I have reviewed this annual report on Form 20-F of ADB Systems International 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 officers 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) not applicable;

c) 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

d) 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 officers 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.

Dated:  June 29, 2004	/s/  Michael Robb
	Michael Robb
	Chief Financial Officer

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001
Report of Independent Registered Chartered Accountants	F-1
Consolidated Balance Sheets as at December 31, 2003 and 2002	F-3
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001	F-5
Consolidated Statements of Deficit for the years ended December 31, 2003, 2002 and 2001	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001	F-7
Notes to Consolidated Financial Statements	F-8

Management’s Report

Preparation of the consolidated financial statements accompanying this annual report and the presentation of all other information in this report is the responsibility of management.  The financial statements have been prepared in accordance with appropriate and generally accepted accounting principles and reflect management’s best estimates and judgments.  All other financial information in the report is consistent with that contained in the financial statements.  The Company maintains appropriate systems of internal control, policies and procedures which provide management with reasonable assurance that assets are safeguarded and that financial records are reliable and form a proper basis for preparation of financial statements.

The Board of Directors ensures that management fulfills its responsibilities for financial reporting and internal control through an Audit Committee which is composed of non-executive directors. The Audit Committee reviewed the consolidated financial statements with management and external auditors and recommended their approval by the Board of Directors.  The consolidated financial statements have been audited by Deloitte & Touche LLP, Chartered Accountants.  Their report stating the scope of their audit and their opinion on the consolidated financial statements is presented below.

Jeff Lymburner	Michael Robb
CEO	Chief Financial Officer

Report of Independent Registered Chartered Accountants

We have audited the consolidated balance sheets of ADB Systems International Ltd. as at December 31, 2003 and 2002, and the consolidated statements of operations, deficit and cash flows for each of the three years in the period ended December 31, 2003.  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 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.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Toronto, Ontario, Canada

February 6, 2004 (except for Notes 2 and 23 which are as of May 11, 2004)

F-1

Comments by Auditors on Canada – United States Reporting Differences

United States reporting standards for auditors require the addition of an explanatory paragraph following the opinion paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 2 to the financial statements.  Although we conducted our audits in accordance with both Canadian and United States generally accepted auditing standards, our report to the Shareholders dated February 6, 2004 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the financial statements.

Chartered Accountants

Toronto, Ontario, Canada

February 6, 2004 (except for Notes 2 and 23 which are as of May 11, 2004)

F-2

Consolidated Balance Sheets

December 31, 2003 and 2002

(in thousands of Canadian dollars)

	2003			2003			2002
				Convenience Translation into U.S. $ (Note 24)
ASSETS
CURRENT
Cash	$	432		$	335		$	1,337
Marketable securities	13			10			20
Accounts receivable	1,384			1,073			1,828
Deposits and prepaid expenses	118			91			178
	1,947			1,509			3,363
CAPITAL ASSETS (Note 4)	266			206			443
ACQUIRED SOFTWARE (Note 16)	846			656			1,974
DEFERRED CHARGES (NET) (Note 5)	—			—			513
ACQUIRED AGREEMENTS (Note 17(a))	150			116			57
TRADEMARKS AND INTELLECTUAL PROPERTY (NET)	2			1			5
	$	3,211		$	2,488		$	6,355
LIABILITIES
CURRENT
Accounts payable	$	700		$	543		$	1,059
Accrued liabilities	670			519			1,229
Current portion of deferred revenue	91			71			832
Demand loan (Notes 6 and 19(a))	—			—			2,000
	1,461			1,133			5,120
SECURED SUBORDINATED NOTES (Note 7)	721			559			34
	2,182			1,692			5,154
NON-CONTROLLING INTEREST	3			2			3
COMMITMENTS AND CONTINGENCIES (Notes 2 and 11)
SHAREHOLDERS’ EQUITY
Share capital (Note 9(b))	97,674			75,716			95,633
Contributed surplus (Note 9(d))	1,289			999			—
Warrants (Note 9(d))	324			251			1,599
Stock options (Note 9(c))	898			696			706
Conversion feature on secured subordinated notes (Note 7)	497			385			175
Cumulative translation account	106			82			32
Deficit	(99,762		)	(77,335		)	(96,947		)
	1,026			794			1,198
	$	3,211		$	2,488		$	6,355

F-3

ON BEHALF OF THE BOARD
/s/ T. Christopher Bulger	Director	/s/ Darroch Robertson	Director

F-4

Consolidated Statements of Operations

Years ended December 31, 2003, 2002 and 2001

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

	2003			2003			2002			2001
				Convenience translation into U.S. $ (Note 24)
Revenue	$	5,853		$	4,537		$	5,780		$	4,455
Less: Customer acquisition costs	—			—			—			(60		)
Net revenue (Note 21)	5,853			4,537			5,780			4,395
General and administrative	4,648			3,603			6,288			7,622
Sales and marketing	1,098			851			1,875			4,040
Software development and technology	2,817			2,183			4,101			3,691
Employee stock options (Note 9(j))	193			150			—			—
Depreciation and amortization	1,901			1,474			2,602			1,572
Interest expense	289			224			200			—
Interest income	(9		)	(7		)	(45		)	(345		)
	10,937			8,478			15,021			16,580
Loss before the undernoted	(5,084		)	(3,941		)	(9,241		)	(12,185		)
Realized gain on settlement of demand loan (Note 6)	2,195			1702			—			—
Realized gains and losses on disposal of marketable securities, strategic investments and capital assets and recovery of assets (Note 14)	7			5			(85		)	6,722
Unrealized gains and losses on revaluation of marketable securities and strategic investments, and provision for impairment of assets (Note 15)	—			—			(24		)	(2,435		)
Goodwill impairment (Note 18)	—			—			(14		)	(9,476		)
Restructuring charges	—			—			—			(959		)
Retail activities settlement (Note 13)	67			52			—			(381		)
	2,269			1,759			(123		)	(6,529		)
NET LOSS FOR THE YEAR	$	(2,815	)	$	(2,182	)	$	(9,364	)	$	(18,714	)
LOSS PER SHARE (Note 9(i))	$	(0.05	)	$	(0.04	)	$	(0.22	)	$	(0.64	)

F-5

Consolidated Statements of Deficit

Years ended December 31, 2003, 2002 and 2001

(in thousands of Canadian dollars)

	2003			2003			2002			2001
				Convenience Translation into U.S. $ (Note 24)
DEFICIT, BEGINNING OF YEAR	$	(96,947	)	$	(75,153	)	$	(87,583	)	$	(68,869	)
NET LOSS FOR THE YEAR	(2,815		)	(2,182		)	(9,364		)	(18,714		)
DEFICIT, END OF YEAR	$	(99,762	)	$	(77,335	)	$	(96,947	)	$	(87,583	)

F-6

Consolidated Statements of Cash Flows

Years ended December 31, 2003, 2002 and 2001

(in thousands of Canadian Dollars)

	2003			2003			2002			2001
				Convenience Translation into U.S. $ (Note 24)
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES
OPERATING
Net loss for the year	$	(2,815	)	$	(2,182	)	$	(9,364	)	$	(18,714	)
Items not affecting cash
Depreciation and amortization	1,901			1,474			2,602			1,572
Non cash customer acquisition costs	38			29			—			60
Non cash interest expense	239			185			108			—
Employee stock options	193			150			—			—
Stock compensation to third parties	—			—			25			115
Realized gain on settlement of demand loan (Note 6)	(2,195		)	(1,702		)	—			—
Realized gains and losses on disposal of marketable securities, strategic investments and capital assets, and recovery of assets (Note 14)	(7		)	(5		)	85			(6,722		)
Unrealized gains and losses on revaluation of marketable securities and strategic investments, and provision for impairment of assets (Note 15)	—			—			24			2,435
Goodwill impairment (Note 18)	—			—			14			9,476
	(2,646		)	(2,051		)	(6,506		)	(11,778		)
Changes in non cash operating working capital (Note 12)	(728		)	(564		)	61			(2,917		)
	(3,374		)	(2,615		)	(6,445		)	(14,695		)
INVESTING
Capital assets	(45		)	(35		)	(43		)	(317		)
Strategic investments	—			—			—			(328		)
Capitalized software, trademarks and intellectual property	—			—			(7		)	(5		)
Marketable securities	8			6			1,556			10,142
Proceeds from disposal of capital assets	34			26			167			—
Acquisition of ADB Systemer ASA (Note 16)	—			—			—			(2,244		)
Proceeds from disposal of joint venture and strategic investments (Note 14(a) and (e))	20			16			126			2,706
Purchase of non-controlling interest	—			—			(14		)	—
	17			13			1,785			9,954
FINANCING
Issuance of common shares for cash (Note 9(d) and (e)(i))	1,458			1,130			1,506			—
Repayment of capital lease	—			—			(42		)	(65		)
Secured subordinated notes (Note 7)	994			770			1,000			—
Deferred charges (Note 5)	—			—			(1,024		)	—
Demand loan (Note 6)	—			—			2,000			—
	2,452			1,900			3,440			(65		)
NET CASH OUTFLOW DURING THE YEAR	(905		)	(702		)	(1,220		)	(4,806		)
CASH, BEGINNING OF YEAR	1,337			1,037			2,557			7,363
CASH, END OF YEAR	$	432		$	335		$	1,337		$	2,557
SUPPLEMENTAL DISCLOSURE
Interest expense	$	48		$	37		$	24		$	—
Income taxes	$	—		$	—		$	—		$	—

See notes to consolidated financial statements.

F-7

Notes to the Consolidated Financial Statements - Years ended December 31, 2003, 2002 and 2001 (in Canadian dollars)

1.DESCRIPTION OF BUSINESS

ADB Systems International Ltd. (“ADB” or the “Company”) delivers asset lifecycle management solutions that enable companies to source, manage and sell assets for maximum value.  ADB works with a growing number of customers and partners in a variety of sectors including the asset-intensive oil and gas industry to improve operational efficiencies.  ADB also enables customers in government, manufacturing and financial services sectors to reduce purchasing costs and improve procurement processes.

ADB Systems International Ltd. was created on August 30, 2002.  Upon implementation of a special resolution of the shareholder of the Company and shareholders of ADB Systems International Inc. (“Old ADB”, formerly Bid.Com International Inc. (“Bid.Com”)), pursuant to Section 182 of the Business Corporations Act (Ontario), the shareholders of Old ADB exchanged their shares for shares of the Company on a one-for-one basis on October 22, 2002.  All assets and liabilities of Old ADB, other than those related to retail activities (Note 13) were transferred to the Company on that date in the form of a return of capital.  ADB Systems International Ltd. conducted no activities prior to October 22, 2002.  Old ADB subsequently changed its name to Bid.Com International Ltd. (“Bid.Com Ltd.”).

These consolidated financial statements reflect the financial position of the Company as at December 31, 2003 and 2002, and results of its operations and its cash flows subsequent to October 22, 2002, and the financial position of Old ADB as at December 31, 2001 and results of operations and of cash flows of Old ADB for the 2002 period prior to October 22, 2002 and the year ended December 31, 2001 based upon continuity of interests accounting as no substantive change of ownership occurred.

Bid.Com was an on-line auction service provider and e-tailer.  During 2000, the Company refocused its business model to become an on-line enabling service to other businesses seeking to use its on-line retailing technologies.  The Company provides businesses with the use of its software and hardware technology over a specific term in addition to consulting, implementation, and training services.  In October 2001, Bid.Com acquired ADB Systemer ASA (“ADB Systemer”), a Norway-based software vendor of enterprise asset management and electronic procurement applications.  The Company changed its name to ADB Systems International Inc. to reflect its expanded product offering.

2.CONTINUATION OF THE BUSINESS

While the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations, certain adverse conditions and events cast substantial doubt upon the validity of this assumption. The Company has not yet realized profitable operations and has relied on non-operational sources of financing to fund operations.  The Company’s ability to continue as a going concern will be dependent on management’s ability to successfully execute its business plan including an increase in revenue and seeking additional forms of debt or equity financing.  Additional debt or equity financings such as issuance of loans or debentures, issuance of shares, conversion of warrants and exercise of options in the amount of $3.7 million are estimated to be required for 2004.  The Company cannot provide assurance that efforts to raise such additional financings will be successful.

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

Management believes that continued existence beyond 2004 is dependent on its ability to increase revenue from existing products, and to expand the scope of its product offering which entails a combination of internally developed software and partnerships with third parties.

F-8

3.SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada, which are substantially the same as generally accepted accounting principles in the United States (U.S. GAAP), except as disclosed in Note 20.  The accompanying consolidated financial statements are prepared using accounting principles applicable to a going concern, which assumes that the Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its liabilities in the normal course of operations (see Note 2).

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and subsidiaries over which it exercises control and its proportionate share of the assets, liabilities, revenue and expenses of a jointly controlled company during the period of ownership, September 1999 to May 2001.  Business acquisitions are accounted for under the purchase method and operating results are included in the consolidated financial statements as of the date of the acquisition of control.  All material intercompany transactions have been eliminated.

INVESTMENT IN ASSOCIATED COMPANY

The investment in associated company was accounted for under the equity method (see Note 19(a)).  This method was considered appropriate based upon management’s evaluation of its ability to determine the strategic operating policies of the associated company without the cooperation of others, its ability to obtain future economic benefits from the associated company, and its exposure to the related risks of ownership.  U.S. GAAP required consolidation of the investment in associated company.  The impact of this difference in U.S. GAAP from Canadian GAAP is disclosed in these financial statements in Note 20 – Reconciliation of United States GAAP.

MARKETABLE SECURITIES

Marketable securities include registered equity instruments, all of which are carried at the lower of cost and quoted market value.  Net unrealized losses on marketable securities related to an impairment, determined to be other than temporary in nature, are determined on the specific identification basis and are included in the Consolidated Statements of Operations.  Marketable securities also include interest-bearing certificates carried at cost plus accrued interest which approximate market value.

CAPITAL ASSETS AND AMORTIZATION

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

Computer hardware	3 years
Computer software and licenses	1 year or life of the license
Furniture and fixtures	5 years
Building	20 years
Leasehold improvements	life of the lease

STRATEGIC INVESTMENTS

Strategic investments are carried at the lower of cost and estimated net realizable value.  Management has assessed the carrying value of the investments and recorded an impairment provision based on management’s best estimate of net realizable value.

SOFTWARE DEVELOPMENT COSTS

The cost of non-core software internally developed for client applications through e-commerce enabling agreements and software licensing is expensed as incurred.  The cost of core software internally developed for client applications through e-commerce enabling agreements is capitalized and is amortized over two years.  The cost of core software internally developed for software licensing contracts is expensed as incurred.  The cost of acquired software and internally developed software for use in on-line retail operations is expensed as incurred.

F-9

ACQUIRED SOFTWARE

The cost of core software acquired as a result of the acquisition of ADB Systemer ASA has been capitalized and is amortized over three years, the estimated useful life of the software.

ACQUIRED AGREEMENTS

Acquired agreements have been capitalized based on the estimated fair value of common share purchase warrants issued in exchange for entering into certain agreements and are amortized over the initial term of the agreements.  The fair value of these warrants is calculated based on the Cox-Rubinstein binomial valuation model.

TRADEMARKS AND INTELLECTUAL PROPERTY

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

GOODWILL

In 2001, the Company adopted the provisions of the Canadian Institute of Chartered Accountants Handbook sections 1581 and 3062, whereby the purchase price of an acquired business is allocated to all assets and liabilities, including identifiable intangible assets, based on their fair values.  Any purchase price in excess of those fair values is recorded as goodwill.  Goodwill must be tested annually for impairment on a fair value basis, and where the carrying value exceeds fair value, a goodwill impairment loss must be recorded.  This accounting policy became effective January 1, 2002 with a transition provision beginning July 1, 2001.  Management assessed the carrying value of the goodwill arising from the acquisition of ADB Systemer, and determined that a permanent decline had occurred in the fair value of goodwill at December 31, 2001 based on estimated future cash flows from the business acquired.

TRANSLATION OF FOREIGN CURRENCIES

The accompanying consolidated financial statements are prepared in Canadian dollars.  All foreign denominated transactions, other than those of self-sustaining subsidiaries, are translated using the temporal method whereby monetary assets and liabilities are translated at the rates in effect on the balance sheet date, non-monetary items at historical rates and revenue and expenses at the average monthly rate.  Gains and losses from foreign exchange translations are included in the statements of operations.

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

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

LOSS PER SHARE

On January 1, 2001, the Company adopted the provisions of The Canadian Institute of Chartered Accountants Handbook section 3500, “Earnings per Share,” whereby the treasury stock method of calculating diluted earnings per share is used.  For the years presented, all stock options, convertible debentures and warrants are anti-dilutive, therefore diluted loss per share is equal to basic loss per share.  The basic loss per share calculation is based on the weighted average number of shares outstanding during the year.

F-10

REVENUE RECOGNITION

a) License and related services agreements

The Company has agreements to provide software licenses for client-server-based software applications.  The Company adopted the provisions of Statement of Position 97-2 “Software Revenue Recognition,” and Statement of Position 98-9 “Software Revenue Recognition With Respect to Certain Transactions,” in its accounting for revenue recognition on delivery of software licenses.  Revenue is recognized on physical delivery for software licenses when undelivered elements are not essential to the functionality of the license. When software licenses are delivered and require additional elements essential to the functionality of the license, such as consulting and implementation services, license revenue is recognized on a percentage of completion basis until all services requisite to the functionality of the license have been delivered and vendor- specific objective evidence of the fair value of each component exists.  Software licenses are granted for an indefinite term.

The Company has agreements to provide maintenance, support, and training services.  Revenue from maintenance and support agreements is recognized over the term of the agreement.  Revenue from training services is recognized when these services are provided.

The Company also has agreements that principally include the provision of a software license, but also contain additional deliverable elements, such as the provision of upgrades and hosting services. For these contracts, where vendor-specific objective evidence criteria for independent recognition of revenue elements do not exist, revenue is recognized over the term of the agreement or three years when a revenue sharing arrangement exists. Revenue from net revenue sharing arrangements is recorded as received.

b) E-commerce enabling agreements

The Company has agreements where it has become an e-commerce enabler to various businesses.  The Company adopted the provisions of Statement of Position 97-2, “Software Revenue Recognition,” issued by the American Institute of Certified Public Accountants in its accounting for multiple element e-commerce enabling agreements.  The Company’s multiple element e-commerce enabling agreements are comprised of revenue for providing consulting, implementation, training, and hosting services.  Revenue from individual elements of each contract is recognized when vendor-specific objective evidence exists to determine the fair value of individual contract elements.  When vendor-specific objective evidence exists, consulting, implementation, and training elements are recognized on a percentage of completion basis and the hosting element is recognized ratably over the term of the contract.  In the absence of vendor-specific objective evidence, the Company defers and amortizes all revenue from individual contract elements ratably over the term of the contract.

c) Sale of retail products and related activities

Revenue from product sales, commission, shipping, and handling was recognized when goods were shipped to customers.  The Company curtailed its on-line retail operations in October 2000.  During 2002, the non-consolidated investee, Bid.Com Ltd. resumed on-line retail activities (Note 19(a)).

DEFERRED REVENUE

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

CUSTOMER ACQUISITION COSTS

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

DEFERRED CHARGES

Deferred charges are comprised of expenditures incurred in obtaining a demand loan and the issuance of secured subordinated notes.  The expenditures relating to the demand loan are amortized over the term of the loan on a straight-line basis; expenditures relating to the subordinated notes were recorded as a reduction to the equity component of those notes.

F-11

SECURED SUBORDINATED NOTES

Financial instruments that contain both a liability and an equity element are required to have the instrument’s component parts classified separately under Canadian GAAP.  The Company uses the Cox-Rubinstein binomial valuation model to determine the fair value of the conversion feature at the issue dates of convertible secured subordinated notes and discloses the liability and equity components separately on its balance sheet.  United States GAAP does not permit separate disclosure of different elements of a financial instrument in the financial statements.  The impact of this difference in United States GAAP from Canadian GAAP is disclosed in the notes to these financial statements under Reconciliation of U.S. GAAP (Note 20).

STOCK-BASED COMPENSATION

The Canadian Institute of Chartered Accountants issued Handbook section 3870, “Stock-based Compensation and Other Stock-based Payments,” effective January 1, 2002.  During the fourth quarter of fiscal 2003, the Company elected to adopt the fair value method for stock-based compensation on a prospective basis.  As a result, the annual financial statements reflect the cost of stock-based compensation to employees effective January 1, 2003.  The impact of this standard is disclosed in Note 9 to the financial statements.  The impact of Statement of Financial Accounting Standards (SFAS) 123, “Accounting for Stock-Based Compensation,” is disclosed in the notes to these financial statements under Reconciliation of U.S. GAAP (Note 20).

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

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

INCOME TAXES

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

USE OF SIGNIFICANT ACCOUNTING ESTIMATES

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

4.CAPITAL ASSETS

	2003						2002
	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
	(in thousands)
Computer hardware	$	2,588	$	2,428	$	160	$	2,659	$	2,423	$	236
Computer software	28		—		28		—		—		—
Furniture and fixtures	411		333		78		465		268		197
Leasehold improvements	151		151		—		151		141		10
	$	3,178	$	2,912	$	266	$	3,275	$	2,832	$	443

F-12

5.DEFERRED CHARGES

During 2002, the Company incurred $874,000 of expenditures in obtaining a demand loan (Note 6).  These expenditures were amortized on a straight-line basis over the term of the loan, which matured on June 30, 2003.  In 2002, the Company also incurred financing costs of $150,000 in obtaining convertible debt financing (Note 7).  In 2003, deferred charges were reduced by an amortization expense of $513,000 with a reduction of $511,000 occurring in 2002 comprised of an amortization expense of $361,000 and a reduction to the equity component of the secured notes of $150,000.

6.DEMAND LOAN

During the year ended December 31, 2002, the Company entered into a series of agreements which resulted in the completion of a series of transactions (collectively the “Transaction”) whereby the Company received a secured demand loan in the aggregate principal amount of $2,000,000.  The loan carried an interest rate of 12 percent compounded monthly, and was secured by a general security agreement on the assets of the Company and a pledge of the shares of the Company’s Norwegian subsidiary.  The loan matured on June 30, 2003.  The Company could, at its discretion, repay the loan in cash or transfer to the lender 100 percent of the issued shares of its investment in an associated company in full settlement of the outstanding principal amount and accrued interest then owing to the lender (Note 19(a)).

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

7.SECURED SUBORDINATED NOTES

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

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

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

F-13

b) During the year ended December 31, 2002, the Company issued a total of $1.12 million in principal of secured subordinated notes (collectively the “Notes”) in four series.  Series A, B, and C notes were issued to Stonestreet and Series D notes were issued to private investors including directors and/or senior officers.  Series A, B, and D notes are due December 31, 2004, at an interest rate of 8 percent.  Series C notes are due December 31, 2004, and bear interest at 8 percent only from and after maturity or in an event of default.  On October 22, 2002, after obtaining shareholder approval, Series A, B, and D notes became convertible into equity units at $0.12 per unit at the option of the holder.  Each Series A, B, and D equity unit consists of one common share and one-half common share purchase warrant, with each whole warrant exercisable into one common share at $0.14.  Series C notes also became convertible into common shares at a conversion price of $0.12 per share at the option of the holder or at the option of the Company.

The Company issued $120,000 in Series C notes in exchange for the waiver of certain US registration rights granted to Stonestreet pursuant to a subscription agreement dated April 25, 2002.  Accordingly, the Company has recorded the issuance of the Series C notes as secured subordinated notes in shareholders’ equity. 

The Series D secured subordinated notes included $135,000 issued to four directors or senior officers of the Company.

As part of this private placement, the Company issued 150,000 common share purchase warrants to an associate of Stonestreet in partial consideration for securing such placement and for due diligence services.  Each such warrant entitles the holder to purchase one common share of the Company for $0.14 at any time up to and including December 31, 2004.

As required by Canadian GAAP, the Company has separated the liability and equity components of the Series A, B, and D secured subordinated notes.  Using the Cox-Rubinstein binominal valuation model, the Company has determined the fair value of the conversion feature and attached warrants at the issue dates of the secured subordinated notes.  The fair values of the conversion feature of the units, comprised of shares attached, warrants and liability components of the secured subordinated notes issued were $636,000, $300,000 and $64,000 respectively.  The $64,000 liability component will be accreted to $1 million over the term of the Series A, B, and D notes through the recording of non cash interest expense until such date at which the underlying notes are converted into common shares or mature.

In fiscal 2002, the Company incurred $150,000 of costs associated with the issuance of the Series A, B and D secured subordinated notes, which was recorded as a reduction of the equity component of these notes.

c) The following summarizes the nominal and fair values of the liability and equity components of the Series A through E secured subordinated notes.

Secured subordinated notes

	2003						2002
	Nominal Value			Fair Value			Nominal Value			Fair Value
	(in thousands)
Opening balance	$	205		$	34		$	—		$	—
Issuance of notes	1,000			596			1,120			64
Non-cash interest	—			112			—			21
Conversion of notes	(90		)	(21		)	(915		)	(51		)
Closing balance	$	1,115		$	721		$	205		$	34

F-14

Conversion features on secured subordinated notes including conversion features of attached warrants

	2003					2002
	Common Shares		Fair Value			Common Shares		Fair Value
	(in thousands)
Opening balance	2,562		$	175		—		$	—
Issuance of notes	4,286		398			13,500		936
Conversion of notes	(1,125	)	(76		)	(10,938	)	(761		)
Closing balance	5,723		$	497		2,562		$	175

8.INCOME TAXES

The Company adopted accounting for income taxes under the liability method.  Under the liability method, a future tax asset is recorded based upon tax losses carried forward and differences in tax and accounting values in the Company’s assets and liabilities.  The tax asset is reduced by a valuation allowance to the extent that it is more likely than not that the asset would not be realized.  The valuation allowance will be reviewed and adjusted as appropriate for each reporting period.  At December 31, 2003 and 2002, the Company established the valuation allowance at 100 percent of the future tax asset.

	2003			2002
	(in thousands)
FUTURE TAX ASSET
Tax losses carried forward	$	3,229		$	4,215
Difference in tax and accounting valuations for capital assets and investments	55			(305		)
	3,284			3,910
Valuation allowance	(3,284		)	(3,910		)
Future tax asset	$	—		$	—
PROVISION FOR INCOME TAXES
Income taxes at statutory rate	$	(467	)	$	(2,781	)
Adjustments to loss	(316		)	—
Net reduction in tax rates	(896		)	—
Reduction to valuation allowance on future tax asset	1,212			—
Tax losses carried forward	226			2,665
Difference in tax and accounting valuations for capital assets and investments	360			111
Permanent differences for tax and accounting income	(119		)	5
Provision for income taxes	$	—		$	—

F-15

Tax Loss Carryforwards at December 31, 2003 expire as follows:

	(in thousands)
2009	$	3,157
2010	3,424
2011	1,116
2012	966
2013	282
Tax loss carryforwards that do not expire (a)	4,581
	$	13,526

(a)Under Irish local tax laws, tax loss carryforwards do not expire.

9.SHARE CAPITAL

a)AUTHORIZED

Unlimited number of common shares

Unlimited number of preference shares – issuable in series

b)COMMON SHARES

	2003			2002
	Number	Amount		Number	Amount
	(in thousands of shares and dollars)
Opening balance	50,140	$	95,633	38,185	$	93,568
Shares issued pursuant to:
Exercise of options	39	12		30	11
Private placement	5,181	1,254		3,300	945
Exercise of warrants	3,313	703		1,000	550
Conversion of debentures	750	72		7,625	559
Closing balance	59,423	$	97,674	50,140	$	95,633

The conversion of the remaining secured subordinated notes would result in the issuance of 958,000 (2002 – 1,708,000) common shares for Series A, B and D notes, and 2,857,000 (2002 – Nil) common shares for Series E notes.

F-16

c)STOCK OPTIONS

The Canadian Institute of Chartered Accountants issued Handbook section 3870, “Stock-based Compensation and Other Stock-based Payments,” effective January 1, 2002.  During the fourth quarter of fiscal 2003, the Company elected to adopt the fair value method for stock-based compensation on a prospective basis. As a result, the annual financial statements reflect the stock-based compensation expense to employees effective January 1, 2003.

(i)Stock options are comprised of the following components:

	2003			2002
	Number	Amount		Number	Amount
	(in thousands of options and dollars)
Employees	2,645	$	782	2,793	$	590
Non-employees	27	116		253	116
Total	2,672	$	898	3,046	$	706

(ii)The Company has a stock option plan which provides for the issuance of stock options to employees, which may expire as much as 10 years from the date of grant, at prices not less than the fair market value of the common shares on the date of grant.  The aggregate exercise price for employee options outstanding at December 31, 2003 was approximately $1.8 million (2002 – $5.2 million).  The Management Resources and Compensation Committee of the Board of Directors reserves the right to attach vesting periods to stock options granted.  Certain of the stock options outstanding at the end of 2003 are exercisable immediately, while the remainder have vesting periods attached which range from six months to 36 months. The options expire between 2003 and 2006. 

A summary of changes in the stock option plan for the two years ended December 31, 2003 is as follows:

	Number of Options				Weighted Average Exercise Price
	2003		2002		2003		2002
	(in thousands)
Opening balance	2,793		2,884		$	1.84	$	5.19
Granted	1,095		1,299		0.37		0.43
Exercised	(39	)	(30	)	0.30		0.36
Cancelled	(1,204	)	(1,360	)	3.38		6.78
Closing balance	2,645		2,793		$	0.68	$	1.84
Exercisable, end of year	2,057		1,981		$	0.74	$	2.51
Options remaining for issuance under stock option plan	1,224		853

F-17

Range of Exercise Prices	Number Outstanding at December 31, 2003	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at December 31, 2003	Weighted Average Exercise Price
	(in thousands)				(in thousands)
$0.22-$0.33	178	2.1 years	$	0.32	178	$	0.32
$0.34-$0.51	2,266	1.4 years	$	0.40	1,686	$	0.40
$0.52-$0.78	2	1.0 years	$	0.76	2	$	0.76
$0.99-$1.48	9	0.5 years	$	1.41	7	$	1.41
$1.83-$2.74	146	0.1 years	$	2.62	146	$	2.62
$3.91-$5.86	28	0.6 years	$	5.02	28	$	5.02
$15.33-$23.00	16	0.2 years	$	23.00	10	$	23.00
	2,645				2,057

(iii)The Company also had stock options outstanding to third parties at December 31, 2003.  The aggregate exercise price for third-party stock options outstanding at December 31, 2003 was $69,000 (2002 – $730,000).  These options expire in 2004.  A summary of changes in the stock options to third parties for the two years ended December 31, 2003 is as follows: 

	Number of Options				Weighted Average Exercise Price
	2003		2002		2003		2002
	(in thousands)
Opening balance	253		289		$	2.88	$	5.13
Granted	—		2		—		0.34
Exercised	—		—		—		—
Cancelled	(226	)	(38	)	2.91		17.76
Closing balance	27		253		$	2.56	$	2.88
Exercisable, end of year	27		253		$	2.56	$	2.88

d) SHARE-PURCHASE WARRANTS

A summary of changes in the warrants issued and vested for the two years ended December 31, 2003 is as follows:

	2003					2002
	Number		Amount			Number		Amount
	(in thousands)
Opening balance	6,121		$	1,599		1,300		$	1,349
Issued to key customer (Note 9(g))	—		226			2,000		—
Issued in private equity placement (Note 9 (e))	2,733		—			1,000		—
Issued upon conversion of debt (Note 9(h))	375		27			3,313		239
Issued in lieu of fees (Note 7 and 9(e))	30		—			200		11
Cancelled (Note 9(e), (f) and (g))	(608	)	(1,289		)	(692	)	—
Exercised	(3,313	)	(239		)	(1,000	)	—
Closing balance	5,338		$	324		6,121		$	1,599

The conversion of the remaining secured subordinated notes would result in the issuance of 479,000 (2002 – 854,000) common share-purchase warrants for Series A, B and D notes, and 1,429,000 (2002 – Nil) common share-purchase warrants for Series E notes.

F-18

e) PRIVATE COMMON SHARE PLACEMENT

On June 26, 2003, the Company completed a transaction resulting in the issuance of 4,879,000 common shares at a price of $0.24 and 2,733,000 common share-purchase warrants exercisable into one common share at $0.40 for net proceeds of $1.148 million.  The warrants expire on June 26, 2005.  Included in this private placement were 2,146,000 shares issued to a director and officer of the Company for total net proceeds of $505,000.  None of the 2,733,000 warrants had been converted into common shares at December 31, 2003.

On September 19, 2003 the Company issued 302,250 shares in settlement of an account payable in the amount of $106,000.

On April 25, 2002, the Company entered into an agreement with Stonestreet for a $1.1 million private placement resulting in net proceeds of $945,000 after deducting costs of issue of approximately $155,000.  As a result, the Company issued 3.3 million common shares and 1 million common share-purchase warrants exercisable into common shares at US$0.35 per share. 

On December 17, 2002, Stonestreet exercised all of these warrants for proceeds of $550,000.  Pursuant to the April 25, 2002 private placement, the Company issued 50,000 share-purchase warrants to an associate of Stonestreet for partial consideration in securing the funding and due diligence services.  These warrants expire on April 25, 2005 and are exercisable into common shares at US$ 0.35 per common share.

As the result of a private placement of common shares in 2000, the Company issued 180,158 share-purchase warrants with an exercise price of US$5.36 per share.  These warrants expired on June 16,2002.  

f) ACQUISITION OF ADB SYSTEMER ASA

On October 11, 2001, the Company acquired 98.3 percent of the outstanding common shares of ADB Systemer ASA.  As a result of the acquisition, the Company issued 607,600 share-purchase warrants with a strike price of two Norwegian krone, in exchange for 700,000 share purchase warrants in ADB Systemer ASA.  These warrants retained all of the characteristics of the original warrants and had specific exercise dates of March 31, 2002 and March 31, 2003, expiring March 31, 2003 (see Note 16).  All of the 607,600 warrants were cancelled on March 31, 2003.

g) STRATEGIC MARKETING AGREEMENT

On March 28, 2000, pursuant to a strategic marketing agreement with one of its key customers, the Company issued 512,500 common share-purchase warrants at a price of $15.80 per warrant. Each common share-purchase warrant entitled the holder to acquire one common share.  These warrants had been fully vested and were cancelled on December 13, 2002. 

On December 13, 2002, the Company issued 2 million warrants convertible into common shares of the Company to this customer at an exercise price of $0.45 per warrant under a two-year term from date of issuance.  Warrants that have vested are to be automatically exercised when the share price of the Company closes at or above $1.02 for three consecutive trading days.  The vesting of warrants is based on achieving a number of performance objectives associated with the GE Asset Manager LLC joint venture (See Note 17). 

During 2003, a total of 1.25 million of the above warrants vested; 250,000 warrants vested when three initial customers of the joint venture were identified and the remaining 1 million warrants vested upon the legal establishment of the joint venture.  The remaining 750,000 warrants have not vested as at December 31, 2003.  Vesting is contingent upon the achievement of certain performance and business related goals, which are currently undefined, associated with the GE Asset Manager joint venture.

F-19

h) CONVERTIBLE SECURED SUBORDINATED DEBENTURES

During the year, the Company issued a total of 375,000 (2002 – 3,312,500) share-purchase warrants with an exercise price of $0.50 per share (2002 - $0.14 per share) as the result of the conversion of secured subordinated debentures.

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

	2003			2002			2001
	(in thousands, except per share amounts)
Numerator:
Net Loss (numerator for basic loss per share applicable to common shares)	$	(2,815	)	$	(9,364	)	$	(18,714	)
Denominator:
Weighted average shares denominator for basic loss per share	54,324			41,968			29,130
Basic loss per share	$	(0.05	)	$	(0.22	)	$	(0.64	)

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

j) STOCK-BASED COMPENSATION TO EMPLOYEES

During the fourth quarter of fiscal 2003, the Company adopted the accounting recommendations contained in the CICA Handbook Section 3870 – “Stock-based Compensation and Other Stock-based Payments” effective January 1, 2003.  This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services, and applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments.  Commencing in fiscal 2003, the Company records a compensation expense for stock options granted to employees on or after January 1, 2003, based on the fair value method of accounting.  For the year ended December 31, 2003, the employee stock option expense was $193,000.  As a result of the early adoption of these recommendations, expenses in the first, second and third quarters increased by $2,000, $1,000 and $130,000, respectively.  Accordingly, quarterly net income (loss) in such quarters previously reported as ($1,755,000), $527,000 and ($460,000), respectively are revised to ($1,757,000), $526,000 and ($590,000), respectively.

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

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

	2003		2002
Dividend yield	—		—
Risk free interest rate	3.53	%	3.69	%
Volatility	137.51	%	131.51	%
Expected term, in years	2.94		2.00

F-20

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

	2003			2002
Loss attributable to common shareholders
As reported	$	(2,815	)	$	(9,364	)
Pro forma	$	(2,956	)	$	(9,608	)
Basic and diluted net loss per share:
As reported	$	(0.05	)	$	(0.22	)
Pro forma	$	(0.05	)	$	(0.23	)

10.FINANCIAL INSTRUMENTS

Foreign exchange risk

The Company’s revenue from software licensing and related services and e-commerce enabling agreements is transacted in various currencies including the Canadian dollar, U.S. dollar, UK pound, EURO, and Norwegian krone.  Correspondingly, operating expenses related to these activities are transacted in the above-denoted currencies.  The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations.  The Company incurred $84,000 in foreign exchange losses in 2003 (2002-$29,000; 2001-$95,000). 

The Company transacted the majority of its retail product sales and purchases in U.S. dollars.

Interest rate risk

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

Credit risk

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

Fair value

The fair value of monetary assets and liabilities approximates amounts at which they would be exchanged between knowledgeable and unrelated persons.  The amounts recorded in the financial statements approximate fair value.

Equity instruments

During 2001, the Company was exposed to fair value fluctuations of publicly traded common shares received in connection with the disposal of one of its strategic investments.  To mitigate this risk, the Company engaged in the purchase of call and the sale of put options.  The Company did not engage in the purchase of call or put options exceeding the number of shares held.  As at January 31, 2002, all common shares and related call and put options had been disposed of.

11.COMMITMENTS AND CONTINGENCIES

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

	(in thousands)
2004	$	232
2005	113
2006	43
2007	24
2008	$	24

F-21

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

(c)The Company has entered into compensation arrangements with certain of its employees.  In the event of involuntary termination, the Company may be liable for potential payments totaling $295,000 to these employees.

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

12.CHANGE IN NON CASH OPERATING WORKING CAPITAL

	2003			2002			2001
	(in thousands)
Accounts receivable	$	424		$	(522	)	$	(12	)
Deposits and prepaid expenses	56			(45		)	251
Accounts payable	(63		)	224			(1,040		)
Accrued liabilities	(453		)	427			5
Deferred revenue	(692		)	(23		)	(2,121		)
	$	(728	)	$	61		$	(2,917	)

13.RETAIL ACTIVITIES

The Company ceased its on-line retail activities in October 2000; however, in 2001 it was required to settle certain amounts payable relating to product sales of previous years.  These amounts were not previously anticipated and did not reoccur in 2002.  During 2003, the Company received a $67,000 refund from a U.S.-based credit card institution formally engaged by the Company when it operated its on-line retail activities in the U.S.

The Company’s non-consolidated investment, Bid.Com, recommenced on-line retail activities in 2002 (Note 19(a)).  The shares of Bid.Com were transferred in settlement of a demand loan (Note 6) on June 30, 2003.

F-22

14.REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES, STRATEGIC INVESTMENTS AND CAPITAL ASSETS, AND RECOVERY OF ASSETS

	2003			2002			2001
	(in thousands)
Gain on disposal of strategic investment (Note 14(a))	$	20		$	41		$	6
(Loss) gain on disposal of capital assets (Note 14(b))	(13		)	23			—
(Loss) gain on disposal of marketable securities (Note 14(c))	—			(149		)	3,656
Gain on disposal on Point 2 (Note 14(d))	—			—			2,249
Recovery of Point2 receivable (Note 14(d))	—			—			811
	$	7		$	(85	)	$	6,722

(a)During 2003, the Company sold shares in Megawheels Technologies Inc. for proceeds of $20,000.  During 2002, the Company disposed of its strategic investments, resulting in cash proceeds of $126,000 and a realized gain of $41,000.

(b)During 2003, the Company disposed of capital assets that were no longer required resulting in a loss of $13,000.  Similar disposals in 2002 resulted in a gain of $23,000.

(c)In January 2001, the Company’s unregistered AOL shares became freely trading and the Company sold 122,801 shares for gross proceeds of $10.0 million, realizing a gain of $3.7 million.  In January 2002, the Company sold its remaining AOL shares for gross proceeds of $1.3 million and a realized loss of $143,000.

(d)In May 2001, the Company sold its equity interest in Point2 Internet Systems Inc. (Point2) for $2.7 million in cash.  The Company realized a gain of $2.2 million, and recovered a receivable in the amount of $811,000 from Point2 that had been provided for in 2000.

15.UNREALIZED GAINS AND LOSSES ON REVALUATION OF STRATEGIC INVESTMENTS, AND PROVISON FOR IMPAIRMENT OF ASSETS

	2003		2002			2001
	(in thousands)
Revaluation of strategic investments (Note 15(a))	$	—	$	(24	)	$	(1,510	)
Provision for impaired assets (Note 15(b))	—		—			(925		)
	$	—	$	(24	)	$	(2,435	)

(a)During 2002 and 2001, the Company reviewed the carrying value of each of its strategic investments and determined that in light of recent financial performance of each investment and market conditions, the decline in value of these investments was other than temporary, and a revaluation was required. 

(b)The Company reviewed the carrying value of a prepaid advertising asset during the first quarter of 2001 and determined the future value of this asset had been significantly reduced as a result of market conditions and changes to the Company’s business-to-business marketing strategy.

F-23

16.ACQUISITION OF ADB SYSTEMER ASA

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

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

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

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

The amortization periods for contractual agreements and software and related intellectual property are 12 and 36 months respectively.  At the end of fiscal 2003, accumulated amortization for acquired software amounted to $2,537,000 (2002 - $1,409,000), resulting in a net book value of $846,000 (2002 - - $1,974,000). 

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

F-24

17.INVESTMENTS IN JOINTLY CONTROLLED COMPANIES

a) On September 25, 2003 the Company established a joint venture with GE Commercial Equipment Financing, a unit of GE Commercial Finance, with each entity holding a 50 percent interest in the joint venture.  The joint venture will operate under the name of GE Asset Manager LLC.  The joint business venture will develop and market asset management technology to customers in a broad range of industries.  Upon the establishment of this joint venture, 1 million share-purchase warrants issued by ADB to GE Capital Corporation vested.  The fair value of these warrants of $188,000, calculated at the vesting date, is reflected on the Consolidated Balance Sheets as an Acquired Agreement.  This acquired agreement is being amortized over the initial period of the venture agreement.  Accumulated amortization at December 31, 2003, is $38,000, resulting in a net book value of $150,000. 

As at December 31, 2003, the joint venture held no assets or liabilities, nor were there any activities within the joint venture.  As a result, there are no amounts with respect to GE Asset Manager LLC included in the consolidated financial statements of the Company.

b) In 1999 the Company acquired a 51% interest in Point2 Internet Systems Inc. (“Point2”) by issuing $2,500,000 of common shares and common share-purchase warrants to acquire $2,000,000 of common shares for no additional consideration.  The warrants were exercised in 2000.  The Company acquired 51 percent of the shares of Point2 but only elected 50 percent of the board of directors.  The investment was accounted for on a proportionate consolidation basis and the Company recorded its proportionate share of revenue and expenses, assets and liabilities from the date of acquisition.  Of the total purchase price, $134,000 was allocated to current assets, $521,000 to non-current assets and $28,000 to current liabilities resulting in goodwill of $2,044,000.

In May 2001, the Company sold its equity interest in Point2 for $2.6 million in cash.  The Company realized a gain of $2.2 million, and recovered a receivable from Point2 provided for in 2000.

Condensed income statement and cash flow information for Point2 for the five-month period ended May 31, 2001 is as follows:

	2001
	(in thousands)
Revenue	$	192
Net loss	293
Change in cash resources	—

18.GOODWILL IMPAIRMENT

The Company reviewed the carrying value of goodwill acquired in connection with the acquisition of ADB Systemer.  The carrying value of goodwill was tested against its fair value and it was determined that a goodwill impairment of $9.476 million was required at December 31, 2001 (Note 16).  For the year ended December 31, 2002 a goodwill impairment of $14,000 was recorded on goodwill acquired in connection with the purchase of shares of the non-controlling interest shareholders of ADB Systemer.  The permanent decline in the fair value arose on a downturn in economic conditions resulting in lower than previously anticipated cash flows.

F-25

19.RELATED PARTY TRANSACTIONS

(a)On August 30, 2002, the Company entered into a series of agreements with a lender, an unrelated party, whereby the lender granted to the Company a secured loan in the aggregate principal amount of $2 million (Note 6).  The Company and the same unrelated party also entered into an agreement whereby on-line retail operations were to be conducted by Bid.Com Ltd.  These operations utilized the on-line retail technology, experience and expertise of the Company developed and operated under the name “Bid.Com International Inc.” in the on-line selling of consumer products supplied by the lender.

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

The Company owned 100 percent of the issued and outstanding shares of Bid.Com Ltd., but determined that, for accounting purposes, consolidation of Bid.Com Ltd. was not appropriate.  This determination was based upon the Company’s evaluation of its continuing ability to determine the strategic operating policies of Bid.Com without the cooperation of others, its ability to obtain the future economic benefits from the resources of Bid.Com Ltd., and its exposure to the related risk of ownership.  Therefore, the Company accounted for its investment in Bid.Com Ltd. on the equity basis.  The Company was not exposed to losses incurred by Bid.Com Ltd., and accordingly this investment was carried at a nominal amount.  U.S. GAAP required consolidation of the investment in Bid.Com Ltd. in the Company’s financial statements.  The impact of this U.S. GAAP difference from Canadian GAAP is disclosed in note 20.

Condensed balance sheet information for Bid.Com Ltd as at December 31, 2002 is as follows:

	2002
	(in thousands)
Current assets	$	435
Capital assets	71
Current liabilities	701
Shareholders’ deficiency	(195		)

Condensed income statement and cash flow information for Bid.Com Ltd. for the six-month period ended June 30, 2003 and the two-month period ended December 31, 2002 is as follows:

	2003			2002
	(in thousands)
Revenue	$	3,614		$	258
Net income (loss)	208			(195		)
Change in cash resources	(358		)	358

Revenue of $35,000 and $243,000 related to web-site development, support and maintenance services provided to Bid.com Ltd. has been included in the consolidated results of the Company for the six months ended June 30, 2003 and the two months ended December 31, 2002, respectively.  In addition, the Company charged overhead-related costs of $76,000 and $22,000 for rent, connectivity and management fees to Bid.com Ltd. for the six-month period ended June 30, 2003, and the two months ended December 31, 2002, respectively.  These overhead charges have been recorded as a reduction of expenses in the consolidated financial statements for the years ended December 31, 2003 and December 31, 2002.

At December 31, 2002, accounts receivable includes $59,000 related to unpaid service and overhead fees charged during the year to Bid.Com Ltd.

F-26

b)During 2001 the Company recorded $1 million in revenue relating to an agreement with a company in which it had an interest and in which certain Directors of the Company, in aggregate, had a controlling interest.  Under this agreement, the Company would provide its on-line auction technology and related services to the investee.  In April 2001, this investee went into receivership, and the Company’s investment in the investee was written down to zero. 

20.RECONCILIATION OF UNITED STATES GAAP

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

(a) STOCK-BASED COMPENSATION TO EMPLOYEES

In fiscal 2003, the Company adopted the accounting recommendations contained in the CICA Handbook Section 3870 – “Stock-based Compensation and Other Stock-based Payments” effective January 1, 2003 regarding expensing of employee stock-based compensation.  Accordingly, commencing in fiscal 2003, the Company records a compensation expense for stock options granted to employees on or after January 1, 2003, based on the fair value method of accounting.  For fiscal 2002, the Company did not recognize compensation expense for employee stock options, however pro-forma disclosure giving recognition to the fair market value of options granted from January 1, 2002 has been provided in Note 9(j). 

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

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

	2003		2002		2001
Dividend yield	—		—		—
Risk free interest rate	3.53	%	3.69	%	4.02	%
Volatility	137.51	%	131.51	%	110.54	%
Expected term, in years	2.94		2.00		2.77

F-27

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

	2003			2002			2001
	(in thousands)
Loss attributable to common shareholders under U.S. GAAP
As calculated (Note 20(g))	$	(2,572	)	$	(9,947	)	$	(18,728	)
Stock-based compensation included in net loss	193			—			—
	(2,379		)	(9,947		)	(18,728		)
Stock-based compensation if fair value applied to all awards	(337		)	(797		)	(1,601		)
Pro forma net loss as if fair value applied to all awards	$	(2,716	)	$	(10,744	)	$	(20,329	)
Basic and diluted net loss per share:
As calculated	$	(0.05	)	$	(0.24	)	$	(0.64	)
Pro forma	$	(0.05	)	$	(0.26	)	$	(0.70	)

(b) COMPREHENSIVE INCOME

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

(c) MARKETABLE SECURITIES

U.S. GAAP requires that the Company disclose marketable securities into one of three categories: held to maturity; available for sale; or trading. As at December 31, 2003 and 2002, the marketable securities held were classified as follows:

	2003		2002
	(in thousands)
Trading	$	13	$	20

(d) ACCUMULATED OTHER COMPREHENSIVE INCOME

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

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(e) FINANCIAL INSTRUMENTS WITH LIABILITY AND EQUITY ELEMENTS

Under Canadian GAAP, the secured subordinated notes (see Note 7) are recorded based upon the relative fair values of the liability and equity components of the instruments.  The liability component is accreted to the face value of the subordinated notes over the term to maturity until the underlying notes are converted into common shares.  Under U.S. GAAP, upon issuance, the secured subordinated notes would have been recorded as a liability and reclassified to equity only upon conversion.  Accordingly, the interest accretion of $112,000 (2002 - $68,000) that is recorded under Canadian GAAP is reversed under U.S. GAAP.

Further, under U.S. GAAP, the beneficial conversion feature represented by the excess of the fair value of the shares issuable on conversion of the subordinated notes, measured on the commitment date, over the amount of the loan proceeds to be allocated to the common shares upon conversion would be allocated to contributed surplus.  This results in a discount on the subordinated notes that is recognized as additional interest expense over the term of the subordinated notes and any unamortized balance is expensed immediately upon conversion of the subordinated notes.  Accordingly, for U.S. GAAP purpose, the Company has recognized a beneficial conversion feature in 2003, with respect to the Series E subordinated notes, of $96,000 and in 2002, with respect to the Series A through D notes, of $389,000.  An interest expense of $64,000 (2002 - $316,000) results from the amortization of the discount over the term to maturity of those subordinated notes as well as the unamortized discount for those subordinated notes converted during the year.  Canadian GAAP does not require the recognition of any beneficial conversion feature.

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

U.S. GAAP requires the disclosure of accrued liabilities that exceed five percent of current liabilities.  Included in accrued liabilities at December 31, 2003 are accrued audit fees of $145,000 and accrued compensation expenses (severance and unpaid vacation) of $228,000 (2002 – $482,000).

U.S. GAAP requires the disclosure of non-cash interest components incurred during the year.  In 2003, the Company incurred $126,000 (2002 - - $68,000) in non-cash interest expense associated with the demand loan that was settled through the transfer of the investment in an associated company (Note 6).

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(g) The effect of the above differences (Note 20(d) (e) and (j)) on the Company’s financial statements is set out below:

Consolidated Balance Sheets

	2003		2002
	(in thousands)
Cash and marketable securities	$	445	$	1,357
Accounts receivable	1,384		1,769
Deposits and prepaid expense	118		178
Capital assets	266		443
Intangible assets	998		2,549
Assets – discontinued operations (Note 20(j))	—		506
Accounts payable and accrued liabilities	1,370		2,288
Demand loan	—		2,000
Deferred revenue	91		832
Secured subordinated notes (Note 20(e))	1,009		131
Non-controlling interest	3		3
Liabilities – discontinued operations (Note 20(j))	—		642
Shareholders’ equity	$	738	$	906

Consolidated Statements of Operations

	2003			2002			2001
	(in thousands)
Net loss for the year as reported under Canadian GAAP	$	(2,815	)	$	(9,364	)	$	(18,714	)
Adjustments
Accretion of interest on secured subordinated notes (Note 20(e))	112			68			—
Gain on settlement of demand loan (Note 20(j))	(2,195		)	—			—
Amortization of beneficial conversion feature (Note 20(e))	(64		)	(316		)	—
Translation of foreign currency	—			—			(14		)
Net loss from continuing operations for the year as reported under U.S. GAAP	(4,962		)	(9,612		)	(18,728		)
Income (loss) from discontinued operations (Note 20(j))	2,390			(195		)	—
Net loss for the year as reported under U.S. GAAP	(2,572		)	(9,807		)	(18,728		)
Preferential distribution to shareholder (Note 20(k))	—			(140		)	—
Net loss attributable to common shareholders under U.S. GAAP	$	(2,572	)	$	(9,947	)	$	(18,728	)
Net loss for the year as reported under U.S. GAAP	$	(2,572	)	$	(9,807	)	$	(18,728	)
Accumulated other comprehensive income (loss) (Note 20(d))	74			32			14
Comprehensive income (loss) as reported under U.S. GAAP	$	(2,498	)	$	(9,775	)	$	(18,714	)
Basic and diluted loss per share from continuing operations	$	(0.09	)	$	(0.23	)	$	(0.64	)
Basic and diluted net loss per share	$	(0.05	)	$	(0.24	)	$	(0.64	)

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(h) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

The FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”.  This statement revises employers’ disclosures about pension plans and other postretirement benefit plans.  It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans.  This Statement is effective for financial statements with fiscal years ending after December 15, 2003.  The adoption of SFAS No. 132 had no effect on the Company’s results of operations and financial position for 2003.

The FASB made amendments to SFAS No. 133, “Derivative Instruments and Hedging Activities”.  The amendments set forth in Statement 133 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly.  This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003.  The guidance should be applied prospectively.  The Company did not engage in the use of derivative instruments or establish hedging relationships.  The adoption of SFAS No. 133 had no effect on the Company’s results of operations and financial position for 2003.

In April 2003, the FASB issued a staff position No. SFAS 140-1, “Accounting for Accrued Interest Receivable Related to Securitized and Sold Receivables under Statement 140.”  This staff position addresses the issue of how accrued interest receivable related to securitized and sold receivables should be accounted for and reported under Statement 140.  This guidance was effective for fiscal quarters beginning after March 31, 2003.  The adoption of SFAS No. 140-1 had no effect on the Company’s results of operations and financial position for 2003.

In June 2001, FASB issued SFAS No. 143 “ Accounting for Asset Retirement Obligations.”  SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from acquisition, construction, development and/or normal assets.  The Company is required to also record a corresponding asset that is depreciated over the life of the asset.  Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation.  The Company was required to adopt SFAS No. 143 on January 1, 2003.  The adoption of SFAS No. 143 had no effect on the Company’s results of operations and financial position for 2003.

The FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, requires that, for fiscal years beginning after May 15, 2002, gains and losses from the early extinguishments of debt no longer be classified as an extraordinary item, net of income taxes, but be included in the determination of pretax earnings.  There was no effect on the adoption of SFAS No. 145 on the Company’s results of operations and financial position for 2003.

In July 2002, the FASB issued SFAS No. 146, “ Accounting for Costs Associated with Exit or Disposal Activities,” which requires companies to recognize costs associated with exit or disposal activities as incurred rather than at the date of commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.  The adoption of SFAS No.146 had no effect on the Company’s results of operations and financial position for 2003.

In December 2002, the FASB issued SFAS No 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” an amendment of FASB Statement No. 123.  This Statement amends FASB Statement No. 123, “Accounting for Stock- Based Compensation,” to provide alternative methods of transition for a voluntary change to fair value method of accounting for stock-based employee compensation.  In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements.  Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.  In fiscal 2003, the Company elected to prospectively adopt the fair value method for

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stock-based compensation.  As a result, the annual financial statements reflect the stock-based compensation expense to employees of $193,000 for such compensation granted on or after January 1, 2003.

In November 2002, the FASB issued interpretation No. 45 “ Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), which requires certain disclosures of obligations under guarantees.  The disclosure requirements of FIN 45 are effective for the Company’s year ended December 31, 2003.  FIN 45requires the recognition of a liability by a guarantor at the inception of certain guarantees entered into or modified after December 31, 2002, based on the fair value of the guarantee.  There was no effect on the adoption of FIN No. 45 on the Company’s results of operations and financial position for 2003.

In January 2003 and December 2003, the FASB issued interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), and its revision, FIN 46-R, respectively.  FIN 46 and FIN 46-R address the consolidation of entities whose equity holders have either not provided sufficient equity at risk to allow the entity to finance its own activities or do not possess certain characteristics of a controlling financial interest.  FIN 46 and FIN 46-R require the consolidation of these entities, known as variable interest entities (“VIE,s”), by the primary beneficiary of the entity.  The primary beneficiary is the entity, if any, that is subject to a majority of the risk of loss from the VIE’s activities, entitled to receive a majority of the VIE’s residual returns, or both.  FIN 46 and FIN 46-R will be effective for the Company’s annual financial statements commencing January 1, 2004.  The Company is continuing to evaluate its investments to determine which, if any, will be impacted by the adoption of FIN 46 and FIN 46-R.  Adoption of both of these standards is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

The Emerging Issues Task Force reached a consensus on Issue 00-21, addressing how to account for arrangements that involve the delivery or performance of multiple products, services, and/or rights to use assets.  Revenue arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meets the following criteria: (a) the delivered item has value to the customer on a standalone basis; (b) there is objective and reliable evidence of the fair value of undelivered items; and (c) delivery of any undelivered item is probable.  Arrangement consideration should be allotted among the separate units of the accounting based on their relative fair value, with the amount allocated to the delivered item being limited to the amount contingent on the delivery of additional items or meeting other specified performance conditions.  The final consensus will be applicable to the Company for agreements entered into in fiscal periods beginning on or after January 1, 2004 with early adoption permitted.  The Company is evaluating the impact of adoption on the consolidated financial statements.

(i) OPERATING LOSS

U.S. GAAP requires that the Company disclose operating loss.  Operating loss of the Company for the year was $4.982 million, comprised of net loss from continuing operations of $4.962 million less realized and unrealized gains and losses on marketable securities and strategic investments of $20,000  (2002 - $9.480 million, comprised of net loss from continuing operations of $9.612 million plus $132,000; 2001 - $20.880 million, comprised of net loss of $18.728 million less $2.152 million).

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(j) INVESTMENT IN ASSOCIATED COMPANY/DISCONTINUED OPERATIONS

U.S. GAAP requires consolidation of the Company’s investment in the associated company described in Note 19(a).  Furthermore, under FAS 144, the Bid.Com Ltd. component would be classified as an asset held for sale and be subject to the reporting requirements for discontinued operations.  The effect of consolidation of this entity upon the Canadian GAAP balance sheet is reported in Note 20(g).

Net revenue by Geographic Region:

	2003		2002		2001
	(in thousands)
North America	$	1,211	$	2,182	$	2,761
Ireland and U.K.	1,239		472		893
Norway	3,403		3,126		741
	$	5,853	$	5,780	$	4,395

Consolidation of this associated company results in a decrease in the net loss attributable to common shareholders due to income from discontinued operations in the amount of $195,000 for fiscal 2003.  For fiscal 2002, the net loss attributable to common shareholders is increased due to a loss from discontinued operations of $195,000.  Revenue in the amount of $1.074 million is included in the 2003 income from discontinued operations.  Revenue of $15,000 is included in the 2002 loss from discontinued operations.

For fiscal 2003, the impact of consolidation of the associated company upon cash flows was to decrease cash flows as a result of cash outflows from discontinued operations in the amount of $358,000.  For fiscal 2002, the impact upon cash flows was to increase cash flows as the result of cash inflows from discontinued operations in the amount of $358,000.

(k) PREFERENTIAL DISTRIBUTION TO SHAREHOLDERS

In accordance with U.S. GAAP, the $120,000 Series C secured subordinated debentures (see Note 7) issued in exchange for the waiver of certain US registration rights granted to Stonestreet pursuant to a subscription agreement dated April 25, 2002 (Note 9(e)) is recorded as preferential distribution to Stonestreet and deducted from the net loss to determine net loss attributable to common shareholders.  The Series C secured subordinated debentures include a beneficial conversion feature; accordingly, a preferential distribution of $140,000 has been recorded.

21.SEGMENTED INFORMATION

The Company operates in the following reportable geographic segments: North America, Ireland and the United Kingdom, and Norway.

Assets by Geographic Region

	2003				2002
	(in thousands)
	Capital Assets		Intangible and Other Assets		Capital Assets		Intangible and Other Assets
North America	$	106	$	152	$	174	$	518
Ireland and U.K.	16		—		69		—
Norway	144		846		200		2,031
	$	266	$	998	$	443	$	2,549

For the year ended December 31, 2003, individual customers accounted for 26 percent and 15 percent of net revenue, respectively.  For the year ended December 31, 2002, individual customers accounted for 28

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percent and 13 percent of net revenue, respectively.  For the year ended December 31, 2001 one customer accounted for 22 percent of net revenue.

22.RECLASSIFICATION OF PRIOR YEARS

Certain prior years amounts have been reclassified to conform to the current year basis of presentation. 

23.SUBSEQUENT EVENT

During the period of January 1, 2004 to March 18, 2004, Series E secured subordinated notes with a face value of $400,000 were converted into equity units (See Note 7(a)).  As a result of this conversion, 1,142,856 common shares and 571,428 share-purchase warrants were issued.

On May 11, 2004, the Company entered into an agreement with First Associates Investments Inc. to act as Agent in raising up to $5 million, on a best efforts basis, in secured convertible debt (“Notes”).  The Notes have a three-year term and will pay interest of 7 percent per annum, paid quarterly in arrears.  The debt can be converted at anytime by the lender, following a four-month hold period, into units consisting of one common share at $0.31 and one-half of a common share-purchase warrant exercisable into a common share at $0.50.  Each warrant will expire three years from the date of closing.  The Notes will convert automatically if the Company’s weighted average share price reaches $0.70 or more over a ten-day trading period.  If the Notes remain unconverted at the end of the term the Company will be required to repay the principal in cash.

24.CONVENIENCE TRANSLATION

The financial statements as at December 31, 2003 and for the year then ended have been translated into U.S. dollars using the exchange rate of the U.S. dollar at December 31, 2003 as published by the Federal Reserve Bank of New York (U.S. $1.000 = Cdn. $1.29).  The translation was made solely for the convenience of readers in the United States.  The translated U.S. dollar figures should not be construed as a representation that the Canadian currency amounts actually represent or could be converted into U.S. dollars.

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EX-2.3

Exhibit 2.3

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE OCTOBER •, 2004.

The Note represented hereby, the common shares and common share purchase warrants of the Corporation issuable upon the conversion of the Note and the common shares issuable upon exercise of the common share purchase warrants have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and may not be offered, sold, resold, or delivered within the United Stales of America, its territories and possessions, other than pursuant to an effective registration statement or an applicable exemption under the U.S. Securities Act.

ADB SYSTEMS INTERNATIONAL LTD.

(Organized under the laws of Ontario)

Series G Convertible Secured Note

Date of Issue:  June •, 2004	Cdn. $•
Interest Rate:  7.0% per annum	Certificate Number:  [G-•]

ADB SYSTEMS INTERNATIONAL LTD. (the “Corporation”), for value received, hereby acknowledges itself indebted to and promises to pay • (the “Registered Holder”) on June •, 2007 or on such earlier date as the principal hereof becomes payable in accordance with the provisions of this Note, on presentation and surrender of this Note, the principal sum of $• in lawful money of Canada, at the address of the Registered Holder set forth on the register of the Corporation to be maintained as provided in the terms and conditions attached hereto as Schedule ”A” and forming part hereof (the “Terms and Conditions”), subject to the right of the Registered Holder in certain circumstances to elect to receive, and the automatic conversion of this Note in certain circumstances into, units of securities of the Corporation in lieu of receiving such sum, as provided in the Terms and Conditions and to pay interest on such principal amount as provided in the Terms and Conditions.  The Terms and Conditions are hereby incorporated by reference herein.

This Note is convertible, at the option of the Registered Holder or in certain circumstances without any further act of the Registered Holder, into units of securities of the Corporation, upon and subject to the provisions and conditions contained in the said Terms and Conditions. The Schedules and the Exhibits attached hereto are incorporated in this Note by reference and are deemed to be an integral part hereof.

IN WITNESS WHEREOF the Corporation has caused this Note to be executed under the hand of its duly authorized officer as of the • day of June, 2004.

ADB SYSTEMS INTERNATIONAL LTD.
Per:
	Authorized Signing Officer

SCHEDULE ”A”

Terms and Conditions applicable to
Series ‘G’ Convertible Secured Notes
dated as of June 15, 2004 issued by
ADB SYSTEMS INTERNATIONAL LTD.

ARTICLE 1
INTERPRETATION

1.1Defined Terms

In addition to the terms parenthetically defined herein, in this Note the following terms shall have the following meanings respectively:

“Automatic Conversion” has the meaning attributed to such term in subsection 4.1(3);

“Automatic Conversion Condition” means that if, after the date that is twelve (12) months from the Closing Date, the volume weighted average trading price of the Corporation’s common shares on the TSX (or if the Corporation is not listed on the TSX, its principal trading market) for at least twenty consecutive trading days is 225.8064% or more of the then applicable Conversion Price;

“Automatic Conversion Date” means the first Trading Day following the Trading Day as of which the Automatic Conversion Condition has been satisfied;

“Business Day” means any day, other than Saturday, Sunday or any statutory holiday in the City of Toronto;

“Capital Reorganization” has the meaning attributed to such term in subsection 4.3(4);

“Closing Market Price” at any date means the closing price per share for Common Shares on or through, as applicable, the Principal Market;

“Collateral” means the undertaking of the Corporation and all real and personal property and assets now or hereafter acquired by the Corporation, wheresoever located, including the property and assets of the Corporation referred to in Section 6.1; provided always that the term “Collateral” where used herein shall not include any consumer goods of the Corporation.  Any reference to “Collateral” herein shall be deemed to be a reference to the Collateral or any part thereof;

“Common Share Reorganization” has the meaning attributed to such term in subsection 4.3(1);

“Common Shares” means the common shares without nominal or par value in the capital of the Corporation, as such shares exist as at the Date of Issue; provided that, in the event of a subdivision, redivision, reduction, combination or consolidation thereof, or successive such subdivisions, redivisions, reductions, combinations or consolidations, then, subject to adjustments, if any, having been made in accordance with Section 4.3, “Common Shares” shall thereafter mean the shares resulting from such subdivision, redivision, reduction, combination or consolidation;

“Conversion Price” has the meaning attributed to such term in Section 4.1;

“Date of Issue” means the date hereof;

“Date of Conversion” has the meaning attributed to such term in subsection 4.2(2);

“Event of Default” has the meaning attributed to such term in Section 8.1;

“Generally Accepted Accounting Principles” means generally accepted accounting principles in Canada from time to time;

“Holders” means the registered holders from time to time of the Notes, including the Registered Holder;

“including” means including without limitation;

“Interest Rate” means 7% per annum, calculated annually and payable as set forth in Section 2.3 hereof;

“Maturity Date” has the meaning attributed to such term in Section 2.4;

“Notes” means the Series G convertible notes of the Corporation due on June 15, 2007, including this Note;

“Obligations” means the aggregate of all indebtedness, obligations and liabilities, direct or indirect, absolute or contingent, matured or not, of the Corporation to the Registered Holder wheresoever and howsoever incurred and whether incurred arising pursuant to this Note and whether incurred at the time of, or subsequent to the execution hereof, whether incurred alone or with another or others, including extensions and renewals;

“Optional Conversion”  has the meaning attributed to such term in subsection 4.1(2);

“Permitted Security Interests” means the security interests set out in Exhibit ‘4’ and Exhibit ‘5’ attached hereto.

“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, government or governmental authority or entity, however designated or constituted;

“PPSA” means the Personal Property Security Act (Ontario) as the same may from time to time hereafter be amended or any legislation that may be substituted therefor as the same may from time to time be amended;

“Principal Market” means such stock exchange or quotation system on or through which the Common Shares are listed or quoted which has the highest trading volume in the calendar month immediately preceding such date, being as at the date hereof the TSX;

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“Pro Rata Basis” means, in respect of a Holder, the percentage determined by dividing (x) the outstanding principal amount of the Holder’s Note by (y) the aggregate outstanding principal amount of all Notes;

“Rights Offering” and “Rights Period” have the respective meanings attributed to such terms in subsection 4.3(2);

“Security Interest” means, collectively, the mortgage, charge, pledge, assignment and transfer of, and the security interest in, the Collateral granted to the Registered Holder by the Corporation pursuant to Section 6.1;

“Successor Corporation” means any corporation continuing from and which acquires all or substantially all of the undertaking, property and assets of any other corporation pursuant to any Capital Reorganization;

“Time of Expiry” means 5:00 p.m. (Toronto time) on the Maturity Date;

“Trading Day” means a day on which the Principal Market is open for the trading of securities;

“Transfer Form” means the form of transfer annexed as Exhibit 1 hereto;

“TSX” means the Toronto Stock Exchange;

“Unit” means a unit of securities issuable on conversion of this Note in accordance with Article 4 hereof, each such Unit, subject to adjustment as provided in this Note, to be comprised of one Common Share and one-half of one Warrant; and

“Warrant” means a Common Share purchase warrant to acquire, subject to adjustments as provided in the form therefor, one Common Share at an exercise price of $0.50 and with a term expiring at 5:00 p.m. (Toronto time) on June 15, 2008 to be issued in the form of the certificate annexed hereto as Exhibit “3”.

1.2Statutory References; Terms defined by the PPSA

Any reference in this Note to a statute shall be deemed to be a reference to such statute as amended, re-enacted or replaced from time to time.  Unless there is something in the context or subject matter inconsistent therewith, words and phrases not otherwise herein defined that are defined by the PPSA shall have the meanings ascribed thereto respectively by the PPSA.

1.3Gender and Number

Unless the context otherwise requires, words importing the singular include the plural and vice-versa and words importing gender include all genders.

1.4Monetary References

Any reference in this Note to “Dollars”, “dollars” or the symbol “$” shall be deemed to be a reference to lawful money of Canada.

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1.5Day Not a Business Day

In the event that any day on which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken on the requisite time on the first Business Day thereafter.

1.6Invalidity of Provisions

Each of the provisions contained in this Note is distinct and severable and a declaration of invalidity or unenforceability of any such provision by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof.

1.7Governing Law

This Note shall be governed by and construed in accordance with the PPSA and the other laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as an Ontario contract.

1.8Assignment

Subject to the restrictions on, and requirements for, transfer prescribed herein, the rights and obligations of the Corporation and the Holders shall be binding upon and shall enure to the benefit of their respective successors, heirs, executors, administrators and permitted transferees and assigns.

ARTICLE 2
THE NOTES

2.1Notes in Series

This Note is one of a series of Notes issued by the Corporation, designated as “Series G Convertible Secured Notes”, and referred to herein as the Notes.  The maximum aggregate principal amount of the Notes to be issued by the Corporation is $5,000,000.

2.2Denominations

Notes shall be issued in denominations of $1,000 and integral multiples thereof.

2.3Terms of Notes

All Notes shall bear interest at the Interest Rate from the Date of Issue (or, if issued after the Date of Issue, from the actual date of issuance thereof) to the earlier of the Maturity Date and the Date of Conversion (in respect of the Notes then being converted).  Interest on the Notes shall accrue on the outstanding principal amount of the Notes from day to day both before and after default, demand, maturity and judgment, for the actual number of days elapsed on the basis of a year of 365 days.  Where the calendar year of calculation contains 366 days, interest hereunder shall be expressed as a yearly rate for purposes of the Interest Act (Canada) as such rate multiplied by 366 and divided by 365.  Such interest shall be payable on the earlier of the Date of Conversion (in respect of the principal amount of the Notes then being converted) and the Maturity Date (in respect of the principal amount of the Notes then

A-4

outstanding, if any, on the Maturity date) and, for greater certainty, shall be payable as well after as before default.

2.4Maturity Date

Subject to Section 2.5, the Notes shall mature and the principal hereof shall become payable on June 15, 2007 (the “Maturity Date”).

2.5Notes to Rank Equally

This Note and the Security Interest shall rank equally with all other Notes of the same series and the security interests granted thereunder and, as soon as issued or negotiated shall, subject to the terms hereof, be equally and rateably entitled to the benefits hereof as if all the Notes had been issued and negotiated simultaneously.

The Registered Holder hereby agrees and declares that this Note and all indebtedness secured hereby or by any portion hereof, shall in all respects rank pari passu, equally and rateably among the Holders to the effect that all funds received by any Holder from the Corporation and all proceeds of realization of any of the Collateral under any of the Notes shall be distributed between the Holders on a Pro Rata Basis.

The equal ranking of this Note and all indebtedness secured hereby set out in the preceding paragraph and all other Notes and indebtedness secured thereby and all of the rights established, altered or specified herein shall:

(a)be applicable irrespective of:

(i)the time, date or order of the grant, creation, execution, delivery, attachment or perfection of, the method of perfecting, the time or order of registration of filing financing statements or taking possession, records of mortgages of other instruments, assignments or agreements;

(ii)the giving up or failure to give notice of the acquiring of any charge, lien or security interest or the date or dates of any loan or advance or advances by a Holder to the Corporation; and

(iii)the date or dates of any default by the Corporation under any of the Notes or the date of crystallization of any floating charge referred herein or therein or the taking of any enforcement proceedings, including possession with respect to such securities; and

(b)extend to all proceeds in any form derived, arising or resulting from any realization under the Notes, including all proceeds of insurance policies covering assets of the Corporation subject to the Notes.

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2.6Registration of Notes

(1)The Corporation shall cause to be kept by and at the principal office of the Corporation in the City of Toronto a register in which shall be entered the names and latest known addresses of the holders of this and all other Notes and the other particulars, as prescribed by law, of the Notes held by them respectively and of all transfers of Notes.  Such registration shall be noted on the Notes by the Corporation.  No transfer of a Note shall be effective as against the Corporation unless made on the register by the Registered Holder or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in form and execution reasonably satisfactory to the Corporation and upon compliance with such requirements as the Corporation may reasonably prescribe, and unless such transfer shall have been duly noted on such Note by the Corporation.

(2)The register referred to in this section shall at all reasonable times be open for inspection by the Holders.

(3)Subject to any restriction under applicable law or policy of any applicable regulatory body, any Holder may at any time and from time to time have such Note or any portion of the principal amount thereof transferred at the place at which the register is kept pursuant to the provisions of this section in accordance with such reasonable regulations as the Corporation may prescribe.  The transferor of such Note or any portion of the principal amount thereof shall duly complete and exercise a Transfer Form.

(4)The Corporation shall not be charged with notice of or be bound to see to the execution of any trust, whether express, implied or constructive, in respect of any Note, except where the Corporation is required to take notice by statute or order of a court of competent jurisdiction and may transfer any Note on the direction of the Holder thereof, whether named as trustee or otherwise, as though that Person were the beneficial owner thereof.

(5)The Corporation shall not register any transfers of the Note or issue or transfer any Units issuable on conversion of the Note:

(i)to any person in the United States or a resident of the United States or any person for the account or benefit of any person in the United States or a resident of the United States except pursuant to Rule 144 under the United States Securities Act of 1993, as amended (the “U.S. Securities Act”), if available;

(ii)in connection with any transfers or conversions which are otherwise not in compliance with (a) the U.S. Securities Act and the regulations thereunder if applicable, (b) the Securities Act (Ontario) (the “Ontario Securities Act”) and the rules and regulations thereunder, (c) applicable securities laws and regulations of other relevant jurisdictions, or (d) the policies of the TSX; and

(iii)within four months and a day from the Date of Issue, unless the Corporation and its legal counsel are satisfied, acting reasonably, that it is permitted under Ontario securities laws and under the policies of the TSX.

The Holder acknowledges that this Note and the securities underlying the Note are subject to resale restrictions which provide that this Note and such securities may not be resold or otherwise distributed

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until a period of at least four (4) months have elapsed from the Date of Issue except as permitted by applicable securities laws and acknowledges that the certificates representing the Note and if the Note is converted or if the any of the Warrants are exercised, the Common Shares, the Warrants and the Common Shares underlying the Warrants will bear the following legend denoting the restrictions on transfer under applicable securities laws:

“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [4 MONTHS FROM THE DATE OF ISSUANCE OF THE NOTE].”

2.7Ownership of Notes

(1)The Holder of a Note shall be deemed to be the owner thereof for all purposes and payment of or on account of the principal of a Note shall be made only to or upon the order in writing of the Holder thereof and such payment shall be a complete discharge to the Corporation and any paying agent for the amounts so paid.

(2)The Holder for the time being of any Note shall be entitled to the principal evidenced by such Note, free from all equities or rights of set-off or counterclaim between the Corporation and the original or any intermediate Holder thereof (except any equities of which the Corporation is required to take notice by law) and all Persons may act accordingly and a transferee of a Note shall, after the Transfer Form is lodged with the Corporation and upon compliance with all other conditions contained in such Note or by law or by any policy of any regulatory body, be entitled to be entered on the register as the owner of such Note free from all equities or rights of set-off or counterclaim between the Corporation and the transferor or any previous Holder thereof, save in respect of equities of which the Corporation is required to take notice by statute or by order of a court of competent jurisdiction.  Delivery to the registered Holder by the Corporation or the receipt by the Holder of the principal monies and interest evidenced by this Note and the units issuable pursuant to this Note, if any, shall be a good discharge to the Corporation of its obligations hereunder and the Corporation shall not be bound to enquire into the title of the Registered Holder, save as ordered by a Court of competent jurisdiction or as required by statute.

2.8Exchange of Notes

(1)Notes of any denomination may be exchanged for Notes of any other authorized denomination or denominations, any such exchange to be for Notes of an equivalent aggregate principal amount.  Exchanges of Notes may be made at the principal offices of the Corporation in the City of Toronto.

(2)Except as otherwise provided herein, upon any exchange of Notes of any denomination for Notes of any other authorized denominations and upon any transfer of Notes, the Corporation or other registrar of Notes may make a sufficient charge to reimburse it for any stamp tax, security transfer tax or other governmental charge required to be paid, and payment of such charge shall be made by the party requesting such exchange or transfer as a condition precedent thereto.

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2.9Replacement of Notes

If any of the Notes shall become mutilated or be lost, stolen or destroyed and in the absence of notice that such Notes have been acquired by a good faith purchaser within the meaning of the Business Corporations Act (Ontario), the Corporation will issue and deliver a new Note upon surrender and cancellation of the mutilated Note, or, in the case of a lost, stolen or destroyed Note, in lieu of and in substitution for the same.  In case of loss, theft or destruction, the applicant for a new Note shall furnish to the Corporation such evidence of such loss, theft or destruction as shall be satisfactory to the Corporation in its discretion and shall also furnish an indemnity in amount and form satisfactory to the Corporation in its sole discretion.  The applicant shall pay all reasonable expenses incidental to the issuance of any such new Note.

ARTICLE 3
PURCHASE FOR CANCELLATION OF NOTES

3.1Purchase of Notes for Cancellation

The Corporation may purchase all or any of the Notes in the market (which shall include purchase from or through an investment dealer or a firm holding membership on a recognized stock exchange) or by invitation for tenders or by private contract; provided that the price at which any Note may be so purchased shall not exceed the outstanding principal amount of such Note.

If, upon an invitation for tenders, more Notes are tendered at the same price than the Corporation is prepared to accept, the Notes to be purchased by the Corporation shall be selected by lot, or in such other manner as the Corporation may consider equitable, from the Notes tendered by each Holder who tendered at such lowest price.  The Holder of any Note of which a part only is purchased, upon surrender of such Note for payment, shall be entitled to receive, without expense to such Holder, one or more new Notes for the unpurchased part so surrendered and the Corporation shall issue and deliver such new Note or Notes upon receipt of the Note so surrendered.

ARTICLE 4
CONVERSION

4.1Optional Conversion and Automatic Conversion

(1)The conversion price is $0.31 (the “Conversion Price”) for each Unit to be issued upon the conversion of the Notes, unless such price shall have been adjusted as provided in this Article, in which case the Conversion Price shall mean the price as so adjusted and in effect at such time.

(2)Subject to and upon compliance with the provisions of this Article 4, the Holder of each Note shall have the right, at his option, at any time prior to the Time of Expiry, to convert such Note or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000 into Units at the Conversion Price (an “Optional Conversion”).

(3)In the event that, at any time prior to the Time of Expiry, the Automatic Conversion Condition has been met then the Corporation shall (and the Holder hereby authorizes and directs the Corporation to)

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convert the full outstanding principal amount, under this Note into Units at the Conversion Price (an “Automatic Conversion”), with such conversion to be effective as of the Automatic Conversion Date.

(4)The accrued and unpaid interest on the principal amount of a Holder’s Note which is converted to Units pursuant to this Section 4.1 will be paid in cash within 10 business days of Date of Conversion or the Automatic Conversion Date, as the case may be.

4.2Manner of Exercise or Deemed Exercise of Right to Convert

(1)The Holder of a Note wishing to convert such Note in whole or in part into Units as an Optional Conversion shall surrender such Note to the Corporation at its principal office in the City of Toronto, together with written notice in form and substance satisfactory to the Corporation substantially in the form of Exhibit “2” annexed hereto, duly executed by the Holder, his executors, administrators, other legal representatives or his or their attorney duly appointed by an instrument in form and substance satisfactory to the Corporation, exercising his right to convert such Note in accordance with the provisions of this Article.  Thereupon such Holder or, subject to payment of all applicable stamp taxes, security transfer taxes or other governmental charges and compliance with all reasonable requirements of the Corporation, his nominee or assignee, shall be entitled to be entered in the books of the Corporation as at the Date of Conversion (or such later date as is specified in subsection 4.2(2)) as the registered holder of the numbers of Common Shares and Warrants into which such Note is convertible in accordance with the provisions hereof and, as soon as practicable thereafter, the Corporation shall deliver to such Holder or, subject as aforesaid, his nominee or assignee certificates for such Common Shares and Warrants and a cheque for any amounts payable under Sections 2.3, 4.1(4) or 4.5.

In the event of an Automatic Conversion the Registered Holder shall be entitled, without any further act on the Registered Holder’s part, to be entered in the books of the Corporation as at the Date of Conversion as the registered holder of the numbers of Common Shares and Warrants into which such Note is convertible in accordance with the provisions hereof and, as soon as practicable thereafter and in any event within three Trading Days, the Corporation shall deliver to the Registered Holder a certificate for such Common Shares and Warrants and, if applicable, a cheque for any amounts payable under Section 4.5

(2)For the purposes hereof, a Note shall be deemed to be surrendered for conversion on the date (the ”Date of Conversion”) which is:

(i)in respect of an Optional Conversion, the date on which it is so surrendered in accordance with the provisions hereof and, in the case of a Note so surrendered by mail or other means of delivery, on the date on which it is received by the Corporation at its office specified in subsection 4.2(1), provided that if a Note is surrendered for conversion on a day on which the register of Common Shares is closed, the Person entitled to receive Units shall become the holder of record of such Common Shares and Warrants as at the date on which such register is next reopened; and

(ii)in respect of an Automatic Conversion, the date as of which the Automatic Conversion Condition has first been met.

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(3)Any part, being $1,000 or an integral multiple thereof, of a Note may be converted as provided herein and all references in this Note to conversion of Notes shall be deemed to include conversion of such parts.  The Holder of any Note of which part only is converted shall, upon the exercise of his right of conversion, surrender such Note to the Corporation, and the Corporation shall cancel the same and shall forthwith issue and deliver to the Holder a new Note or Notes in an aggregate principal amount equal to the unconverted part of the principal amount of the Note so surrendered.

(4)The Common Shares issued upon conversion shall rank only in respect of dividends declared in favour of holders of record of Common Shares on or after the Date of Conversion or such later date as such Holder shall become the holder of record of such Common Shares pursuant to subsection 4.2(2), from which applicable date they will for all purposes be and be deemed to be issued and outstanding as fully paid and non-assessable Common Shares.

4.3Adjustment of Conversion Price

The Conversion Price will be subject to adjustment from time to time in the events and in the manner provided as follows:

(1)If and whenever at any time after the date hereof, and prior to the Time of Expiry, the Corporation:

(i)issues Common Shares or securities exchangeable for or convertible into Common Shares to all or substantially all the holders of Common Shares as a stock dividend or other distribution (other than an issue of Common Shares to holders of Common Shares pursuant to a right granted to such holders to receive such Common Shares in lieu of dividends paid in the ordinary course);

(ii)subdivides its outstanding Common Shares into a greater number of Common Shares; or

(iii)consolidates its outstanding Common Shares into a smaller number of Common Shares,

(any of such events in clauses (i), (ii) and (iii) of this subsection being called a “Common Share Reorganization”), then the Conversion Price shall be adjusted effective immediately after the effective date or record date for the happening of a Common Share Reorganization, as the case may be, at which the holders of Common Shares are determined for the purpose of the Common Share Reorganization by multiplying the Conversion Price in effect immediately prior to such effective date or record date by a fraction, the numerator of which will be the number of Common Shares outstanding on such effective date or record date before giving effect to such Common Share Reorganization and the denominator of which will be the number of Common Shares outstanding immediately after giving effect to such Common Share Reorganization (including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would have been outstanding had all such securities been exchanged for or converted into Common Shares on such effective date or record date).

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(2)If and whenever at any time after the date hereof, and prior to the Time of Expiry, the Corporation fixes a record date for the issue of rights, options or warrants to all or substantially all the holders of Common Shares (the “Rights”) under which such holders are entitled, during a period expiring not more than forty-five (45) days after the date of such issue (the “Rights Period”), to subscribe for or purchase Common Shares at a price per share to the holder (or at an exchange or conversion price per share during the Rights Period to the holder in the case of securities exchangeable for or convertible into Common Shares) of less than 95% of the price (the “Current Market Price”) which is equal to the average Closing Market Price for the period of 20 Trading Days immediately preceding such record date (any of such events being called a “Rights Offering”), then the Conversion Price shall be adjusted effective immediately after the end of the Rights Period to a price determined by multiplying the Conversion Price in effect on such record date by a fraction:

(i)the numerator of which will be the aggregate of:

(1)the number of Common Shares outstanding as of the record date for the Rights Offering; plus

(2)a number determined by dividing (a) the product of the number of Common Shares issued or subscribed for during the Rights Period upon the exercise of the rights, warrants or options under the Rights Offering and the price at which such Common Shares are offered by (b) the Current Market Price of the Common Shares as of the record date for the Rights Offering, and

(ii)the denominator of which will be the number of Common Shares outstanding after giving effect to the Rights Offering and including the number of Common Shares actually issued or subscribed for during the Rights Period upon exercise of the rights, warrants or options under the Rights Offering.

Any Holder who has exercised the right to convert Common Shares in accordance with this Article 4 during the period beginning immediately after the record date for a Rights Offering and ending on the last day of the Rights Period for the Rights Offering will, in addition to the Common Shares and Warrants to which that Holder would otherwise be entitled upon such conversion, be entitled to that number of additional Common Shares equal to the difference between the shares received on such conversion and the shares that would have been received if the Conversion Price as adjusted for such Rights Offering pursuant to this subsection had applied when the Holder exercised the right to convert; provided that the provisions of Section 4.5 will be applicable to any fractional interest in a Common Share to which such Holder might otherwise be entitled under the foregoing provisions of this subsection.  Such additional Common Shares will be deemed to have been issued to the Holder immediately following the end of the Rights Period and a certificate for such additional Common Shares will be delivered to such Holder within five Business Days following the end of the Rights Period.  To the extent that any such rights, options or warrants are not so exercised on or before the expiry thereof, the Conversion Price will be readjusted to the Conversion Price which would then be in effect based on the number of Common Shares (or the securities convertible into or exchangeable for Common Shares) actually delivered on the exercise of such rights, options or warrants.

(3)If and whenever at any time after the date hereof and prior to the Time of Expiry, the Corporation fixes a record date for the issue or the distribution to all or substantially all the holders of Common Shares

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of (i) securities of the Corporation, including rights, options or warrants to acquire securities of the Corporation or any of its property or assets and including evidences of indebtedness or (ii) any property or other assets, including evidences of indebtedness, and if such issuance or distribution does not constitute a dividend paid in the ordinary course, a Common Share Reorganization or a Rights Offering (any of such non-excluded events being called a “Special Distribution”), the Conversion Price shall be adjusted effective immediately after such record date to a price determined by multiplying the Conversion Price in effect on such record date by a fraction:

(i)the numerator of which will be:

(1)the product of the number of Common Shares outstanding on such record date and the Current Market Price of the Common Shares on such record date; less

(2)subject to the prior written consent of the Principal Market, if applicable, the excess, if any, of (a) the fair market value, as determined by action by the Corporation’s board of directors (whose determination will be conclusive), to the holders of Common Shares of such securities or property or other assets so issued or distributed in the Special Distribution over (b) the fair market value of the consideration received therefor by the Corporation from the holders of Common Shares, as determined by the Corporation’s board of directors (whose determination will be conclusive); and

(ii)the denominator of which will be the product of the number of Common Shares outstanding on such record date and the Current Market Price of the Common Shares on such record date.

To the extent that any Special Distribution is not so made, the Conversion Price will be readjusted effective immediately to the Conversion Price which would then be in effect based upon such securities or property or other assets as actually distributed.

(4)If and whenever at any time after the date hereof, and prior to the Time of Expiry, there is a reclassification of the Common Shares at any time outstanding or change of the Common Shares into other shares or into other securities or other capital reorganization (other than a Common Share Reorganization), or a consolidation, amalgamation or merger of the Corporation with or into any other corporation or other entity (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other shares), or a transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or other entity in which the holders of Common Shares are entitled to receive shares, other securities or other property (any of such events being called a “Capital Reorganization”), any Holder who exercises the right to convert Notes into Common Shares pursuant to Notes then held after the effective date of such Capital Reorganization will be entitled to receive, and will accept for the same aggregate consideration in lieu of the number of Common Shares to which such Holder was previously entitled upon such conversion, the aggregate number of shares, other securities or other property or cash which such Holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the Holder had been the registered holder of the number of Common Shares to which such Holder was previously entitled upon conversion subject to adjustment

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thereafter in accordance with provisions the same, as nearly possible, as those contained in this Article 4.  The Corporation will take all steps necessary to ensure that, on a Capital Reorganization, the Holders of Notes will receive the aggregate number of shares, other securities or other property or cash to which they are entitled as a result of the Capital Reorganization.  Appropriate adjustments will be made as a result of any such Capital Reorganization in the application of the provisions set forth in this Article 4 with respect to the rights and interests thereafter of Holders of Notes to the end that the provisions set forth in this Article 4 will thereafter correspondingly be made applicable as nearly as may reasonably be in relation to any shares, other securities or other property thereafter deliverable upon the conversion of any Note.  Subject to the prior written consent of the Principal Market, if applicable, any such adjustment will be made by and set forth in an instrument supplemental hereto approved by action of the board of directors of the Corporation and will for all purposes be conclusively deemed to be an appropriate adjustment.

(5)If the purchase price provided for in any rights, options or warrants (the “Rights Offering Price”) referred to in subsections 4.3(2) or (3) is decreased, the Conversion Price will forthwith be changed so as to decrease the Conversion Price to the Conversion Price that would have been obtained if the adjustment to the Conversion Price made under such subsections, as the case may be, with respect to such rights, options or warrants had been made on the basis of the Rights Offering Price as so decreased, provided that the terms of this subsection will not apply to any decrease in the Rights Offering Price resulting from terms in any such rights, options or warrants designed to prevent dilution except to the extent that the resulting decrease in the Conversion Price under this subsection would be greater than the decrease, if any, in the Conversion Price to be made under the terms of this section by virtue of the occurrence of the event giving rise to such decrease in the Rights Offering Price.

(6)In any case in which this section requires that an adjustment become effective immediately after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing to the Holder of any Note converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event; provided, however, that the Corporation shall deliver to such Holder an appropriate instrument evidencing such Holder’s right to receive such additional Common Shares upon the occurrence of such event and the right to receive any distributions made on such additional Common Shares declared in favour of holders of record of Common Shares on and after the Date of Conversion or such later date on which such Holder would, but for the provisions of this subsection, have become the holder of record of such additional Common Shares pursuant to subsection 4.2(1).

4.4Rules Regarding Calculation of Adjustment of Conversion Price

For the purposes of Section 4.3:

(1)The adjustments provided for in Section 4.3 are cumulative and will be computed to the nearest one-tenth of one cent and will be made successively whenever an event referred to therein occurs, subject to the remaining provisions of this section.

(2)No adjustment in the Conversion Price will be required unless such adjustment would result in a change of at least 1% in the prevailing Conversion Price; provided, however, that any adjustments which, except for the provisions of this subsection would otherwise have been required to be made, will be carried forward and taken into account in any subsequent adjustment.

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(3)No adjustment in the Conversion Price will be made in respect of any event described in Section 4.3 if Holders are entitled to participate in such event on the same terms, mutatis mutandis, as if they had converted their Notes prior to or on the effective date or record date of such event.  Any such participation will be subject to the prior consent of each stock exchange on which the Common Shares are listed or quoted for unlisted trading privileges, or were listed in the year prior to the occurrence of the event described in this subsection, if applicable.

(4)If at any time a dispute arises with respect to adjustments provided for in Section 4.3, subject to the prior written consent of the Principal Market, if applicable, such dispute will be conclusively determined by the Corporation’s auditors, or if they are unable or unwilling to act, by such other firm of independent chartered accountants as may be selected by action of the Corporation’s board of directors and any such determination will be binding upon the Corporation, the Holders and shareholders of the Corporation; such auditors or accountants will be given access to all necessary records of the Corporation.

(5)If the Corporation sets a record date to determine the holders of Common Shares for the purpose of entitling them to receive any dividend or distribution or sets a record date to take any other action and thereafter and before the distribution to such shareholders of any such dividend or distribution or the taking of any other action, legally abandons its plan to pay or deliver such dividend or distribution or take such other action, then no adjustment in the Conversion Price shall be made.

(6)In the absence of a resolution of the Corporation’s board of directors fixing a record date for a Special Distribution or Rights Offering, the Corporation shall be deemed to have fixed as a record date therefor the date on which the Special Distribution or Rights Offering is effected.

4.5No Requirement to Issue Fractional Shares or Warrants

The Corporation shall not be required to issue fractional Common Shares or Warrants upon the conversion of Notes.  If more than one Note is surrendered for conversion at one time by the same Holder, the number of whole Common Shares and Warrants issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Notes to be converted. If any fractional interest in a Common Share or Warrant, as applicable, would, except for the provisions of this section, be deliverable upon the conversion of any principal amount of Notes, the Corporation shall, in lieu of delivering any certificate of such fractional interest, satisfy such fractional interest by paying to the Holder of such surrendered Notes an amount in lawful money of Canada equal to the value of such fractional interest based upon the Closing Market Price of the Common Shares on the Business Day preceding the Date of Conversion.

4.6Corporation to Reserve Shares

The Corporation covenants that it will at all times reserve and keep available out of its authorized Common Shares (if the number thereof is or becomes limited) solely for the purpose of issue upon conversion of Notes as provided herein, and conditionally issue to Holders who may exercise their conversion rights hereunder, such number of Common Shares as shall then be issuable upon the conversion of all outstanding Notes and any Warrants which may be issued on exercise thereof. All Common Shares which shall be so issuable shall be duly and validly issued as fully paid and non-assessable.

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4.7Cancellation of Converted Notes

All Notes converted in whole or in part shall be forthwith cancelled by the Corporation and, subject to subsection 4.2(3), no Notes shall be issued in substitution therefor.

4.8Certificate as to Adjustment

The Corporation shall from time to time, immediately after the occurrence of any event which requires an adjustment or readjustment as provided in Section 4.3, deliver a certificate to the Holders specifying the nature of the event requiring the same and the amount of the adjustment or readjustment necessitated thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Except in respect of any subdivision, redivision, reduction, combination or consolidation of the Common Shares, the Corporation shall forthwith give notice to the Holders specifying the event requiring such adjustment or readjustment and the amount thereof, including the resulting Conversion Price; provided that if the Corporation has given notice under Section 4.9 covering all the relevant facts in respect of such event, no such notice need be given under this section.

4.9Notice of Special Matters

The Corporation covenants that, so long as any Notes remain outstanding, it will give notice to the Holders of its intention to fix a record date for any event referred to in subsections 4.3(1), (2), (3) or (4)  (other than the subdivision, redivision, reduction, combination or consolidation of Common Shares) or a cash dividend (other than a dividend paid in the ordinary course) which may give rise to an adjustment in the Conversion Price, and such notice shall specify the particulars of such event and the record date and the effective date for such event; provided that the Corporation shall only be required to specify in such notice such particulars of such event as shall have been fixed and determined on the date on which such notice is given.  Such notice shall be given not less than 14 days prior to the applicable record date.

ARTICLE 5
COVENANTS OF THE CORPORATION

5.1General Covenants

The Corporation hereby covenants with the Holders as follows:

(a)the Corporation will duly and punctually pay or cause to be paid to every Holder the principal thereof and interest accrued on the Notes (and, in case of default, interest on the amount in default) of which he is the Holder on the dates, at the places, and in the manner mentioned herein;

(b)at the request of a Holder, the Corporation will furnish to the Holders a copy of all financial statements, whether annual or interim, of the Corporation and the report, if any, of the Corporation’s auditors thereon and of all annual and other periodic reports of the Corporation furnished to its shareholders after the date hereof and prior to the Time of Expiry;

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(c)the Corporation will duly and punctually perform and carry out all of the acts or things to be done by it, and perform all covenants required to be performed by it, as provided in this Note;

(d)upon the occurrence of an Event of Default, the Corporation shall permit a representative of the Holders to inspect the Collateral and the operations of the Corporation and for that purpose to enter to the Corporation’s premises and any other location where the Collateral may be situated during reasonable business hours and upon reasonable notice;

(e)the Corporation shall:

(i)keep proper books of accounts and records covering all of its business and affairs on a current basis as well as accurate and complete records concerning the Collateral;

(ii)notify the Registered Holder promptly of any loss or damage to or any seizure of any significant portion of the Collateral;

(iii)furnish the Registered Holder with such information regarding the Collateral and its value and location as the Registered Holder may from time to time reasonably request;

(iv)upon the occurrence of an Event of Default, permit a representative of the Holders, during reasonable business hours and upon reasonable notice, to inspect the Corporation’s books of account, records and documents and to make copies, extracts and summaries therefrom; and

(v)at any time after an Event of Default, permit the Registered Holder or its representative to make reasonable inquiries of third parties for the purpose of verification of any of the foregoing; and

(f)the Corporation shall promptly notify the Registered Holder in writing of the details of:

(i)any amendment to its articles, including by virtue of the filing of articles of amalgamation, effecting a change in the Corporation’s name;

(ii)any claim, litigation or proceeding before any court, administrative board or other tribunal which either does or could have a material adverse effect on the Collateral or the Corporation;

(iii)any claim, lien, attachment, execution or other process or encumbrance made or asserted against or with respect to the Collateral which either does or could have material adverse effect on the validity or enforceability of the Security Interest;

(iv)any transfer of the Corporation’s interest in the Collateral, whether or not permitted hereunder; or

(v)any material loss of or damage to the Collateral, whether or not such loss or damage is covered by insurance; and

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(g)the Corporation shall keep the Collateral insured as would a reasonable prudent owner of similar property against loss or damage by fire, theft or other usual perils, in such amounts as would a reasonably prudent owner of similar property and with such insurers as the Registered Holder may reasonably require from time to time.

5.2Specific Covenants

The Corporation hereby further covenants with the Holders that:

(a)all Common Shares which shall be issued upon an Optional Conversion or an Automatic Conversion, or on due exercise of any Warrants, shall be issued as fully paid and non-assessable in the capital of the Corporation;

(b)it will at all times maintain its corporate existence and will carry on and conduct its business in a proper and efficient manner; provided, however, that nothing herein contained shall prevent the Corporation from ceasing to operate any business or property if, in the opinion of its board of directors, it shall be advisable and in the best interests of the Corporation to do so;

(c)it will use its best efforts to maintain the listing of the Common Shares (including the Common Shares issuable pursuant to the terms of the Notes) on or through the TSX or another recognized Canadian stock exchange;

(d)it will use its best efforts to maintain its status as a reporting issuer in each of the Provinces of Ontario, British Columbia, and Alberta not in default;

(e)it will at all times, so long as any Notes remain outstanding and may be converted, keep open the register of Notes and the transfer registers for the Common Shares and will not take any action which would have the effect of preventing the Holders from converting any of the Notes or receiving any of the Common Shares upon such conversion;

(f)it will make all requisite filings, including filings with appropriate securities commissions and stock exchanges, in connection with the creation and sale of the Notes, the conversion of the Notes and the issue of the underlying Common Shares;

(g)generally, it will well and truly perform and carry out all of the acts or things to be done by it as provided herein; and

(h)it will use its best efforts to comply with, satisfy and fulfil promptly all prerequisites, conditions and requirements imposed by or arising out of legal, regulatory and administrative requirements applicable to the Corporation with respect to the consummation of the transactions contemplated hereby, including filing or causing to be filed all documents, certificates, opinions, forms or undertakings required to be filed by the Corporation in connection with the purchase and sale of the Notes, the issuance of the Common Shares in accordance with the terms of the Notes and the listing and posting for trading of such Common Shares on the TSX or another recognized Canadian stock exchange, as applicable.

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5.3Performance of Covenants by the Registered Holder

The Registered Holder may, in its sole discretion and upon notice to the Corporation, perform any covenant of the Corporation under this Note that the Corporation fails to perform and that the Registered Holder is capable of performing, including any covenant the performance of which requires the payment of money; provided that the Registered Holder will not be obligated to perform any such covenant on behalf of the Corporation.  No such performance by the Registered Holder will require the Registered Holder further to perform the Corporation’s covenants nor relieve the Corporation from any default or operate as a derogation of the rights and remedies of the Registered Holder under this Note.  The Corporation agrees to indemnify and to reimburse the Registered Holder for all costs and expenses incurred by the Registered Holder in connection with the performance by it of any such covenant, and all such costs and expenses shall be payable by the Corporation to the Registered Holder on demand, shall bear interest at the highest rate per annum borne by any of the Obligations, calculated and compounded monthly, and shall (with all such interests) be added and form part of the Obligations.

ARTICLE 6
SECURITY INTEREST

6.1Grant of Security Interest, Description of Collateral

As continuing collateral security for the due and timely payment and performance by the Corporation of the Obligations, the Corporation hereby mortgages, charges, pledges, assigns, transfers and sets over to the Registered Holder and grants to the Registered Holder a general and continuing security interest in the Collateral, which shall include but not be limited to:

(a)all accounts, debts, amounts, claims, choses in actions and monies which now are, or which may at any time hereafter become, due or owing to or owned by the Corporation, whether or not earned by performance, including any and all accounts receivable arising or resulting from the sale, lease, use, assignment or other disposition of any property described in this section; all securities, mortgages, bills,  notes and other documents now held or owned, or which may be hereafter taken, held or owned, by or on behalf of the Corporation, in respect of such accounts, debts, amounts, claims, choses in actions and monies or any parts thereof; and all books, documents and papers recording, evidencing, or relating to such accounts, debts, amounts, claims, choses in actions and monies or any part thereof;

(b)all present and future agreements made between the Corporation as secured party and others which evidence both a monetary obligation and security interest in or a lease of specific goods;

(c)all books of accounts and other books, invoices, writings, letters, papers and other documents whether in written, magnetic, electronic or other form, relating to or being records of the Collateral or by which any of the Collateral is secured, evidenced, acknowledged or made payable;

(d)all writings now or hereafter owned by the Corporation, each of which writing purports to be issued by or addressed to a bailee and purports to cover such goods and chattels in the bailee’s possession as are identified or fungible portions of an identified mass, whether such goods and

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chattels are inventory or equipment and which writing is treated in the ordinary course of business as establishing that the person in possession of such writing is entitled to receive, hold and dispose of such writing and the goods and chattels it covers, and further, whether such writing is negotiable in form or otherwise, including bills of lading and warehouse receipts;

(e)all equipment now owned or hereafter acquired by the Corporation, including all machinery, fixtures, plant, tools, furniture, chattels, vehicles of any kind or description including motor vehicles, parts, accessories, installed in or affixed or attached to any of the foregoing, all purchase warranties and claims, drawings, specifications, plans and manuals relating thereto, any equipment specified as equipment of the Corporation and other tangible personal property which is not inventory;

(f)all present and future bills, notes and cheques (as such terms are defined pursuant to the Bills of Exchange Act (Canada)) of the Corporation, and all of the writing and evidence a right to the payment of money and are of a type that in the ordinary course of business are transferred by delivery and all letters of credit and advices of credit provided that such letters of credit and advices of credit state that they must be surrendered upon claiming payment thereof;

(g)subject to Section 6.5, all intangible property now owned or hereafter acquired by the Corporation and which is not accounts, including all contractual rights, insurance claims, goodwill, licenses, inventions, franchises, designer rights, know-how processes and formulae, patents, patent applications, trade-marks, trade names, copyrights and other intellectual or industrial property of the Corporation, whether registered or not and whether under license or otherwise, and all other choses in action of the Corporation of every kind, whether due or owing at the present time or hereinafter to become due or owing;

(h)all goods and chattels now or hereafter forming the inventory of the Corporation including all goods, merchandise, raw materials, work in process, finished goods, goods held for sale, resale or lease or that have been leased or that are to be, or have been furnished under a contract of service, and goods used in or procured for  packing or packaging;

(i)all money now or hereafter owned by the Corporation, whether or not such money is authorized or adopted by the Parliament of Canada as part of its currency or by any foreign government as part of its currency;

(j)all present and future securities held by the Corporation, including shares, options, rights, warrants, joint venture interests, interests in limited partnerships, trust units, bonds, Notes and all other documents which constitute evidence of a share, participation or other interest of the Corporation in property or in an enterprise or which constitute evidence of an obligation of the issuer (including an uncertificated security within the meaning of Part VI (Investment Securities) of the Business Corporations Act (Ontario)), together with all accretions thereto, all substitutions therefor, all dividends and income derived therefrom and all rights and claims in respect thereof; and

(k)subject to Section 6.4 all leases now owned or hereafter acquired by the Corporation as tenant (whether oral or written) or any agreement therefor, together with all of the Corporation’s erections, improvements and fixtures situate thereupon.

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6.2Proceeds

The Security Interest shall extend to all proceeds (other than consumer goods) of the Collateral.

6.3Attachment

The Corporation hereby acknowledges that value has been given by the Registered Holder for the granting of the Security Interest, that the Corporation has rights in the Collateral (other than future and hereafter acquired Collateral), and that the parties have agreed not to postpone the time for attachment of the Security Interest.

6.4Exception re Last Day of Leases

The last day of the term of any lease, sublease or agreement therefor, oral or written, now held or hereafter acquired by the Corporation is specifically excepted from the Security Interest and shall not form part of the Collateral, but the Corporation agrees to stand possessed of such last day in trust for any person as the Registered Holder may direct and the Corporation shall assign and dispose thereof in accordance with such direction.

6.5Exception re Contractual Rights, Licenses, etc.

To the extent that the Security Interest would constitute a breach or cause the acceleration of any agreement, lease, contractual right, license, approval, privilege, franchise or permit to which the Corporation is a party, the Security Interest shall not attach thereto but the Corporation shall hold its interest therein in trust for the Registered Holder and shall grant a security interest in such agreement, contractual right, license or permit to the Registered Holder forthwith upon obtaining the appropriate consents to the creation of such security interest.  The Corporation agrees to use commercially reasonably efforts to obtain any such consent from time to time requested by the Registered Holder.

6.6Amalgamation

In the event that the Corporation shall amalgamate with any other corporation or corporations:

(a)the term “Corporation” wherever used herein shall extend to and include each of the amalgamating corporations and the amalgamated corporation and the indebtedness, obligations, and liabilities of each of them shall be included in the Obligations; and

(b)the Security Interest shall extend to and the Collateral shall include all the property and assets of each of the amalgamating corporations and the amalgamated corporation and to any property or assets of the amalgamated corporation thereafter owned or acquired.

ARTICLE 7
RESTRICTIONS ON DISPOSITIONS OF COLLATERAL

7.1General Restrictions

Except as herein expressly provided, the Corporation shall not, without the prior written consent of the Registered Holder:

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(a)create, allow to be created, assume or suffer to exist any encumbrance upon the Collateral ranking or purporting to rank in priority to or pari passu with the Security Interest other than the Permitted Security Interests;

(b)sell, lease, assign or otherwise dispose of or deal with the Collateral; or

(c)release, surrender or abandon possession of the Collateral.

Save as herein otherwise expressly provided, nothing herein shall be construed as constituting an express or implied subordination or postponement of the Security Interest.

7.2Permitted Dispositions

This Note and the Security Interest shall in no way hinder or prevent the Corporation, without the prior written consent of the Registered Holder, at any time or from time to time until an Event of Default shall have occurred and the Security Interest shall become enforceable:

(a)from collecting and, where necessary, enforcing the collection of any and all amounts due or to become due to the Corporation under any account; or

(b)from selling, leasing, licensing, consigning or otherwise disposing of inventory or of any obsolete, worn out, damaged or otherwise unsuitable equipment forming part of the Collateral in the ordinary course of the Corporation’s business and for the purpose of carrying on the same.

ARTICLE 8
DEFAULT AND ENFORCEMENT

8.1Events of Default

Each of the following events is hereinafter sometimes referred to as an “Event of Default”:

(a)if the Corporation makes default in payment of the principal of or, if applicable, any interest on, any Note when the same becomes due and such default shall not have been remedied within a period of 10 business days after such default shall first have become known to any officer of the Corporation or written notice thereof shall have been received by the Company from the Registered Holder;

(b)if the Corporation or any subsidiary shall make a general assignment for the benefit of its creditors or a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada), or shall be declared or adjudged bankrupt, or a receiving order shall be made against the Corporation or any subsidiary unless same is being contested in good faith and is dismissed, stayed or withdrawn within 30 days thereof, or if a liquidator, trustee in bankruptcy, receiver, receiver and manager or any other officer with similar powers shall be appointed to the Corporation or any subsidiary or of all of its property or any material part thereof unless same is being contested in good faith and is dismissed, stayed or withdrawn within 30 days thereof, or if the Corporation or any subsidiary shall propose a compromise, arrangement, or reorganization under the Companies’ Creditors Arrangement Act (Canada) or any similar legislation of any

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jurisdiction providing for the reorganization or winding-up of corporations or business entities or providing for an agreement, composition, extension or adjustment with its creditors; or the Corporation or any subsidiary shall admit in writing its inability to pay its debts generally as they become due or shall take corporate action in furtherance of any of the aforesaid purposes;

(c)if an order shall be made or effective resolution passed for the winding-up or liquidation of the Corporation or any subsidiary, except in the course of carrying out or pursuant to a transaction in respect of which the conditions of Section 8.1 are duly observed and performed, or except in the case of voluntarily winding-up or liquidating a subsidiary of the Corporation in a voluntary transaction pursuant to which substantially all of the assets of such subsidiary are transferred to the Corporation or another subsidiary of the Corporation;

(d)if the Corporation or any subsidiary shall make default beyond any period of grace provided with respect thereto in the payment of the principal of, or part thereof, or interest or premium on, any indebtedness in excess of $100,000 or observance of any term, agreement or condition in respect of such indebtedness and the effect of such default is to accelerate the payment of such indebtedness or to permit the holder or holders of such indebtedness (or trustee on behalf of such holder or holders) to accelerate the payment of such indebtedness, and such acceleration shall not be rescinded or annulled or such event of default shall not be remedied or cured, whether by payment or otherwise, by the Corporation or the subsidiary or waived by the holders of such indebtedness, within 30 days after such acceleration shall have occurred;

(e)if the Corporation shall neglect to observe or perform any other covenant or condition contained in the Note on its part to be observed or performed and, after notice in writing has been given by the Registered Holder to the Corporation specifying such default and requiring the Corporation to put an end to the same, the Corporation shall fail to make good such default within a period of 30 days, unless the Registered Holder (having regard to the subject matter of the default) shall have agreed to a longer period, and in such event, within the period agreed to by the Registered Holder;

(f)an encumbrancer, whether permitted or otherwise, takes possession of any significant portion of the Collateral;

(g)an order is made or legislation enacted for the expropriation, confiscation, forfeiture, escheating or other taking or compulsory divestiture, whether or not with compensation, of all or a significant portion of the Collateral unless the same is being actively and diligently contested by the Corporation in good faith, the Corporation shall have provided to the Registered Holder such security therefor as it may reasonably require and such order or legislation shall have been vacated, lifted, discharged, stayed or repealed within 30 days from the date of being entered, pronounced or enacted, as the case may be;

(h)any process of a court, execution, attachment, garnishment, distress or analogous process is issued or levied or becomes enforceable or is enforced against any significant portion of the Collateral unless the same is being actively and diligently contested by the Corporation in good faith, the Corporation shall have provided to the Registered Holder such security therefor as it may reasonably require and such court process, execution, attachment, garnishment, distress or

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analogous process shall have been vacated, lifted, discharged or stayed within 30 days after being entered, commenced or levied, as the case may be;

(i)the Corporation ceases or threatens to cease to carry on its business, commits an act of bankruptcy, becomes insolvent, proposes a compromise or arrangement to its creditors or makes an unauthorized sale in bulk of its assets; or

(j)the Corporation is liquidated, dissolved or its corporate charter expires or is revoked.

8.2Notice of Events of Default

If an Event of Default shall occur and is continuing the Corporation shall, within five Business Days after it becomes aware of the occurrence of such Event of Default, give notice thereof to the Holders.

Where notice of the occurrence of an Event of Default has been given and the Event of Default is thereafter cured, notice that the Event of Default is no longer continuing shall be given by the Corporation to the Holders within five Business Days after the Corporation becomes aware that the Event of Default has been cured.

8.3Acceleration on Default

If any Event of Default has occurred and is continuing, the Registered Holder may in its discretion, by notice in writing to the Corporation declare the principal amount of the Note held by such Registered Holder and any other monies payable hereunder to be due and payable and the same shall forthwith become immediately due and payable to such Registered Holder, anything herein contained to the contrary notwithstanding.

8.4Remedies

Upon the occurrence of an Event of Default, the Security Interest shall immediately become enforceable and the Registered Holder may, forthwith or at any time thereafter and without notice to the Corporation except as required by the PPSA or by this Note:

(a)commence legal action to enforce payment or performance of any or all of the Obligations;

(b)make payments to discharge any claim, lien, mortgage, security interest, charge or other encumbrance on properties on which either the Corporation or the Registered Holder may hold charges or encumbrances (whether or not ranking in priority to the Security Interest);

(c)enter upon, use and occupy any and all premises owned, leased or occupied by the Corporation where the Collateral may be located;

(d)take immediate possession of all or any part of the Collateral and require the Corporation to assemble or deliver possession of the Collateral at a location or locations specified by the

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Registered Holder, with power to exclude the Corporation, its officers, directors and agents therefrom;

(e)appoint or reappoint by instrument in writing any person to be an agent or any person to be a receiver, manager or receiver and manager (herein called a “Receiver”) of the Collateral and to remove any Receiver so appointed and to appoint another if the Registered Holder so desires;

(f)notify the account debtors or obligors under any accounts of the assignment of such accounts to the Registered Holder and direct such account debtors or obligors to make payment of all amounts due or to become due to the Corporation thereunder directly to the Registered Holder and give valid and binding receipts and discharges therefor and in respect thereof and, upon such notification and at the expense of the Corporation, enforce collection of any accounts, and adjust, settle, or compromise the account or payment thereof in the same manner and to the same extent as the Corporation might have done;

(g)enjoy and exercise all of the rights and remedies of a secured party under the PPSA;

(h)file such proofs of claim or other documents as may be necessary or desirable to have its claim lodged in any bankruptcy, winding-up, liquidation, dissolution or other proceedings (voluntary or involuntary) relating to the Corporation;

(i)preserve, protect and maintain the Collateral and made such replacements thereof and additions thereto as the Registered Holder shall deem advisable;

(j)sell, consign, lease or otherwise dispose of all or any part of the Collateral whether by public or private sale, consignment or lease or otherwise and on any terms so long as every aspect of the disposition is commercially reasonable, including terms that provide time for payment on credit; provided that:

(i)neither the Registered Holder nor any Receiver will be required to sell, consign, lease or dispose of the Collateral, but may peaceably and quietly take, hold, use, occupy, possess and enjoy the Collateral without molestation, eviction, hindrance, or interruption by any other person or persons whomsoever for such period of time as is commercially reasonable;

(ii)the Registered Holder or any Receiver may dispose of all or any part of the Collateral in the condition in which it was on the date possession of it was taken, or after any commercially reasonable repair, processing or preparation for disposition;

(iii)the Registered Holder or any Receiver may convey, transfer or assign to a purchaser or purchasers the title to any of the Collateral so sold; and

(iv)the Corporation will be entitled to be credited with the actual proceeds of any such sale, consignment, lease or other disposition only when such proceeds are received by the Registered Holder or Receiver in cash.

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8.5Powers and Duties of Receiver

Any Receiver appointed hereunder:

(a)shall, subject to the provisions of the instrument appointing it, have all of the powers of the Registered Holder hereunder, together with:

(i)the power to carry on the business of the Corporation or any part thereof;

(ii)the power to borrow money in the Corporation’s name or in the Receiver’s name; and

(iii)the power to grant security interests in the Collateral in priority to the Security Interest as security for the money so borrowed; and

(b)shall be deemed to be the agent of the Corporation for the purpose of establishing liability for the acts or omissions of the Receiver and the Registered Holder shall not be liable for such acts or omissions.

The Corporation hereby irrevocably authorizes the Registered Holder from time to time after appointment of any receiver to give instructions to the Receiver relating to the performance relating to the Receiver’s duties and to fix the remuneration of the Receiver in connection therewith.

8.6Other Remedies

The remedies provided in Section 8.4 are cumulative and in addition to (and not in substitution for, exclusive of nor dependent on) any other remedies contained herein or in any existing or future security document granted by the Corporation to the Registered Holder and to all other remedies existing at law or in equity or by statute.

8.7Restrictions on Corporation

Upon the Registered Holder taking possession of the Collateral or the appointment of a Receiver, all the powers, functions, rights and privileges of the Corporation or any officer, director, employee or agent of the Corporation with respect to the Collateral shall, to the extent permitted by law, be suspended unless specifically continued by the written consent of the Registered Holder; however, all other powers, functions, rights and privileges of the Corporation or any officer, director, employee or agent of the Corporation shall be unaffected by such events.

8.8Indulgences and Releases

Either the Registered Holder or Receiver may grant extensions of time and other indulgences, take and give up or abstain from perfecting or taking advantage of securities, except compositions, compound, compromise, settle, grant releases and discharges, release any part of the Collateral to third parties and otherwise deal with the Corporation, debtors of the Corporation, surety and others and with the Collateral and other security as the Registered Holder or such Receiver may see fit without prejudice

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to the liability of the Corporation under the Obligations or the right of the Registered Holder and such Receiver to hold the Collateral and realize upon the Security Interest.

8.9Expenses of Enforcement

The Corporation agrees to indemnify the Registered Holder for all reasonable costs and expenses of the Registered Holder, its agents, advisers and consultants (including legal fees and disbursements on a solicitor and his own client basis) incurred with respect to the exercise by the Registered Holder of any of its rights, remedies and powers under this Note (including costs and expenses relating to the custody, preservation and realization of the Collateral, the remuneration of the Receiver and all costs and expenses incurred by the Receiver in performing its functions under its appointment), and such costs and expenses shall be added to and form part of the Obligations.

8.10Application of Monies

Subject to the requirements of the PPSA, all money or other proceeds of realization collected or received by the Registered Holder or any Receiver upon the realization of the Security Interest or on exercise of any other rights or remedies herein contained with respect to the Collateral shall be applied on account of the Obligations in such manner as the Registered Holder deems best or, at the option of the Registered Holder, may be held unapportioned in a collateral account or released to the Corporation, all without prejudice to the liability of the Corporation or the rights of the Registered Holder hereunder.  The balance of such proceeds, if any, shall be paid in accordance with the PPSA and any other applicable law.

8.11Liability for Deficiency

If the proceeds of realization received by or on behalf of the Registered Holder from the disposition of the Collateral are not sufficient to satisfy the Obligations in full, the Corporation shall be liable to pay such deficiency to the Registered Holder forthwith on demand.

8.12Set Off

Without in any way limiting any other rights or remedies available to the Registered Holder, the Registered Holder shall have the right (but shall not be obligated), at any time and from time to time after the occurrence of an Event of Default and without notice to the Corporation (such notice being expressly waived by the Corporation), to set off against the Obligations or any of them deposits (general or special) or monies held by the Registered Holder or any other indebtedness owing by the Registered Holder to, or held by, the Registered Holder for the credit of, the Corporation, regardless of the currency in which such indebtedness is denominated and notwithstanding that such indebtedness is not then due.

8.13Waiver

The Corporation hereby waives diligence, presentment, protest, notice of protest, notice of dishonour and notice of non-payment of this Note, and specifically consents to and waives notice of any renewal or extension of this Note.  No delay by the Registered Holder in exercising any power or privilege hereunder, nor the single or partial exercise of any power or privilege hereunder, shall preclude any other or further exercise thereof, or the exercise of any other power or privilege hereunder.

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8.14Immunity of Shareholders, Directors and Others

The Holders waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any past, present or future incorporator, shareholder, director, officer, employee or agent of the Corporation or of any Successor Corporation for the payment of the principal of any of the Notes or on any covenant, agreement, representation or warranty by the Corporation contained herein.

ARTICLE 9
NOTICES

9.1Notice to the Corporation

Any notice to the Corporation under the provisions of this Note shall be valid and effective if delivered personally to, or if given by registered mail, postage prepaid, addressed to, the Corporation at its offices in 6275 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2 Attention: Director of Finance, telecopier no. (905)672-5705, with a copy to Gowling Lafleur Henderson LLP, Suite 5800, Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3Z7 Attention: Jason A. Saltzman, telecopier no.(416) 369-7250, and shall be deemed to have been given on the date of delivery or on the fifth Business Day after such letter has been mailed, as the case may be.  The Corporation may from time to time notify the Holders of a change in address which thereafter, until changed by further notice, shall be the address of the Corporation for all purposes of the Notes.

9.2Notice to Holder

Except as otherwise expressly provided herein, all notices to be given hereunder with respect to the Notes shall be valid and effective if such notice is delivered personally or, subject to Section 9.3, sent by first class mail, postage prepaid, addressed to such Holders at their post office addresses appearing in any of the registers hereinbefore mentioned.  Any notice so delivered or sent by mail shall be deemed to have been given on the day upon which it is delivered or on the fifth  Business Day after such letter has been mailed, as the case may be.  Any accidental error, omission or failure in giving or in delivering or mailing any such notice or the non-receipt of any such notice by any Holder shall not invalidate or otherwise prejudicially affect any action or proceeding founded thereon.

9.3Mail Service Interruption

If, by reason of any actual or threatened interruption of mail service due to strike, lock-out or otherwise, any notice to be given to the Holders or to the Corporation would be unlikely to reach its destination in a timely manner, such notice shall be valid and effective only if delivered personally in accordance with Sections 9.1 or 9.2, as the case may be.

ARTICLE 10
SUCCESSOR CORPORATIONS

10.1Certain Requirements

The Corporation shall not enter into any transaction (whether by way of reconstruction, reorganization, consolidation, amalgamation, merger, transfer, sale, lease or otherwise) whereby all or

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substantially all of its undertaking, property and assets would become the property of any other person or, in the case of such amalgamation or merger, of the continuing company resulting therefrom unless, and may do so if:

(i)such other person or continuing corporation is a corporation (herein called the “Successor Corporation”) incorporated under the laws of Canada or any province thereof;

(ii)the Successor Corporation shall execute, prior to, contemporaneously with or forthwith after the consummation of such transaction an instrument supplemental hereto and such other instruments as are necessary or advisable to evidence the assumption by the Successor Corporation of the liability for the due and punctual payment of all amounts outstanding and payable hereunder from time to time and the covenant of the Successor Corporation to pay the same and its agreement to observe and perform all of the covenants and obligations of the Corporation under this Note;

(iii)such transaction shall, to the satisfaction of the Holders acting reasonably, be upon such terms as substantially to preserve and not to impair in any material respect the rights and powers of the Holders hereunder; and

(iv)no condition or state of facts shall exist as to the Corporation or the Successor Corporation, either at the time of or immediately before or after the consummation of any such transaction and after giving full effect thereto or immediately after the Successor Corporation complying with the provisions of clause (b) above, that constitutes or would constitute after notice or lapse of time or both, an Event of Default.

10.2Vesting of Powers in Successor

Whenever the conditions of Section 10.1 shall have been duly observed and performed, the Holders shall execute and deliver the supplemental instrument provided for in Section 10.1 and thereupon the Successor Corporation shall be bound by the covenants and obligations of the Corporation under this Note and shall possess and from time to time exercise each and every power of the Corporation under this Note in the name of the Corporation or otherwise, and any act or proceeding by any provision of this Note required to be done or performed by any directors or officers of the Corporation may be done and performed with like force and effect by the directors or officers of the Successor Corporation.

ARTICLE 11
GENERAL PROVISIONS

11.1Further Assurances

The Corporation shall do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such further acts, deeds, mortgages, transfers, assurances or other documents as the Registered Holder shall reasonably require to give effect to or preserve and perfect the Security Interest in the Collateral intended to be granted to the Registered Holder hereunder, or any security interest the Corporation may hereafter grant or become bound to grant to the Registered Holder for the purpose of accomplishing and effecting the intention of this Note.  The Corporation hereby

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irrevocably appoints the Registered Holder to be the attorney of the Corporation, coupled with an interest, with full power of substitution, for and in the name of the Corporation to execute and to do any deeds, documents, transfers, demands, assignments, assurance, consents and things which the Corporation is obliged to sign, execute or do hereunder.

11.2Term

This Note shall become effective according to its terms immediately upon the execution hereof by the Corporation and shall continue as security for the Obligations until all of the Obligations are paid and performed in full and this note is terminated.

11.3Non-Substitution

This Note and the Security Interest are in addition to and not in substitution for any other agreement made between the Registered Holder and the Corporation or any other security granted by the Corporation to the Registered Holder whether before or after the execution of this Note.

11.4No Merger

Neither the taking of any action suit or proceeding, judicial or extra-judicial nor the exercise of any power of seizure or disposition shall extinguish the liability of the Corporation to pay and perform the Obligations nor shall the acceptance of any payment or alternate security constitute or create any novation.  No covenant, representation or warranty of the Corporation herein shall merge in any judgment.

11.5Entire Agreement

There are no representations, agreements, warranties, conditions, covenants or terms, express or implied, collateral or otherwise, affecting this Note or the Security Interest or the Corporation’s obligations and liabilities hereunder other than express herein.

11.6Time of Essence

Time shall be of the essence in this Note in all respects.

11.7Disclosure of Information re Corporation

The Corporation agrees that the Registered Holder may provide from time to time such information concerning this Note, the Collateral and the Obligations to such persons as the Registered Holder in good faith believes are entitled to the same under the PPSA.

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EXHIBIT “1”

FORM OF TRANSFER

Re:  Convertible Note of ADB SYSTEMS INTERNATIONAL LTD. due June 15, 2007

For value received, the undersigned hereby assigns and transfers unto

                                                                    of                                                                     $  of the principal amount of the within Note registered in the name of the undersigned on the books of ADB SYSTEMS INTERNATIONAL LTD. (the “Corporation”) including the rights thereunder to the accrued and unpaid interest on such principal amount and hereby irrevocably constitutes and appoints                                                      attorney to transfer the said Note on the books of the Corporation with full powers of substitution in the premises.

DATED                      in the presence of                                                 .

Signed:

EXHIBIT “2”

FORM OF ELECTION OF CONVERSION PRIVILEGE

TO:ADB SYSTEMS INTERNATIONAL LTD. LTD.

The undersigned hereby irrevocably elects to convert $1,000 or any integral multiple thereof principal amount of the within Note into Units of the Corporation at the Conversion Price in accordance with the Terms and Conditions of the Note.  Please issue share certificates for the Common Shares and Warrants comprising such Units as follows:

Principal amount converted: $                                                

($1,000 or integral multiple thereof only)

Name:

Address:

Date:

Signed:

EXHIBIT “3”

FORM OF WARRANT

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DATE OF ISSUE.]

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON, OR SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR ADB SYSTEMS INTERNATIONAL LTD. SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED.”

Void after 5:00 p.m. (Toronto time) on the 15th day of June, 2008.

Number of Warrants: • Warrant Certificate No. •

ADB SYSTEMS INTERNATIONAL LTD.

(Organized under the laws of the Province of Ontario)

This is to certify that, for value received,                                                                                  (the “Holder”), shall have the right to purchase from ADB Systems International Ltd. (the “Corporation”), at any time and from time to time up to 5:00 p.m. (Toronto time) on June 15, 2008 (the “Expiry Time”), one fully paid and non-assessable Common Share (as defined below) for each Warrant (individually, a “Warrant”) represented hereby at a price of Cdn$0.50 per share (the “Exercise Price”), upon and subject to the following terms and conditions:

1.For the purpose of this Warrant, the term “Common Shares” means common shares in the capital of the Corporation as constituted on the date hereof; provided that in the event of a change, subdivision, re-division, reduction, combination or consolidation thereof or any other adjustment under clause 7 hereof, or such successive changes, subdivisions, re-divisions, reductions, combinations, consolidations or other adjustments, then subject to the adjustments, if any, having been made in accordance with the provisions of this Warrant Certificate, “Common Shares” shall thereafter mean the shares, other securities or other property resulting from such change, subdivision, re-division, reduction, combination or consolidation or other adjustment.

2.All rights under any of the Warrants in respect of which the right of subscription and purchase therein provided for shall not theretofore have been exercised shall wholly cease and determine and such Warrants shall be wholly void and of no valid or binding effect after the Expiry Time.

3.The right to purchase Common Shares pursuant to the Warrants may only be exercised by the Holder before the Expiry Time by duly completing and executing a subscription substantially in

the form attached hereto, in the manner therein indicated and surrendering this Warrant Certificate and the duly completed and executed subscription form to the Corporation at the principal office of the Corporation at 201-6725 Airport Road, Mississauga, Ontario L4V 1V2, together with payment of the purchase price for the Common Shares subscribed for in the form of cash or a certified cheque payable to the Corporation in an amount equal to the then applicable Exercise Price multiplied by the number of Common Shares subscribed for.

4.Issue of Common Shares upon Exercise.

(a)Upon such delivery and payment as set forth in Section 3, the Corporation shall cause to be issued to the Holder the number of Common Shares to be issued and the Holder shall become a shareholder of the Corporation in respect of such Common Shares with effect from the date of such delivery and payment and shall be entitled to delivery of a certificate or certificates evidencing such shares.  The Corporation shall cause such certificate or certificates to be delivered via bonded overnight courier to the Holder at the address or addresses specified in such subscription form within three (3) business days of such delivery and payment as herein provided.

(b)The Corporation shall not be required to issue fractional Common Shares upon the exercise of the Warrants and no payment shall be made by the Corporation in lieu of issuing any fractional interest in a Common Share.

5.The holding of a Warrant shall not constitute the Holder a shareholder of the Corporation nor entitle the Holder to any right or interest in respect thereof except as herein expressly provided.

6.The Corporation covenants and agrees that until the Expiry Time, while any of the Warrants shall be outstanding, it shall reserve and there shall remain unissued out of its authorized capital a sufficient number of Common Shares to satisfy the right of purchase herein provided, as such right of purchase may be adjusted pursuant to clauses 7 and 8 hereof.  All Common Shares which shall be issued upon the exercise of the right to purchase herein provided for, upon payment therefor of the amount at which such Common Shares may at the time be purchased pursuant to the provisions hereof, shall be issued as fully paid and non assessable shares and the holders thereof shall not be liable to the Corporation or its creditors in respect thereof.

7.Adjustment

(a)If and whenever at any time after the date hereof and prior to the Expiry Time the Corporation shall (i) subdivide, re-divide or change its then outstanding Common Shares into a greater number of Common Shares, (ii) reduce, combine or consolidate its then outstanding Common Shares into a lesser number of Common Shares, or (iii) issue Common Shares (or securities exchangeable for or convertible into Common Shares) to the holders of all or substantially all of its then outstanding Common Shares by way of a stock dividend or other distribution (any of such events herein called a “Common Share Reorganization”), then the Exercise Price shall be adjusted effective immediately after the effective date of any such event in (i) or (ii) above or the record date at which the holders of Common Shares are determined for the purpose of any such dividend or distribution in (iii) above, as the case may be, by multiplying the Exercise Price in effect on such effective date or record date, as the case may be, by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date, as the case may be, before giving effect to such Common Share Reorganization and the denominator of which shall be the number of Common Shares

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outstanding immediately after giving effect to such Common Share Reorganization including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would be outstanding if such securities were exchanged for or converted into Common Shares.

(b)If and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation shall distribute any class of shares or rights, options or warrants or other securities (other than those referred to in 7(a) above), evidences of indebtedness or property (excluding cash dividends paid in the ordinary course) to holders of all or substantially all of its then outstanding Common Shares, the Holder shall receive, in addition to the number of the Common Shares in respect of which the right to purchase is then being exercised, the aggregate number of Common Shares or other securities or property that the Holder would have been entitled to receive as a result of such event, if, on the record date thereof, the Holder had been the registered holder of the number of Common Shares to which the Holder was theretofore entitled upon the exercise of the rights of the Holder hereunder.

(c)If and whenever at any time after the date hereof and prior to the Expiry Time there is a capital reorganization of the Corporation or a reclassification or other change in the Common Shares (other than a Common Share Reorganization) or a consolidation or merger or amalgamation of the Corporation with or into any other corporation or other entity (other than a consolidation, merger or amalgamation which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other securities), or a transfer of all or substantially all of the Corporation’s undertaking and assets to another corporation or other entity in which the holders of Common Shares are entitled to receive shares, other securities or other property (any of such events being called a “Capital Reorganization”), the Holder, where he has not exercised the right of subscription and purchase under this Warrant Certificate prior to the effective date of such Capital Reorganization, shall be entitled to receive and shall accept, upon the exercise of such right, on such date or any time thereafter, for the same aggregate consideration in lieu of the number of Common Shares to which he was theretofore entitled to subscribe for and purchase, the aggregate number of shares or other securities or property which the Holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, he had been the registered holder of the number of Common Shares to which he was theretofore entitled to subscribe for and purchase.

(d)If and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all of the holders of the outstanding Common Shares entitling them, for a period expiring not more than forty five (45) days after the record date, to subscribe for or purchase Common Shares or securities convertible, exercisable or exchangeable into Common Shares (each, a “Convertible Security”) at a price per share (or having a conversation, exercise or exchange price per share) less than 95% of the Current Market Price (as defined below) on the earlier of the record date and the date on which the Corporation announces its intention to make such issuance (any such issuance being herein called a “Rights Offering”), the Exercise Price shall be adjusted on the record date so that it shall equal the number which is the product of the Exercise Price in effect immediately prior to the record date and the fraction:

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(i)the numerator of which shall be the total number of Common Shares outstanding immediately prior to the record date plus a number of Common Shares equal to the number arrived at by multiplying the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable by the quotient obtained by dividing the purchase or subscription price for each Common Share or conversion price for each Convertible Security offered for subscription or purchase by such Current Market Price for the Common Shares, and

(ii)the denominator of which shall be the total number of Common Shares outstanding immediately prior to such record date plus the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable.

To the extent that any rights, options or warrants are not so issued or any of the rights, options or warrants so issued are not exercised prior to the expiration thereof, the Exercise Price will be readjusted to the Exercise Price in effect immediately prior to the record date, and the Exercise Price will be further adjusted based upon the number of additional Common Shares actually delivered upon the exercise of the rights, options or warrants, as the case may be.

For the purposes of this clause 7(d), “Current Market Price”, at any date, means the weighted average price per Common Share at which the Common Shares have traded: (a) on the Toronto Stock Exchange; or (b) if the Common Shares are not quoted on the Toronto Stock Exchange, on any stock exchange or over the counter market upon which the Common Shares are then listed or quoted for trading, during the twenty (20) consecutive trading days (on each of which at least five hundred (500) Common Shares are traded in board lots) ending the third (3rd) trading day before such date, and the weighted average price shall be determined by dividing the aggregate sale price of all Common Shares sold in board lots on the exchange or market, as the case may be, during the twenty (20) consecutive trading days by the number of Common Shares sold, provided that if the Common Shares are not listed or quoted for trading on any stock exchange or market, the price shall be determined by the board of directors of the Corporation in its sole discretion, acting reasonably.

(e)If and whenever at any time after the date hereof and prior to the Expiry Time, any of the events set out in clause 7(a) or (d) shall occur and the occurrence of such event results in an adjustment of the Exercise Price pursuant to the provisions of clause 7(a) or (d), then the number of Common Shares purchasable pursuant to this Warrant shall be adjusted contemporaneously with the adjustment of the Exercise Price by multiplying the number of Common Shares then otherwise purchasable on the exercise thereof by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator of which shall be the Exercise Price resulting from such adjustment.

(f)If the Corporation takes any action affecting its Common Shares to which the foregoing provisions of this clause 7, in the opinion of the board of directors of the Corporation, acting in good faith, are not strictly applicable, or if strictly applicable would not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes hereof, or would otherwise materially affect the rights of the Holder of the Warrants hereunder, then the Corporation shall execute and deliver to the Holder an amendment

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hereto providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in such manner as the board of directors of the Corporation may determine to be equitable in the circumstances, acting in good faith. The failure of the taking of action by the board of directors of the Corporation to so provide for any adjustment on or prior to the effective date of any action or occurrence giving rise to such state of facts will be conclusive evidence that the board of directors has determined that it is equitable to make no adjustment in the circumstances.

8.The following rules and procedures shall be applicable to the adjustments made pursuant to clause 7:

(a)no adjustment in the Exercise Price shall be required unless a change of at least 1% of the prevailing Exercise Price would result, provided, however, that any adjustment which, except for the provisions of this clause 8(a), would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment;

(b)the adjustments provided for in clause 7 are cumulative and shall apply to successive subdivisions, consolidations, dividends, distributions and other events resulting in any adjustment under the provisions of such clause;

(c)in the absence of a resolution of the board of directors of the Corporation fixing a record date for any dividend or distribution referred to in clause 7(a)(iii) above, the Corporation shall be deemed to have fixed as the record date therefor the date on which such dividend or distribution is effected;

(d)if the Corporation sets a record date to take any action and thereafter and before the taking of such action abandons its plan to take such action, then no adjustment to the Exercise Price will be required by reason of the setting of such record date;

(e)forthwith after any adjustment to the Exercise Price or the number of Common Shares purchasable pursuant to the Warrants, the Corporation shall provide to the Holder a certificate of an officer of the Corporation certifying as to the amount of such adjustment and, in reasonable detail, describing the event requiring and the manner of computing or determining such adjustment; and

(f)any question that at any time or from time to time arises with respect to the amount of any adjustment to the Exercise Price or other adjustment pursuant to clause 7 shall be conclusively determined by a firm of independent chartered accountants (who may be the Corporation’s auditors) and shall be binding upon the Corporation and the Holder.

9.On the happening of each and every such event set out in clause 7, the applicable provisions of this Warrant, including the Exercise Price, shall, ipso facto, be deemed to be amended accordingly and the Corporation shall take all necessary action so as to comply with such provisions as so amended.

10.The Corporation shall not be required to deliver certificates for Common Shares while the share transfer books of the Corporation are properly closed, having regard to the provisions of clauses 7 and 8 hereof, prior to any meeting of shareholders or for the payment of dividends or for any other purpose and in the event of the surrender of any Warrant in accordance with the provisions hereof and the making of any subscription and payment for the Common Shares called for thereby during any such period delivery of certificates for Common Shares may be postponed for

5

not more than five (5) days after the date of the re opening of said share transfer books. Provided, however, that any such postponement of delivery of certificates shall be without prejudice to the right of the Holder so surrendering the same and making payment during such period to receive after the share transfer books shall have been re opened such certificates for the Common Shares called for, as the same may be adjusted pursuant to clause 8 hereof as a result of the completion of the event in respect of which the transfer books were closed.

11.Subject as hereinafter provided, all or any of the rights conferred upon the Holder by the terms hereof may be enforced by the Holder by appropriate legal proceedings.  No recourse under or upon any obligation, covenant or agreement contained herein shall be had against any shareholder, director or officer of the Corporation either directly or through the Corporation, it being expressly agreed and declared that the obligations under the Warrants are solely corporate obligations and that no personal liability whatever shall attach to or be incurred by the shareholders, directors or officers of the Corporation or any of them in respect thereof, any and all rights and claims against every such shareholder, officer or director being hereby expressly waived as a condition of and as a consideration for the issue of the Warrants.

12.The Holder may subscribe for and purchase any lesser number of Common Shares than the number of shares expressed in this Warrant Certificate.  In the case of any subscription for a lesser number of Common Shares than expressed in this Warrant Certificate, the Holder hereof shall be entitled to receive at no cost to the Holder a new Warrant Certificate in respect of the balance of Warrant not then exercised.  Such new Warrant Certificate shall be delivered by bonded overnight courier to the Holder by the Corporation, contemporaneously with the delivery of the certificate or certificates representing the Common Shares issued pursuant to clause 4.

13.If this Warrant Certificate is stolen, lost, mutilated or destroyed, the Corporation shall, on such terms as it may in its discretion acting reasonably impose, issue and sign and direct the Corporation’s transfer agent to countersign a new Warrant Certificate of like denomination, tenor and date as the Warrant Certificate so stolen, lost, mutilated or destroyed for delivery to the Holder.

14.The Corporation shall keep at its principal office (or its transfer agent in the City of Toronto): (a) a register of holders in which shall be entered the names and addresses of the holders of the Warrants and of the number of Warrants held by them; and (b) a register of transfers in which shall be entered the date and other particulars of each transfer of Warrants.  The registers hereinbefore referred to shall be open at all reasonable times for inspection by any Holder.

15.The transferee of a Warrant Certificate shall, after the transfer form attached to the Warrant Certificate or any other form of transfer acceptable to the Corporation, acting reasonably, is duly completed and the Warrant Certificate is lodged with the Corporation and upon compliance with all other conditions in that regard required by this Warrant, by the Toronto Stock Exchange or by law, be entitled to have his name entered on the register of holders as the owner of the Warrants represented thereby free from all equities or rights of set off or counterclaim between the Corporation and the transferor or any previous holder of such Warrant, save in respect of equities of which the Corporation or the transferee is required to take notice by statute or by order of a court of competent jurisdiction.

16.Warrant Certificates may, upon compliance with the reasonable requirements of the Corporation, be exchanged for Warrant Certificates in any other denomination representing in the aggregate the same number of Warrants.  The Corporation shall issue and sign and direct the Corporation’s

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transfer agent to countersign, all Warrant Certificates necessary to carry out the exchanges contemplated herein, provided:

(i)Warrant Certificates may be exchanged only at the principal office of the Corporation in the City of Mississauga;

(ii)any Warrant Certificates tendered for exchange shall be surrendered to the Corporation and cancelled; and

(iii)except as otherwise herein provided, the Corporation shall not charge Holders requesting an exchange any sum for any new Warrant Certificate issued.

17.The Corporation may deem and treat the registered holder of any Warrant Certificate as the absolute owner of the Warrants represented thereby for all purposes, and the Corporation shall not be affected by any notice or knowledge to the contrary except where the Corporation is required to take notice by statute or by order of a court of competent jurisdiction.  A Holder shall be entitled to the rights evidenced by such Warrant free from all equities or rights of set off or counterclaim between the Corporation and the original or any intermediate holder thereof and all persons may act accordingly and the receipt by any such Holder of the Common Shares purchasable pursuant to such Warrant shall be a good discharge to the Corporation for the same and the Corporation shall not be bound to inquire into the title of any such Holder except where the Corporation is required to take notice by statute or by order of a court of competent jurisdiction.

18.The Holder, if resident in Canada, acknowledges that appropriate legend, as follows, will be placed upon certificates representing any securities issued on the exchange, assignment or exercise of the Warrants represented by this certificate until the hold period expires for the Warrants so represented hereby.

LEGEND

“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DATE OF ISSUE.]”

19.This Warrant shall be governed by the laws of the Province of Ontario and the federal laws of Canada applicable herein.

20.The Holder, if resident in the United States, acknowledges that appropriate legend, as follows, will be placed upon certificates representing any securities issued on the exchange, assignment or exercise of the Warrants represented by this certificate until the hold period expires for the Warrants so represented hereby.

LEGEND

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”) OR ANY STATE SECURITIES LAWS.  THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED,

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HYPOTHECATED OR OTHERWISE TRANSFERRED OR ENCUMBERED ONLY (A) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S PROMULGATED UNDER THE 1933 ACT, (B) IN COMPLIANCE WITH THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (C) IN A TRANSACTION THAT IS OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND ANY APPLICABLE STATE LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY.  DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.  IF THESE SECURITIES ARE BEING SOLD AT ANY TIME THE COMPANY IS A “FOREIGN ISSUER” AS DEFINED IN RULE 902 UNDER THE 1933 ACT, A NEW CERTIFICATE, BEARING NO LEGEND, THE DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY” MAY BE OBTAINED FROM THE COMPANY’S TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN FORM SATISFACTORY TO THE COMPANY AND THE COMPANY’S TRANSFER AGENT TO THE EFFECT THAT THE SALE OF THE SECURITIES IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT.”

21.All references herein to monetary amounts are references to lawful money of Canada.

IN WITNESS WHEREOF, the Corporation has caused this Warrant Certificate to be signed by its duly authorized officer.

DATED this            day of               , 200        .

ADB SYSTEMS INTERNATIONAL LTD.
Per:
	Name:
	Title:

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SUBSCRIPTION FORM

TO BE COMPLETED IF WARRANTS ARE TO BE EXERCISED:

TO: ADB SYSTEMS INTERNATIONAL LTD.
6725 Airport Road, Suite 201
Mississauga, Ontario L4V 1V2

THE UNDERSIGNED hereby subscribes for                             common shares of ADB Systems International Ltd. according to the terms and conditions set forth in the annexed warrant certificate (or such number of other securities or property to which such warrant entitles the undersigned to acquire under the terms and conditions set forth in the annexed warrant certificate).

Address for Delivery of Shares:                                                                                                   

Exercise Price Tendered:                                                                                                              

(Cdn$0.50 per share or as adjusted)             Cdn$                                                                        

DATED at Toronto, this           day of                      , 200     .

Witness	Holder’s Name
	Authorized Signature
	Title (if applicable)

ASSIGNMENT FORM

TO BE COMPLETED IF WARRANTS ARE TO BE ASSIGNED:

TO: ADB SYSTEMS INTERNATIONAL LTD.
6725 Airport Road, Suite 201
Mississauga, Ontario L4V 1V2

FOR VALUE RECEIVED,             Warrants represented by this Warrant Certificate are

hereby transferred to                                                                                                                                                                           &nb sp;   
residing at                                                                                                                                                                           &nb sp;                   

You are hereby instructed to take the necessary steps to effect this transfer.

DATED at                                , this            day of                            ,                            ..

Witness	Holder’s Name
	Authorized Signature
	Title (if applicable)

Signature guaranteed:

The signature must be guaranteed by a Canadian chartered bank or a member of a recognized stock exchange or other entity acceptable to the Corporation.

EXHIBIT “4”

ADDITIONAL PERMITTED SECURITY INTERESTS

“Permitted Security Interests” means with respect to any property or asset of any Person:

(a)security interests for provincial or municipal taxes, charges, rates and assessments not yet due or, if due, the validity of which is being contested in good faith and security interests for the excess of the amount of any past due taxes for which a final assessment has not been received over the amount of such taxes as estimated and paid by such Person;

(b)the security interests of any judgement rendered or claim filed against the Corporation or its property which it shall be contesting in good faith and in respect of which there shall have been deposited with an arms-length Person acceptable to the Registered Holder, acting reasonably, cash, security or a surety bond satisfactory to such arms-length Person in an amount sufficient to pay such judgement or claim;

(c)defects or irregularities of title which do not in the aggregate materially impair the value of the property to which they related or interfere with the use of the property to which they relate for the purposes for which it is held by such Person;

(d)pledges or deposits to secure payment of workers’ compensation, good faith deposits in connection with tenders, contracts (other than contracts for the repayment of moneys borrowed) or leases, deposits to secure public or statutory obligations, deposits to secure or in lieu of surety or appeal bonds, and pledges or deposits for similar purposes in the ordinary course of business;

(e)purchase money security interests;

(f)security interests granted by the Corporation to secure indebtedness of the Corporation to any of the Holders of the Notes;

(g)the security interests perfected by the registrations made under the PPSA and listed in Exhibit “5”; and

(h)any other security interests accepted from time to time by the Holders of Notes representing a majority of the aggregate principal amounts then outstanding under all Notes in writing.

For the purposes of this Exhibit “4”, the term “security interests” means any mortgage, charge, pledge, hypothecation, lien (statutory or otherwise), assignment, finance lease, title retention agreement or arrangement, security interest or other encumbrance or adverse claim of any nature, or any other security agreement or arrangement creating in favour of any creditor a right in respect of a particular property or asset.

EXHIBIT “5”

Permitted PPSA Registrations

File Number:	084987306
Registration Number:	20021104151100439461
	20021108165217583169
	20030826182015316880
	20040527145115302544
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Jeff Lymburner
File Number:	888880464
Registration Number:	20021104144390654204
	20021108165217583161
	20030826182015316881
	20040527145115302545
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Christopher Bulger
File Number:	888880518
Registration Number:	20021104144390654209
	20021108165217583166
	20031021145615300346
	20040527145115302546
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Kenneth Sparfel, Kelly Sparfel
File Number:	881960004
Registration Number:	20020510181117159588
	20030826092017152348
Debtor Name:	ADB Systems International Inc.
Secured Party:	Xerox Canada Ltd.
File Number:	897234246
Registration Number:	20030812145215303748
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Stonestreet Limited Partnership
File Number:	897234255
Registration Number:	20030812145215303749
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Greenwich Growth Fund Ltd.

File Number:	897592122
Registration Number:	20030825184115313987
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Canaccord Capital Corp.
	ITF Janet Harrop A/C 133388S7
Description:	General Security Agreement
File Number:	897592131
Registration Number:	20030825184115313988
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Canaccord Capital Corp.
	ITF Christopher Harrop A/C 133384S6
Description:	General Security Agreement
File Number:	897592149
Registration Number:	20030825184115313989
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Robb, Michael
Description:	General Security Agreement
File Number:	897592158
Registration Number:	20030825184115313990
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Mokos, James
Description:	General Security Agreement
File Number:	897592167
Registration Number:	20030825184115313991
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Gundyco ITF Paul Godin RRSP A/C 59121001-11
Description:	General Security Agreement
File Number:	897592176
Registration Number:	20030825184115313992
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Hellesto, Arne
Description:	General Security Agreement
File Number:	605431161
Registration Number:	20040512170314627442

2

Debtor Name:	ADB Systems International Ltd.
Secured Party:	Stonestreet Limited Partnership
Description:	General Security Agreement with respect to $500,000 Principal Series F of secured convertible note issued by debtor to secured party, but which is to rank pari passu with the Security Interest, except in respect of (i) the Corporation’s world-wide account receivables and all proceeds therefrom; and (ii) the proceeds from the account receivables insurance policy No. GG1-27888 issued by Export Development Canada and St. Paul Guarantee Insurance Company, insuring 90% of value of the Receivables, for which the security interest of Stonestreet Limited Partnership referred to above is to rank in priority pursuant to a priority agreement dated June 15, 2004 by Stonestreet Limited Partnership and the Corporation in favour of the Holders.

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EX-2.7

Exhibit 2.7

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE SEPTEMBER 20, 2004.

Date of Issue:	May 19, 2004	Principal Amount:  CDN$500,000
Interest Rate:	7.0% per annum	Certificate Number: F-1

SERIES F CONVERTIBLE SECURED NOTE

ADB SYSTEMS INTERNATIONAL LTD.,
a company incorporated under the laws of the Province of Ontario
(hereinafter called the “Company”)

WHEREAS the Company, under the laws relating thereto, is duly authorized to create and issue this Note as herein provided;

NOW THEREFORE it is hereby covenanted, agreed and declared as follows:

ARTICLE ONE

INTERPRETATION

Section 1.01Definitions:  In this Note, unless there is something in the subject matter or context inconsistent therewith, the expressions following have the following meanings, namely:

(a)“Assignment Form” means the form of assignment set out in Schedule ”B” hereto;

(b)“Common Shares” means the fully paid and non-assessable common shares in the capital of the Company as constituted on the date hereof, and after the date hereof any other shares, other securities, money or property which the Holder is entitled to receive upon conversion of this Note pursuant to Article Three;

(c)“Conversion Date” or “Date of Conversion” shall have the meaning specified in Section 3.02(b) hereof;

(d)“Conversion Form” means the form of conversion set out in Schedule ”C” hereto;

(e)“Company” means ADB Systems International Ltd. and includes any successor corporation to or of the Company which shall have complied with the provisions of Article Six;

(f)“Conversion Price” means the amount of CDN$0.31 for which each Unit may be issued from time to time upon the conversion of this Note, as adjusted in accordance with the provisions of Article Three;

(g)“Current Market Price” shall have the meaning specified in Section 3.03(d) hereof;

(h)“Date of Issue” means the date upon which the Note is issued;

(i)“Event of Default” shall have the meaning specified in Section 4.03 hereof;

(j)“Holder” means the registered holder of this Note on the books of the Company and as evidenced on the registration table set out in Schedule ”A” hereof;

(k)“Maturity Date” means May 19, 2007;

(l)“Note” means this series F 7% secured convertible note and any note issued in replacement, substitution or exchange, in whole or in part, of this series F 7% secured convertible note;

(m)“Notice of Conversion” shall have the meaning specified in Section 3.02 hereof;

(n)“Ontario Securities Act” shall have the meaning specified in Section 2.06(b);

(o)“Payment Date” shall have the meaning specified in Section 2.02 hereof;

(p)“person” means any individual, corporation, company, partnership, joint venture, association, trust or other organization or entity;

(q)“Principal Amount” means five hundred thousand dollars in lawful money of Canada (CDN$500,000) less any amounts which as of the date of determination of the Principal Amount:

(i)have been prepaid by the Company on account of this Note; and

(ii)have been converted by the Holder into Common Shares in accordance with the provisions hereof;

(r)“this Note”, “the Note”, “hereto”, “herein”, “hereby”, “hereunder”, “hereof” and similar expressions refer to this Note and not to any particular Article, Section, subsection, clause, subdivision or other portion hereof and include any and every instrument supplemental or ancillary hereto;

(s)“Time of Expiry” shall have the meaning specified in Section 3.01 hereof;

(t)“TSX” means the Toronto Stock Exchange;

(u)“Unit” means one Common Share and one-half of a Warrant;

(v)“U.S. Securities Act” shall have the meaning specified in Section 2.06(a); and

(w)“Warrant” means a warrant to acquire one Common Share at an exercise price of CDN$0.50 and with a term expiring at 5:00 p.m. (Toronto time) on May 19, 2007.

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Section 1.02Number and Gender:  Words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine gender and words importing persons shall include firms and corporations and vice versa.

Section 1.03Headings:  The division of this Note into Articles and Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Note.

Section 1.04Applicable Law:  This Note shall be governed by and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein without reference to conflict of laws principles.  The Company and the Holder irrevocably attorn to the exclusive jurisdiction of the courts of the Province of Ontario with respect to any matters arising out of this Note.

Section 1.05Time of Essence:  Time is of the essence in the performance of this Note.

Section 1.06Currency:  All references to currency herein are to lawful money of Canada (CDN$) unless otherwise specified herein.

ARTICLE TWO

THE NOTE

Section 2.01Promise to Pay:  The Company hereby acknowledges itself indebted and promises to pay the outstanding Principal Amount to the Holder on the Maturity Date.

Section 2.02Interest:  Interest on the Note shall be charged at the rate of 7% per annum calculated annually, payable by the Company in cash.  Interest on the Note shall accrue on the outstanding principal amount of the Note from day to day both before and after default, demand, maturity and judgment, for the actual number of days elapsed on the basis of a year of 365 days.  Where the calendar year of calculation contains 366 days, interest hereunder shall be expressed as a yearly rate for purposes of the Interest Act (Canada) as such rate multiplied by 366 and divided by 365.  Accrued interest shall be paid by the Company quarterly on the last business day of the quarter (a “Payment Date”) without any deductions for withholding or other taxes except as may be required pursuant to Part 13 of the Income Tax Act (Canada), with the first payment due on June 30, 2004.  Any portion of the interest accrued on the Note shall be paid in cash.

Section 2.03Person Entitled to Payment:  The Holder shall be entitled to the principal moneys and interest evidenced by this Note.  Delivery to the Holder by the Company or the receipt by the Holder of the principal moneys and interest evidenced by this Note and the Units issuable pursuant to this Note, respectively, shall be a good discharge to the Company of its obligations hereunder, and the Company shall not be bound to enquire into the title of the Holder, save as ordered by a court of competent jurisdiction or as required by statute.  The Company shall not be bound to see to the execution of any trust affecting the ownership of this Note nor be affected by notice of any equity that may be subsisting in respect hereof or thereof.  The Holder of this Note shall be entitled to payment of all amounts due hereunder free from all

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equities or rights of set-off or counterclaim between the Company and the original or any intermediate Holder hereof and all persons may act accordingly and a transferee of this Note shall, after the Assignment Form is delivered to the Company and upon compliance with all other conditions required by this Note or by law, become the Holder of this Note free from all equities or rights of set-off or counterclaim between the Company and the transferor or any previous Holder hereof, save in respect of equities of which the Company is required to take notice by statute or by order of a court of competent jurisdiction.

Section 2.04Mutilation, Loss, Theft or Destruction:  In case this Note shall become mutilated or be lost, stolen or destroyed, the Company shall execute and deliver a new Note having the same Date of Issue upon surrender and cancellation of the mutilated Note, or in case this Note is lost, stolen or destroyed, in lieu of and in substitution for the same.  In case of loss, theft or destruction the person applying for a substituted Note shall furnish to the Company such evidence of such loss, theft or destruction as shall be satisfactory to the Company, shall furnish indemnity satisfactory to the Company and shall pay all reasonable expenses incidental to the issuance of any substituted Note.

Section 2.05Transfer:  The Company shall maintain a register on which are recorded the names and addresses of each Holder hereof.  Subject to compliance with the terms of this Note and with applicable laws and regulations, a transfer shall be recorded by the Company in the register of Holders hereof maintained by the Company, upon surrender of this Note with the Assignment Form duly completed by the Holder or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or other authority to transfer on behalf of the Holder.  Upon each transfer the Company shall cancel this Note and execute and deliver such replacement Note as is required, in the form hereof.

Section 2.06Restrictions on Transfers:  The Company shall not register any transfers of the Note or issue or transfer any Units issuable on conversion of the Note:

(a)to a United States person, any person in the United States or any person for the account or benefit of a United States person or a person in the United States except pursuant to Rule 144 under the United States Securities Act of 1993, as amended (the “U.S. Securities Act”), if available;

(b)in connection with any transfers or conversions which are otherwise not in compliance with (i) the U.S. Securities Act and the regulations thereunder if applicable, (ii) the Securities Act (Ontario) (the “Ontario Securities Act”) and the rules and regulations thereunder, (iii) applicable securities laws and regulations of other relevant jurisdictions, or (iv) the policies of the TSX; and

(c)within four months and a day from the Date of Issue, unless the Company and its legal counsel are satisfied, acting reasonably, that it is permitted under Ontario securities laws and under the policies of the TSX.

Section 2.07Representations of the Holder:  The Holder, by its acceptance of this Note, represents, acknowledges and agrees that:

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(a)this Note and the Units issuable on conversion of this Note have not been, and will not be, qualified for sale under the U.S. Securities Act, or the securities laws and regulations of any province or territory of Canada or any other jurisdiction;

(b)the Units issuable on conversion of this Note may not be distributed, sold or transferred:

(i)to a United States person, any person in the United States or any person for the account or benefit of a United States person or a person in the United States except pursuant to Rule 144 under the U.S. Securities Act, if available;

(ii)except in compliance with the U.S. Securities Act and the regulations thereunder if applicable, or the Ontario Securities Act and the rules and regulations thereunder and the applicable securities laws and regulations of other relevant jurisdictions and the policies of the TSX;

(c)compliance with the applicable securities laws and regulations of any jurisdiction is the responsibility of the Holder or its transferee; and

(d)the Holder will not trade the Note or the Units issuable on conversion of the Note within four months and a day from the Date of Issue, unless permitted under Ontario securities laws and under the policies of the TSX.

Section 2.08General Security Agreement:  Payment and performance of the Principal Amount, together with interest thereon and any other indebtedness, liabilities, covenants and obligations of the Company to the Holder arising in respect of this Note shall be secured by a general security agreement substantially in the form attached hereto as Schedule ”D”.

Section 2.09No Prepayment:  The Company shall not have the right to prepay, whether in whole or in part, the Principal Amount prior to the Maturity Date.

ARTICLE THREE

CONVERSION AND REDEMPTION OF NOTE

Section 3.01Conversion and Conversion Price:

(a)Conversion by Holder:  Subject to TSX approval, the Holder of this Note shall have the right, at the Holder’s option, at any time prior to the close of business on the Maturity Date (such time and date in this Article being referred to as the “Time of Expiry”), both before and after default, to convert the whole or any part of the Principal Amount into a maximum of 1,612,903 Units at the Conversion Price.

(b)Automatic Conversion:  If, after the date that is four (4) months plus a day from the Closing Date, the trading price of the Company’s common shares on the TSX closes above $0.70 for at least five consecutive trading days, the outstanding principal

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amount of this Note will automatically convert into Units at the Conversion Price at the next following trading day (the “Automatic Conversion Date”).

(c)The accrued and unpaid interest on the Principal Amount which is converted to Units pursuant to this Section 3.01 will be paid in cash within 10 business days of the Conversion Date or the Automatic Conversion Date, as the case may be.

Section 3.02Manner of Exercise of Right to Convert:

(a)Manner of Conversion:

(i)Conversion by Holder:  The Holder electing to convert this Note in whole or in part into Units shall deliver written notice (“Notice of Conversion”) to the Company at its address for purposes of notice under Section 7.01 together with a completed Conversion Form attached hereto as Schedule ”C” exercising the right to convert this Note in accordance with the provisions hereof.  Thereupon the Holder shall be entitled to be entered in the books of the Company as at the Date of Conversion (or such later date as is specified in Section 3.02(b)) as the holder of the number of Units into which this Note is convertible in accordance with the provisions of this Article and, as soon as practicable thereafter upon the receipt of the Note by the Company, the Company shall deliver to the Holder certificates for such Units.  In the event of the conversion of this Note in part, the Company shall without charge forthwith execute and deliver to the Holder a new note certificate in a principal amount equal to the unconverted part of this Note so surrendered in the same form as this Note, except as to Principal Amount.  For the purposes of this Article, the Conversion Date or Date of Conversion shall be the date that the Notice of Conversion is delivered to the Company in accordance with Section 7.01 hereof (or such later date as is specified in Section 3.02(b)).

(ii)Automatic Conversion:  The Company shall notify the Holder within five (5) business days of the Automatic Conversion Date that the automatic conversion has occurred on the Automatic Conversion Date and shall specify the manner for the Holder to deliver the Note to the Company.  The Holder shall be entitled to be entered in the books of the Company as at the Automatic Conversion Date (or such later date as is specified in Section 3.02(b)) as the holder of the number of Units into which this Note is convertible in accordance with the provisions of this Article and, as soon as practicable thereafter upon the receipt of the Note by the Company, the Company shall deliver to the Holder certificates for such Units.

(b)If:

(i)the Notice of Conversion is delivered, or

(ii)the Automatic Conversion Date occurred,

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on a day on which the registers of Units are properly closed, the Holder shall become the holder of record of such Units as at the date on which such registers are next re-opened.  For greater certainty, if a Notice of Conversion is delivered by the Holder to the Company, or if the Automatic Conversion Date occurred, on or prior to the Time of Expiry and the registers of Units are properly closed from the Company’s receipt of the Notice of Conversion or from the Automatic Conversion Date, as the case may be, until after the Time of Expiry, the Holder shall become the holder of record of such Units as at the date on which such registered are not re-opened notwithstanding the passing of the Time of Expiry and the Maturity Date.

(c)Any part of this Note may be converted as provided in this Article and all references in this Note to conversion shall be deemed to include conversion of such parts.

(d)The Common Shares issued upon such conversion shall rank only in respect of dividends declared in favour of shareholders of record on and after the Date of Conversion or such later date as the Holder shall become the holder of record of such Common Shares pursuant to subsections (a) and (b) of this Section 3.02, from which applicable date they will for all purposes be and be deemed to be outstanding as fully paid and non-assessable.

Section 3.03Adjustment of Conversion Price:

(a)If and whenever at any time after the date hereof and prior to the Time of Expiry the Company shall (i) subdivide, re-divide or change its then outstanding Common Shares into a greater number of Common Shares, (ii) reduce, combine or consolidate its then outstanding Common Shares into a lesser number of Common Shares, or (iii) issue Common Shares (or securities exchangeable for or convertible into Common Shares) to the holders of all or substantially all of its then outstanding Common Shares by way of a stock dividend or other distribution (any of such events herein called a “Common Share Reorganization”), then the Conversion Price shall be adjusted effective immediately after the effective date of any such event in (i) or (ii) above or the record date at which the holders of Common Shares are determined for the purpose of any such dividend or distribution in (iii) above, as the case may be, by multiplying the Conversion Price in effect on such effective date or record date, as the case may be, by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date, as the case may be, before giving effect to such Common Share Reorganization and the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Common Share Reorganization including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would be outstanding if such securities were exchanged for or converted into Common Shares.

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(b)If and whenever at any time after the date hereof and prior to the Time of Expiry, the Company shall distribute any class of shares or rights, options or warrants or other securities (other than those referred to in 3.03(a) above), evidences of indebtedness or property (excluding cash dividends paid in the ordinary course) to holders of all or substantially all of its then outstanding Common Shares, the Holder shall receive, in addition to the number of the Common Shares in respect of which the right to purchase is then being exercised, the aggregate number of Common Shares or other securities or property that the Holder would have been entitled to receive as a result of such event, if, on the record date thereof, the Holder had been the registered holder of the number of Common Shares to which the Holder was theretofore entitled upon the exercise of the rights of the Holder hereunder.

(c)If and whenever at any time after the date hereof and prior to the Time of Expiry there is a capital reorganization of the Company or a reclassification or other change in the Common Shares (other than a Common Share Reorganization) or a consolidation or merger or amalgamation of the Company with or into any other corporation or other entity (other than a consolidation, merger or amalgamation which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other securities), or a transfer of all or substantially all of the Company’s undertaking and assets to another corporation or other entity in which the holders of Common Shares are entitled to receive shares, other securities or other property (any of such events being called a “Capital Reorganization”), the Holder of this Note shall be entitled to receive and shall accept, upon the exercise of the right of conversion at any time after the effective date thereof, in lieu of the number of Units to which the Holder was theretofore entitled on conversion, the kind and amount of shares or other securities or money or other property that the Holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the Holder had been the registered holder of the number of Units to which the Holder was theretofore entitled upon conversion, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained in this Section 3.03.

(d)If and whenever at any time after the date hereof and prior to the Time of Expiry, the Company shall fix a record date for the issuance of rights, options or warrants to all or substantially all of the holders of the outstanding Common Shares entitling them, for a period expiring not more than forty-five (45) days after the record date, to subscribe for or purchase Common Shares or securities convertible, exercisable or exchangeable into Common Shares (each, a “Convertible Security”) at a price per share (or having a conversation, exercise or exchange price per share) less than 95% of the Current Market Price (as defined below) on the earlier of the record date and the date on which the Company announces its intention to make such issuance (any such issuance being herein called a “Rights Offering”), the Conversion Price shall be adjusted on the record date so that it shall equal the number which is the product of the Conversion Price in effect immediately prior to the record date and the fraction:

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(i)the numerator of which shall be the total number of Common Shares outstanding immediately prior to the record date plus a number of Common Shares equal to the number arrived at by multiplying the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable by the quotient obtained by dividing the purchase or subscription price for each Common Share or conversion price for each Convertible Security offered for subscription or purchase by such Current Market Price for the Common Shares, and

(ii)the denominator of which shall be the total number of Common Shares outstanding immediately prior to such record date plus the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable.

To the extent that any rights, options or warrants are not so issued or any of the rights, options or warrants so issued are not exercised prior to the expiration thereof, the Conversion Price will be readjusted to the Conversion Price in effect immediately prior to the record date, and the Conversion Price will be further adjusted based upon the number of additional Common Shares actually delivered upon the exercise of the rights, options or warrants, as the case may be.

For the purposes of this Section 3.03(d) or Section 2.02, “Current Market Price”, at any date, means the weighted average price per Common Share at which the Common Shares have traded: (a) on the TSX; or (b) if the Common Shares are not quoted on the TSX, on any stock exchange or over-the-counter market upon which the Common Shares are then listed or quoted for trading, during the ten (10) consecutive trading days (on each of which at least five hundred (500) Common Shares are traded in board lots) ending the third (3rd) trading day before such date, and the weighted average price shall be determined by dividing the aggregate sale price of all Common Shares sold in board lots on the exchange or market, as the case may be, during the ten (10) consecutive trading days by the number of Common Shares sold, provided that if the Common Shares are not listed or quoted for trading on any stock exchange or market, the price shall be determined by the board of directors of the Company in its sole discretion, acting reasonably.

(e)If and whenever at any time after the date hereof and prior to the Time of Expiry, any of the events set out in Section 3.03(a) or (d) shall occur and the occurrence of such event results in an adjustment of the Conversion Price pursuant to the provisions of Section 3.03(a) or (d), then the number of Common Shares purchasable pursuant to this certificate shall be adjusted contemporaneously with the adjustment of the Conversion Price by multiplying the number of Common Shares then otherwise purchasable on the exercise thereof by a fraction, the numerator of which shall be the Conversion Price in effect immediately prior to

9

the adjustment and the denominator of which shall be the Conversion Price resulting from such adjustment.

(f)If the Company takes any action affecting its Common Shares to which the foregoing provisions of this Section 3.03, in the opinion of the board of directors of the Company, acting in good faith, are not strictly applicable, or if strictly applicable would not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes hereof, or would otherwise materially affect the rights of the Holder hereunder, then the Company shall execute and deliver to the Holder an amendment hereto (subject to the approval of the TSX) providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in such manner as the board of directors of the Company may determine to be equitable in the circumstances, acting in good faith. The failure of the taking of action by the board of directors of the Company to so provide for any adjustment on or prior to the effective date of any action or occurrence giving rise to such state of facts will be conclusive evidence that the board of directors has determined that it is equitable to make no adjustment in the circumstances.

Section 3.04Adjustment Rules:  The following rules and procedures shall be applicable to the adjustments made pursuant to Section 3.03:

(a)no adjustment in the Conversion Price shall be required unless a change of at least 1% of the prevailing Conversion Price would result, provided, however, that any adjustment which, except for the provisions of this Section 3.04(a), would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment;

(b)the adjustments provided for in Section 3.03 are cumulative and shall apply to successive subdivisions, consolidations, dividends, distributions and other events resulting in any adjustment under the provisions of such clause;

(c)in the absence of a resolution of the board of directors of the Company fixing a record date for any dividend or distribution referred to in Section 3.03 above, the Company shall be deemed to have fixed as the record date therefor the date on which such dividend or distribution is effected;

(d)if the Company sets a record date to take any action and thereafter and before the taking of such action abandons its plan to take such action, then no adjustment to the Conversion Price will be required by reason of the setting of such record date;

(e)forthwith after any adjustment to the Conversion Price or the number of Common Shares purchasable pursuant to this Note, the Company shall provide to the Holder a certificate of an officer of the Company certifying as to the amount of such adjustment and, in reasonable detail, describing the event requiring and the manner of computing or determining such adjustment;

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(f)any question that at any time or from time to time arises with respect to the amount of any adjustment to the Conversion Price or other adjustment pursuant to Section 3.03 shall be conclusively determined by a firm of independent chartered accountants (who may be the Company’s auditors) as determined by the Company in its sole discretion and shall be binding upon the Company and the Holder;

(g)On the happening of each and every such event set out in Section 3.03, the applicable provisions hereof, including the Conversion Price, shall, ipso facto, be deemed to be amended accordingly and the Company shall take all necessary action so as to comply with such provisions as so amended.

Section 3.05No Requirement to Issue Fractional Shares:  The Company shall not be required to issue fractional Common Shares upon the conversion of this Note pursuant to this Article and no payment shall be made by the Company in lieu of issuing any fractional interest in a Common Share.

Section 3.06Company to Reserve Common Shares:  The Company covenants that it will allot to the Holder who may exercise the conversion rights hereunder, such number of Common Shares as shall then be issuable upon the conversion of this Note and upon exercise of the Warrants issued on such conversion.  The Company covenants that all Common Shares which shall be so issuable shall be duly and validly issued as fully paid and non-assessable.

ARTICLE FOUR

COVENANTS OF THE COMPANY AND DEFAULT

Section 4.01Covenants:  The Company hereby covenants and agrees that so long as any amounts remain unpaid pursuant to this Note it will strictly observe and perform the following covenants:

(a)The Company shall reserve and allot out of its authorized capital a number of Common Shares at all times equal to the number of Common Shares necessary to satisfy the rights of conversion (including automatic conversion) of the Principal Amount and interest of this Note and the rights of acquisition pursuant to the Warrants.

(b)The Company shall take all necessary action to adjust the Conversion Price as provided under Section 3.03 hereof.

Section 4.02Acceleration on Event of Default:  If an Event of Default shall occur and be continuing, the unpaid balance of the Principal Amount, and all accrued interest and all other amounts payable under, this Note may be declared by the Holder on written notice to the Company to be, and upon such notice shall become, immediately due and payable.

Section 4.03Events of Default:  Any of the following conditions or events which shall occur shall constitute events of default (“Events of Default”) under this Note:

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(a)if the Company shall default in the payment of any of the Principal Amount when the same becomes due and payable, whether at the Maturity Date or otherwise;

(b)if the Company shall default in the payment of any interest on this Note when the same becomes due and payable, whether at the Maturity Date or otherwise;

(c)if the Company shall default in the performance of or compliance with any term, condition or covenant contained in this Note (other than a default in the payment of the Principal Amount and interest) and such default shall not have been remedied within a period of 10 business days after such default shall first have become known to any officer of the Company or written notice thereof shall have been received by the Company from the Holder;

(d)if the Company or any active subsidiary shall (i) be generally not paying its debts as they become due or become insolvent, (ii) file, or consent by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or otherwise take advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment, an arrangement or a compromise for the benefit of its creditors, (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property, (v) cease to carry on business, or (vi) take corporate action for the purpose of any of the foregoing;

(e)if a court or governmental authority of competent jurisdiction shall enter a final order appointing, with or without the consent of the Company, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if a final order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company, or if any petition for any such relief shall be filed against the Company and such petition shall not be dismissed within 90 days; or

(f)if the Company shall fail to pay the principal of or premium or interest on any secured indebtedness or liability of the Company which ranks prior to the indebtedness of the Company hereunder when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the expiration of any applicable grace or remedial period.

ARTICLE FIVE

SATISFACTION AND DISCHARGE

Section 5.01Discharge:  The Holder shall at the request of the Company release and discharge this Note and execute and deliver such instruments as are requisite for the purpose and to release the Company from its covenants herein contained, upon the Principal Amount of and interest

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(including interest on amounts in default, if any) on this Note and all other moneys payable hereunder having been paid or satisfied.

ARTICLE SIX

SUCCESSOR CORPORATIONS

Section 6.01Certain Requirements:  The Company shall not, directly or indirectly, sell, lease, transfer or otherwise dispose of all or substantially all of its property and assets as an entirety to any other entity, and shall not consolidate, amalgamate, or merge with or into any other corporation (any such other entity or corporation being herein referred to as a “successor corporation”) without the prior written consent of the Holder, not to be unreasonably withheld or delayed, and unless the successor corporation shall execute, prior to or contemporaneously with the consummation of any such transaction, an instrument to evidence the assumption by the successor corporation of the due and punctual payment of all the Principal Amount of this Note and the interest thereon and all other moneys payable hereunder and the covenant of the successor corporation to pay the same and its agreement to observe and perform all the covenants and obligations of the Company under this Note.

Section 6.02Vesting of Powers in Successor:  Whenever the conditions of Section 6.01 have been fully observed and performed the successor corporation shall possess and from time to time may exercise each and every right and power of the Company under this Note in the name of the Company or otherwise and any act or proceeding by any provision of this Note required to be done or performed by the Company or its officers may be done and performed with like force and effect by the successor corporation or its officers.

ARTICLE SEVEN

GENERAL

Section 7.01Notice to Company:  Any notice to the Company under the provisions of this Note shall be valid and effective if delivered by prepaid courier or telecopied to the Company at its offices in 6275 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2 Attention: Director of Finance, telecopier no.: 905-672-5705, with a copy to Gowling Lafleur Henderson LLP, Suite 5800, Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3Z7 Attention: Jason A. Saltzman, telecopier no.: (416) 369-7250, and shall be deemed to have been effectively given on the date of delivery or transmission. The Company may from time to time notify the Holder in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Company for all purposes of this Note.

Section 7.02Notice to Holder: Any notice to the Holder under the provisions of this Note shall be valid and effective if delivered by prepaid courier or telecopied to the Holder at the address set out in the registration table set out on Schedule ”A” hereto, and shall be deemed to have been effectively given on the date of delivery or transmission. The Holder may from time to time notify the Company in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Holder for all purposes of this Note.

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Section 7.03Severability:  In the event that any provision or any part of any provision hereof is deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by a court, this Note shall be construed as not containing such provision or such part and such provision or such part shall not affect the validity of any other provision or the remainder of such provision hereof, and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect.

Section 7.04Binding Effect: This Note and all of its provisions shall enure to the benefit of the Holder, its successors and assigns and shall be binding upon the Company, its successors and assigns, as the case may be.

IN WITNESS WHEREOF the Company has executed these presents under the hand of its proper officer in that behalf as of the date first above written.

ADB SYSTEMS INTERNATIONAL LTD.
Per:
	Michael Robb
	Chief Financial Officer

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SCHEDULE ”A”
REGISTERED HOLDER PARTICULARS

Date:	Registration Particulars:	Certified by: (Officer of the Company)
May 19, 2004	Stonestreet Limited Partnership
	320 Bay Street, Suite 1300
	Toronto, Ontario	Michael Robb
	M5H 4A6	Chief Financial Officer

SCHEDULE ”B”
ASSIGNMENT FORM

TO:ADB SYSTEMS INTERNATIONAL LTD.

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to the following person all rights of the undersigned pursuant to a Note issued by ADB Systems International Ltd. represented by Certificate Number:                           .

Name of Assignee:

Address:

and the undersigned hereby irrevocably constitutes and appoints such assignee to be the lawful attorney of the undersigned to transfer such rights to the Note on the books of ADB Systems International Ltd., with full power of substitution.

Date:
	Name:
	Title (if applicable):
	Address:

SCHEDULE ”C”
CONVERSION FORM

TO:ADB SYSTEMS INTERNATIONAL LTD.

The undersigned hereby irrevocably elects to convert the Note represented by Certificate Number:                         (or CDN$                             principal amount thereof into Units of ADB Systems International Ltd. in accordance with the terms of the said Note.

DATED at                                this             day of                      ,             .

Per:

SCHEDULE ”D”

GENERAL SECURITY AGREEMENT

EX-2.8

Exhibit 2.8

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE SEPTEMBER 20, 2004.

Void after 5:00 p.m. (Toronto time) on the 19^9h day of May, 2007.

Number of Warrants: • Warrant Certificate No. •

ADB SYSTEMS INTERNATIONAL LTD.

(organized under the laws of the Province of Ontario)

This is to certify that, for value received,                                                                             (the “Holder”), shall have the right to purchase from ADB Systems International Ltd. (the “Corporation”), at any time and from time to time up to 5:00 p.m. (Toronto time) on May 19, 2007(the “Expiry Time”), one fully paid and non-assessable Common Share for each Warrant (individually, a “Warrant”) represented hereby at a price of Cdn$0.50 per share (the “Exercise Price”), upon and subject to the following terms and conditions:

1.             For the purpose of this Warrant, the term “Common Shares” means common shares in the capital of the Corporation as constituted on the date hereof; provided that in the event of a change, subdivision, re-division, reduction, combination or consolidation thereof or any other adjustment under clause 7 hereof, or such successive changes, subdivisions, re-divisions, reductions, combinations, consolidations or other adjustments, then subject to the adjustments, if any, having been made in accordance with the provisions of this Warrant Certificate,“Common Shares” shall thereafter mean the shares, other securities or other property resulting from such change, subdivision, re-division, reduction, combination or consolidation or other adjustment.

2.             All rights under any of the Warrants in respect of which the right of subscription and purchase therein provided for shall not theretofore have been exercised shall wholly cease and determine and such Warrants shall be wholly void and of no valid or binding effect after the Expiry Time.

3.             The right to purchase Common Shares pursuant to the Warrants may only be exercised by the Holder before the Expiry Time by:

(a)duly completing and executing a subscription substantially in the form attached hereto, in the manner therein indicated; and

(b)surrendering this Warrant Certificate and the duly completed and executed subscription form to the Corporation at the principal office of the Corporation at 201-6725 Airport Road, Mississauga, Ontario L4V 1V2, together with payment of the purchase price for the Common Shares subscribed for in the form of cash or a certified cheque payable to the Corporation in an amount equal to the then applicable Exercise Price multiplied by the number of Common Shares subscribed for.

4.             Issue of Common Shares upon Exercise.

(a)Upon such delivery and payment as set forth in section 4, the Corporation shall cause to be issued to the Holder the number of Common Shares to be issued and the Holder shall become a shareholder of the Corporation in respect of such Common Shares with effect from the date of such delivery and payment and shall be entitled to delivery of a certificate or certificates evidencing such shares.  The Corporation shall cause such certificate or certificates to be

delivered via bonded overnight courier to the Holder at the address or addresses specified in such subscription form within five (5) business days of such delivery and payment as herein provided.

(b)The Corporation shall not be required to issue fractional Common Shares upon the exercise of the Warrants and no payment shall be made by the Corporation in lieu of issuing any fractional interest in a common share.

5.             The holding of a Warrant shall not constitute the Holder  a shareholder of the Corporation nor entitle him to any right or interest in respect thereof except as herein expressly provided.

6.             The Corporation covenants and agrees that until the Expiry Time, while any of the Warrants shall be outstanding, it shall reserve and there shall remain unissued out of its authorized capital a sufficient number of Common Shares to satisfy the right of purchase herein provided, as such right of purchase may be adjusted pursuant to clauses 7 and 8 hereof.  All Common Shares which shall be issued upon the exercise of the right to purchase herein provided for, upon payment therefor of the amount at which such Common Shares may at the time be purchased pursuant to the provisions hereof, shall be issued as fully paid and non-assessable shares and the holders thereof shall not be liable to the Corporation or its creditors in respect thereof.

7.             Adjustment

(a)If and whenever at any time after the date hereof and prior to the Expiry Time the Corporation shall (i) subdivide, re-divide or change its then outstanding Common Shares into a greater number of Common Shares, (ii) reduce, combine or consolidate its then outstanding Common Shares into a lesser number of Common Shares, or (iii) issue Common Shares (or securities exchangeable for or convertible into Common Shares) to the holders of all or substantially all of its then outstanding Common Shares by way of a stock dividend or other distribution (any of such events herein called a “Common Share Reorganization”), then the Exercise Price shall be adjusted effective immediately after the effective date of any such event in (i) or (ii) above or the record date at which the holders of Common Shares are determined for the purpose of any such dividend or distribution in (iii) above, as the case may be, by multiplying the Exercise Price in effect on such effective date or record date, as the case may be, by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date, as the case may be, before giving effect to such Common Share Reorganization and the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Common Share Reorganization including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would be outstanding if such securities were exchanged for or converted into Common Shares.

(b)If and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation shall distribute any class of shares or rights, options or warrants or other securities (other than those referred to in 7(a) above), evidences of indebtedness or property (excluding cash dividends paid in the ordinary course) to holders of all or substantially all of its then outstanding Common Shares, the Holder shall receive, in addition to the number of the Common Shares in respect of which the right to purchase is then being exercised, the aggregate number of Common Shares or other securities or property that the Holder would have been entitled to receive as a result of such event, if, on the record date thereof, the Holder had been the registered holder of the number of Common Shares to which the Holder was theretofore entitled upon the exercise of the rights of the Holder hereunder.

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(c)If and whenever at any time after the date hereof and prior to the Expiry Time there is a capital reorganization of the Corporation or a reclassification or other change in the Common Shares (other than a Common Share Reorganization) or a consolidation or merger or amalgamation of the Corporation with or into any other corporation or other entity (other than a consolidation, merger or amalgamation which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other securities), or a transfer of all or substantially all of the Corporation’s undertaking and assets to another corporation or other entity in which the holders of Common Shares are entitled to receive shares, other securities or other property (any of such events being called a “Capital Reorganization”), the Holder, where he has not exercised the right of subscription and purchase under this Warrant Certificate prior to the effective date of such Capital Reorganization, shall be entitled to receive and shall accept, upon the exercise of such right, on such date or any time thereafter, for the same aggregate consideration in lieu of the number of Common Shares to which he was theretofore entitled to subscribe for and purchase, the aggregate number of shares or other securities or property which the Holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, he had been the registered holder of the number of Common Shares to which he was theretofore entitled to subscribe for and purchase.

(d)If and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all of the holders of the outstanding Common Shares entitling them, for a period expiring not more than forty-five (45) days after the record date, to subscribe for or purchase Common Shares or securities convertible, exercisable or exchangeable into Common Shares (each, a “Convertible Security”) at a price per share (or having a conversation, exercise or exchange price per share) less than 95% of the Current Market Price (as defined below) on the earlier of the record date and the date on which the Corporation announces its intention to make such issuance (any such issuance being herein called a “Rights Offering”), the Exercise Price shall be adjusted on the record date so that it shall equal the number which is the product of the Exercise Price in effect immediately prior to the record date and the fraction:

(i)the numerator of which shall be the total number of Common Shares outstanding immediately prior to the record date plus a number of Common Shares equal to the number arrived at by multiplying the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable by the quotient obtained by dividing the purchase or subscription price for each Common Share or conversion price for each Convertible Security offered for subscription or purchase by such Current Market Price for the Common Shares, and

(ii)the denominator of which shall be the total number of Common Shares outstanding immediately prior to such record date plus the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable.

To the extent that any rights, options or warrants are not so issued or any of the rights, options or warrants so issued are not exercised prior to the expiration thereof, the Exercise Price will be readjusted to the Exercise Price in effect immediately prior to the record date, and the

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Exercise Price will be further adjusted based upon the number of additional Common Shares actually delivered upon the exercise of the rights, options or warrants, as the case may be.

For the purposes of this clause 7(d), “Current Market Price”, at any date, means the weighted average price per Common Share at which the Common Shares have traded: (a) on the Toronto Stock Exchange; or (b) if the Common Shares are not quoted on the Toronto Stock Exchange, on any stock exchange or over-the-counter market upon which the Common Shares are then listed or quoted for trading, during the twenty (20) consecutive trading days (on each of which at least five hundred (500) Common Shares are traded in board lots) ending the third (3rd) trading day before such date, and the weighted average price shall be determined by dividing the aggregate sale price of all Common Shares sold in board lots on the exchange or market, as the case may be, during the twenty (20) consecutive trading days by the number of Common Shares sold, provided that if the Common Shares are not listed or quoted for trading on any stock exchange or market, the price shall be determined by the board of directors of the Corporation in its sole discretion, acting reasonably.

(e)If and whenever at any time after the date hereof and prior to the Expiry Time, any of the events set out in clause 7(a) or (d) shall occur and the occurrence of such event results in an adjustment of the Exercise Price pursuant to the provisions of clause 7(a) or (d), then the number of Common Shares purchasable pursuant to this Warrant shall be adjusted contemporaneously with the adjustment of the Exercise Price by multiplying the number of Common Shares then otherwise purchasable on the exercise thereof by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator of which shall be the Exercise Price resulting from such adjustment.

(f)If the Corporation takes any action affecting its Common Shares to which the foregoing provisions of this clause 7, in the opinion of the board of directors of the Corporation, acting in good faith, are not strictly applicable, or if strictly applicable would not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes hereof, or would otherwise materially affect the rights of the Holder of the Warrants hereunder, then the Corporation shall execute and deliver to the Holder an amendment hereto providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in such manner as the board of directors of the Corporation may determine to be equitable in the circumstances, acting in good faith. The failure of the taking of action by the board of directors of the Corporation to so provide for any adjustment on or prior to the effective date of any action or occurrence giving rise to such state of facts will be conclusive evidence that the board of directors has determined that it is equitable to make no adjustment in the circumstances.

8.             The following rules and procedures shall be applicable to the adjustments made pursuant to clause 7:

(a)no adjustment in the Exercise Price shall be required unless a change of at least 1% of the prevailing Exercise Price would result, provided, however, that any adjustment which, except for the provisions of this clause 8(a), would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment;

(b)the adjustments provided for in clause 7 are cumulative and shall apply to successive subdivisions, consolidations, dividends, distributions and other events resulting in any adjustment under the provisions of such clause;

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(c)in the absence of a resolution of the board of directors of the Corporation fixing a record date for any dividend or distribution referred to in clause 7(a)(iii) above, the Corporation shall be deemed to have fixed as the record date therefor the date on which such dividend or distribution is effected;

(d)if the Corporation sets a record date to take any action and thereafter and before the taking of such action abandons its plan to take such action, then no adjustment to the Exercise Price will be required by reason of the setting of such record date;

(e)forthwith after any adjustment to the Exercise Price or the number of Common Shares purchasable pursuant to the Warrants, the Corporation shall provide to the Holder a certificate of an officer of the Corporation certifying as to the amount of such adjustment and, in reasonable detail, describing the event requiring and the manner of computing or determining such adjustment; and

(f)any question that at any time or from time to time arises with respect to the amount of any adjustment to the Exercise Price or other adjustment pursuant to clause 7 shall be conclusively determined by a firm of independent chartered accountants (who may be the Corporation’s auditors) and shall be binding upon the Corporation and the Holder.

9.             On the happening of each and every such event set out in clause 7, the applicable provisions of this Warrant, including the Exercise Price, shall, ipso facto, be deemed to be amended accordingly and the Corporation shall take all necessary action so as to comply with such provisions as so amended.

10.           The Corporation shall not be required to deliver certificates for Common Shares while the share transfer books of the Corporation are properly closed, having regard to the provisions of clauses 7 and 8 hereof, prior to any meeting of shareholders or for the payment of dividends or for any other purpose and in the event of the surrender of any Warrant in accordance with the provisions hereof and the making of any subscription and payment for the Common Shares called for thereby during any such period delivery of certificates for Common Shares may be postponed for not more than five (5) days after the date of the re-opening of said share transfer books. Provided, however, that any such postponement of delivery of certificates shall be without prejudice to the right of the Holder so surrendering the same and making payment during such period to receive after the share transfer books shall have been re-opened such certificates for the Common Shares called for, as the same may be adjusted pursuant to clause 8 hereof as a result of the completion of the event in respect of which the transfer books were closed.

11.           Subject as hereinafter provided, all or any of the rights conferred upon the Holder by the terms hereof may be enforced by the Holder by appropriate legal proceedings.  No recourse under or upon any obligation, covenant or agreement contained herein shall be had against any shareholder, director or officer of the Corporation either directly or through the Corporation, it being expressly agreed and declared that the obligations under the Warrants are solely corporate obligations and that no personal liability whatever shall attach to or be incurred by the shareholders, directors or officers of the Corporation or any of them in respect thereof, any and all rights and claims against every such shareholder, officer or director being hereby expressly waived as a condition of and as a consideration for the issue of the Warrants.

12.           The Holder may subscribe for and purchase any lesser number of Common Shares than the number of shares expressed in this Warrant Certificate.  In the case of any subscription for a lesser number of Common Shares than expressed in this Warrant Certificate, the Holder hereof shall be entitled to receive at no cost to the Holder a new Warrant Certificate in respect of the balance of Warrant not then exercised.  Such new Warrant Certificate shall be delivered by bonded overnight courier to the Holder by the Corporation,

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contemporaneously with the delivery of the certificate or certificates representing the Common Shares issued pursuant to clause 4.

13.           If this Warrant Certificate is stolen, lost, mutilated or destroyed, the Corporation shall, on such terms as it may in its discretion acting reasonably impose, issue and sign and direct the Corporation’s transfer agent to countersign a new Warrant Certificate of like denomination, tenor and date as the Warrant Certificate so stolen, lost, mutilated or destroyed for delivery to the Holder.

14.           The Corporation shall keep at its principal office (or its transfer agent in the City of Toronto): (a) a register of holders in which shall be entered the names and addresses of the holders of the Warrants and of the number of Warrants held by them; and (b) a register of transfers in which shall be entered the date and other particulars of each transfer of Warrants.  The registers hereinbefore referred to shall be open at all reasonable times for inspection by any Holder.

15.           The transferee of a Warrant Certificate shall, after the transfer form attached to the Warrant Certificate or any other form of transfer acceptable to the Corporation, acting reasonably, is duly completed and the Warrant Certificate is lodged with the Corporation and upon compliance with all other conditions in that regard required by this Warrant, by the Toronto Stock Exchange or by law, be entitled to have his name entered on the register of holders as the owner of the Warrants represented thereby free from all equities or rights of set-off or counterclaim between the Corporation and the transferor or any previous holder of such Warrant, save in respect of equities of which the Corporation or the transferee is required to take notice by statute or by order of a court of competent jurisdiction.

16.           Warrant Certificates may, upon compliance with the reasonable requirements of the Corporation, be exchanged for Warrant Certificates in any other denomination representing in the aggregate the same number of Warrants.  The Corporation shall issue and sign and direct the Corporation’s transfer agent to countersign, all Warrant Certificates necessary to carry out the exchanges contemplated herein, provided:

(i)Warrant Certificates may be exchanged only at the principal office of the Corporation in the City of Mississauga;

(ii)any Warrant Certificates tendered for exchange shall be surrendered to the Corporation and cancelled; and

(iii)except as otherwise herein provided, the Corporation shall not charge Holders requesting an exchange any sum for any new Warrant Certificate issued.

17.           The Corporation may deem and treat the registered holder of any Warrant Certificate as the absolute owner of the Warrants represented thereby for all purposes, and the Corporation shall not be affected by any notice or knowledge to the contrary except where the Corporation is required to take notice by statute or by order of a court of competent jurisdiction.  A Holder shall be entitled to the rights evidenced by such Warrant free from all equities or rights of set-off or counterclaim between the Corporation and the original or any intermediate holder thereof and all persons may act accordingly and the receipt by any such Holder of the Common Shares purchasable pursuant to such Warrant shall be a good discharge to the Corporation for the same and the Corporation shall not be bound to inquire into the title of any such Holder except where the Corporation is required to take notice by statute or by order of a court of competent jurisdiction.

18.           The Holder, if resident in Canada, acknowledges that appropriate legend, as follows, will be placed upon certificates representing any securities issued on the exchange, assignment or exercise of the Warrants represented by this certificate until the hold period expires for the Warrants so represented hereby.

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LEGEND

“ UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE SEPTEMBER 20, 2004.”

19.           This Warrant shall be governed by the laws of the Province of Ontario and the federal laws of Canada applicable herein.

20.           The Warrants represented by this certificate and the Common Shares issuable upon exercise hereof have not been registered under the United States Securities Act of 1933, as amended (the “1933 Act”).  The Warrants represented by this certificate may not be exercised by a U.S. person or person within the United States (or on behalf of any such person) unless registered under the 1933 Act or unless an exemption from such registration is available.  Terms used in this clause 20 have the meanings assigned to them in Regulation S under the 1933 Act.

21.           All references herein to monetary amounts are references to lawful money of Canada.

IN WITNESS WHEREOF, the Corporation has caused this Warrant Certificate to be signed by its duly authorized officer.

DATED this             day of                 , 200         .

ADB SYSTEMS INTERNATIONAL LTD.
By:
	Authorized Signing Officer

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SUBSCRIPTION FORM

TO BE COMPLETED IF WARRANTS ARE TO BE EXERCISED:

TO:	ADB SYSTEMS INTERNATIONAL LTD.
	6725 Airport Road, Suite 201
	Mississauga, Ontario L4V 1V2

THE UNDERSIGNED hereby subscribes for                           common shares of ADBSystems International Ltd. according to the terms and conditions set forth in the annexed warrant certificate (or such number of other securities or property to which such warrant entitles the undersigned to acquire under the terms and conditions set forth in the annexed warrant certificate).

Address for Delivery of Shares:
	Attention:

Exercise Price Tendered

(Cdn$0.50 per share or as adjusted)         Cdn$                             

DATED at Toronto, this               day of                         , 200     .

Witness:	)
	)
	)	Holder’s Name
	)
	)
	)	Authorized Signature
	)
	)
	)	Title (if applicable)

ASSIGNMENT FORM

TO BE COMPLETED IF WARRANTS ARE TO BE ASSIGNED:

TO:	ADB SYSTEMS INTERNATIONAL LTD.
	6725 Airport Road, Suite 201
	Mississauga, Ontario L4V 1V2

FOR VALUE RECEIVED,                                      Warrants represented by this Warrant Certificate are

hereby transferred to

residing at

You are hereby instructed to take the necessary steps to effect this transfer.

DATED at                                     , this             day of                       ,             .

Witness:	)
	)
	)	Holder’s Name
	)
	)
	)	Authorized Signature
	)
	)
	)	Title (if applicable)

Signature guaranteed:

The signature must be guaranteed by a Canadian chartered bank or a member of a recognized stock exchange or other entity acceptable to the Corporation.

EX-4.16

Exhibit 4.16

AGENCY AGREEMENT

June 15, 2004
ADB Systems International Ltd.
6725 Airport Road, Suite 201
Mississauga, Ontario  L4V 1V2
Attention:	Jeffrey Lymburner
	Chief Executive Officer

Dear Sirs/Mesdames:

First Associates Investments Inc. (the “Agent”) understands that ADB Systems International Ltd. (the “Company”) desires to issue and sell, in one or more closings, up to $5,000,000 principal amount of convertible notes (the “Convertible Notes”) of the Company (the “Offering”), having the terms described in Schedule “A” to this agreement.

The Company hereby appoints the Agent, and the Agent hereby agrees to act, as the Company’s exclusive agent in respect of the Offering to use its best efforts to offer for sale and obtain subscriptions for the Convertible Notes in the Qualifying Provinces in accordance with applicable Securities Laws; provided that the Agent will be under no obligation to purchase any of the Convertible Notes.

In consideration of the Agent’s services to be rendered in connection with the Offering, including (i) assisting in preparing documentation relating to the sale of the Convertible Notes; (ii) distributing the Convertible Notes, both directly and indirectly; (iii) performing administrative work in connection with the Offering; and (iv) all other services arising out of this agreement, the Company agrees to pay the Agency Fee (as hereinafter defined), and to issue the Compensation Options (as hereinafter defined) to the Agent at the Time of Closing.

The Company agrees that the Agent will be permitted to appoint other registered dealers (or other dealers duly qualified in their respective jurisdictions) as their agents to assist in the Offering and that the Agent may determine the remuneration payable to such other dealers appointed by them, such remuneration to be payable by the Agent.

This offer is conditional upon and subject to the additional terms and conditions set forth below.

1.Interpretation

1.1Unless expressly provided otherwise, where used in this agreement or any schedule hereto, the following terms shall have the following meanings, respectively:

“Agency Fee” means the commission payable to the Agent;

(a)in respect of Protected List Purchases, 4% of the proceeds of the Protected List Purchases; and

(b)in respect of all other purchases, excluding Protected List Purchases, 8% of the remaining aggregate proceeds of the Offering;

“Agent” shall have the meaning ascribed thereto in the first paragraph of this agreement;

“Applicable Securities Laws” means, collectively, the applicable securities laws of each of the Qualifying Provinces and the securities legislation of each other relevant jurisdiction and the respective regulations and rules made and forms prescribed thereunder together with all applicable published policy statements and blanket orders and rulings of the Securities Commissions and each other relevant securities regulatory authority;

“Business Day” means a day other than a Saturday, Sunday or statutory or banking holiday in the Province of Ontario;

“CCRA” means the Canada Customs and Revenue Agency;

“Closing Date” means the date on which the Offering is to be completed, as specified in Schedule “A” to this agreement;

“Common Shares” means the common shares in the capital of the Company;

“Company” shall have the meaning ascribed thereto in the first paragraph of this agreement;

“Company’s Information Record” means any statement contained in any press release, material change report, financial statements, annual information form, annual or interim report, proxy circular or other document of the Company which has been or is publicly disseminated by or with the consent of the Company, whether pursuant to any Applicable Securities Laws or otherwise;

“Compensation Options” means the compensation options (each a “Compensation Option”) of the Company to purchase Compensation Units issued to the Agent as follows:

(a)such number of Compensation Units as is equal to 5.0% of the number of Units issuable upon full conversion of the Convertible Notes sold as Protected List Purchases; and

(b)such number of Compensation Units as is equal to 10.0% of the number of Units issuable upon full conversion of the Convertible Notes sold to all other purchasers excluding the Convertible Notes sold as Protected List Purchases;

and each Compensation Option will be exercisable into one Compensation Unit at an exercise price of $0.31 per Compensation Unit at any time prior to 5:00 p.m. (Toronto time) on the second anniversary of the Closing Date.

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“Compensation Option Certificate” means the option certificate to be executed by the Company evidencing the Compensation Options in form and substance satisfactory to the Company and the Agent;

“Compensation Unit Shares” means the Common Shares included in the Compensation Units;

“Compensation Units” means the units of securities of the Company issuable upon exercise of the Compensation Options, each such unit to be comprised of one Common Share and one-half of one Warrant;

“Compensation Unit Warrants” means the Warrants included in the Compensation Units;

“Compensation Warrant Shares” means the Common Shares to be issued to the Agent upon exercise of the Compensation Unit Warrants;

“Convertible Notes” shall have the meaning ascribed thereto in the first paragraph of this Agreement;

“Convertible Note Certificates” means the certificates to be executed by the Company evidencing the Convertible Notes in form and substance satisfactory to the Company and the Agent;

“due inquiry”, when used in relation to the Company, means after inquiries have been made of the appropriate officers, employees and directors of the Company who may reasonably be expected to have knowledge of facts which are material with respect to the fact in question;

“Encumbrance” means any encumbrance, lien, charge, hypothec, pledge, mortgage, title retention agreement or other security interest;

“Exchange” means the Toronto Stock Exchange;

“Exchange Approval” means the conditional approval of the Exchange to the Offering, as set forth in a letter dated June 3, 2004;

“including” means including without limitation and shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it;

“Indemnified Party” shall have the meaning ascribed thereto in Section 9.1;

“material change” means a material change for the purposes of the Applicable Securities Laws or any of them or where undefined under the Applicable Securities Laws of a jurisdiction means a change in the business, operations or capital of the Company or its subsidiaries, that would reasonably be expected to have a significant effect on the market price or value of any of the Company’s securities and includes a decision to implement such a change made by the Company’s board of directors or by senior management of the Company who believe that confirmation of the decision by the board of directors is probable;

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“material fact” means a material fact for the purposes of the Applicable Securities Laws or any of them or where undefined under the Applicable Securities Laws of a jurisdiction means a fact that significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of the Company’s securities;

“misrepresentation” means a misrepresentation as defined under the Applicable Securities Laws or any of them or, where undefined under the Applicable Securities Laws of a jurisdiction, means (i) an untrue statement of a material fact, or (ii) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made;

“MI 45-102” means Multilateral Instrument 45-102 – Resale of Securities;

“Offering” shall have the meaning ascribed thereto in the first paragraph of this agreement;

“Outstanding Convertible Securities” means all options (whether put or call options), including options granted or proposed to be granted to officers, directors, employees or consultants, share purchase or acquisition rights or warrants and other convertible securities outstanding as at the date of this agreement, whether issued pursuant to an established plan or otherwise;

“person” includes any individual, corporation, limited partnership, general partnership, joint stock company or association, joint venture association, company, trust, bank, trust company, land trust, investment trust society or other entity, organization, syndicate, whether incorporated or not, trustee, executor or other legal personal representative, and governments and agencies and political subdivisions thereof;

“Protected List Purchases” means purchases of up to an aggregate of $1,000,000 of Convertible Notes by investors who are (i) residents of Norway; or (ii) insiders of the Company;

“Purchasers” means, collectively, each of the purchasers of the Convertible Notes under the Offering, including, if applicable, the Agent;

“Qualifying Provinces” means the provinces of British Columbia, Alberta, Ontario and such other provinces as the Agent and the company may agree upon;

“Securities Commissions” means, collectively, the securities commissions or similar regulatory authorities in each of the Qualifying Provinces and “Securities Commission” means a securities commission or other securities regulatory authority in any one Qualifying Province as the context may require;

“Selling Group” means, collectively, those registered dealers appointed by the Agent to assist in the Offering as contemplated in the fourth paragraph of this agreement;

“Subscription Agreements” means, collectively, the subscription agreements entered into between the Purchasers and the Company in respect of the Offering;

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“Subsidiaries” means the subsidiaries (as such term is defined under the Securities Act (Ontario)) of the Company all as described in Schedule “B” of this agreement;

“Survival Limitation Date” means the second anniversary of the Closing Date;

“Tax Act”means the Income Tax Act (Canada), as amended from time to time and all rules and regulations made pursuant thereto and any proposed amendments thereto;

“Time of Closing” means the time on the Closing Date at which the Offering is to be completed, as specified in Schedule “A” to this agreement;

“Underlying Compensation Securities” means the Compensation Unit Shares and Compensation Warrants comprising the Convertible Notes issuable upon exercise of the Compensation Options and the Compensation Warrant Shares;

“Units” means the units of securities of the Company issuable upon conversion of the Convertible Notes, each such unit (subject to adjustment in accordance with the terms of the Convertible Note Certificates) to be comprised of on Common Share and one-half of one Warrant;

“Unit Shares” means the Common Shares included in the Units;

“Warrants” means the Common Share purchase warrants to be included in the Units and Compensation Units, having the attributes described in Schedule “A” of this agreement;

“Warrant Certificates” means the warrant certificates issuable by the Company pursuant to the terms of the Convertibles Notes or the Compensation Option Certificate, as the case may be, evidencing the Warrants in form and substance satisfactory to the Company and the Agent; and

“Warrant Shares” means the Common Shares issuable upon the exercise of the Warrants included in the Units.

1.2The division of this agreement into sections, subsections, paragraphs and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement. Unless something in the subject matter or context is inconsistent therewith, references herein to sections, subsections, paragraphs and other subdivisions are to sections, subsections, paragraphs and other subdivisions of this agreement. In this agreement, words importing the singular number only shall include the plural and vice versa and words importing gender shall include all genders.

1.3Any action or payment required or permitted to be taken or made hereunder on a day which is not a Business Day shall or may be, as the case may be, taken or made on the next succeeding Business Day with the same force and effect as if taken or made within the period for the taking or making of such action.

1.4This agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and time shall be of the essence hereof.

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1.5All amounts expressed herein in terms of money refer to lawful currency of Canada and all payments to be made hereunder shall be made in such currency.

1.6The following are the schedules attached to this agreement, which schedules are deemed to be a part hereof and are hereby incorporated by reference herein:

Schedule A	–	Details of the Offering
Schedule B	–	Details as to the Subsidiaries of the Company
Schedule C	–	Details as to Outstanding Convertible Securities
Schedule D	–	Detail as to the intellectual property of the Company
Schedule E	–	Terms for Purchasers and U.S. Persons
Schedule F	–	Permitted Encumbrances

2.Nature Of Transaction

2.1Each Purchaser who is resident in one of the Qualifying Provinces shall purchase under one or more “private placement” exemptions so that the purchases will be exempt from the prospectus requirements of the Applicable Securities Laws. Each other Purchaser shall purchase in accordance with such procedures as the Company and the Agent may mutually agree, acting reasonably, in order to fully comply with the Applicable Securities Laws. The Company hereby agrees to use its commercially reasonable efforts to secure compliance with all Applicable Securities Laws on a timely basis in connection with the distribution of the Convertible Notes to the Purchasers, including by filing within the periods stipulated under Applicable Securities Laws and at the Company’s expense all private placement forms required to be filed by the Company in connection with the Offering and paying all filing fees required to be paid in connection therewith so that the distribution of the Convertible Notes may lawfully occur in the Qualifying Provinces without the necessity of filing a prospectus (including so as to ensure that the requirements for a four month, from the Closing Date, “hold period” under MI 45-102 in respect of the Convertible Notes, Units and Warrant Shares are complied with by the Company).  The Agent agrees to assist the Company in all reasonable respects to secure compliance with all regulatory requirements in connection with the Offering. The Agent will notify the Company with respect to the identity of each Purchaser as soon as practicable and with a view to leaving sufficient time to allow the Company to secure compliance with all relevant regulatory requirements under Applicable Securities Laws relating to the sale of the Convertible Notes.

2.2Any offering and sale of such Convertible Notes of a person resident in the United States should be in accordance with Schedule “E” to this agreement.

3.Representations, Warranties and Covenants of the Agent

3.1The Agent hereby represents, warrants and covenants with the Company that it (and will use its commercially reasonable best efforts to cause the members of the Selling Group to): (i) will conduct and has conducted activities in connection with arranging for the sale of the Convertible Notes in compliance with all Applicable Securities Laws; (ii) will not solicit and has not solicited

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offers to purchase or sell the Convertible Notes so as to require registration of, or filing of a prospectus, offering memorandum or similar disclosure document with respect to the Convertible Notes under the laws of any jurisdiction, including the United States and will not, without the consent of the Company or as otherwise contemplated in this agreement, solicit offers to purchase or sell the Convertible Notes in any jurisdiction outside of the Qualifying Provinces where the solicitation or sale of the Convertible Notes would result in any ongoing disclosure requirements in such jurisdiction or in any registration requirements in such jurisdiction except for the filing of a notice or report of the solicitation or sale, or where the Company may be subject to liability in connection with the sale of the Convertible Notes which is materially more onerous than its liability under the Applicable Securities Laws in the Qualifying Provinces and any other applicable securities legislation to which it is subject as at the date of this agreement; (iii) will obtain from each Purchaser an executed Subscription Agreement in a form reasonably acceptable to the Company and to the Agent relating to the transactions herein contemplated, together with all documentation (including questionnaires, undertakings and documents required by the Exchange) as may be necessary in connection with subscriptions for Convertible Notes, as applicable, to ensure compliance with Applicable Securities Laws and Exchange Approval; (iv) will not provide, and has not provided to prospective purchasers an offering memorandum within the meaning of Applicable Securities Laws and will not advertise and has not advertised the Offering in (A) printed media of general and regular paid circulation, (B) radio, (C) television, or (D) telecommunication (including electronic display) and will not make or has not made use of any green sheet or other internal marketing document without the consent of the Company, such consent to be promptly considered and not to be unreasonably withheld; (v) holds all licenses and permits that are required for carrying on its activities as contemplated in this agreement; (vi)  it has good and sufficient right and authority to enter into this agreement and complete its transactions contemplated under this agreement on the terms and conditions set forth herein; (vii) it, and any member of the Selling Group is appropriately registered under applicable securities legislation so as to permit it to lawfully fulfil its obligations hereunder; (viii) it is a member in good standing with the Exchange; and (ix) it will not, in connection with the Offering, make any representation or warranty with respect to the Company or the Convertible Notes except as set forth in the Subscription Agreement to be entered into between the Purchasers and the Company or except as shall be expressly authorized in writing by the Company;

4.Representations, Warranties and Covenants of the Company

4.1The Company hereby represents, warrants and covenants to and with the Agent, for its own benefit and in trust for the benefit of the Purchasers, that:

4.1.1General Matters

(a)as at the date hereof: (i) the authorized capital of the Company consists of an unlimited number of Common Shares; and (ii) the issued and outstanding capital of the Company consists solely of 61,849,192 Common Shares, all of which have been issued as fully paid and non-assessable;

(b)the Company (i) has been duly organized and is validly existing and in good standing under laws of the Province of Ontario; (ii) has all requisite corporate power,

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authority and capacity to carry on its business as now conducted and to own, lease and operate its properties and assets; and (iii) will have all required corporate power and authority to create, issue, allot and sell, as the case may be, the Convertible Notes, the Unit Shares and Warrants, the Warrant Shares, the Compensation Options and the Underlying Compensation Securities at the time of their issuance, to enter into this agreement and the Subscription Agreements and to execute the Convertible Note Certificates, the Warrant Certificates and Compensation Option Certificate and to carry out the provisions of this agreement, the Subscription Agreements, the Convertible Note Certificates, the Warrant Certificates and the Compensation Option Certificate;

(c)the ownership interest of the Company’s Subsidiaries is as set out in Schedule “B” hereto, with such ownership interest being free and clear of Encumbrances, except as otherwise noted in such Schedule and other than the Encumbrances represented by the registrations and the Encumbrances defined as Permitted Security Interests set out in Schedule “F”;

(d)except for the Subsidiaries, the Company does not own and does not have any agreements of any nature to acquire, directly or indirectly, any securities, or other equity or proprietary interest in, any person and the Company does not have any agreements to acquire or lease any other business operations;

(e)each of the Subsidiaries (i) has been duly incorporated and is validly existing and in good standing under the laws of its jurisdiction of subsistence and (ii) has all requisite power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets;

(f)the Company has not engaged in any “off balance sheet” or similar financing;

(g)the Company and each of the Subsidiaries is, in all material respects, conducting its business in compliance with all applicable laws, rules and regulations of each jurisdiction in which its business is carried on and is duly licensed, registered or qualified in all jurisdictions in which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated and all such licences, registrations and qualifications are and will at the Time of Closing be valid, subsisting and in good standing, except in respect of matters which do not and will not result in any material adverse change to the business, business prospects or condition (actual or proposed, whether financial or otherwise) of the Company, taken as a whole, and except for the failure to be so qualified or the absence of any such licence, registration or qualification which does not and will not have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, taken as a whole;

(h)attached as Schedule “C” to this agreement is a complete list of all Outstanding Convertible Securities of the Company and the Subsidiaries and, except as contemplated herein or under the terms of the securities listed in Schedule “C”, no person now has any agreement or option or right or privilege (whether by law, pre-emptive or contractual)

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issued or capable of becoming an agreement for (i) the purchase, subscription or issuance of any unissued shares, securities or warrants of the Company or any Subsidiary; or (ii) the repurchase by or on behalf of the Company or any Subsidiary, of any issued and outstanding securities of the Company or any Subsidiary;

(i)other than as disclosed in the Company’s management information circular dated May 11, 2004, and to the best of the Company’s knowledge, information and belief, after due inquiry, other than the constating documents of the Company (to the extent that they would constitute an agreement), no agreement exists among the shareholders of the Company in respect of the Company and no agreement will exist at the Time of Closing;

(j)neither the Company nor any of the Subsidiaries has committed an act of bankruptcy or sought protection from its creditors from any court or pursuant to any legislation, proposed a compromise or arrangement to its creditors generally, taken any proceeding with respect to a compromise or arrangement, taken any proceeding to have itself declared bankrupt or wound up, as the case may be, taken any proceeding to have a receiver appointed of any part of its assets, had any person holding an Encumbrance (an “Encumbrancer”) or receiver take possession of any of its property, had an execution or distress become enforceable or levied upon any portion of its property or had any petition for a receiving order in bankruptcy filed against it, and at the Time of Closing, neither the Company nor any of the Subsidiaries, will not be an insolvent person (as that term is defined in the Bankruptcy and Insolvency Act (Canada));

(k)other than the Encumbrances represented by the registrations and the Encumbrances defined as Permitted Security Interests set out in Schedule “F” hereto, the Company and each of the Subsidiaries is the owner of all of its property and assets used by it in connection with its business, unless leased or licensed, in each case with good and marketable title thereto, free and clear of any Encumbrances and of any rights or privileges capable of becoming Encumbrances;

(l)except as otherwise disclosed in the Company’s Information Record, neither the Company nor any of the Subsidiaries, is subject to any materially adverse liabilities or obligations, direct or indirect, accrued, absolute, contingent or otherwise;

(m)other than pursuant to written agreements, copies of which have been provided to the Agent or its counsel, neither the Company nor any of the Subsidiaries, has guaranteed or otherwise given security for or agreed to guarantee or give security for any liability, debt or obligation of any person;

(n)since December 31, 2003,except as disclosed in the Company’s Information Record and except as contemplated in this agreement, the Company and each of the Subsidiaries has carried on business in the ordinary course and there has not been:

(i)any material change in the assets, liabilities or obligations (absolute, accrued, contingent or otherwise), business, business prospects, condition (financial or otherwise) or results of operations of the Company, taken as a whole, other than: (A)

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the growth and expansion of the business of the Company and (B) those changes occurring in the ordinary course of business, none of which is (either singly or taken together) materially adverse;

(ii)any material change in the capital stock or long-term debt of the Company, taken as a whole;

(iii)any material adverse change in the business, business prospects, condition (financial or otherwise) or results of the operations of the Company, taken as a whole;

(iv)any declaration, setting aside or payment of any dividend or other distribution with respect to any shares in the capital of the Company or any direct or indirect redemption, purchase or other acquisition of any shares; or

(v)any change in accounting or tax practices followed by the Company;

(o)there is no action, proceeding or investigation (whether or not purportedly by or on behalf of the Company or any of the Subsidiaries) pending or, to the best of the Company’s knowledge, information and belief, after due inquiry, threatened against or affecting the Company or any of the Subsidiaries (including any predecessor companies) at law or in equity (whether in any court, arbitration or similar tribunal) or before or by any federal, provincial, state, municipal or other governmental department, commission, board or agency, domestic or foreign which in any way materially adversely affects the Company, taken as a whole, or the condition (financial or otherwise) of the Company, taken as a whole, or which questions the validity of the Convertible Notes or the issuance of the Unit Shares, Warrants, Warrant Shares or the Underlying Compensation Securities or any action taken or to be taken by the Company pursuant to or in connection with this agreement;

(p)neither the Company nor any of the Subsidiaries is in default or in breach in any material respect of, and the execution and delivery of this agreement, the Subscription Agreements, the Convertible Note Certificates, the Warrant Certificates, the Compensation Option Certificate by the Company, the performance and compliance with the terms of such agreements and certificates and the issue and sale, as applicable, of the Convertible Notes and the Compensation Options by the Company will not result in any material breach of, or be in conflict with or constitute a default under, or create a state of facts which, after notice or lapse of time, or both, would constitute a default under any term or provision of the constating documents, by-laws or resolutions of the Company or any material mortgage, note, indenture, contract, agreement, instrument, lease or other document to which the Company or any Subsidiary is a party or by which any of them is bound or any judgment, decree, order, statute, rule or regulation applicable to it;

(q)the Company is, and will at the Time of Closing be, a “reporting issuer” (or its equivalent), not in default, in the provinces of Ontario, Alberta and British Columbia and will use its commercially reasonable best efforts to maintain such status for a period from the date hereof up to and including the fourth anniversary of the Closing. In particular,

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without limiting the foregoing, the Company has at all times complied with its obligations to make timely disclosure of all material changes relating to it and no such disclosure has been made on a confidential basis and there is no material change relating to the Company which has occurred and with respect to which the requisite material change statement has not been filed, except to the extent that the Offering constitute a material change;

(r)no portion of the Company’s Information Record to the date hereof contained a misrepresentation as at its date of public dissemination (provided that the foregoing representation is not intended to extend to information and statements in reliance upon and in conformity with information furnished to the Company by or on behalf of the Agent specifically for use therein);

(s)to the best of the Company’s knowledge, the auditors who audited the consolidated financial statements of the Company most recently delivered to the securityholders of the Company and delivered their report with respect thereto are a participating audit firm as required by National Instrument 52-108 – Auditor Oversight;

(t)there has never been any reportable disagreement during the five year period preceding the date of this agreement (within the meaning of National Instrument 51-102 Continuous Disclosure Obligations) with the present or any former auditor of the Company;

(u)the currently issued and outstanding Common Shares are listed and posted for trading on the Exchange and no order ceasing or suspending trading in any securities of the Company or prohibiting the issue and sale, as applicable, of the Convertible Notes, Warrants, Warrant Shares, Compensation Options or Underlying Compensation Securities or the trading of any of the Company’s issued securities has been issued and no proceedings for such purpose are pending or, to the best of the Company’s knowledge, information and belief, after due inquiry, threatened;

(v)Equity Transfer Services Inc. has been duly appointed as the registrar and transfer agent for the Common Shares at its principal transfer office in the City of Toronto;

(w)the Company and each of the Subsidiaries has filed all federal, provincial, local and foreign tax returns that are required to be filed or have requested extensions thereof (except in any case in which the failure so to file would not have a material adverse effect on the assets and properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, taken as a whole) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that has been disclosed to the Agent and is currently being contested in good faith. The Company and each of the Subsidiaries has withheld from each payment made to any of its past or present employees, officers or directors, the amount of all taxes and other deductions required to be withheld therefrom and has paid the same to the proper tax or other receiving officers within the time required under the applicable legislation;

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(x)the Company and each of the Subsidiaries has established on its books and records reserves that are adequate for the payment of all taxes not yet due and payable and there are no liens for taxes on the assets of the Company or any of the Subsidiaries, except for taxes not yet due and there are no audits known by the Company or, to the best of the Company’s knowledge, information and belief, after due inquiry, to be pending, of the tax returns of the Company or any of the Subsidiaries (whether federal, provincial, local or foreign) and to the best of  the Company’s knowledge, information and belief, after due inquiry, there are no claims which have been or may be asserted relating to any such tax returns, which audits and claims, if determined adversely, would result in the assertion by any governmental agency of any deficiency that would have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, taken as a whole;

(y)none of CCRA or any provincial, state or foreign taxation authority has asserted or, to the best of the Company’s knowledge, information and belief, after due inquiry, threatened to assert any assessment, claim or liability for taxes due or to become due in connection with any review or examination of the tax returns of the Company or any of the Subsidiaries filed for any year which would have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, taken as a whole;

(z)the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences;

(aa)neither the Company or any of the Subsidiaries nor, to the best of the Company’s knowledge, information and belief, after due inquiry, any other party is in default in the observance or performance of any material term or material obligation to be performed by any of them under any material contract to which the Company or any of the Subsidiaries is a party or otherwise bound and no event has occurred which with notice or lapse of time or both would constitute such a default, in any such case which default or event would have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, taken as a whole;

(bb)the net proceeds of the Offering will be used in the manner specified in Schedule ”A” hereto;

(cc)this agreement, the Subscription Agreements, the Convertible Note Certificates, the Warrant Certificates, the Compensation Option Certificate and all other contracts and documentation required in connection with the issue and sale of the Convertible Notes and the Compensation Options and the distribution of the Unit Shares, Warrants, Warrant

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Shares and Underlying Compensation Securities shall be, prior to the Closing Date, duly authorized, executed and delivered by the Company, and each when executed and delivered shall be a valid and binding obligation of the Company enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, moratorium or similar laws affecting creditor’s rights generally, (ii) general equitable principles, or (iii) limitations under applicable law in respect of rights of indemnity, contribution and waiver of contribution;

(dd)the attributes of the Convertible Notes, Warrants, Warrant Shares, Compensation Options and Underlying Compensation Securities will conform in all material respects with the description thereof in this agreement and the Subscription Agreements;

(ee)the forms of the certificates representing the Common Shares, the Convertible Notes, the Warrants and Compensation Options have been duly approved by the directors of the Company and the certificate representing the Common Shares complies with the provisions of the Business Corporations Act (Ontario) and, to the extent applicable, the rules and policies of the Exchange;

(ff)there is no person acting or purporting to act at the request of the Company, other than the Agent, who is entitled to any brokerage, agency or similar fee in connection with the transactions contemplated herein;

(gg)the Company and each of the Subsidiaries has its property and assets insured against loss or damage by insurable hazards or risks. Such insurance coverage is of a type and in an amount typical to the business in which the Company and its Subsidiaries operate as conducted by a reasonably prudent person, based on the advice of reputable insurance brokers consulted by the Company. Neither the Company nor any of its Subsidiaries has made any material claim on any policy of insurance or been refused any insurance coverage sought or applied for. The Company does not have any reason to believe that it will not be able to renew its existing insurance coverage of the Company and each of the Subsidiaries as an when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not be reasonably expected to have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, taken as a whole;

(hh)except as disclosed in the Company’s Information Record and to the best of the Company’s knowledge, information and belief, after due inquiry, none of the directors or officers of the Company or any Subsidiary, any holder of more than 10% of any class of shares of the Company, or any associate or affiliate (as such terms are defined in the Securities Act (Ontario)) of any of the foregoing persons, has any material interest, direct or indirect, in any material transaction or any proposed material transaction which, as the case may be, materially affected, is material to or will materially affect the Company;

(ii)the Company will promptly notify the Agent in writing if, prior to the Time of Closing, there shall occur any material change or change in a material fact (in either case, whether actual, anticipated, contemplated or threatened and other than a change or fact

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relating solely to the Agent) or any event or development involving a prospective material change or a change in a material fact in any or all of the business, affairs, operations, assets (including information or data relating to the estimated value or book value of assets), liabilities (contingent or otherwise), capital, ownership, control, management or prospects of the Company;

(jj)the Company will promptly notify the Agent in writing with full particulars of any such actual, anticipated, contemplated, threatened or prospective change or other matter referred to in the first preceding paragraph;

(kk)the Company will in good faith discuss with the Agent as promptly as possible any circumstance or event which is of such a nature that there is or ought to be consideration given as to whether there may be a material change or change in a material fact or other matter as described in the proceeding two paragraphs; and

neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has paid or will pay any commission or other remuneration, directly or indirectly for soliciting the exercise of the Warrants.

4.1.2Intellectual Property

(a)for the purposes of this Section 4.1.2, “Intellectual Property” means the intellectual and industrial property specified in paragraphs (c) and (d) below and all Intellectual Property Rights therein, including works protected by the law of copyright, trade-marks, patents, inventions and discoveries, industrial designs, trade secrets, know-how and rights to information of a confidential nature;

(b)for the purposes of this Section 4.1.2, “Intellectual Property Rights” means all intellectual and industrial property rights, including all rights to copyrights, trade-marks, patents, inventions and discoveries, industrial designs, design rights, trade secrets, know-how and rights to information of a confidential nature;

(c)attached hereto as Part I of Schedule “D” is a complete and accurate list and particulars of all Intellectual Property owned by the Company or the Subsidiaries (the “Owned Intellectual Property”);

(d)attached hereto as Part II of Schedule “D” is a complete list of all Intellectual Property which the Company and/or Subsidiaries have license to use but do not own, other than “off the shelf” software which is generally available to the public and has not been customized for use by the business of the Company or any of the Subsidiaries (the “Licensed Intellectual Property”), as well as a complete list of the agreements, licenses and consents under which the Company or the Subsidiaries have been granted the right to use the Licensed Intellectual Property.  To the best of the Company’s knowledge, information and belief, after due inquiry, all such agreements, licenses and consents are in full force and effect and neither the Company nor the Subsidiaries are in breach of any provisions thereof;

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(e)the Owned Intellectual Property and the Licensed Intellectual Property together comprise all Intellectual Property necessary to conduct the respective businesses of the Company and the Subsidiaries;

(f)except as disclosed on the Company’s Information Record, the Company, directly or through the Subsidiaries, is the beneficial owner of the Owned Intellectual Property, free and clear of all Encumbrances (other than the Encumbrances represented by the registrations and the Encumbrances defined as Permitted Security Interests set out in Schedule “F” attached hereto), and is not a party to or bound by any contract, agreement, or other obligation whatsoever that limits or impairs its ability to sell, transfer, assign or convey, or that otherwise affects, the Owned Intellectual Property other than pursuant to the contracts, agreements or obligations set out in Schedule “D”.  Same as set out in Schedule “D”, no person has been granted any interest in or right to use all or any portion of the Owned Intellectual Property;

(g)the Company is not aware of a claim of any infringement or breach of any Intellectual Property Rights of any other Person by the Company, nor has the Company or any of the Subsidiaries received any notice that the conduct of its business, including the use of the Owned Intellectual Property or the Licensed Intellectual Property, infringes upon or breaches any Intellectual Property Rights of any other Person.  To the best of the Company’s knowledge, information and belief, after due inquiry, the conduct of the respective businesses of the Company and the Subsidiaries does not infringe upon the Intellectual Property Rights or use in any unauthorized manner the intellectual property of any other Person.  To the best of Company’s knowledge, information and belief, after due inquiry, there has been no infringement or violation of any of its rights in the Owned Intellectual Property by any other Person.    The Company is not aware of any state of facts that casts doubt on the validity or enforceability of any of the Intellectual Property Rights in the Owned Intellectual Property.  The Company has provided to the Agent true and complete copies of all contracts and amendments thereto that relate to the Owned Intellectual Property and Licensed Intellectual Property;

(h)the Owned Intellectual Property is not, and to the best of the Company’s knowledge, information and belief, after due inquiry, will not be, the subject of any claims of opposition from any employees or contract staff of the Company or any of the Subsidiaries.  Except as disclosed in Schedule “D” to this Agreement, all Intellectual Property, developed by Persons employed by or under contract to the Company or any of the Subsidiaries and used or enjoyed in the business of the Company or any of the Subsidiaries, was developed in the normal course of the employee’s or contractor’s duties, and no claim for compensation under any applicable laws has been made or is pending.  The Company and each of the Subsidiaries has, or on and prior to the Time of Closing will have, entered into confidentiality agreements and agreements with regard to ownership of Intellectual Property with all current employees employed full-time or part-time within the business, and with all independent contractors who currently provide services (other than contract research) to the business; and

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(i)save as set out in Schedule “D”, no license has been granted to any third party in respect of any of the Owned Intellectual Property and to the best of the Company’s knowledge, information and belief, after due inquiry, there are no circumstances which could entitle a third party to call for such a license.

4.1.3Due Diligence Matters

(a)Prior to the Closing Date, the Company shall allow the Agent to conduct all due diligence which they may reasonably require to conduct in respect of the Offering and if one or more visits to the offices of the Company is required, such visit(s) shall be made within normal business hours; and

(b)the minute books and corporate records of the Company and the Subsidiaries made or to be made available to Goodman and Carr LLP or its local agent counsel in connection with the Agent’s due diligence investigations of the Company for the period from their respective dates of incorporation to the date of examination thereof, are the original minute books and records of the Company and the Subsidiaries or true copies thereof and contain copies of all proceedings (or certified copies thereof) of the shareholders, the boards of directors and all committees of the boards of directors of such companies and there have been no other proceedings of the shareholders, boards of directors or any committee of the boards of directors of such companies to the date of review of such corporate records and minute books not reflected in such minute books and corporate and other records other than those which have been disclosed to the Agent in writing and those which or not material in the context of the Company, taken as a whole.

4.1.4Employment Matters

(a)The Company and each of the Subsidiaries is in all material respects in compliance with all applicable laws and regulations respecting employment and employment practices;

(b)each material plan for retirement, bonus, stock purchase, profit sharing, stock option, deferred compensation, severance or termination pay, insurance, medical, hospital, dental, vision care, drug, sick leave, disability, salary continuation, legal benefits, unemployment benefits, vacation, incentive or otherwise contributed to or required to be contributed to, by the Company or any of the Subsidiaries for the benefit of any current or former director, officer, employee or consultant (the “Employee Plans”) has been maintained in material compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations that are applicable to such Employee Plan. The Company does not and has not had any pension plan (as that term is defined in the Pension Benefits Act (Ontario));

(c)all material accruals for unpaid vacation pay, premiums for unemployment insurance, health premiums, federal or provincial pension plan premiums, accrued wages, salaries and commissions and Employee Plan payments have been reflected in the books and records of the Company and the Subsidiaries;

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(d)there has not been and there is not to the knowledge of the Company, after due inquiry, currently any labour trouble which is adversely effecting or could adversely effect, in a material manner, the carrying on of the business of the Company and the Subsidiaries; and

(e)except as disclosed in the Company’s Information Record and to the best of the Company’s knowledge, information and belief, after due inquiry, neither the Company nor any of the Subsidiaries owes any monies to, nor has the Company or any of the Subsidiaries any present loans to, or borrowed any monies from or is otherwise indebted to, any officer, director, employee, shareholder or any person not dealing at “arm’s length” (as such term is defined in the Tax Act) with any of them except for usual employee reimbursements and compensation paid in the ordinary and normal course of its business. To the best of the Company’s knowledge information and belief, after due inquiry, except  usual employee or consulting arrangements made in the ordinary and normal course of business, neither the Company nor any of the Subsidiaries is a party to any contract, agreement or understanding with any officer, director, employee, shareholder or any other person not dealing at arm’s length with it. To the best of the Company’s knowledge, information and belief, after due inquiry, no officer, director or employee of the Company or any of the Subsidiaries and no entity which is an affiliate or associate of one or more of the foregoing, owns, directly or indirectly, any interest in (except for shares representing less than 5% of the outstanding shares of any class or series of any publicly traded company), or is an officer, director, employee or consultant of, any person which is, or is engaged in, a business competitive with the Company which could materially adversely impact on the ability to duly and properly perform its services. To the knowledge of the Company, after due inquiry, no officer, director, employee or security holder of the Company or any of the Subsidiaries has any cause of action or other claim whatsoever against, or owes any amount to, the Company or any of the Subsidiaries in connection with its business except for claims in the ordinary and normal course of the business such as for accrued vacation pay or other amounts or matters which would not be material to the Company.

4.1.5Regulatory Matters

(a)All necessary documents and proceedings have been or will be filed and taken and all other legal requirements have been or will be fulfilled under each of the Applicable Securities Laws in connection with the issuance and sale of the Convertible Notes, Units and Warrant Shares to the Purchasers and the Compensation Options and the Underlying Compensation Securities to the Agent.

5.Covenants of the Company

The Company hereby covenants to and with the Agent on its own behalf and on behalf of the Purchasers as follows:

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5.1General Covenants

(a)The Company will cause the Convertible Notes, Unit Shares, Warrants, the Warrant Shares, the Compensation Options and the Underlying Compensation Securities, to be duly and validly created and issued (in the case of all such securities other than the Warrants, the Compensation Options and the Compensation Warrants, as fully-paid and non-assessable);

(b)the Company will accept or reject, in whole or in part, in its sole discretion Subscription Agreements with the Purchasers and, provided it shall not reject any Subscription Agreement unless the Company, acting reasonably, makes the determination that it is prudent to reject any such Subscription Agreement;

(c)the Company will use its commercially reasonable best efforts to obtain the necessary regulatory consents from the Exchange for the issuance of the Convertible Notes and the Compensation Options, in each case on such conditions as are acceptable to the Agent and the Company, acting reasonably;

(d)the Company will use its commercially reasonable best efforts to arrange for the listing and posting for trading of the Unit Shares, the Warrant Shares, the Compensation Unit Shares and the Compensation Warrant Shares on the Exchange as soon as possible following their issue;

(e)the Company will comply with the applicable provisions of MI 45-102 such that the Purchasers resident in such jurisdictions where MI 45-102 is in force will be entitled to avail themselves of the four month from the Closing Date “hold period” in respect of the Convertible Notes, Unit Shares, Warrants and Warrant Shares in accordance with MI 45-102; and

(f)the Company will not, directly or indirectly offer, issue, sell, contract to sell, announce an intention to sell, sell any option or contract to purchase, purchase any option or contract to sell any Common Shares or financial instruments convertible or exchangeable into Common Shares (other than for the issuance of options under the Company’s existing option plan and securities issued in connection with an arms’ length acquisition, merger, consolidation or amalgamation with any one or more corporations or for the issuance of Common Shares pursuant to any purchase warrants or Compensation Options existing on the date hereof) for a period ending 180 days after the Closing Date without the prior written consent of the Agent, such consent not to be unreasonably withheld;

6.Conditions to Purchase Obligation

6.1The following are conditions of the Agent’s and the Purchasers’ obligations to close the purchase of the Convertible Notes from the Company as contemplated hereby, which conditions the Company covenants to exercise its commercially reasonable efforts to have fulfilled at or prior to the Closing Date, which conditions may be waived in writing in whole or in part by the Agent on its own behalf and on behalf of the Purchasers:

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(a)the Company’s board of directors shall have authorized and approved this agreement, the forms of Subscription Agreements, Convertible Note Certificates, Warrant Certificates, Compensation Option Certificate and any other agreements or documents pursuant to which the Convertible Notes, Unit Shares, Warrants, Warrant Shares, Compensation Options and Underlying Compensation Securities are to be issued, the issuance of the Convertible Notes, Warrants, Warrant Shares, Compensation Options and Underlying Compensation Securities and all matters relating to the foregoing;

(b)the Company shall have made and/or obtained the necessary filings, approvals, consents and acceptances of the appropriate regulatory authorities in the Qualifying Provinces and the Exchange in connection with the Offering, on terms which are acceptable to the Company and the Agent, acting reasonably, on or prior to the Closing Date, it being understood that the Agent shall do all that is reasonably required to assist the Company to fulfil this condition;

(c)the Unit Shares, Warrant Shares, Compensation Unit Shares and Compensation Warrant Shares shall have been conditionally accepted for listing and will, as soon as possible following their issue, be posted for trading on the Exchange (subject only to the usual conditions of the Exchange);

(d)the Company shall deliver a certificate of the Company, signed on behalf of the Company, without personal liability, by a senior officer of the Company as may be acceptable to the Agent, acting reasonably, addressed to the Agent, its counsel and to the Purchasers and dated the Closing Date, in form and content satisfactory to the Agent’s counsel, acting reasonably, certifying that:

(i)no order ceasing or suspending trading in any securities of the Company or prohibiting the issuance and sale of the Convertible Notes, Unit Shares, Warrants, Warrant Shares, Compensation Options, Underlying Compensation Securities or any of the Company’s issued securities has been issued and no proceedings for such purpose are pending or, to the best of the knowledge, information and belief of such officers, after due inquiry, threatened;

(ii)the representations and warranties of the Company contained in this agreement are true and correct at the Time of Closing, with the same force and effect as if made by the Company as at the Time of Closing, after giving effect to the transactions contemplated hereby; and

(iii)the Company has complied with all the covenants and satisfied all the terms and conditions of this agreement on its part to be complied with or satisfied at or prior to the Time of Closing which have not otherwise been waived pursuant to the terms of this agreement;

(e)the Company shall have accepted the Subscription Agreements with the Purchasers and, unless the Company, acting reasonably, makes the determination that it is prudent to reject any such Subscription Agreement, the Company will accept each duly executed

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Subscription Agreement accompanied by the required subscription funds submitted to the Company;

(f)the Company will have caused a favourable legal opinion to be delivered by its counsel addressed to the Agent, its counsel and the Purchasers in the Qualifying Provinces with respect to such matters as the Agent may reasonably request relating to this transaction, acceptable in all reasonable respects to the Agent’s counsel, including to the effect that:

(i)the Company is validly subsisting under the laws of the Province of Ontario and has all requisite corporate power, authority and capacity to carry on its business as now conducted and to own, lease and operate its properties and assets;

(ii)the Company has the corporate capacity and power to execute and deliver this agreement, the Subscription Agreements and any additional agreements or certificates relating to the issuance of the Convertible Notes, Unit Shares, Warrants, Warrant Shares, Compensation Options and Underlying Compensation Securities and to perform its obligations hereunder and thereunder;

(iii)this agreement, the Subscription Agreements and the other agreements, certificates or instruments pursuant to which the Convertible Notes, Unit Shares, Warrants, Warrant Shares, Compensation Options and Underlying Compensation Securities are to be issued have been duly authorized, and the Convertible Notes and Compensation Options have been duly executed and delivered by the Company and are legally binding upon the Company and enforceable in accordance with their respective terms (subject to the usual qualifications);

(iv)the Notes and the Compensation Options have been validly created and issued;

(v)the Unit Shares, Warrants, Convertible Notes, Warrant Shares, and Underlying Compensation Securities have been reserved for issuance and when issued upon the right of conversion (including automatic conversion) or purchase, as the case may be, in accordance with the terms of the Convertible Note Certificates, Warrant Certificates and the Compensation Option Certificate, respectively, and upon receipt by the Company of the proper consideration therefor, and in the case of the Unit Shares, Convertible Notes, Warrant Shares, Compensation Unit Shares and Compensation Warrant Shares will be validly issued as fully paid and non- assessable;

(vi)the Exchange has conditionally approved the Units Shares, Warrants Shares, Compensation Unit Shares and Compensation Warrant Shares for listing, subject to the Corporation fulfilling all of the requirements of the Exchange as set out in the Exchange’s conditional approval letter dated June 3, 2004, and subject to the Exchange’s discretion to refuse to provide final acceptance for the subscription of a subscriber;

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(vii)the execution and delivery of this agreement, the Subscription Agreements and the other agreements, certificates or instruments pursuant to which the Convertible Notes, Unit Shares, Warrants, Warrant Shares, Compensation Options and Underlying Compensation Securities are to be issued, the fulfilment of the terms hereof and thereof, the issue, sale and delivery at the Closing Date of the Convertible Notes and Compensation Options (and any securities issuable, directly or indirectly, thereunder) do not and will not result in a breach of and do not create a state of facts which after notice or lapse of time or both will result in a breach of, and do not and will not conflict with, any of the terms, conditions or provisions of the constating documents of the Company;

(viii)the offering, sale and delivery by the Company of the Convertible Notes to the Purchasers and the Compensation Options to the Agent are exempt from the prospectus and registration requirements of the Applicable Securities Laws and no documents are required to be filed, proceedings taken or approvals, permits, consents, orders or authorizations obtained under the Applicable Securities Laws to permit such offering, sale and delivery, other than the filing of any private placement reports, fees or undertakings required to be filed under such laws;

(ix)the issue and delivery of the Unit Shares and Warrants upon due conversion of the Convertible Notes, the Warrant Shares and Compensation Warrant Shares upon due exercise of the Warrants, and the Compensation Unit Shares and Compensation Warrants upon due excise of the Compensation Options are exempt from the prospectus and registration requirements of the Applicable Securities Laws and no documents are required to be filed, proceedings taken or approvals, permits, consents, orders or authorizations obtained under the Applicable Securities Laws to permit such issue and delivery, other than the filing of any private placement reports, fees or undertakings required to be filed under such laws;

(x)as to the first trade rights and restrictions relating to the Convertible Notes, Unit Shares, Warrants, Warrant Shares and Underlying Compensation Securities; and

(xi)as to such other legal matters which counsel for the Company and the Agent, acting reasonably, may agree upon.

In giving such opinions, counsel to the Company shall be entitled to rely where appropriate upon local counsel and shall be entitled as to matters of fact not within their knowledge to rely upon a certificate of fact from responsible persons in a position to have knowledge of such facts and their accuracy and shall be entitled to rely on certificates of such public officials and other persons as are necessary or appropriate.  The Company agrees, and the aforesaid legal opinion shall expressly provide, that the Agent may deliver copies of the opinion to each of the addressees thereof;

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(g)The directors and senior officers of the Company shall execute and deliver the special covenant addressed to the Agent set out in Appendix I of Schedule “A” to this agreement; and

(h)the Agent shall have received such other certificates, statutory declarations, opinions, agreements and materials, in form and substance satisfactory to the Agent and its counsel, as the Agent or its counsel may reasonably request.

7.Closing

7.1The Offering will be completed at the offices of the Company’s legal counsel, Gowling Lafleur Henderson LLP, 40 King Street West, Toronto, Suite 5800, Ontario, M5H 3Z7 at the Time of Closing or such other place, date or time as may be mutually agreed to, provided that if the Company has not been able to comply with any of the covenants or conditions set out herein required to be complied with by the Time of Closing or such other date and time as may be mutually agreed to, the respective obligations of the parties will terminate without further liability or obligation except for payment of expenses in accordance with Section 11, indemnity in accordance with Section 9 and contribution in accordance with Section 10.

7.2At the Time of Closing, the Company shall deliver to the Agent:

(a)Convertible Note Certificates duly registered as the Agent may direct;

(b)the Compensation Option Certificate duly registered as the Agent may direct;

(c)the requisite legal opinions and certificates as contemplated above; and

(d)such further documentation as may be contemplated herein or as counsel to the Agent or the applicable regulatory authorities may reasonably require,

against payment of the purchase price for the Convertible Notes by certified cheque, wire transfer or bank draft and delivery of the duly completed and executed Subscription Agreements and other documentation required to be provided by or on behalf of the Purchasers or the Agent pursuant to this agreement. The Company will, at the Time of Closing, and upon such payment of the purchase price, pay the Agency Fee to the Agent and reimburse the Agent for all of its reasonable estimated expenses as contemplated in Section 11 hereto incurred up to the Closing Date upon the delivery by it to the Company of one or more invoices therefor, subject to any adjustment when such actual expenses are finally determined in accordance with, and any limitations set out in, Section 11 hereof.

7.3All terms and conditions of this agreement shall be construed as conditions and any breach or failure to comply with any such terms and conditions shall entitle the Agent to terminate its obligations (and that of the Purchasers to purchase the Convertible Notes) by written notice to that effect given to the Company prior to the Time of Closing. It is understood that the Agent may waive in whole or in part, or extend the time for compliance with, any of such terms and conditions on behalf of themselves and the Purchasers without prejudice to their rights in respect of any such

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terms and conditions or any other subsequent breach or non-compliance, provided that to be binding on the Agent and the Purchasers, any such waiver or extension must be in writing.

8.Termination of Purchase Obligation

8.1Without limiting any of the foregoing provisions of this agreement, and in addition to any other remedies which may be available to it, the Agent (on its own behalf and on behalf of the Purchasers) shall be entitled, at its option, to terminate and cancel, without any liability, its obligations under this agreement and those of the Purchasers, by giving written notice to the Company at any time through to the Time of Closing, if:

(a)the Agent, acting reasonably, is not satisfied in any reasonable respect with the results of its due diligence investigations carried out prior to the Time of Closing;

(b)any order or ruling is issued, any inquiry, investigation or other proceeding (whether formal or informal) in relation to the Company or any of the Subsidiaries or any of their respective directors and officers is made, threatened or announced by any officer or official of any stock exchange, Securities Commission or other regulatory authority (other than an order based solely upon the activities or alleged activities of the Agent) or any law or regulation in a Qualifying Province is promulgated or changed which operates to prevent or restrict trading in or distribution of the Convertible Notes, Unit Shares, Warrants, Warrant Shares, Compensation Options or Underlying Compensation Securities;

(c)there should develop, occur or come into effect any incident of national or international consequence, any law, regulation or inquiry or any other event, action or occurrence of any nature whatsoever which, in the reasonable opinion of the Agent, materially and adversely affects or may materially and adversely affect the financial markets in Canada generally or the business, affairs or capital of the Company, taken as a whole;

(d)there should occur any material change or change in a material fact which, in the reasonable opinion of the Agent, impacts materially and adversely on the marketability of the Convertible Notes;

(e)the Company is in breach of any material term, condition or covenant of this agreement (which has not been waived, in writing, by the Agent) or any material representation or warranty given by the Company in this agreement becomes or is false (and such representation or warranty is not waived, in writing, by the Agent); or

(f)if the Agent otherwise determines it would be unprofitable or impractical to offer or continue to offer the Convertible Notes;

the occurrence or non-occurrence of any of the foregoing events or circumstances to be determined in the sole discretion of the Agent, acting reasonably.

8.2The Agent shall make reasonable efforts to give notice to the Company (in writing or by other means) of the occurrence of any of the events referred to in Section 8.1, provided that neither

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the giving nor the failure to give such notice shall in any way affect the Agent’s entitlement to exercise this right at any time through to the Time of Closing.

8.3The Agent’s rights of termination contained in this section are in addition to any other rights or remedies it may have in respect of any default, act or failure to act or non-compliance by the Company in respect of any of the matters contemplated by this agreement.

8.4If the obligations of the Agent and the Purchasers are terminated under this agreement pursuant to the termination rights provided for in Section 8.1, the Company’s liabilities to the Agent and the Purchasers shall be limited to the Company’s obligations under the indemnity, contribution and expense provisions of Sections 9, 10, and 11, respectively, of this agreement.

9.Indemnity

9.1The Company hereby covenants and agrees to indemnify the Agent, and its directors, officers, shareholders, employees and agents (each being hereinafter referred to as an “Indemnified Party”), against all losses (other than a loss of profits), claims, actions, damages, liabilities, costs or expenses, joint or several, including reimbursement to the Agent upon demand of the aggregate amount paid in settlement of any actions, suits, proceedings or claims and the reasonable fees and expenses of their counsel that may be incurred in advising with respect to and/or defending any claim to which any Indemnified Party may become subject or otherwise involved in any capacity under any statute or common law or otherwise, caused or incurred by reason of:

(a)the Indemnified Party having acted as agent of the Company in respect of the Offering (other than by reason of the negligence, wilful misconduct or bad faith of the Indemnified Party);

(b)any statement (other than a statement relating solely to, and provided by, the Agent) contained in the Company’s Information Record which, at the time and in the light of the circumstances under which it was made, contains or is alleged to contain a misrepresentation;

(c)the omission or alleged omission to state in any certificate of the Company delivered hereunder or pursuant hereto or in the Company’s Information Record any material fact (other than a material fact omitted in reliance upon information furnished to the Company by or on behalf of the Agent) required to be stated therein or necessary to make any statement therein not misleading in light of the circumstances under which it was made;

(d)any order made or inquiry, investigation or proceeding commenced or threatened by any Securities Commission or other competent authority based upon any misrepresentation or alleged misrepresentation in the Company’s Information Record (other than a statement included in reliance upon information furnished to the Company by or on behalf of the Agent) which prevents or restricts the trading in the Convertible Notes, Unit Shares, Warrants, Warrant Shares, Underlying Compensation Securities or the distribution to the public, as the case may be, of the Convertible Notes, Unit Shares, Warrants or Warrant

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Shares in any of the Qualifying Provinces or the distribution to the Agent of the Underlying Compensation Securities;

(e)the Company not complying with any requirement of any Applicable Securities Laws or regulatory requirements (including any private placement filing or other requirements under any of the Applicable Securities Laws in connection with the Offering); or

(f)any material breach of any representation or warranty of the Company contained herein or the failure of the Company to comply with any of its obligations hereunder.

9.2If any action or claim shall be asserted against an Indemnified Party in respect of which indemnity may be sought from the Company pursuant to the provisions of Section 9.1 or if any potential claim contemplated hereby shall come to the knowledge of an Indemnified Party, the Indemnified Party shall promptly notify the Company in writing. If, through the fault of the Indemnified Party, the Company does not receive notice of any such action, claim or potential claim in time to contest effectively the determination of any liability susceptible of being contested, the Company shall be entitled to set off against the amount claimed by the Indemnified Party the amount of any losses incurred by the Company which result from the Indemnified Party’s failure to give such notice on a timely basis. The Company shall be entitled but not obligated to participate in or assume the defence thereof, provided, however, that the defence shall be through legal counsel acceptable to the Indemnified Party, acting reasonably. In addition, the Indemnified Party shall also have the right to employ separate counsel in any such action and participate in the defence thereof, and the fees and expenses of such counsel shall be borne by the Indemnified Party if:

(a)the employment thereof has been specifically authorized in writing by the Company;

(b)the Indemnified Party has been advised by counsel, acting reasonably, in a written opinion setting out the reasons therefor, that representation of the Company and the Indemnified Party by the same counsel would be inappropriate due to actual or potential differing interests between them; or

(c)the Company has failed within a reasonable time after receipt of such written notice to assume the defense of such action or claim;

provided that the Company shall not be required to assume the fees and expenses of more than one additional counsel to the Indemnified Party. Neither party shall effect any settlement of any such action or claim or make any admission of liability or fact without the written consent of the other party, such consent to be promptly considered and not to be unreasonably withheld. The indemnity hereby provided for shall remain in full force and effect and shall not be limited to or affected by any other indemnity in respect of any matters specified herein obtained by the Indemnified Party from any other person.

9.3To the extent that any Indemnified Party is not a party to this agreement, the Agent shall obtain and hold the right and benefit of the indemnity provisions hereof in trust for and on behalf of

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such Indemnified Party, entitled to enforce such provisions for its benefit and on behalf of such Indemnified Party.

10.Contribution

10.1In the event that the indemnity provided for above is, for any reason, illegal or unenforceable as being contrary to public policy or for any other reason, the Agent and the Company shall contribute to the aggregate of all losses, claims, costs, damages, expenses or liabilities (including any legal or other expenses reasonably incurred by the Indemnified Party) of the nature provided for above such that the Agent shall be responsible for that portion represented by the percentage that the portion of the Agency Fee paid by the Company to the Agent bears to the gross proceeds realized from the sale of the Convertible Notes, and the Company shall be responsible for the balance, provided that, in no event, shall the Agent be responsible for any amount in excess of the amount of the Agency Fee actually received by the Agent. In the event that the Company may be held to be entitled to contribution from the Agent under the provisions of any statute or law, the Company shall be limited to contribution in an amount not exceeding the lesser of: (i) the portion of the full amount of losses, claims, costs, damages, expenses and liabilities, giving rise to such contribution for which the Agent is responsible, as determined above, and (ii) the amount of the Agency Fee actually received by the Agent. Notwithstanding the foregoing, a party guilty of fraudulent misrepresentation shall not be entitled to contribution from the other party. Any party entitled to contribution will, promptly after receiving notice of commencement of any claim, action, suit or proceeding against such party in respect of which a claim for contribution may be made against the other party under this section, notify such party from whom contribution may be sought. In no case shall such party from whom contribution may be sought be liable under this agreement unless such notice has been provided, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any other obligation it may have otherwise than under this section, except to the extent that such failure to notify jeopardizes the legal position of the party from whom contribution may be sought. The right to contribution provided in this section shall be in addition to, and not in derogation of, any other right to contribution which the Agent or the Company may have by statute or otherwise by law.

10.2The Company waives its right to recover contribution from the Agent or any other Indemnified Party with respect to any liability of the Company solely by reason of or arising out of any misrepresentation contained in the Company’s Information Record, other than a misrepresentation included in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Agent specifically for use therein.

11.Expenses

11.1Whether or not the Offering is completed, all expenses incurred from time to time in connection with the Offering (including the Agent’s reasonable out-of-pocket expenses which include those expenses incurred in connection with due diligence and marketing meetings) and the reasonable fees and disbursements of the Agent’s legal counsel (up to a maximum of $40,000, exclusive of disbursements) or incidental to the Offering and all matters in connection with the transactions herein, including the costs and filing fees with respect to the private placement of the Convertible Notes, costs associated with the listing and posting for trading on the Exchange of the

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Unit Shares, the Warrant Shares, the Compensation Unit Shares and Compensation Warrant Shares, the cost of the registration and delivery of the Convertible Notes, Unit Shares, Warrant Certificates, Warrant Shares, the Compensation Option Certificates and the Underlying Compensation Securities and the fees and expenses of each of the Company’s auditors, counsel and local counsel shall be borne by the Company.  Subject to the foregoing, the Company shall also be responsible for any exigible Goods and Services Tax on the foregoing amounts. The Company covenants and agrees to fully reimburse the Agent from time to time for all such expenses within 5 business days from the receipt of one or more invoices.

12.Right of First Refusal

12.1Subject to meeting or exceeding the thresholds set out under Section 12.2 below, the Company hereby grants the Agent the right of first refusal to provide, for a period from completion of the Offering set out in Section 12.2 below, the following services to the Company and its Subsidiaries, if such services are required by the Company or the Subsidiaries:

(a)services as lead manager or lead underwriter for all equity financings (whether private or public) conducted in Canada (and whether or not such financing is conducted entirely in Canada or is the Canadian portion of a financing that is also conducted in the United States or elsewhere); and

(b)services as lead manager or lead underwriter for the Canadian tranche of any foreign-led equity financing.

12.2The period under which the Agent will have the right of first refusal will be:

(a)one year if the aggregate gross proceeds raised in the Offering (the “Gross Proceeds”), other than those allocable to Protected List Purchases, are at least $1,000,000 but less than $2,000,000; and

(b)two years if the Gross Proceeds, other than those allocable to Protected List Purchases, are at least $2,000,000.

12.3The rights of the Agent referred to in Section 12.1 hereof must be exercised by the Agent within a reasonable period of time, and in any event not later than the tenth Business Day after the Agent has been provided with written notice from the Company that such services are required, which notice shall set out, in reasonably sufficient detail, the services required and the proposed terms of such services.  If the Agent does not exercise such rights, the Company may retain a third party to provide such services but not on more favourable terms than those which were offered to the Agent.  Any more favourable terms of such services must first be offered to the Agent before being offered to a third party.  Further, if the Company engages the Agent pursuant to the provisions described in Section 12.1 hereof, or if the Agent is required to execute any documents relating to an offering, the Company and the Agent, as the case may be, shall enter into one or more agreements with respect to such events in a form satisfactory to the Company and the Agent, acting reasonably.

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13.Survival of Warranties, Representations, Covenants and Agreements

13.1All warranties, representations, covenants and agreements of the Company herein contained or contained in documents submitted or required to be submitted pursuant to this agreement shall survive the purchase by the Purchasers of the Convertible Notes and shall continue in full force and effect (with respect to representations and warranties, as to their truth and accuracy as at the Time of Closing) for the benefit of the Purchasers for a period ending on the Survival Limitation Date.

14.General Contract Provisions

14.1Any notice or other communication to be given hereunder shall be in writing and shall be given by delivery or by telecopier, as follows:

if to the Company:

ADB Systems International Ltd.
6725 Airport Road, Suite 201
Mississauga, Ontario  L4V 1V2

Attention:Jeffrey Lymburner
Telecopier Number:(905) 672-7514

with a copy (which will not constitute notice) to:

Gowling Lafleur Henderson LLP
40 King Street West
Scotia Plaza, Suite 5800
Toronto, Ontario  M5H 3Z7

Attention:Jason A. Saltzman
Telecopier Number:(416) 863-3479

or if to the Agent:

First Associates Investments Inc.
BCE Place
900 – 181 Bay Street
Toronto, Ontario  M5J 2T3

Attention:Howard KatzTelecopier Number:(416) 864-9151

with a copy (which will note constitute notice) to:

Goodman and Carr LLP
200 King Street West, Suite 2300
Toronto, Ontario M5H 3W5

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Attention:Gary M. Litwack
Telecopier Number:(416) 595-0567

and if so given, shall be deemed to have been given and received upon receipt by the addressee or a responsible officer of the addressee if delivered, or four hours after being telecopied and receipt confirmed during normal business hours, as the case may be. Any party may, at any time, give notice in writing to the others in the manner provided for above of any change of address or telecopier number.

14.2This agreement constitutes the entire agreement between the Agent and the Company relating to the subject matter hereof and supersedes all prior agreements between the Agent and the Company with respect to their respective rights and obligations in respect of the Offering.

14.3Time shall be of the essence of this agreement and of every part hereof and no extension or variation of this agreement shall operate as a waiver of this provision.

14.4The parties hereto covenant and agree to sign such other documents, do and perform and cause to be done and performed such further and other acts and things as may be necessary or desirable in order to give full effect to this agreement and every provision of it.

14.5Other than as otherwise provided herein, no party to this agreement may assign this agreement, any part hereof or its rights hereunder without the prior written consent of the other party.  Subject to the foregoing, this agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

14.6In the event that any provision or part of this agreement shall be deemed void or invalid by a court of competent jurisdiction, the remaining provisions or parts shall be and remain in full force and effect. If, in any judicial proceeding, any provision of this agreement is found to be so broad as to be unenforceable, it is hereby agreed that such provision shall be interpreted to be only so broad as to be enforceable.

14.7This agreement may be executed by telecopier and in one or more counterparts which, together, shall constitute an original copy hereof as of the date first noted above.

If this agreement accurately reflects the terms of the transaction which we are to enter into and if such terms are agreed to by the Company, please communicate your acceptance by executing where indicated below and returning by telecopier one copy and returning by courier one originally executed copy to the Agent (Attention: HowardKatz).

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Yours very truly,

FIRST ASSOCIATES INVESTMENTS INC.
Per:
	Patrick Leung
	Director, Investment Banking

The foregoing accurately reflects the terms of the transaction which we are to enter into and such terms are agreed to and with effect as of the date first above written.

ADB SYSTEMS INTERNATIONAL LTD.
Per:
	Mike Robb
	Chief Financial Officer

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SCHEDULE “A”

ADB SYSTEMS INTERNATIONAL LTD.

This is Schedule “A” to the Agency Agreement between ADB Systems International Ltd. and First Associates Investments Inc. made as of June 15, 2004.

Issue:	Up to $5,000,000 principal amount of Convertible Notes, to be issued by way of private placement exemptions from prospectus and registration requirements, subject to the receipt of any applicable regulatory and stock exchange approvals.
Issue Price:	The Convertible Notes will be issued at par in integral multiples of $1,000.
Convertible Notes:	The Convertible Notes will have the following material terms:
	(a)	The Convertible Notes will bear interest at an annual rate of 7% of the principal amount of the Convertible Notes outstanding from time to time, payable on the earlier of the conversion of the Convertible Notes or the Maturity Date (as defined below).  Interest will continue to accrue until paid;
	(b)	The Convertible Notes will mature and be payable on the date that is the third anniversary of the Closing Date (the “Maturity Date”)
	(c)	At any time up to and including the Maturity Date, all or any portion of the principal amount of the Convertible Notes outstanding from time to time will be convertible, at the option of the holder, provided that the holder complies with the notice provisions therefor, into units of securities of the Company (“Units”) at a conversion price of $0.31 per Unit (the “Conversion Price”), subject to adjustments for stock splits, consolidations, other capital reorganizations, extraordinary dividends or distributions;
	(d)	Each Unit will consist of one common share in the capital of ADB (a “Common Share”) and one-half of one Common Share purchase warrant (a “Warrant”).  Each whole Warrant will entitle the holder to acquire one Common Share at an exercise price of $0.50 per share, and will be exercisable at any time prior to the fourth anniversary of the Closing Date; and
	(e)	In the event that at any time from and after the first anniversary of the Closing Date the volume weighted average trading price of the Common Shares through its principal trading market for a 20 consecutive trading day period is $0.70 or more, all then outstanding Convertible Notes, including any accrued interest thereon, will be automatically converted into Units at the Conversion Price.
Use of Proceeds:	For working capital and general corporate purposes.
Security:	The Convertible Notes will provide general security over the Corporation’s assets.

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	Such security will be subordinate liabilities of the Corporation to current secured creditors.
Listing:	The Common Share component of the Units (and the Common Shares issuable upon exercise of the Warrants) will be listed on the TSX.
Commission:	8% of the gross proceeds of the Offering.  In addition, the Agent will receive an option, exercisable until the second anniversary of the Closing Date, to purchase that number of Units as is equal to 10% of the Units issuable upon full conversion of the Convertible Notes sold under the Offering, at an exercise price equal to the Conversion Price.
Closing Date:	On or about June 15, 2004.  The Offering may be completed through one or more closings.
Closing Time:	2:00 p.m. (Toronto time) on the Closing Date.

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APPENDIX I

SPECIAL COVENANT

TO:The Agent (as such term is defined in the above agreement)

Terms used below shall have the meaning ascribed thereto in the above agreement.

The undersigned severally covenant and agree that they will not, directly or indirectly offer, issue, sell, contract to sell, announce an intention to sell, sell any option or contract to purchase, purchase any option or contract to sell any Common Shares or financial instruments convertible or exchangeable into Common Shares (other than for the issuance of options under the Company’s existing option plan and securities issued in connection with an arms’ length acquisition, merger, consolidation or amalgamation with any one or more corporations or for the issuance of Common Shares pursuant to any purchase warrants or Compensation Options existing on the date hereof) for a period ending 180 days after the Closing Date without the prior written consent of the Agent, such consent not to be unreasonably withheld.

This special covenant may be signed by the directors and officers in as may counterparts as may be necessary, originally or by telecopier facsimile signature, each of which so signed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding the date of execution shall be deemed to bear the date first written below.

Dated as of the            day of June, 2004.

  •   •

  •   •

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SCHEDULE “B”

DETAILS AS TO THE SUBSIDIARIES OF THE COMPANY

This is Schedule “B” to the Agency Agreement between ADB Systems International Ltd. and First Associates Investments Inc. made as of June 15, 2004.

Name of Subsidiary	Country of Incorporation	Ownership Interest
ADB Systemer AS	Norway	99.4	%
ADB Systems International Limited	Ireland	100	%
ADB Systems Limited	England	100	%
Bid.Com (U.K.) Limited	England	100	%
ADB Systems, Inc.	USA (Delaware)	100	%
Bid.Com USA, Inc.	USA (Florida)	100	%
Bid.Com International Inc.	Canada (Ontario)	100	%
Bid.Com International Pty. Ltd.	Australia	100	%
Internet Liquidators USA, Inc.	USA (Florida)	100	%
ADB Systems USA, Inc.	USA (Delaware)	100	%
GE Asset Manager LLC	USA (Delaware)	50	%

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SCHEDULE “C”

DETAILS AS TO THE OUTSTANDING CONVERTIBLE SECURITIES

This is Schedule “C” to the Agency Agreement between ADB Systems International Ltd. and First Associates Investments Inc. made as of June 15, 2004.

Secured Convertible Debt:

Series Number	Lender	Principal Outstanding		Maturity Date
D2	Chris Bulger	$	20,000	31-Dec-04
D7	Jeff Lymburner	20,250		31-Dec-04
D11	Kenneth and Kelly Sparfel	20,000		31-Dec-04
	Total Series D	60,250
E2	Greenwich Growth Fund	75,000		19-Aug-06
E3	Janet Harop	25,000		19-Aug-06
E4	Christopher Harop	50,000		19-Aug-06
E5	Mike Robb	15,000		19-Aug-06
E6	Jim Moskos	35,000		19-Aug-06
E7	Paul Godin	50,000		19-Aug-06
E8	Arne Hellesto	200,000		19-Aug-06
	Total Series E	600,000
F	Stonestreet Limited Partnership	500,000		19-May-07
	Total Convertible Debt Outstanding	$	1,010,250

Options:

As of June 11, 2004 there are 2,156,707 options issued to employees, directors and third parties that can be converted into common shares.

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Warrants:

Holder	Warrant Number	Date Issued	Expiry Date	Number Issued
GE Capital	GE-02-1	13-Dec-02	5-Jan-05	250,000
GE Capital	GE-02-2	13-Dec-02	5-Jan-05	1,000,000
GE Capital	GE-02-3	13-Dec-02	5-Jan-05	750,000
				2,000,000
Stonestreet Associate	2002-1	25-Apr-02	25-Apr-05	50,000
				50,000
C. Bulger	Not applicable	To be issued	31-Dec-04	83,333
C. Dawson	W-D-9	21-Feb-03	31-Dec-04	104,167
M. & A. Lai	W-D-11	21-Feb-03	31-Dec-04	104,167
Lai Children’s Trust	W-D-10	21-Feb-03	31-Dec-04	104,167
R. Lymburner	W-D-7A	To be issued	31-Dec-04	84,375
A. Rowsome	W-D-8	3-Feb-03	31-Dec-04	62,500
K. & K. Sparfel	Not applicable	To be issued	31-Dec-04	83,333
Stonestreet Associate	W-02-01	30-Aug-02	31-Dec-04	150,000
				776,043
H. Schweizer	03-01	26-Jun-03	26-Jun-05	150,000
A. Hellesto	03-02	26-Jun-03	26-Jun-05	416,667
F. Jung	03-03	26-Jun-03	26-Jun-05	100,000
K. MacDonald	03-04	26-Jun-03	26-Jun-05	100,000
V. Konidis	03-05	26-Jun-03	26-Jun-05	100,000
P.Bacasalmasi	03-06	26-Jun-03	26-Jun-05	100,000
K. Prasad	03-07	26-Jun-03	26-Jun-05	322,916
Growlings Canada Inc.	03-08	26-Jun-03	26-Jun-05	693,092
B. Piva	03-09	26-Jun-03	26-Jun-05	83,333
Greenwhich Growth Fund	03-10	26-Jun-03	26-Jun-05	250,000
Strategy Capital Corp.	03-11	26-Jun-03	26-Jun-05	104,167
K. & K. Sparfel	03-12	26-Jun-03	26-Jun-05	83,333
C. Cimicata	03-13	26-Jun-03	26-Jun-05	208,333
J. Racanelli	03-14	26-Jun-03	26-Jun-05	20,833
				2,732,674
Stonestreet	Not applicable	To be issued	19-Aug-06	785,714
Greenwich Growth Fund	Not applicable	To be issued	19-Aug-06	107,143
J. Harrop	Not applicable	To be issued	19-Aug-06	35,714
C. Harrop	Not applicable	To be issued	19-Aug-06	71,429
M. Robb	Not applicable	To be issued	19-Aug-06	21,429
P. Godin	Not applicable	To be issued	19-Aug-06	71,429
J. Moskos	Not applicable	To be issued	19-Aug-06	50,000
A. Helesto	Not applicable	To be issued	19-Aug-06	285,714
Stonestreet Associate	Not applicable	To be issued	19-Aug-06	30,000
				1,458,571
Stonestreet	Not applicable	To be issued	19-May-07	806,452
				806,452
		GRAND TOTAL		7,823,740

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SCHEDULE “D”

DETAILS AS TO THE INTELLECTUAL PROPERTY

This is Schedule “D” to the Agency Agreement between ADB Systems International Ltd. and First Associates Investments Inc. made as of June 15, 2004.

PART I – OWNED INTELLECTUAL PROPERTY

ADB has established Intellectual Property and Intellectual Property Rights through its software development activities and creation of on-line transaction processes.

Overview of software products

ADB Systems has developed an integrated series of software applications designed for asset lifecycle management.  These software applications include:

•Dyn@mic Buyer, an on-line solution that helps organizations automate their tendering activities (e.g. reverse auctions, request for quotations/proposals) and reduce procurement costs.

•ProcureMate, a web-based solution that allows organization to streamline the purchasing of maintenance, repairs and operating (MRO) supplies while reducing procurement costs.

•WorkMate, a comprehensive enterprise asset management solution that allows organizations to automate and integrate maintenance management, materials management and procurement activities.

•Dyn@mic Seller, a web-based sales solution that enables organizations to manage inventory and reduce surplus through the use of on-line auctions.

Overview of patents

ADB has also registered a number of patents, (issued and pending), with U.S. Patent Office relating to its on-line transaction processes.  These patents include:

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PATENT PORTFOLIO SUMMARY
(Updated June 4, 2004)

FILING DATE	TYPE	SERIAL NO.	OUR FILE	TITLE (INVENTORS)	STATUS
July 11, 1996	CDN patent appln	2,180,995	08-886238CA	Computer Auction System (GODIN, Paul B.; LYMBURNER, Jeffrey)	Filed Reinstatement and Response to outstanding Office Action – December 18, 2003
August 26, 1996	US patent appln	5,890,138	08-886238US	Computer Auction System (GODIN, Paul B.; LYMBURNER, Jeffrey)`	Issued – March 30, 1999
March 9, 1999	US patent appln (Divisional)	6,266,652 B1 claimed priority from 5,890,138	08-886238US1	Computer Auction System (GODIN, Paul B.; LYMBURNER, Jeffrey)	Issued – July 24, 2001
February 22, 2001	US patent appln (continuation)	09/789,636	08-886238US2	Computer Auction System (GODIN, Paul B.; LYMBURNER, Jeffrey`	Abandoned on Instruction  May 17, 2002

Overview of Trade Names and Trademarks

Trademarks or trade names which the Company owns include ADB™; PROCUREMATE™; WORKMATE™; BID BUDDY™; SEARCH BUDDY™: DYNAMIC BUYER™ and DYNAMIC SELLER™.

PART II – LICENSED INTELLECTUAL PROPERTY

Dyn@mic Buyer Technology Components

Dynamic Buyer was constructed on the Microsoft .Net platform and used the MS-SQL database engine. The related core IP includes XML parsers and translation components, user abstraction layers and specialized component factories.

Dyn@mic Seller Technology Components

Dynamic Seller was developed using the Microsoft COM+ and D-Com architectures and technologies. It utilizes MS-SQL as its database. The related core IP includes XML parsers and translation components, user abstraction layers and specialized component factories.

WorkMate Technology Components

The Workmate application is constructed using the Powerbuilder suite of development tools and using Oracle as the multi-platform database engine. The related IP includes integration engines, component class libraries and specialized OLAP reporting engines.

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ProcureMate Technology components

Procuremate was created using the Microsoft Visual Studio suite of development tools. It utilizes Oracle as the multi-platform database engine. The related core IP includes XML parsers and translation components, user abstraction layers, Web Integration Engines and components, as well as specialized component factories.

PART III – RIGHTS GRANTED IN OWNED INTELLECTUAL PROPERTY

Patent License Agreement between NCR Corporation and ADB Systems International Inc. dated April 17, 2001.

ADB Systems International Inc. and the Brick – Loan Transaction Documents.

ADB License Agreement for Dynamic Buyer and Dynamic Seller between ADB Systems USA, Inc. and GE Asset Manager, LLC forming part of the Amended and Restated Operating Agreement between General Electric Capital Corporation and ADB Systems USA, Inc.

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SCHEDULE “E”

TERMS FOR SALES TO U.S. PERSONS

This is Schedule “E” to the Agency Agreement between ADB Systems International Ltd. and First Associates Investments Inc. made as of June 15, 2004.

See attached.

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SCHEDULE “F”

PERMITTED ENCUMBRANCES

“Permitted Security Interests” means with respect to any property or asset of any Person:

(a)security interests for provincial or municipal taxes, charges, rates and assessments not yet due or, if due, the validity of which is being contested in good faith and security interests for the excess of the amount of any past due taxes for which a final assessment has not been received over the amount of such taxes as estimated and paid by such Person;

(b)the security interests of any judgement rendered or claim filed against the Corporation or its property which it shall be contesting in good faith and in respect of which there shall have been deposited with an arms-length Person acceptable to the Registered Holder, acting reasonably, cash, security or a surety bond satisfactory to such arms-length Person in an amount sufficient to pay such judgement or claim;

(c)defects or irregularities of title which do not in the aggregate materially impair the value of the property to which they related or interfere with the use of the property to which they relate for the purposes for which it is held by such Person;

(d)pledges or deposits to secure payment of workers’ compensation, good faith deposits in connection with tenders, contracts (other than contracts for the repayment of moneys borrowed) or leases, deposits to secure public or statutory obligations, deposits to secure or in lieu of surety or appeal bonds, and pledges or deposits for similar purposes in the ordinary course of business;

(e)purchase money security interests;

(f)security interests granted by the Corporation to secure indebtedness of the Corporation to any of the Holders of the Notes;

(g)the security interests perfected by the registrations made under the PPSA and listed below; and

(h)any other security interests accepted from time to time by the Holders of Notes representing a majority of the aggregate principal amounts then outstanding under all Notes in writing.

For the purposes of this Schedule “F”, the term “security interests” means any mortgage, charge, pledge, hypothecation, lien (statutory or otherwise), assignment, finance lease, title retention agreement or arrangement, security interest or other encumbrance or adverse claim of any nature, or any other security agreement or arrangement creating in favour of any creditor a right in respect of a particular property or asset.

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Permitted PPSA Registrations

File Number:	084987306
Registration Number:	20021104151100439461
	20021108165217583169
	20030826182015316880
	20040527145115302544
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Jeff Lymburner
File Number:	888880464
Registration Number:	20021104144390654204
	20021108165217583161
	20030826182015316881
	20040527145115302545
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Christopher Bulger
File Number:	888880518
Registration Number:	20021104144390654209
	20021108165217583166
	20031021145615300346
	20040527145115302546
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Kenneth Sparfel, Kelly Sparfel
File Number:	881960004
Registration Number:	20020510181117159588
	20030826092017152348
Debtor Name:	ADB Systems International Inc.
Secured Party:	Xerox Canada Ltd.
File Number:	897234246
Registration Number:	20030812145215303748
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Stonestreet Limited Partnership

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File Number:	897234255
Registration Number:	20030812145215303749
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Greenwich Growth Fund Ltd.
File Number:	897592122
Registration Number:	20030825184115313987
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Canaccord Capital Corp.
	ITF Janet Harrop A/C 133388S7
Description:	General Security Agreement
File Number:	897592131
Registration Number:	20030825184115313988
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Canaccord Capital Corp.
	ITF Christopher Harrop A/C 133384S6
Description:	General Security Agreement
File Number:	897592149
Registration Number:	20030825184115313989
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Robb, Michael
Description:	General Security Agreement
File Number:	897592158
Registration Number:	20030825184115313990
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Mokos, James
Description:	General Security Agreement
File Number:	897592167
Registration Number:	20030825184115313991
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Gundyco ITF Paul Godin RRSP A/C 59121001-11
Description:	General Security Agreement
File Number:	897592176
Registration Number:	20030825184115313992
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Hellesto, Arne

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Description:	General Security Agreement
File Number:	605431161
Registration Number:	20040512170314627442
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Stonestreet Limited Partnership
Description:	General Security Agreement with respect to $500,000 Principal Series F of secured convertible note issued by debtor to secured party, but which is to rank pari passu with the Permitted Security Interests, except in respect of (i) the Company’s world-wide account receivables and all proceeds therefrom; and (ii) the proceeds from the account receivables insurance policy No. GG1-27888 issued by Export Development Canada and St. Paul Guarantee Insurance Company, insuring 90% of value of the Receivables, for which the security interest of Stonestreet Limited Partnership referred to above is to rank in priority pursuant to a priority agreement dated June 15, 2004 by Stonestreet Limited Partnership and the Company in favour of the Holders of the Notes.

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EX-4.17

Exhibit 4.17

GENERAL SECURITY AGREEMENT

THIS GENERAL SECURITY AGREEMENT is made as of May 19, 2004 by ADB SYSTEMS INTERNATIONAL LTD., an Ontario corporation, in favour of:

STONESTREET LIMITED PARTNERSHIP

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which are acknowledged by the Company, the Company agrees with the Investor as follows:

1.Definitions.  In this Agreement, unless defined elsewhere in this Agreement, capitalized terms shall bear the meanings set out in Schedule “A”.

2.Grant of Security.  As general and continuing collateral security for the due payment and performance of the Indebtedness, the Company grants to the Investor a security interest in the Collateral, mortgages and charges the Collateral in favour of the Investor, and assigns the Collateral, in favour of the Investor.

3.Attachment.  The Security Interests created in this Agreement are intended to attach: (i) to existing Collateral when the Company signs this Agreement; and (ii) to Collateral subsequently acquired by the Company immediately upon the Company acquiring any rights in such Collateral.

4.Limitations on Grant of Security.  The Security Interests created by this Agreement do not extend to any Excluded Collateral.  All Excluded Collateral shall be held by the Company in trust for the Investor and, on the exercise by the Investor of any of its rights under this Agreement following a Default, will be assigned and otherwise dealt with by the Company as directed by the Investor.

5.Representations and Warranties.  The Company represents and warrants to the Investor that:

(a)Legal Name of Company.  The name of the Company set out on the first page of this agreement is the full legal name of the Company set out in the Company’s constating documents, as amended and in effect on the date hereof.

(b)Place of Business and Location of Records.  The Company’s chief executive office, the location of the office where it keeps its records respecting its accounts receivable, and all other places of Business of the Company are listed on Schedule “B” hereto.

(c)Title; No Other Security Interests.  The Company owns (or, with respect to any leased or licensed property forming part of the Collateral, holds a valid leasehold or licensed interest in) the Collateral free and clear of any Security Interests, other than Permitted Security Interests.

(d)No Contravention of Other Obligations.  The Company is duly incorporated and has the power and authority to grant to the Investor the Security Interests created by this Agreement and to execute and deliver and perform its obligations under this

Agreement and such execution, delivery and performance does not contravene any of the Company’s constating documents or by-laws or to the best of its knowledge, any material agreements or instruments to which the Company is a party.

(e)Enforceability.  This agreement is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject only by bankruptcy, insolvency and any other laws of general application affecting creditors’ rights and by rules of equity.

(f)Ownership of Collateral.  The Company is, or is to become, the owner of the Collateral and has, or will have when the Collateral is acquired, the right to create a security interest in the Collateral in favour of the Investor.

6.Covenants.  The Company covenants and agrees with the Investor that:

(a)Delivery of Information Regarding Collateral.  The Company shall forthwith on request, furnish to the Investor in writing all information requested by the Investor, acting reasonably, relating to the Collateral (including reports, statements and schedules further identifying and describing the Collateral), forthwith on request, furnish to the Investor descriptions of any material Collateral acquired after this Agreement is executed, and the Investor shall be entitled from time to time, upon reasonable notice, to inspect the Collateral and to take temporary custody of and make copies of all documents relating to the Collateral and for such purposes the Investor shall, upon reasonable notice, have access to all premises occupied by the Company or where the Collateral or any of it may be found.

(b)Further Documentation.  The Company shall from time to time forthwith on the Investor’s request do, make and execute all such financing statements, further assignments or agreements, documents, schedules to this Agreement, acts, matters and things as may be required by the Investor, acting reasonably, of or with respect to the Collateral or any part thereof or as may be required to give effect to these presents.

(c)No Change in Location of Collateral etc.  The Company will not change its chief executive office or the location of the Collateral, (other than Inventory enroute from suppliers or enroute to the Company or on lease or on consignment) or the location of the office where it keeps its records respecting the Accounts, without providing to the Investor such additional security and priority agreements, if any, as the Investor may reasonably require and without obtaining the prior written approval of the Investor, which approval shall not be unreasonably withheld.

(d)Notices.  The Company agrees to immediately notify the Investor, if any person, firm or corporation has the right to go into, collect or seize possession of any part of the Collateral by means of execution, garnishment or other legal process.

(e)Payments Relating to Collateral.  The Company agrees to make all payments and keep current all accounts which the Company is obliged to pay and which, if not

2

paid, may result in an encumbrance against the Collateral and will provide to the Investor such information requested by it from time to time to evidence that such payments have been made.

(f)Limitations on Other Security Interests.  The Company will not create, incur or permit to exist, and will defend the Collateral against, and will take such other action as is necessary to remove, any and all Security Interests on and claims in respect of the Collateral other than the Permitted Security Interests and the Company will defend the right, title and interest of the Investor in and to the Collateral against the claims and demands of all Persons.

(g)Limitations on Dispositions of Collateral.  The Company will not, without the Investor’s prior written consent, which consent shall not be unreasonably withheld or delayed, sell, lease or otherwise dispose of any of the Collateral, except in the ordinary course of business.  Following Default, all Proceeds of the Collateral (including all amounts received in respect of Accounts), whether or not arising in the ordinary course of the Company’s business, will be held (if received prior to the Default) or received and held (if received after the Default) by the Company as trustee for the Investor and will be immediately paid to the Investor upon request by the Investor.

(h)Maintenance of Collateral. The Company will maintain all tangible Collateral in good operating condition, ordinary wear and tear excepted, and the Company will provide all maintenance, service and repairs necessary for such purpose.  Further, the Company shall take all action as necessary, desirable or reasonably requested by the Investor to preserve the Excluded Collateral and all benefits deriving therefrom for the benefit of the Investor.

(i)Payment of Taxes.  The Company will from time to time pay or cause to be paid all taxes, assessments, levies and similar impositions of every nature and kind whatsoever (“Taxes”) which may be levied, assessed or imposed on the Collateral or any part thereof.  The Company will from time to time pay or cause to be paid all Taxes, general and special, ordinary or extraordinary, of every nature and kind whatsoever, including local improvement taxes, which shall be levied, assessed or imposed upon the Collateral or any part thereof, or upon the Company or any other person on account thereof, save and except when and so long as the validity of any such Taxes, is in good faith contested by the Company, and, if applicable, the same remain Permitted Security Interests.  The Investor may, at any time and from time to time, at the Company’s expense, obtain from the municipality pertaining to the lands, a tax certificate confirming the status of property taxes in respect of such lands.

(j)Insurance.  The Company will keep the Collateral insured with financially sound and reputable companies against loss or damage by fire, explosion, theft and such other risks in such amounts and upon such terms as would a reasonably prudent owner of similar property.  The Company will, from time to time at the Investor’s reasonable request, deliver the applicable insurance policies (or satisfactory evidence of such policies) to the Investor.  If the Company does not obtain or maintain such insurance,

3

the Investor may, but need not, do so, in which event the Company will immediately on demand reimburse the Investor for all payments made by the Investor in connection with obtaining and maintaining such insurance, and until reimbursed any such payment will form part of the Indebtedness and will be secured by the Security Interests created by this Agreement.

7.Survival of Representations, Warranties and Covenants.  All agreements, representations, warranties and covenants made by the Company in the Security Documents (except as may be otherwise specified therein) will survive the execution and delivery of this Agreement or any investigation made at any time by or on behalf of the Investor and any disposition or payment of the Indebtedness until repayment and performance in full of the Indebtedness.

8.Default.  Any one or more of the following events shall constitute a “Default” pursuant to this Agreement:

(a)Failure to Pay.  If the Company fails to make payment of any principal or interest on account of the Indebtedness when the same shall become due and such Default shall continue for a period of two (2) Business Days after a notice in writing of such default has been given by the Investor to the Company.

(b)Default under Agreements.

(i)If the Company defaults under the Secured Covertible Note, the subscription agreement under which the Secured Covertible Note is subscribed, or any agreement which are schedules to the foregoing; or

(ii)if the Company defaults under any secured debt obligations of the Company other than the Secured Covertible Note.

(c)Failure to Comply with Covenants.  If the Company defaults in observing or performing any other covenant or condition of the Security Documents in its part to be observed or performed and if such default shall continue for a period of 10 Business Days after a notice in writing has been given by the Investor to the Company specifying such default, provided that in the case of a Default which cannot be remedied simply by payment of money such Default shall be deemed not to have occurred if, and so long as, the Company shall have within such 10 Business Day period commenced to remedy such Default and diligently pursued the remedying thereof.

(d)False Representations.  If any representation or warranty of the Company made hereto in any certificate or other instrument or document furnished by the Company to the Investor shall have been false or misleading in any material respect when made.

(e)Failure to Pay Taxes, etc.  If the Company fails to pay taxes, rates, levies, duties, public utility charges and assessments, which shall be levied, assessed or imposed upon the Collateral or any part thereof, or upon the Company on account thereof (save and except when and so long as the validity thereof is in good faith contested

4

by the Company and the same remain Permitted Security Interests) and any such Default as aforesaid shall continue either for a period of 30 days after written notice to the Company from the Investor.

(f)Appointment of Receiver.  If a receiver or receiver and manager or a liquidator or a trustee in bankruptcy of the Company for all or substantially all of the assets of the Company shall be appointed and the Company fails to seek to set aside such appointment within 30 days after such appointment or if the Company acquiesces to such appointment.

(g)Inability of Pay Debts Generally.  If the Company shall admit its inability to pay its debts generally as they become due or otherwise acknowledge its insolvency or an effective resolution passed for the winding-up of the Company or if the Company shall make an assignment for the benefit of its creditors or if the Company shall make a proposal to its respective creditors under a bankruptcy act.

(h)Declaration of Bankruptcy or Insolvency Under the Law.  If the Company declares bankruptcy or insolvency under any law relating to bankruptcy, insolvency, winding-up or adjustment of debts and does not commence a challenge, appeal or seek to set aside such decision within 15 days after receipt of notice of such decision and proceed vigorously thereafter with such challenge.

9.Rights on Default.  On Default and so long as such Default is continuing, the security constituted by this Agreement will be enforceable, and the Investor may, personally or by agent do any one or more of the following:

(a)Rights under PPSA, etc.  Exercise all of the rights and remedies granted to secured parties under the PPSA and any other applicable statute, or otherwise available to the Investor at law or in equity.

(b)Take Possession.  Take possession of any or all of the Collateral in which event the Company will, at the expense of the Investor, cause the Collateral designated by the Investor to be assembled and made available and/or delivered to the Investor at any place designated in writing by the Investor.

(c)Take Possession.  Enter on any premises where any Collateral is located and take possession of, disable or remove such Collateral by any method permitted by law.

(d)Use of Collateral.  Hold, store and keep idle, or operate, lease or otherwise use or permit the use of any or all of the Collateral for such time and on such terms as the Investor acting reasonably, may determine, and demand, collect and retain all earnings and other sums due or to become due from any Person in respect of any of the Collateral.

(e)Carry on Business.  Carry on, or concur in the carrying on of, any or all of the business or undertaking of the Company and enter on, occupy and use (without charge by the Company) any of the premises, buildings, plant and undertaking of, or occupied or used by, the Company.

5

(f)Deal with Collateral.  Seize, collect, receive, enforce, repair, process, modify, complete or otherwise deal with any Collateral in such reasonable manner, on such terms and conditions and at such times as the Investor deems advisable.

(g)Dispose of Collateral.  Realize on any or all of the Collateral and sell, lease, assign, give options to purchase, or otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the above), in one or more parcels at any public or private sale, at any exchange, broker’s board or office of the Investor or elsewhere, on such terms and conditions as the Investor may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery.

(h)Court-Approved Disposition of Collateral.  Apply to a court of competent jurisdiction for the sale or foreclosure of any or all of the Collateral.

(i)File Claims.  File such proofs of claim or other documents as may be necessary or desirable to have the Investor’s claim lodged in any bankruptcy, winding-up, liquidation, dissolution or other proceedings (voluntary or otherwise relating to the Company).

(j)Purchase by Investor.  At any public sale, and to the extent permitted by law on any private sale, bid for and purchase any or all of the Collateral offered for sale and, upon compliance with the terms of such sale, hold, retain and dispose of such Collateral without any further accountability to the Company or any other Person with respect to such holding, retention or disposition, except as required by law.

(k)Payment of Indebtedness.  Pay any liability secured by any Security Interest against any Collateral.  The Company will upon request reimburse the Investor for all such payments, such payments will form part of the Indebtedness and will be secured by the Security Interests created by this Agreement.

(l)Appointment of Receiver Pursuant to Agreement.  Appoint by instrument in writing one or more Receivers over the Company or any or all of the Collateral with such rights, powers and authority (including any or all of the rights, powers and authority of the Investor under this Agreement) as may be provided for in the instrument of appointment or any supplemental instrument, and remove and replace any such Receiver from time to time.  To the extent permitted by applicable law, any Receiver appointed by the Investor will (for purposes relating to responsibility for the Receiver’s acts or omissions) be considered to be the agent of the Company and not of the Investor.  The Investor may from time to time fix the Receiver’s remuneration and the Company will be obliged to pay to the Investor, acting reasonably, the amount of such remuneration.

(m)Court-Appointed Receiver.  Apply to a court of competent jurisdiction for the appointment of a Receiver of the Company or of any or all of the Collateral.

6

10.Enforcement of Security.  Notwithstanding any other provision in this Agreement, the Investor agrees that in enforcing the security constituted by this Agreement, the Investor shall exercise the remedies available to it in the following order:

(a)firstly, against the EDC Policy proceeds for up to $350,000 of amounts owing to the Investor under the Note; and

(b)secondly, against other Collateral.

11.Application of Proceeds.  All Proceeds of Collateral received by the Investor or by a Receiver may be applied to discharge or satisfy expenses (including the Receiver’s remuneration and other reasonable expenses of enforcing the Investor’s rights under the Security Documents) including but not limited to borrowings, taxes and other outgoings affecting the Collateral or which are considered advisable by the Investor or the Receiver to protect, preserve, repair, process, maintain or enhance the Collateral or prepare it for sale, lease or other disposition, or to keep in good standing any Security Interests on the Collateral ranking in priority to any of the Security Interests created by this Agreement, or to sell, lease or otherwise dispose of the Collateral.  The balance of such Proceeds may be held as collateral security for the Indebtedness or be applied to such of the Indebtedness (whether or not the same are due and payable) in such manner and at such times as the Investor considers appropriate and thereafter will be accounted for as required by law.

12.Continuing Liability of Company.  The Company will remain liable for any Indebtedness that are outstanding following realization of all or any part of the Collateral and the application of the Proceeds thereof.

13.Investor’s Appointment as Attorney-in-Fact.  The Company constitutes and appoints the Investor, and any officer or agent of the Investor, with full power of substitution, as the Company’s true and lawful attorney-in-fact with full power and authority in the place of the Company and in the name of the Company or in its own name, from time to time in the Investor’s discretion after a Default and only for so long as such Default is continuing, to take any and all appropriate action and to execute any and all documents and instruments as, in the opinion of such attorney acting reasonably, may be necessary or desirable to accomplish the purposes of this Agreement.  These powers are coupled with an interest and are irrevocable until this Agreement is terminated and the Security Interests created by this Agreement are released.  Nothing in this section affects the right of the Investor or any other Person, to sign and file or deliver (as applicable) all such financing statements, financing change statements, notices, verification agreements and other documents relating to the Collateral and this Agreement as the Investor or such other Person considers appropriate, acting reasonably.

14.Performance by Investor of Company’s Obligations.  If the Company fails to perform or comply with any of its obligations under this Agreement, the Investor may, but need not, perform or otherwise cause the performance or compliance of such obligation, provided that such performance or compliance will not constitute a waiver, remedy or satisfaction of such failure.  The reasonable expenses of the Investor incurred in connection with any such performance or compliance will be payable by the Company to the Investor, any such reasonable expenses will form part of the Indebtedness and will be secured by the Security Interests created by this Agreement.

7

15.Right of Set-Off.  The Investor may at any time and from time to time after the occurrence of a Default, upon notice to the Company or any other Person, set-off, appropriate and apply any and all indebtedness and liabilities of the Investorto the Company, liquidated, unliquidated, contingent, matured or unmatured, against and on account of any Indebtedness of any kind whatsoever, including for greater certainty liquidated, unliquidated, contingent, matured or unmatured, in such order of application as the Investor shall from time to time determine.

16.Rights of Investor and Limitations on Investor’s Obligations.

(a)Limitations on Investor’s Liability.  The Investor will not be liable to the Company or any other Person for any failure or delay in exercising any of its rights under this Agreement (including any failure to take possession of, collect, sell, lease or otherwise dispose of any Collateral, or to preserve rights against prior parties). Neither the Investor nor a Receiver (including, in Alberta, any sheriff) is required to take, or will have any liability for any failure to take or delay in taking, any steps necessary or advisable to preserve rights against other Persons under any Collateral in its possession.  Neither the Investor nor any Receiver will be liable for any, and the Company will bear the full risk of all, loss or damage to any and all of the Collateral (including any Collateral in the possession of the Investor or any Receiver) caused for any reason other than the gross negligence or wilful misconduct of the Investor or such Receiver.

(b)Company Remains Liable under Accounts and Contracts.  Notwithstanding any provision of this Agreement, the Company will remain liable under each of the Accounts and Contracts to observe and perform all the conditions and obligations to be observed and performed by the Company thereunder, all in accordance with the terms of any agreement giving rise to each such Account or in accordance with and pursuant to the terms and provisions of each such Contract.  Neither the Investor nor any Receiver have any obligation or liability under any Account (or any agreement giving rise thereto) or Contact by reason of or arising out of this Agreement or the receipt by the Investor of any payment relating to such Account or Contract pursuant hereto, and in particular (but without limitation), the Investor will not be obligated in any manner to perform any of the obligations of the Company under or pursuant to any Account (or any agreement giving rise thereto) or under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto) or under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time.

(c)Collections on Accounts and Contracts.  The Investor hereby authorizes the Company to collect the Accounts and payments under the Contracts in the normal course of its business and for the purpose of carrying on the same.  All such amounts while held by the Investor and all income in respect thereof will continue to be collateral security for the Indebtedness and will not constitute payment thereof until applied as hereinafter provided.  At such intervals as may be agreed upon by the Company and

8

the Investor, or, if a Default will have occurred and be continuing at any time or from time to time, the Investor will apply all or any part of the accounts and payments collected under the contracts on account of the Indebtedness in such order as the Investor may elect.  At the Investor’s request, the Company will deliver to the Investor any documents evidencing and relating to the agreements and transactions which gave rise to the Accounts and Contracts, including all original orders, invoices and shipping receipts.

17.Dealings by Investor.  The Investor will not be obliged to exhaust its recourse against any other Person or against any other Security Interests it may hold in respect of the Indebtedness before realizing upon or otherwise dealing with the Collateral in such manner as the Investor may consider desirable.  The Investor may grant extensions of time and other indulgences, take and give up security, accept compositions, grant releases and discharges and otherwise deal with any other Person, and with any or all of the Collateral, and with other security and sureties, as the Investor may see fit, all without prejudice to the Indebtedness or to the rights and remedies of the Investor under this Agreement.  The powers conferred on the Investor under this Agreement are solely to protect the respective interests of the Investor in the Collateral and will not impose any duty upon the Investor to exercise any such powers.

18.Additional Security.  The Security Interests created by this Agreement are in addition and without prejudice to any other Security Interests now or later held by the Investor.  No Security Interests held by the Investor will be exclusive of or dependent upon or merge in any other Security Interests, and the Investor may exercise its rights under such Security Interests independently or in combination.

19.Release of Information.  The Company authorizes the Investor to provide a copy of this Agreement and such other information as may be requested of the Investor by Persons entitled thereto pursuant to any applicable legislation.

20.Waivers.  The Investor may, in whole or in part, waive any breach of any of the provisions of this agreement by the Company, any default by the Company in the payment or performance of any of the Indebtedness or any of its rights and remedies whether provided for hereunder or otherwise provided that no such waiver shall be considered to have been given unless given expressly by the Investor to the Company in writing.  No waiver given in accordance with this section shall be a waiver of any other or subsequent breach by the Company of any of the provisions of this Agreement, of any other or subsequent default by the Company in the payment or performance of any of the Indebtedness or any of the other rights and remedies of the Investor whether provided for herein or otherwise.

21.Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable in such Province and will be treated, in all respects, as a contract of such Province.

22.Conflict. To the extent that any term, condition, representation, covenant or other provision contained in this Agreement conflicts with, any term, condition, representation, covenant or other provision contained in the Secured Convertible Note, then the relevant term, condition, representation, covenant or other provision of this Agreement shall govern.

9

23.Interpretation.  The division of this Agreement into sections and paragraphs, and the insertion of headings, is for convenience of reference only and will not affect the construction or interpretation of this Agreement.  Unless the context otherwise requires, words importing the singular include the plural and vice versa, and words importing gender include all genders and neuter.  When used in this Agreement, the word “including” (or “includes”) means “including (or “includes”) without limitation”.  Any reference in this Agreement to a “Section” or a “Schedule” means the relevant section or schedule of this Agreement unless the context specifically provides otherwise.

24.Successors and Assigns.  This Agreement will enure to the benefit of, and be binding on, the Company and its successors and assigns, and will enure to the benefit of, and be binding on, the Investor and its successors and assigns.  The Company may not assign this Agreement, or any of its rights or obligations under this Agreement, without the prior written consent of the Investor, which consent shall not be unreasonably withheld.  However, the Investor in its sole discretion, may withhold its consent to a proposed assignment by the Company which is reasonably considered an arbitrary assignment by the Company.

25.Acknowledgement of Receipt/Waiver.  The Company acknowledges receipt of an executed copy of this Agreement and, to the extent permitted by applicable law, waives the right to receive a copy of any financing statement, financing change statement or verification statement in respect of any registered financing statement or financing change statement prepared, registered or issued in connection with this Agreement.

26.Severability.  Any provision of this Agreement that is invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability and will be severed from the balance of this Agreement, all without affecting the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

27.Listings of Collateral.  Any schedules, documents or listings provided to the Investor which summarize or describe any after acquired Collateral shall form part of this Agreement.

SIGNATURE PAGE TO FOLLOW

10

DATED as of the        day of May, 2004.

ADB SYSTEMS INTERNATIONAL LTD.

By:

Name:

Title:

11

SCHEDULE “A”

Definitions

“Accessions”, “Account”, “Chattel Paper”, “Consumer Goods”, “Document of Title”, “Equipment”, “Goods”, “Instrument”, “Intangible”, “Inventory”, “Money”, “Motor Vehicles”, “Proceeds”, “Value” and “Securities” have the meanings given to them in the PPSA;

“Agreement” means this General Security Agreement, as amended, modified, supplemented, restated and replaced in writing from time to time;

“Books and Records” means all books, records, files, papers, disks, documents and other repositories of data recording in any form or medium, evidencing or relating to the Collateral which are at any time owned by the Company or to which the Company (or any Person on the Company’s behalf) has access;

“Business Day” means any day other than a Saturday, Sunday, statutory holiday in Ontario or day on which the main branch of the Company’s banking institution in Toronto is closed for business;

“Collateral” means all of the present and future undertaking, Personal Property (including any Personal Property that may be described in any Schedule to this Agreement or any schedules, documents or listings that the Company may from time to time provide to the Investor in connection with this Agreement) of the Company (including all such Personal Property at any time owned, leased, licensed, possessed or acquired by the Company, or in which the Company at any time has any interest or to which the Company is or may at any time become entitled), Contracts, Intellectual Property Rights, and all Proceeds thereof, in any such case wherever located;

“Company” means ADB Systems International Ltd;

“Contracts” means all existing and future contracts, licenses and agreements to which the Company is at any time a party or pursuant to which the Company has at any time acquired rights, as such contracts, licenses and agreements may from time to time be amended or restated and includes (i) all rights of the Company to receive money due and to become due to it in connection with a contract licence or agreement; (ii) all rights of the Company to damages arising out of, or for breach or default in respect of, a contract, licence or agreement; and (iii) all rights of the Company to perform and exercise all remedies in connection with a contract, licence or agreement;

“Default” has the meaning ascribed in Section 8 of this Agreement;

“EDC Policy” means the Company’s receivable insurance policy with Export Development Canada, which insures 90% of the Company’s worldwide accounts receivable;

“Excluded Collateral” means the last day of the term of any real property lease and any Intellectual Property Right or Permit where the grant of a Security Interest therein without consent would result in the breach or termination thereof, unless such consent is obtained;

“Indebtedness” means all present and future indebtedness, liabilities and obligations whether direct or indirect, joint or several, absolute or contingent, matured or unmatured of the Company to the Investor wherever and however incurred, including principal, interests, charges, fees, costs and expenses however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under the Secured Convertible Note and/or the Security Documents;

“Intellectual Property Rights” means all industrial and intellectual property rights, including all trade-marks, trade names, corporate names, company names, business names, logos, websites (including, without limitation, all URLs (uniform resource locators) and any and all copyrights, software, coding and codes associated therewith) and other sources of business identifiers, customer lists, subscriber lists and the goodwill associated therewith, including registrations, recordings and applications with the Canadian Intellectual Property Office and any similar government office or agency in other countries, all copyrights and industrial designs in all works, including all drawings and computer programs, all patents, proprietary technology, rights to inventions whether patentable or otherwise, trade secrets, confidential information and other processes and all registrations, recordings applications for the foregoing, all licenses currently in force or may in the future be in force which authorizes the licensee to make, use, offer for sale, sell or advertise wares or services in connection with issued or pending applications for one or more patents, trade-marks, industrial designs, or in association with licensed know-how, trade secrets, confidential information and computer programs, the right to sue parties for past, present and future infringements or dilution of Intellectual Property Rights and associated goodwill, all Contracts related to any such industrial and intellectual property rights including those trade-marks set out in Schedule “D” and all reissues, continuations or extensions of any of the foregoing;

“Investor” means Stonestreet Limited Partnership;

“Permitted Security Interests” means (i) the Security Interests set out in Schedule “C” and (ii) the security interests granted by the Company to the parties listed in Schedule “E”;

“Permits” means all permits, licenses, authorizations, approvals, franchises, rights-of-way, easements and entitlements that the Company has, requires or is required to have, to own, possess or operate any of its property or to operate and carry on any part of its business;

“Person” will be broadly interpreted and includes an individual, a corporation, a limited liability company, a partnership, a trust, a joint venture, an association, an unincorporated organization, the government of a country or any political subdivision thereof, any agency or department of any such government, a regulatory agency or any other entity and the heirs, executors, administrators or other legal representatives of an individual;

“Personal Property” means personal property and includes Accounts, Inventory, Equipment, Books and Records, Chattel Paper, Goods, Documents of Title, Instruments, Intangibles (including Intellectual Property Rights and Permits), Money and Securities, and includes all present and future Accessions to any of the foregoing, but excludes Consumer Goods;

A-2

“PPSA” means the Personal Property Security Act of the Province of Ontario, as amended, renamed or replaced from time to time (and includes all regulations from time to time made under such legislation);

“Receiver” means a receiver, a manager, a receiver and manager or an agent of the Investor or any Receiver;

“Secured Convertible Note” means the series F 7% secured convertible note in the principal amount of CDN$500,000 issued by the Company to the Investor on the date hereof;

“Securities” has the meaning given to it in the PPSA, or if there is no such meaning given in the PPSA, but the PPSA defines “security” instead, it means the plural of that term;

“Security Documents” means collectively, this Agreement and all other security agreements, guarantees, share pledge agreements, and other agreements, instruments and documents from time to time granted in favour of the Investor as security for or in support of the obligations of the Company under the Secured Convertible Note and the Subscription Agreement, as amended, modified, supplemented, restated and replaced in writing from time to time;

“Security Interest” means any mortgage, charge, pledge, hypothecation, lien (statutory or otherwise), assignment, finance lease, title retention agreement or arrangement, security interest or other encumbrance or adverse claim of any nature, or any other security agreement or arrangement creating in favour of any creditor a right in respect of a particular property or asset;

“Series E Notes” means the series E 11% secured convertible notes in the original aggregate principal amount of CDN$1,000,000 issued by the Company to investors, including the Investor, on August 19, 2003; and

“Subscription Agreement” means the subscription agreement pursuant to which, the Investor subscribes for and the Company accepts the subscription for the Secured Convertible Note.

A-3

SCHEDULE “B”

Chief Executive Office

201-6725 Airport Road

Mississauga, Ontario

L4V 1V2

Principal Places of Business

201-6725 Airport Road

Mississauga, Ontario

L4V 1V2

SCHEDULE “C”

ADDITIONAL PERMITTED SECURITY INTERESTS

“Permitted Security Interests” means with respect to any property or asset of any Person:

(a)Security Interests for provincial or municipal taxes, charges, rates and assessments not yet due or, if due, the validity of which is being contested in good faith and Security Interests for the excess of the amount of any past due taxes for which a final assessment has not been received over the amount of such taxes as estimated and paid by such Person;

(b)the Security Interests of any judgement rendered or claim filed against the Company or its property which it shall be contesting in good faith and in respect of which there shall have been deposited with an arms-length Person acceptable to the Investor, acting reasonably, cash, security or a surety bond satisfactory to such arms-length Person in an amount sufficient to pay such judgement or claim;

(c)defects or irregularities of title which do not in the aggregate materially impair the value of the property to which they related or interfere with the use of the property to which they relate for the purposes for which it is held by such Person;

(d)pledges or deposits to secure payment of workers’ compensation, good faith deposits in connection with tenders, contracts (other than contracts for the repayment of moneys borrowed) or leases, deposits to secure public or statutory obligations, deposits to secure or in lieu of surety or appeal bonds, and pledges or deposits for similar purposes in the ordinary course of business;

(e)purchase money security interests;

(f)Security Interests granted by the Company during the one year period following the date of this Agreement to third party creditors to secure indebtedness which is permitted under Section 7 of the Subscription Agreement;

(g)Security Interests granted by the Company to third party creditors to secure indebtedness which is incurred on or after the one year anniversary date of this Agreement; and

(h)any other Security Interests accepted from time to time by the Investor in writing.

SCHEDULE “D”

Intellectual Property Rights

Owned Intellectual Property (Trade-marks only)

SCHEDULE “E”

Permitted PPSA Registrations

File Number:	084987306
Registration Number:	20021104151100439461
	20021108165217583169
	20030826182015316880
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Jeff Lymburner
File Number:	888880464
Registration Number:	20021104144390654204
	20021108165217583161
	20030826182015316881
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Christopher Bulger
File Number:	888880518
Registration Number:	20021104144390654209
	20021108165217583166
	20031021145615300346
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Kenneth Sparfel, Kelly Sparfel
File Number:	881960004
Registration Number:	20020510181117159588
	20030826092017152348
Debtor Name:	ADB Systems International Inc.
Secured Party:	Xerox Canada Ltd.
File Number:	897234246
Registration Number:	20030812145215303748
Debtor Name:	ADB Systems International Ltd.
Secured Party	Stonestreet Limited Partnership
File Number:	897234255
Registration Number:	20030812145215303749
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Greenwich Growth Fund Ltd.

File Number:	897592122
Registration Number:	20030825184115313987
Debtor Name:	ADB Systems International Ltd.
Secured Party	Canaccord Capital Corp.
	ITF Janet Harrop A/C 133388S7
File Number:	897592131
Registration Number:	20030825184115313988
Debtor Name:	ADB Systems International Ltd.
Secured Party	Canaccord Capital Corp.
	ITF Christopher Harrop A/C 133384S6
File Number:	897592149
Registration Number:	20030825184115313989
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Robb, Michael
File Number:	897592158
Registration Number:	20030825184115313990
Debtor Name:	ADB Systems International Ltd.
Secured Party:	Mokos, James
File Number:	897592167
Registration Number:	20030825184115313991
Debtor Name:	ADB Systems International Ltd.
Secured Party	Gundyco ITF Paul Godin RRSP A/C 59121001-11
File Number:	897592176
Registration Number:	20030825184115313992
Debtor Name:	ADB Systems International Ltd.
Secured Party	Hellesto, Arne

E-2

EX-4.18

Exhibit 4.18

SUBSCRIPTION AGREEMENT

(for Ontario, Alberta and British Columbia and Non-Canadian/Non-U.S. Subscribers)

A completed and originally executed copy of this subscription agreement must be delivered or transmitted by facsimile ((416) 869-9151) by no later than 12:00 noon (Toronto time) on June 3, 2004 to First Associates Investments Inc. (Attention:Jennifer Li).

TO:	ADB Systems International Ltd. (the “Corporation”)
AND:	First Associates Investments Inc.
RE:	Sale of Convertible Notes of the Corporation entitling the holders to acquire units of securities of the Corporation upon conversion, each unit comprised of one common share in the capital of the Corporation and one-half of one Common Share purchase warrant.

Details of Subscription

The undersigned (the “Subscriber”) hereby irrevocably subscribes, subject to the terms and conditions set forth in this subscription agreement, for convertible notes (“Convertible Notes”) of the Corporation with the following specific purchase instructions.  The particulars of the Convertible Notes and the securities issuable upon conversion of the Convertible Notes (together with certain other material covenants and acknowledgements) are set out in Schedules “A” and “B” to this subscription agreement and certain representations and warranties to be made by the Subscriber so that the Corporation can ensure compliance with applicable securities laws are set out in Schedule “C” to this subscription agreement, all of which forms part of and is hereby incorporated as part of this subscription agreement.

All Subscribers:

Complete and sign Schedule “D” to this agreement, being the form of questionnaire and undertaking required by the Toronto Stock Exchange

Ontario Subscribers:

Complete and sign both the Ontario Resident Exemption Certificate and the Ontario Accredited Investor Certificate – Schedule “E”.

Alberta and British Columbia Subscribers:

If you are an “accredited investor”, complete and sign the Accredited Investor Certificate – Schedule “F”.
OR
If you are relying on the “family, friends and business associates” exemption, complete and sign the Family, Friends and Business Associates Certificate – Schedule “F”.

Non Canadian and Non U.S. Subscribers:

Complete and sign the Offshore Subscriber Certificate – Schedule “G”.

Please print all information (other than signatures), as applicable, in the spaces provided below.

Principal Amount of Convertible Notes Subscribed for (to be issued at par):

Subscriber Details		Registration Instructions (if different from name of
		Subscriber and address set out in the box to the left):
Name of Subscriber
		Name
By:
Authorized Signature
		In Trust For, if applicable Account Reference, if applicable
Official Capacity or Title (if Subscriber is not an individual)
Name of individual whose signature appears above if
different from name of Subscriber printed above
		Address, including postal code
		Delivery Instructions (if different from name of Purchaser
Address of Subscriber, including province and postal code		and address set out in the box to the left):
Telephone Number:		Name
Fax Number:
		Account Reference, if applicable
E-mail Address:
		Address, including province and postal code
Disclosed Principal (please complete if purchasing as agent
or trustee for a disclosed principal
Name of Principal:
Principal’s Address:
	(Street Address)
	(City and Province)
	(Postal Code)

The Subscriber acknowledges its consent and request that this subscription agreement (including all schedules hereto) and all other documents evidencing or relating in any way to its purchase of Convertible Notes be drawn up in the English language only.  Nous reconnaissons par les présentes avoir consenti et demandé à ce que la présente convention de souscription (et les annexes s’y rapportant) et tous les autres documents faisant foi ou se rapportant de quelque manière à notre souscription soient rédigés en anglais seulement.

IN WITNESS WHEREOF the Subscriber has executed, or caused its duly authorized representative to execute, this subscription agreement on this             day of                                  , 2004.

Signature of Subscriber (if an individual)		Name of Subscriber (if an individual)
	Per:
Name of Subscriber (if an individual)		(signature of authorized representative)
		Name and Title of Authorized Representative

ACCEPTANCE

The foregoing is acknowledged, accepted and agreed to this                 day of                                  , 2004.

ADB SYSTEMS INTERNATIONAL LTD.

Per:

SCHEDULE “A”

This is Schedule “A” to the subscription agreement relating to the purchase of Convertible Notes of ADB Systems International Ltd.

TERMS OF THE OFFERING

1.             Offering.  The Convertible Notes subscribed for hereunder form part of a larger sale by the Corporation (the “Offering”) pursuant to an agency agreement (the “Agency Agreement”) to be entered into between the Corporation and First Associates Investments Inc. (the “Agent”) of a maximum of $5,000,000 principal amount of Convertible Notes. In addition to the Offering, on May 19, 2004 the Corporation issued $500,000 of convertible notes to one investor, with such convertible notes being substantially the same as the Convertible Notes to be issued under the Offering, except that they also provided security by way of an express assignment of insurance proceeds rights.

The Convertible Notes will bear interest at an annual rate of 7% of the principal amount of the Convertible Notes outstanding from time to time, payable on the earlier of the conversion of the Convertible Notes or the third anniversary of the Closing Date (the “Maturity Date”).  Interest will continue to accrue until paid.  At any time up to and including the Maturity Date, all or any portion of the principal amount of the Convertible Notes outstanding from time to time will be convertible, at the option of the holder, provided that the holder complies with the notice provision therefor, into units of securities of the Corporation (“Units”) at a conversion price of $0.31 per Unit (the “Conversion Price”), subject to adjustments for stock splits, consolidations, other capital reorganizations, extraordinary dividends or distributions.

Each Unit will consist of one common share in the capital of the Corporation (a “Common Share”) and one-half of one Common Share purchase warrant (a “Warrant”).  Each whole Warrant will entitle the holder to acquire one Common Share at an exercise price of $0.50 per share, and will be exercisable at any time prior to the fourth anniversary of the Closing Date.

In the event that at any time from and after the first anniversary of the Closing Date the volume weighted average trading price of the Common Shares through its principal trading market for a 20 consecutive trading day period is $0.70 or more, all then outstanding Convertible Notes, including any accrued interest thereon, will be automatically converted into Units at the Conversion Price.

The material terms of the Offering, the Convertible Notes and the Underlying Securities (as hereinafter defined) are set out in this schedule and in Schedule “B” to this subscription agreement.

The foregoing description of the Convertible Notes is a summary only and the Subscriber acknowledges that the definitive terms and conditions of the Convertible Notes sold under the Offering will be set forth in the Note Certificates (as hereinafter defined).

2.             Definitions.  In this subscription agreement and the schedules to this subscription agreement the defined terms set out in the first page of this subscription agreement or as set out in Section 1 above shall apply and, unless the context otherwise requires:

“Applicable Securities Laws” means the applicable securities laws of the Province of Ontario and each other relevant jurisdiction and the regulations and rules made and forms prescribed thereunder, together with all applicable instruments, published policy statements, blanket orders, notices, rulings and rules of the Ontario Securities Commission and each other securities regulatory authority having competent jurisdiction;

“Business Day” means a day other than a Saturday, Sunday or statutory or banking holiday in Toronto, Ontario;

“Closing Date” means on or about June 8, 2004, or such other date or dates as the Agent may designate;

“Closing Time” means 10:00 a.m. (Toronto time) on the Closing Date, or such other time on the Closing Date as the Agent may designate;

“Corporation’s Information Record” means any statement contained in any press release, material change report, financial statements or other document of the Corporation which has been or is publicly disseminated, whether pursuant to any Applicable Securities Laws or otherwise, prior to the Closing Time;

“including” means including without limitation;

“material” means material in relation to the Corporation;

“material change” means any change in the business, operations, assets, liabilities, ownership or capital of the Corporation, on a consolidated basis, that would reasonably be expected to have a significant effect on the market price or value of the Common Shares and includes a decision to implement such a change made by the board of directors of the Corporation or by senior management of the Corporation who believe that confirmation of the decision by the board of directors is probable;

“material fact” means any fact that significantly affects or would reasonably be expected to have a significant effect on the market price or value of the Common Shares;

“Material Subsidiaries” means the material direct or indirect subsidiaries of the Corporation, being, ADB Systemer ASA (Norway), ADB Systems USA, Inc. (Delaware), ADB Systems International Limited (Ireland) and Internet Liquidators USA, Inc.;

“misrepresentation” means an untrue statement of material fact, or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made;

“Note Certificates” means the definitive certificates representing the Convertible Notes;

“Purchasers” means those persons who subscribe for Convertible Notes under the Offering, including the Subscriber;

“Regulation S” means Regulation S under the U.S. Securities Act;

“TSX” means the Toronto Stock Exchange;

“Underlying Securities” means the Common Shares and Warrants comprising the Units issuable upon the exercise of the conversion rights under the Convertible Notes;

“United States” means the United States as that term is defined in Regulation S;

“U.S. Person” means a U.S. Person as that term is defined in Regulation S;

“U.S. Securities Act” means the Securities Act of 1933, as amended, of the United States of America; and

“Warrants Shares” means the Common Shares issuable upon exercise of the Warrants.

3.             Currency.  All dollar amounts referred to in this subscription agreement and the schedules thereto are expressed in Canadian funds.

4.             Representations and Warranties of the Corporation.  The Corporation hereby represents and warrants for the benefit of the Purchasers as follows:

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(a)                 the Corporation is (and will be at the Closing Time) a reporting issuer in the Provinces of Ontario, Alberta and British Columbia, and is in compliance with all material obligations under Applicable Securities Laws of such jurisdictions;

(b)                the Corporation has been duly incorporated and organized and is validly subsisting under the laws of the Province of Ontario and has all requisite corporate power and authority to own its assets and to carry on its business as currently conducted;

(c)                 each of the Material Subsidiaries has been duly incorporated and organized and is validly subsisting under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets;

(d)                the Corporation and each of the Material Subsidiaries is conducting its business in material compliance with all applicable laws, rules and regulations of each jurisdiction in which its business is carried on and is duly licensed, registered or qualified in all jurisdictions in which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated and all such licences, registrations and qualifications are and will at the Closing Time be valid, subsisting and in good standing, except in respect of matters which do not and will not result in any adverse material change in respect of the Corporation, and except for the failure to be so qualified or the absence of any such license, registration or qualification which does not and will not have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Corporation and its subsidiaries, on a consolidated basis;

(e)                 the Corporation has all required corporate power and authority to enter into and carry out the provisions of this subscription agreement and the transactions contemplated hereby and all necessary corporate action has been taken or will have been taken prior to the Closing Time by the Corporation to duly authorize the execution and delivery of this subscription agreement and such other agreements and instruments and the consummation of the transactions contemplated thereby and so as to validly create, issue and deliver the Convertible Notes subscribed thereby and to validly create and irrevocably allot for issuance the Underlying Securities and Warrant Shares;

(f)                 neither the Corporation nor any of its Material Subsidiaries is in default or in breach in any material respect of, and the execution and delivery of this subscription agreement by the Corporation, the performance and compliance with the terms of this subscription agreement, the issue and sale of the Convertible Notes, and the issue of the Underlying Securities and Warrant Shares will not result in any breach of, or be in conflict with or constitute a default under, or create a state of facts which, after notice or lapse of time, or both, would constitute a default either directly or indirectly under any term or provision of the constating documents, by-laws or resolutions of the Corporation or any of the Material Subsidiaries or any material mortgage, note, indenture, contract, agreement, instrument, lease or other document to which any of them is a party or by which any of them is bound;

(g)                the Common Shares issuable upon exercise of the conversion rights under its Convertible Notes and the Warrant Shares, if and when issued in accordance with the Convertible Notes and Warrants, as applicable, will be validly issued and outstanding as fully paid and non-assessable;

(h)                no approval, authorization, consent or other order of, and no filing, registration or recording with, any governmental authority is required by the Corporation in connection with the execution and delivery or with the performance by the Corporation of this subscription agreement except in compliance with and the rules of the TSX;

(i)                  to the best of the Corporation’s knowledge, information and belief, no portion of the Corporation’s Information Record contained a misrepresentation as at its date of public dissemination;

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(j)                  there has been no adverse material change in relation to the Corporation since December 31, 2003, and no adverse material fact exists in relation to the Corporation or its securities which, in either case, has not been generally disclosed or disclosed in the Corporation’s Information Record;

(k)                 this subscription agreement and all other agreements required in connection with the issue and sale of the Convertible Notes have been or will be, at or prior to the Closing Time, duly authorized, executed and delivered by the Corporation and will be valid and binding obligations of the Corporation enforceable in accordance with their respective terms (except as the enforceability thereof may be limited by (i) bankruptcy, insolvency or similar laws affecting creditors’ rights generally, (ii) general equitable principles or (iii) limitations under applicable law in respect of rights of indemnity, contribution and waiver of contribution); and

(l)                  the Corporation intends that the net proceeds of the Offering will be used substantially in the manner specified in Schedule “B” hereto.

5.             Reliance upon Representations, Warranties and Covenants of the Corporation.  The Corporation further agrees that, by delivering the Convertible Notes to the Subscriber, the Corporation will be representing and warranting that the representations, warranties and covenants contained in this subscription agreement are true as at the Closing Time with the same force and effect as if they had been made by the Corporation at the Closing Time and that they will survive the purchase by the Subscriber of the Convertible Notes and continue in full force and effect for a period of two (2) years following the Closing Date notwithstanding any subsequent disposition by the Subscriber of the Convertible Notes or the Underlying Securities.

6.             Closing of Purchase.  The Subscriber acknowledges and agrees that delivery of and payment for the Convertible Notes will be completed at the offices of the Corporation’s legal counsel at 10:00 a.m. (Toronto time) on the Closing Date which will be on or about June 8, 2004, or such earlier or later date or time as may be determined by the Agent.

7.             Payment and Delivery.  The Subscriber agrees to deliver to the Agent at 181 Bay Street, Suite 900, Toronto, Ontario M5J 2T3 (Attention: Jennifer Li), (fax number: (416) 864-9151), prior to the Closing Time:

(a)                 his or her duly completed and executed subscription agreement (including Schedule “D” and Schedules E”, “F” or “G”);

(b)                a certified cheque or bank draft payable to “First Associates Investments Inc.”, or wire transfer in Canadian funds to the Agent for the principal amount of Convertible Notes subscribed for under this subscription agreement or payment of the same amount in such other manner as is acceptable to the Agent; and

(c)                 such other documents as may be required pursuant to the terms of this subscription agreement.

8.             Conditions of Closing.  If, by the Closing Time, the terms and conditions contained in this subscription agreement have been complied with to the satisfaction of the Corporation or waived by the Corporation, the Agent shall deliver to the Corporation all completed subscription agreements, including this subscription agreement, and deliver to the Corporation all certified cheques or bank drafts representing subscription funds, including the Subscriber’s subscription funds against delivery by the Corporation of the Note Certificates and such other documentation as may be required.  This subscription is subject to acceptance by the Corporation (as described below).  Unless other arrangements have been made with the Agent, certificates endorsed by the Corporation representing Convertible Notes will be available for delivery to the Subscriber in Toronto, Ontario at the Closing Time against payment of the aggregate purchase price for the Convertible Notes.  The Agent will deliver such certificates to the address set out for delivery on page 2 of this subscription agreement promptly after the closing of its Offering.

9.             Acceptance or Rejection.  The Corporation will have the right to accept or reject (in whole or in part) this subscription at any time at or prior to the Closing Time, and the right is reserved to the Corporation to allot to any

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subscriber less than the principal amount of Convertible Notes subscribed for.  The Subscriber acknowledges and agrees that the acceptance of this subscription agreement will be conditional upon the sale of the Convertible Notes to the Subscriber being exempt from any prospectus and registration requirements of Applicable Securities Laws.  The Corporation will be deemed to have accepted this subscription agreement upon the delivery at closing of the Note Certificate referred to in Section 8 above in accordance with the provisions hereof.

10.           Information and Documents.  The Subscriber acknowledges that pursuant to Applicable Securities Laws, the Subscriber may be required to file a report with a Securities Commission in the required form within 10 days of each disposition of all or any of the Convertible Notes purchased hereunder or any of the Underlying Securities issued upon the exercise of the conversion rights under such Convertible Notes and, if so required, the Subscriber, undertakes to file the required report.

11.           Resale Restrictions.  The Subscriber understands and acknowledges that the Convertible Notes and in certain circumstances the Underlying Securities and Warrant Shares will be subject to certain resale restrictions under Applicable Securities Laws and the Subscriber agrees to comply with such restrictions.  Subscribers are advised to consult their own legal advisors in this regard. The Subscriber also acknowledges that it has been advised to consult its own legal advisors with respect to applicable resale restrictions and that it is solely responsible for complying with such restrictions (and neither the Corporation nor the Agent is in any manner responsible for ensuring compliance by the Subscriber with such restrictions).

12.           Legend.  The Subscriber acknowledges that the following legend is to be placed on the Note Certificate (and the certificates evidencing Underlying Securities and Warrants Shares, if issued during the four month period referred to in such legend) being acquired:

“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE                     ” (four months and one day from the Closing Date.)

13.           No Revocation.  The Subscriber agrees that this offer is made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by the Subscriber.

14.           Indemnity.  The Subscriber agrees to indemnify and hold harmless the Corporation and the Agent and their respective directors, officers, employees, agents, advisers and shareholders from and against any and all loss, liability, claim, damage and expense whatsoever (including, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation, warranty or covenant of the Subscriber contained herein or in any document furnished by the Subscriber to the Corporation or the Agent in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or in any document furnished by the Subscriber to the Corporation or the Agents in connection herewith.

15.           Modification.  Neither this subscription agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

16.           Compensation, Expenses and Reimbursement Entitlements of Agent.  The Subscriber understands that, in connection with the Offering, the Agent will receive from the Corporation (i) aggregate commissions equal to 8% of the gross proceeds of the Offering; and (ii) subject to the terms of the Agency Agreement, reimbursement for the Agent’s reasonable out-of-pocket expenses and the reasonable fees and disbursements of its legal counsel incurred in connection with the Offering.

The Subscriber further understands that as additional compensation for its services in connection with the Offering, the Agent will receive an option, exercisable until the second anniversary of the Closing Date, to purchase that number of Units as is equal to 10% of the Units issuable upon full conversion of the Convertible Notes sold under the Offering, at an exercise price equal to the Conversion Price.

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17.           Miscellaneous.

(a)                 The agreement resulting from the acceptance of this subscription agreement by the Corporation contains the whole agreement between the parties hereto in respect of the subject matter hereof and there are no warranties, representations, terms, conditions or collateral agreements, express, implied or statutory, other than as expressly set forth herein and in any amendments hereto.

(b)                All representations, warranties, agreements and covenants made or deemed to be made by the Subscriber in this subscription agreement will survive the execution and delivery, and acceptance, of this subscription agreement and the closing of the Offering.

(c)                 Time shall be of the essence of this subscription agreement.

(d)                This subscription agreement and the rights and obligations of the parties hereunder will be governed by and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein.

(e)                 This subscription agreement may be executed in any number of counterparts, each of which when delivered, either in original or facsimile form, shall be deemed to be an original and all of which together shall constitute one and the same document.

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SCHEDULE “B”

This is Schedule “B” to the subscription agreement relating to the purchase of Convertible Notes of ADB Systems International Ltd. (the “Corporation”). Capitalized terms used but not defined in this schedule are intended to have the meanings ascribed thereto, as applicable, on the first page of this subscription agreement and sections 1 and 2 of Schedule “A” to this subscription agreement

ADB SYSTEMS INTERNATIONAL LTD.

Summary of Proposed Terms

Offering of Convertible Notes

by way of Private Placement

Issuer:	ADB Systems International Ltd.
Issue:	Up to $5,000,000 principal amount of Convertible Notes, to be issued by way of private placement exemptions from prospectus and registration requirements, subject to the receipt of any applicable regulatory and stock exchange approvals.
Issue Price:	The Convertible Notes will be issued at par in integral multiples of $1,000.
Convertible Notes:	The Convertible Notes will have the following material terms:
	(a)	The Convertible Notes will bear interest at an annual rate of 7% of the principal amount of the Convertible Notes outstanding from time to time, payable on the earlier of the conversion of the Convertible Notes or the Maturity Date (as defined below).  Interest will continue to accrue until paid;
	(b)	The Convertible Notes will mature and be payable on the date that is the third anniversary of the Closing Date (the “Maturity Date”)
	(c)	At any time up to and including the Maturity Date, all or any portion of the principal amount of the Convertible Notes outstanding from time to time will be convertible, at the option of the holder, provided that the holder complies with the notice provisions therefor, into units of securities of the Corporation (“Units”) at a conversion price of $0.31 per Unit (the “Conversion Price”), subject to adjustments for stock splits, consolidations, other capital reorganizations, extraordinary dividends or distributions;
	(d)	Each Unit will consist of one common share in the capital of ADB (a “Common Share”) and one-half of one Common Share purchase warrant (a “Warrant”).  Each whole Warrant will entitle the holder to acquire one Common Share at an exercise price of $0.50 per share, and will be exercisable at any time prior to the fourth anniversary of the Closing Date; and
	(e)	In the event that at any time from and after the first anniversary of the Closing Date the volume weighted average trading price of the Common Shares through its principal trading market for a 20 consecutive trading day period is $0.70 or more, all then outstanding Convertible Notes, including any accrued interest thereon, will be automatically converted into Units at the Conversion Price.
Use of Proceeds:	For working capital and general corporate purposes.

Minimum Subscription:	$10,000 or such other amount determined at the sole discretion of the Agent. The Offering will be marketed in such provinces of Canada as the Agent may designate and in which Multilateral Instrument 45-102 – Resale of Securities has been adopted.  Convertible Notes may also be offered to U.S. buyers under available exemptions from federal and state prospectus requirements in the U.S. and may also be offered in offshore jurisdictions.
Lock-Up:	Until 180 days following the Closing Date, and except as provided herein, neither the Corporation nor any of its officers or directors may offer or announce the offering of, or make or announce any agreement to issue, sell or exchange Common Shares, warrants or securities convertible into Common Shares, except the grant of stock options or the issuance of Common Shares pursuant to exercise of any purchase warrants existing on the date hereof, without the prior written consent of the Agent, such consent not to be unreasonably withheld.
Security:	The Convertible Notes will provide general security over the Corporation’s assets.  Such security will be subordinate liabilities of the Corporation to current secured creditors.
Hold Period:	The Corporation will be a “reporting issuer” on the Closing Date, such that it is expected that the Convertible Notes, the securities comprising the Units (and the Common Shares issuable upon exercise of the Warrants) will have a restricted period of four months from the Closing Date
Listing:	The Common Share component of the Units (and the Common Shares issuable upon exercise of the Warrants) will be listed on the TSX.
Commission:	8% of the gross proceeds of the Offering.  In addition, the Agent will receive an option, exercisable until the second anniversary of the Closing Date, to purchase that number of Units as is equal to 10% of the Units issuable upon full conversion of the Convertible Notes sold under the Offering, at an exercise price equal to the Conversion Price.
Agent:	First Associates Investments Inc.
Closing Date:	On or about June 8, 2004.  The Offering may be completed through one or more closings.

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SCHEDULE “C”

SUBSCRIBER’S REPRESENTATIONS AND WARRANTIES

This is Schedule “C” to the subscription agreement relating to the purchase of Convertible Notes of ADB Systems International Ltd. (the “Corporation”). Capitalized terms used but not defined in this schedule are intended to have the meanings ascribed thereto, as applicable, on the first page of this subscription agreement and sections 1 and 2 of Schedule “A” to this subscription agreement.

By executing this subscription agreement, the Subscriber represents and warrants to the Corporation and the Agent, which representations and warranties are true as of the date of this subscription agreement and will be true as of the Closing Date, that:

1.Representations and Warranties

(a)Authorization and Effectiveness.  If the Subscriber is a corporation, the Subscriber is a valid and subsisting corporation, has the necessary corporate capacity and authority to execute and deliver this subscription agreement and to observe and perform its covenants and obligations hereunder and has taken all necessary corporate action in respect thereof.  If the Subscriber is a partnership, syndicate or other form of unincorporated organization, the Subscriber has the necessary legal capacity and authority to execute and deliver this subscription agreement and to observe and perform its covenants and obligations hereunder and has obtained all necessary approvals in respect thereof.  If the Subscriber is a natural person, he or she has obtained the age of majority and is legally competent to execute this subscription agreement and to take all actions required pursuant thereto.

Whether the Subscriber is a natural person or a corporation, partnership or other entity, upon acceptance by the Corporation, this subscription agreement will constitute a legal, valid and binding contract of the Subscriber, and any beneficial purchaser for whom it is purchasing, enforceable against the Subscriber and any such beneficial purchaser in accordance with its terms.

(b)Residence.  The Subscriber is a resident of, or otherwise subject to, the jurisdiction referred to under “Name and Address of Subscriber” on the first page of this subscription agreement, which address is the residence or place of business of the Subscriber not created or used solely for the purpose of acquiring Convertible Notes, and:

(i)is not (and is not purchasing Convertible Notes for the account or benefit of) a U.S. Person;

(ii)was not offered the Convertible Notes in the United States; and

(iii)did not execute or deliver this agreement in the United States.

(c)Investment Intent.  The Subscriber is acquiring Convertible Notes to be held for investment only and not with a view to resale or distribution.

(d)Prospectus Exemptions.  The Subscriber acknowledges and agrees that the sale and delivery of the Convertible Notes to the Subscriber is conditional upon such sale being exempt from the requirements under Applicable Securities Laws requiring the filing of a prospectus in connection with the distribution of the Convertible Notes.

(e)Offering Documents.  The Subscriber has not received, nor does the Subscriber need to receive, any document purporting to describe the business and affairs of the Corporation that has been prepared for delivery to and review by prospective investors so as to assist those investors to make

an investment decision in respect of securities being sold in a distribution of securities of the Corporation.

(f)No Solicitation or Advertising.  The Subscriber acknowledges that it has not purchased the Convertible Notes as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

(g)No Undisclosed Information.  The Convertible Notes are not being purchased by the Subscriber as a result of any material information concerning the Corporation that has not been publicly disclosed and the Subscriber’s decision to tender this offer and acquire Convertible Notes has not been made as a result of any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation, or any other person and is based entirely upon the currently available public information concerning the Corporation.

(h)Investment Suitability.  The Subscriber has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of the investment hereunder in Convertible Notes (and the Underlying Securities in respect thereof) and is able to bear the economic risk of loss of such investment.  The Subscriber acknowledges and agrees that the Subscriber is responsible for obtaining such legal advice as the Subscriber considers appropriate in connection with the execution, delivery and performance by the Subscriber of this agreement and the transactions contemplated hereunder.

(i)Subscription Agreement.  The Subscriber has read and understands the contents of this agreement and agrees to be legally bound hereby.

(j)No Conversion or Transfer of Convertible Notes, Underlying Securities or Warrant Shares in U.S.  The Subscriber acknowledges that the Convertible Notes, Underlying Securities and Warrant Shares may not be offered, sold or otherwise transferred to persons in the United States or to U.S. Persons and may not be exercised in the United States or by or on behalf of a U.S. Person and the Subscriber understands that certificates representing the Convertible Notes, Underlying Securities and Warrant Shares issued to it will so indicate.

(k)Ontario Subscriber.  If the Subscriber is a resident of Ontario, the Subscriber or its disclosed principal is an “accredited investor” within the meaning of Ontario Securities Commission Rule 45-501 – Exempt Distributions and falls within one or more of the sub-paragraphs of the definition of “Accredited Investor” set out in Appendix I to Schedule “E” hereto or is purchasing pursuant to paragraph (b) of Schedule E, and the Subscriber has concurrently executed and delivered to the Corporation a certificate in the form attached as Appendix I to Schedule “E” (the Subscriber having checked the applicable subparagraph(s)).

(l)Alberta or British Columbia Subscriber.  If the Subscriber is a resident of Alberta or British Columbia, the Subscriber or the disclosed principal for which it is acting, as the case may be, is an “accredited investor” as defined in Multilateral Instrument 45-103, by virtue of the fact that the Subscriber or such disclosed principal, as the case may be, falls within one or more of the subparagraphs of the definition of “accredited investor” set out in Schedule “F” hereto (the Subscriber having checked the applicable subparagraph(s)) or the Subscriber otherwise falls within one or more of the subparagraphs of the “Family, Friends and Business Associates Certificate” attached as Appendix I to Schedule “F” (the Subscriber having checked the applicable subparagraph(s)).

2.Reliance Upon Representations, Warranties and Covenants. The Subscriber acknowledges that the representations and warranties contained herein are made by the Subscriber with the intention that they may be relied upon by the Corporation in determining the Subscriber’s eligibility to purchase Convertible Notes under Applicable Securities Laws.  The Subscriber agrees that by accepting delivery of the Convertible

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Notes on the Closing Date, the Subscriber will be representing and warranting that the foregoing representations and warranties are true and correct as at the Closing Time with the same force and effect as if they had been made by the Subscriber at the Closing Time and that they will survive the purchase by the Subscriber of Convertible Notes and will continue in full force and effect notwithstanding any subsequent disposition by the Subscriber of such Convertible Notes.

3.Personal Information.  The Subscriber acknowledges and consents to the fact that the Corporation and the Agent are collecting the Subscriber’s personal information for the purpose of fulfilling this subscription agreement.  The subscriber further acknowledges and consents to the fact that the Corporation may be required by Applicable Securities Laws to provide the applicable regulatory authorities with any personal information provided by the Subscriber in accordance with and for the purposes required under Applicable Securities Laws.

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SCHEDULE “D”

THE TORONTO STOCK EXCHANGE

PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING

QUESTIONNAIRE

1.DESCRIPTION OF TRANSACTION

(a)Name of Issuer of the Securities:

ADB Systems International Ltd. (the “Issuer”)

(b)Number and Class of Securities to be Purchased:

$                           principal amount of convertible Notes of the Issuer (“Notes”).  The Notes are convertible, at the option of the holder, into units of securities of the Issuer, (“Units”) at conversion price of $0.31 (the “Conversion Price”). Each Unit will be comprised of one common share in the capital of the Corporation (a “Common Share”) and one-half of one Common Share purchase warrant (a “Warrant”).  Each whole Warrant will entitle the holder to acquire one Common Share at an exercise price of $0.50 per share, and will be exercisable at any time prior to the fourth anniversary of the Closing Date.  In the event that at any time from and after the first anniversary of the Closing Date the volume weighted average trading price of the Common Shares through its principal trading market for a 20 consecutive trading day period is $0.70 or more, all then outstanding Convertible Notes, including any accrued interest thereon, will be automatically converted into Units at the Conversion Price.

(c)Purchase Price: The Notes are being issued at par.

2.DETAILS OF PURCHASER

(a)Name of Purchaser:

(b)Address:

(c)Names and addresses of persons having a greater than 10% beneficial interest in the purchaser:

3.RELATIONSHIP TO ISSUER

(a)Is the purchaser (or any person named in response to 2(c) above) an insider of the Issuer for the purposes of the Securities Act (Ontario) (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider.

(b)If the answer to (a) is “no”, are the purchaser and the Issuer controlled by the same person or company? If so give details

4.DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER

Give details of all trading by the purchaser, as principal, in the securities of the Issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the 60 days preceding the date hereof.

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UNDERTAKING

TO:THE TORONTO STOCK EXCHANGE

The undersigned has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of this Private Placement Questionnaire and Undertaking.

The undersigned undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer, without the prior consent of the Toronto Stock Exchange and any other regulatory body having jurisdiction.

DATED at                                  this                 day of                                  , 2004.

(Name of Purchaser – please print)

(Authorized Signature)

(Official Capacity – please print)

(please print here name of individual whose signature appears above, if different from name of purchaser printed above)

SCHEDULE “E”

CERTIFICATES

ONTARIO RESIDENTS ONLY

Complete both of the two following certificates:

ONTARIO RESIDENT EXEMPTION CERTIFICATE

The Subscriber (on its own behalf and, if applicable, on behalf of each person on whose behalf the Subscriber is acting hereunder) represents, warrants and covenants to the Corporation and acknowledges that the Corporation, and its counsel, are relying thereon that: [Initial or place a checkmark in the box to the left of each applicable item; choose only one of item (a) or (b) below and choose only one sub item in (a) or (b)]:

o	(a)	the Subscriber is resident in Ontario and falls within one or more of the categories described in the sub-paragraphs of the definition of “accredited investor” as such term is defined in Ontario Securities Commission Rule 45-501 (“Rule 45-501”) and has completed the Ontario Accredited Investor Certificate attached hereto as Appendix I, and:
	o	(i)	if purchasing the securities as principal, the Subscriber is an “accredited investor” (as such term is defined in Rule 45-501), is purchasing the securities as principal for its own account and not for the benefit of any other person, it is purchasing for investment only and not with a view to resale or distribution and no other person, corporation, firm or other organization has a beneficial interest in the said securities being purchased; or
	o	(ii)	if purchasing the securities as agent for a principal disclosed on the cover page of this subscription agreement, the Subscriber is an agent or trustee of such disclosed principal and such disclosed principal for whom the Subscriber is acting is an “accredited investor”, is purchasing the securities as principal for its own account and not for the benefit of any other person, and is purchasing for investment only and not with a view to resale or distribution and no other person, corporation, firm or other organization has a beneficial interest in the said securities being purchased; OR
o	(b)	the Subscriber is resident in Ontario and is purchasing the securities for a principal or principals which is or are undisclosed or identified by account number only and the Subscriber is:
	o	(i)	a portfolio adviser (as such term is defined in Rule 45-501) and is purchasing the securities for one or more managed accounts (as defined in Rule 45-501); or
	o	(ii)	a trust corporation registered under the Loan and Trust Corporations Act (Ontario) or under the Trust and Loan Companies Act (Canada) or under comparable legislation in any jurisdiction and is purchasing the securities for an account that is fully managed by such trust company.

APPENDIX I
ONTARIO ACCREDITED INVESTOR CERTIFICATE

The Subscriber hereby represents, warrants and certifies to Corporation that the Subscriber (or its disclosed principal) is an “accredited investor” as defined in Rule 45-501 by virtue of being: [check appropriate boxes]

Accredited Investors

o	(a)	a bank listed in Schedule I or II of the Bank Act (Canada), or an authorized foreign bank listed in Schedule III of the Bank Act (Canada);
o	(b)	the Business Development Bank incorporated under the Business Development Bank Act (Canada);
o	(c)	a loan corporation or trust corporation registered under the Loan and Trust Corporations Act (Ontario) or under the Trust and Loan Corporations Act (Canada), or under comparable legislation in any other jurisdiction;
o	(d)	a co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case, located in Canada;
o	(e)	a company licensed to do business as an insurance company in any jurisdiction of Canada;
o	(f)	a subsidiary of any company referred to in paragraph (a), (b), (c), (d) or (e), where the company owns all of the voting shares of the subsidiary;
o	(g)	a person or company registered under the Securities Act (Ontario) or securities legislation in another jurisdiction of Canada as an adviser or dealer, other than a limited market dealer;
o	(h)	the government of Canada or of any jurisdiction, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government;
o	(i)	any Canadian municipality or any Canadian provincial or territorial capital city;
o	(j)	any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any instrumentality or agency thereof;
o	(k)	a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority;
o	(l)	a registered charity under the Income Tax Act (Canada);
o	(m)	an individual who beneficially owns, or who together with a spouse beneficially own, financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000;
o	(n)	an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year;
o	(o)	an individual who has been granted registration under the Securities Act (Ontario) or securities legislation in another jurisdiction of Canada as a representative of a person or company referred to in paragraph (g), whether or not the individual’s registration is still in effect;

E-2

o	(p)	a promoter of the Corporation or an affiliated entity of a promoter of the Corporation;
o	(q)	a spouse, parent, brother, sister, grandparent or child of an officer, director or promoter of the Corporation;
o	(r)	a person or company that, in relation to the Corporation, is an affiliated entity or a person or company referred to in clause (c) of the definition of distribution in subsection 1(1) of the Securities Act (Ontario);
o	(s)	a company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as reflected in its most recently prepared financial statements;
o	(t)	a person or company that is recognized by the Ontario Securities Commission as an accredited investor, pursuant to a discretionary order of the Ontario Securities Commission;
o	(u)	a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities only to persons or companies that are accredited investors;
o	(v)	a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities under a prospectus for which a receipt has been granted by the Director as defined in the Securities Act (Ontario) or, if it has ceased distribution of its securities, has previously distributed securities in this manner;
o	(w)	a fully managed account if it is acquiring a security that is not a security of a mutual fund or non-redeemable investment fund;
o	(x)	an account that is fully managed by a trust corporation registered under the Loan and Trust Corporations Act (Ontario) or under the Loan and Trust Companies Act (Canada) or under comparable legislation in any other jurisdiction;
o	(y)	an entity organized outside of Canada that is analogous to any of the entities referred to in paragraphs (a) through (g) and paragraph (k) in form and function; or
o	(z)	a person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons or companies that are accredited investors.

For the purposes hereof, the following terms shall have the following meanings:

“company” means any corporation, incorporated association, incorporated syndicate or other incorporated organization.

“control person” means any person, company or combination of persons or companies holding a sufficient number of any securities of the Corporation to affect materially the control of the Corporation, but any holding of any persons, company or combination of persons or companies holding more than 20 per cent of the outstanding voting securities of the Corporation, in the absence of evidence to the contrary, shall be deemed to affect materially the control of the Corporation.

“director” where used in relation to a person, includes a person acting in a capacity similar to that of a director of a company.

“entity” means a company, syndicate, partnership, trust or unincorporated organization.

“financial assets” means cash, securities, or any contract of insurance or deposit or evidence thereof that is not a security for the purposes of the Securities Act (Ontario).

E-3

“fully managed account” means an investment portfolio account of a client established in writing with a portfolio adviser who makes investment decisions for the account and has full discretion to trade in securities of the account without requiring the client’s express consent to a transaction.

“individual” means a natural person, but does not include a partnership, unincorporated association, unincorporated organization, trust or a natural person in his or her capacity as trustee, executor, administrator or other legal personal representative.

“mutual fund” includes an issuer whose primary purpose is to invest money provided by its security holders and whose securities entitle the holder to receive on demand, or within a specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets, including a separate fund or trust account, of the issuer of the securities.

“non-redeemable investment fund” means an issuer

(a)whose primary purpose is to invest money provided by its securityholders;

(b)that does not invest for the purpose of exercising effective control, seeking to exercise effective control, or being actively involved in the management of the issuers in which it invests, other than other mutual funds or non-redeemable investment funds; and

(c)is not a mutual fund.

“officer” means the chair, any vice-chair of the board of directors, the president, any vice-president, the secretary, the assistant secretary, the treasurer, the assistant treasurer, and the general manager of a company, and any other person designated an officer or a company by by-law or similar authority, or any individual acting in a similar capacity on behalf of the Corporation.

“person” means an individual, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, trustee, executor, administrator, or other legal representative.

“portfolio adviser” means (a) a portfolio manager; or (b) a broker or investment dealer exempted from registration as an adviser under subsection 148(1) of the Regulation to the Securities Act (Ontario) if that broker or investment dealer is not exempt from the by-laws or regulations of the Toronto Stock Exchange or the Investment Dealers’ Association of Canada referred to in that subsection.

“promoter” means (a) a person or company who, acting alone or in conjunction with one or more other persons, companies or a combination thereof, directly or indirectly, has taken the initiative in founding, organizing or substantially reorganizing the business of the Corporation, or (b) a person or company who, in connection with the founding, organizing or substantial reorganizing of the business of the Corporation, directly or indirectly, received in consideration of services or property, or both services and property, 10 per cent or more of any class of securities of the Corporation or 10 percent or more of the proceeds from the sale of any class of securities of a particular issue, but a person or company who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this definition if such person or company does not otherwise take part in founding, organizing, or substantially reorganizing the business.

“related liabilities” means liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets and liabilities that are secured by financial assets.

“spouse”, in relation to an individual, means another individual to whom that individual is married, or another individual of the opposite sex or the same sex with whom that individual is living in a conjugal relationship outside marriage.

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For the purposes of the foregoing:

(a)a person or company is considered to be an affiliated entity of another person or company if one is a subsidiary entity of the other, or if both are subsidiary entities of the same person or company, or if each of them is controlled by the same person or company.

(b)a person or company is considered to be controlled by a person or company if

(i)in the case of a person or company,

(A)voting securities of the first mentioned person or company carrying more than 50 percent of the votes for the election of directors are held, otherwise than by way of security only, by or for the benefit of the other person or company, and

(B)the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;

(ii)in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50 percent of the interests in the partnership; or

(iii)in the case of a limited partnership, the general partner is the second-mentioned person or company; and

(c)a person or company is considered to be a subsidiary entity of another person or company if

(i)it is controlled by,

(A)that other, or

(B)that other and one or more persons or companies each of which is controlled by that other, or

(C)two or more persons or companies, each of which is controlled by that other; or

(d)it is a subsidiary entity of a person or company that is the other’s subsidiary entity.

The foregoing representations contained in this certificate are true and accurate as of the date hereof and will be true and accurate as of the Closing Date. If any such representations shall not be true and accurate prior to the Closing Date, the Subscriber shall give immediate notice to the Corporation.

E-5

EXECUTED by the Subscriber at                                        this                day of                                 , 2004.

If a corporation, partnership or other entity:	If an individual:
(Print Name of Subscriber)	(Print Name)
(Signature of Authorized Signatory)	(Signature)
(Name and Position of Authorized Signatory)	(Jurisdiction of Residence)
(Jurisdiction of Residence)	(Print Name of Witness)
	(Signature of Witness)

E-6

SCHEDULE “F”

CERTIFICATE

ALBERTA AND BRITISH COLUMBIA RESIDENTS ONLY

Complete one of the two following certificates (as applicable):

ACCREDITED INVESTOR CERTIFICATE

If the Subscriber is a resident of, or the purchase and sale of securities to the Subscriber is otherwise subject to the securities legislation of, Alberta or British Columbia, the Subscriber hereby represents, warrants and certifies to the Corporation that the Subscriber (and, if applicable, any disclosed principal for whom it is acting) is an “accredited investor” as defined in Section 1.1 of Multilateral Instrument 45-103 (Capital Raising Exemptions), by virtue of being:

[Check appropriate item]

o	(a)	a Canadian financial institution, or an authorized foreign bank listed in Schedule III of the Bank Act (Canada);
o	(b)	the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada);
o	(c)	an association under the Cooperative Credit Associations Act (Canada) located in Canada or a central cooperative credit society for which an order has been made under subsection 473(1) of that Act;
o	(d)	a subsidiary of any person or company referred to in paragraphs (a) to (c), if the person or company owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;
o	(e)	a person or company registered under the securities legislation of a jurisdiction of Canada, as an adviser or dealer, other than a limited market dealer registered under the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador);
o	(f)	an individual registered or formerly registered under the securities legislation of a jurisdiction of Canada, as a representative of a person or company referred to in paragraph (e);
o	(g)	the government of Canada or a jurisdiction of Canada, or any crown corporation, agency or wholly owned entity of the government of Canada or a jurisdiction of Canada;
o	(h)	a municipality, public board or commission in Canada;
o	(i)	any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government;
o	(j)	a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a pension commission or similar regulatory authority of a jurisdiction of Canada;
o	(k)	an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000;

o	(l)	an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent years and who, in either case, reasonably expects to exceed that net income level in the current year;
o	(m)	a person or company, other than a mutual fund or non-redeemable investment fund, that, either alone or with a spouse, has net assets of at least $5,000,000, and unless the person or company is an individual, that amount is shown on its most recently prepared financial statements;
o	(n)	a mutual fund or non-redeemable investment fund that, in the local jurisdiction, distributes its securities only to persons or companies that are accredited investors;
o	(o)	a mutual fund or non-redeemable investment fund that, in the local jurisdiction, is distributing or has distributed its securities under one or more prospectuses for which the regulator has issued receipts;
o	(p)	a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, trading as a trustee or agent on behalf of a fully managed account;
o	(q)	a person or company trading as agent on behalf of a fully managed account if that person or company is registered or authorized to carry on business under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction as a portfolio manager or under an equivalent category of adviser or is exempt from registration as a portfolio manager or the equivalent category or adviser;
o	(r)	a registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility adviser or other adviser registered to provide advice on the securities being traded;
o	(s)	an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) through (e) and paragraph (j) in form and function; or
o	(t)	a person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, except the voting securities required by law to be owned by directors, are persons or companies that are accredited investors.

As used in this certificate, the following terms have the following meanings:

“eligibility adviser” means an investment dealer equivalent category of registration, registered under the securities legislation of the jurisdiction of a purchaser and authorized to give advice with respect to the type of security being distributed;

“financial assets” means cash and securities;

“fully managed account”  means an account for which a person or company makes investment decisions if that person or company has full discretion to trade in securities for the account without requiring the client’s express consent to a transaction;

“non-redeemable investment fund” means an issuer

(a) where contributions of security holders are pooled for investment,

(b) where security holders do not have day-to-day control over the management and investment decisions of the issuer, whether or not they have the right to be consulted or to give directions, and

F-2

(c) whose securities do not entitle the security holder to receive on demand, or within a specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in part of the net assets of the issuer; and

“related liabilities” means: (a) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets, or (b) liabilities that are secured by financial assets.

F-3

APPENDIX I

FAMILY, FRIENDS AND BUSINESS ASSOCIATES CERTIFICATE

If the Subscriber is a resident of, or the purchase and sale of securities to the Subscriber is otherwise subject to the securities legislation of Alberta or British Columbia, the Subscriber hereby represents, warrants and certifies to the Corporation that the Subscriber (and, if applicable, any disclosed principal for whom it is acting) is either:

[Check appropriate item]

o	(a)	a director, senior officer or control person of the Corporation, or of an affiliate of the Corporation; or
o	(b)	a spouse, parent, grandparent, brother, sister or child of a director, senior officer or control person of the Corporation, or of an affiliate of the Corporation; or
o	(c)	a parent, grandparent, brother, sister or child of a director, senior officer or control person of the Corporation, or of an affiliate of the Corporation; or
o	(d)	a close business associate of a director, senior officer or control person of the Corporation, or of an affiliate of the Corporation; or
o	(e)	a close personal friend of a director, senior officer or control person of the Corporation, or of an affiliate of the Corporation; or
o	(f)	a founder of the Corporation or a spouse, parent, grandparent, brother, sister, child, close personal friend or close business associate of a founder of the Corporation; or
o	(g)	a parent, grandparent, brother, sister or child of the spouse of a founder of the Corporation; or
o	(h)	a person or company of which a majority of the voting securities are beneficially owned by, as a majority of the directors are, persons or companies described in sections (a) to (g); or
o	(i)	a trust or estate of which all of the beneficiaries or a majority of the trustees are persons or companies described in paragraphs (a) to (g).

As used in this certificate, the following terms have the following meanings:

A “close personal friend” is an individual who has known a director, senior officer or control person of the Corporation for a sufficient period of time to be in a position to assess the capabilities and trustworthiness of the director, senior officer or control person.  An individual is not a close personal friend solely because the individual is a member of the same organization, association or religious group.  An individual is not a close personal friend solely because the individual is a client, customer or former client or customer (e.g. an individual is not a close personal friend of a registrant or former registrant simply because the individual is a client or former client of that registrant or former registrant).  The relationship between the subscriber and the director, senior officer or control person of the Corporation must be direct (e.g. the exemption is not available for a close personal friend of a close personal friend of the director, senior officer or control person of the Corporation); and

A “close business associate” is an individual who has had sufficient prior business dealings with a director, senior officer or control person of the Corporation to be in a position to assess the capabilities and trustworthiness of the director, senior officer or control person.  A casual business associate or a person introduced or solicited for the purpose of purchasing securities is not a close business associate.  An individual is not a close business associate solely because the individual is a client, customer or former client or customer (e.g. an individual is not a close business associate of a registrant or former registrant simply because the individual is a client or former client of that registrant or former registrant).  The relationship between the subscriber and the director, senior officer or control

F-4

person of the Corporation must be direct (e.g. the exemption is not available for a close business associate of a close business associate of the director, senior officer or control person of the Corporation ).

A “founder”, in respect of the Corporation, means a person or company who,

(a) acting alone, in conjunction or in concert with one or more other persons or companies, directly or indirectly, takes the initiative in founding, organizing or substaintially reorganizing the business of the Corporation, and

(b) at the time of the proposed trade, is actively involved in the business of the Corporation.

F-5

The foregoing representations contained in this certificate are true and accurate as of the date hereof and will be true and accurate as of the Closing Date. If any such representations shall not be true and accurate prior to the Closing Date, the Subscriber shall give immediate notice to the Corporation.

EXECUTED by the Subscriber at                                       this                    day of                                   , 2004.

If a corporation, partnership or other entity:	If an individual:
(Print Name of Subscriber)	(Print Name)
(Signature of Authorized Signatory)	(Signature)
(Name and Position of Authorized Signatory)	(Jurisdiction of Residence)
(Jurisdiction of Residence)	(Print Name of Witness)
	(Signature of Witness)

F-6

SCHEDULE “G”

OFFSHORE SUBSCRIBER CERTIFICATE

NON-CANADIAN SUBSCRIBERS

(OTHER THAN U.S SUBSCRIBERS)

We, on our own behalf and (if applicable) on behalf of others for whom we are contracting hereunder, represent, warrant, covenant and certify to and with the Corporation and the Agent (and acknowledge that the Corporation and the Agent are relying thereon) that we are, and (if applicable) any beneficial subscriber for whom we are contracting hereunder is, a resident of, or otherwise subject to, the securities legislation of a jurisdiction other than Canada or the United States, and:

(a)we are, and (if applicable) any other subscriber for whom we are contracting hereunder, is:

(i)subscriber that is recognized by the securities regulatory authority in the jurisdiction in which we are, and (if applicable) any other subscriber for whom we are contracting hereunder is resident or otherwise subject to the securities laws of such jurisdiction, as an exempt subscriber and are purchasing the Convertible Notes as principal for our, or (if applicable) each such other subscriber’s, own account, and not for the benefit of any other person, for investment only and not with a view to resale or distribution; or

(ii)a subscriber which is purchasing Convertible Notes pursuant to an exemption from any prospectus or securities registration requirements (particulars of which are enclosed herewith) available to the Corporation, the Agent, us and any such other subscriber under Applicable Securities Laws of our jurisdiction of residence or to which we and any such other subscriber are otherwise subject to, and we and any such other subscriber shall deliver to the Corporation and the Agent such further particulars of the exemption and our qualification thereunder as the Corporation or the Agent may reasonably request;

(b)the purchase of Convertible Notes by us, and (if applicable) each such other subscriber, does not contravene any of the Applicable Securities Laws in such jurisdiction and does not trigger: (i) any obligation to prepare and file a prospectus, an offering memorandum or similar document, or any other ongoing reporting requirements with respect to such purchase or otherwise; or (ii) any registration or other obligation on the part of the Corporation or the Agent; and

we, and (if applicable) any other subscriber for whom we are contracting hereunder will not sell or otherwise dispose of any Convertible Notes, Underlying Securities or Warrant Shares, except in accordance with applicable Canadian securities laws and in accordance with the rules and regulations of the TSX, and if we, or (if applicable) such beneficial subscriber sell or otherwise dispose of any Convertible Notes, Underlying Securities or Warrant Shares to a person other than a resident of Canada, we, and (if applicable) such beneficial subscriber, will obtain from such subscriber representations, warranties and covenants in the same form as provided in this Schedule “E” or “F” and shall comply with such other requirements as the Corporation may reasonably require.

Dated at                                      this                  day of                                       , 2004.

(Signature of Subscriber)

(Print Name)

EX-4.19

Exhibit 4.19

SUBSCRIPTION AGREEMENT

(for U.S. Subscribers)

A completed and originally executed copy of this subscription agreement must be delivered or transmitted by telecopier
((416) 869-9151) by no later than 12:00 noon (Toronto time) on June 1, 2004 to First Associates Investments Inc. (Attention:Jennifer Li).

TO:	ADB Systems International Ltd. (the “Corporation”)
AND:	First Associates Investments Inc.
RE:	Sale of Convertible Notes of the Corporation entitling the holders to acquire units of securities of the Corporation upon conversion, each unit comprised of one common share in the capital of the Corporation and one-half of one Common Share purchase warrant.

Details of Subscription

The undersigned (the “Subscriber”) hereby irrevocably subscribes, subject to the terms and conditions set forth in this subscription agreement, for convertible notes (“Convertible Notes”) of the Corporation with the following specific purchase instructions.  The particulars of the Convertible Notes and the securities issuable upon conversion of the Convertible Notes (together with certain other material covenants and acknowledgements) are set out in Schedules “A” and “B” to this subscription agreement and certain representations and warranties to be made by the Subscriber so that the Corporation can ensure compliance with applicable securities laws are set out in Schedule “C” to this subscription agreement, all of which forms part of and is hereby incorporated as part of this subscription agreement.

All Subscribers:

Complete and sign Schedule “D” to this agreement, being the form of questionnaire and undertaking required by the Toronto Stock Exchange

U.S. Subscribers:

Complete and sign the U.S. Accredited Investor Certificate – Schedule “E”.

Principal Amount of Convertible Notes
Subscribed for (to be issued at par):	$
Name and Address of Subscriber:	Name:
		(please print)
	Address:
		(Street Address)
		(City and Province)
		(Postal Code)

Alternate Registration Instructions (other than in the name of the Subscriber):

Name:
	(please print)
Address:
	(Street Address)
	(City and Province)
	(Postal Code)

Disclosed Principal (please complete if purchasing as agent or trustee for a disclosed principal):

Name of Principal:
	(please print)
Principal’s Address:
	(Street Address)
	(City and Province)
	(Postal Code)

Delivery Instructions:  The name and address (including contact name and telephone number) of the person to whom the certificate representing the Convertible Notes is to be delivered, if other than the Subscriber:

Name:
Contact Name:
Telephone No:
Address:
	(Street Address)
	(City and Province)
	(Postal Code)

The Subscriber acknowledges its consent and request that this subscription agreement (including all schedules hereto) and all other documents evidencing or relating in any way to its purchase of Convertible Notes be drawn up in the English language only.  Nous reconnaissons par les présentes avoir consenti et demandé à ce que la présente convention de souscription (et les annexes s’y rapportant) et tous les autres documents faisant foi ou se rapportant de quelque manière à notre souscription soient rédigés en anglais seulement.

IN WITNESS WHEREOF the Subscriber has executed, or caused its duly authorized representative to execute, this subscription agreement on this             day of                                  , 2004.

Signature of Subscriber (if an individual)		Name of Subscriber (if an individual)
	Per:
Name of Subscriber (if an individual)		(signature of authorized representative)
		Name and Title of Authorized Representative

ACCEPTANCE

The foregoing is acknowledged, accepted and agreed to this                 day of                                  , 2004.

ADB SYSTEMS INTERNATIONAL LTD.

Per:

SCHEDULE “A”

This is Schedule “A” to the subscription agreement relating to the purchase of Convertible Notes of ADB Systems International Ltd.

TERMS OF THE OFFERING

1.             Offering.  The Convertible Notes subscribed for hereunder form part of a larger sale by the Corporation (the “Offering”) pursuant to an agency agreement (the “Agency Agreement”) to be entered into between the Corporation and First Associates Investments Inc. (the “Agent”) of a maximum of $5,000,000 principal amount of Convertible Notes. In addition to the Offering, it is contemplated that prior to the Closing Date (as defined below) the Corporation will be issuing up to $500,000 principal amount of Convertible Notes to one investor, with such Convertible Notes to be the same as the Convertible Notes under the Offering, except that they will also provide security by way of an express assignment of insurance proceeds rights.

The Convertible Notes will bear interest at an annual rate of 7% of the principal amount of the Convertible Notes outstanding from time to time, payable quarterly in arrears on each date that is the three month anniversary of the Closing Date (as defined below) up to and including the third anniversary of the Closing Date (the “Maturity Date”).  At any time up to and including the Maturity Date, all or any portion of the principal amount of the Convertible Notes outstanding from time to time will be convertible, at the option of the holder, provided that the holder complies with the notice provision therefor, into units of securities of the Corporation (“Units”) at a conversion price of $0.31 per Unit (the “Conversion Price”), subject to adjustments for stock splits, consolidations, other capital reorganizations, extraordinary dividends or distributions.

Each Unit will consist of one common share in the capital of the Corporation (a “Common Share”) and one-half of one Common Share purchase warrant (a “Warrant”).  Each whole Warrant will entitle the holder to acquire one Common Share at an exercise price of $0.50 per share, and will be exercisable at any time prior to the fourth anniversary of the Closing Date.

In the event that at any time from and after the first anniversary of the Closing Date the volume weighted average trading price of the Common Shares through its principal trading market for a 20 consecutive trading day period is $0.70 or more, all then outstanding Convertible Notes, including any accrued interest thereon, will be automatically converted into Units at the Conversion Price.

The material terms of the Offering, the Convertible Notes and the Underlying Securities (as hereinafter defined) are set out in this schedule and in Schedule “B” to this subscription agreement.

The foregoing description of the Convertible Notes is a summary only and the Subscriber acknowledges that the definitive terms and conditions of the Convertible Notes sold under the Offering will be set forth in the Note Certificates (as hereinafter defined).

2.             Definitions.  In this subscription agreement and the schedules to this subscription agreement the defined terms set out in the first page of this subscription agreement or as set out in Section 1 above shall apply and, unless the context otherwise requires:

“1933 Act” means the Securities Act of 1933, as amended, of the United States of America;

“Applicable Securities Laws” means the applicable securities laws of the Province of Ontario and each other relevant jurisdiction and the regulations and rules made and forms prescribed thereunder, together with all applicable instruments, published policy statements, blanket orders, notices, rulings and rules of the Ontario Securities Commission and each other securities regulatory authority having competent jurisdiction;

“Business Day” means a day other than a Saturday, Sunday or statutory or banking holiday in Toronto, Ontario;

“Closing Date” means on or about June 8, 2004, or such other date or dates as the Agent may designate;

“Closing Time” means 10:00 a.m. (Toronto time) on the Closing Date, or such other time on the Closing Date as the Agent may designate;

“Corporation’s Information Record” means any statement contained in any press release, material change report, financial statements or other document of the Corporation which has been or is publicly disseminated, whether pursuant to any Applicable Securities Laws or otherwise, prior to the Closing Time;

“including” means including without limitation;

“material” means material in relation to the Corporation;

“material change” means any change in the business, operations, assets, liabilities, ownership or capital of the Corporation, on a consolidated basis, that would reasonably be expected to have a significant effect on the market price or value of the Common Shares and includes a decision to implement such a change made by the board of directors of the Corporation or by senior management of the Corporation who believe that confirmation of the decision by the board of directors is probable;

“material fact” means any fact that significantly affects or would reasonably be expected to have a significant effect on the market price or value of the Common Shares;

“Material Subsidiaries” means the material direct or indirect subsidiaries of the Corporation, being, ADB Systemer ASA (Norway), ADB Systems USA, Inc. (Delaware), ADB Systems International Limited (Ireland) and Internet Liquidators USA, Inc.;

“misrepresentation” means an untrue statement of material fact, or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made;

“Note Certificates” means the definitive certificates representing the Convertible Notes;

“Purchasers” means those persons who subscribe for Convertible Notes under the Offering, including the Subscriber;

“Regulation S” means Regulation S promulgated under the 1933 Act;

“TSX” means the Toronto Stock Exchange;

“Underlying Securities” means the Common Shares and Warrants comprising the Units issuable upon the exercise of the conversion rights under the Convertible Notes;

“United States” means the United States as that term is defined in Regulation S, its territories and possessions, any state of the United States and the District of Columbia;

“U.S. Person” means a U.S. Person as that term is defined in Regulation S and, without limiting the foregoing but for greater clarity, a U.S. Person includes any natural person resident in the United States, any partnership or corporation organized or incorporated under the laws of the United States, and any estate or trust of which an executor, administrator or trustee is a U.S. Person; and

“Warrants Shares” means the Common Shares issuable upon exercise of the Warrants.

3.             Currency.  Unless otherwise stated, all dollar amounts referred to in this subscription agreement and the schedules thereto are expressed in Canadian funds.

A-2

4.             Representations and Warranties of the Corporation.  The Corporation hereby represents and warrants for the benefit of the Purchasers as follows:

(a)         the Corporation is (and will be at the Closing Time) a reporting issuer in the Provinces of Ontario, Alberta and British Columbia, and is in compliance with all material obligations under Applicable Securities Laws of such jurisdictions;

(b)        the Corporation has been duly incorporated and organized and is validly subsisting under the laws of the Province of Ontario and has all requisite corporate power and authority to own its assets and to carry on its business as currently conducted;

(c)         each of the Material Subsidiaries has been duly incorporated and organized and is validly subsisting under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets;

(d)        the Corporation and each of the Material Subsidiaries is conducting its business in material compliance with all applicable laws, rules and regulations of each jurisdiction in which its business is carried on and is duly licensed, registered or qualified in all jurisdictions in which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated and all such licences, registrations and qualifications are and will at the Closing Time be valid, subsisting and in good standing, except in respect of matters which do not and will not result in any adverse material change in respect of the Corporation, and except for the failure to be so qualified or the absence of any such license, registration or qualification which does not and will not have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Corporation and its subsidiaries, on a consolidated basis;

(e)         the Corporation has all required corporate power and authority to enter into and carry out the provisions of this subscription agreement and the transactions contemplated thereby and all necessary corporate action has been taken or will have been taken prior to the Closing Time by the Corporation to duly authorize the execution and delivery of this subscription agreement and such other agreements and instruments and the consummation of the transactions contemplated thereby and so as to validly create, issue and deliver the Convertible Notes subscribed for thereby and to validly create and irrevocably allot for the issuance of the Underlying Securities and Warrant Shares;

(f)         neither the Corporation nor any of its Material Subsidiaries is in default or in breach in any material respect of, and the execution and delivery of this subscription agreement by the Corporation, the performance and compliance with the terms of this subscription agreement, the issue and sale of the Convertible Notes, and the issue of the Underlying Securities and Warrant Shares will not result in any breach of, or be in conflict with or constitute a default under, or create a state of facts which, after notice or lapse of time, or both, would constitute a default either directly or indirectly under any term or provision of the constating documents, by-laws or resolutions of the Corporation or any of the Material Subsidiaries or any material mortgage, note, indenture, contract, agreement, instrument, lease or other document to which any of them is a party or by which any of them is bound;

(g)        the Common Shares issuable upon exercise of the conversion rights under its Convertible Notes and the Warrant Shares, if and when issued in accordance with the Convertible Notes and Warrants, as applicable, will be validly issued and outstanding as fully paid and non-assessable;

(h)        no approval, authorization, consent or other order of, and no filing, registration or recording with, any governmental authority is required by the Corporation in connection with the execution and delivery or with the performance by the Corporation of this subscription agreement except in compliance with and the rules of the TSX;

(i)          to the best of the Corporation’s knowledge, information and belief, no portion of the Corporation’s Information Record contained a misrepresentation as at its date of public dissemination;

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(j)          there has been no adverse material change in relation to the Corporation since December 31, 2003, and no adverse material fact exists in relation to the Corporation or its securities which, in either case, has not been generally disclosed or disclosed in the Corporation’s Information Record;

(k)         this subscription agreement and all other agreements required in connection with the issue and sale of the Convertible Notes have been or will be, at or prior to the Closing Time, duly authorized, executed and delivered by the Corporation and will be valid and binding obligations of the Corporation enforceable in accordance with their respective terms (except as the enforceability thereof may be limited by (i) bankruptcy, insolvency or similar laws affecting creditors’ rights generally, (ii) general equitable principles or (iii) limitations under applicable law in respect of rights of indemnity, contribution and waiver of contribution); and

(l)          the Corporation intends that the net proceeds of the Offering will be used substantially in the manner specified in Schedule “B” hereto.

5.             Reliance upon Representations, Warranties and Covenants of the Corporation.  The Corporation further agrees that, by delivering the Convertible Notes to the Subscriber, the Corporation will be representing and warranting that the representations, warranties and covenants contained in this subscription agreement and the schedules attached thereto are true as at the Closing Time with the same force and effect as if they had been made by the Corporation at the Closing Time and that they will survive the purchase by the Subscriber of the Convertible Notes and continue in full force and effect for a period of two (2) years following the Closing Date notwithstanding any subsequent disposition by the Subscriber of the Convertible Notes or the Underlying Securities.

6.             Closing of Purchase.  The Subscriber acknowledges and agrees that delivery of and payment for the Convertible Notes will be completed at the offices of the Corporation’s legal counsel at 10:00 a.m. (Toronto time) on the Closing Date which will be on or about June 8, 2004, or such earlier or later date or time as may be determined by the Agent.

7.             Payment and Delivery.  The Subscriber agrees to deliver to the Agent at 181 Bay Street, Suite 900, Toronto, Ontario M5J 2T3 (Attention: Jennifer Li), (fax number: (416) 864-9151), prior to the Closing Time:

(a)         his or her duly completed and executed subscription agreement (including Schedule “D” and Schedule ”E”);

(b)        a certified cheque or bank draft payable to “First Associates Investments Inc.”, or wire transfer in Canadian funds to the Agent for the principal amount of Convertible Notes subscribed for under this subscription agreement or payment of the same amount in such other manner as is acceptable to the Agent; and

(c)         such other documents as may be required pursuant to the terms of this subscription agreement.

8.             Conditions of Closing.  If, by the Closing Time, the terms and conditions contained in this subscription agreement have been complied with to the satisfaction of the Corporation or waived by the Corporation, the Agent shall deliver to the Corporation all completed subscription agreements, including this subscription agreement, and deliver to the Corporation all certified cheques or bank drafts representing subscription funds, including the Subscriber’s subscription funds against delivery by the Corporation of the Note Certificates and such other documentation as may be required.  This subscription is subject to acceptance by the Corporation (as described below).  Unless other arrangements have been made with the Agent, certificates endorsed by the Corporation representing Convertible Notes will be available for delivery to the Subscriber in Toronto, Ontario at the Closing Time against payment of the aggregate purchase price for the Convertible Notes.  The Agent will deliver such certificates to the address set out for delivery on page 2 of this subscription agreement promptly after the closing of the Offering.

9.             Acceptance or Rejection.  The Corporation will have the right to accept or reject (in whole or in part) this subscription at any time at or prior to the Closing Time, and the right is reserved to the Corporation to allot to any

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subscriber less than the principal amount of Convertible Notes subscribed for.  The Subscriber acknowledges and agrees that the acceptance of this subscription agreement will be conditional upon the sale of the Convertible Notes to the Subscriber being exempt from any prospectus and registration requirements of Applicable Securities Laws.  The Corporation will be deemed to have accepted this subscription agreement upon the delivery at closing of the Note Certificate referred to in Section 8 above in accordance with the provisions hereof.

10.           Resale Restrictions.  The Subscriber understands and acknowledges that the Convertible Notes and in certain circumstances the Underlying Securities and Warrant Shares will be subject to certain resale restrictions under Applicable Securities Laws and the Subscriber agrees to comply with such restrictions.  Subscribers are advised to consult their own legal advisors in this regard. The Subscriber also acknowledges that it has been advised to consult its own legal advisors with respect to applicable resale restrictions and that it is solely responsible for complying with such restrictions (and neither the Corporation nor the Agent is in any manner responsible for ensuring compliance by the Subscriber with such restrictions).

11.           Legend.  The Subscriber acknowledges that the following legend is to be placed on the Note Certificate (and the certificates evidencing Underlying Securities and Warrants Shares, if issued during the four month period referred to in such legend) being acquired:

“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE                     ” (four months and one day from the Closing Date.)

12.           No Revocation.  The Subscriber agrees that this offer is made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by the Subscriber.

13.           Indemnity.  The Subscriber agrees to indemnify and hold harmless the Corporation and the Agent and their respective directors, officers, employees, agents, advisers and shareholders from and against any and all loss, liability, claim, damage and expense whatsoever (including, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation, warranty or covenant of the Subscriber contained herein or in any document furnished by the Subscriber to the Corporation or the Agent in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or in any document furnished by the Subscriber to the Corporation or the Agents in connection herewith.

14.           Modification.  Neither this subscription agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

15.           Compensation, Expenses and Reimbursement Entitlements of Agent.  The Subscriber understands that, in connection with the Offering, the Agent will receive from the Corporation (i) aggregate commissions equal to 8% of the gross proceeds of the Offering; and (ii) subject to the terms of the Agency Agreement, reimbursement for the Agent’s reasonable out-of-pocket expenses and the reasonable fees and disbursements of its legal counsel incurred in connection with the Offering.

The Subscriber further understands that as additional compensation for its services in connection with the Offering, the Agent will receive an option, exercisable until the second anniversary of the Closing Date, to purchase that number of Units as is equal to 10% of the Units issuable upon full conversion of the Convertible Notes sold under the Offering, at an exercise price equal to the Conversion Price.

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16.           Miscellaneous.

(a)         The agreement resulting from the acceptance of this subscription agreement by the Corporation contains the whole agreement between the parties hereto in respect of the subject matter hereof and there are no warranties, representations, terms, conditions or collateral agreements, express, implied or statutory, other than as expressly set forth herein and in any amendments hereto.

(b)        All representations, warranties, agreements and covenants made or deemed to be made by the Subscriber in this subscription agreement and the schedules thereto will survive the execution and delivery, and acceptance, of this subscription agreement and the closing of the Offering.

(c)         Time shall be of the essence of this subscription agreement.

(d)        This subscription agreement and the rights and obligations of the parties thereunder will be governed by and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein.

(e)         This subscription agreement may be executed in any number of counterparts, each of which when delivered, either in original or facsimile form, shall be deemed to be an original and all of which together shall constitute one and the same document.

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SCHEDULE “B”

This is Schedule “B” to the subscription agreement relating to the purchase of Convertible Notes of ADB Systems International Ltd. (the “Corporation”). Capitalized terms used but not defined in this schedule are intended to have the meanings ascribed thereto, as applicable, on the first page of this subscription agreement and sections 1 and 2 of Schedule “A” to this subscription agreement

ADB SYSTEMS INTERNATIONAL LTD.

Summary of Proposed Terms

Offering of Convertible Notes

by way of Private Placement

Issuer:	ADB Systems International Ltd.
Issue:	Up to $5,000,000 principal amount of Convertible Notes, to be issued by way of private placement exemptions from prospectus and registration requirements, subject to the receipt of any applicable regulatory and stock exchange approvals.
Issue Price:	The Convertible Notes will be issued at par in integral multiples of $1,000.
Convertible Notes:	The Convertible Notes will have the following material terms:
	(a)	The Convertible Notes will bear interest at an annual rate of 7% of the principal amount of the Convertible Notes outstanding from time to time, payable on the earlier of the conversion of the Convertible Notes or the Maturity Date (as defined below).  Interest will continue to accrue until paid;
	(b)	The Convertible Notes will mature and be payable on the date that is the third anniversary of the Closing Date (the “Maturity Date”)
	(c)	At any time up to and including the Maturity Date, all or any portion of the principal amount of the Convertible Notes outstanding from time to time will be convertible, at the option of the holder, provided that the holder complies with the notice provisions therefor, into units of securities of the Corporation (“Units”) at a conversion price of $0.31 per Unit (the “Conversion Price”), subject to adjustments for stock splits, consolidations, other capital reorganizations, extraordinary dividends or distributions;
	(d)	Each Unit will consist of one common share in the capital of ADB (a “Common Share”) and one-half of one Common Share purchase warrant (a “Warrant”).  Each whole Warrant will entitle the holder to acquire one Common Share at an exercise price of $0.50 per share, and will be exercisable at any time prior to the fourth anniversary of the Closing Date; and
	(e)	In the event that at any time from and after the first anniversary of the Closing Date the volume weighted average trading price of the Common Shares through its principal trading market for a 20 consecutive trading day period is $0.70 or more, all then outstanding Convertible Notes, including any accrued interest thereon, will be automatically converted into Units at the Conversion Price.
Use of Proceeds:	For working capital and general corporate purposes.

Minimum Subscription:	$10,000 or such other amount determined at the sole discretion of the Agent. The Offering will be marketed in such provinces of Canada as the Agent may designate and in which Multilateral Instrument 45-102 – Resale of Securities has been adopted.  Convertible Notes may also be offered to U.S. buyers under available exemptions from federal and state registration requirements in the U.S. and may also be offered in offshore jurisdictions.
Lock-Up:	Until 180 days following the Closing Date, and except as provided herein, neither the Corporation nor any of its officers or directors may offer or announce the offering of, or make or announce any agreement to issue, sell or exchange Common Shares, warrants or securities convertible into Common Shares, except for the grant of stock options or the issuance of Common Shares pursuant to exercise of any purchase warrants existing on the date hereof, without the prior written consent of the Agent, such consent not to be unreasonably withheld.
Security:	The Convertible Notes will provide general security over the Corporation’s assets.  Such security will be subordinate liabilities of the Corporation to current secured creditors.
Hold Period:	The Corporation will be a “reporting issuer” on the Closing Date, such that it is expected that the Convertible Notes, the securities comprising the Units (and the Common Shares issuable upon exercise of the Warrants) will have a restricted period of four months from the Closing Date
Listing:	The Common Share component of the Units (and the Common Shares issuable upon exercise of the Warrants) will be listed on the TSX.
Commission:	8% of the gross proceeds of the Offering.  In addition, the Agent will receive an option, exercisable until the second anniversary of the Closing Date, to purchase that number of Units as is equal to 10% of the Units issuable upon full conversion of the Convertible Notes sold under the Offering, at an exercise price equal to the Conversion Price.
Agent:	First Associates Investments Inc.
Closing Date:	On or about June 8, 2004.  The Offering may be completed through one or more closings.

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SCHEDULE “C”

SUBSCRIBER’S REPRESENTATIONS AND WARRANTIES

This is Schedule “C” to the subscription agreement relating to the purchase of Convertible Notes of ADB Systems International Ltd. (the “Corporation”). Capitalized terms used but not defined in this schedule are intended to have the meanings ascribed thereto, as applicable, on the first page of this subscription agreement and sections 1 and 2 of Schedule “A” to this subscription agreement.

By executing this subscription agreement, the Subscriber represents and warrants to the Corporation and the Agent, which representations and warranties are true as of the date of this subscription agreement and will be true as of the Closing Date, that:

1.Representations and Warranties

(a)Authorization and Effectiveness.  If the Subscriber is a corporation, the Subscriber is a valid and subsisting corporation, has the necessary corporate capacity and authority to execute and deliver this subscription agreement and to observe and perform its covenants and obligations hereunder and has taken all necessary corporate action in respect thereof.  If the Subscriber is a partnership, syndicate or other form of unincorporated organization, the Subscriber has the necessary legal capacity and authority to execute and deliver this subscription agreement and to observe and perform its covenants and obligations hereunder and has obtained all necessary approvals in respect thereof.  If the Subscriber is a natural person, he or she has obtained the age of majority and is legally competent to execute this subscription agreement and to take all actions required pursuant thereto.

Whether the Subscriber is a natural person or a corporation, partnership or other entity, upon acceptance by the Corporation, this subscription agreement will constitute a legal, valid and binding contract of the Subscriber, and any beneficial purchaser for whom it is purchasing, enforceable against the Subscriber and any such beneficial purchaser in accordance with its terms.

(b)Residence.  The Subscriber is a resident of, or otherwise subject to, the jurisdiction referred to under “Name and Address of Subscriber” on the second page of this subscription agreement, which address is the residence or place of business of the Subscriber not created or used solely for the purpose of acquiring Convertible Notes.

(c)Investment Intent.  The Subscriber is acquiring Convertible Notes to be held for investment only and not with a view to resale or distribution.

(d)Prospectus Exemptions.  The Subscriber acknowledges and agrees that the sale and delivery of the Convertible Notes to the Subscriber is conditional upon such sale being exempt from the requirements under Applicable Securities Laws requiring the filing of a prospectus in connection with the distribution of the Convertible Notes.

(e)Offering Documents.  The Subscriber has not received, nor does the Subscriber need to receive, any document purporting to describe the business and affairs of the Corporation that has been prepared for delivery to and review by prospective investors so as to assist those investors to make an investment decision in respect of securities being sold in a distribution of securities of the Corporation.

(f)No Solicitation or Advertising.  The offer to sell the Convertible Notes was directly communicated to the Subscriber. The Subscriber acknowledges that it has not purchased the Convertible Notes as a result of any form of “general solicitation” or “general advertising” as those terms are used in Rule 501 of Regulation D promulgated under the 1933 Act,, including, but not limited to, any advertisement, article, notice or other communication through published in any

newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by “general solicitation” or “general advertising”.

(g)No Undisclosed Information.  The Convertible Notes are not being purchased by the Subscriber as a result of any material information concerning the Corporation that has not been publicly disclosed and the Subscriber’s decision to tender this offer and acquire Convertible Notes has not been made as a result of any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation, or any other person and is based entirely upon the currently available public information concerning the Corporation.

(h)Investment Suitability.  The Subscriber has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of the investment hereunder in Convertible Notes (and the Underlying Securities in respect thereof) and is able to bear the economic risk of loss of such investment.  The Subscriber acknowledges and agrees that the Subscriber is responsible for obtaining such legal advice as the Subscriber considers appropriate in connection with the execution, delivery and performance by the Subscriber of this agreement and the transactions contemplated hereunder.

(i)Subscription Agreement.  The Subscriber has read and understands the contents of this agreement and agrees to be legally bound hereby.

(j)No Registration Under the 1933 Act.  The Subscriber understands that the issuance of the Convertible Notes provided for in the subscription agreement is intended to be exempt from registration under the 1933 Act, by virtue of Section 4(2) thereof and Rule 506 of Regulation D promulgated under the 1933 Act.  The Subscriber acknowledges that none of the Convertible Notes, Underlying Securities or Warrant Shares have been or may ever be registered under the 1933 Act or the securities laws of any state of the United States by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the representations and warranties of Subscriber contained herein) and that the Convertible Notes, Underlying Securities and Warrant Shares may not be offered or sold, directly or indirectly, in the United States except pursuant to registration under the 1933 Act and the securities laws of all applicable states or an available exemption therefrom, and the Corporation has no obligation or present intention of filing a registration statement under the 1933 Act in respect of any of the Securities.  As a result of the foregoing, the Subscriber may be required to bear the economic risk of its investment for an indefinite period of time.

(k)No Exercise of Warrants by U.S. Person.  The Subscriber acknowledges that the Convertible Notes may not be exercised or deemed exercised by or on behalf of a U.S. Person or a person in the United States unless an exemption is available from the registration requirements of the 1933 Act and the securities laws of all applicable states, and the holder has, unless waived by the Corporation and the Agent, furnished an opinion of counsel satisfactory to the Corporation and the Agent to such effect; provided that a Subscriber who delivers the U.S. Accredited Investor Certificate attached as Schedule “E” hereto in connection with its purchase of Convertible Notes and the Warrants pursuant to the Offering will not be required to deliver an opinion of counsel in connection with the due exercise or deemed exercise of the Convertible Notes and the Warrants at a time when the representations, warranties and covenants made by the Subscriber therein are true and correct.

(l)Not a Broker-Dealer. The Subscriber is neither a registered broker-dealer nor an affiliate of a registered broker-dealer.

(m)Primary Purpose. The Subscriber has not been created or is not being used primarily to permit the purchase of the Convertible Notes, Underlying Securities or Warrant Shares.

2.Reliance Upon Representations, Warranties and Covenants. The Subscriber acknowledges that the representations and warranties contained herein are made by the Subscriber with the intention that they may

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be relied upon by the Corporation in determining the Subscriber’s eligibility to purchase Convertible Notes under Applicable Securities Laws.  The Subscriber agrees that by accepting delivery of the Convertible Notes on the Closing Date, the Subscriber will be representing and warranting that the foregoing representations and warranties are true and correct as at the Closing Time with the same force and effect as if they had been made by the Subscriber at the Closing Time and that they will survive the purchase by the Subscriber of Convertible Notes and will continue in full force and effect notwithstanding any subsequent disposition by the Subscriber of such Convertible Notes.

3.Personal Information.  The Subscriber acknowledges and consents to the fact that the Corporation and the Agent are collecting the Subscriber’s personal information for the purpose of fulfilling this subscription agreement.  The subscriber further acknowledges and consents to the fact that the Corporation may be required by Applicable Securities Laws to provide the applicable regulatory authorities with any personal information provided by the Subscriber in accordance with and for the purposes required under Applicable Securities Laws.

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SCHEDULE “D”

THE TORONTO STOCK EXCHANGE

PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING

QUESTIONNAIRE

1.DESCRIPTION OF TRANSACTION

(a)Name of Issuer of the Securities:

ADB Systems International Ltd. (the “Issuer”)

(b)Number and Class of Securities to be Purchased:

$                           principal amount of convertible Notes of the Issuer (“Notes”).  The Notes are convertible, at the option of the holder, into units of securities of the Issuer, (“Units”) at conversion price of $0.31. Each Unit will be comprised of one common share in the capital of the Corporation (a “Common Share”) and one-half of one Common Share purchase warrant (a “Warrant”).  Each whole Warrant will entitle the holder to acquire one Common Share at an exercise price of $0.50 per share, and will be exercisable at any time prior to the fourth anniversary of the Closing Date.

(c)Purchase Price: The Notes are being issued at par.

2.DETAILS OF PURCHASER

(a)Name of Purchaser:

(b)Address:

(c)Names and addresses of persons having a greater than 10% beneficial interest in the purchaser:

3.RELATIONSHIP TO ISSUER

(a)Is the purchaser (or any person named in response to 2(c) above) an insider of the Issuer for the purposes of the Securities Act (Ontario) (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider.

(b)If the answer to (a) is “no”, are the purchaser and the Issuer controlled by the same person or company? If so give details

4.DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER

Give details of all trading by the purchaser, as principal, in the securities of the Issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the 60 days preceding the date hereof.

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UNDERTAKING

TO:THE TORONTO STOCK EXCHANGE

The undersigned has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of this Private Placement Questionnaire and Undertaking.

The undersigned undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer, without the prior consent of the Toronto Stock Exchange and any other regulatory body having jurisdiction.

DATED at                                  this                 day of                                  , 2004.

(Name of Purchaser – please print)

(Authorized Signature)

(Official Capacity – please print)

(please print here name of individual whose signature appears above, if different from name of purchaser printed above)

SCHEDULE “E”

U.S. ACCREDITED INVESTOR CERTIFICATE

The Subscriber understands and agrees that the Convertible Notes, Underlying Securities and the Warrant Shares (collectively, the “Securities”) have not been and will not be registered under the United States Securities Act of 1933, as amended (the “1933 Act”), or applicable state securities laws, and the Convertible Notes are being offered and sold on behalf of the Corporation, by the Agent through a U.S. affiliate (the “U.S. Affiliate”) to the Subscriber in reliance upon Rule 506 of Regulation D under the 1933 Act.  Capitalized terms used in this Schedule “E” and defined in the Subscription Agreement to which this Schedule “E” is attached have the meanings defined in such Subscription Agreement unless otherwise defined in this Schedule “E”.

The undersigned represents, warrants and covenants (which representations, warranties and covenants shall survive the Closing Date) to the Corporation, the Agent and the U.S. Affiliate (and acknowledges that the Corporation, the Agent and the U.S. Affiliate are relying thereon)that:

(a)

it is purchasing the Convertible Notes for its own account for investment purposes only, and not with a view to any resale or distribution and, in particular, it has not sold, offered, distributed or otherwise disposed of any of the Securities and has no intention to sell, offer, distribute or otherwise dispose of, either directly or indirectly, any of the Securities in the United States; provided, however, that this paragraph shall not restrict the Subscriber from selling, offering, distributing or otherwise disposing of any of the Securities pursuant to the registration thereof under the 1933 Act and any applicable state securities laws or pursuant to an exemption from such registration requirements;

(b)

it, and if applicable, each person for whose account it is purchasing the Convertible Notes satisfies one or more of the categories of “accredited investor” indicated below (the Subscriber must check the appropriate line(s)):

o	Category 1.	A bank, as defined in Section 3(a)(2) of the 1933 Act, whether acting in its individual or fiduciary capacity; or
o	Category 2.	A savings and loan association or other institution as defined in Section 3(a)(5)(A) of the 1933 Act, whether acting in its individual or fiduciary capacity; or
o	Category 3.	A broker or dealer registered pursuant to Section 15 of the United States Securities Exchange Act of 1934, as amended; or
o	Category 4.	An insurance company as defined in Section 2(13) of the 1933 Act; or
o	Category 5.	An investment company registered under the United States Investment Company Act of 1940; or
o	Category 6.	A business development company as defined in Section 2(a)(48) of the United States Investment Company Act of 1940; or
o	Category 7.	A small business investment company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the United States Small Business Investment Act of 1958; or
o	Category 8.	A plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, with total assets in excess of U.S. $5,000,000; or

o	Category 9.	An employee benefit plan within the meaning of the United States Employee Retirement Income Security Act of 1974 in which the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or an employee benefit plan with total assets in excess of U.S. $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons who are accredited investors; or
o	Category 10.	A private business development company as defined in Section 202(a)(22) of the United States Investment Advisers Act of 1940; or
o	Category 11.	An organization described in Section 501(c)(3) of the United States Internal Revenue Code, a corporation, a Massachusetts or similar business trust, or a partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of U.S. $5,000,000; or
o	Category 12.	Any director or executive officer of the Corporation; or
o	Category 13.	A natural person whose individual net worth, or joint net worth with that person’s spouse, at the date hereof exceeds U.S.$1,000,000; or
o	Category 14.	A natural person who had an individual income in excess of U.S.$200,000 in each of the two most recent years or joint income with that person’s spouse in excess of U.S.$300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; or
o	Category 15.	A trust, with total assets in excess of U.S.$5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the 1933 Act; or
o	Category 16.	Any entity in which all of the equity owners meet the requirements of at least one of the above categories;

(c) it understands and agrees that the certificates representing the Warrants and all certificates issued in exchange therefor or in substitution thereof, shall bear the following legends:

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON, OR SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR ADB SYSTEMS INTERNATIONAL LTD. SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED.”

provided, that if the Warrants are being sold outside the United States in compliance with Rule 904 of Regulation S under the 1933 Act, at a time when the Issuer is a “foreign issuer” as defined in Rule 902 under the 1933 Act, the legend set forth above may be removed at the time of sale by providing a declaration to the Corporation in the form attached hereto as Appendix A or as the Corporation may from time to time prescribe;

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(d)it understands that upon the issuance thereof, and until such time as the same is no longer required under the applicable requirements of the 1933 Act or applicable U.S. state laws and regulations, the certificates representing the Common Shares and Warrant Shares, and all securities issued in exchange therefor or in substitution thereof, will bear a legend in substantially the following form:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”) OR ANY STATE SECURITIES LAWS.  THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ENCUMBERED ONLY (A) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S PROMULGATED UNDER THE 1933 ACT, (B) IN COMPLIANCE WITH THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (C) IN A TRANSACTION THAT IS OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND ANY APPLICABLE STATE LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY.  DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.  IF THESE SECURITIES ARE BEING SOLD AT ANY TIME THE COMPANY IS A “FOREIGN ISSUER” AS DEFINED IN RULE 902 UNDER THE 1933 ACT, A NEW CERTIFICATE, BEARING NO LEGEND, THE DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY” MAY BE OBTAINED FROM THE COMPANY’S TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN FORM SATISFACTORY TO THE COMPANY AND THE COMPANY’S TRANSFER AGENT TO THE EFFECT THAT THE SALE OF THE SECURITIES IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT.”

provided, that if the Common Shares and Warrant Shares are being sold under clause (B) above, at a time when the Corporation is a “foreign issuer” as defined in Rule 902 under the 1933 Act, the legend set forth above may be removed at the time of sale by providing a declaration to the Corporation and its transfer agent in the form attached hereto as Appendix A or as the Corporation may from time to time prescribe, to the effect that the sale of the securities is being made in compliance with Rule 904 of Regulation S under the 1933 Act; provided further, that if any of the Common Shares or Warrant Shares are being sold pursuant to Rule 144 of the 1933 Act and in compliance with any applicable state securities laws, the legend may be removed by delivery to the Corporation’s transfer agent of an opinion satisfactory to the Corporation to the effect that the legend is no longer required under applicable requirements of the 1933 Act or state securities laws;

(e)it agrees not to offer, sell or otherwise transfer any of the Convertible Notes or Warrant Shares except as permitted by paragraph (c) or (d), above, as applicable, and the legend(s) included therein;

E-3

(f)it has had the opportunity to ask questions of and receive answers from the Corporation regarding the investment, and has received all the information regarding the Issuer that it has requested;

(g)it consents to the Corporation making a notation on its records or giving instruction to the registrar and transfer agent of the Issuer in order to implement the restrictions on transfer set forth and described herein;

(h)it understands and acknowledges that the Corporation has no obligation or present intention of filing with the United States Securities and Exchange Commission or with any state securities administrator any registration statement in respect of resales of the Securities in the United States;

(i)the office or other address of the Subscriber at which the Subscriber received and accepted the offer to purchase the Convertible Notes is the address listed as the “Address of Subscriber” on the second page of the Subscription Agreement;

(j)it understands and agrees that there may be material tax consequences to the Subscriber of an acquisition, disposition or exercise of any of the Securities; neither the Corporation, the Agent nor any U.S. affiliate gives any opinion or makes any representation with respect to the tax consequences to the Subscriber under United States, state, local or foreign tax law of the undersigned’s acquisition or disposition of such Securities; in particular, no determination has been made whether the Issuer will be a “passive foreign investment company” (“PFIC”) within the meaning of Section 1291 of the United States Internal Revenue Code;

(k)it understands and acknowledges that the Corporation is not obligated to remain a “foreign issuer”;

(l)it understands and agrees that the financial statements of the Corporation have been prepared in accordance with Canadian generally accepted accounting principles, which differ in some respects from United States generally accepted accounting principles, and thus may not be comparable to financial statements of United States companies; and

(m)it understands that none of the Convertible Notes, the Underlying Shares or the Warrant Shares have been recommended by any federal or state securities commission or regulatory authority.  Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of the information in the subscription agreement or the schedules attached thereto.  Any representation to the contrary is a criminal offense.

The Subscriber undertakes to notify the Corporation immediately of any change in any representation, warranty or other information relating to the Subscriber set forth herein which takes place prior to the Closing Date.

If a Corporation, Partnership or Other Entity:	If an Individual:
Name of Entity	Signature
Type of Entity	Print or Type Name
Signature of Person Signing
Print or Type Name and Title of Person Signing

E-4

Appendix A to

Schedule “E” – U.S. Accredited Investor Certificate

FORM OF DECLARATION FOR REMOVAL OF LEGEND

TO:         Registrar and transfer agent for the Common Shares, Warrant Shares and Warrants of ADB SYSTEMS INTERNATIONAL LTD. (the “Issuer”):

The undersigned (A) acknowledges that the sale of the securities of the Issuer to which this declaration relates is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended (the “1933 Act”), and (B) certifies that:  (1) the undersigned is not an “affiliate” of the Issuer (as that term is defined in Rule 405 under the 1933 Act); (2) the offer of such securities was not made to a person in the United States and either (a) at the time the buy order was originated, the buyer was outside the United States or the seller and any person acting on its behalf reasonably believed that the buyer was outside the United States, or (b) the transaction is being executed on or through the facilities of the Toronto Stock Exchange or the TSX Venture Exchange or any other designated offshore securities market as defined in Regulation S under the 1933 Act and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (3) neither the seller nor any affiliate of the seller nor any person acting on their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and sale of such securities; (4) the sale is bona fide and not for the purpose of “washing off” the resale restrictions imposed because the securities are “restricted securities” (as that term is defined in Rule 144(a)(3) under the 1933 Act); (5) the seller does not intend to replace such securities with fungible unrestricted securities; and (6) the contemplated sale is not a transaction, or part of a series of transactions, which, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the 1933 Act. Terms used herein have the meanings given to them by Regulation S under the 1933 Act.

Dated                                                                 , 200         .

X

Signature of individual (if Holder is an individual)

X

Authorized signatory (if Holder is not an individual)

Name of Holder (please print)

Name of authorized signatory (please print)

Official capacity of authorized signatory
(please print)

EX-4.20

Exhibit 4.20

SUBSCRIPTION AGREEMENT

TO:ADB SYSTEMS INTERNATIONAL LTD. (the “Company”)

Dear Sirs:

The undersigned (the “Subscriber”) understands that the Company is proposing to issue one Series F 7% secured convertible note (the “Series F Note”) in the principal amount of $500,000.  The Series F Note has a maturity date of May 19, 2007 (the “Maturity Date”).  The form of the Series F Note (the “Note Certificate”) is set forth in Exhibit A attached hereto.

The Subscriber wishes to subscribe for the Series F Note in the principal amount of Cdn$500,000.00 (the “Loan Amount”) in accordance with and subject to the terms of this subscription agreement (the “Note”).

The outstanding principal amount of the Note can be converted at the Subscriber’s option into units (each a “Unit”) at a conversion price (the “Conversion Price”) of $0.31 per Unit prior to receipt of payment in full both before and after default.  In addition, if, after the date that is four (4) months plus a day from the Closing Date (as hereinafter defined), the trading price of the Company’s common shares on the Toronto Stock Exchange (the “TSX”) closes above $0.70 for at least five consecutive trading days, the outstanding principal amount of the Note will automatically convert into Units at the Conversion Price on the next following business day (the “Automatic Conversion Date”).  Each Unit consists of one common share in the capital of the Company (a “Company Share”) and one half of one common share purchase warrant (the “Warrant”), with each whole Warrant entitling the holder to purchase one common share of the Company at $0.50 per share exercisable until May 19, 2007.  The form of theWarrant (the “Warrant Certificate”) is annexed hereto as Exhibit B.

The Company Shares and the common shares issuable upon the exercise of the Warrants (the “Warrant Shares”) are collectively referred to in this Agreement as the “Shares”.  The Shares and the Warrants are collectively referred to in this Agreement as the “Underlying Securities”.  The Note and the Underlying Securities are collectively referred to in this Agreement as the “Securities”.

The following terms and conditions shall apply to this subscription.

1.Subscription for Notes

(a)The Subscriber hereby subscribers for the Note in accordance and subject to the terms of this subscription agreement.

(b)The closing of the issue of the Note (the “Closing”) shall take place at 2:00 p.m. (Toronto time) (the “Time of Closing”) at the offices of Folger, Rubinoff LLP, Toronto, Ontario, on May 19, 2004, or at such other time and place as may be agreed upon by the parties, provided that on such date the conditions set forth in section 2below shall have been satisfied or waived (such closing day or such other time being hereinafter referred to as the “Closing Date”).

(c)The Note shall be issued on the Closing Date as fully registered and shall be fully transferable subject to compliance with applicable Securities Laws (as hereinafter defined).

(d)At the Time of Closing on the Closing Date, the Company shall deliver to or to the order of the Subscriber the definitive Note Certificate representing the Note subscribed for hereunder, the documentation contemplated herein and such further documentation as counsel for the Subscriber may reasonably require against payment of the Loan Amount by certified cheque or wire transfer payable to or to the order of the Company.

2.Conditions of Closing

(a)The Company’s obligation to issue the Note to the Subscriber is subject to the conditions that:

(i)such issuance be conditionally accepted by the TSX;

(ii)the issuance of the Note and Underlying Securities are exempt from the prospectus filing requirements under applicable securities statutes, regulations, rules, policy statements and interpretation notes and by the applicable rules and policies of the TSX (collectively, “Securities Laws”); and

(iii)the representations and warranties of the Subscriber are true and correct as at the Closing Date.

(b)The Subscriber’s obligation to subscribe for the Note is subject to the following conditions:

(i)the issue of the Note having been approved by the board of directors of the Company;

(ii)the issue of the Note having been conditionally approved by the TSX;

(iii)the Company shall have provided evidence satisfactory to the Subscriber that the Company has obtained commitment to raise $500,000 in additional to the Loan Amount;

(iv)the Company shall have maintained on Closing from Export Development Canada (“EDC”) and St. Paul Guarantee Insurance Company (“St. Paul Guarantee”), an account receivables insurance policy (the “Receivable Insurance Policy”) insuring 90% of value of the Company’s world-wide account receivables (the “Receivables”);

(v)the Company shall have irrevocably directed EDC and St. Paul Guarantee to pay the proceeds from the Receivable Insurance Policy to the holder(s) of the Series F Note shown on the Certified Holder’s List described in section 6(i)(i), in accordance with the Payment Instruction described in section 6(i)(ii), upon any claim made under the Receivable Insurance Policy;

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(vi)the security interest granted by the Company in favour of each of persons shown in Schedule 3 shall have been discharged or postponed and subordinated to the security interest to be granted by the Company in favour of the Subscriber;

(vii)Jeff Lymburner (“Lymburner”) shall have provided a limited recourse guarantee (the “Guarantee”) for the Company’s obligations under the Note, secured by a pledge of 800,000 shares in the Company beneficially owned by Lymburner (the “Pledged Shares”) in accordance with a share pledge agreement by Lymburner in favour of the Subscriber (the “Share Pledge Agreement”);

(viii)all covenants of the Company hereunder that are required to be performed on or prior to the Closing Date shall have been performed;

(ix)the Subscriber shall have been satisfied with the results of its due diligence review on the affairs of the Company; and

(x)the representations and warranties of the Company shall be true and correct as at the Closing Date.

(c)If any of the conditions set forth in (a) or (b) above is not satisfied or waived prior to Closing, this subscription agreement shall terminate and the parties shall have no further obligations hereunder.

3.Representations, Warranties and Covenants of Subscriber and Resale Restrictions

(a)The Subscriber hereby represents and warrants to the Company (which representations and warranties shall survive the Closing) that:

(i)the Subscriber is acquiring the Note as principal for its own account, and not for the benefit of any other person;

(ii)the Subscriber is a resident of Ontario, and is an “accredited investor” as such term is defined in Ontario Securities Commission Rule 45-501 “Exempt Distributions” (“Rule 45-501”);

(iii)the Subscriber has an office or place of business set forth in the TSX Private Placement Questionnaire and Undertaking attached hereto as Schedule 2;

(iv)this agreement has been duly authorized, executed and delivered by the Subscriber and constitutes the valid and binding agreement of the Subscriber, enforceable in accordance with its terms, except that:

(A)enforcement thereof may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors’ rights generally;

(B)specific performance, injunction and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction; and

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(C)rights to contribution and indemnity thereunder may be limited under public policy or otherwise under applicable law.

(b)The Subscriber acknowledges that the Note has not been and will not be registered under the United States Securities Act of 1933, as amended (the “1933 Act”), and may not be offered, sold, resold or delivered within the United States of America, its territories or possessions, other than pursuant to an effective registration statement or an applicable exemption under the 1933 Act.

(c)The Subscriber covenants and agrees with the Company that:

(i)it will execute and deliver all documentation and provide all information required by the Securities Laws, if required, to permit the purchase of the Note on the terms set forth herein, including,

(A)an accredited investor certificate in the form attached hereto as Schedule 1, and

(B)a TSX Private Placement Questionnaire and Undertaking in the form attached hereto as Schedule 2; and

(ii)it will comply with the Securities Laws concerning any resale of the Securities, and in particular, the Subscriber understands and acknowledges that the Securities will be subject to a four month resale restriction under applicable Securities Laws.

(d)Legend.  The Subscriber, if resident in Canada, acknowledges that

(i)the Note Certificate, and

(ii)certificates representing

(A)the Company Shares and the Warrants issued upon the conversion of the Note prior to September 20, 2004, and

(B)the Warrant Shares purchased upon exercise of the Warrants prior to September 20, 2004,

will contain the following legend required pursuant to Multilateral Instrument 45-102 (Resale of Securities) of the Canadian Securities Administrators adopted as a Rule by the OSC (“MI 45-102”), and the Subscriber agrees to comply with the terms of such legend:

“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE SEPTEMBER 20, 2004.”

(e)The Subscriber acknowledges that the Company will be required to provide applicable securities regulatory authorities with certain information required by the Securities Laws and agrees to provide the Company with any such required information.

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4.Representations and Warranties of the Company 

The Company hereby represents and warrants to the Subscriber (which representations and warranties shall survive closing) that:

(i)the Company is now and has been a reporting issuer under the Securities Act (Ontario) for the four months immediately preceding the date hereof and is not in default thereunder;

(ii)the Company has been duly organized under the laws of the Province of Ontario and has all required corporate power and authority to enter into and carry out the provisions of this subscription agreement and the transactions contemplated hereby;

(iii)this subscription agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement enforceable in accordance with their respective terms, except that:

(A)enforcement thereof may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors’ rights generally;

(B)specific performance, injunction and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction; and

(C)rights to contribution and indemnity thereunder may be limited under public policy or otherwise under applicable law;

(iv)all necessary corporate action has been taken or will have been taken prior to the Closing Date by the Company to validly create, issue and sell the Note subscribed for by the Subscriber pursuant to this subscription agreement;

(v)the Company Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon due conversion of the Note;

(vi)the Warrants will be validly authorized, issued in the capital of the Company upon the due conversion of the Note;

(vii)the Warrant Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the due exercise of the Warrants;

(viii)no approval, authorization, consent or other order of, and no filing, registration or recording with, any governmental authority is required by the Company in connection with the execution and delivery or with the performance by the Company of this subscription agreement except the conditional and final approval of the TSX of which the conditional approval has been obtained;

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(ix)as at May 14, 2004, there were 61,420,621 common shares in the capital of the Company issued and outstanding;

(x)as at May 13, 2004, the value of the Company’s world-wide accounts receivable was $872,837;

(xi)as at May 13, 2004, the aggregate principal amounts outstanding under the Series E 11% convertible notes of the Company issued on August 19, 2003 (the “Series E Notes”) were $600,000 and there were no interest on the Series E Notes that were due and unpaid; and

(xii)the Company’s common shares are listed for trading on the TSX and except as publicly disclosed, the Company has not received any oral or written notice that its common stock will be delisted from the TSX or that the Company’s common shares do not meet all requirements for the continuation of such listing.

5.Reliance upon Representations, Warranties

The parties agree that, by the Company delivering the Note Certificate to the Subscriber and by the Subscriber accepting the Note Certificate, each party will be representing and warranting that the party’s representations and warranties contained in this subscription agreement are true as at the Closing Date, with the same force and effect as if they had been made by the such party at the Closing Date, and that they will survive the purchase by the Subscriber of the Note and continue in full force and effect for a period of two (2) years following the Closing Date notwithstanding any subsequent disposition by the Subscriber of the Note or the Underlying Securities.

6.Covenants of the Company.

The Company hereby covenants and agrees with the Subscriber as follows:

(a)to cause the Note to be duly and validly created and issued;

(b)to cause the Shares issuable upon the conversion of the Note and upon the exercise of the Warrants to be duly and validly authorized, created and issued as fully-paid and non-assessable common shares in the capital of the Company;

(c)to use its commercial best efforts to ensure that the Company Shares and Warrant Shares are listed and posted for trading on the TSX upon their issue;

(d)to promptly comply with all applicable filing and other requirements under all applicable Securities Laws, including without limitation, the filing of Form 45-501F1 under Rule 45-501 within 10 days of the Closing Date;

(e)to use its commercial best efforts to maintain its status as a reporting issuer in the province of Ontario and to continue to be in compliance with its obligations under the Securities Laws of Ontario, including without limitation, the payment of participation fees under Ontario Securities Commission Rule 13-502;

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(f)to obtain the Receivable Insurance Policy on or prior to the Closing Date, to keep the Receivable Insurance Policy in good standing for as long as any amount remains outstanding under the Series F Note, and not to cancel or amend the Receivable Insurance Policy without prior written consent of the Subscriber;

(g)to create and maintain a register of holder(s) of the Series F Note (the “Holder Register”) and shall record in the Holder Register all relevant information on the Series F Note and holder(s) thereof, including without limitation, name and address of each holder, outstanding principal amount(s) of the Series F Note, numbers of Note Certificates, outstanding amount and payment of interest on the Series F Note, conversion of any principal amount of the Series F Note, and any assignment of the Series F Note;

(h)to deliver on or prior to the Closing Date a copy of the executed Receivable Insurance Policy;

(i)not to make any claim under the Receivable Insurance Policy as long as any amount remains outstanding under any of the Series F Note, unless such claims is submitted together with:

(i)a list of holder(s) of the Series F Note as at the time of making such claim certified by an officer of the Company (the “Certified Holders’ List”); and

(ii)a payment instruction settling out the amounts to be paid to each holder shown on the certified list referred to in section 6(i)(i) signed by each of such holder (the “Payment Instruction”);

(j)to deliver on or prior to the Closing Date to EDC and St. Paul Guarantee an irrevocable direction (the “Direction”) that, as long as any amount remains outstanding under any of the Series E Notes or the Series F Note, the proceeds of the Receivable Insurance Policy shall be paid firstly to the holders of the Series E Notes shown on the certified holders’ list and secondly to the holder(s) of the Series F Note shown on the Certified Holders’ List in accordance with the Payment Instruction to be submitted together with any claim made under the Receivable Insurance Policy;

(k)to renew the Receivable Insurance Policy each year during the term of the Series F Note;

(l)to cause each person listed on Schedule 3 to discharge their security interest against the Company, or to execute a subordination and postponement agreement to subordinate their security interest against the Company to the security interest to be granted by the Company in favour of the subscribers of the Series F Note; and

(m)if applicable, make withholdings required under Part 13 of the Income Tax Act (Canada) with respect to any payments to be made to the Subscriber under the Note and remit such withholdings to applicable governmental authority.

7.Subsequent Financing

(a)The Company shall not, during one year following the Closing Date, complete any debt or equity financing without the Subscriber’s prior written consent, such consent

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not to be unreasonably withheld.  However, no such consent from the Subscriber is required if:

(i)in case the financing is by way of issuance of additional debt,

(A)the terms of the financing are not more favorable to the holders of the additional debt than the terms of the Series F Note to the Subscriber (including without limitation, the conversion price, the number of underlying warrants issuable upon conversion and the exercise price and term of the underlying warrants); and

(B)the Subscriber will rank in priority over the holders of any additional debt with respect to security interest in Company’s assets and with respect to entitlement to the proceeds of the Receivables Insurance Policy; and

(C)in case the financing is by way of issuance of additional equity, the issue price of any offered shares shall be at least $0.31 per share, and the exercise price for any convertible securities (other than convertible debt) issued with the shares such as warrants shall be at least $0.50 per share with an exercise period no longer than three years.

(b)The Company shall provide prior written notice to the Subscriber of any financing during the one year period following the Closing Date.

8.Costs

(a)All expenses incurred by the Company (including the fees and disbursements of counsel for the Company) relating to the issuance of the Series F Note, issue of the Underlying Securities, listing of the Shares, printing, photocopying, professional fees and all other costs and expenses incurred by the Company relating to the transactions contemplated herein shall be borne by the Company.

(b)The Subscriber party shall bear its own legal and other professional expenses incurred in connection with the offering of the Series F Note, provided that the Company will reimburse the Subscriber for that portion of the Subscriber’s legal fees reasonably relating to the preparation of the documents required in the offering of the Series F Note.

(c)The Company will not incur or pay any agent’s fees, broker’s fees or other fees or commissions in connection with the offering of the Series F Note except legal and audit fees.

9.Security for the Note

The Company agrees to grant to the Subscriber a general security interest over all assets of the

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Company to secure the Company’s performance of its obligations under the Note, all in accordance with the general security agreement attached to the form of Note (the “General Security Agreement”).

10.Jurisdiction

This subscription agreement is governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein.  By the Subscriber executing this subscription agreement below, the Subscriber irrevocably attorns to the jurisdiction of the courts of Ontario.

11.Facsimile Subscriptions

The Company shall be entitled to rely on delivery by facsimile of an executed copy of this subscription agreement and acceptance by the Company of that delivery shall be legally effective to create a valid and binding agreement between the Subscriber and the Company in accordance with the terms of this subscription agreement.

12.Confidentiality. 

Each of the Subscriber and the Company shall maintain in confidence the matters referred to in this subscription agreement and shall not make any public disclosure, except to the extent required by law, of the terms of this agreement without the consent of the other, such consent not to be unreasonably withheld.  The wording of any public disclosure which is made must be approved by each of the parties.

13.Assignment

This subscription agreement is not transferable or assignable.

14.Time of the Essence

Time shall be of the essence hereof.

15.Currency

All references herein to monetary amounts are references to lawful money of Canada.

16.Headings

The headings contained herein are for convenience of reference only and shall not affect the meaning or interpretation hereof.

17.Entire Agreement

This subscription agreement (including the annexed schedules hereto) constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein or therein.  This subscription agreement may only be amended or modified in any respect by written instrument executed by each of the parties hereto.

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Please acknowledge your acceptance of the foregoing subscription agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us.

DATED this          day of May, 2004.

	STONESTREET LIMITED PARTNERSHIP, by its general partner, Stonestreet Corporation
	By:
	Elizabeth Leonard
	Chief Operating Officer
	320 Bay Street, Suite 1300
	Toronto, Ontario
	M5H 4A6
	Phone: 416-867-6059
	Fax: 416-956-8989
ACCEPTED as of this          day of May, 2004.
ADB SYSTEMS INTERNATIONAL LTD.
By:
Name:
Title:

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SCHEDULE 1

ACCREDITED INVESTOR CERTIFICATE – ONTARIO SUBSCRIBERS ONLY

TO:ADB SYSTEMS INTERNATIONAL LTD. (THE “COMPANY”)

RE:SUBSCRIPTION FOR SERIES E CONVERTIBLE NOTES OF THE COMPANY

The undersigned Subscriber/officer of the Subscriber (or in the case of a trust, the trustee or an officer of the trustee of the trust) hereby certifies that:

1.he/she has read the subscription agreement and understands that the offering of convertible secured note to the Subscriber, is being made on a registration and prospectus exempt basis;

2.the Subscriber is an “accredited investor” as that term is defined in Ontario Securities Commission Rule 45-501 “Exempt Distributions” by virtue of the Subscriber being:

[please check one]

(i)	o	an individual who beneficially owns, or who together with a spouse beneficially owns, financial assets having an aggregate realizable value that, before taxes but net of any related liabilities exceeds $1,000,000
(ii)	o	an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year
(iii)	o	a person or company registered under the Securities Act (Ontario) or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer
(iv)	o	an individual who has been granted registration under the Securities Act (Ontario) or securities legislation in another jurisdiction as a representative of a company which is registered as a dealer or adviser, whether or not that individual’s registration is still in effect
(v)	o	a company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as reflected in its most recently prepared financial statements
(vi)	o	a person in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons that are accredited investors.
(vii)	o	other                                                     [please insert exemption being relied upon, as referred to in Appendix 1 to this certificate]

3.he/she: (a) if the Subscriber, is making the above statement based on personal knowledge of his/her financial situation and has reviewed personal financial documentation with an accountant,

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financial advisor or other financial professional to determine the above statement is true; or (b) if other than the Subscriber, is making the above statement based on a review of the financial statements of the Subscriber for the most recently completed financial year and any interim financial statements prepared since the end of such financial year and has undertaken such other review and due diligence necessary to determine and certify that the Subscriber is an “accredited investor” as that term is defined in Ontario Securities Commission Rule 45-501 “Exempt Distributions”; and

4.he/she understands that the Company is relying on this certificate as evidence of the Subscriber’s status as an accredited investor in accordance with Ontario Securities Commission Rule 45-501 and its companion policy.

DATED at Toronto this              day of May, 2004.

STONESTREET LIMITED PARTNERSHIP, by its
general partner, Stonestreet Corporation

By:

Elizabeth Leonard

Chief Operating Officer

For the purposes of this certificate:

(a)“company” means any corporation, incorporated association, incorporated syndicate or other incorporated organization;

(b)“control person” means any person, company or combination of persons or companies holding a sufficient number of any securities of the issuer to affect materially the control of the issuer but any holding of any persons, company or combination of persons or companies holding more than 20% of the outstanding voting securities of the issuer, in the absence of evidence to the contrary, shall be deemed to affect materially the control of the issuer;

(c)“director” where used in relation to a person, includes a person acting in a capacity similar to that of a director of a company;

(d)“entity” means a company, syndicate, partnership, trust or unincorporated organization;

(e)“financial assets” means cash, securities, or any contract of insurance or deposit or evidence thereof that is not a security for the purposes of the Securities Act (Ontario);

(f)“individual” means a natural person, but does not include a partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust or a natural person in his or her capacity as trustee, executor, administrator or other legal personal representative;

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(g)“managed account” means an investment portfolio account of a client established in writing with a portfolio adviser who makes investment decisions for the account and has full discretion to trade in securities of the account without requiring the client’s express consent to a transaction;

(h)“mutual fund” includes an issuer of securities that entitle the holder to receive on demand, or within a specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets, including a separate fund or trust account, of the issuer of the securities;

(i)“non-redeemable investment fund” means an issuer

(i)whose primary purpose is to invest money provided by its securityholders;

(ii)that does not invest for the purpose of exercising effective control, seeking to exercise effective control, or being actively involved in the management of the issuers in which it invests, other than other mutual funds or non-redeemable investment funds; and

(iii)that is not a mutual fund;

(j)“officer” means the chair, any vice-chair of the board of directors, the president, any vice-president, the secretary, the assistant secretary, the treasurer, the assistant treasurer, and the general manager of a company, and any other person designated an officer or a company by by-law or similar authority, or any individual acting in a similar capacity on behalf of the issuer;

(k)“person” means an individual, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, trustee, executor, administrator, or other legal representative;

(l)“portfolio adviser” means

(i)a portfolio manager; or

(ii)a broker or investment dealer exempted from registration as an adviser under subsection 148(1) of the Regulation if that broker or investment dealer is not exempt from the by-laws or regulations of the Toronto Stock Exchange or the Investment Dealers’ Association of Canada referred to in that subsection;

(m)“portfolio manager” means an adviser registered for the purpose of managing the investment portfolio of clients through discretionary authority granted by the clients;

(n)“promoter” means (a) a person or company who, acting alone or in conjunction with one or more other persons, companies or a combination thereof, directly or indirectly, takes the initiative in founding, organizing or substantially reorganizing the business of the issuer, or (b) a person or company who, in connection with the founding, organizing or substantial reorganization of the business of the issuer, directly or indirectly, receives in consideration of services or property, or both services and property, 10% or more of any

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class of securities of the issuer or 10% or more of the proceeds from the sale of any class of securities of a particular issue, but a person or company who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this definition if such person or company does not otherwise take part in founding, organizing or substantially reorganizing the business;

(o)“related liabilities” means liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets and liabilities that are secured by financial assets; and

(p)“spouse” in relation to an individual, means another individual to whom that individual is married, or another individual of the opposite sex or the same sex with whom that individual is living in a conjugal relationship outside marriage.

Affiliated Entities, Control and Subsidiaries

1.A person or company is considered to be an affiliated entity of another person or company if one is a subsidiary entity of the other, or if both are subsidiary entities of the same person or company, or if each of them is controlled by the same person or company.

2.A person or company is considered to be controlled by a person or company if

(a)in the case of a person or company,

(i)voting securities of the first-mentioned person or company carrying more than 50% of the votes for the election of directors are held, otherwise than by way of security only, by or for the benefit of, the other person or company, and

(ii)the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;

(b)in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50% of the interests in the partnership; or

(c)in the case of a limited partnership, the general partner is the second-mentioned person or company.

3.A person or company is considered to be a subsidiary entity of another person or company if

(a)it is controlled by,

(i)that other, or

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(ii)that other and one or more persons or companies each of which is controlled by that other, or

(iii)two or more persons or companies, each of which is controlled by that other, or

(b)it is a subsidiary entity of a person or company that is the other’s subsidiary entity.

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Appendix 1

For the purposes of subscribing for the Series F Convertible Notes, all investors resident in or otherwise subject to the laws of the Province of Ontario relying on the “other” category of “accredited investor” on the certificate to which this appendix is attached must qualify as one of the following (please circle the applicable provision below and insert same in the space provided on the certificate to which this appendix is attached):

(a)a bank listed in Schedule I or II of the Bank Act (Canada), or an authorized foreign bank listed in Schedule III of that Act;

(b)the Business Development Bank incorporated under the Business Development Bank Act (Canada);

(c)a loan corporation or trust corporation registered under the Loan and Trust Corporations Act or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other jurisdiction;

(d)a co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case, located in Canada;

(e)a company licensed to do business as an insurance company in any jurisdiction;

(f)a subsidiary entity of any person or company referred to in paragraph (a), (b), (c), (d) or (e), where the person or company owns all of the voting shares of the subsidiary entity;

(h)the government of Canada or of any jurisdiction, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government;

(i)any Canadian municipality or any Canadian provincial or territorial capital city;

(j)any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any instrumentality or agency thereof;

(k)a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority;

(l)a registered charity under the Income Tax Act (Canada);

(p)a promoter of the issuer or an affiliated entity of a promoter of the issuer;

(q)a spouse, parent, brother, sister, grandparent or child of an officer, director or promoter of the issuer;

(r)a person or company that, in relation to the issuer, is an affiliated entity or a person or company referred to in clause (c) of the definition of distribution in subsection 1(1) of the

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Securities Act (Ontario);

(s)an issuer that is acquiring securities of its own issue;

(u)a person or company that is recognized by the Commission as an accredited investor;

(v)a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities only to persons or companies that are accredited investors;

(w)a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities under a prospectus for which a receipt has been granted by the Director or, if it has ceased distribution of its securities, has previously distributed its securities in this manner;

(x)a fully managed account if it is acquiring a security that is not a security of a mutual fund or non-redeemable investment fund;

(y)an account that is fully managed by a trust corporation registered under the Loan and Trust Corporations Act or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other jurisdiction; and

(z)an entity organized outside of Canada that is analogous to any of the entities referred to in paragraphs (a) through (f) and item (iii) of the Certificate to which this appendix is attached and paragraph (k) in form and function.

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SCHEDULE 2

THE TORONTO STOCK EXCHANGE

PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING

To be completed by each proposed private placement purchaser of listed securities or securities which are convertible into listed securities.

QUESTIONNAIRE

1.DESCRIPTION OF TRANSACTION

(a)Name of Issuer of the Securities -  ADB Systems International Ltd.

(b)Number and Class of Securities to be Purchased -

Series F 7% convertible secured note in the principal amount of Cdn$500,000.00 (the “Note”), convertible at the holder’s option at any time until the maturity date of May 19, 2007 for units at $0.31 per unit.  Each unit consists of one common share of the issuer and one half of one common share purchase warrant.  Each whole warrant entitles the holder thereof to purchase one additional common share of the issuer at $0.50 per share at any time prior to 5:00 p.m. on May 19, 2007.

(c)Purchase Price – Advance of the principal amounts for the Series F Note in the amount of Cdn$500,000.

2.DETAILS OF PURCHASER

(a)Name of Purchaser – Stonestreet Limited Partnership

(b)Address – 320 Bay Street, Suite 1300, Toronto, Ontario, M5H 4A6

(c)Names and addresses of persons having a greater than 10% beneficial interest in the purchaser- Stonestreet Corporation, General Partner of Stonestreet Limited Partnership

320 Bay Street, Suite 1300, Toronto, Ontario, M5H 4A6

3.RELATIONSHIP TO ISSUER

(a)Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Securities Act (Ontario) (before giving effect to this private placement)?  If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider  -

No.

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(b)If the answer to (a) is “no”, are the purchaser and the issuer controlled by the same person or company?  If so, give details  -

No.

4.DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER

Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the sixty (60) days preceding the date hereof  - -

See schedule attached.

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UNDERTAKING

TO:TORONTO STOCK EXCHANGE

THE UNDERSIGNED has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of the Private Placement Questionnaire and Undertaking.

THE UNDERSIGNED undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four (4) months from the date of closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer, without the prior consent of the Toronto Stock Exchange and any other regulatory body having jurisdiction.

DATED at Toronto this                        day of May, 2004.

STONESTREET LIMITED PARTNERSHIP, by its
general partner, Stonestreet Corporation

Name of Purchaser (please print)

Authorized Signature

Chief Operating Officer

Official Capacity (please print)

Elizabeth Leonard

Please print here name of individual whose signature appears above, if different from name of purchaser printed above

SCHEDULE 3

LIST OF SECURED PARTIES

Secured Party	File No. Under PPSA (Ontario)	Registration No.
Christopher Bulger	888880464	20021104144390654204 20021108165217583161 20030826182015316881
Jeff Lymburner	084987306	20021104151100439461 20021108165217583169 20030826182015316880
Kenneth Sparfel and Kelly Sparfel	888880518	20021104144390654209 20021108165217583166 20031021145615300346

EXHIBIT A

FORM OF NOTE

EXHIBIT B

FORM OF WARRANT

EX-8.1

EXHIBIT 8.1

LIST OF SUBSIDIARIES

Unless otherwise indicated, ADB Systems International Ltd. (“ADB”), or one of its subsidiaries, owns 100%, except as otherwise noted, of the outstanding capital stock of the following companies:

Name of Subsidiary	Country of Incorporation
ADB Systemer AS (1)	Norway
ADB Systems International Limited	Ireland
ADB Systems Limited	England
Bid.Com (U.K.) Limited	England
ADB Systems, Inc.	USA (Delaware)
Bid.Com USA, Inc.	USA (Florida)
Bid.Com International Inc.	Canada (Ontario)
Bid.Com International Pty. Ltd. (2)	Australia
Internet Liquidators USA, Inc. (2)	USA (Florida)
ADB Systems USA, Inc.	USA (Delaware)
GE Asset Manager LLC(3)	USA (Delaware)

(1)As of December 31, 2003, ADB owned 99.4% of the outstanding voting shares of ADB Systemer AS.  Under Norwegian corporate law, ADB may trigger compulsory acquisition of the remaining shares at any time.  The remaining shareholders each have the same right.  The value for the shares acquired shall be as agreed, failing which the value shall be determined by arbitration.

(2)Dormant.  ADB anticipates dissolving these companies in 2004.

(3)ADB owns 50% of the membership interest of GE Asset Manager LLC.

EX-10.1

Exhibit 10.1

Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, being the Chief Executive Officer and Chief Financial Officer, respectively, of ADB Systems International Ltd. (the “Company”) do each hereby certify that:

(1) The Annual Report on Form 20-F of the Company for the fiscal year ended December 31, 2003 (the “Report”) which this certification accompanies, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended.

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as at, and for the fiscal year ended on, December 31, 2003.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: June 29, 2004
	C/s Jeffrey Lymburner
	Jeffrey Lymburner
	Chief Executive Officer
Dated: June 29, 2004
	C/s Michael Robb
	Michael Robb
	Chief Financial Officer

EX-11.1

Exhibit 11.1

ADB SYSTEMS INTERNATIONAL LTD.

CODE OF ETHICS

This Code of Ethics (the “Code of Ethics”) has been unanimously adopted by the Board of Directors of ADB Systems International Ltd. (the “Company”) and is intended to apply to the Company’s chief executive officer, principal financial officer, principal accounting officer and controller, or any person performing similar functions.  References in this Code of Ethics to the Company means the Company or any of its subsidiaries.

I.Purpose of Code of Ethics

The purpose of this Code of Ethics is to promote the honest and ethical conduct of the senior executive, financial and accounting officers of the Company (“employees,” herein), including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely and understandable disclosure in periodic reports required to be filed by the Company; compliance with all applicable governmental rules and regulations; prompt internal reporting of violations of this Code of Ethics; and accountability for adherence to this Code of Ethics.

II.Conflict of Interest; Corporate Opportunity

No employee shall, directly or indirectly, engage or participate in, or authorize, any transactions or arrangements involving, or raising questions of, possible conflict, whether ethical or legal, between the interests of the Company and the personal interests of the employee or his or her family.  No employee shall take for himself or herself personally any opportunity that arises through the use of corporate property, information or position or shall use corporate property, information or position for personal gain.

No employee or any member of his or her family shall, directly or indirectly, acquire or hold any beneficial interest of any kind in any firm or entity that does, or in the recent past did, business with the Company, or in any firm or entity which is currently or prospectively competing in any manner with the Company.  This prohibition shall not apply to the acquisition or holding of any security through a mutual fund or of any interest not in excess of 2% of any class of securities listed on a national securities exchange or traded in an established over-the-counter securities market.  Activities and holdings that have the appearance of impropriety are also to be avoided.

For purposes of this policy, a member of an employee’s family shall include a spouse, parents, stepparents, in-laws, siblings, children, stepchildren and any other person residing in the employee’s residence.

No employee or any member of his or her family shall, directly or indirectly, seek, accept or retain gifts or other personal or business favors from any vendor, supplier or customer of the Company or from any individual or organization seeking to do business with the Company.  A

personal benefit means any type of gift, gratuity, use of facilities, favor, entertainment, service, loan, fee or compensation or anything of monetary value.  Specific exceptions to this prohibition will be made if there is no reasonable likelihood of improper influence in the performance of duties on the part of the employee on behalf of the Company and if the personal benefit falls into one of the following categories:

•normal business courtesies, such as meals, involving no more than ordinary amenities;

•paid trips or guest accommodations in connection with proper Company business and with the prior approval of the CEO or his designate;

•fees or other compensation received from any organization in which membership or an official position is held only if approved by the CEO or his designate;

•loans from financial institutions made in the ordinary course of their business on customary terms and at prevailing rates; or

•gifts of nominal value (less than $200) during the holiday season.

No employee or any member of his or her family may compete with the Company.  No employee or any member of his or her family may serve as a director, officer, employee of or consultant to a competitor, vendor, supplier or other business partner of the Company without the prior written approval of the CEO or his designate.

No employee or any member of his or her family who directly or indirectly owns a financial interest in, or has an obligation to, a competitor, supplier, customer or other business partner of the Company, which interest or obligation is significant to such employee or family member may conduct business with such entity or person without the prior written approval of the CEO or his designate.

No employee or any member of his or her family may act as a broker, finder or other intermediary for his or her benefit or for the benefit of any third party in a transaction involving the Company without the prior written approval of the CEO or his designate.

Gifts or entertainment that have an aggregate value in any year in excess of $200 are generally considered to be excessive and shall not be accepted by the employee.  This prohibition would also apply to common courtesies and hospitalities if their scale or nature would in any way appear to affect the impartiality of the employee or imply a conflict of interest.  However, this prohibition is not meant to preclude an employee’s acceptance of business entertainment that is not intended to influence loyalty of the employee to the Company and, that is reasonable in nature, frequency and cost; for example, a lunch, dinner or occasional athletic, social or cultural event, or participation in corporate promotional events.

An employee should make every effort to refuse to accept, or to return, any gift or gifts from a supplier, customer or other business partner exceeding $200 in value.  If the employee determines that the donor would be insulted or embarrassed if the gift is refused or returned, a

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conflict can nevertheless be avoided by promptly reporting the gift to the employee’s superior and delivering to the employee’s superior the gift or a check payable to the Company for the fair value of the gift (which the Company will donate to charity).

As a Senior Executive, Financial or Accounting Officer of the Company, it is imperative that you avoid any investment, interest or association that interferes, might interfere, or might be thought to interfere, with your independent exercise of judgment in the Company’s best interest.

III.Proper Accounting and Financial Integrity; Accurate Periodic Reports

All transactions must be executed only in accordance with management’s general or specific authorization.  The Company’s books, records and accounts must reflect, accurately and fairly and within the Company’s regular system of accountability, all of the Company’s transactions and the acquisition and disposition of its assets.  All transactions shall be accurately recorded to permit the preparation of financial statements in conformity with generally accepted accounting principles consistently applied and other applicable rules, regulations and criteria, and to insure full accountability for all assets and activities of the Company.  Under no circumstances shall there be any unrecorded funds or assets of the Company, regardless of the purposes for which such fund or asset may have been intended, or any improper or inaccurate entry, knowingly made on the books and records of the Company.  No payment on behalf of the Company shall be approved or made with the intention or understanding that any part of such payment is to be used for a purpose other than that described by the documents supporting the payment.

All employees must cooperate fully with the Company’s internal audit staff, independent auditors and counsel to enable them to discharge their responsibilities to the fullest extent.

As you are aware, full, fair, accurate, timely and understandable disclosure in our periodic reports filed with the United States Securities and Exchange Commission (“SEC”) and the Toronto Stock Exchange (“TSX”) is required by SEC and TSX rules and is essential to our continued success.  Please exercise the highest standard of care in preparing such reports in accordance with these guidelines, including, without limitation, the following:

•All Company accounting records, as well as reports produced from those records, must be kept and presented in accordance with the laws of each applicable jurisdiction.

•All records must fairly and accurately reflect the transactions or occurrences to which they relate.

•All records must fairly and accurately reflect in reasonable detail the Company’s assets, liabilities, revenues and expenses.

•The Company’s accounting records must not contain any intentionally false or intentionally misleading entries.

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•No transaction may be intentionally misclassified as to accounts, departments or accounting periods.

•All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper account and in the proper accounting period.

•No information may be concealed from the internal auditors or the independent auditors (or the Audit Committee or Board of Directors).

•Compliance with Generally Accepted Accounting Principles and the Company’s system of internal accounting controls is required at all times.

IV.Compliance with Laws, Rules and Regulations

Recognition of the public interest must be a permanent commitment of the Company in the conduct of its affairs.  The activities of the Company and all of its employees, acting on its behalf must always be in full compliance with both the letter and spirit of all laws, rules and regulations applicable to our business.  Furthermore, no employee should assist any third party in violating any applicable law, rule or regulation.  This principle applies whether or not such assistance is, itself, unlawful.  All employees must respect and obey the laws of the cities, states and countries in which we operate and avoid even the appearance of impropriety.  When there is a doubt as to the lawfulness of any proposed activity, advice must be sought from the CEO or his designate.

Violation of applicable laws, rules or regulations may subject the Company, as well as any employees involved, to severe adverse consequences, including imposition of injunctions, monetary damages (which could far exceed the value of any gain realized as a result of the violation, and which may be tripled in certain cases), fines and criminal penalties, including imprisonment.  In addition, actual or apparent violations of applicable laws, rules and regulations by the Company or its employees can undermine the confidence of the Company’s customers, investors, creditors and bankers, as well as that of the general public.  Employees who fail to comply with this Code of Ethics and applicable laws will be subject to disciplinary measures up to and including termination of employment from the Company.

V.Internal Communication and Enforcement of Policy

Communication of the policies contained in this Code of Ethics will be made to all applicable employees of the Company who will be required to sign the attached Acknowledgement of Receipt and Understanding at least annually.

It is important that each employee comply not only with the letter but, equally importantly, the spirit of these policies.  If you believe that one of the Company’s employees is acting in a manner that is not in compliance with this policy, or that you have been requested to so act in such a manner, you should immediately bring this matter to the attention of the CEO or his designate.  In order to encourage uninhibited communication of such matters, such

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communications will be treated confidentially to the fullest extent possible and no disciplinary or other retaliatory action will be taken against an employee who communicates such matters.

VI.Effects of Failure to Comply

Any questions regarding this Code of Ethics or its application should be discussed with the CEO or his designate.

Conduct violative of this Code of Ethics is expressly outside the employee’s scope of employment.  Any employee whose conduct violates this Code of Ethics will be subject to disciplinary action by the Company, including, in the Company’s discretion, discharge and/or forfeiture of any benefits or rights (including contractual rights) which, under applicable law, are forfeitable upon discharge for cause, and to the enforcement of such other remedies as the Company may have under applicable law.

VII.Amendments to and Waivers of the Code of Ethics

Any amendment to or waiver of this Code of Ethics will be made only by the Board of Directors and notified in writing and will be promptly disclosed as required by law or stock exchange regulation.

* * *

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ACKNOWLEDGEMENT OF RECEIPT AND UNDERSTANDING
OF
CODE OF ETHICS

I hereby acknowledge that I have been provided with a copy of the Code of Ethics of ADB SYSTEMS INTERNATIONAL LTD.  I further acknowledge that I have read the Code of Ethics in its entirety and that I understand it.  I agree to observe the policies and procedures contained in the Code of Ethics and have been advised that, if I have any questions or concerns relating to such policies or procedures, I should discuss them with the Human Resources Department.  I understand that failing to abide by the Code of Ethics of ADB SYSTEMS INTERNATIONAL LTD. could lead to disciplinary action up to and including termination of employment.  I also understand that no one other than the Board of Directors has the authority to waive any provision of the Code of Ethics and that any waiver must be in writing.

My signature below indicates my understanding of the Code of Ethics of ADB SYSTEMS INTERNATIONAL LTD. and my agreement to abide by the policies and procedures contained therein.

Employee Signature	Date
Print Name

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