EXHIBIT 3

Maximizing

The Value of Assets

Second Quarter 2004 Report

PROFILE

ADB Systems International Ltd. (“ADB”) delivers asset lifecycle management solutions that help organizations source, manage and sell assets for maximum value. ADB works 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 and partners include BP, GE Commercial Equipment Finance, Halliburton Energy Resources, HFK, the National Health Service (UK), permanent TSB, Talisman Energy, Vesta Insurance and Vinmonopolet.

Through its wholly owned subsidiary, ADB Systems USA Inc., ADB owns a 50 percent interest in GE’s Asset Manager, a joint venture launched with GE Commercial Equipment Finance.

ADB is headquartered in Mississauga (Canada), and maintains offices in Stavanger (Norway), Tampa (U.S.A.), Dublin (Ireland), and London (U.K.). The Company’s shares trade on both the Toronto Stock Exchange (TSX: ADY) and the OTC Bulletin Board (OTCBB: ADBY).

For more information, please visit www.adbsys.com.

LETTER TO SHAREHOLDERS

Dear Shareholders,

ADB was extremely active in a number of areas throughout the second quarter. These efforts, which included the building up our joint venture with GE, extending our relationships with existing customers, and introducing new technology to help our customers get more value from their capital assets, resulted in improved financial performance for the Company and provide a basis for long-term growth.

Operational Results

Exceeding our previously stated guidance, we reported revenues of $1.33 million in the second quarter. This represents a growth of 12 percent when compared to the $1.18 million achieved in the first quarter.

We recorded a net loss for the period of $1.42 million or $0.02 per share. This compares to a net loss of $1.39 million in the first quarter and a profit of $526,000 in the same period of 2003 when a one-time gain relating to the settlement of a demand loan was recorded.

We also recorded an EBITDA loss for the period of $983,000. This compares to an EBITDA loss of $936,000 in the first quarter and $1.09 million for the same period of 2003.

As stated previously, we incurred a number of seasonal expenses relating to our annual meeting, regulatory filings, and other administrative activities in Q2. Nevertheless, we continue to improve our operational results and when the results of the first six months of 2004 are compared to the same period of 2003, we have reduced our EBITDA loss by 10 percent.

Financing and Customer Activities

In addition to our operational performance, we experienced a number of financing and customer-related accomplishments in the second quarter. Chief among them, we raised gross proceeds of $2.2 million through the issuance of convertible secured notes to a group of institutional and private investors. The new funding will be used to sustain our activities in a number of key areas, including the continued rollout of our joint venture with GE.

Our most notable customer achievement in Q2 involved the expanded use our on-line procurement technology by the National Health Service, Europe’s largest healthcare provider. Since the start of its electronic procurement initiative, ADB has helped the NHS generate more than £500,000 in process related savings.

Going Forward

As outlined at our Shareholders’ meeting, each of our business units will have particular areas of concentration for the balance of 2004.

In North America, we are continuing to invest resources in the controlled rollout of our joint venture with GE, and now that our website has gone live, we will be training and deploying a significant number of sales representatives. In the U.K, we believe the recent awarding of Pathfinder status to our client and partner, the Healthcare Purchasing Consortium, will result in the accelerated use of our on-line procurement solutions. And in Norway, we expect continued steady performance as a result of increased use of our technology solutions and services from our existing customers.

We believe that the sum of these efforts will result in double-digit revenue growth and significant improvements in EBITDA performance for the Q3 and Q4 periods combined.

Yours truly,

Jeff Lymburner, CEO

August 2004

CONSOLIDATED BALANCE SHEETS

(in thousands of Canadian dollars) (Unaudited)

	June 30 2004			December 31 2003

ASSETS

CURRENT
Cash	$	1,179		$	432
Marketable securities	13			13
Accounts receivable	1,092			1,384
Deposits and prepaid expenses	299			118
	2,583			1,947

CAPITAL ASSETS (Note 3)	190			266
ACQUIRED SOFTWARE	282			846
ACQUIRED AGREEMENTS	75			150
DEFERRED CHARGES (Note 4)	174			—
TRADEMARKS AND INTELLECTUAL PROPERTY (NET)	—			2
	$	3,304		$	3,211

LIABILITIES

CURRENT
Accounts payable	$	770		$	700
Accrued liabilities	885			670
Deferred revenue	409			91
	2,064			1,461

SECURED SUBORDINATED NOTES (Note 5)	1,634			721
	3,698			2,182

NON-CONTROLLING INTEREST	3			3

SHAREHOLDERS’ (DEFICIENCY) EQUITY

Share capital (Note 6)	98,349			97,674
Contributed surplus	1,289			1,289
Warrants (Note 6)	382			324
Stock options	996			898
Conversion feature on secured subordinated notes (Note 5)	1,058			497
Cumulative translation account	101			106
Deficit	(102,572		)	(99,762		)
	(397		)	1,026
	$	3,304		$	3,211

See accompanying notes to interim consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of Canadian dollars, except per share amount) (Unaudited)

	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003

Revenue (Note 9)	$	1,331		$	1,398		$	2,515		$	2,659.

General and administrative	1,242			1,433			2,284			2,555
Sales and marketing costs	168			328			451			647
Software development and technology	904			730			1,699			1,593
	2,314			2,491			4,434			4,795

Loss before employee stock options, depreciation and amortization, interest expense and interest income	(983		)	(1,093		)	(1,919		)	(2,136		)

Employee stock options	11			1			39			3
Depreciation and amortization	366			591			722			1,192
Interest expense	65			75			132			175
Interest income	(2		)	(1		)	(3		)	(6		)
	440			666			890			1,364
Loss before the undernoted	(1,423		)	(1,759		)	(2,809		)	(3,500		)

Gains (losses) on disposal of capital assets and strategic investments (Note 7)	—			23			(1		)	7
Gain on settlement of demand loan (Note 8)	—			2,195			—			2,195
Retail activities	—			67			—			67
	—			2,285			(1		)	2,269

NET (LOSS) INCOME FOR THE PERIOD	$	(1,423	)	$	526		$	(2,810	)	$	(1,231	)

BASIC AND DILUTED (LOSS) INCOME PER SHARE	$	(0.02	)	$	0.01		$	(0.05	)	$	(0.02	)

CONSOLIDATED STATEMENTS OF DEFICIT

(in thousands of Canadian dollars) (Unaudited)

	June 30 2004			June 30 2003

DEFICIT, BEGINNING OF PERIOD	$	(99,762	)	$	(96,947	)
NET LOSS FOR THE PERIOD	(2,810		)	(1,231		)
DEFICIT, END OF PERIOD	$	(102,572	)	$	(98,178	)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian Dollars) (Unaudited)

	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003

NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES

OPERATING
Net (loss) income for the period	$	(1,423	)	$	526		$	(2,810	)	$	(1,231	)
Items not affecting cash:
Depreciation and amortization	366			591			722			1,192
Employee stock options	11			1			39			3
Non-cash interest expense	40			74			79			170
Non-cash customer acquisition cost	—			38			—			38
Gains (losses) on disposal of capital assets and strategic investments (Note 7)	—			(23		)	1			(7		)
Gain on settlement of demand loan (Note 8)	—			(2,195		)	—			(2,195		)
	(1,006		)	(988		)	(1,969		)	(2,030		)
Changes in non-cash operating working capital	(541		)	(458		)	713			(45		)
	(1,547		)	(1,446		)	(1,256		)	(2,075		)

INVESTING
Capital assets	(1		)	—			(8		)	(11		)
Proceeds from disposal of capital assets and strategic investments	—			35			—			62
	(1		)	35			(8		)	51

FINANCING
Issuance of common shares (net)	55			1,176			57			1,208
Secured subordinated notes (Note 5)	2,098			—			2,098			—
Deferred charges (Note 4)	(144		)	—			(144		)	—
	2,009			1,176			2,011			1,208

NET CASH INFLOW (OUTFLOW) DURING THE PERIOD	461			(235		)	747			(816		)

CASH, BEGINNING OF PERIOD	718			756			432			1,337
CASH, END OF PERIOD	$	1,179		$	521		$	1,179		$	521

SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS
Income taxes	$	—		$	—		$	—		$	—
Interest expense	$	28		$	—		$	30		$	4

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Month Periods Ended June 30, 2004 and 2003

1. SIGNIFICANT ACCOUNTING POLICIES

The interim consolidated financial statements of ADB Systems International Ltd. (“ADB” or the “Company”) should be read in conjunction with the Company’s most recent annual audited financial statements. The accompanying unaudited consolidated financial statements include all subsidiaries and have been prepared in accordance with Canadian generally accepted accounting principles (‘‘GAAP’’) for the purposes of interim financial information. Accordingly, they do not include all information and notes as required by Canadian GAAP in the preparation of annual consolidated financial statements. The accounting policies used in the preparation of the accompanying unaudited consolidated financial statements are the same as those described in the Company’s audited consolidated financial statements prepared in accordance with Canadian GAAP for the three years ended December 31, 2003.

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 2003 annual financial statements reflect the cost of stock-based compensation to employees effective January 1, 2003. Accordingly, the expenses previously reported for the quarter and the six-month period ended June 30, 2003, have increased by $1,000 and $3,000, respectively. The impact of this standard is disclosed in Note 10 to the interim consolidated financial statements.

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 settlement 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 additional forms of debt or equity financing. According to management’s estimate, additional debt or equity financings such as issuance of loans or debentures, issuance of shares and exercise of warrants and options in the amount of $3.7 million were expected to be required for 2004. During the six months ended June 30, 2004, the Company issued $2,210,000 of convertible debt (See Note 5) through private placements netting proceeds of $1,954,000 and raised net proceeds of $57,000 from the issuance of common shares. As a result, management estimates that a further $1.7 million of non-operational funding is required for the remainder of 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, the reported net losses and the balance sheet classifications used.

Management believes that continued existence beyond 2004 is dependent on its ability to increase revenue from existing products, to expand the scope of its product offering, and to continue to obtain funding as necessary.

3. CAPITAL ASSETS

	June 30, 2004						December 31, 2003
	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
	(in thousands)

Computer hardware	$	2,596	$	2,487	$	109	$	2,588	$	2,428	$	160
Computer software	28		14		14		28		—		28
Furniture and fixtures	404		337		67		411		333		78
Leasehold improvements	151		151		—		151		151		—
	$	3,179	$	2,989	$	190	$	3,178	$	2,912	$	266

4. DEFERRED CHARGES

Financing costs in the amount of $15,000 and $162,000 associated with the liability component of the Series F and Series G notes, respectively have been recorded as deferred charges. The deferred charges are being amortized on a straight-line basis over the term of the underlying debt. Debt conversion will result in the allocation of the associated unamortized deferred charge to shareholders’ equity. During the quarter ended June 30, 2004, amortization of deferred charges in the amount of $3,000 was recorded and is included in depreciation and amortization expense.

5. SECURED SUBORDINATED NOTES

a) During the quarter ended June 30, 2004, the Company issued Series F secured subordinated notes with a face value of $500,000. The Series F notes have an annual rate of interest of 7% paid quarterly in arrears, mature May 19, 2007 and are convertible into equity units at a price of $0.31 per unit. Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The share-purchase warrants expire on May 19, 2007. The Series F secured subordinated notes will automatically convert into units when the share price of the Company closes above $0.70 for five consecutive trading days during the term. Holders may convert the notes into units at anytime following a four-month hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash.

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

Financing costs in the amount of $26,000 were incurred in the issuance of the Series F notes. Financing costs of $15,000 attributed to the liability component of the notes were allocated to deferred charges (See Note 4). Financing costs of $11,000 attributed to the equity portions of the notes were recorded as a reduction to shareholders’ equity.

b) During the quarter ended June 30, 2004, the Company issued Series G secured subordinated notes with a face value of $1,710,000. The Series G notes mature June 15, 2007, have an annual rate of interest of 7% payable upon the earlier of maturity and conversion and are convertible into equity units at a price of $0.31 per unit. Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The share-purchase warrants expire on June 15, 2008. The Series G secured subordinated notes will automatically convert into units when the volume-weighted average share price of the Company closes above $0.70 for 20 consecutive trading days during the term. Holders may convert the notes into units at anytime following a four-month hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash.

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

Financing costs in the amount of $230,000 were incurred in the issuance of the Series G notes. Financing costs of $129,000 attributed to the liability component of the notes were allocated to deferred charges (See Note 4). Financing costs of $101,000 attributed to the equity portions of the notes were recorded as a reduction to shareholders’ equity.

In addition to the financing costs described above, the Company issued to First Associates Investment Inc. an option to purchase up to 485,484 equity units at a purchase price of $0.31 per unit. The option expires on June 15, 2006. Each equity unit consists of one common share and one half of a share-purchase warrant with an exercise price of $0.50. The share-purchase warrants expire on June 15, 2008. Using the Cox-Rubinstein binomial valuation model, the Company has determined the fair value of these equity units to be $59,000. The portion of the fair value of these options, in the amount of $33,000, attributable to the liability component of the notes was allocated to deferred charges. The remaining portion , in the amount of $26,000, attributable to the equity components of the notes was recorded as a reduction to shareholders’ equity.

c) During the year ended December 31, 2003, the Company issued Series E secured subordinated notes with a face value of $1.0 million for net proceeds of $994,000. The Series E notes have an annual rate of interest of 11% 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 share-purchase warrants expire on August 19, 2006. 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. Holders may convert the notes into units at anytime following a four-month hold period. If the holder does not convert and no automatic conversion takes place, the Company must repay the principal amount in cash. 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 separated the liability and equity components of the Series E secured subordinated notes. The Company determined the fair value of the liability 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 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 values of the liability component of the 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.

d) The following tables summarize the nominal and fair values of the liability and the equity components of the Series D, E, F and G secured subordinated notes.

Secured subordinated notes

	June 30, 2004						December 31, 2003
	Nominal Value			Fair Value			Nominal Value			Fair Value
	(in thousands)
Opening balance	$	1,115		$	721		$	205		$	34
Issuance of notes:
Series E	—			—			1,000			596
Series F	500			286			—			—
Series G	1,710			959			—			—
Non-cash interest	—			80			—			112
Conversion of notes:
Series D	(55		)	(41		)	(90		)	(21		)
Series E	(550		)	(371		)	—			—
Closing balance	$	2,720		$	1,634		$	1,115		$	721

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

	June 30, 2004					December 31, 2003
	Common Shares		Fair Value			Common Shares		Fair Value
	(in thousands)
Opening balance	5,723		$	497		2,562		$	175
Issuance of notes
Series E	—		—			4,286		398
Series F	2,419		203			—		—
Series G	8,274		624			—		—
Conversion of notes
Series D	(684	)	(47		)	(1,125	)	(76		)
Series E	(2,357	)	(219		)	—		—
Closing balance	13,375		$	1,058		5,723		$	497

6. SHARE CAPITAL

a) Authorized

Unlimited number of common shares

Unlimited number of preference shares – issuable in series

b) Common Shares

	June 30, 2004			December 31, 2003
	Shares	Amount		Shares	Amount
	(in thousands of shares and dollars)

Opening balance	59,423	$	97,674	50,140	$	95,633

Shares issued pursuant to:
Private placement	—	—		5,181	1,254
Re-issuance of treasury shares	98	—		—	—
Exercise of warrants	228	48		3,313	703
Conversion of debentures	2,028	603		750	72
Exercise of options	72	24		39	12
Closing balance	61,849	$	98,349	59,423	$	97,674

c) Share-purchase Warrants

	June 30, 2004					December 31, 2003
	Warrants		Amount			Warrants		Amount
	(in thousands of shares and dollars)

Opening balance	5,338		$	324		6,121		$	1,599

Warrants issued pursuant to:
Private placement	—		—			2,733		—
Strategic marketing agreement	—		—			—		226
Conversion of debentures	1,013		74			375		27
In lieu of fees	—		—			30		—

Warrants exercised	(228	)	(16		)	(608	)	(1,289		)
Warrants cancelled	—		—			(3,313	)	(239		)
Closing balance	6,123		$	382		5,338		$	324

7. GAINS (LOSSES) ON DISPOSAL OF CAPITAL ASSETS AND STRATEGIC INVESTMENTS

	Three months Ended June 30				Six months Ended June 30
	2004		2003		2004			2003
	(in thousands)
Gain (loss) on disposal of capital assets (Note7 (a))	$	—	$	3	$	(1	)	$	(13	)
Gain on disposal of strategic investments (Note 7(b))	—		20		—			20
	$	—	$	23	$	(1	)	$	7

(a) The Company disposed of capital assets that are no longer required.

(b) During the three months ended June 30, 2003, the Company disposed of strategic investments that had a net book value of $Nil, resulting in a gain of $20,000.

8. GAIN ON SETTLEMENT OF DEMAND LOAN

On June 30, 2003, the Company settled the outstanding demand loan and associated accrued interest by transferring its investment in Bid.Com International Ltd. (“Bid.Com Ltd.”) to the lender. This transfer resulted in a gain on settlement of demand loan in the amount of $2,195,000 (See also Note 11).

9. SEGMENTED INFORMATION

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

	Three months Ending June 30				Six months Ending June 30
Net Revenue by Geographic Region	2004		2003		2004		2003
	(in thousands)
North America	$	236	$	234	$	528	$	464
Ireland and U.K.	226		354		290		657
Norway	869		810		1,697		1,538
	$	1,331	$	1,398	$	2,515	$	2,659

	June 30, 2004				December 31, 2003
Assets by Geographic Region	Capital Assets		Intangible and Other Assets		Capital Assets		Intangible and Other Assets
	(in thousands)

North America	$	64	$	249	$	106	$	152
Ireland and U.K.	8		—		16		—
Norway	118		282		144		846
	$	190	$	531	$	266	$	998

10. STOCK BASED COMPENSATION

During the fourth quarter of fiscal 2003, the Company prospectively 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 three and six-month periods ended June 30, 2004, the employee stock option expense was $11,000 and $39,000, respectively. As a result of the early adoption of these recommendations, the expenses previously reported in the second quarter of 2003 increased by $1,000 with the quarterly net income previously reported as $527,000, decreasing to $526,000. Expenses previously reported for the six-month period ended June 30, 2003 increased by $3,000 with the net loss for the same period previously reported as $1,228,000, increasing to $1,231,000.

Prior to the year ended December 31, 2003, 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:

	Three Months Ended June 30				Six Months Ended June 30
	2004		2003		2004		2003

Dividend yield	—		—		—		—
Risk free interest rate	3.53	%	3.52	%	3.53	%	3.52	%
Expected volatility	137.32	%	124.43	%	137.32	%	124.43	%
Expected term, in years	3.0		2.0		3.0		2.0

If the estimated fair values of the Company’s stock options to employees had been amortized to expense over the vesting period of the awards as specified under CICA 3870, 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:

	Three Months Ended June 30					Six Months Ended June 30
	2004			2003		2004			2003
	(in thousands, except per share amounts)
Income (loss) attributable to common shareholders
As reported	$	(1,423	)	$	526	$	(2,810	)	$	(1,231	)
Pro forma	$	(1,423	)	$	483	$	(2,810	)	$	(1,340	)
Basic and diluted loss per share
As reported	$	(0.02	)	$	0.01	$	(0.05	)	$	(0.02	)
Pro forma	$	(0.02	)	$	0.01	$	(0.05	)	$	(0.02	)

11. RELATED PARTY TRANSACTIONS

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 demand loan in the aggregate principal amount of $2 million. The Company and the same unrelated party also entered into an arrangement whereby Bid.Com Ltd. conducted on-line retail operations. 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 to be supplied by the lender.

The demand loan matured on June 30, 2003. On June 30, 2003, the Company transferred to the lender 100 percent of the issued shares of Bid.Com Ltd. in full settlement of the outstanding principal and accrued interest owing to the lender.

Prior to the transfer, 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 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. The Company was not exposed to losses incurred by Bid.Com Ltd., and accordingly this investment was carried at a nominal amount.

Revenue of $22,000 and $37,000 related to support and maintenance services provided to Bid.Com Ltd. has been included in the consolidated results of the Company for the three-month period and the six-month period ended June 30, 2003, respectively. In addition, during the quarter ended June 30, 2003, the Company charged overhead-related costs of $38,000 ($76,000 for the six-month period) for rent, connectivity and management fees to Bid.Com Ltd. These overhead charges have been recorded as a reduction of expenses in the consolidated financial statements for the period ended June 30, 2003.

Results of Operations

Comparison of the Quarters Ended June 30, 2004 and June 30, 2003

Overview: Net loss for the quarter was $1.4 million, a loss of $0.02 per share, compared to net income of $526,000, or income of $0.01 per share, for the same quarter of 2003. The difference between the two quarters arose primarily from a one-time gain on settlement of the demand loan in the amount of $2.2 million that was recorded in 2003. The loss before gains on disposal of capital assets and strategic investments, the gain on settlement of the demand loan and additional revenue realized from terminated retail activities was $1.4 million for the second quarter of 2004 as compared to $1.8 million for the same quarter of 2003. Total expenses decreased $403,000 or 12.8 percent this quarter when compared to the same quarter last year.

Revenue: Revenue is comprised of software license sales, service fees for software implementation, application hosting, support and training and transaction fees from on-line activities performed for customers. Overall revenue decreased to $1.3 million for the quarter ended June 30, 2004 from $1.4 million for the quarter ended June 30, 2003. The decrease was attributable to reduced revenue from Ireland and U.K. customers in the quarter.

General and Administrative: General and administrative expenses decreased to $1.2 million for the quarter ended June 30, 2004 from $1.4 million for the quarter ended June 30, 2003, a decrease of 13.3%. Major savings over the same period last year include reduction in staffing, lower travel and communication expenses, lower professional fees and a decrease in foreign exchange losses. These savings were partially offset by increased rent and occupancy costs associated with U.K. operations.

Sales and Marketing: Sales and marketing costs include all salaries and related expenses for our sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs. For the quarter ended June 30, 2004 sales and marketing costs amounted to $168,000, as compared to $328,000 in the same period of 2003, a decrease of 48.8%. A refocusing of marketing initiatives coupled with lower staffing levels resulted in the reduced costs. Salaries accounted for $112,000 of the decrease over the same period last year.

Software Development and Technology: For the quarter ended June 30, 2004 these costs amounted to $904,000 compared with $730,000 for the second quarter of 2003. The increase in costs is due primarily to an increase in staffing levels over last year. Salaries accounted for $127,000 of the quarter-to-quarter increase.

Employee Stock Options: The expense associated with employee stock options for the quarter ended June 30, 2004 increased over that of the same quarter last year as a result of options granted in the third quarter of 2003 that vested over the last two quarters of 2003 and the first two quarters of 2004. During the fourth quarter of 2003, the Company elected to prospectively adopt the fair value method of accounting for stock-based compensation. As a result the expenses previously reported for the second quarter of 2003 have been increased by $1,000 to reflect the employee stock options.

Depreciation and Amortization: Depreciation and amortization expense was $366,000 for the quarter ended June 30, 2004 as compared to $591,000 for the quarter ended June 30, 2003. The expense in 2003 included $257,000 in amortization of deferred financing charges as compared to $3,000 in amortization of deferred financing charges for 2004.

Interest Expense: Interest expense was $65,000 for the quarter ended June 30, 2004, compared to $75,000 for the same quarter of 2003. Interest expense for 2003 included interest on a demand loan that was not outstanding in 2004. This expense savings is partially offset by increased interest relating to the secured subordinated notes.

Interest Income: Interest income in 2004 and 2003 was not a significant amount in either of the quarters ended June 30.

Gains on Disposal of Capital Assets and Strategic Investments: Gains on disposal of capital assets and strategic investments amounted to $23,000 for the quarter ended June 30, 2003. During the second quarter of 2003, the Company realized a $20,000 gain on the disposition of a strategic investment that had a net book value of $Nil. The Company also disposed of computer equipment in 2003 that was no longer required and realized a small gain.

Gain on Settlement of Demand Loan: In the second quarter of 2003, the Company settled the outstanding balance of the demand loan and related accrued interest by transferring its investment in Bid.Com International Ltd. to the lender. This transaction resulted in a gain of $2.2 million.

Retail Activities: During the quarter ended June 30, 2003, the Company received unanticipated proceeds arising from on-line retail activities that had been carried out prior to October 2000.

Comparison of the Six-Month Periods Ended June 30, 2004 and June 30, 2003

Overview: Year-to-date the net loss was $2.8 million, a loss of $0.05 per share, for 2004 compared to a net loss of $1.2, or $0.02 per share, for the same period of 2003. The lower loss for 2003 arose primarily from a one-time gain on settlement of demand loan in the amount of $2.2 million. The loss before gains on disposal of capital assets and strategic investments, the gain on settlement of the demand loan and additional revenue realized from terminated retail activities was $2.8 million for the first six months of 2004 as compared to $3.5 million for the same period of 2003, representing an improvement of $700,000 or 19.7 percent. Total expenses decreased by $835,000 or 13.6 for the six months ended June 30, 2004 when compared to the same period last year.

Revenue: Revenue is comprised of software license sales, service fees for software implementation, application hosting, support and training and transaction fees from on-line activities performed for customers. 2004 year-to-date revenue declined by $144,000 to $2.5 million compared with revenue for the same period in 2003. The decrease was attributable to reduced revenue from Ireland and U.K. customers in the first half of 2004.

General and Administrative: General and administrative expenses decreased to $2.3 million for the six-month period ending June 30, 2004 from $2.6 million for the same period in 2003, a decrease of 10.6 percent. Major savings over the same period last year include reduction in staffing, lower travel and communication expenses, reduced professional fees, lower insurance premiums and a decrease in foreign exchange losses. These savings were partially offset by increased rent and occupancy costs associated with U.K. operations.

Sales and Marketing: Sales and marketing costs include all salaries and related expenses for our sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs. For the six-month period ended June 30, 2004 sales and marketing costs amounted to $451,000, as compared to $647,000 in the same period of 2003, a decrease of 30.3 percent. A refocusing of marketing initiatives coupled with lower staffing levels resulted in lower costs. Salaries accounted for $129,000 of the savings over the same period last year.

Software Development and Technology: For the six-month period ended June 30, 2004, software development and technology costs amounted to $1.7 million compared with $1.6 million for the same period of 2003. The increase in costs is due primarily to an increase in staffing levels over last year. Salaries accounted for $75,000 of the increase in the first half of 2004.

Employee Stock Options: The expense associated with employee stock options for the six-month period ended June 30, 2004 increased over that of the same quarter last year as a result of options granted in the third quarter of 2003 that vested over the last two quarters of 2003 and the first two quarters of 2004. During the fourth quarter of 2003, the Company elected to prospectively adopt the fair value method of accounting for stock-based compensation. As a result the expenses previously reported for the first six months of 2003 have been increased by $3,000 to reflect the value of the employee stock options expensed.

Depreciation and Amortization: Depreciation and amortization expense was $722,000 for the six months ended June 30, 2004 as compared to $1.2 million for the same period of 2003. The expense in 2003 included $513,000 in amortization of deferred financing charges as compared to $3,000 in amortization of deferred financing charges for 2004.

Interest Expense: Interest expense was $132,000 for the six-month period ended June 30, 2004, compared to $175,000 for the same period of 2003. Interest expense for 2003 included interest on a demand loan that was not outstanding in 2004. This expense savings is partially offset by increased interest relating to the secured subordinated notes.

Interest Income: Interest income was negligible in both of the six-month periods ended June 30, 2004 and 2003.

Gains (Losses) on Disposal of Capital Assets and Strategic Investments: A loss of $1,000 on the disposal of capital assets for the six-month ended June 30, 2004 compares to gains on disposal of capital assets and strategic investments of $7,000 for the six-month period ended June 30, 2003. During 2003, the Company realized a $20,000 gain on the disposition of a strategic investment that had a net book value of $Nil. This gain was partially offset by losses from the disposal of computer equipment that was no longer required.

Retail Activities: During the period ended June 30, 2003, the Company received unanticipated proceeds arising from on-line retail activities that had been carried out prior to October 2000.

Cash Flows

Comparison of the Quarters Ended June 30, 2004 and June 30, 2003 and Six-Month Periods ended June 30, 2004 and June 30, 2003

Operating Activities: Cash outflows from operating activities were $1.5 million for the second quarter of 2004 as compared to $1.4 million for the same quarter of 2003. For the six-month period ending June 30, 2004, cash outflows from operating activities were $1.3 million, while the same period in 2003 resulted in cash outflows of $2.1 million. Continued cost reductions and management of changes in non-cash working capital have resulted in the improved year-to-date cash flow from operations.

Investing Activities: Cash used by investing activities was $1,000 for the quarter ended June 30, 2004 compared to cash provided by investing activities of $35,000 for the quarter ended June 30, 2003. For the six-month period ending June 30, 2004 cash outflow from investing activities amounted to $8,000 as compared to cash inflows of $51,000 in 2003.

Financing Activities: Cash provided by financing activities was $2.0 million for the three months ending June 30, 2004 compared to a cash inflow of $1.2 million for the same period of 2003. For the six-month period ending June 30, 2004 cash inflow from financing activities was also approximately $2.0 million compared with an inflow of $1.2 million in 2003. In the first six months of 2004, the primary source of funding was the issuance of secured subordinated notes, which netted proceeds of $1,954,000. In the first six months of 2003, the Company received net proceeds of $1,148,000 from the issuance of common shares via a private placement

Contractual Obligations: As at June 30, 2004, the Company’s contractual obligations, including payments due by periods over the next five fiscal years, are as follows:

			Balance
	Total		of 2004		2005		2006		2007		2008
	(in thousands)

Operating leases	$	307	$	103	$	113	$	43	$	24	$	24
License agreements	600		68		133		133		133		133
Secured subordinated notes(a)	2,720		60		—		450		2,210		—
	$	3,627	$	231	$	246	$	626	$	2,367	$	157

(a) These amounts do not include interest and notes are assumed to be held to maturity.

Financial Condition

Liquidity: Cash and marketable securities increased by $747,000 to $1,192,000 as at June 30, 2004 from $445,000 as at December 31, 2003.

Current assets of $2.6 million exceeded current liabilities (excluding deferred revenue) of $1.7 million at the end of the second quarter of 2004 by $900,000. Current assets of $1.9 million exceeded current liabilities (excluding deferred revenue) of $1.8 million by $100,000 at the end of the first quarter of 2004. Deferred revenue has been excluded from current liabilities as it is expected to be settled by the provision of services rather than cash.

Capital Resources: There were minor additions to capital assets during the six-month period ended June 30, 2004.

Funding: The Company has not earned operating profits to date and, at June 30, 2004, has an accumulated deficit of $102.6 million. The Company expects to incur further 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 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, option exercises and cash flow from operations. Since inception, the Company has received aggregate net proceeds of $86.2 million from debt and equity financing and has realized $23.7 million in gains on investment disposals.

The Company 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 raised net proceeds of $2.0 million from financing activities in the second quarter of 2004, we estimate that additional funding of working capital in the amount of $1.7 million will be required for the balance of 2004. The Company expects to obtain the additional working capital funding through additional debt or equity financings such as issuance of loans or debentures, issuance of shares and exercise of warrants and 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, the Company may require funds sooner or in greater amounts than currently anticipated.

This quarterly report may include comments that do not refer strictly to historical results or actions and may be deemed to be forward-looking within the meaning of the Safe Harbor provisions of US federal securities laws. These include, among others, statements about expectations of future revenues, cash flows and cash requirements. Forward-looking statements are subject to risks and uncertainties that may cause the Company’s results to differ materially from expectations. These risks include the Company’s ability to raise additional funding, develop its business-to-business sales and operations, develop appropriate strategic alliances and the successful development and implementation of technology, acceptance of the Company’s products and services, competitive factors, new products and technological changes, and other such risks as the Company may identify and discuss from time to time, including those risks disclosed in the Company’s Form 20-F filed with the Securities and Exchange Commission. Accordingly, there is no certainty that the Company’s plans will be achieved.

CORPORATE DIRECTORY

Directors	Officers	ADB Systems Offices	Additional Shareholder Information

Jeffrey Lymburner CEO T. Christopher Bulger (1), (2), (3) CEO, Megawheels Ducan Copeland (1), (2), (3) President, Copeland and Company Paul Godin (2), (3) Jim Moskos President, ADB Technology Group Jan Edvin Pederson President, ADB Systemer, Norwegian Operations Rick Robertson (1) Associate Professor of Business Richard Ivey School of Business	Jeffrey Lymburner CEO Jim Moskos President, ADB Technology Group Jan Edvin Pederson President, ADB Systemer, Norwegian Operations Mike Robb, CMA CFO Aidan Rowsome Vice President, Global Sales	North America Corporate Headquarters ADB Systems International Ltd. 6725 Airport Road, Suite 201 Mississauga, Ontario L4V 1V2 1 888 287 7467 ADB Systems International Ltd. 3001 North Rocky Point Drive, Suite 200 Tampa, Florida 33607 1 888 750 7467 Europe ADB Systemer AS Vingveien 2, N-4050 Sola, Norway + 47 51 64 71 00 ADB Systems Limited 3000 Cathedral Hall Guildford, Surrey GU2 7YB + 44 (0) 1483 243500 ADB Systems International Ltd. 52 Broomhill Rd., Ste 108 Tallaght, Dublin 24 Ireland + 353 1 431 0513	www.adbsys.com investor-relations@adbsys.com Registrar and Transfer Agent Equity Transfer Services 120 Adelaide Street Suite 420 Toronto, Ontario, Canada Auditors Deloitte & Touche LLP Chartered Accountants Toronto, Ontario, Canada Lawyers Gowlings, Toronto Brown Raysman, New York Stock Exchange Listings Toronto Stock Exchange Symbol: ADY OTC Bulletin Board Symbol: ADBY Shares Outstanding (June 30, 2004) Issued: 61,849,192

(1) Member of Audit Committee

(2) Member of the ManagementResources and CompensationCommittee

(3) Member of the CorporateGovernance Committee