BgenuineTec Inc, hereafter "the Company", is a company incorporated and domiciled in Japan.  The legal form of the Company is a limited liability corporation called "Kabushiki-kaisha".  The Company designs and manufactures a range of fingerprint authentication technologies and products to companies and individuals that wish to establish high levels of security in various applications using biometrics.  The business activity also includes R&D and sales of fingerprint systems and components.

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the EU.  The designation "IFRSs" also includes all valid International Accounting Standards (IASs). All interpretations of the International Financial Reporting Interpretations Committee (IFRIC) mandatory for the financial year 2009 have also been applied. Pound sterling amounts included herein are given solely for convenience and are stated, as matter of arithmetical computation only, at the rate of JPY146.53=£1, the approximate exchange rate at 31 December 2009.  The translation should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into pounds sterling.

The principal accounting policies adopted are set out below.

Going-concern

These consolidated financial statements have been prepared by management on the basis of generally accepted accounting principles applicable to a "going concern", which assumes the Company will continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.

The Company posted net loss of JPY382 million in the year ended 31 December 2009, mainly due to poor sales results of JPY44 million and impairment loss on investment in associate company　of JPY64 million.

The poor sales resulted from the internal restructuring of the sales and development divisions, the worldwide recession and a deferred order from a major client.

To enable the Company to rectify the continued loss-making, the Company is either in the process of carrying out or going to carry out following actions in 2009.

a.   Readjust the product mix by introducing technologies and products from the associated Company "Beyond LSI Inc".

b.  Restructuring sales organization and strengthen sales manpower.

c.  Strengthen management.

d.  Enhancing core technology and penetrating overseas market.

To expand its business, the Company needs additional funding of JPY 180 million in 2010 from the date of signing of these accounts. Further to this, additional JPY 100 million is necessary in terms with investors. Fund raising of  JPY 156 million is planned in the first half of 2010, and JPY 24 million in second half of 2010. Fundamental to the Going Concern assumption is a belief by the Board that it can raise such equity.

These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption was not appropriate because the Company has a firm conviction to achieve sales and operating profits in 2010 and 2011 by execution of above actions, and the fund-raising in 2010 as mentioned above.

If the going concern assumption were not appropriate for the consolidated financial statements, then adjustment would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and classifications used in the consolidated statement of financial position.

Basis of consolidation

Equity method

Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20% and 50% of the voting power of another entity. Associates are accounted for using the equity method (equity accounted investees) according to IAS28 (Investments in Associates). The consolidated financial statements include the Company's share of the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences until the date that significant influence ceases. When the Company's share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.

Goodwill

Goodwill arising on business combination represents the excess of the cost of acquisition over the fair value of the identifiable assets and liabilities of a transferor at the date of acquisition. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment.

Goodwill is recognised as an asset and reviewed for impairment at least annually.  Any impairment is recognised immediately in the income statement and is not subsequently reversed.

The Company has only single cash generating unit for the purpose of impairment testing.

Revenue recognition

Revenue arises from sales of goods.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and consumption taxes.

Sales of goods are recognised when goods are delivered and title has passed.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. There was no asset under finance lease as of the balance sheet date.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Foreign currencies

The Company's functional and presentational currency is Japanese Yen ("JPY").

Transactions in currencies other than Japanese Yen are recorded at the rates of exchange prevailing on the dates of the transactions.  At the balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.  Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.  Gains and losses arising on retranslation are included in the income statement for the year.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year.  Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The Company's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.  Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary difference arises from goodwill on the initial recognition of goodwill or an asset or liability, which is not part of a business combination and at the time of recognition did not affect accounting or taxable profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight-line method, on the following basis:

Leasehold improvement                                 10%-17%

Fixtures and equipment                              17%-50%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is included in the income statement for the year.

Other non-current assets

Other non-current assets consist of lease deposits for office premises and long-term prepaid expenses, which are stated at historical cost minus unrefunded amounts.

Development costs

Development costs concerning software programs developed externally are capitalised and measured initially at purchase cost and amortised on a straight-line basis over their estimated useful lives (3 years).

An internally generated intangible asset arising from the Company's biometric technology business development is recognised only if all of the following conditions are met:

·             an asset is created that can be identified (such as software and new processes);

·             it is probable that the asset created will generate future economic benefits; and

·             the development cost of the asset can be measured reliably.

Internally generated intangible assets are amortised on a straight-line basis over their useful lives.

Expenditure on research activities is recognised as an expense in the period in which it is incurred. 

Patents, exclusive sales rights and trademarks

Patents and trademarks are measured initially at purchase cost and amortised on a straight-line basis over their estimated useful lives (8 years).  Exclusive sales rights are not amortised since there is substantially no period for termination in the agreement.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is already carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Inventories

Inventories are stated at the lower of cost and net realisable value.  Cost comprises direct materials, transportation and any other incidental costs incurred for purchase. Cost is calculated using the weighted average method.  Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.

Financial instruments

Financial assets and financial liabilities are recognised on the Company's statement of financial position when the Company has become a party to the contractual provisions of the instrument.

Investments securities

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the time frame established by the market concerned, and are initially measured at cost, including transaction costs.

Investment securities classified as available-for-sale are remeasured at fair value.  Gains and losses arising from the changes in the fair values of available-for-sale investments are recognised directly in the fair value reserve in equity, until the investment is sold or otherwise disposed of or until it is determined to be impaired.  The fair value of an available-for-sale investment is based on its quoted bid price in an active market at the balance sheet date.  The fair value of available-for-sale investment with no quated bid price is based on fair value of future cash flows discounted using the market rate of interest.

In accordance with IAS 39, assessments are made regularly as to whether there is any objective evidence that investments securities may be impaired. Cumulative losses identified after carrying out an impairment test are removed from the fair value reserve in equity and recognised as an expense in the income statement.

Trade payables

Trade payables are classified as other liabilities in accordance with IAS 30, initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

Equity instruments

Ordinary shares are classified as equity instruments and are recorded at the fair value, net of direct issue costs.  Equity instruments are not subsequently remeasured. 

In accordance with IAS39 (Financial Instruments: Recognition and Measurement), assessments are made regularly as to whether there is any objective evidence that a financial asset or group of assets may be impaired. Impairment losses identified after carrying out an impairment test are recognised as an expense. Gains and losses on available-for-sale investments are recognised directly in equity until the financial asset is disposed of or is determined to be impaired, at which time the cumulative loss previously recognised in equity is included in loss for the year.