Annual Report 2005 Keyware Technologies NV

2

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

10

9

8

7

6

5

4

3

2

1

Ready for take-off

Keyware launch

It’s Keyware Time

3

- Registered seat -

- Branches -

- Core activities -

Keyware Technologies NV Paepsem Business Park, Boulevard Paepsem 18G, B-1070 Brussels, Belgium tel: +32 (0)2 346.25.23 fax: +32 (0)2 347.16.88 info@be.keyware.com - www.keyware.com Company number 0458430512 VAT BE 458.430.512

Keyware Transaction & Processing NV Rue Laid Burniat, B-1348 Louvain-la-Neuve, Belgium tel: +32 (0)10 45.77.66 fax: +32 (0)10 45.77.67 info@be.keyware.com Keyware Smart Card Division NV Paepsem Business Park, Boulevard Paepsem 18G, B-1070 Brussels, Belgium tel: +32 (0)2 346.25.23 fax: +32 (0)2 347.16.88 info@be.keyware.com Keyware NV Paepsem Business Park, Boulevard Paepsem 18G, B-1070 Brussels, Belgium tel: +32 (0)2 346.25.23 fax: +32 (0)2 347.16.88 info@be.keyware.com Keyware France NV

Keyware Paris Les Villas d’Entreprises Avenue de l’Europe 55, F-77184 Emerainville, France tel: +33 (0)1 64.73.28.50 fax: +33 (0)1 64.73.28.51 info@fr.keyware.com Keyware Toulouse Rue Jean Bart Voie 12, F-31670 Labege, France tel: +33 (0)5 61.00.07.50 fax: +33 (0)1 61.00.07.59 info@fr.keyware.com

Keyware Technologies Suisse NV Keyware Sierre Technopôle 3, CH-3960 Sierre, Switzerland tel: +41 (0)27 452.24.44 fax: +41 (0)27 452.24.45 info@ch.keyware.com

- Access control, time registration, alarm management and CCTV (closed circuit TV) - Payment terminals, loyalty applications, ID card technology and transaction management

4

SHAREHOLDERS’ MEETING

The Ordinary Shareholders’ Meeting of Keyware Technologies NV will be held on Friday 26 May 2006 at 15:00 at Espace del Goutte, Bois Seigneur Isaac 40 in 1421 Braine l’Alleud, Belgium.

AVAILABILITY OF THE ANNUAL REPORT

This annual report is available in Dutch, French and English. Keyware has verified that the French and English translations correspond with the official Dutch version. If there are contradictions between the Dutch, French and English versions, the Dutch version will take precedence. An electronic version of this annual report is also available online via the website of Keyware Technologies NV (www.keyware.com).

A PRIORI CONTROL

On 4 November 2003 the CBFA announced that the Management Board, in accordance with article 16, par. 3 of the Royal Decree of 31 March 2003, had decided that henceforth Keyware Technologies NV should communicate the information meant in the Royal Decree of 31 March 2003 before it was published in order to let the CBFA carry out an “a priori control”. At its meeting of 21 February 2006, the Management Board of the Banking, Finance and Insurance Commission (CBFA) decided to abolish the “a priori control” for Keyware Technologies NV.

5

CONTENTS Introduction Letter to our Shareholders Milestones Company Information The Keyware Team Orbit One & Two It’s Keyware Time Keyware as a sponsor Information for the shareholders Shareholder structure Keyware at the Euronext stock exchange Corporate Governance Corporate Governance Insider Trading Directive A priori control Conflict of interests Consolidated information Auditor’s Report Discussion of the financial situation and the results of the operations by the management Consolidated balance sheet Consolidated profit and loss account Overview of the consolidated shareholders’ equity Consolidated Cash Flow statements Notes to the consolidated annual accounts First-time adoption of IFRS Reconciliation balance sheet per 31 December 2003 USGAAP - IFRS Reconciliation balance sheet per 31 December 2004 USGAAP - IFRS Reconciliation profit and loss account per 31 December 2003 USGAAP - IFRS Reconciliation profit and loss account per 31 December 2004 USGAAP - IFRS Overview of the consolidated shareholders’ equity USGAAP - IFRS Notes to the first-time adoption of IFRS Statutory information Statutory Auditor’s Report Statutory annual accounts Statutory annual report of the company

6

Introduction

7

LETTER TO OUR SHAREHOLDERS

2005, ready for take-off !!! Do you remember...... 1996. Keyware Technologies is founded as the developer of identification applications with the focus on biometric security. 2000. Keyware Technologies goes to the stock exchange. A turbulent and tempestuous period commences for technology companies worldwide. Many companies go bankrupt, also in Belgium. 2004. The Year of Confidence. A group of stakeholders consisting of investors, shareholders, clients and suppliers believe in Keyware’s future and bundle their forces. More than kEUR 3,977 of fresh capital is contributed; product groups and divisions are streamlined further and geared to each other. 2005. Keyware is ready for a new start. Both the “Security & Time management” and the “Card & Terminal applications” division achieve various commercial successes: Keyware’s products and services are rated amongst the best on their target markets. With regard to finance, during the second half of 2005 Keyware achieves a profitable half-year for the first time. Dear shareholder, soon we can celebrate Keyware’s 10th jubilee together. Partly as a result of your confidence and dedication we have been able to transform Keyware from a promising technology company into a profitable supplier of high-quality product solutions for security and payment applications. Today, our products for access control, time registration and alarm management are the “de facto” standard in thousands of multinationals and organisations. The scalability, flexibility and technological added value of Keyware’s systems guarantee our clients the best solution during every phase of their security life cycle. This division is still struggling with losses but despite the poor market conditions is achieving growth. In 2005 our department for payment terminals, card applications and transactions almost doubled its turnover. Thus Keyware confirms its position as a “Versatile Alternative” in the field of payment terminals. A significant market share is being grabbed from the competition and in addition a large part of the growth market is being won over by Keyware. The efforts made during the past few years and the meticulous elaboration of our strategy have ensured that Keyware is ready for the next decade: both financially, technologically and organisationally we can depart from a platform that offers space for a new success story. It’s Keyware time! It’s Keyware Time From the second half of 2006 a new marketing campaign will be started under the name of “ It’s Keyware Time ”!

8

On the one hand the campaign wants to emphasise that in many cases Keyware can offer a better alternative on its target markets than what the partner or end client currently trusts. In other words: it is time to switch to a better alternative, namely Keyware. On the other hand on markets where its solutions have proven their value, Keyware wants to present its applications to companies that do not use similar solutions yet. In other words: it’s time that you caught up with the competition or even overtook them, Keyware’s solutions can help you to do this. On behalf of Keyware I want to thank every “stakeholder” for their confidence in the company and I propose a toast with each of you to a fascinating and successful 2006! Stéphane Vandervelde CEO

9

MILESTONES 2005

March Keyware takes over Digital Access Control NV (DAC)

June Keyware extends its range of successful payment terminals

Keyware increases capital by converting kEUR 3,977 debts

July Keyware confirms “double-digit” growth for 2005

August Keyware is the new main sponsor of first league soccer club KSV Roeselare

September Keyware shares move from the “double-fixing” to the “continuous market” at Euronext Brussels

October Keyware secures the hospital of Pau

Resignation of Marc Van Rompaey as director

Keyware increases capital by exercising warrants

Tyre centre group QTeam VP-Lambrecht-VDK opts for Keyware

December Keyware achieves profit in 2nd half year of 2005

Keyware crosses the threshold of 7500 terminals

10

11

THE KEYWARE TEAM

2005 was a pivotal year for Keyware: at the end of its first decade the company achieved a net positive result for the first time, for the second half-year. On publishing the 2005 annual results, Keyware was able to announce a turnover growth of over 40%! It is clear that the company’s success depends not only on one party but on harmonious cooperation between clients, suppliers, financiers, sales partners and personnel. The Keyware clients The client strategy that was implemented after our reorganisation in 2004 is also bearing fruit in 2005. Within the “Security & Time management” division various new international partnerships were entered into with leading companies in various sectors: Sanofi-Aventis, Fujitsu-Siemens, Securitas, Fabricom, Philippe Patek, Flexys, King Sturge, Kudelski, Logitech, AGF, Statoil, Subaru, ADP (Aéroport de Paris), Wurth, Total, Getronics, etc. Despite the difficult market conditions within the security sector, Keyware experienced growth of almost 8%. Part of this growth can be attributed to the expansion of Keyware’s range during the second quarter of 2005, with applications such as the e-key and advanced CCTV solutions. On the other hand there was a sharp increase in the sale of security solutions by companies outside Keyware’s home markets such as in Tunisia, Kenya and Turkey. In addition to a number of important upgrades of the current platforms, during the course of 2006 Keyware will launch various new security products that connect seamlessly with the current platforms. These additional features in combination with far-reaching modularity allow our distributors and installers to meet the demands of even the most demanding companies or organisations in the best possible way. Within the “Card & Terminal applications” division the growth achieved was almost 97%. At the end of the first half-year of 2005 Keyware announced an expansion of the existing range with fast fixed and mobile terminals. In October 2005 the contract with tyre centre group QTeam VP-Lambrecht-VDK was announced which is strategically important because Keyware in addition to the individual retailer or restaurant owner now also focuses on chains with specific solutions and adapted service. Since the launch of the payment terminal lease model in February 2004, Keyware has already had more than 7500 satisfied clients. In combination with the other terminal clients Keyware thus confirms its position of “The Best Alternative”. The Keyware sales partners In 2004, the transition was made from a hybrid sales model for the security product range (access control, time management, alarm management and CCTV) to an indirect market model. Although this had a negative impact on the turnover figures in the first instance, the results in 2005 prove that it was the right strategic choice.

12

Keyware's network of over 200 European sales partners – including both large distributors and installers – ensures faster geographic penetration by the product lines and valuable feedback to the development teams. In addition, the end clients enjoy faster intervention for upgrades or optimisation of their solutions. Following the success with important non-European clients, in 2006 Keyware will enter into additional partnerships in these regions. Within the division “Card & Terminal applications” Keyware uses a hybrid sales model, whereby certified partners are deployed depending on the application of the client profile. The Keyware suppliers In June 2005 Keyware increased its capital by kEUR 3,977 by converting debts. In this way important suppliers opted to participate in the company’s success. This relationship based on mutual trust continues to ensure that Keyware can enjoy excellent conditions with its core suppliers that in the end also benefit the end client. The Keyware financiers In 2005 too Keyware’s major shareholders confirmed their confidence in the company, its personnel and directors. Together with other financiers they actively support Keyware’s growth, both in the area of product development, customer service, increasing the number of employees and investments in the sales and marketing channel. At the end of 2005 Keyware furthermore announced that it wants to acquire additional financial resources so that it can fully feed the fast growth in various sectors. In connection with this it was specified during the presentation of the annual results that during the month of April 2006 an Extraordinary Shareholders’ Meeting will be convened with the proposal to issue convertible bonds by means of a private placement for a maximum sum of kEUR 8,000. The Keyware personnel Whilst in 2004 the personnel was primarily strengthened in the area of research and development, in 2005 more focus was placed on the sales structure and the support department. Both groups align themselves with Keyware’s growth and growth strategy and support Keyware’s role as a technology partner and product supplier. Thanks to the dynamic team play between marketing, sales, support and development various new product launches can also be expected during the course of 2006, this within both divisions.

13

14

Company Information

15

ORBIT ONE &TWO Since its foundation in 1996 Keyware (EURONEXT Brussels: KEYW) has developed into an authority in identity-related solutions and services. Keyware is directly represented in Belgium, France and Switzerland and is present in various Western European and North African countries via an extensive network of certified distributors (VARs). Content-wise Keyware consists of two divisions or business units:

Security & Time management: access control, time registration and alarm management. Card & Terminal applications: payment and ID terminals, applications for e-payment,

loyalty systems or ID solutions and processing e-transactions of such applications. Corporate vision Once safely configured, the unique identity carrier of a person serves as the key for gaining access to critical information and applications. This unique identity carrier is a powerful medium for integrating all identity-related solutions and services in one user-friendly, logical and/or physical access process. Corporate mission Keyware’s task consists of becoming the leading supplier of identity-related solutions and services in each of its areas of activity. Since its foundation in 1996, Keyware has developed into an authority in identity-related solutions and services for access control, time registration, alarm management and smart card applications in Belgium, France and Switzerland. Since 2004 our mission also includes playing a key role outside these borders: Keyware is striving to become the European market leader by marketing its advanced applications via strategic partnerships. Corporate strategy Keyware’s technology is developed in house, so that Keyware holds various intellectual property rights in the area of access control, time registration and alarm management on the one hand and smart card applications in the area of e-payments, loyalty systems, ticketing systems and person identification on the other hand. Keyware’s prize-winning products and technologies are sold worldwide by an extensive network of OEMs, system integrators and Value Added Resellers. Keyware’s Professional Services group also helps this network to achieve fast and high-quality integration with the ICT and business environment of the end client.

16

ORBIT ONE: SECURITY & TIME MANAGEMENT Vision within the “Security & Time management” division also called the access, time and alarm management and CCTV division Today’s society is evolving very quickly: it is constantly subject to change in the area of technology, the economy, human relations, … Within the very competitive market companies not only have to present themselves clearly on that market, but also continuously have to invest in innovation, enter into innumerable relations with partners, employees, suppliers, subcontractors, etc. Naturally it is necessary to effectively manage this incoming and outgoing flow of people and goods. An adequate time registration system is primordial in order to let the investments in human capital give the best possible return. Access control, CCTV and alarm management keep watch to prevent intrusion, burglary, theft, etc. Objectives

Keyware wants to offer a ‘one-stop shopping’ formula with integrated solutions for security management: access control, time management, alarm management and CCTV.

Keyware wants to be one of the most important European players within the domain. Keyware strives to offer solutions that offer a perfect balance between security, comfort

and expenses for every security situation. Keyware’s goal is to constantly question its products and solutions and to let them evolve

and to offer the guarantee of the best solution for the client’s entire ‘security life cycle’. Keyware develops, sells and maintains modular and integrated low-end and high-end

solutions for time registration, access control, alarm management and CCTV. Strategy

Keyware develops practically the entire range, both in the area of hardware and the software. Production occurs by certified manufacturers. In this way Keyware can also provide better after-sales service.

Distribution occurs via certified distributors, who offer the end user added value in the area of fire protection, CCTV and protection against theft. So for the client there is really only one discussion partner.

17

Keyware invests in a European network of partners: together with the partner, Keyware takes care of the entire installation and the maintenance of your solution in the area of security management.

Products & solutions

Keyware AccessLock

– solutions in the area of e-keys

Keyware AccessPro

– the very latest in the area of access control and alarm management

Keyware KeyTime

– the professional solution in the area of time management

Keyware CCTV – solutions in the area of security cameras Positioning Keyware presents a full range, that is both broad and deep:

Broad since it comprises time registration, access control, alarm management and CCTV (camera surveillance in a closed circuit);

Deep since it ranges from low-end and stand-alone solutions to the fully integrated and personalised security management of several sites.

Keyware offers the possibility of a fully integrated solution: 1 badge, 1 network and 1 database are used together to register the working time, the access control, the alarm management and the CCTV network. Since all our solutions are modular and can be integrated, Keyware also offers your company the opportunity to grow towards the future in a balanced way: specially adapted security at the right time, in the right place and at the right price!

11 bbaaddggee,, kkeeyy oorr bbiioommeettrryy 11 ddaattaabbaassee

33 iinntteeggrraatteedd aapppplliiccaattiioonnss

Access management Alarm management CCTV

Time management

18

AccessLock A unique and personal key

The system manager gives every user a unique and personal key with which he has access to the places which he has authority to enter. Keys that cannot be copied All the keys are mechanically identical and compatible with all the Keyware AccessLock lock cylinders. They only become functional when programmed and when the access rights are awarded. The

opening codes are purely electronic and are created randomly by the programming software when the locks are created and are then entered and saved in a ‘black box’ file. A key that is created and then deleted and then created again with the same name and the same rights is not the same, identical key. The data exchanges between the key and the lock cylinder are also protected by encoding. Easy to install, no-maintenance lock cylinders The Keyware AccessLock mechatronic lock cylinders are made of stainless steel and work on the principle of the revolving rotor. They have the international standard sizes and can therefore be installed perfectly to replace a traditional, mechanical lock cylinder. They work completely autonomously. Once formatted and installed they do not require a connection to the electricity grid (the key contains the necessary energy for the exchanges between the key and the lock cylinder), nor maintenance (no batteries in the lock cylinder). Evolving organisation charts

The easy-to-use programming software of Keyware AccessLock makes it possible to create and manage systems of various sizes: from environments with only a few lock cylinders, keys and users to a thousand fold. The system manager can add new elements (keys or cylinders) to the system at any time or remove one or more elements to change or delete them.

19

Access control system Every time a user uses his key in a Keyware AccessLock lock cylinder, he leaves behind a trace of the fact that he has used that particular lock . The keys and lock cylinders after all keep a history of the access granted. In this way the system manager can at any time read the data of the keys and/or lock cylinders to check who has been where and whether the door was actually opened or not. The key keeps the 250 last attempts at opening in its memory (whether the lock in question opens or not). Quick intervention in case of loss or theft of keys The Keyware AccessLock system makes it possible to abolish the permission that one or more lost or stolen keys had for certain lock cylinders (or enter them again at a later date). A lock cylinder can save up to 50 forbidden keys on a black list in its memory.

20

AccessPro Keyware AccessPro is a standardised and modular solution consisting of hardware and software for both physical and logical access control. AccessPro can be seamlessly integrated with various other Keyware applications: AccessLock (e-keys) , KeyTime (time registration) or Keyware CCTV (camera surveillance). AccessPro is suitable both for the demanding SME and for international organisations or multinationals. With AccessPro the client can opt for either central or decentralised access control. The flexibility and modularity of this platform ensure that:

During any phase of the security cycle the client has the right solution within his organisation at the right price.

The security settings and functions can be completely customised to the wishes of the client and geared to them.

AccessPro hardware and software are developed by Keyware. The platform amongst others offers the following modules as a standard:

Reproduction of the presence and absence of your employees

Receipt and management of

visitors

Personalisation of the badges

Centralisation of the alarm management

Counting and reproduction of the people present in a

certain zone

Management of the access rights to car parks, lifts, gates,

revolving doors, …

Are you looking for the right balance between comfort and security? Do you want to better manage the entrances to and within your buildings? Do you want to selectively protect certain zones in your company? Do you want to manage the circulation of visitors and subcontractors? ….. or are you simply looking for one of the best solutions for access control or alarm management?

21

KeyTime KeyTime is a standardised and modular solution for time registration that can also be seamlessly integrated with AccessLock (e-keys) or AccessPro (access control). KeyTime hardware and software is developed by Keyware. The platform also offers amongst others the following modules as a standard:

Management and reproduction of the

presence and absence of your employees

Link to your sociaal secretariat

Decentralisation of the day-to-day Integrated solution:

• Control of the access to the building

• Management of your visitors • Reproduction and management of

the alarms

Intranet (Employee Self Service)

Reports

Management and reproduction of the planning of your

employees

Do you want to manage your personnel data effectively? Is absenteeism a problem in your organisation? Can you organise the planning of your employees or teams in the best

possible way? Do you want an up-to-date overview of the presence and absence at any

time? … or are you simply looking for one of the best solutions for time

registration, whether or not in combination with access control or alarm management?

22

CCTV Audio and video server Keyware’s CCTV audio and video server is a digital server with four CIF channels and one D1 channel. It is completely independent of any pc platform. The system relies on a built-in

processor and operating system. The audio and video server uses the high-performance H.264 compression technology. It takes care of synchronous hardware compression, makes real-time video and audio recordings and also sends them real time to the network. The server also

supports the streaming protocols (RTP/RTCP, RTSP) and the major web browsers. Keyware’s CC TV audio and video server uses a built-in high-performance RTOS system (Real Time multitask Operating System) and a built-in processor, with which all the functions that are necessary to expand a security system can be carried out perfectly. As all the software was coded in FLASH, the system is extremely reliable. Integrated network DVR Network recording equipment for images integrated in Keyware’s CCTV is an excellent solution for digital security and it makes use of high technology in the area of encoding and decoding audio and video material, writing it to the hard disk and TCP/IP protocols. It has the properties of both a digital video recorder (DVR) and those of a digital video and audio server (DVS). It can work autonomously or be used as a powerful security network. It is often used in banks, telecommunication companies, transport companies, factories, warehouses, irrigation companies, etc.

Supports a maximum of 16 incoming video channels. Each channel can be compressed individually to 25 images per second (FPS) (30 FPS for NTSC) and in CIF resolution (or QCIF, HALF D1), by using the H.264 algorithm. The variable binary debit and variable playback speed are both supported.

Supports a maximum of 16 incoming audio channels. Each channel can be compressed individually with the aid of the OggVorbis standard. The outgoing binary debit is 16 kbps.

The outgoing video and audio flow can be multiplexed to generate a multiplexed flow of H.264. The video and audio are synchronised together from beginning to end whilst the multiplexed flow is read. The video flow is also available separately.

Supports the resolutions QCIF, CIF and HALF D1.

Supports movement detection in several zones.

Supports the OSD & LOGO position configuration.

Supports fitting in a smaller reproduction.

23

Integrated network DVR for ATM

User-friendly menu that ensures easy and direct use.

Protection of partly sensitive zones. Reading, prior indication of network,

searching and downloading can occur simultaneously.

Prior indication of 2 channels simultaneously.

Name of the distributor of the credit card (ATM), number of the credit card, date & time.

The type of transaction can be inferred from the video image.

Simultaneous reading of 2 channels. Search by time, alarm or credit card

number. Various reading methods: fast, slow-

motion, image by image.

24

ORBIT TWO: CARD & TERMINAL APPLICATIONS From swipe card readers to multi-application terminals and software applications Since February 2004 Keyware has been active in the area of leasing payment terminals on the Belgian market in cooperation with amongst others Sagem and Thales. However Keyware already has years of experience in the area of single and multi-application terminals and terminal applications: loyalty terminals, ticketing systems and in particular the SIS-card terminals at amongst other things chemists, hospitals and doctors. Vision within the terminals and smart-card applications division Within the division, Keyware has concentrated on terminals for payment and related transactions on the one hand and terminals for processing identity-related data on the other hand since 2005. The market for payment terminals in itself is a growth market, with an annual growth of over 5%. In addition, Keyware also takes market share from Banksys daily, thanks to a policy that focuses greatly on price, service and transparency. The market for ID terminals is also a strong growth market in Belgium, above all due to the implementation of the electronic ID card. Within this market Keyware wants to above all focus on the professional and specialised user. As far as smart card applications are concerned, Keyware focuses on the markets for loyalty cards, payment applications and ID applications. Terminals Keyware distributes and customises a broad range of payment terminals, from traditional BC/MC devices to wireless solutions. In addition, Keyware also offers terminals for specific applications such as SIS-card readers, loyalty terminals, etc. Keyware strives for the highest quality at the lowest prices, and time and again succeeds in offering the best alternative due to its excellent relations with globally operating hardware producers. Terminals are made operational, additional software (for amongst other things loyalty cards) installed and installation and activation at the client’s business occur by highly qualified personnel. Together with the sharp prices and transparent service, Keyware’s helpdesk and after-sales department ensure that the client can receive with a smile.

25

Loyalty cards Smart-Shopper is an open and modular solution for securely reading and processing transactions that are part of loyalty programmes. Thanks to Smart-Shopper a client can simply save and exchange points. Smart-Shopper identifies a client by reading a unique code on a card, after which it checks the validity of the card. Smart-Shopper then saves all the transaction data such as the amount, the number of points or the time in the memory of the chip, of the terminal and on the server. Finally, Smart-Shopper will exchange the points when certain conditions have been fulfilled. With Smart-Shopper the CRM department can implement, manage or expand specific loyalty programmes at any time. In 2005 there were over 4 million Keyware loyalty cards in circulation at clients such as Gezinsbond, Ligue des Familles, Cora, Apo+, Delhaize Point Plus, Shell, etc. Identity applications Smart-Identity is a renewing solution for electronic identification and data processing. On the basis of advanced smart card technology and data management software, Smart-Identity can be applied in private and public environments (identification cards, driving licences, ID cards, etc ).

26

The Belgian SIS card is an application in which each participant receives a personalised smart card with their specific data with regard to healthcare, whilst the providers of the healthcare (doctors, hospitals, chemists and the national health service) have a separate smart card with certain access rights to the data of the participant. Transaction management Transaction management plays the central role in Keyware’s range of services. Keyware’s transaction department can process both data from the product group for access control, time registration, alarm management and CC TV and from the product group for terminals and smart card applications. Keyware has over 10 years of experience with transaction management in the area of e-payments, loyalty cards and e-tickets. On average Keyware processes over 1 million transactions per day. For loyalty or ticketing applications we are commissioned by our clients to analyse the processed data for use in CRM applications and direct-marketing campaigns. Recently Keyware has also offered transaction processing services in the area of access control, alarm management, CCTV (closed circuit TV) and time registration. Keyware has:

An extensive network of terminals in Belgium and Luxembourg An authorisation centre A telecollection centre A back-office that completely processes the authorised transactions: consolidation,

compensation, invoicing the retailers or cardholders, following up statistics, etc. A reporting centre A helpdesk that is on standby 24 hours a day, 7 days a week.

Keyware authorises amongst other things payment transactions for the AURORA card (Cetelem), Diners Club, American Express, VISA and Mastercard credit cards. Here, too, Keyware is positioning itself as the alternative to Banksys. The market for e-payment is characterised by sharp growth (+/- 10 % for BC/MC and +/- 5% for credit cards).

27

The evolution in the number of payment transactions and the value of those transactions on the Belgian market for the period 1989-2004 can be shown as follows:

28

IT’S TIME FOR KEYWARE

29

IT’S KEYWARE TIME During the first half-year 2006 the campaign “Keyware is everywhere” will be rounded off. This campaign reveals that Keyware’s highly technological solutions are incorporated in various commercial applications that are sold under different brand names and that many companies are in fact already clients for a certain application or part of an application without being conscious of this fact. From the second half-year 2006 a new marketing campaign will be set up with the name “ It’s Keyware Time ”. On the one hand the campaign wants to emphasise that in many cases Keyware can offer a better alternative on its target markets than the one that the partner or end client is currently using. In other words: it’s time to switch to a better alternative, namely Keyware. On the other hand, on markets where its solutions have proven their added value, Keyware wants to present its applications to companies who do not use similar solutions yet. In other words: it’s time that you caught up with your competitors or even outperform them, Keyware’s solutions can help you to do that. From June 2006 once again the various markets and applications where Keyware’s advanced solutions are used will be put in the spotlight for 4 successive quarters: airports, shopping centres, government departments, banking and insurance, pharmaceutical and chemical companies, transport, international security services, automotive industry, etc. For every product-market combination the campaign will consist of a mix of aural and/or visual communication accompanied by specific direct marketing campaigns aimed at the target groups in question. With the “ It’s KeywareTime ” campaign Keyware wants to achieve the following results:

A substantial increase in the brand familiarity within the various sectors. A coherent and clear conceptualization of its activities and applications vis-à-vis

shareholders, investors, business partners and clients Capitalisation on two target markets

o Companies or organisations that do not have similar solutions yet in the area of security, time registration, e-payments or card applications from the Keyware range

o Target groups who have a similar solution, but where it can be shown that the Keyware solutions offer a better alternative.

30

KEYWARE AS A SPONSOR Keyware as the sponsor of soccer club KSV Roeselare: a successful launch Soccer club KSV Roeselare made its debut this season in the First Division of the Belgian soccer competition, with Keyware as one of its main sponsors. Although the analysts did not predict a positive result, KSV Roeselare has not only succeeded in standing its ground, it has furthermore become one of the most formidable home teams of the competition. For the 2006-2007 season Keyware will once again enter the arena to prove that the sceptics are wrong.

31

Information for the shareholders

32

SHAREHOLDER STRUCTURE Capital in shares

On 31 March 2006, the company has issued 96,617,226 shares1, that are all entitled to a dividend. This number can be increased to 104,499,726 if warrants and an automatically convertible bond loan2 are exercised.

Warrants issued

The Shareholders’ Meeting of 27 May 2005 amongst other things approved the issue of (i) 7,000,000 warrants (the "2005 Warrants") with the right to subscribe to the same number of shares in the Company in accordance with the warrant plan (the "Plan 2005") and (ii) 750,000 warrants (the "DAC Warrants"). The exercise price of these warrants is EUR 0.13. As per 31 December 2005 there were 4,707,500 “2005 Warrants” and 375,000 “DAC Warrants” that could still be exercised. During March 2006 another 2,537,500 “2005 Warrants” and 375,000 “DAC Warrants” were exercised. So at the end of March 2006 2,545,000 2005 Warrants can still be exercised. The notarial deed with regard to the capital increase was passed on 21 April 2006. The shares with regard to this capital increase have not yet been issued as per 31 March 2006.

Automatically convertible bond loan The Shareholders’ Meeting of 27 May 2005 approved the issue of two automatically convertible bond loans for the total sum of kEUR 700 (the "ACOs"). The automatically convertible bond loan can be converted for the sum of kEUR 400 at the Ordinary Shareholders’ Meeting of 2006 at a maximum price of EUR 0.25 and for the sum of kEUR 300 at the Ordinary Shareholders’ Meeting of 2007 at a maximum price of EUR 0.30 per share. The minimum conversion price will be equal to the average closing price of 30 days prior to the day of their issue.

Shareholder structure On the basis of the data known to the Company, the table below provides an overview of the shareholders of the Company who own more than 5% of the shares as per 31 March 2006. Shareholders Number of Shares % Shares (not diluted) Pardel NV 28,186,773 29.17 % Jagernaut NV 6,606,102 6.84 % Parana Management BVBA 5,891,103 6.10 %

1 Without taking into account the additional shares issued on 21 April 2006 following the warrants being exercised. 2 Whereby a conversion rate of EUR 0.25 for the automatically convertible bond is assumed.

33

KEYWARE ON EURONEXT Euronext Brussels

In June 2000 the Company concluded an “Initial public offering (IPO)”, with a listing of 23,098,831 shares on EASDAQ under the symbol “Keyw”. As a result of the closure of NASDAQ Europe (formerly Easdaq), since 3 September 2003 the Keyware shares have been listed on the First Market of EURONEXT Brussels, segment double fixing. Since 1 September 2005, the listing has migrated from the “double-fixing” to the “continuous trading”. The Company only has ordinary shares listed on Euronext Brussels.

Capitalisation

On 31 December 2005 the number of shares issued was 96,617,226. On the basis of the listing on 31 March 2006 on EURONEXT this corresponds with a market capitalisation of kEUR 20,289.

Graph

The graph below shows the evolution of the Keyware Technologies share from the moment it was listed on Euronext Brussels.

High and Low

The highest and lowest share prices during the periods 2003 to 2005 were: highest lowest Period 2003 € 0.56 $ 0.04 Period 2004 € 0.30 € 0.11 Period 2005 € 0.28 € 0.12

34

Corporate Governance

35

CORPORATE GOVERNANCE Board of Directors

A of 31 March 2006 the Board of Directors has 7 members, of whom 3 are independent directors. The members of the Board of Directors are: Director Function Main function End date mandate

After AGM ending on Guido Van der Schueren Non-executive Chairman 31 December 2005 Pardel NV Non-executive Director 31 December 2009 represented by Pierre Delhaize Johan Dejager Non-executive Director 31 December 2005 Luc Pintens Independent Director 31 December 2009 Advisam NV Independent Director 31 December 2009 represented by Guy Warlop Bruno Kusters3 Independent Director 31 December 2005 Big Friend NV Executive - CEO Director 31 December 2009 represented by Stéphane Vandervelde

On 20 October 2005, the Company announced that Mr Marc Van Rompaey had handed in his resignation as director of the Company. On 23 March 2006 the Company announced that the Board of Directors has decided to co-opt Mr Bruno Kusters as a new independent director to replace Mr Marc Van Rompaey.

On 23 March 2006 the Company also announced that Mr Leo Claeys is resigning as a director of the company.

Guido Van der Schueren, Chairman of the Board of Directors Mr Guido Van der Schueren, co-founder of Artwork Systems, is Managing Director of Artworks Systems Group NV and its branches since their foundation or acquisition. From 1982 to April 1992 he held various functions, including Sales and Marketing Director at DISC NV (later Barco Graphics NV), a company that develops pre-press systems and markets them. From 1974 to 1982 Mr Van der Schueren was “Compugraphic” Sales Manager at BONTE NV, a distributor of equipment for the graphic sector. Mr Van der Schueren obtained diplomas in Graphic Arts, Education and Marketing. Mr Guido Van der Schueren is also a director of the companies Falcom (Zaventem), Powergraph (Sint-Martems-Latem) and Enfocus Software (Ghent).

3 Co-opted as director instead of Mr Marc Van Rompaey

36

Pardel NV, represented by Pierre Delhaize, Director Pierre Delhaize has lots of experience in international business, in particular in the sector of retail and distribution. Today he is the owner of the Exell retail group and he plays an active role as a director in a number of companies such as Delcom (Drogenbos), Sogedel France, Sogedel Lux, Maxima Exell (Braine-l’Alleud) and Vandergeeten International Hong Kong. He is furthermore “Maître de Conférences” at the Solvay ‘Ecole de Commerce’.

Johan Dejager, Director Johan Dejager is a member of the Board of Directors of Carpinvest NV, a holding company with interests in the carpet industry, and Sparnex NV, a company that is active in the telecommunication sector. Johan Dejager obtained a diploma as Commercial Engineer at the Catholic University of Leuven (KUL) and a MBA in INSEAD, France. Johan Dejager represents Jagernaut NV. Mr Johan Dejager is also a director of the companies Augustijn (Deinze) and Sparnex (Antwerp).

Luc Pintens, Independent Director Luc Pintens has over 30 years of experience in the IT and telecommunication industry. He has held the function of director in Europe, Africa and Asia, including marketing and sales director of Xerox Belgium, managing director of Siemens Atea and chief executive officer of Cable and Wireless Europe. At present he is a director of the Econocom Group. Before holding these functions he was Senior Vice President of Nortel Networks Europe. Luc Pintens read Mathematics, Physics, Computer Sciences at university and also has a MBA from the University of London. Mr Luc Pintens is also a director of the companies Atlance (Woluwe Saint Lambert), P&L Management Services (Sint-Amands).

Advisam NV, represented by Guy Warlop, Independent Director Guy Warlop is amongst other things a member of the Board of Directors of Artwork Systems NV and of a series of companies and non-profit organisations. He obtained a diploma as Engineer in Metallurgy and a MBA degree from INSEAD. He has been Belgian and European CEO of companies in the transport, electrical security equipment and consumer goods sectors.

Bruno Kusters, Independent Director Bruno Kusters has more than 14 years of experience in ICT and business consulting with references such as KKR, Avaya/Tenovis, Philips, Telindus, Unilever, Mitsubishi and Artesia. Bruno Kusters obtained a diploma as Commercial Engineer at the Catholic University of Leuven (KUL) and a “Bachelor in quantitative methods” at the KUL.

37

Big Friend NV represented by Stéphane Vandervelde, Director Big Friend NV is the management company of Stéphane Vandervelde. Stéphane Vandervelde has more than 15 years of experience in the software industry. Stéphane Vandervelde is currently the CEO of Keyware. Stéphane Vandervelde graduated as an Engineer in Electronics and completed an additional specialisation at the Catholic University of Leuven (KUL) in Micro-electronics and Chip Design. Stéphane Vandervelde is also a shareholder and/or director in a number of companies such as Euremis NV, Immo David NV, CreaBuild NV and DevStage NV. In 2005 the Board of Directors met four times. The company is legally represented by 2 directors acting together. The company does not have an executive director.

Apart from the fee awarded to Big Friend NV (see below), during the period 2005 no fees were paid to the directors. However, in a decision of the ESM of 27 May 2005 the following warrants were granted to the directors or former directors:

Guido Van der Schueren 900,000 warrants Pierre Delhaize 900,000 warrants Johan Dejager 900,000 warrants Stéphane Vandervelde 750,000 warrants Leo Claeys 300,000 warrants Advisam NV 300,000 warrants Luc Pintens 300,000 warrants Marc Van Rompaey 300,000 warrants

Day-to-day Management

In accordance with Article 23 of the articles of association, the day-to-day management can be assigned to one or more directors, who may not be shareholders. The day-to-day management is therefore fulfilled by Mr Stéphane Vandervelde (CEO) and Mr Johan Hellinckx (CFO). During the period 2005, a fixed fee of kEUR 217 was invoiced by the management company Big Friend NV, represented by Stéphane Vandervelde, for commercial and general management services. In addition, during the course of 2005 a variable fee of kEUR 62 was awarded for work carried out in 2005. Finally, kEUR 25 expenses were invoiced. In a decision of the ESM of 27 May 2005, 750,000 warrants were furthermore granted to Mr Stéphane Vandervelde.

During the period 2005, a fixed fee of kEUR 118 was invoiced by the management company JH Consulting BVBA, represented by Johan Hellinckx, for financial and general management services. In addition, during the course of 2005 a variable fee of kEUR 10 was awarded for work carried out in 2005. Finally, kEUR 1 expenses were invoiced. In a decision of the ESM of 27 May 2005, 175,000 warrants were furthermore granted to Mr Johan Hellinckx.

38

Management Committee

The Management Committee meets every month and since January 2006 has the following members:

Stéphane Vandervelde, chairman of the Management Committee Johan Hellinckx, management finance, personnel and administration Simon Tobelem, commercial director, Security & Time management division Alexandre Beyens, management research and development, Security & Time

management division Thierry Hermans, technical coordinator, Security & Time management division Joël Van Boeckel, management authorisation and transaction services, Card &

Terminal applications division Tim De Schrijver, technical coordinator, Card & Terminal applications division Stefan Torcq, commercial director, Card & Terminal applications division

On 1 January 2006 Mr Simon Tobelem started in the function of commercial director for the business unit “Security & Time management” both for Keyware Belgium, Keyware France and Keyware Switzerland. Since 1 January 2006 Mrs. Mario Elia and Jean-Daniel Berthod are no longer members of the Management Committee. Mr Eric Millot, general director of Keyware France, left the Group on 1 July 2005. From that date the function of general director of Keyware France is being fulfilled by Mr Stéphane Vandervelde. The global fixed fee for the members of the Management Committee (with the exception of Stéphane Vandervelde and Johan Hellinckx) for the period 2005 is kEUR 702. In addition, a variable fee was awarded in 2005 for the work carried out in 2005 of kEUR 50 and expenses for the sum of kEUR 29. The members of the Management Committee were furthermore granted 40,000 warrants by a decision of the ESM of 27 May 2005.

The Management Committee is not a Management Committee in the sense of article 524 bis of the Companies Code, but only an advisory body in the bosom of the Board of Directors.

Auditor

BDO Bedrijfsrevisoren, with its registered seat at Boulevard de la Woluwe 60, 1200 Woluwe Saint Lambert, represented by Mrs. Paul Pauwels and Koen De Brabander, with offices at Guldensporenpark 14 (block b), 9820 Merelbeke, were appointed Auditor of Keyware Technologies NV for a period of three years which ended after the Shareholders’ Meeting of 2005. At the Shareholders’ Meeting of 27 May 2005 it was decided to reappoint BDO Atrio Bedrijfsrevisoren, represented by Mr Koen De Brabander, as Auditor of the Company for a period of 3 years, ending immediately when the Shareholders’ Meeting closes that decides about the period that ends on 31 December 2007.

39

The total fee of the Auditor will amount to kEUR 55 per year, of which kEUR 34 for the statutory and consolidated annual accounts of the Company and kEUR 21 for the statutory annual accounts of the Belgian subsidiaries. The Auditor’s fees for the audit of the statutory annual accounts of the subsidiaries in France (BDO Marque & Gendrot) and Switzerland (Jean Claude Zufferey) are kEUR 11 and kEUR 2.

During the course of the period 2005, the Auditor and the companies with which it cooperates professionally, carried out additional assignments for the company and its subsidiaries for the sum of kEUR 37. This performance includes work with regard to additional reporting due to the contribution in kind, the issue of warrants and fiscal work.

Audit Committee The Audit Committee is made up of 3 non-executive members, namely:

Guido Van der Schueren, chairman Luc Pintens, independent director Advisam NV, represented by Guy Warlop, independent director

Remuneration Committee The Remuneration Committee is made up of 4 members, namely:

Guido Van der Schueren, chairman Luc Pintens, independent director Advisam NV, represented by Guy Warlop, independent director Big Friend NV, represented by Stéphane Vandervelde, director

INSIDER TRADING DIRECTIVE

Within the framework of the Royal Decree of 5 March 2006 concerning market abuse, the company will draw up a guideline with regard to insider trading. As of June 2006 this guideline will apply to the directors, to the people with a management responsibility and to other employees who have access to foreknowledge.

A PRIORI CONTROL

On 4 November 2003 the announced that the Management Board, in accordance with article 16, par. 3 of the Royal Decree of 31 March 2003, had decided that henceforth Keyware Technologies NV had to communicate the information meant in the Royal Decree of 31 March 2003 before it was published in order to let the CBFA carry out an “a priori control”.

At its meeting of 21 February 2006, the Management Board of the Banking, Finance and Insurance Commission (CBFA) decided to abolish the “a priori control” for Keyware Technologies NV.

40

CONFLICT OF INTERESTS

Article 523 of the Companies Code provides for an extraordinary procedure if a director, directly or indirectly has an interest of a proprietary nature that conflicts with a decision or a transaction that falls within the competence of the Board of Directors. During the course of the period 2005, this procedure was applied with regard to the following decision. The Board of Directors of 7 February 2006 approved the transaction described below, whilst applying article 523 of the Companies Code.

Extract from the minutes of the Board of Directors of 7 February 2006 3.8. Execution settlement James Bowen and entry of the debt

(a) Application of art. 523 of the Companies Code Mr Stéphane Vandervelde declares to the other members of the Board of Directors that he has a conflicting interest of a proprietary nature with regard to the agenda point concerning the approval of the settlement of the claim with regard to James Bowen. Within the framework of the settlement with Bowen, the shares in Keyware Technologies had to be delivered to James Bowen before the end of December 2005. Since the assumed capital increase, whereby the shares would be delivered, could not occur before the end of December 2005, the management had to find another solution. This consisted of Mr Stéphane Vandervelde using his personal shares in Keyware Technologies to pass on to James Bowen. As a result of this the Company no longer has a debt with James Bowen, but does have one with Mr Stéphane Vandervelde. The proprietary consequences for the Company only consist of paying the debt. Mr Stéphane Vandervelde declares that he will inform the Auditor of the Company of this conflict of interests. Mr Stéphane Vandervelde then leaves the meeting and does not participate in the consultation and voting on this item on the agenda.

(b) Decision The figures as per 31 December 2005 contain a debt vis-à-vis Mr Stéphane Vandervelde that occurred following the settlement of the debt vis-à-vis James Bowen. The Board of Directors takes cognizance of the conflict of interests of Mr Stéphane Vandervelde with regard to this item on the agenda and of the aforementioned justifications and decides unanimously, after consultation, to approve said debt (for the sake of clarity, without Mr Stéphane Vandervelde having taken part in such consultation or the decision).

41

Keyware Technologies N.V.

Consolidated Information

42

AUDITOR’S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 AND 2004 TO THE

SHAREHOLDERS’ MEETING OF THE COMPANY KEYWARE TECHNOLOGIES NV

In accordance with the legal and statutory requirements, we are pleased to report to you on the performance of the audit assignment which has been entrusted to us. We have audited the consolidated balance sheet of KEYWARE TECHNOLOGIES NV and subsidiaries as of December 31, 2005, and the related consolidated statements of income, the consolidated statement of cash flows, the consolidated statement of changes in equity, the notes and the consolidated directors’ report for the year then ended. The preparation of the consolidated financial statements and the assessment of the information to be included in the consolidated directors’ report, are the responsibility of the board of directors. The balance sheet total as of December 31, 2005 amounts to EUR 25.622(000) and the loss for the year then ended amounts to EUR 509(000). The consolidated financial statements as of December 31, 2005 were audited by BDO Atrio Bedrijfsrevisoren Burg. CVBA. These statements include various significant subsidiaries, some of which are incorporated in a foreign country, which have been audited by other auditors, within the framework of our assignment. We obtained their clearance on the amounts reflected in the consolidated financial statements in relation to these subsidiaries. Our audit of the consolidated financial statements was carried out in accordance with the auditing standards applicable in Belgium, as issued by the Institut des Reviseurs d’Entreprises / Instituut der Bedrijfsrevisoren. QUALIFIED AUDIT OPINION ABOUT THE CONSOLIDATED ANNUAL ACCOUNTS WITH EXPLANATORY PARAGRAPH The above mentioned auditing standards require that we plan and perform our audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. In accordance with those standards, we considered the group’s administrative and accounting organization, as well as its internal control procedures. Company officials have responded clearly to our requests for explanations and information. We have examined, on a test basis, the evidence supporting the amounts included in the consolidated financial statements. We have assessed the accounting policies, the consolidation principles, the significant accounting estimates made by the company and the overall consolidated financial statement presentation. We are of the opinion that our audit as well as our colleagues’ who have audited the subsidiaries’ accounts, provide a reasonable basis for our opinion. In our report about the consolidated annual accounts as per 31 December 2004 we made a qualification with regard to the impairment of positive consolidation differences for the amount of kEUR 3,815 that was charged to the income statement of 2004, a sum which in our opinion should have been charged in full or in part to previous periods.

43

We note that the item intangible fixed assets as per 31 December 2005 contains an amount of kEUR 1,065 that was paid for a distribution right. On the basis of the sales achieved in 2005 and the business plan for the next few years we have not received sufficient certainty about the future feasibility to justify the book value of this asset. In our opinion, on the basis of our audit and our colleagues’ reports, taking into account the accounting standards issued by the International Financial Reporting Standards Board as adopted by the European Union, and subject to on the one hand the impact on the result of the period 2004 of the impairment of the positive consolidation differences of Keyware NV and on the other hand the impact on the results 2005 and the balance sheet December 31, 2005 of the non-registered full or partial impairment of the distribution right, the attached consolidated annual accounts present fairly in all material respect, the assets, liabilities, the consolidated financial position of Keyware Technologies NV and its subsidiaries as per 31 December 2005 and 2004, as well as of the results of their activities, of the cash flows and the statement of movements in the shareholders’ equity for the year then ended. Without jeopardising the above statement, we draw your attention to the fact that during 2005 and the previous periods the group suffered significant losses. The shareholders have in the past always taken the measures required to provide the necessary financial resources to guarantee the going-concern of the group. The annual report of the Board of Directors shows that in the near future the group could continue to obtain the financial support of the major shareholders. ADDITIONAL STATEMENTS AND INFORMATION We supplement our report with the following additional statements and information that are not of a nature to change the scope of our statement about the consolidated annual accounts: The consolidated director’s report contains the information required by law and is consistent with the consolidated financial statements. We are, however, unable to comment on the description of the principal risks and undertainties which the group is facing, and of its situation, its foreseeable evolution or the significant influence of certain facts on its future development. We can nevertheless confirm that the matters disclosed do not present any obvious contradictions with the information of which we became aware during our audit.

14 April 2006 BDO Atrio Bedrijfsrevisoren Burg. CVBA Auditor Represented by Koen De Brabander

44

DISCUSSION OF THE FINANCIAL SITUATION AND THE RESULTS OF THE OPERATIONS BY THE MANAGEMENT

(1) Basis of the presentation

The following discussion and analysis is based on the consolidated annual accounts of Keyware Technologies NV and its subsidiaries (“the Group”) after audit for the period that was closed on 31 December 2005. All the intragroup balances and transactions were eliminated in the consolidation.

(2) Historic overview and period 2005

(a) History

Keyware Technologies NV was founded in June 1996 as a public limited company in accordance with Belgian law. Originally it developed security technologies that are based on biometric verification. Four years later, in June 2000, the shares of the company were traded publicly for the first time on the EASDAQ, later renamed NASDAQ Europe. After a decision of the Extraordinary Shareholders’ Meeting of NASDAQ Europe to cease its activities, it was decided to float shares in Keyware (“KEYW”) on Euronext. The shares in Keyware Technologies NV were floated for the first time on Euronext op 3 September 2003. When at the end of 2001 it became apparent that the market acceptance of biometrics was slower than expected and the losses for this activity were increasing it was decided to cut back and sell it. During the year 2002 the Group was thoroughly reorganised and the activities were concentrated around the smart card. The Group offers products and services in which the use of the smart card plays the central role. The areas of application are access control, time registration and alarm monitoring on the one hand and loyalty and payment software on cards on the other hand. In July 2003 Keyware’s payment software was certified by the EPCI (E-payment Certificate Institute) (bancontact/mister cash (BC/MC) and credit software such as VISA, Mastercard, American Express, Aurora and Diners Club). The sale of this payment software with accompanying payment terminal was started in the 4th quarter of 2003. Since February 2004 Keyware has completely thrown itself into the market of the rent of payment terminals. After a gentle run-up this activity really got going in the last quarter of 2004 with about 1,000 new clients. In 2005 the Group successfully further focussed on the market of the payment terminals and at the end of December 2005 the cape of 5,000 clients was passed.

The confidence in the breakthrough of biometric authentification technologies was great when Keyware was founded in 1996. This confidence was not affected when the Group was floated on the technology stock exchange EASDAQ in June 2000.

45

Strengthened by this confidence Keyware Technologies quickly took over a number of companies that were all active in biometrics to a greater or lesser degree or in the world of authentification. The operational integration of these entities and the remodelling into a synergetically functioning whole was never achieved. The period of 18 months between the floatation on the stock market and the end of 2001 showed that the market for biometric security technologies was far from mature. Despite the fact that this market is growing further, all the information sources indicate that during the next 3 to 5 years no large-scale implementation of biometric technology should be expected. During 2003 the Group shifted its core activities from biometric security technology to card applications in the area of access control and time registration, as well as to loyalty and payment software. The year 2003 was a year of consolidation and further sharpening the focus on the Group’s core activities. In March and April 2003 the last divestment was rounded off. The remaining assets related to the previous biometrics activities were taken over by Bitwise NV and the shares in Able NV were sold to the former shareholders. Since 2004 Keyware has strived to become the leading supplier in the area of identity-related services and solutions. (b) The period 2005 The Group’s task consists of becoming a leading supplier in the area of identity-related services and solutions, with the geographical focus on Western Europe. Within the domain of identity-related services and solutions, Keyware focuses on 2 product groups:

identification and applications for physical security (access control, time registration,

alarm management and CCTV); identification and applications on terminals (e-payment, loyalty applications, ID

cards). In addition, for both product groups Keyware also offers transaction services: authorising, processing and analysing the transactions generated via these applications. Physical security In the area of physical security, via its certified reseller channel Keyware offers standardised and modular applications for both the low-end SME market and the high-end market of multinationals with integrated and centralised security. In March 2005 the company Digital Access Control (DAC) was taken over, so that Keyware gained access to the technology of e-keys and electromechanical locks with the product “eKeys”. “eKeys” has the following advantages:

46

Keyware

TechnologiesNV

Keyware

France NV

Keyware NV

DAC NV

Keyware

Transaction & Processing

NV

Keyware

Smart Card NV

Keyware

Technologies Suisse NV

an effective solution for strong security; no cabling; locks with a memory function, black list and reporting options; no electrical supply in the locks, so that they are maintenance-free after installation; electronic keys that can be programmed per door and per time; unnecessary to keep replacing locks or manage passkeys for locks; completely integrated with the multi-site access control, alarm and video applications

of Keyware.

So Keyware’s clients can migrate from decentralised “eKeys” access security to completely integrated security with access control, time registration, alarm management and CCTV. Terminals In February 2004 Keyware started to lease payment terminals in Belgium, as a direct competitor to the then monopolist Banksys. In a period of 2 years Keyware has succeeded in becoming a reference on this growth market. Today Keyware is the second largest in terms of market share and every quarter over 1000 new terminals are activated. Transactions In 2004 the contracts with existing clients were renewed. Keyware authorises transactions for Diners Club, Cetelem (Aurora card), American Express, Citibank, and various Visa and Mastercard credit cards. This revised group strategy has far-reaching consequences for our organisation both in the area of product development, the two product lines and for the sales model via distribution channels and “partnerships”. Whilst within the product category physical security an indirect sales model with certified partners was opted for, for the terminals and terminal applications a hybrid model was chosen. A direct sales and management model was chosen for the transaction services. (c) General

The organisation chart below provides an overview of the current group structure.

47

All the branches are 100% subsidiaries of Keyware Technologies NV. To further decrease the debt position of the Group, a number of shareholders gave the Group loans during the periods 2002 to 2005.

In July 2002 for the sum of kUSD 1,650 and kEUR 250 In July 2003 for the sum of kEUR 850 In October 2003 for the sum of kEUR 1,600 During 2004 for the sum of kEUR 3,020 During 2005 for the sum of kEUR 2,200

Despite the fact that the Group considerably improved its debt position during 2002 and the first half of 2003 and that the results, both financially and in the area of research and development (obtaining certification of payment software) evolved positively, the Commercial Court of Brussels, at the request of the Department for Social Security declared Keyware Technologies NV and its 100% subsidiary Keyware Smart Card Division NV bankrupt on 2 October 2003. On 4 November 2003 the Court of Appeal in Brussels held that the preconditions for a bankruptcy were not present for both companies and the Court therefore revoked both bankruptcies. In this difficult period the Group wrongly suffered from a lack of confidence. The legal difficulties in the last quarter of 2003 had an enormous impact on the activities and more in particular on the turnover of 2004. During the first quarter of 2004 suppliers, clients, prospects and partners were visited to give them an explanation of the aforementioned events. This communication contributed to these parties confirmed their confidence in the Group. This is apparent firstly from the fact that for example a number of suppliers were prepared to convert their trade receivables into in capital so that they received shares in the Group as payment of their invoices. In addition, the restored confidence is also apparent from the requests for offers and orders received after the summer which were translated into excellent turnover figures for the last quarter of 2004. Finally, the shareholders – investors – confirmed their confidence in the Group by making the necessary financial resources available. On the basis of the budgets and taking into account the debts outstanding as per 31 December 2005, it is clear that the Group will need additional financial resources in 2006. Above all the investment in the further expansion of the fleet of payment terminal is capital-intensive. In addition to the existing shareholders, in 2005-2006 the Group was able to conclude a number of financing agreements with an independent financial third party.

During the course of 2005 the Group entered into a financing agreement – financing of rental agreement – with Parfip Benelux NV. Within the framework of this financing agreement, a total of EUR 1,599,774 was received spread over 7 subcontracts in total (from March 2005 to end July 2005). The duration of these subcontracts varies between 42 and 47 months and the applicable interest rate is 10%.

48

The Group entered into a financing agreement with the same financial party, in which the Group has the possibility of ceding the contracts with regard to the rent of payment terminals to Parfip Benelux NV. Within the framework of this agreement, the contracts for the rent of payment terminals can be sold to Parfip Benelux NV at an actualised value on the assumption of a 10% interest rate. In other words, Keyware receives at the start of the contract the integral discounted sum of the rent instalments and Parfip Benelux NV will collect the rent for the entire duration of the contract (with regard to the rent of the payment terminals). At the end of the contract the material will once again become the property of Keyware on payment of a small residual value.

During the 2nd half-year of 2005, Pardel NV made the following current account

advances available to the Group: - kEUR 200 in September 2005 - kEUR 1,000 in October 2005 - kEUR 1,000 in December 2005. Arrears in social security contributions, arrears in professional withholding taxes and trade payables that were due were paid with these funds.

During the course of February 2006 the Group obtained an operating credit from KBC Bank the sum of kEUR 100. This credit in the first instance will run until 31 December 2006. The applicable interest rate is the EONIA increased by a margin of 3%.

Finally the Group is organizing a private placement. During the course of April the Board of Directors will convene an Extraordinary Shareholders’s Meeting. At that meeting, the Board will propose to issue the following securities within the framework of a private placement:

convertible bonds for a maximum sum of kEUR 8,000; maximum 32 million A warrants that entitle the holder to subscribe to the same

number of shares in the Company; and maximum 32 million B warrants that entitle the holder to subscribe to the same

number of shares in the Company, (3) Operating results

The financial data below was derived from the consolidated financial statements (in accordance with IFRS) of Keyware Technologies ending on 31 December 2005 and 2004.

49

Consolidated profit and loss account Figures in '000 EUR 31.12.2005

01.07 to 31.12.05

01.01 to 30.06.05 31.12.2004

Operating revenues 10,746 5,866 4,880 7,228Turnover 9,730 5,093 4,637 6,808Other operating income 1,016 773 243 420Operating expenses before extra. prov. -11,101 -5,353 -5,748 -9,822Operating result before extra. prov. -355 513 -868 -2,594Extraordinary provisions -850 -250 -600 0Extraordinary amortization 0 0 0 -3,815Operating result after extra. prov. -1,205 263 -1,468 -6,409Financial expenses and income -153 -126 -27 -696Result before taxes -1,358 137 -1,495 -7,104Taxes 849 -71 920 -281 Result after taxes -509 66 -575 -7,385

(a) Turnover and gross margin

Gross margin Security & Time

management 31.12.2005 31.12.2004 Movement Change Turnover 4,450 4,127 323 7.83%Goods for resale and raw materials -1,222 -1,706 484 -28.37%Gross margin 3,228 2,421 807 33.33%Percentage gross margin 72.54% 58.66%

Gross margin Card & Terminal applications 31.12.2005 31.12.2004 Movement Change

Turnover 5,280 2,681 2,599 96.94%Goods for resale and raw materials -2,577 -644 -1,933 300.16%Gross margin 2,703 2,037 666 32.70%Percentage gross margin 51.19% 75.98%

The Group’s turnover has increased from kEUR 6,808 over the period 2004 to kEUR 9,730 for 2005, which is an increase of 42.92%. This evolution is the result of on the one hand an increase in the turnover of the “Card & Terminal applications” business unit by kEUR 2,599 and that of the “Security & Time management” business unit by kEUR 323 on the other hand. This growth is attributed to concluding important contracts within both divisions of the company: the significant increase in the number of leases concluded with regard to payment terminals within the “Card & Terminal applications” division and expansions of systems, new clients and partnerships within the “Security & Time management” division. Despite the difficult market conditions, it is remarkable that the sale of security solutions in 2005 saw a sharp increase at companies outside Keyware’s home markets, amongst other things in Tunisia, Luxembourg, Kenya and Turkey. As of today, important agreements have already been concluded with clients whose turnover will not be achieved until the first half-year of 2006.

50

The gross margin within the “Security & Time management” department rose from 58.66% to 72.54%. This is integrally the result of:

exacting better purchase conditions from all the main suppliers; replacing the more expensive suppliers by suppliers with better conditions; having part of the production carried out in low-wage countries.

The gross margin within the “Card & Terminal applications” department fell from 75.98% to 51.19%. This is the result of:

the sale of terminals at as very low margin; a fall in the average discounted value per lease from EUR 1,090 to EUR 1,008. This is

explained by the fact that in 2005 compared to 2004 more contracts were entered into at a lower rent;

an increase in the average purchase cost (purchase price of the terminal and commission) of EUR 157 in 2005 compared to 2004. This is the result of a change in supplier since the end of 2004.

The purchases of goods for resale consist of materials (raw materials, semi-finished products and goods for resale), subcontracting and commissions (paid within the framework of concluding contracts with regard to the rent of payment terminals).

(b) Operating expenses

The operating expenses (purchases of goods for resale and operating expenses of an exceptional nature excluded) can be summarised as follows:

Operating expenses before extraordinary

provisions 31.12.2005 31.12.2004 Change Services and other goods -3,430 -3,399 0.91%Personnel expenses -3,216 -3,301 -2.57%Depreciation -314 -293 7.17%Provisions and amortization 124 -253 -149.01%Other operating expenses -466 -226 106.19% Operating expenses before extraordinary provisions -7,302 -7,472 -2.28%

The services and other goods remained stable compared to 2004. Despite an increase in the number of employees, the personnel expenses fell by 2.57%. This is integrally explained by a number of more expensive workers being replaced by younger, cheaper employees. The change in the provisions and the other operating expenses should be viewed together. The positive result of the provision is the result of the withdrawal of the provision accrued with regard to the dispute with James Bowen. As this matter was settled at the end of December 2005, the provision for the sum of kEUR 150 was withdrawn and the sum of the final out-of-court settlement, namely kEUR 118, was processed in the other operating expenses.

51

(c) Operating expenses of an exceptional nature These are expenses of a one-off and/or exceptional nature that are not directly linked to the operational activities of the Group. Within the framework of coming to an out-of-court settlement in the dispute with Infolink NV and Francis Declercq, a compromise agreement was signed by both parties on 16 March 2006. This out-of-court settlement consists of the Company transferring 3,400,000 shares in Keyware Technologies corresponding to a value of kEUR 850 (valuation of shares in Keyware Technologies at EUR 0.25) to Dexia NV, since Dexia NV has taken over the claim from Infolink. As the Company did not have any of its own shares, this obligation was taken over by Pardel NV, which deposited the 3,400,000 shares in Keyware Technologies on the securities account of Dexia NV. Following this, a provision was created for the sum of kEUR 850 at the end of December 2005. As per 31 December 2005 and 2004 the Group carried out an impairment test on the value of the subsidiaries. As a result of this, as per 31 December 2004 an extraordinary depreciation of kEUR 3,815 was recorded. On the basis of the impairment test carried out on 31 December 2005, the Board of Directors is in the opinion that no additional depreciations should be recorded. (d) Net Operating results The operating loss for the period 2005 amounted to kEUR 355 compared to kEUR 2,594 for the period 2004. The operating results of 2004 were negatively influenced by a number of one-off direct and indirect expenses for the sum of kEUR 1,264. These are above all expenses connected with legal proceedings, such as the fees of solicitors, expenses of bailiffs and damages due to late payment. (e) Net loss The net loss for the period 2005 amounts to kEUR 509 compared to kEUR 7,385 for the period 2004. As per 30 June 2005 the Company reported a net loss of kEUR 575, which means that during the 2nd half-year of 2005 a profit was achieved for the sum of kEUR 66.

(4) Personnel and branches

On 31 December 2005 the Group had 78 employees (personnel and consultants). The head office is based in Anderlecht, Belgium. The Group has offices in Louvain-la-Neuve (Belgium), Paris (France), Toulouse (France) and Sierre (Switzerland).

52

KEYWARE TECHNOLOGIES N.V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET

(ALL SUMS IN ‘000 EURO) Assets 31.12.2005 31.12.2004

Consolidation differences (7) 12,459 12,459 Intangible fixed assets (8) 1,540 698 Tangible fixed assets (9) 391 397 Financial fixed assets 243 203 Deferred tax assets (10) 2,065 1,220 Long-term trade receivables (11) 3,843 923

Fixed assets 20,541 15,900

Inventories and work in progress (12) 2,077 1,422 Trade receivables (13) 2,059 1,872 Other receivables (14) 64 427 Investments and liquid assets 233 137 Accruals (15) 648 319

Total current assets 5,081 4,177

Total assets 25,622 20,077 Liabilities and shareholders’ equity 31.12.2005 31.12.2004

Share capital (16) 27,522 24,697 Share premium 4,522 4,522 Reserve warrants (16) 102 - Result carried forward (19,080) (13,366) Result of the period (509) (7,385) Translation reserve 19 21

Total shareholders’ equity 12,576 8,489

Deferred tax liabilities (10) 122 147 Provisions (17) 1,015 380

Total deferred taxes and provisions 1,137 527

Automatically convertible loan (18) 300 - Financial debts due after one year (19) 454 549 Leasing debts due after one year (20) 980 51 Trade payables due after one year (21) 813 -

Total liabilities due after one year 2,547 600 Automatically convertible loan (18) 400 - Financial debts due within one year (22) 911 870 Leasing debts due within one year (23) 433 22 Advances to shareholders (24) 2,409 2,784 Trade payables (25) 4,164 4,992 Social and fiscal liabilities (26) 1,013 1,561 Other payables - 74 Accruals (27) 32 158

Total liabilities due within one year 9,362 10,461

Total liabilities and shareholders’ equity 25,622 20,077

53

KEYWARE TECHNOLOGIES N.V. AND SUBSIDIARIES CONSOLIDATED PROFIT AND LOSS ACCOUNT

(ALL SUMS IN ‘000 EURO) For the period For the period from 01.01 to from 01.01 to 31.12.2005 31.12.2004

Turnover (28) 9,730 6,808 Other operating income (30) 1,016 420

Operating revenues 10,746 7,228

Goods for resale and raw materials (3,799) (2,350) Services and other goods (31) (3,430) (3,399) Personnel expenses (32) (3,216) (3,301) Depreciation4 (33) (314) (293) Provision and amortization5 (34) 124 (253) Other operating expenses (466) (226)

Operating expenses before extraordinary provisions & amort. (11,101) (9,822) Operating result before extraordinary prov. & amort (355) (2,594)

Provisions of extraodinary nature (35) (850) - Extraordinary amortization (35) - (3,815)

Operating result after extraordinary prov. & dep. (1,205) (6,409)

Financial expenses (36) (347) (766) Financial income (36) 194 70 Profit/loss from sale of investments - 1

Result before taxes (1,358) (7,104)

Deferred taxes (37) 869 (272) Tax over result (37) (20) (9)

Result after taxes (509) (7,385) Profit/(loss) per share (0.01) (0.16) Profit/(loss) per diluted share (0.01) (0.16) Weighted average outstanding shares 68,961,265 46,943,550 Weighted average of diluted shares 71,414,653 47,201,000

4 Due to the comparability of the figures, in comparison to what was reported as per 30 June 2005, a reclassification was carried out of the provision and depreciations to the amortization. 5 Due to the comparability of the figures, in comparison to what was reported as per 30 June 2005, a reclassification was carried out of the provision and depreciations to the amortization.

54

KEYWARE TECHNOLOGIES N.V. AND SUBSIDIARIES CONSOLIDATED STATEMENT SHAREHOLDERS’ EQUITY

(ALL SUMS IN ‘000 EURO) Share Share Share Result Other Translation Shareholders’ Capital Capital premium carried forward reserves reserve equity Number of shares Amount Shareholders’ equity 01.01.2004 35,879,064 101,613 4,522 (95,768) 0 4 10,371 Capital increase 27,472,547 5,486 5,486 Capital decrease (82,402) 82,402 0 Net loss (7,385) (7,385) Translation reserve 17 17 Shareholders’ equity 31.12.2004 63,351,611 24,697 4,522 (20,751) 21 8,489 Capital increase 30,598,115 3,978 3,978 Capital decrease (1,500) 1,500 0 Capital increase – warrants 2,667,500 347 347 Net loss (509) (509) Valuation warrants 171 102 273 Translation reserve (2) (2) Shareholders’ equity 31.12.2005 96,617,226 27,522 4,522 (19,589) 102 19 12,576

55

KEYWARE TECHNOLOGIES N.V. AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENT (ALL SUMS IN ‘000 EURO)

For the For the period from period from 01.01 to 01.01 to 31.12.2005 31.12.2004 Operational cash flow - result of the period (509) (7,385) - depreciation6 314 293 - amortization7 635 368 - provision doubtful debts 71 69 - amortization inventory8 19 (170) - impairment 3,815 - (gain)/loss from the sale of fixed assets (1) - (gain)/loss from the sale of participations - effect of exchange rate (USD loan July 2002) 61 - valuation warrants 225 - deferred tax assets and liabilities (869) 272 Cash from operating activities (91) (2,678) Changes in operational assets and debts - long-term trade receivables (2,920) (923) - trade receivables, net (258) (116) - inventories (674) (759) - other receivables and accruals 34 (344) - trade payables 95 2,321 - trade payables due after one year 813 - social and fiscal liabilities (548) (41) - other liabilities and accrued liabilities (96) (169) Changes in working capital (3,577) (31) Operational cash flow (3,668) (2,709)

6 Due to the comparability of the figures, in comparison to what was reported as per 30 June 2005, a reclassification was carried out of the provision and depreciations to the amortization. 7 Due to the comparability of the figures, in comparison to what was reported as per 30 June 2005, a reclassification was carried out of the provision and depreciations to the amortization. 8 Due to the comparability of the figures, in comparison to what was reported as per 30 June 2005, a reclassification was carried out of the provision and depreciations to the amortization.

56

For the For the period from period from 01.01 to 01.01 to 31.12.2005 31.12.2004 Investment cash flow - Investments in tangible fixed assets9 (102) (208) - Divestments in tangible fixed assets10 18 10 - Cash from sale of tangible fixed assets 2 - - Acquisitions of subsidiaries, net without cash 61 - - (Increase)/Decrease in guarantees provided (40) - Investment cash flow (61) (198) Financial cash flow - Capital increase 347 - - (Repayment)/revenues LT and ST fin. debts (55) 332 - (Repayment)/revenues with regard to leasing 1,340 21 - Advances, loans to shareholders 2,200 2,365 Financial cash flow 3,832 2,718 Effect of exchange rate (7) 18 Net increase/(decrease) in cash 96 (171) Cash at the beginning of the period 137 3 Cash at the end of the period 233 137

9 Due to the similarity of the figures, in comparison to what was reported as per 30 June 2005 a distinction was made between the investments and divestments in tangible fixed assets per 31.12.2004 10 Due to the similarity of the figures, in comparison to what was reported as per 30 June 2005 a distinction was made between the investments and divestments in tangible fixed assets per 31.12.2004

57

KEYWARE TECHNOLOGIES N.V. NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS

(1) Identification

Keyware Technologies NV was founded in June 1996 as a public limited company under Belgian law. The Company is established at Boulevard Paepsem 18 G, 1070 Anderlecht, Belgium. It company number is 0458.430.512. The consolidated annual accounts were adopted by the Board of Directors on 22 February 2006.

(2) Conformity statement

The consolidated financial statements were compiled in accordance with the International Financial Reporting Standards (IFRS), that contain the standards and interpretations published by the International Accounting Standard Board (IASB). Since 1 January 2005 Keyware Technologies NV has switched to applying the IFRS standards as the basis for the accounts. Until the end of 2004 the company reported in accordance with the generally accepted accounting principles that are applied in the United States (US GAAP). As far as the reconciliation between US GAAP and IFRS of the balance sheet and profit and loss account as per 31 December 2004 is concerned, please refer to the first part of the report ‘Half-year results 30 June 2005’.

(3) Consolidation circle

The consolidated annual accounts rounded off per 31 December 2005 include Keyware Technologies NV and its subsidiaries. The consolidation circle was determined as follows:

Branch Consolidated up to Method Keyware Smart Card Division NV 31.12.2005 Integral Keyware NV 31.12.2005 Integral Keyware Transaction&Processing NV 31.12.2005 Integral Keyware France NV 31.12.2005 Integral Keyware Technologies Suisse NV 31.12.2005 Integral Digital Access Control NV 31.12.2005 Integral

The ESM of 27 May 2005 decided to issue automatically convertible bond loans and to issue “DAC warrants”. In this way the acquisition of 100% of the shares in Digital Access Control NV (DAC) was rounded off. The results of Digital Access Control NV were included in the consolidation as from 1 June 2005.

58

(4) Going-concern

The attached consolidated annual accounts were compiled on the assumption of going-concern, which assumes that the assets are achieved and the debts are paid like in normal company operations. As per 31 December 2005, the Group has incurred accumulated losses for a total sum of kEUR 19,080, which were conditionally financed by capital. Despite the historic losses and the impossibility of the Group to achieve positive results and positive operational cash flows, in 2004 quite a few parties confirmed their confidence in the Group. This was apparent amongst other things from the willingness of suppliers to convert their debts into capital, the additional loans permitted by shareholders and investors, the willingness of suppliers to, despite the sometimes precarious cash position, grant the Group extra payment instalments, etc. In addition, many shareholders, investors and suppliers converted their debts (or a part of them) into capital on the occasion of the Extraordinary Shareholders’ Meeting of 27 May 2005. The confidence of these parties has contributed to the growth of the Group in 2005. Not only did the Group achieve turnover growth of more than 40% in 2005, during the 2nd half-year of 2005 a positive net result was even achieved. Despite the growth and the favourable evolution of the results, in 2006 the Group will still require additional financing primarily to further finance and expand the activities with regard to the payment terminals.

On the basis of the above, the Board of Directors is convinced that the Group is able to continue its activities on a “going concern” basis over a reasonable period of time and it confirms the application of the valuation rules in going-concern.

So the consolidated annual accounts do not contain any adjustment for the collectability and classification of the assets booked or the amount and classification of the debts that would be required if the Company could no longer continue its activities as a “going concern”. The continuation of the Group as a “going concern” depends on its ability to generate sufficient cash flow to fulfil its obligations on time or to maintain adequate financing and finally on achieving successful operations.

(5) Main valuation rules

(a) Basic principle The consolidated interim financial statements were compiled in accordance with the International Financial Reporting Standards (IFRS), that contain the standards and interpretations published by the International Accounting Standard Board (IASB), applicable as of 31 December 2005. The preparation of the financial accounts in accordance with IFRS standards requires of the management that it makes estimates that can have an impact on the sums that are reported in the consolidated financial statements and the accompanying notes. The final results can vary from these estimates.

59

(b) Consolidation principle The consolidated annual accounts of Keyware Technologies NV contains not only Keyware Technologies but also the subsidiaries that it controls. Control exists if the Group has an interest of more than half the voting rights connected with the shares in a company, or it if, directly or indirectly, has the power to determine the financial and operational policy of a company to benefit from its activities. The annual accounts of subsidiaries are included in the consolidated annual accounts from the date on which the control commences until the date on which the control ceases to exist. The acquisition of subsidiaries are processed in the books as take-overs. The cost price of a take-over is the sum paid in cash or cash equivalents or the real value, on the exchange date, of any other remuneration that is provided by the party taking over in exchange for control over the assets and liabilities of the other company, increased by any expenses that are directly attributable to the take-over. Intragroup balance sheets and transactions and any profits not realised ensuing from transactions within the Group are eliminated when compiling the consolidated annual accounts.

(c) Reporting currency The reporting currency of Keyware Technologies NV is the EURO. (d) Foreign currency Transactions in foreign currency Transactions in foreign currency are converted to the euro on the basis of a conversion rate determined every month. Exchange rate differences that occur when processing monetary items or when reporting monetary items are included in the profit and loss account of the period in which they occur.

Annual accounts of subsidiaries Assets and liabilities of subsidiaries, expressed in a currency other than the euro, are converted using the exchange rate that applies at the end of the reporting period. Income and expenses are converted using the average exchange rate during that period. Components of shareholders’ equity are converted using historic exchange rates. Profits or losses from these conversions are included in the balance sheet item conversion differences, processed as a separate component of the shareholders’ equity. (e) Goodwill The surplus purchase value on an acquiring an interest in a company and the real value of the underlying net assets acquired on the date of the transaction is booked as consolidation differences and recognised as an asset in the balance sheet. Identifiable assets and liabilities recognised on acquisition are valued at the value that is fair at that time. Goodwill is included as an asset and initially valued at cost price. After the first inclusion, goodwill is valued at cost price minus the accumulated extraordinary depreciations.

60

Goodwill is tested for extraordinary depreciations on a yearly basis or more often if there are indications to do so.

(f) Intangible fixed assets Purchased intangible fixed assets Intangible fixed assets are initially valued at the purchase value and are recognised if it is likely that future economic benefits, that can be attributed to the asset, will flow to the company and the cost of the asset can be reliably measured. After initial valuation at the purchase value they are reduced by the accumulated depreciations and any accumulated extraordinary depreciations losses. Intangible fixed assets are written off linearly over the estimated life.

Internally generated intangible fixed assets — research and development Expenses for research are included as an expense in the profit and loss account at the time that they are incurred. Internally generated intangible assets that result from the development of the Group are only recognised if all of the following conditions are met:

an asset is created that can be identified; it is likely that the expected future economic benefits that can be attributed to the

asset will flow to the entity; the cost price of the development expenses can be reliably determined.

Internally generated intangible assets are amortized on a linear basis over their expected economic life. If no internally generated intangible assets can be recognised. Development expenses are charged to the profit and loss account in the period during which they are incurred.

(g) Tangible fixed assets The tangible fixed assets are valued at the acquisition price minus the accumulated depreciations and any extraordinary depreciation losses. The amortization is calculated using the linear method in accordance with the estimated life of the assets, which can be shown as follows:

buildings 20 years machines and installations 3-5 years cars 4 years computers and accessories 3 years furniture 5-10 years other tangible fixed assets 9 years

61

(h) Inventory Inventories are valued at the lowest value of either the cost price or the market value. The cost price is the individual price of each article. Inventories that cannot be sold are integrally written-down.

(i) Trade receivables and long-term trade receivables Trade receivables are recognised and included at nominal value. An amortization is included if the collectability of the entire sum is no longer likely. The long-term part of the receivables with regard to the financial leases of the payment terminals is included under trade receivables – in accordance with IAS 17 – Leases –(see leases). (j) Cash and cash equivalents

Cash resources and cash equivalents are included in the balance sheet at nominal value. They comprise cash resources and bank balances as well as bank deposits and investments that can immediately be converted into cash and that furthermore are not subject to significant risks of fluctuations in value.

(k) Leases Financial leases: Keyware as lessor Assets that are kept under financial lease are included in the balance sheet and presented as receivables for the sum equal to the net investment in the lease. The rent price of a contract is divided into net rent and maintenance. Then the actual value of the net rent for the entire duration of the contract, namely 48 months, is calculated. This actual value is registered integrally as turnover in the month in which the contract commences. The turnover with regard to the maintenance is included as turnover spread over the duration of the contract. Every month, a financial income is registered which represents the difference between the total value of the contract and the actualised value.

(l) Provisions A provision is included if:

the Group has an existing obligation; it is likely that an outflow of resources is required to settle the obligation; and if the sum of the obligation can be estimated in a reliable way.

62

(m) Financial instruments Financial assets and financial debts are recognised on the balance sheet of the Group if the Group becomes a party to the contractual provisions of the financial instrument in question. If the contractual rights or the cash flows of the financial asset run out or if the asset is transferred and the transfer qualifies for no longer being included, to the degree that the risks and rewards of the proprietor are kept or transferred, the financial assets are no longer included in the balance sheet. Financial obligations are no longer included in the balance sheet if they are nullified, that is to say if the obligation determined in the contract is fulfilled or dissolved or cancelled.

(n) Convertible bonds Convertible bonds are presented as a financial obligation as there is a contractual obligation of one of the parties involved in the financial instrument (emittent) to deliver another financial asset to the other party. (o) Trade payables Trade payables are included at nominal value.

(p) Revenue recognition

Incomes are included to the degree that it is likely that the economic benefits will flow to the Group and if the sum of the income can be determined in a reliable way. The income is valued at the actual value of the right or receivable received and represents the sums to be received for goods services delivered during the execution of normal company activities, including discounts and sales taxes.

Incomes with regard to the sale of hardware (infrastructure revenues) are recognised in the profit and loss account if real risks and advantages of title have been transferred to the buyer.

Licences are agreements in which the company awards the client the right to use the company’s products, without obtaining their title, usually with limitations on the number of employees or users for which the software and the licence period is awarded. Licence fees are recognised as an income if no actual production, changes or “customisation” of software is required and if all of the four following conditions have been fulfilled:

an unbreakable contracts is signed by the company and the client; delivery has occurred; the licence fee is fixed and can be determined; receipt of the fee is practically certain.

63

If actual production, changes or customisation of software is required, incomes can only be recognised on the basis of the “contract accounting method” for fixed-price contracts.

Incomes related to maintenance contracts and other contracts for which a specific service is delivered during a contractually agreed upon period are recognised on a linear basis for the duration of the contract. Incomes relating to contracts with regard to leasing payment terminals are processed in accordance with IAS 17 – Leases (see leases). (q) Amortization of assets On every balance sheet date, the Group checks the book value of the tangible and the intangible fixed assets to determine whether there is an indication that these assets have incurred an amortization. If there is such an indication, the recoverable amount of the asset is estimated to determine the scope of the amortization (if necessary). If it is not possible to estimate the recoverable amount of an individual asset, the Group will determine the recoverable amount of the cash-flow generating unit to which the assets belong. The recoverable amount is the highest of either the net selling price or the value in use. To determine the utilisation value, the future cash flows expected will be discounted by their current value at the discount rate that reflect the current market valuations or time value of money and the specific risks of the asset. If the recoverable amount of an asset (or the cash-flow generating unit) is estimated lower than its carrying amount, the carrying amount of the asset (cash-flow generating unit) is reduced to its recoverable amount. An amortization is immediately recognised in the profit and loss account, unless the asset in question is valued at a revalued sum, in which case the amortization will be handled as a depreciation of a revaluation. If a amortization is reversed, the carrying amount of the asset (cash-flow generating unit) is increased to the revised estimate of its recoverable amount, but only in a way that the increased carrying amount does not exceed the carrying amount without amortization for the asset (cash-flow generating unit) of previous years. A reversal of an amortization is immediately recognised in the profit and loss account, unless the relevant asset is valued at a revalued sum, in which case the reversal of the amortization is handled as a revaluation increase.

(r) Equity compensation benefits In 2005 the Group issued a warrant scheme in which warrants are awarded to directors, consultants and employees, giving the right to acquire new shares in Keyware Technologies.

The calculation of the valuation of the warrants occurred in accordance with IFRS 2 – Share based payments. If warrants are exercised, new shares are issued and the shareholders’ equity will increase by the sum that is received.

64

(s) Taxes Income tax comprises the sum of the current and deferred taxes.

Current taxes Current taxes are taxes that are expected to be paid on the taxable result of the period, making use of the interest rates and tax legislation whose legislation process (material) is closed off on the balance sheet date, as well as any correction to taxes to be paid over previous periods.

Deferred taxes Deferred taxes are calculated using the balance sheet liability method, in which temporary differences are considered between the book value of assets and liabilities in the financial reporting and the fiscal book value, deferred tax obligations are booked for all taxable, temporary differences, except if they are the result of depreciation of goodwill. Deferred tax obligations are not recognised for taxable, temporary differences that relate to investments in subsidiaries and interests in joint ventures, if the time on which the temporary difference can be settled can be determined by the parent company and it is likely that the temporary difference will not be settled in the near future. A deferred tax receivable must be included for all offsetable, temporary differences, fiscal losses and fiscal revenues in so far as it is likely that a fiscal profit will be available against which the offsetable, temporary difference, fiscal losses and fiscal income can be offset. Offsetable, temporary differences that ensue from investments in subsidiaries and interests in joint ventures are only included if the temporary difference will be settled in the near future (five years) and if there is fiscal proof available that it can be used for the temporary difference. The book value of the deferred tax receivable is revised on every balance sheet date and reduced in as far as it is no longer likely that there is sufficient taxable profit available to use for the entire or a part of the deferred tax receivable. Deferred tax receivables and obligations are valued at the tax rates that are expected to apply to the period in which the claim is achieved or the obligation is completed, on the basis of the tax rates and tax legislation whose legislation process (material) has been rounded off on the balance sheet date. (t) Segment information

Internally, the Group makes a distinction between two important operational activities or business units, namely “Security & Time management” and “Card & Terminal applications”. These business units are the basis on which Keyware reports its primary segment information. In addition there are also “Corporate expenses” which concern non-attributed overhead expenses.

65

(u) Net profit/loss per share

The ordinary profit per share is calculated by dividing the net profit or the net loss for the period, that is to be distributed to the ordinary shareholders, by the weighted average number of ordinary shares issued during the period.

The diluted profit or loss per share is calculated by dividing the net profit or net loss for the period to be distributed to the ordinary shareholders by the sum of the weighted average of ordinary and potential shares issued. Potential ordinary shares are deemed to have been converted to ordinary shares at the beginning of the report period or on the date of the issue of the potential ordinary shares if this is later.

(v) Events after the balance sheet date Events after the balance sheet date that have an impact on the result of the period or that provide more information about the company’s position on the balance sheet date, are shown in the financial statements. Events after the balance sheet date that do not have an impact on the result are included in the notes on condition that they are important. (w) Derivative financial instruments Since the activities of the Group are not subject to any significant exchange rate or interest risks, the Group does not use any derivative financial instruments.

(6) Business Acquisitions At the end of March 2005, the Group reached a memorandum of understanding for taking over 100% of the shares in Digital Access Control NV (DAC). As a result of the take-over, Keyware will be able to expand its integrated range of access control, time registration, alarm management and closed circuit security with a high-performance technology: the electromechanical lock and the accompanying electronic key “eKeys”. The ESM of 27 May 2005 decided to issue automatically convertible bond loans and to issue “DAC warrants”. In this way the acquisition of 100% of the shares in Digital Access Control NV (DAC) was rounded off.

The remuneration for the take-over of Digital Access Control NV consists of the following elements:

new shares issued for a corresponding value of kEUR 400; automatically convertible bonds issued to the shareholder of Digital Access

Control NV for the sum of kEUR 700; the issue of 750,000 warrants (DAC Warrants), each warrant entitles the holder

to one share in Keyware Technologies.

66

The ACOs were distributed as follows:

the first ACO for the sum of kEUR 400 that will be automatically converted into shares in the Company on the date of an Extraordinary Shareholders’ Meeting of the Company that will be held immediately after the Ordinary Shareholders’ Meeting of the Company in the year 2006. The conversion price (namely the subscription price per new share to be issue) will be equal to the average closing prices of the share in the Company on Euronext Brussels during the thirty days prior to the day on which the conversion occurs with a maximum conversion price of EUR 0.25. However, the conversion price can in no case be less than the average closing prices of the share in the Company on Euronext Brussels during the thirty days prior to the day on which the ACOs are issued; and

a second ACO for the sum of kEUR 300 that will be automatically converted into shares in the Company on the date of an Extraordinary Shareholders’ Meeting of the Company that will be held immediately after the Ordinary Shareholders’ Meeting of the Company in the year 2007. The conversion price (namely the subscription price per new share to be issue) will be equal to the average closing prices of the share in the Company on Euronext Brussels during the thirty days prior to the day on which the conversion occurs with a maximum conversion price of EUR 0.30. However, the conversion price can in no case be less than the average closing prices of the share in the Company on Euronext Brussels during the thirty days prior to the day on which the ACOs are issued.

The capital increase following the (automatic) conversion of the ACOs will occur on the suspensive condition of the effective conversion of the ACOs on the conversion date. These ACOs do not bear any interest.

The company Digital Access Control NV (DAC) was founded on 14 September 2004 (under the name of Luverco NV) and had its offices at Zandvoortstraat 27, 2800 Mechelen. Keyware Technologies bought the shares in Digital Access Control NV from Melitra Ltd, based in Hong Kong, China. On the date of the take-over no employees were taken over from Digital Access Control NV. The only assets of the company were a licensing agreement, distribution agreement and inventory of goods for resale. The proforma balance sheet until the end of November 2004 came to kEUR 146. The value of DAC NV was determined on the basis of three years result after taxes discounted at a rate of 10%.

67

(7) Consolidation differences

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Goodwill Keyware Smart Card NV 7,605 7,605Goodwill Keyware Transaction & Processing NV 1,593 1,593Goodwill Keyware NV 3,261 3,261 Total 12,459 12,459

In accordance with IFRS 3 – Business combinations, goodwill is no longer amortized but is tested for amortization per cash-flow generating unit to which the goodwill belongs. The realisation value of each cash-flow generating unit was determined on the basis of the value in use. To calculate this, the cash-flow prognoses were used from the financial budgets for the next 3 years that have been approved by the Board of Directors. These budgets were extrapolated over 5 years at a decreasing growth rate and without a residual value. As per end of December 2005, the testing of the extraordinary amortization showed that no loss should be taken. On the basis of the same test, as per 31 December 2004 an impairment expense of kEUR 3,815 was recorded for the same goodwill.

(8) Intangible fixed assets This item integrally relates to licences and distribution rights for which the cost price of the intangible assets can be reliably valued.

in kEUR Patents and licences Total

Gross book value on 01.01.2005 1,055 1,055Additions 1,065 1,065Disposals 0 0Conversion differences 0 0Gross book value on 31.12.2005 2,120 2,120 Accumulated dep. and extra. dep. (-) on 01/01/05 357 357Amortization expenses of the period 225 225Withdrawal due to disposals 0 0Conversion differences -2 -2Accumulated dep. and extra. dep. (-) on 31.12.2005 580 580

Net book value on 01.01.2005 698 698Net book value on 31.12.2005 1,540 1,540

68

Following the acquisition of Digital Access Control NV, this sum was increased in 2005 by kEUR 1,065, which is kEUR 1,005 allocation from positive consolidation differences and kEUR 60 statutory booked distribution rights. This concerns the acquisition of the distribution agreement for the distribution of the electromechanical lock and accompanying electronic key “eKeys”. In accordance with IFRS 3 – Business combinations, this positive consolidation difference that occurred following the acquisition of Digital Access Control NV is integrally allocated to the acquisition of the distribution agreement, since the real value of the distribution agreement corresponds with this.

(9) Tangible fixed assets

The movements (2004-2005) with regard to this item can be summarised as follows:

Land Installations Furniture Leasing Other Total

In kEUR and

building and

machines and cars Gross book value On 01.01.2004 239 126 703 407 70 1,545Additions 0 3 49 67 51 170Disposals 0 0 -12 -173 -40 -185Conversion differences 0 0 2 0 -2 0On 31.12.2004 239 129 742 301 79 1,490

Accumulated depreciation and extra. depreciation On 01.01.2004 40 58 608 380 67 1,153Additions 6 25 63 27 42 163Withdrawals due to disposals 0 0 -10 -173 -40 -223Conversion differences 0 0 1 0 -1 0On 31.12.2004 46 83 662 234 68 1,093

Net book value On 01.01.2004 199 68 95 27 3 392On 31.12.2004 193 46 80 67 11 397

69

Land Installations Furniture Leasing Other Total

in kEUR and

building and

machines and cars Gross book value On 01.01.2005 239 129 742 301 79 1,490Additions 0 1 58 29 14 102Disposals 0 0 -29 0 0 -29Conversion differences 0 0 -2 0 0 -2Op 31.12.2005 239 130 769 330 93 1,561

Accumulated depreciation and extra. depreciation On 01.01.2005 46 83 662 234 68 1,093Additions 6 11 44 24 4 89Withdrawals due to disposals 0 0 -10 0 0 -10Conversion differences 0 0 -2 0 0 -2On 31.12.2005 52 94 694 258 72 1,170

Net book value On 01.01.2005 193 46 79 66 12 397On 31.12.2005 187 36 75 72 21 391

The land and building relates to a building owned in Belgium. Other tangible fixed assets above all concern the furnishing of rented premises.

(10) Deferred taxes

The deferred tax assets can be broken down as follows (in kEUR):

in kEUR 31.12.2005 31.12.2004 Deferred tax assets 2,538 1,471Deferred tax liabilities (within the same -473 -251company) Total 2,065 1,220

As the company Keyware Smart Card NV has an operating profit as per 31 December 2005 and the budgets for the next 5 years also assume a profit situation, the Board of Directors has decided to reassess the deferred tax assets expressed in the past with regard to offsetable fiscal losses.

70

On the basis of the current budgets the fiscal losses of Keyware Smart Card NV will in all probability be used within a period of five years. The total deferred tax assets can be estimated at EUR 3.4 million. In order to incorporate the necessary caution, the Board of Directors has decided to only keep 75% of this sum, namely EUR 2.5 million, as deferred tax assets. As in the past EUR 1.4 million has already been incorporated in the figures, as per 30 June 2005 in the end another EUR 1.1 million was additionally recorded as deferred tax assets. The deferred tax liabilities of Keyware Smart Card NV following the IFRS adjustments will be deducted from the deferred tax assets. They all concern recognition of temporary differences. In addition, the Group still has deferred tax assets which integrally related to the transferred fiscal losses which were not recognised in the figures as per 31 December 2005. It concerns a gross sum of EUR 50 million in accumulated losses, which corresponds with a deferred tax asset for the sum of EUR 17 million. The deferred tax liabilities integrally relate to the company Keyware Transaction & Processing NV and concern recognition of temporary differences. The applicable tax rate is 33.99%.

The change in the profit and loss account can be summarised as follows:

in kEUR 31.12.2005 31.12.2004 Recognition of deferred taxes with regard to fiscal losses 1.078 0Deferred tax liabilities with regard to IFRS adjustments -221 -272Withdrawal deferred tax assets – fiscal losses 12 0 Total 869 -272

(11) Long-term trade receivables

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004

Outstanding capital contracts 2004 553 923Outstanding capital contracts 2005 2,477 0Outstanding capital financing Parfip 813 0 Total 3,843 923

Long-term trade receivables includes the long-term part of the receivable with regard to the financial leases in accordance with IAS 17 – Leases – of the payment terminals. As per 31 December 2005 this receivable corresponds with the sum of kEUR 3,030.

71

Finally, the long-term trade receivables that relate to the financing agreement with Parfip Benelux NV were also included in this item. The Group has entered into a financing agreement with Parfip Benelux NV, whereby the Group has the possibility of ceding the contracts with regard to leasing payment terminals to Parfip Benelux NV. Within the framework of this agreement, the contracts for the rent of payment terminals can be sold to Parfip Benelux NV at an actualised value on the assumption of a 10% interest rate. In other words, Keyware at the start of the contract receives the integral discounted sum of the rent instalments and Parfip Benelux NV for the entire duration of the contract (with regard to the rent of the payment terminals) will collect the rent. At the end of the contract the material will once again become the property of Keyware on payment of a small residual value. In accordance with this contract the final debtor risk is however at charge of the Group. In concrete terms this means that if a debtor becomes insolvent Parfip Benelux NV reserves the right to re-invoice this contract to the Group. In that case Keyware will on the one hand have to repay the outstanding capital with regard to the discounted sum received in advance to Parfip Benelux NV, but on the other hand Keyware itself will still be able to invoice the remaining duration of the contract to the customer. As a result Keyware on the one hand has a deferred liability and on the other hand a deferred receivable.

At the end of December 2005 the Group has a deferred receivable corresponding to the total amount of outstanding capital for the contracts sold in 2005. This is a total sum of kEUR 1,054, of which kEUR 813 relates to the long term and kEUR 241 to the short term.

(12) Inventories

This item concerns the inventory of goods for resale of the two “business units” which can be broken down as follows:

In kEUR 31.12.2005 31.12.2004

Inventory "Card & Terminal applications" 1,110 950Inventory "Security & Time management" 967 472 Total 2,077 1,422

The goods for resale concern products purchased from third parties. During the past period amortization on inventory were booked for the sum of kEUR 19. Amortization and withdrawal of amortization are included in the profit and loss account in the item “Provisions and amortization”.

72

(13) Trade receivables This item can be broken down as follows:

In kEUR 31.12.2005 31.12.2004

Trade receivables 1,798 1,559Trade receivables - IAS 17 267 253Bad debts 1,316 1,336Amortization -1,322 -1,276 Total 2,059 1,872

In addition to the “traditional trade receivables”, the short-term trade receivables include the short-term part of the receivable with regard to the financial leases in accordance with IAS 17 – Leases – of the payment terminals. As per 31 December 2005 this receivable corresponds to the sum of kEUR 267 .

The amortization integrally relate to trade receivables from the past. During the period 2005 amortization were booked for the sum of kEUR 4 with regard to receivables from 2004 or earlier. No amortization was booked on trade receivables with regard to turnover booked in 2005. As indicated in (11) Long-term trade receivables, the debtor risk in connection with the financing agreement with Parfip Benelux NV lies with Keyware. As a result of this, a provision was created of kEUR 67 in order to provide for the insolvency risks of the clients of to the “Card & Terminal applications” business unit. This provision complies with the valuation rules established by the Group. In October 2002 the 100% subsidiaries Keyware NV and Keyware France NV finalised a similar agreement with Eurofactor SA. This agreement is made up of 2 parts. The first part concerns collection from clients, whereby the service provided by Eurofactor consists of collecting the outstanding invoices. The second part concerns a number of credit facilities. In certain conditions, the Group can receive an advance on the outstanding invoices from Eurofactor. As per 31 December 2005 the outstanding advance amounts to kEUR 502.

73

(14) Other receivables This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 VAT to be reclaimed 11 349Corporate income tax to be reclaimed 26 21Social security to be reclaimed 0 10Advances to personnel 8 13Various current accounts 5 5Other 14 29 Total 64 427

(15) Accruals

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Prepaid rent 51 49Prepaid marketing expenses 140 0Prepaid insurance 19 0Prepaid commissions 408 246Prepaid maintenance contracts 18 18Other 12 6 Total 648 319

The prepaid commissions are commissions paid to an independent third party who takes care of concluding the rental agreements. This party receives a commission for each legally correct contract concluded, of which in accordance with the valuation rules of the Group 75% is immediately included in the result and 25% is taken in the result in accordance with the duration of the rental agreements. This also concerns the prepaid rent for the 1st quarter of 2006 and expenses to be carried forward for amongst other things maintenance contracts.

(16) Capital structure and issue of warrants On 23 June 2000 the Company concluded an “Initial public offering (IPO)” of its ordinary shares on the NASDAQ Europe stock exchange. The public offer resulted in an issue of an additional 5,714,286 ordinary shares in the company and a collection of kUSD 35,440 (net after deduction of the direct expenses of the offer of kUSD 4,548 in 2000 and kUSD 12 in 2001).

74

On 22 April 2003 an Extraordinary Shareholders’ Meeting approved the conversion of a bond loan by the former shareholders of Keyware Transaction & Processing NV(former DMP). On this occasion 10,772,456 new shares in Keyware Technologies NV were created. On 24 July 2003 550,000 warrants were exercised, so that the total number of shares issued was brought to 35,879,064. On 6 August 2004 the Extraordinary Shareholders’ Meeting approved the conversion of the non-monetary contribution of loans and claims. On this occasion, 27,472,547 new shares in Keyware Technologies NV were created. During this Extraordinary Shareholders’ Meeting a capital decrease by means of incorporation of losses for the sum of kEUR 82,405 was approved. No shares were nullified on the occasion of this capital decrease.

On 27 May 2005 the ESM of Keyware Technologies decided to increase the capital by the sum of kEUR 3,977 as a result of the contribution in kind of the rights amongst the debt receivables, the trade receivables and current account and the contribution in kind of the shares in Digital Access Control NV. On this occasion 30,598,115 ordinary shares in the Company were issued. In addition, the decision was taken to decrease the capital by kEUR 1,500 by paying off losses incurred. As per 31 December 2005 the share capital of the Group amounts to kEUR 27,522 represented by 96,617,226 ordinary shares with no par value. Every share is entitled to one vote. Under Belgian law, the capital structure of the Company, is included in the articles of association of the Company with the number of shares issued and permitted and can be amended by the shareholders in as far as a specific majority of the votes is achieved. The ESM of 27 May 2005 also decided to issue 7,000,000 “2005 warrants” and to issue 750,000 “DAC warrants”. These warrants issued entitle the holder to subscribe to the same number of shares. The exercise price of these warrants is EUR 0.13 and it was determined on the basis of the average closing price on Euronext Brussels during the thirty days prior to the day on which the issue starts. The warrants were valued in accordance with the Black Scholes method in which an exercise price was assumed of EUR 0.13, the price of the underlying share on the allocation date of EUR 0.14, a volatility of 70%, an estimated exercise period of 2.5 years, no dividend expected and a risk-free interest rate of 2.5%. On the basis of this a value of kEUR 273 was obtained. Of these kEUR 273, kEUR 225 was recorded in the profit and loss account and kEUR 48 is part of the acquisition price of the shares in Digital Access Control NV and was thus charged to determine the positive consolidation difference and accordingly showed as an asset under the intangible fixed assets.

75

The kEUR 225 was recorded for the sum of kEUR 157 under the services and other goods (for directors and consultants) and kEUR 68 under the personnel expenses. As per 31 December 2005 4,707,500 “2005 Warrants” and 375,000 “DAC Warrants” could still be exercised. During the month of March 2006 another 2,537,500 “2005 Warrants” and 375,000 “DAC Warrants” were exercised. So at the end of March 2006 2,545,000 “2005 Warrants” can still be exercised. The notarial deed of the capital increase was passed on 21 April 2006. Per 31 March 2006 the shares for this capital increase have not yet been issued. The Shareholders’ Meeting of 27 May 2005 decided to renew the authorisation of the Board of Directors with regard to the permitted capital with a maximum sum equal to the share capital of the Company for a period of five years. The authority of the Board of Directors also applies for capital increases by means of contribution in kind and cash contributions, by means of converting reserves or share premium and includes the authority to issue convertible bonds, warrants and bonds with a right of subscription. It was also decided to renew the authorisation of the Board of Directors for the period of three years to increase the share capital of the Company in one or more goes, from the date of the notification by the Committee for the Banking, Finance and Insurance Sector of a public takeover bid on the shares of the Company, by contribution in cash with abolition or limitation of the right of first refusal of the existing shareholders or by means of non-monetary contribution in accordance with the legal provisions in this respect. Within the framework of the Authorized capital, the Board of Directors is in the interest of the Company and whilst observing the legal provisions in this respect, authorised to abolish or limit the right of first refusal that the law awards the shareholders. The Board of Directors is authorised to limit or abolish the right of first refusal in favour of one or more specific person(s), even if they are not employees of the Company or its subsidiaries. Prior authorisations can also be used for the transactions named in article 605 Companies Code. The Board of Directors has the authority to amend the articles of association of the company in accordance with the capital increase that was decided to within the framework of its powers.

(17) Provisions

This item can be broken down as follows:

In kEUR Pending disputes Total Op 1 January 2005 380 380Additions 886 886Withdrawals -251 -251 On 31 December 2005 1,015 1,015

76

Infolink/Declercq Infolink NV, represented by Mr Francis Declercq, resigned as Director and Executive Director of the Company as of 30 November 2001. As a result of this resignation the management agreement with Infolink NV was terminated by the Company on 6 December 2001. Parties have a dispute related to, inter alia, the proposal by the Board of Directors to not discharge Infolink NV for exercising its the mandate during the period 2001; this in anticipation of the investigation into the possible breach of contract by Infolink NV and the amount of severance pay owed to Infolink NV by the Company as a result of the termination of the management agreement. On 11 March 2002 Infolink NV had protective attachment made on certain bank accounts of the Company for the sum of kEUR 1,301. This sum relates to the severance pay demanded increased by interest and damages. The arbitration decision of 16 March 2004 largely confirmed Infolink NV’s claim. The Company contested this arbitration decision before the Court of First Instance with the request that this arbitration decision be quashed. On 27 May 2005 the Court of First Instance in Brussels confirmed the arbitration decision of 16 March 2004. A summons to bring action to set aside the judgment of the Court of First Instance was lodged on 18 August 2005. The action to set aside the judgment was instituted on 12 September 2005.

The Board of Directors of Keyware Technologies NV has decided to lodge a complaint to bring an action as a plaintiff claiming damages in a criminal case due to forgery, abuse of confidence, abuse of the authorised capital and any other abuse that the investigation will determine against Infolink NV and Francis Declercq. In 2005, within the framework of this complaint to bring an action as a plaintiff claiming damages in a criminal case due to forgery, abuse of confidence, abuse of the authorised capital and any other abuse that the investigation will determine, the examining magistrate considered a number of criminal offences, and the court sitting in chambers referred Infolink and Francis Declercq to the criminal court. In light of the evolution in this dispute, the Board of Directors ordered the management to come to an amicable settlement with Infolink NV and Francis Declercq. Within the framework of coming to an amicable settlement for the dispute with Infolink NV and Francis Declercq, on 16 March 2006 an out-of-court settlement was signed by both parties. This out-of-court settlement consists of the Company transferring 3,400,000 shares in Keyware Technologies NV corresponding to a value of kEUR 850 (valuation shares in Keyware Technologies at EUR 0.25) to Dexia NV, as Dexia NV has taken over the claim from Infolink. Since the Company does not have any of its own shares, this obligation was taken over by Pardel NV, which has deposited the 3,400,000 shares in Keyware Technologies NV on the securities account of Dexia NV.

As the figures were approved by the Board of Directors on 22 February 2006, the consequences of the out-of-court settlement were not processed in the figures as per 31 December 2005. As per the end of December 2005 a provision was created for the sum of kEUR 850. In 2006 this provision will be taken back and a debt to Pardel NV will be expressed.

77

Other The balance of the additions, namely kEUR 36 concerns disputes with suppliers.

(18) Automatically convertible loan

Within the framework of the acquisition of Digital Access Control NV, the Company, at the end of April 2005, entered into a subscription agreement with Melitra Ltd, a company with its registered office in Hong Kong and previously the sole shareholder of Digital Access Control NV, whereby the Company issued two automatically convertible bonds for the total sum of kEUR 700. The ESM of 27 May 2005 unanimously vote to carry out this issue. The first ACO will for the sum of kEUR 400 automatically convert into shares in the Company on the date of the Ordinary Shareholders’ Meeting of the company in the year 2006 and in accordance with this was presented as a short term debt. The second ACO for the sum of kEUR 300 will automatically convert into shares in the Company on the date of the Ordinary Shareholders’ Meeting of the company in the year 2007 and in accordance with this was presented as a the long term debt.

(19) Long-term financial debts

This item can be broken down as follows:

In kEUR 31.12.2005 31.12.2004 Loan Parana Management BVBA 200 300Loan Jagernaut NV 0 93Credit facility Dexia 59 77Investment credit Alaric 39 79Dexia 156 0 Total 454 549

The loan from Parana Management BVBA has a duration of 4 years with the first instalment from 1 January 2006. Instalments of kEUR 25 will be made per quarter with the last instalment in October 2008. The interest rate applicable is EURIBOR 3 months + 2% premium per year. Keyware Transaction & Processing NV (formerly DMP), a 100% subsidiary of the Group, has taken out an investment credit for the sum of kEUR 176 with Dexia Bank. This credit is guaranteed by a registration of mortgage on the land and accompanying building. The outstanding debt as per 31 December 2005 is kEUR 80 of which kEUR 21 is included in the financial debts due within one year.

In 2003-2004 the same company purchased a transaction platform for payment cards from Alaric Ltd, a company under British law. It is a complete renewal of the outdated transaction platform. The entire purchase price is financed by the delivering company over a period of 4 years. This financing has an 8% interest rate.

78

The credit facility with Dexia are investment credits with a total credit facility of kEUR 2,975. Interest is owed per quarter and is set on the basis of the BIBOR + 1.5% per quarter. The interest is due monthly at 1% of the non-requested part of the credit facility. The credit facility has certain requirements with regard to solvency ratios and cash flow ratios. As per 31 December 2001 the Group did not fulfil the requirement for cash flow so that negotiations started with Artesia with regard to a rearrangement of the debt. Following this all the outstanding debts concerning Artesia were presented as short-term debts. The investment credit is guaranteed by a pledge on the Group’s trading fund kEUR 992 to be increased by interest and commissions. This credit is guaranteed for 75% of the capital and the interest to be paid by the government of Flanders. During the course of 2005 the negotiations were rounded off with Dexia about redemption of the outstanding credits, namely kEUR 231 as per 30 June 2005. Within this framework a redemption scheme was obtained of 36 months, whereby during the first year kEUR 57 is repaid and then kEUR 87 per year. Following this, the sum of kEUR 156 was proposed as a long-tem debt and kEUR 65 as a short-term debt. The future redemption obligations as per 31 December 2005 with regard to long-term and short-term financial debts are as follows:

Per 31 December 2005 kEUR 2006 4092007 3422008 942009 and later 18 Total 863

(20) Long-term leasing debts

This item can be broken down as follows:

In kEUR 31.12.2005 31.12.2004 Sale & Lease back Parfip 929 0Financial leasing cars 48 51Financial leasing office equipment 3 0 Total 980 51

79

On 24 March 2005 the Group entered into a financing agreement – financing of rental agreements – with Parfip Benelux NV. In concreto this is a “sale-and-lease back” financing for the payment terminals. This financing agreement consists of the following subcontracts:

financing 1 for the sum of EUR 230,034 with a duration of 42 months and a monthly instalment of EUR 6,460. The applicable interest rate is 10%;

financing 2 for the sum of EUR 229,749 with a duration of 42 months and a monthly instalment of EUR 6,452. The applicable interest rate is 10%;

financing 3 for the sum of EUR 230,853 with a duration of 42 months and a monthly instalment of EUR 6,483 The applicable interest rate is 10%;

financing 4 for the sum of EUR 229,464 with a duration of 42 months and a monthly instalment of EUR 6,444. The applicable interest rate is 10%.

All these subcontracts commenced on 1 April 2005.

On 25 April 2005 the Group entered into two additional subcontracts with the same party:

financing 5 for the sum of EUR 215,915 with a duration of 47 months and a monthly instalment of EUR 5,525. The applicable interest rate is 10%;

financing 6 for the sum of EUR 222,637 with a duration of 47 months and a monthly instalment of EUR 5,697. The applicable interest rate is 10%.

Both these subcontracts commenced on 1 May 2005. Finally, on 1 July 2005 the Group entered into the last subcontract with the same party for the sum of EUR 241,122 with a duration of 47 months and a monthly instalment of EUR 6,170. The applicable interest rate is 10%.

The total sale & lease back operation carried out in 2005 amounts to kEUR 1,600. As per 31 December 2005 the total outstanding debt amounts to kEUR 1,338 of which kEUR 929 has been processed as a long term debt and kEUR 409 as a short term debt. In addition, the Group has entered into various financial leases for amongst other things cars and office equipment. The total outstanding debt per 31 December 2005 amounts to kEUR 74 of which kEUR 51 has been processed as a long term debt and kEUR 24 as a short term debt. The future redemption obligations as per 31 December 2005 with regard to long-term leasing debts are as follows:

80

Per 31 December 2005 kEUR 2006 4322007 4682008 4492009 and later 64 Total 1.413

(21) Long-term trade payables

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Financing Parfip Benelux NV 813 0 Total 813 0

The Group has entered into a financing agreement with Parfip Benelux NV, whereby the Group has the possibility of ceding the contracts with regard to the rent of payment terminals to Parfip Benelux NV. Within the framework of this agreement, the contracts for the rent of the payment terminals can be sold to Parfip Benelux NV at an actualised value on the assumption of a 10% interest rate In other words, Keyware at the start of the contract receives the integral discounted sum of the rent instalments and Parfip Benelux NV for the entire duration of the contract (with regard to leasing the payment terminal) will collect the rent. At the end of the contract the material will once again become the property of Keyware on payment of a small residual value. In accordance with this contract the final debtor risk is however at the charge of the Group. In concrete terms this means that if a debtor becomes insolvent Parfip Benelux NV reserves the right to re-invoice this contract to the Group. In that case Keyware will on the one hand have to repay the outstanding capital with regard to the discounted sum received in advance to Parfip Benelux NV, but on the other hand Keyware itself will still be able to invoice the remaining duration of the contract to the customer. As a result Keyware on the one hand has a deferred liability and on the other hand a deferred receivable.

At the end of December 2005 the Group has a deferred receivable corresponding to the total amount of outstanding capital for the contracts sold in 2005. This is a total sum of kEUR 1,054, of which kEUR 813 relates to the long term and kEUR 241 to the short term.

(22) Short-term financial debts

This item can be broken down as follows:

81

in kEUR 31.12.2005 31.12.2004 Loan Parana Management BVBA 111 0Loan Jagernaut NV 115 63Credit facility Dexia 21 19Investment credit Alaric 42 41Dexia 65 238Delta Lloyd 55 76Eurofactors 502 433 Total 911 870

For the notes please refer to the long-term financial debts. Previously the Group had a credit facility up to a maximum of kEUR 175 with Delta Lloyd. As per 31 December 2005 the sum of kEUR 55 was still outstanding. As far as Eurofactors is concerned, please refer to (13) Short-term trade receivables.

(23) Short-term leasing debts

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Sale & Lease back Parfip 409 0Financial leasing cars 23 22Financial leasing office equipment 1 0 Total 433 22

For the notes please refer to (20) the long-term leasing debts.

(24) Advances to shareholders

This item can be broken down as follows (in kEUR):

in kEUR 31.12.2005 31.12.2004 Pardel NV 2,277 2,160Parana Management BVBA 0 100Jagernaut NV 0 100Cennini NV 0 100Stéphane Vandervelde 118 110Interest 14 214 Total 2,409 2,784

82

During the course of 2005 Pardel NV, represented by Pierre Delhaize, made current account advances available for the sum of kEUR 2,200. These advances bear interest at a rate of 3.75% per annum.

(25) Trade payables

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Trade payables 4.164 4.992 Total 4.164 4.992

The overdue trade payables due amount to kEUR 2,269. This amount includes one supplier for the sum of kEUR 680, of which kEUR 428 has already been repaid as per 31 March 2006. In addition, with regard to these overdue trade payables the Group has agreed on a number of redemption schemes. At the end of December 2005 there are 14 redemption schemes with a total outstanding debt of kEUR 943. As per 31 March 2006 kEUR 598 of this has already been repaid. In addition the Group has 9 pending disputes with former suppliers for a total sum of kEUR 239.

(26) Social and fiscal liabilities

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Corporate income tax 37 9VAT to be paid 291 174Professional withholding tax to be paid 128 391Social security to be paid 286 713Salaries to be paid 13 12Provisions holiday allowance 252 254Commissions to be paid 6 8 Total 1,013 1,561

83

The ratio between the due and not due fiscal and social liabilities is a follows:

in kEUR Not overdue Overdue Total VAT to be paid 124 167 291Professional withholding tax 77 51 128Social security contributions 250 36 286Salaries to be paid 13 0 13 Total 464 254 718

Of the VAT outstanding per 31 December 2005 (kEUR 291) kEUR 167 is overdue. After the balance sheet date kEUR 105 of this amount was repaid. The group has agreed on a redemption scheme with the Administration for part of the outstanding VAT for the sum of kEUR 24 over a period of 6 months. By 31 March 2006 kEUR 50 of the outstanding debt had been repaid.

As per 31 December 2004 the group had an outstanding debt to the social security for the sum of kEUR 713, of which kEUR 465 was overdue. At the end of December 2005 the outstanding balance owed to social security is only kEUR 286, of which kEUR 36 is overdue. By 31 March 2006 kEUR 65 of the outstanding debt had been repaid. As per 31 December 2004 the group had an outstanding debt for professional withholding taxes for the sum of kEUR 391, of which kEUR 294 was overdue. At the end of December 2005 the outstanding balance with regard to professional withholding taxes is only kEUR 128, of which kEUR 51 is overdue. No payments have been made yet before 31 March 2006. The group paid kEUR 137 and kEUR 151 for social security contribution increases, social security late-payment interest, professional withholding taxes and VAT in 2005 and 2004 respectively.

(27) Accruals

This item relates to the rent and interest expenses to be attributed. (28) Business segment information

The Group’s activities can be divided into two segments or business units. The first business unit concerns “ Security & Time management” and the second business unit concerns “Card & Terminal applications”.

84

Consolidated profit and loss account Sums in '000 EUR

Card & Terminal

applications

Security & Time

managementCor

porate 31.12.2005 Turnover 5,280 4,450 0 9,730Other operating income 221 179 617 1,016Operating revenues 5,501 4,628 617 10,746Goods for resale and raw materials -2,577 -1,222 0 -3,799Services and other goods -668 -1,260 -1,502 -3,430Personnel expenses -668 -2,203 -345 -3,216Depreciation -166 -122 -26 -314Provisions & amortization -55 29 150 124Other operating expenses -68 -148 -250 -466Management fee "corporate" -627 -586 1,213 0Operating expenses before extra. prov. -4,829 -5,512 -760 -11,101Operating result before extra. prov. 672 -884 -143 -355Extraordinary provisions 0 0 -850 -850Extraordinary amortization 0 0 0Operating result after extra. prov. 672 -884 -993 -1,205Financial expenses and income 32 -124 -61 -153Result before taxes 704 -1,008 -1,054 -1,358Taxes 849 0 0 849 Result after taxes 1,553 -1,008 -1,054 -509

Corporate expenses are non-attributed overhead expenses. More in particular it concerns the provision for Infolink for the sum of kEUR 850 (see (17) Provisions) and the appreciation of the warrants for the sum of kEUR 225. Management fee “corporate” concerns on-charging services and expenses that are centralised with the parent company but that benefit the branches.

Segment data per 31.12.2005 Sums in '000 EUR

Card & Terminal

applications

Security & Time

managementCor-

porate 31.12.2005 Fixed assets 6,495 1,410 12,636 20,541 Consolidation differences 12,459 12,459 Intangible, tangible and financial assets 587 1,410 177 2,174 Deferred tax assets 2,065 2,065 Long-term trade receivables 3,843 3,843 Current assets 2,365 2,493 223 5,081 Segment assets 8,859 3,904 12,859 25,622

85

Segment data per 31.12.2005 Sums in '000 EUR

Card & Terminal

applications

Security & Time

managementCor-

porate 31.12.2005 Shareholders’ equity 0 0 12,576 12,576Deferred taxes and provisions 250 37 850 1,137Liabilities due after one year 1,840 0 707 2,547 of which leasing debts 929 0 51 980Liabilities due within one year 2,816 2,086 4,460 9,362 of which trade payables 1,876 1,046 1,243 4,164 of which advances to shareholders 0 0 2,409 2,409 Segment obligations 4,905 2,124 18,593 25,622

Consolidated profit and loss account Sums in '000 EUR

Card & Terminal

applications

Security & Time

managementCor-

porate 31.12.2004 Turnover 2,680 4,128 0 6,808Other operating income 56 120 244 420Operating revenues 2,736 4,248 244 7,228Goods for resale and raw materials -644 -1,706 0 -2,350Services and other goods -897 -1,346 -1,156 -3,399Personnel expenses -663 -2,582 -56 -3,301Depreciation -79 -149 -65 -293Provisions and amortization -192 89 -150 -253Other operating expenses -137 -67 -22 -226Management fee "corporate" -90 -62 152 0Operating expenses before extra. prov. -2,702 -5,823 -1,297 -9,822Operating result before extra. prov. 34 -1,574 -1,053 -2,594Extraordinary provisions 0 0 0Extraordinary amortization 0 0 -3,815 -3,815Operating result after extra. prov. 34 -1,574 -4,868 -6,409Financial expenses and income -15 -216 -465 -696Profit/loss sale of investments 1 0 0 1Result before taxes 20 -1,791 -5,333 -7,104Taxes -281 0 0 -281 Result after taxes -261 -1,791 -5,333 -7,385

Corporate expenses are non-attributed overhead expenses. Management fee “corporate” concerns on-charging services and expenses that are centralised with the parent company but that benefit the branches.

86

Segment data per 31.12.2004 Sums in '000 EUR

Card & Terminal

applications

Security & Time

managementCor-

porate 31.12.2004 Fixed assets 708 2,576 12,615 15,899 Consolidation differences 12,459 12,459

Intangible, tangible and financial assets 708 433 156 1,297

Deferred tax assets 1,220 1,220 Long-term trade receivables 923 923 Current assets 1,995 2,004 179 4,178 Segment assets 2,703 4,580 12,794 20,077

Segment data per 31.12.2004 Sums in '000 EUR

Card & Terminal

applications

Security & Time

managementCor-

porate 31.12.2004 Shareholders’ equity 8,489 8,489Deferred taxes and provisions 287 90 150 527Liabilities due after one year 156 0 444 600 of which financial debts 156 393 549 of which leasing debts 51 51Liabilities due within one year 2,277 3,053 5,131 10,461 of which trade payables 1,902 1,121 1,970 4,993 Of which advances to shareholders 2,784 2,784 Segment obligations 2,720 3,142 14,214 20,077

(29) Geographic segment information

The geographic destination of the turnover can be shown as follows:

Turnover - in kEUR 31.12.2005 31.12.2004 Change Belgium 6,515 3,710 75.61%France 2,285 2,317 -1.38%Switzerland 790 673 17.38%Luxembourg 54 88 -38.64%Netherlands 54 12 350.00%Other 32 8 300.00% Total 9,730 6,808 42.92%

In 2005 the Group achieved +/-67% of its turnover in Belgium, whilst in 2004 this was only 54.50%. The contribution to the turnover by France has fallen from 34% to +/-23.50%.

87

(30) Other operating income

As per 31 December 2003 the Group had agreed on redemption schemes with various suppliers. In total 18 redemption schemes were agreed on with suppliers for a total outstanding debt of kEUR 1,252. This amount included the conditional remission for the sum of kEUR 304. As per 31 December 2003 the Group still had an outstanding debt of kEUR 862 with these suppliers.

As per 31 December 2004 a number of these redemption schemes had already been rounded off and the sum of kEUR 25 was included as remissions in the result. At the end of December 2005 these redemption schemes have been integrally repaid and the sum of the remaining remission, namely kEUR 279 was included in the result. During 2003 and 2004 a number of provisions were also made in order to provide for expenses with regard to late payment, such as social security contribution increases, damages for late payment. During the course of 2005 within this framework a lot of final settlements were received and paid, so that these attributed expenses were no longer justified and the sum of kEUR 230 could be taken back. Finally, in 2005 a number of supplier debts no longer owed (older than 5 years) for the sum of kEUR 305 were included in the result.

(31) Services and other goods

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Accommodation 287 207Car expenses 355 303Material expenses 145 213Communication 180 153Fees 1,759 1,946Stock market listing 68 79Representation 159 164Sales and marketing 290 91Administration 94 104Other 93 139 Total 3,430 3,399

88

(32) Personnel expenses and personnel remunerations

The personnel expenses can be broken down as follows:

Number 31.12.2005 31.12.2004 Employees – without management 67 58Management - -

in kEUR 31.12.2005 31.12.2004 Salaries 2,295 2,317Social security contributions 697 812Group insurance 18 26Various benefits (meal vouchers, etc) 116 103Warrants 67 -Other 23 43 Total 3,216 3,301

On 1 January 2004 a group insurance was introduced for the benefit of the Keyware employees. This contract is only financed by the contributions by Keyware. The aim of the insurance is in addition to the legal requirements with regard to pensions:

to establish a capital or annuity on reaching the normal pension age of the policy holder,

and for the beneficiaries appointed by these regulations, to establish a capital or annuity in case the policy holder dies before the normal pension age.

The group insurance is meant for the employees of Keyware, who are employed full time or part time with an employment contract for an unlimited period of time and who are effectively at work when the insurance is taken out.

(33) Depreciation

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Depreciation intangible fixed assets 225 130Depreciation tangible fixed assets 89 163 Total 314 293

89

(34) Provisions and amortization

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Provisions -215 318Amortization inventories 19 -170Amortization trade receivables 72 68Amortization other receivables - 37 Total -124 253

(35) Expenses of an extraordinary nature

This item can be broken down as follows:

in kEUR 31.12.2005 31.12.2004 Provisions of an extraordinary nature 850 -Extraordinary amortization - 3,815 Total 850 3,815

Please refer to (17) Provisions for the provisions of an extraordinary nature. Please refer to (40) Amortization of Assets for the extraordinary amortization.

(36) Financial income and expenses

The financial income and revenues can be shown as follows:

in kEUR 31.12.2005 31.12.2004 Financial income ctr payment terminals 2004 104 24Financial income ctr payment terminals 2005 77 -Other 13 46 Total 194 70

90

in kEUR 31.12.2005 31.12.2004 Interest advances to shareholders 14 234Interest financial debts 34 8Interest Parfip 114 -Interest factoring 58 48Interest leasing 13 23Interest bank 6 1Difference of exchange rate loan US$ - 61Late-payment interest 82 326Other 26 65 Total 347 766

(37) Taxes on income

in kEUR 31.12.2005 31.12.2004 Result before taxes -1,358 -7,104Tax at normal rate -462 -2,415Non-deductible impairment 1,297Amortization on deferred tax assets 442 565Earlier fiscal losses not included 1,078 -Amortization with regard to fiscal losses -12 -Occurrence and settlement of temporary differences -197 272 Total 849 -281

(38) Equity compensation benefits

An overview can be given for the past 2 years:

31.12.2005 31.12.2004

Summary Warrants Exercise

price Warrants Exercise

price Outstanding at begin of period 247,500 2.98 261,751 2.98Granted 7,750,000 0.13 Exercised 2,667,500 0.13 Expired 247,500 2.98 14,251 Outstanding and exercisable at end of period 5,082,500 0.13 247,500 2.98

91

Please refer to (16) Capital Structure and issue of warrants for the issued warrants after 31 December 2005. During the period from 1997 to 1999, the Group announced various schemes to issue warrants to employees, directors and consultants. The warrant schemes announced in 1997, in 1998, on 12 May 1999 and on 17 December 1999 (400,000 warrants) have completely expired. The warrant scheme of 17 December 1999 in which 975,000 warrants were issued to employees, directors and consultants of the Group was valid for four years. The warrants issued can be exercised for up to two years after the end date of the warrant scheme. On 31 December 2005 no warrants from these schemes can be exercised any more. The ESM of 27 May 2005 also decided to issue 7,000,000 “2005 warrants” and to issue 750,000 “DAC warrants”. These warrants issued entitle the holder to subscribe to the same number of shares. The exercise price of these warrants is EUR 0.13 and it was determined on the basis of the average closing price on Euronext Brussels during the thirty days prior to the day on which the issue starts. These warrants are valid for 5 years. The warrants were valued in accordance with the Black Scholes method in which an exercise price was assumed of EUR 0.13, the price of the underlying share on the allocation date of EUR 0.14, a volatility of 70%, an estimated exercise period of 2.5 years, no dividend expected and a risk-free interest rate of 2.5%. On the basis of this a value of kEUR 273 was obtained. Of these kEUR 273, kEUR 225 was recorded in the profit and loss account and kEUR 48 is part of the acquisition price of the shares in Digital Access Control NV and was thus charged to determine the positive consolidation difference and accordingly showed as an asset under the intangible fixed assets. The kEUR 225 was recorded for the sum of kEUR 157 under the services and other goods (for directors and consultants) and kEUR 68 under the personnel expenses. As per 31 December 2005 4,707,500 “2005 Warrants” and 375,000 “DAC Warrants” could still be exercised. During the month of March 2006 another 2,537,500 “2005 Warrants” and 375,000 “DAC Warrants” were exercised. So at the end of March 2006 2,545,000 “2005 Warrants” can still be exercised. The notarial deed of the capital increase was passed on 21 April 2006. Per 31 March 2006 the shares for this capital increase have not yet been issued.

(39) Leases

The subsidiary Keyware Smart Card NV is active in the rent of payment terminals. Within this framework rental agreements are entered into with clients for a period of 48 months. The rent price of a contract is divided into the net rent and maintenance. Then the actual value of the net rent for the entire duration of the contract, namely 48 months, is calculated. This actual value is registered integrally as turnover in the month in which the contract commences. The turnover with regard to the maintenance is included as turnover spread over the duration of the contract. Every month, a financial return is registered which represents the difference between the total value of the contract and the actualised value.

92

The assets corresponding to the financial lease are included in the balance sheet and presented as a receivable for the sum equal to the net investment in the lease.

Financial leases – in kEUR 2004 2005 Total Gross investment 1,100 4,110 5,210- no longer than one year 408 979 1,387- between one and five years 692 3,131 3,823- later than five years - - - Net investment 857 3,381 4,238- no longer than one year 304 904 1,208- between one and five years 553 2,477 3,030- later than 5 years - - - Financing income not earned 139 654 793 Residuals - - - Dep. for irrecoverable receivables - 67 67 Lease payments processed as income in 2004 1,262 - 1,262Lease payments processed as income in 2005 - 3,381 3,381

(40) Amortization of assets

In accordance with IFRS 3 – Business combinations, goodwill that occurs in the consolidation has to be tested for amortization every year. It may be necessary to do this more frequently if there are indications that the goodwill has not be valued correctly in accordance with IAS 36 – Impairment of assets. This standard furthermore requires that starting from the acquisition date the goodwill is attributed to the cash-flow generating units that are assumed to enjoy the syngeries of the business combinations. The cash-flow generating units to which the goodwill is attributed, were tested for amortization on the balance sheet date by comparing the book value of the unit with the recoverable value. The Group uses cash-flow estimates for the individual cash-flow generating units as stated in (28) Business segment information. The most important parameters contained in the calculation are the discount factor, the expected future operational cash flows and the expected growth. The discount rate applied to the expected cash flows is the weighted average capital cost (WACC), which is 9%. In 2004 this test resulted in an amortization of kEUR 3,815. On the basis of the impairment test carried out at the end of December 2005, the Board of Directors is in the opinion that no additional depreciation should be recorded.

93

(41) Profit per share The profit/(loss) per share is calculated by dividing the net result, that is to be allocated to the Group, by the weighted average number of ordinary shares issued during the year. The profit/(loss) per diluted share is calculated by dividing the net result to be allocated to the Group by the weighted average of ordinary shares issued during the year, both corrected for any effect of dilution of potential ordinary shares.

Profit/(loss) per share 31.12.2005 31.12.2004 Profit/(loss) per share -0.01 -0.05Profit/(loss) per diluted share -0.01 -0.05Weighted average outstanding shares 82,255,156 46,943,350Weighted average outstanding shares diluted 87,927,745 47,190,850

(42) Transactions with affiliated parties

Management and consultancy agreements with directors The Group has entered into a management agreement with Big Friend NV, the management company of Stéphane Vandervelde. Following the agreement with Big Friend NV, a total remuneration (ex. VAT) was awarded of kEUR 217 and kEUR 187 for 2005 and 2004 respectively. A variable remuneration of kEUR 62 and kEUR 62 was awarded in 2005 and 2004 respectively . The agreements contain conditions about the form of services, non-competition, confidentiality and the transfer of intellectual property rights to the Group. The agreements were entered into for an unlimited period of time and can be terminated by either party. In case of termination by the Group, a period of notice of 18 months must be observed for Big Friend NV. In case of termination by Big Friend NV, a period of notice of 6 months must be respected. No additional remuneration is owed to Big Friend NV, other than the repayment of proven expenses within the framework of the execution of the management services. These expenses came to kEUR 25 and kEUR 18 for 2005 and 2004 respectively.

Apart from the remuneration awarded to Big Friend NV, during the period 2005 no fee was paid to the directors. However, in a decision of the ESM of 27 May 2005 the following warrants were granted to the directors or former directors:

Guido Van der Schueren 900,000 warrants Pierre Delhaize 900,000 warrants Johan Dejager 900,000 warrants Stéphane Vandervelde 750,000 warrants Leo Claeys 300,000 warrants Advisam NV 300,000 warrants Luc Pintens 300,000 warrants Marc Van Rompaey 300,000 warrants

94

Investors The following directors of the Company have placed financial resources at the disposal of the Group in 2005:

Pardel NV, represented by Pierre Delhaize, provided current account advances for the sum of kEUR 2,200, completely paid. The current account advances provided in 2005 bear interest at a rate of 3.75% per annum.

Stéphane Vandervelde, settlement of the James Bowen out-of-court settlement for the sum of kEUR 118. The resulting loan bears interest at a rate of 3.75% per annum. During the course of 2005 an out-of-court settlement was worked out for the James Brown case which meant that Mr Bowen would receive shares in Keyware Technologies for the sum of kEUR 118 within the framework of a capital increase by means of contribution of a debt. Within the framework of this settlement, the shares in Keyware Technologies had to be delivered to James Bowen before the end of December 2005. Since the intended capital increase in which the shares would be issued could not occur before the end of December 2005, the management had to find another solution. This consisted of Mr Stéphane Vandervelde using his personal shares in Keyware Technologies to pass on to James Bowen. As a result of this the Company no longer has a debt with James Bowen, but does have one with Mr Stéphane Vandervelde.

Long-term and short-term debts to affiliated parties

Advances to shareholders 31.12.2005 31.12.2004 Pardel NV 2,277 2,160Parana Management BVBA 0 100Jagernaut NV 0 100Cennini NV 0 100Stéphane Vandervelde 118 110Interest 14 214 Total 2,409 2,784

Long-term financial debts 31.12.2005 31.12.2004 Loan Parana Management BVBA 200 300Loan Jagernaut NV 0 93 Total 200 393

Short-term financial debts 31.12.2005 31.12.2004 Loan Parana Management BVBA 111 0Loan Jagernaut NV 115 63 Total 226 63 Grand total 2,835 3,240

95

(43) Commitments and conditional obligations Provisions for conditional obligations that ensue from claims, tax assessments, legal proceedings, fines and penalties and other sources are booked if it is likely that the obligation consists and the amount of the obligation can be estimated in a reliable way. The Group is involved in certain legal proceedings and claims within the framework of normal company operations.

The management has assessed all these legal proceedings and has created a provision in the cases in which it felt that the oblgation exists and that the amount of the obligation can be estimated in a reliable way. On the basis of this assessment, a provision of kEUR 878 was created. Of this, kEUR 850 relate to the dispute with Infolink (see point (17) Provisions). The balance concerns disputes with suppliers. The management furthermore feels that the settlement of all the other cases will not have a material impact on the financial position or operating results of the Group.

(44) Operational leases

The future obligations with regard to operational leases can be presented as follows:

Operatione leases – in kEUR 1 year 2-5 years > 5 years Rent office space 182 629 340 Operational leasing cars 62 104 - Office equipment 8 26 3

Rent of buildings On the one hand the Group has entered into a rental agreement for premises located in Anderlecht, Paepsem Business Park, at Boulevard Paepsem 18G. The total basic rent is kEUR 103. The rent is indexed every year. The rental agreement was entered into for the period of nine successive year, which started on 1 October 2004 and will legally end on 30 September 2013. However, either party can terminate the rental agreement at the end of each period of three years with due observance of a period of notice of 12 months. On the other hand the Group has entered into a rental agreement for premises located in Louvain-la-Neuve, at Rue Laid Burniat 4. The total basic rent is kEUR 12. The rent is indexed every year. The rental agreement was entered into for the period of nine successive year, which started on 1 January 2005 and will legally end on 31 December 2013. However, either party can terminate the rental agreement at the end of ech period of three years with due observance of a period of notice of 6 months. Rent of cars During the course of 2005 the Group entered into 15 contracts for the operational lease (rent) of cars. All these contracts were entered into for a period of 36 and 48 months. In addition to the rent of the cars, all these contracts also provide for maintenance and repairs, insurance and assistance.

96

Office equipment During the course of 2004 and 2005 the Group entered into 3 contracts for the operational lease (rent), of 2 switchboards and various office equipment. The duration of these contracts is 60 months.

(45) Shutting down of activities

During the periods 2004 and 2005 no activities were hived off. (46) Pledge on the trading fund

There is a pledge on the trading fund of Keyware Technologies NV to the credit of Dexia and the Region of Flanders for the sum of kEUR 992.

There is a mortgage on the building that is owned by Keyware Transaction & Processing NV to the credit of the credit provider DEXIA for the sum of kEUR 99 and a pledge on the trading fund of Keyware Transaction & Processing NV for the sum of kEUR 74.

(47) Exchange rate and Hedging

The Group did not carry out any hedging activities during the periods 2005 and 2004. (48) Application of the use of financial instruments

No financial instruments were used by the company during the period partly in view of the economic climate in which the company operates.

(49) Important events after the balance sheet date

Apart from the information given below, the company does not have any important events after the balance sheet date to report, that have an impact on the presentation of these presented annual accounts.

During the course of April 2006, the Board of Directors will convene an

Extraordinary Shareholders’ Meeting. At this extraordinary meeting, the Board will propose to issue the following securities within the framework of a private placement:

• convertible bonds for the maximum sum of kEUR 8,000; • a maximum of 32 million A warrants that entitle the holder to subscribe to the

same number of shares in the Company; and • a maximum of 32 million B warrants that entitle the holder to subscribe to the

same number of shares in the Company. The aim of the Private Placement is to acquire funds to improve the financial position and solvency of the Company. This Private Placement is on the one hand necessary to more quickly reduce the Company’s debt position and on the other hand to finance the 2006 business plan. The 2006 business plan shows that the funds will be used as follows:

97

• purchase of payment terminals kEUR 1,500 • repayment of financial and leasing debts kEUR 765 • repayment of advances to shareholders kEUR 2,409 • repayment trade payables (overdue and not overdue) kEUR 1,836 • repayment arrears in fiscal and social liabilities kEUR 640 • settlement of disputes kEUR 850

----------------- kEUR 8,000 ======== Finally within this framework we refer to the report by the Board of Directors with regard to articles 582, 583 and 596 of the Companies Code relating to the abolition of the right of first refusal on issuing convertible bonds and on issuing warrants.

During the course of February 2006 the Group obtained an operating credit from

KBC Bank for the sum of kEUR 100. This credit in the first instance runs until 31 December 2006. The applicable interest rate is the EONIA increased by a margin of 3%.

As per the end of December 2005 the Group has a number of debts that are overdue.

The following repayments of debts have been made up to end of March 2006:

• kEUR 65 in social security contributions owed; • kEUR 50 in VAT debts that were overdue; • the redemption schemes negotiated with suppliers were by and large observed

after the balance sheet date.

The outstanding trade payables that are overdue as of 31 December 2005 amounted to kEUR 2,269, for which a redemption scheme was agreed upon with 14 suppliers (kEUR 943). Until the end of 31 March 2006 kEUR 598 has already been paid.

On 4 November 2003 the CBFA announced that the Management Board, in accordance with article 16, par. 3 of the Royal Decree of 31 March 2003, had decided that henceforth Keyware Technologies NV had to communicate the information meant in the Royal Decree of 31 March 2003 before it was published in order to let the CBFA carry out an a priori control.

At its meeting of 21 February 2006, the Management Board of the Banking, Finance and Insurance Commission (CBFA) decided to abolish the “a priori control” for Keyware Technologies NV.

98

(50) Pending disputes

Infolink NV Infolink NV, represented by Mr Francis Declercq, resigned as Director and Executive Director of the Company as of 30 November 2001. As a result of this resignation the management agreement with Infolink NV was terminated by the Company on 6 December 2001. Parties have a dispute related to, inter alia, the proposal by the Board of Directors to not discharge Infolink NV for exercising its the mandate during the period 2001; this in anticipation of the investigation into the possible breach of contract by Infolink NV and the amount of severance pay owed to Infolink NV by the Company as a result of the termination of the management agreement. On 11 March 2002 Infolink NV had protective attachment made on certain bank accounts of the Company for the sum of kEUR 1,301. This sum relates to the severance pay demanded increased by interest and damages. The arbitration decision of 16 March 2004 largely confirmed Infolink NV’s claim. The Company contested this arbitration decision before the Court of First Instance with the request that this arbitration decision be quashed. On 27 May 2005 the Court of First Instance in Brussels confirmed the arbitration decision of 16 March 2004. A summons to bring action to set aside the judgment of the Court of First Instance was lodged on 18 August 2005. The action to set aside the judgment was instituted on 12 September 2005.

The Board of Directors of Keyware Technologies NV has decided to lodge a complaint to bring an action as a plaintiff claiming damages in a criminal case due to forgery, abuse of confidence, abuse of the authorised capital and any other abuse that the investigation will determine against Infolink NV and Francis Declercq. In 2005, within the framework of this complaint to bring an action as a plaintiff claiming damages in a criminal case due to forgery, abuse of confidence, abuse of the authorised capital and any other abuse that the investigation will determine, the examining magistrate considered a number of criminal offences, and the court sitting in chambers referred Infolink and Francis Declercq to the criminal court. In light of the evolution in this dispute, the Board of Directors ordered the management to come to an amicable settlement with Infolink NV and Francis Declercq. Within the framework of coming to an amicable settlement for the dispute with Infolink NV and Francis Declercq, on 16 March 2006 an out-of-court settlement was signed by both parties. This out-of-court settlement consists of the Company transferring 3,400,000 shares in Keyware Technologies corresponding to a value of kEUR 850 (valuation shares in Keyware Technologies at EUR 0.25) to Dexia NV, as Dexia NV has taken over the claim from Infolink. Since the Company does not have any of its own shares, this obligation was taken over by Pardel NV, which has deposited the 3,400,000 shares in Keyware Technologies on the securities account of Dexia NV.

As the figures were approved by the Board of Directors on 22 February 2006, the consequences of the out-of-court settlement were not processed in the figures as per 31 December 2005.

99

As per the end of December 2005 a provision was created for the sum of kEUR 850. In 2006 this provision will be taken back and a debt to Pardel NV will be expressed. Kinepolis Group NV Kinepolis Group NV instituted proceedings against Keyware Smart Card Division NV, on the basis of a so-called unlawful termination by Keyware Smart Card Division NV of an agreement for the development of advanced ticketing software, used in various cinema complexes of Kinepolis in Belgium and abroad, in which, inter alia, repayment is demanded of development expenses paid to third parties on termination of the agreement by Keyware Smart Card Division NV, for the sum of kEUR 900. Keyware Smart Card Division submitted a separate claim for the sum of kEUR 950 for copyright and violation of non-authorised use of its. The Brussels Civil Court appointed an expert to determine whether Kinepolis Group NV violated Keyware Smart Card Division's rights. In the meantime the expert has compiled a report. The Company feels that Kinepolis Group NV’s claims are unfounded and intends to defend its claim. James Bowen Keyware Technologies NV and certain of its subsidiaries and representatives were summoned by James Bowen (American court in Boston, MA) on the basis of amongst other things the alleged misleading of Mr Bowen by Keyware at the time of the acquisition of his company Image View, Inc. by the Keyware Group, the incorrect termination of his employment contract by Keyware Technologies, Inc. and the non-payment of the actual value of the Keyware shares held by him during the compulsory re-transfer to Keyware on the termination of his employment contract. The initial compensation demanded by James Bowen came to about US$ 8 million. During the period 2003 the company received a proposal for an out-of-court settlement from James Bowen for the sum of kUS$ 80. As Keyware feels that the claims of James Bowen are unfounded it did not accept said proposal for an out-of-court settlement. In March 2004, the solicitor of the Company, working on this case, withdrew from the case. As the Company was informed of this too late, the Company was sentenced by default in September 2004. The Company appointed a new solicitor in October 2004 who during the hearing of 19 October 2004 was able to convince the court to entirely review the case, so that the proceedings have to be completely restarted. Following this, negotiations started between the Company and James Bowen in December 2004 and in March 2005 the Company reached an out-of-court settlement with Mr James Bowen for the sum of kUS$ 140.A provision for kEUR 150 has been included in the figures as per 31 December 2004. During the course of 2005 an out-of-court settlement was worked out for this case which meant that Mr Bowen would receive shares in Keyware Technologies for the sum of kEUR 118 within the framework of a capital increase by means of contribution of a debt. Within the framework of this settlement, the shares in Keyware Technologies had to be delivered to James Bowen before the end of December 2005. Since the intended capital increase in which the shares woul dbe issued could not occur before the end of December 2005, the management had to find another solution. This consisted of Mr Stéphane Vandervelde using his personal shares in Keyware Technologies to pass on to James Bowen. As a result of this the Company no longer has a debt with James Bowen, but does have one with Mr Stéphane Vandervelde.

100

Carta + On 20 April 2005, Keyware Smart Card Div NV (100% subsidiary) received a summons in bankruptcy with regard to an outstanding supplier’s debt of kEUR 167. At the end of June 2005, this case was argued for the first time in the Commercial Court. At the hearing on 20 September 2005 this case was referred to the docket by the Commercial Court. Up to 31 March 2006 the Company has already paid kEUR 165 in this case. In April 2006 Keyware will only have to pay the settlement. General

In addition to the above, there are currently a number of claims and legal proceedings pending against the Company and its branches, which the Company feels are of secondary importance and fall within normal company operations. According to the Board of Directors, it is unlikely that such individual claims or legal cases could have a material negative effect on the financial situation of the Company and its branches.

Suppliers

At the end of August 2005, the Group had 9 pending disputes with regard to supplier debts for a total sum of kEUR 239.

(51) Risk factors

On application of article 96.1° of the Companies Code, as amended by the Act of 13 January 2006, the Company hereby provides information about the most important risks and uncertainties that could have a negative impact on the development, the financial results or the market position of the Group.

Products and markets

The Group operates in an environment that evolves extremely quickly with regard to technology. These evolutions relate to both the changed needs of clients, the necessity for frequent new products often with a short life as well as to the changing industrial standards. The Group expects the turnover growth to largely depend on the degree to which it is able to respond to these new challenges. Not being able to react to this changed context in time can have negative consequences for the results of the company and its financial situation.

Dependence on clients

The company has over 10,000 active clients. 15 % of the turnover over the period 2005 was achieved by the 5 most important clients. Dependence on suppliers

Due to the close cooperation with Thales and as a result of the certification, Keyware to a large degree depends on this supplier for the continuity of the production of the payment terminal (the most important supplier represents 25% of the outstanding supplier balance).

101

Concentration of credit risk

The concentration of credit risks is limited due to the large number users, spread over the Benelux, France and Switzerland. The group does not have any activities in countries with a high inflation rate.

Legal proceedings The company is involved in a number of legal proceedings that on the grounds of IFRS can be considered deferred obligations. For more information please refer to (17) Provisions and (50) Pending disputes. Financial position It is clear that in 2006 the Group will have to attract additional financial resources. Within this framework we refer to (49) Important events after the balance sheet date. In addition, during the course of 2005 quite a lot of shareholders, investors and suppliers were willing to convert their debts (or a part of them) into capital on the occasion of the Extraordinary Shareholders’ Meeting of 27 May 2005. One of the most important investors in the Group is Pardel NV. During the 2nd half-year of 2005 Pardel NV again made advances (kEUR 2,200) available to the Group.

Going-concern

Please refer to (4) Going concern.

Environment

The Group does not have any special remarks to make with regard to environmental matters. Personnel On 31 December 2005 the Group had 78 employees (personnel and consultants).

102

First-time Adoption of IFRS

103

RECONCILIATION BALANCE SHEET PER 31 DECEMBER 2003 US GAAP - IFRS

US GAAP IFRS Assets 31.12.2003 Adjustment 31.12.2003

Consolidation differences 17,061 (787) 16,274 Intangible fixed assets 0 787 787 Tangible fixed assets 392 392 Long-term other receivables 190 (190) 0 Financial fixed assets 0 190 190 Deferred tax assets 1,471 1,471 1,471 Long-term trade receivables 0 0

Fixed assets 19,114 0 19,114

Inventories and work in progress 525 525 Trade receivables 1,270 602 1,842 Other receivables 733 (385) 348 Investments and liquid assets 308 308 Accruals 67 67

Total current assets 2,903 217 3,120

Total assets 22,017 217 22,234 Liabilities and shareholders’ equity 31.12.2003 31.12.2003

Share capital 101,613 101,613 Share premium 4,522 4,522 Reserve warrants 0 0 Result carried forward (87,872) (87,872) Result of the period (7,771) (125) (7,896) Translation reserve 3 3

Total shareholders’ equity 10,495 (125) 10,370

Deferred tax liabilities 0 125 125 Provisions 0 0

Total deferred taxes and provisions 0 125 125

Financial debts due after one year 220 (5) 215 Leasing debts due after one year 0 5 5 Trade payables due after one year 304 304 Other debts due after one year 11 11

Total liabilities due after one year 535 0 535

Debts due within one year 47 (47) 0 Financial debts due within one year 655 217 872 Leasing debts due within one year 0 47 47 Advances to shareholders 4,387 4,387 Trade payables 3,605 3,605 Social and fiscal liabilities 0 1600 1,600 Other payables 0 525 525 Accruals 0 168 168 Other payables and costs to be attributed 2,293 (2,293) 0

Total liabilities due within one year 10,987 217 11,204 Total liabilities and shareholders’ equity 22,017 217 22,234

104

RECONCILIATION BALANCE SHEET PER 31 DECEMBER 2004 US GAAP - IFRS US GAAP IFRS Assets 31.12.2004 Adjust. 31.12.2004

Consolidation differences (and ifa) 13,157 (698) 12,459 Intangible fixed assets 0 698 698 Tangible fixed assets 708 (311) 397 Financial fixed assets 0 203 203 Deferred tax assets 1,471 (251) 1,220 Long-term trade receivables 203 720 923

Fixed assets 15,539 361 15,900

Inventories and work in progress 1,365 57 1.422 Trade receivables 1,185 687 1.872 Other receivables 409 18 427 Investments and liquid assets 137 137 Accruals 520 (201) 319

Total current assets 3,616 561 4.177 Total assets 19,155 922 20,077 Liabilities and shareholders’ equity 31.12.2004 31.12.2004

Share capital 24,697 24,697 Share premium 4,522 4,522 Reserve warrants 0 0 Result carried forward (13,241) (125) (13,366) Result of the period (7,851) 466 (7,385) Translation reserve 21 21

Total shareholders’ equity 8,148 341 8,489

Deferred tax liabilities 0 147 147 Provisions 0 380 380

Total deferred taxes and provisions 0 527 527

Financial debts due after one year 600 (51) 549 Leasing debts due after one year 0 51 51

Total liabilities due after one year 600 0 600

Financial debts due within on year 396 474 870 Leasing debts due within one year 0 22 22 Advances to shareholders 2,846 (62) 2,784 Trade payables 4,992 4,992 Social and fiscal liabilities 0 1,561 1,561 Other payables 0 74 74 Accruals 0 158 158 Other payables and costs to be attributed 2,173 (2,173) 0

Total liabilities due within one year 10,407 54 10,461 Total liabilities and shareholders’ equity 19,155 922 20,077

105

RECONCILIATION PROFIT AND LOSS ACCOUNT PER 31 DECEMBER 2004 US GAAP - IFRS

US GAAP IFRS Profit and loss account 31.12.2003 Adjust. 31.12.2003 Result reported in accordance with US GAAP (7,771) Adjustments - Deferred taxes (125) Total adjustments (125) Result in accordance with IFRS (7,896)

RECONCILIATION PROFIT AND LOSS ACCOUNT PER 31 DECEMBER 2004 US GAAP - IFRS

US GAAP IFRS Profit and loss account 31.12.2004 Adjustment 31.12.2004 Result reported in accordance with US GAAP (7,851) Adjustments - Turnover 1,151 - Goods for resale and raw materials (446) - Depreciation 9 - Financial income 24 - Deferred taxes (272) Total of the adjustments 466 Total of the adjustments (7.385)

106

KEYWARE TECHNOLOGIES N.V. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(ALL SUMS IN ‘000 EURO, EXCEPT NUMBER OF SHARES)

Share Share Share Results Other Translation Shareholders’ Capital Capital premium carried forward reserves reserve equity Number of shares Amount Shareholders’ equity 01.01.2004 In accordance with US GAAP 35.879.064 101,613 4,522 (95,643) - 3 10,495 Effect IAS 12 (125) (125) Effect IFRS 2 pm pm Shareholders’ equity 01.01.2004 In accordance with IFRS 35,879,064 101,613 4,522 (95,768) - 3 10,370 Capital decrease - (82,402) 82,402 0 Capital increase 27,472,547 5,486 5,486 Net loss (7,385) (7,385) Consolidation Translation reserve 18 18 Shareholders’ equity 31.12.04 63,351,611 24,697 4,522 (20,751) - 21 8,489

107

NOTES TO THE FIRST-TIME ADOPTION OF IFRS Since 1 January 2005 Keyware Technologies has switched to applying the IFRS standards as the basis for the accounts. The IFRS opening balance sheet is dated 1 January 2004 and the comparative figures for 2004 have been incorporated. To draw up the IFRS balance sheet and profit and loss account the Group has observed all the standards and interpretations that have been published as of 1 January 2005. For the presentation of the impact of the changes in the principles of the financial reporting, the Group followed the presentation format recommended by the IASB, CESR (Committee of European Securities Regulators) and the CBFA. It should be emphasised that the reconciliation is the result of changes in accounting principles. During the reconciliation between US GAAP and IFRS no tangible errors came to light that would require separate provision of information as determined by IFRS 1. Formation expenses The formation expenses incurred in the past were booked as expenses immediately in accordance with US GAAP. IFRS requires all formation expenses to be booked in the profit and loss account in the period to which they relate. Therefore no adjustments need be carried out in this respect. Goodwill The goodwill entered as an asset under US GAAP was written off until end 2002. From end 2002 and later a test was carried out on this with regard to extraordinary decreases in value – the so-called impairment test. In accordance with IFRS 3 – Business combinations, the goodwill must be tested for extraordinary decreases in value on a yearly basis or more frequently if there are indications to do so. The Group carried out an impairment test as per 31 December 2004 and a result of this booked an extraordinary decrease in value for the sum of kEUR 3,815. This extraordinary decrease in value was also retained in the IFRS figures as per 31 December 2004. Intangible fixed assets The intangible fixed assets largely consist of individually acquired assets, for which the cost price of the intangible asset can be reliably valued. As IAS 38 – Intangible assets does not differ from US GAAP in this respect, no adjustments had to be made for this. In the US GAAP presentation, the goodwill and the intangible fixed assets were presented as one item. In the IFRS balance sheet, these items are divided over two items, namely positive consolidation differences and intangible fixed assets.

108

Tangible fixed assets The company Keyware Smart Card NV is active in renting payment terminals, for which rental agreements are entered into for a period of 48 months. In accordance with US GAAP, the payment terminals are written off over a period of 48 months, analogous to the duration of the agreement. IAS 17 – Leases determines that assets that are offered under financial lease must be included in the balance sheet and presented as a receivable, at an amount equal to the net investment in the lease. As a result, the corresponding turnover, being the net investment, is integrally included in the revenues. In concreto this means the following: the rental price of an agreement is divided between net rent and maintenance. The current value of the net rent is then calculated for the full duration of the agreement, namely 48 months. This current value is then registered integrally as turnover in the month that the agreement commences. The turnover relating to the maintenance is included in the revenues spread over the duration of the agreement. Finally, every month a financial revenue is also registered which shows the difference between the total value of the agreement and the actualised value. In addition, this means that the corresponding purchase of the payment terminals is integrally included in the cost price. As a result of this, the depreciation booked in 2004 for payment terminals were taken back and the integral purchase value was incorporated in the profit and loss account in the item goods for resale and raw materials. Deferred tax assets In the past, under US GAAP a deferred tax asset was included that related to fiscal losses of the company Keyware Smart Card NV. IAS 12 – Income Taxes stipulates that deferred tax receivables are included for deductible temporary differences and for offsettable fiscal losses, if future taxable profits are probable, against which the deductible temporary differences and fiscal losses can be offset. On the basis of the information available as per 31 December 2004, this deferred tax asset was justified (budgets of Keyware Smart Card foresee profit as from 2005, for 2004 there was no profit.. That is why the deferred tax asset originally booked under US GAAP was not adjusted. This deferred tax asset was, however, corrected for the sum of the deferred tax liabilities that originated at Keyware Smart Card following the IFRS adjustments (see below). Long-term trade receivables In the US GAAP item Other long-term receivables, amongst other things the guarantees were incorporated. Under IFRS these are included in the financial fixed assets. The long-term part of the claim with regard to the financial lease agreements of the payment terminals are included in the long-term trade receivables – in accordance with IAS 17 – Leases .

109

As already pointed out above, the rental price of an agreement is divided between net rent and maintenance. The current value of the net rent is then calculated for the entire duration of the agreement, namely 48 months. This current value is integrally registered as turnover in the month that the agreement commences. The corresponding receivable consists of a long-term part and a short-term part. Inventory The inventories on the one hand comprise the goods for resale and raw materials for the access control and time registration division and on the other hand the payment terminals that have not been installed yet. The adjustment between the US GAAP and the IFRS figures concern a re-itemisation of the payment terminals from tangible fixed assets to inventory. This adjustment is the result of the fact that payment terminals that are entered as an asset in accordance with US GAAP in tangible fixed asset (installed terminal) in accordance with IFRS cannot be included as a receivable with regard to the lease agreement as the starting date – which in the majority of the cases is different from the installation date – of the lease agreement falls in a later reporting period. Trade receivables The adjustment in trade receivables on the one hand concerns the short-term part of the receivables with regard to the financial lease agreements – IAS 17– Leases – of the payment terminals and on the other hand the cancellation of the rent revenues achieved. Accruals In the US GAAP item prepaid expenses, amongst other things the commissions were included that were paid to an independent third party that takes care of entering into the rental agreements. In accordance with US GAAP, the payment terminals were written off over a period of 48 months, analogous to the duration of the agreement. IAS 17 – Leases , determines that assets that are kept under financial lease must be included in the balance sheet and presented as a receivable, at an amount equal to the net investment in the lease. As a result, the corresponding turnover, which is the net investment, is integrally included in the revenues. The result of this is that the corresponding commission paid for entering into the agreement is integrally included in the cost price. Following this, the depreciation booked in 2004 concerning commissions are taken back and the integral cost price is incorporated in the profit and loss account in the item Goods for resale and raw materials. Result carried forward and result of the period The adaptions for the adjustment of the annual accounts under US GAAP to IFRS are booked versus the result of the period. The adjustment of the result carried forward relates to adjustments with regard to the opening balance sheet.

110

Deferred tax liabilities IFRS requires that deferred tax liabilities should be recognised for all taxable temporary differences. The adjustments carried out within the framework of IAS 17 – Leases mean that deferred tax liabilities are included for the temporary differences which are subject to tax. The deferred tax liabilities that relate to the adjustments within the company Keyware Smart Card NV are deducted from the deferred tax asset as IAS 12 – Income Taxes on profits stipulates that deferred tax assets and liabilities within the same legal entity should be compensated. In the opening figures as per 1 January 2004, a deferred tax liability was included relating to the adjustments within the company Keyware Transaction & Processing NV (former DMP NV). It concerns a capitalization that was recorded in 2003 under US GAAP. This deferred tax liability – for the sum of kEUR 125 – was incorporated in accordance with IFRS in the opening balance sheet. In the figures for 2004, this deferred tax liability was rectified on the basis of the entries made in 2004. Provisions In US GAAP, in the item Other debts and expenses to be attributed, a number of deferred debts were included that relate to pending legal proceedings, in which the company was sentenced to pay. In accordance with IAS 37 – Provisions, Contingent liabilities and contingent assets, these debts are included in the provisions as the Group has an existing obligation as a result of an event from the past, for which it is probable that an outflow of resources will be required and for which the amount of the obligation can be estimated reliably. Valuation of warrants On 31 December 2004 247,500 warrants could still be exercised with regard to the warrant plan of 17 December 1999, in which 975,000 warrants were issued to personnel, directors and consultants of the Group. These warrants can be exercised until 17 December 2005. The exercise price of these warrants in circulation was determined by the remuneration committee and varies between 0.54 euros per share and 7.45 euros per share. The weighted average exercise price comes to 2.98 euros per share. The calculation of the warrants in accordance with IFRS 2 – Share based payment, was not applied in view of the intangible nature of the number of warrants that can be exercised and since the probability that they will be exercised is minimal. Other The item Other debts and expenses to be attributed under US GAAP is divided over the items Social and fiscal debts, Other debts, Accruals and Provisions in accordance with the IFRS presentation.

111

Exceptions within the framework of IFRS 1 IFRS 1 – First time adoption of International Financial Reporting Standards requires that the first IFRS annual report must retroactively conform to every IFRS that is in force on the balancing date, except for certain specific exceptions. Keyware Technologies has made use of the exception regarding business combinations. The exceptions with regard to employee benefits, accumulated translation reserves, the use of actual value or revaluation as presumed cost, compound financial instruments and the assets/obligations of subsidiaries, associated companies and joint ventures do not apply or have not been used.

112

Statutory information

113

AUDITOR’S REPORT OVER THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 TO THE SHAREHOLDERS’ MEETING OF THE

COMPANY KEYWARE TECHNOLOGIES NV In accordance with the legal and statutory requirements, we are pleased to report to you on the performance of the audit assignment which has been entrusted to us. We have audited the financial statements for the period ended on December 31, 2005, prepared in accordance with the legal and regulatory requirements applicable in Belgium, which show a balance sheet total of kEUR 26,515 and a loss to be appropriated closed of kEUR 8,883. We have also carried out the specific additional audit procedures required by law. The preparation of the financial statements, the assessment of the information to be included in the directors’ report, as well as the compliance by the company with the Company Code and the company’s articles of association, are the responsibility of the board of directors. Our audit of the financial statements was carried out in accordance with the legal requirements and the auditing standards applicable in Belgium, as issued by the Instituut der Bedrijfsrevisoren [Institute of Company Auditors]. QUALIFIED AUDIT OPINION ABOUT THE ANNUAL ACCOUNTS WITH EXPLANATORY PARAGRAPH The above mentioned auditing standards require that we plan and perform our audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. In accordance with those standards, we considered the group’s administrative and accounting organization, as well as its internal control procedures. Company officials have responded clearly to our requests for explanations and information. We have examined, on a test basis, the evidence supporting the amounts included in the consolidated financial statements. We have assessed the accounting policies, the consolidation principles, the significant accounting estimates made by the company and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our report about the annual accounts as per December 31, 2004 we made a qualification with regard to a depreciation amounting to kEUR 3,815 on the purchase value of the financial asset Keyware SA that was fully charged to the bookyear 2004. An additional depreciation on the same investment had been recorded charged to the income statement in 2005 amounting to kEUR 7.393 partially recorded on the investment value and partially on long term outstanding receivables. Both depreciations are to our opinion fairly stated, but should have been charged in full or in part to previous periods. We note that the financial fixed assets as per 31 December 2005 contains an amount of kEUR 1,100, that was paid for the acquisition of the shares of the company Digital Access Control , who’s in possession of one distribution right. On the basis of the sales achieved in 2005 and the business plan for the next few years we have not received sufficient certainty about the future feasibility to justify the book value of this asset. In our opinion, taking into account the legal and regulatory requirements applicable in Belgium, and subject to on the one hand the impact on the result of the period 2004 and 2005 of depreciation of the purchase value of the Keyware NV investment and long term receivables and

114

on the other hand the impact on the results 2005 and the balance sheet 2005 of the non-registered full or partial depreciation of the distribution right, the annual accounts for the year ended December 31, 2005 give a true and fair view of the company’s assets, liabilities, financial position and the results of operations. Without jeopardising the above statement, we draw your attention to the fact that during 2005 and the previous periods the group suffered significant losses. Partly as a result of the losses incurred, the company has significant receivables on its subsidiaries (kEUR 12,195), whose collectability depends on the continuity of these companies. The shareholders have in the past always taken the measures required to provide the necessary financial resources to guarantee the going-concern of the group. The annual report of the Board of Directors shows that in the near future the group could continue to obtain the financial support of the major shareholders. ADDITIONAL STATEMENTS AND INFORMATION We supplement our report with the following additional statements and information that are not of a nature to change the scope of our statement about the annual accounts: • The annual report contains the information required by law and is consistent with the consolidated financial statements. We are, however, unable to comment on the description of the principal risks and undertainties which the group is facing, and of its situation, its foreseeable evolution or the significant influence of certain facts on its future development. We can nevertheless confirm that the matters disclosed do not present any obvious contradictions with the information of which we became aware during our audit.

• In its annual report, the Board of Directors of the company has informed the shareholders - in accordance with article 523 of the Companies Code – with regard to payment of a claim on the company with shares in the company held by a person connected with the directors for a countervalue of kEUR 118. The proprietary consequences for Keyware Technologies NV only consist of a transfer / the payment of the debt.

• Without prejudice to formal aspects of subordinate importance, the accounts are conducted and the annual accounts compiled in accordance with the legal and administrative provisions that apply in Belgium.

• For the rest we can inform you that no transactions were carried out or decisions taken that violate the articles of association or the Companies Code. The processing of the result that is proposed to the Shareholders’ Meeting corresponds with the legal and statutory provisions.

Merelbeke, 14 April 2006 BDO Atrio Bedrijfsrevisoren Burg. CVBA Auditor Represented by Koen De Brabander

115

STATUTORY ANNUAL ACCOUNTS OF KEYWARE TECHNOLOGIES N.V.

A. Balance sheet after distribution of profits on 31 December (EUR in thousands)

31.12.2005

31.12.2004

Fixed assets 23,383 30,367 I. Formation expenses II. Intangible fixed assets III. Tangible fixed assets 108 90

A. Sites and buildings B. Installations, machines and equipment 15 15 C. Furniture and cars 71 65 D. Leasing and similar rights 22 10 F. Assets under construction and advance payments

IV. Financial fixed assets 23,275 30,277 A. Affiliated companies 23,207 30,211

1. Participations 11,012 14,506 2. Receivables 12,195 15,705

B. Companies with which there is a participation relationship 1. Participations 2. Receivables

C. Other financial fixed assets 68 66 1. Shares 2. Receivables and securities in cash 68 66

Current assets 3,132 737 V. Receivables due after one year VI. Inventories and work in progress

A. Inventories 1. Raw and auxiliary materials 4. Goods for resale

VII. Receivables due within one year 2,930 671 A. Trade receivables 1,368 568 B. Other receivables 1,562 103

VIII. Investments A. Own shares B. Other investments

IX. Liquid assets 9 40 X. Accruals 193 26

Total assets 26,515 31,104

116

(EUR in thousands)

31.12.2005

31.12.2004

Shareholders’ equity 20,413 24,972I. Capital 33,166 30,341

A. Share capital 33,166 30,341II. Share premium 1,693 1,693IV. Reserves

A. Legal reserves B. Unavailable reserves

1. For own shares V. Profit carried forward Loss carried forward (14,446) (7,062) Provisions and deferred taxes 850 150VII. A. 4. Other risks and expenses (note IX) 850 150 Liabilities 5,253 5,982VIII. Liabilities due after one year 707 444

A. Financial debts 707 4441. Subordinated loans 2. Non-subordinated bond loans 300 3. Leasing debts and similar debts 51 514. Credit institutions 356 5. Other loans 393

B. Trade payables 1. Suppliers IX. Liabilities due within one year 4,541 5,518

A. Liabilities due after one year that mature within the year 488 17B. Financial debts 2,517 3,111

1. Credit institutions 226 2382. Other debts 2,291 2,873

C. Trade payables 1,329 1,9751. Suppliers 1,329 1,975

E. Social, salary and fiscal liabilities 89 141. Taxes 30 32. Salary and social liabilities 59 11

F. Other payables 118 401X. Accruals 4 20

Total liabilities 26,515 31,104

117

B. Profit and loss account on 31 December

(EUR in thousands) 31.12.2005 31.12.2004

I. Operating income 2,007 573

A. Turnover 1,213 152 D. Other operating income 794 421

II. Operating expenses (2,662) (1,448) A. Goods for resale, raw and auxiliary materials - - B. Services and other goods (1,373) (1,162) C. Salaries, social security contributions and pensions (278) (56) D. Amortization and depreciation on formation expenses, on intangible and tangible fixed assets

(49) (65)

E. Depreciation on inventories, work in progress and trade receivables

F. Provisions for risks and expenses (additions +, expenses and amortization -)

(700) (150)

G. Other operating expenses (262) (15) III. Operating result (655) (875) IV. Financial income 515 184

A. Income from financial fixed assets 515 - C. Other financial income - 184

V. Financial expenses (71) (439) A. Expenses of liabilities (70) (342) B. Amortization on other current assets than those meant in II.E

- (9)

C. Other financial expenses (1) (88) VI. Result from ordinary operations before taxes (211) (1,130) VII. Extraordinary income 321 16

B. Amortization of depreciations on financial fixed assets 321 - D. Surplus value on the realisation of fixed assets - - E. Other extraordinary income - 16

VIII. Extraordinary expenses (8,993) - A. Extraordinary amortization and depreciations on formation expenses, on intangible and tangible fixed assets

- -

B. Amortization on financial fixed assets (8,992) (4,140) D. Loss of value on the realisation of fixed assets (1) (245)

E. Other extraordinary expenses - (14) Result for the period before taxes (8,883) (5,513) X. Tax over the result - XI. Result of the period (8,883) (5,513) XIII. Result of the period to be distributed (8,883) (5,513)

118

C. Incorporation of the result

(EUR in thousands) 31.12.2005 31.12.2004

A. Loss balance to be incorporated (15,945) (89,464)

1. Loss of the period to be incorporated (8,883) (5,513)2. Loss from the previous period carried forward (7,062) (83,951)

B. Withdrawal from the shareholders’ equity 1,500 82,402

1. From the capital and the share premium 1,500 82,402

C. Addition to the shareholders’ equity 0 0 D. Loss to be carried forward (14,446) (7,062)

F. Profit to be paid out 0 0

119

ANNUAL REPORT OF THE COMPANY In accordance with article 96 of the Companies Code we have the honour of reporting to you about the activities of the company in the period from 1 January 2005 to 31 December 2005. I. Notes to the annual accounts The Company functions as a holding company, but also as a financing vehicle for the subsidiaries for which it also provides management tasks and administrative assistance. All of the expenses connected with being listed on Euronext Brussels will continue to be part of the profit and loss account of the Company. Annual figures and important events The bookyear closes off with a loss after taxes of kEUR 8,883 so that after the result has been incorporated the shareholders’ equity comes to kEUR 20,413. Notes to the main balance sheet items Tangible fixed assets The net book value comprises cars owned and leases for cars that are integrally rented to subsidiaries. Other tangible fixed assets concern mainly furnishing the rented premises. Financial fixed assets The financial assets comprise a net value in participations of kEUR 11,012 and financial receivables from these subsidiaries for the sum of kEUR 12,195. Trade receivables due within one year The receivables due within one year mainly comprise receivables from group companies as a result of charging on operating expenses. Other receivables due within one year The other receivables concern current accounts with group companies and a receivable of kEUR 5 following the sale of Able NV (balance). Shareholders’ equity The shareholders’ equity of the Company has risen due to a capital increase by kEUR 3,977 and was affected by the loss of the period (kEUR 8,883). Provisions for risks and expenses The provision relates to the dispute with Infolink NV and Francis Declercq. A provision was created for kEUR 850. As per 2006 a compromise agreement was drawn up for the sum of kEUR 850 within the framework of the out-of-court settlement. The compromise agreement was signed by both parties on 16 March 2006. This out-of-court settlement consists of the Company transferring 3,400,000 shares in Keyware Technologies corresponding to a value of kEUR 850 to the other party. As the Company does not have any of its own shares, this obligation has been taken over by Pardel NV, which deposited the 3,400,000 shares in Keyware Technologies on the securities account of the other party.

120

Since the figures were approved by the Board of Directors on 22 February 2006, the consequences of the out-of-court settlement were not processed in the figures as per 31 december 2005. A provision was created for the sum of kEUR 850 at the end of December 2005. In 2006 this provision will be taken back and a debt vis-à-vis Pardel NV will be expressed. Liabilities due after one year This item includes financing for a value of kEUR 707. This item also includes the lease obligations for the sum of kEUR 51. Liabilities due after one year that mature within the year This item comprises not only a credit with Dexia (kEUR 65) and the short-term leasing debts (kEUR 23), but also the bond loan (kEUR 400). Financial debts Financial debts consist mainly of the advances received from certain shareholders/investors. These advances amount to kEUR 2,291. Trade payables The trade payables amount to kEUR 1,329 and include debts that are overdue for the sum of kEUR 581. Part of these overdue debts have not been claimed as per 31 December 2005 and there are redemption schemes for the balance. Social and fiscal liabilities As per 31 December 2005 eight employees work for Keyware Technologies. The outstanding debts are the accompanying obligations to social security (26 kEUR), professional withholding taxes (kEUR 17) and a provision for holiday allowance (30 kEUR). The company also has a debt with the VAT administration of kEUR 13. The professional withholding taxes that are overdue amount to kEUR 7. Notes to the main items of the profit and loss account Turnover The turnover of the company consists of management fees and expenses charged on to the subsidiaries. Other goods and services The expense structure is above all formed by fees (kEUR 667), marketing expenses (kEUR 198), accommodation expenses (kEUR 136) and the expenses for being listed on the stock exchange (kEUR 68). This item also includes car expenses for a total of kEUR 145, that are charged on to the subsidiaries. Salaries, social security contributions and pensions As stated above, eight people work for the company as per 31 December 2005. Extraordinary expenses and income Extraordinary expenses above all consist of write-off of a receivable on Keyware Technologies Suisse SA (kEUR 1,398) and Keyware NV (kEUR 3,000) and an amortization of the participation in Keyware France and Keyware NV (kEUR 4,593).

121

The extraordinary revenues consist of taking back an amortization of Keyware Technologies Suisse (kEUR 321). Proposal for incorporating the result At the Shareholders’ Meeting it will be proposed that the loss to be distributed for year 2005 is processed as follows (in EUR):

Loss of the period to be incorporated (8,883,329.77)Loss of the previous period carried forward (7,062,429.89)Loss balance to be distributed (15,945,759.66)Withdrawal from the capital 1,500,000.00Addition to the unavailable reserve 0.00Compensation of the capital 0.00Result to be carried forward to the next period (14,445,759.66)

II. Justification of the application of valuation rules in the assumption of going-concern During two successive periods the company has incurred a loss so that in accordance with article 96 of the Companies Code the application of the valuation rules in the assumption of going-concern must be justified. Per 31 december 2005 the result to be carried forward is kEUR 14,446. On the basis of what is stated below, the Board of Directors concludes that the application of the valuation rules in the assumption of goning-concern can be maintained. III. Going-concern of the company and financing The annual accounts were compiled on the assumption of going-concern, which assumes that the assets are achieved and the debts are paid like in normal company operations. As per 31 December 2005, the Group has incurred accumulated losses for a total sum of kEUR 14,446, which were primarily financed by capital. Despite the historic losses and the impossibility of the Group to achieve positive results and positive operational cash flows, in 2004 quite a few parties confirmed their confidence in the Group. This was apparent amongst other things from the willingness of suppliers to convert their debts into capital, the additional loans permitted by shareholders and investors, the willingness of suppliers to, despite the sometimes precarious cash position, grant the Group extra payment instalments, etc. In addition, many shareholders, investors and suppliers converted their debts (or a part of them) into capital on the occasion of the Extraordinary Shareholders’ Meeting of 27 May 2005. The confidence of these parties has contributed to the growth of the Group in 2005. Not only did the Group achieve turnover growth of more than 40% in 2005, during the 2nd half-year of 2005 a positive net result was even achieved. Despite the growth and the favourable evolution of the results, in 2006 the Group will still require additional financing primarily to further finance and expand the activities with regard to the payment terminals. On the basis of the above, the Board of Directors is convinced that the Group is able to continue its activities on a “going concern” basis over a reasonable period of time and it confirms the application of the valuation rules in going-concern. So the annual accounts do not contain any adjustment for the collectability and classification of the assets booked or the amount and classification of the debts that would be required if the Company could no longer continue its activities as a “going-concern”. The continuation of the Group as a “going concern” depends on its ability to generate sufficient cash flow to fulfil its

122

obligations on time or to maintain adequate financing and finally on achieving successful operations. On the basis of the budgets and taking into account the debts outstanding as per 31 December 2005, it is clear that the Group will need additional financial resources in 2006. Above all the investment in the further expansion of the fleet of payment terminals of the subsidiary is capital-intensive. During the course of February 2006 the Group obtained an operating credit from KBC Bank the sum of kEUR 100. This credit in the first instance will run until 31 December 2006. The applicable interest rate is the EONIA increased by a margin of 3%. Finally, the Group is organizing a private placement. During the course of April, the Board of Directors will convene an Extraordinary Shareholders’ Meeting. At this meeting the Board will propose that the following securities be issued within the framework of a private placement:

convertible bonds for a maximum sum of kEUR 8,000; maximum 32 million A warrants that entitle the holder to subscribe to the same

number of shares in the Company; and maximum 32 million B warrants that entitle the holder to subscribe to the same

number of shares in the Company, On the basis of these measures, the Board of Directors proposes to the Shareholders’ Meeting to maintain the going-concern of the Company. IV. Information about important events after the period Apart from what was stated above with regard to going-concern, the company does not have any important events after the balance sheet date to report, that have an impact on the presentation of these annual accounts. V. Information about activities in the area of research and development Not applicable VI. Report of the capital increase 2005 which was decided by the Extraordinary Shareholders’ Meeting of 27 May 2005. On 27 May 2005 the ESM of Keyware Technologies decided to increase the capital by the sum of kEUR 3,977 as a result of a contribution in kind of the rights amongst the debt receivables, the trade receivables and current account and the contribution in kind of the shares in Digital Access Control NV. On this occasion 30,598,115 ordinary shares in the Company were issued. In addition, the decision was taken to decrease the capital by kEUR 1,500 by paying off losses incurred. Per 31 December 2005 the share capital of the Group amounts to kEUR 27,522 represented by 96,617,226 ordinary shares with no par value.

The ESM of 27 May 2005 also decided to issue 7,000,000 “2005 warrants” and to issue 750,000 “DAC warrants”.

123

These warrants issued entitle the holder to subscribe to the same number of shares. The exercise price of these warrants is EUR 0.13 and it was determined on the basis of the average closing price on Euronext Brussels during the thirty days prior to the day on which the issue starts.

As per 31 December 2005 4,707,500 “2005 Warrants” and 375,000 “DAC Warrants” could still be exercised. During the month of March 2006 another 2,537,500 “2005 Warrants” and 375,000 “DAC Warrants” were exercised. So at the end of March 2006 2,545,000 “2005 Warrants” can still be exercised. The notarial deed of the capital increase was passed on 21 April 2006. Per 31 March 2006 the shares for this capital increase have not yet been issued. VII. Information about branches None VIII. Own shares At present the company does not own any of its own shares. IX. Decisions taken with application of the legal procedures to prevent a conflict of interests Article 523 of the Companies Code provides for an extraordinary procedure if a director, directly or indirectly has an interest of a proprietary nature that conflicts with a decision or a transaction that falls within the competence of the Board of Directors. During the course of the period 2005, this procedure was applied with regard to the following decision.

The Board of Directors of 7 February 2006 approved the transaction described below, whilst applying article 523 of the Companies Code.

Extract from the minutes of the Board of Directors of 7 February 2006

(a) Application of art. 523 of the Companies Code Mr Stéphane Vandervelde declares to the other members of the Board of Directors that he has a conflicting interest of a proprietary nature with regard to the agenda point concerning the approval of the settlement of the claim with regard to James Bowen. Within the framework of the settlement with Bowen, the shares in Keyware Technologies had to be delivered to James Bowen before the end of December 2005. Since the assumed capital increase, whereby the shares would be delivered, could not occur before the end of December 2005, the management had to find another solution. This consisted of Mr Stéphane Vandervelde using his personal shares in Keyware Technologies to pass on to James Bowen. As a result of this the Company no longer has a debt with James Bowen, but does have one with Mr Stéphane Vandervelde. The proprietary consequences for the Company only consist of paying the debt. Mr Stéphane Vandervelde declares that he will inform the Auditor of the Company of this conflict of interests. Mr Stéphane Vandervelde then leaves the meeting and does not participate in the consultation and voting on this item on the agenda. (b) Decision The figures as per 31 December 2005 contain a debt vis-à-vis Mr Stéphane Vandervelde that occurred following the settlement of the debt vis-à-vis James Bowen.

124

The Board of Directors takes note of the conflict of interests of Mr Stéphane Vandervelde with regard to this item on the agenda and of the aforementioned justifications and decides unanimously, after consultation, to approve said debt (for the sake of clarity, without Mr Stéphane Vandervelde having taken part in such consultation or the decision).

X. Risk factors On application of article 96.1° of the Companies Code, as amended by the Act of 13 January 2006, the Company hereby provides information about the most important risks and uncertainties that could have a negative impact on the development, the financial results or the market position of the Company. Since the Company does not have any activities, but is a holding company, the risk factors of the subsidiaries also affect the Company. The risk factors therefore concern the entire Keyware Group. Products and markets The Group operates in an environment that evolves extremely quickly with regard to technology. These evolutions relate to both the changed needs of clients, the necessity for frequent new products often with a short life as well as to the changing industrial standards. The Group expects the turnover growth to largely depend on the degree to which it is able to respond to these new challenges. Not being able to react to this changed context in time can have negative consequences for the results of the company and its financial situation. Dependence on clients The company has over 10,000 active clients. 15 % of the turnover over the period 2005 was achieved by the 5 most important clients.

Dependence on suppliers Due to the close cooperation with Thales and as a result of the certification, Keyware to a large degree depends on this supplier for the continuity of the production of the payment terminal (the most important supplier represents 25% of the outstanding supplier balance). Concentration of credit risk The concentration of credit risks is limited due to the large number users, spread over the Benelux, France and Switzerland. The Rroup does not have any activities in countries with a high inflation rate. Legal proceedings The company is involved in a number of legal proceedings that can be considered deferred obligations. For more information please refer to the consolidated annual report (17) Provisions and (50) Pending disputes, which can be found on the Company’s website (www.keyware.com/investor info).

Financial position It is clear that in 2006 the Group will have to attract additional financial resources. Within this framework we refer to (III) The continuity of the company and financing of this report.

In addition, during the course of 2005 quite a lot of shareholders, investors and suppliers were willing to convert their debts (or a part of them) into capital on the occasion of the Extraordinary Shareholders’ Meeting of 27 May 2005.

125

One of the Group’s most important investors is Pardel NV. During the 2nd half-year of 2005 Pardel NV once again made advances available to the Group (kEUR 2,200). As per 31 December 2005 the Company had redemption schemes with suppliers for the sum of kEUR 247. As per 31 March 2006 kEUR 63 of this has already been repaid. As per March the company has already repaid its outstanding debt ( kEUR 26) from 2005 for social security contributions. Going-concern Please refer to ( III) The going-concern of the company and financing, of this report. Environment The Group does not have any special remarks with regard to environmental matters. Personnel On 31 December 2005 the Company had 11 employees (personnel and consultants). XI. Directors

As per 31 March 2006, the Board of Directors has 7 members, 3 of whom are independent directors. The members of the Board of Directors are:

Director Function Main function End date mandate

after SM ending on Guido Van der Schueren Non-executive Chairman 31 December 2005 Pardel NV Non-executive Director 31 December 2009 represented by Pierre Delhaize Johan Dejager Non-executive Director 31 December 2005 Luc Pintens Independent Director 31 December 2009 Advisam NV Independent Director 31 December 2009 represented by Guy Warlop Bruno Kusters11 Independent Director 31 December 2005 Big Friend NV Executive - CEO Director 31 December 2009 represented by Stéphane Vandervelde

On 20 October 2005, the Company announced that Mr Marc Van Rompaey had handed in his resignation as director of the Company. On 23 March 2006 the Company announced that the Board of Directors has decided to co-opt Mr Bruno Kusters as a new independent director to replace Mr Marc Van Rompaey. On 23 March 2006 the Company also announced that Mr Leo Claeys is resigning as a director of the company.

11 Co-opted as director in the place of Mr Marc Van Rompaey

126

XII. Activities of the Auditor and companies with which the Auditor has a form of cooperation Within the framework of article 134.2 of the Companies Code we state that the Auditor and the companies with which it cooperates professionally carried out additional assignments during the course of the period 2005 for the sum of kEUR 23. This performance includes work with regard to additional reporting due to the contribution in kind, the issue of warrants and fiscal work. XIII. Requests to the Shareholders’ Meeting The Board of Directors requests that the General Shareholders’ Meeting:

- adopts the annual accounts over the period 2005 in full; - discharges the directors for exercising their mandate during the past period; - discharges the Auditor for exercising its mandate during the past period.

Drawn up in Anderlecht on 10 April 2006 The Board of Directors,