ANNUAL REPORT For the period

January 1 to December 31, 2002

BIOSENSOR APPLICATIONS SWEDEN AB

BIOSENSOR APPLICATIONS SWEDEN AB 2 (20) 556376-6814 Content Page

COMMENTS BY THE PRESIDENT 3

BUSINESS OPERATIONS 2002 4

STATUTORY MANAGEMENT REPORT 6

INCOME STATEMENT 9

BALANCE SHEET 10

CASH FLOW STATEMENT 12

NOTES TO THE FINANCIAL STATEMENTS 13

BIOSENSOR APPLICATIONS SWEDEN AB 3 (20) 556376-6814 ANNUAL REPORT OF BIOSENSOR APPLICATIONS SWEDEN AB

COMMENTS BY THE PRESIDENT 2002 was a year of dress rehearsal for Biosensor Applications Sweden AB (“Biosensor”). Biosensor’s technology, the BIOSENS technology, is based on advanced biochemical tracing. Global demand for efficient equipment for detection of narcotics and explosives is enormous. The BIOSENS system has been received with great appreciation around the world during the past year. The acid test took place already in October, when the American and Canadian customs authorities arranged extensive testing with identification of cocaine in freight containers. A number of manufacturers were invited to the Fort Huachuca military base in the Arizona desert to demonstrate their detection systems under realistic smuggling scenarios. Five containers were used, four of which contained between 30 and 60 kilograms of cocaine each, packed using different methods. All containers had a drilled hole, through which air samples could be drawn. BISOENS-D gave a green light for the empty container, but triggered an alarm for all five tests that could be completed on containers containing cocaine. Our personnel felt a great deal of satisfaction and pride when the American and Canadian customs officials described BIOSENS-D as the best and most flexible collection system they had ever seen. Production of BIOSENS-D – which in addition to cocaine also detects amphetamine, metamphetamine, ecstasy and heroin – has now started and the system is being tested by potential customers. A growing and potentially huge area of use for the system consists of verifying whether seized preparations actually are narcotics. At the same time we are expending efforts on further development of our explosives detector, BIOSENS-M. By preventing terror attacks and by allowing more effective removal of mines, BIOSENS-M, much like BIOSENS-D, can contribute to a slightly better and safer world. Newly added and existing strategic collaborative efforts and agreements with authorities and cutting-edge companies in biotechnology and other areas ensure Biosensor’s market-leading position in advanced biochemical detection. The future for the BIOSENS system begins now! Carl Lundberg President & CEO, Biosensor Applications Sweden AB

BIOSENSOR APPLICATIONS SWEDEN AB 4 (20) 556376-6814 BUSINESS OPERATIONS 2002

The BIOSENS system The BIOSENS system was shown for the first time at the Milipol security trade show in Paris in November 2001. During 2002 Biosensor continued developing the BIOSENS system, which is based on biochemical detection of airborne particles that reveal the presence of a variety of sought-after substances. The number of possible applications is very large. The sector with highest priority relates to narcotics detection (customs, police, etc.). Other areas of current interest are detection of terrorist explosives (airports, public buildings, etc.) and mines. The collection unit of the BIOSENS system has been developed from being a diesel-powered unit weighing 19 kilograms to a convenient battery-operated system weighing 2.5 kilograms. Photo: Biosensor. Collection unit Biosensor has gradually developed the analysis unit in the direction of ever-greater sensitivity and broader areas of application. During the fall of 2001 the component parts – the collection unit, the filter and the analysis unit – were built together into a functioning instrument and during 2002 the system has been tested in various parts of the world. The results are very promising. Photo: Biosensor. Analysis unit

BIOSENSOR APPLICATIONS SWEDEN AB 5 (20) 556376-6814

BIOSENS-D, the drug detector In the spring of 2002 a third prototype of the BIOSENS-D drug detector was presented to potential customers at a police trade show in England and at the training conference and annual meeting of the Swedish Narcotics Police Association. In July 2002 BIOSENS-D was presented on the American market. In the beginning of October the American and Canadian customs authorities arranged an extensive test with cocaine in containers, in which Biosensor participated. Results were beyond anyone’s expectations and the customs officials declared that BIOSENS-D was the best and most flexible system they had ever seen. In addition to cocaine, BIOSENS-D also detects amphetamine, metamphetamine, ecstasy and heroin. A similar test was also conducted at the National Laboratory of Forensic Science – SKL – in Linköping. These successful tests have inspired the invention of yet another area of use for BIOSENS-D, namely for verification of seized substances. The need here is big and growing, since seizures are growing rapidly. For example, last year the Swedish police and customs seized amphetamine on more than 5 500 occasions. In cooperation with SKL, the Company conducted tests at the end of the year on 75 seizures of amphetamine and a number of samples of heroine and cocaine using BIOSENS-D on location in Linköping. All amphetamine samples, but one, were detected. Production of BIOSENS-D has begun. Biosensor has hired a production manager and rented premises where the systems will be assembled.

BIOSENS-M, the mine detector According to a frame agreement with the Swedish Rescue Administration, the agency will receive all upgrades of BIOSENS-M implemented during 2002 and 2003. With partial financing from EU, Biosensor completed a new version of BIOSENS-M that was delivered to the Swedish Rescue Administration. The Swedish Rescue Administration has also concluded an agreement with CROMAC, Croatia’s national mine clearing agency, to gain access to a mine field for a period of over two years where BIOSENS-M will be tested and where the agency will develop methods for how to use the system. Biosensor and the Swedish Rescue Administration completed, both jointly and individually, the first round of testing in Croatia beginning in early June 2002. Norsk Folkehjelp, one of the world’s largest humanitarian mine clearing organizations, will assist Biosensor with additional tests within the framework of the BIOSENS EU project. Biosensor also initiated a collaborative effort with Swedec, the overall defense center for ammunition and mine clearing. Swedec and Biosensor intends to test BIOSENS-M at the testing site of the center in Eksjö.

BIOSENS-E, the explosives detector Within the framework of an EU project, the mine detector is being further developed so that it can detect not only TNT, but also the explosives RDX and PETN, used in some terrorist explosives. After the September 11, 2001 terror attacks in the United States, the American budget for fighting terrorism has multiplied. Use of BIOSENS-E for applications such as airport security would require that additional types of explosives could be detected. During 2002 Biosensor has therefore devised a project plan to develop BIOSENS-E for detection of up to six additional types of explosives.

BIOSENSOR APPLICATIONS SWEDEN AB 6 (20) 556376-6814

STATUTORY MANAGEMENT REPORT The Board of Directors and the Managing Director of Biosensor Applications Sweden AB hereby present the Annual Financial Statement and Group Financial Statements for the fiscal year ending 31 December 2002. The Company was, until January 1998, a wholly owned subsidiary of Bofors AB. It was then sold to private investors. Following subsequent share transfers and new share issues, the Company has approximately 270 shareholders as of 31December, 2002. The work of developing the Biosensor system was initiated by Bofors in 1995. In connection with a reorganization within Celsius (the owner of Bofors at the time), the entire project was acquired in the beginning of 1998 by a group of private investors. Ownership has subsequently been changed and expanded. Aside from a group of private individuals, main shareholders include Skandia, Förvaltnings AB Metallica, The Red Cross, The Church of Sweden and The Swedish Association of Municipal Workers.

Changes in the Group During 2002 the two wholly owned subsidiaries, Biosensor Aviation Security Ltd, with its registered office in London, and Biosensor Mine Detection AS, with its registered office in Oslo, were de-registered. Both subsidiaries have been inactive during the past several years.

Significant events during the financial year and after its ending

New share issues MSEK 14.2 of the equity offering floated during the first quarter of 2002 was subscribed for. The entire offering, which was begun in July 2001, resulted in a capital infusion totaling MSEK 55. During the period under review, Biosensor acquired an interest in four patents and patent applications form Yissum and Yeda (see below). Payment was made in part in the form of 1.1 million newly issued shares at a price of SEK 5.20 per share with the patents as property in kind. The remainder of the payment will be made in cash. During the period under review, Biosensor also made a private placement with the RAB Capital hedge fund, with its registered office in London. RAB Capital invested 1 million euro, equivalent to about MSEK 9, or 1.0 million shares in Biosensor. In May 2003 three of the holders of the MSEK 25 subordinated convertible debenture loan decided to convert their debentures, including accrued interest, into shares in the company. The conversion means that equity increases by SEK 18 161 000, of which the share capital increases by SEK 1 816 000. Skandia Liv has subscribed for a new subordinated convertible loan in the amount of MSEK 10.0 on the same terms and conditions as before.

Capital infusion In March 2003, an agreement was concluded by which MSEK 23.5 was infused in the Company as bridge financing to make a major new issue possible. The six lenders are Skandia Liv (MSEK 12), MN Development (MSEK 5), Gylling Capital (MSEK 2), RAB Europe Partners (MSEK 2) and two private individuals, who together invested MSEK 2.5. The loans carry interest at a rate of 11 percent p.a. To secure the loan, the Company has granted a lien in the Company’s wholly owned Swedish patents. The intention of the lenders is to participate in an upcoming new issue of shares in the Company and then convert their respective claims to shares. The financing agreement also means that the lenders receive options to subscribe for 2 170 000 new class A shares in the Company at a price of SEK 1.00 per share not later than December 31, 2004. If a need for additional equity arises during the year, the Board of Directors intends to raise at least MSEK 20 through a new issue during the year. Discussions are already under way with industrial as well as financial partners.

BIOSENSOR APPLICATIONS SWEDEN AB 7 (20) 556376-6814 Against the background of the well advanced development of the Company’s products and several successful tests with potential customers, the Board of Directors has come to the conclusion that the prospects for attracting new financing are good. There are no guaranties, however, that additional financing can be procured as planned.

New articles of association Biosensor’s regularly scheduled general meeting of shareholders held April 23, 2002 resolved to adopt new articles of association, according to which the share capital can be increased to a maximum of MSEK 60. Under the resolution, the Board of Directors is authorized to decide on new issues of shares, convertible debentures and debentures with warrants.

Patent agreements provide exclusive rights During 2002 Biosensor concluded a new agreement with the Israeli university that was previously the owner of the most important patent for the Company’s products. Biosensor is now a part owner of four patents and patent applications, which gives the Company an exclusive right to the entire BIOSENS series. The agreement stipulates that Biosensor will not pay royalties to the university on future sales.

Balance sheet for liquidation purposes In October 2002 the Company compiled a balance sheet for liquidation purposes sheet since more than half of the registered share capital had been consumed. In conjunction herewith the Company capitalized certain development costs and it was then established that the share capital was intact and that there was no critical capital shortage as defined in Chapter 13, Section 2 of the Swedish Companies Act.

Agreement on antibodies During the period under review Biosensor has concluded a research and license agreement with Yeda, the commercial branch of the Weizmann Institute of Science in Rehovot in Israel. The agreement gives Biosensor exclusive access to Yeda’s antibodies against three types of narcotics and explosives, existing as well as future. These antibodies are of crucial importance to the BIOSENS technology.

Organizational development Biosensor continued its development during the year from being a research company to becoming a development company. The number of employees increased from 18 to 19. Biosensor has hired a production manager and is now recruiting new employees for the marketing and sales organization.

New Board of Directors A new Board of Directors of Biosensor was elected at the Annual General Meeting held April 23, 2002. Jan Persson remained as Chairman. Tomas Ericsson, Ulf Ericsson, Jonas Frick, Göran Lundberg and Bo Rybeck remained as regular members of the Board of Directors. Leif Engström was elected as new alternate member.

BIOSENSOR APPLICATIONS SWEDEN AB 8 (20) 556376-6814 Ownership structure Biosensor's share capital consisted of 24,070,571 shares as of December 31, 2002. The shares have a nominal or par value of SEK 1.00 and the share capital thus amounts to SEK 24,070,571. All shares entitle their holders to the same share of Biosensor’s assets and profits. The largest shareholders of Biosensor were as follows as of December 31, 2002:

Number of Share of

Shareholder shares capital and voting right

Skandia Liv 5,998,176 24.9% Whitebeam Investment Ltd, Hellena Ltd * 4,709,522 19.6% MN Development 3,299,702 13.7% Hans Mellström 1,466,666 6.1% Yissum Research Development Co. ** 1,100,000 4.6% Röda Korset 1,034,000 4.3% RAB Capital 1,015,222 4.2% Gylling Capital AB 1,000,000 4.2% Förvaltnings AB Metallica 773,048 3.2% Cellfabriken AB 513,500 2.1% Servicen Private Equity Fund 456,190 1.9% Svenska Kommunalarbetarförbundet 318,333 1.3% Other shareholders 2,386,212 9.9%

Total 24,070,571 100% * Companies controlled by Jan Persson and his family. ** Issued in connection to an issue in kind of patent. 250,000 shares are held by a third party as they are conditioned to that Biosensor receives an approval of patent in USA.

Proposed treatment of accumulated losses (SEK) To be decided upon by the general meeting of shareholders: Accumulated losses (109,085,219) Current year loss (34,244,388) Total (143,329,607) The Board of Directors proposes that losses be dealt with as follows: To be carried forward (143,329,607) Total (143,329,607)

BIOSENSOR APPLICATIONS SWEDEN AB 9 (20) 556376-6814

INCOME STATEMENT (Amounts in SEK ’000)

2002 2001 2002 2001 Note Group Group Parent Parent Net revenues 1 - 894 577 894 Cost of sales - - (270) - Gross profit - 894 307 894 Administrative costs 2, 3, 4 - (9,731) (11,654) (9,689) Research and development costs 2, 3, 4 - (23,054) (29,123) (23,056) Other operating income 5 - 4,234 7,376 4,234 Other operating costs - (282) (79) (282) Operating loss - (27,939) (33,173) (27,899) Profits and losses from financial investments Interest and assimilated income 6 - 857 1,449 856 Interest and assimilated costs 7 - (1,371) (2,521) (1,371) Loss after financial items - (28,453) (34,245) (28,414) Tax for the year 8 - 53 - - CURRENT YEAR LOSS - (28,400) (34,245) (28,414)

BIOSENSOR APPLICATIONS SWEDEN AB 10 (20) 556376-6814

BALANCE SHEET (Amounts in SEK ’000)

ASSETS 12-31-2002 12-31-2001 12-31-2002 12-31-2001 Note Group Group Parent Parent Subscribed capital unpaid 13 - 4, 465 - 4,465 Fixed assets Intangible assets 9 Capitalized research and development costs - 11,018 21,070 11,018 Concessions, patents, licenses, brand names and similar rights - 720 11,081 720 Total intangible assets - 11,738 32,151 11,738 Tangible assets 10 Machinery and other technical equipment - 1,125 1,053 1,125 Equipment, tools and installations - 292 377 292 Leasehold improvements - 968 716 968 Total tangible assets - 2,385 2,146 2,385 Financial fixed assets Shares and investments in subsidiaries 11 - - - 66 Total financial fixed assets - - - 66 Current assets Inventories Goods for resale - - 326 - Inventories - - 326 - Short-term assets Accounts receivable - - 316 - Inter-company receivables - - - 81 Other debtors - 1,489 601 1,404 Prepaid expenses and accrued income 12 - 1,677 2,470 1,677 Total short-term assets - 3,166 3,387 3,162 Cash and cash equivalents 16 - 22,295 6,789 22,251 TOTAL ASSETS - 44,049 44,799 44,067

BIOSENSOR APPLICATIONS SWEDEN AB 11 (20) 556376-6814

BALANCE SHEET (Amounts in SEK ’000)

EQUITY AND LIABILITIES 12-31-2002 12-31-2001 12-31-2002 12-31-2001 Note Group Group Parent Parent Equity 13 Restricted equity Share capital (24,070,571 shares at SEK 1) - 13,432 24,071 13,432 Non-registered share capital - 5,797 - 5,797 Share premium reserve - 100,212 124,405 100,212 Statutory reserve - 200 200 200 Total restricted equity - 119,641 148,676 119,641 Unrestricted equity Accumulated losses - (80,687) (109,085) (80,671) Translation difference - (39) - - Current year loss - (28,400) (34,245) (28,414) Total unrestricted equity - (109,126) (143,330) (109,085) Total equity - 10,515 5,346 10,556 Liabilities Long-term liabilities Convertible debenture loan 14 - - 5,933 - Total long-term liabilities - 5,933 - Short-term liabilities Trade creditors - 2,961 4,352 2,954 Convertible debenture loan 14 25,000 19,067 25,000 Other short-term liabilities - 1,154 10,479 1,154 Accrued expenses and prepaid income 15 - 4,419 7,955 4,403 Total short-term liabilities - 33,534 33,520 33,511 TOTAL EQUITY AND LIABILITIES - 44,049 44,799 44,067 OTHER ITEMS REQUIRED FOR INFORMATION

PURPOSES

Pledged assets 16 - 7,733 2,336 7,733 Contingent liabilities - - - - TOTAL PLEDGED ASSETS AND CONTINGENT

LIABILITIES

-

7,733

2,336

7,733

BIOSENSOR APPLICATIONS SWEDEN AB 12 (20) 556376-6814

CASH FLOW STATEMENT (Amounts in SEK ’000)

2002 2001 2002 2001 Note Group Group Parent Parent SOURCES OF FUNDS FROM OPERATIONS Loss after financial items - (28,400) (34,245) (28,414) Adjustments for items not affecting cash flow - 6,234 4,364 6,266 Paid taxes 8 - (163) (45) (163) Funds from operations before changes in working capital

- (22,329) (29,926) (22,311)

Funds from changes in working capital Increase in inventories - - (326) - Increase in short-term assets - (1,954) (180) (1,932) Increase in short-term liabilities - (9,148) 4,693 (9,168) FUNDS FROM OPERATIONS - (33,431) (25,739) (33,411) INVESTMENT ACTIVITIES Acquisition of tangible assets 10 - (1,236) (626) (1,261) Acquisition of intangible assets 9 - - (12,545) - Capitalization of development costs 9 - (10,387) (10,052) (10,387) FUNDS FROM INVESTMENT ACTIVITIES - (11,623) (23,223) (11,648) FINANCIAL OPERATIONS New share issue 13 - 36,576 33,500 36,576 Issue of convertible debenture loan 14 - - - - FUNDS FROM FINANCIAL OPERATIONS - 36,576 50,167 36,576 CURRENT YEAR CASH FLOW - (8,478) (15,462) (8,483) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR

- 30,773 22,251 30,734

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

- 22,295 6,789 22,251

BIOSENSOR APPLICATIONS SWEDEN AB 13 (20) 556376-6814 NOTES TO THE FINANCIAL STATEMENTS

Accounting principles The Swedish Annual Accounts Act governing the presentation of income statements, balance sheets and the evaluation of assets in annual reports has been applied. The accounting principles are unchanged from the previous year. The company’s assets and liabilities have been accounted for at their acquisition cost or nominal value unless otherwise stated in the notes below.

Revenue recognition

Invoiced sales consist of sales of detectors and sensors along with related services. Revenue is recognized when all the primary risks and rights associated with the ownership have been transferred to the buyer, which normally occurs at the time of delivery.

Contributions for research and development

Contributions for research and development are recognized as income based on the relevant agreements. Research and development expenses covered by contributions are expensed as they occur.

Taxes

The total tax expense for the Company consists of current and deferred taxes. Deferred tax primarily consists of the estimated tax on changes in untaxed reserves for the year as well as tax relating to tax loss carry-forwards. Tax losses are evaluated with respect to the possibility of reversing untaxed reserves or other uses within the foreseeable future. The deferred tax position is calculated using the current tax rate. The taxation legislation in Sweden and in some other countries allows provisions to be set aside for special reserves and funds. Consequently companies can, within certain limits, dispose of or retain reported profits within the business without their being subject to immediate taxation. The untaxed reserves are subjected to taxation when they are dissolved. In cases when the business incurs a loss, the untaxed reserves may be used to cover the loss without any tax becoming payable.

Intangible fixed assets

Intangible assets, consisting of patents and capitalized development costs are recorded in accordance with recommendation no. 15 from The Swedish Financial Accounting Standards Council. Patents considered to have a significant value for operations in forthcoming years are recorded as intangible assets. Development costs with the objective of preparing an asset for use or sale are recorded as an intangible asset. Development consisting of design, construction and testing of prototypes includes external as well as internal costs for developing the asset.

Tangible fixed assets

Tangible fixed assets, consisting of machinery, equipment, other technical equipment and leasehold improvements are recorded at their acquisition cost less accumulated depreciation.

Depreciation according to plan

Depreciation according to plan is based on the assets' acquisition value and calculated economic life. Leasehold improvements are depreciated with respect to the lease period. Capitalized development costs are depreciated from the period when commercial sales of the product have commenced.

BIOSENSOR APPLICATIONS SWEDEN AB 14 (20) 556376-6814 Capitalized development 5 years Patents 5 years Machinery and other technical equipment 5-10 years Equipment, tools and installations 5 years Leasehold improvements 5 years Tax depreciation is calculated in accordance with current regulations. Tax depreciation in excess of depreciation according to plan is considered an untaxed reserve.

Inventory

Inventory is valued to the lower of acquisition value and actual value.

Receivables

Receivables are accounted for in accordance with expected recoverable amounts, based on individual assessments.

Receivables and liabilities in foreign currency

Receivables and payables in foreign currency are translated at the year-end exchange rate. Profits and losses on operating receivables, debts and liabilities are recorded at their net amount in ‘Other operating income’ or ‘Other operating expenses.’ Prepayments from customers are translated at the exchange rate as of the date on which they are received.

BIOSENSOR APPLICATIONS SWEDEN AB 15 (20) 556376-6814 NOTES – ALL AMOUNTS IN SEK ‘000, UNLESS OTHERWISE STATED

Note 1. Intra-group purchases and sales The subsidiaries Biosensor Aviation Security Ltd. and Biosensor Mine Detection A/S have been liquidated during the year and there have been no operations. Hence, no sales between group companies exist.

Note 2. Personnel AVERAGE NUMBER OF EMPLOYEES 2002 2002 2001 2001 Number of Of which, Number of Of which, employees men employees men Sweden 19 12 18 12 TOTAL 19 12 18 12 SALARIES AND OTHER 2002 2002 2002 2001 2001 2001 REMUNERATION

The board of directors and

the managing director 1)

Of which, bonus pay-ments and

other equiva-lent

remuneration 2)

Other employees

The board of directors and

the managing director 1)

Of which, bonus pay-ments and

other equiva-lent

remuneration 2)

Other employees

Sweden 3) 2,182 250 8,990 1,639 - 5,747 TOTAL 2,182 250 8,990 1,639 - 5,747 1) Includes current and previous board members and alternate members as well as Managing Director. 2) Only refers to the group defined above under 1) above. 3) The Managing Director is entitled to the equivalent of 12 months salary upon termination of his contract. SALARIES AND OTHER

REMUNERATION (CONTD.) 2002

Salaries and 2002

Social 2002

Including, 2001

Salaries and 2001

Social 2001

Including, remunera- security pension remunera- security pension tion expenses costs tions expenses costs Company as a whole 11,172 6,116 2,457 7,386 2,485 746 TOTAL COMPANY 11,172 6,116 2,457 7,386 2,485 746 The Managing Director account for 428 (340) of the company’s pension costs. All pension obligations are handled by insurance companies or secured through funding by an external insurance company. As of December 31, 2002 the employees in the Company owned 696,000 options with a right to acquire one share for each option to a price of SEK 13.5 SEK during the period up until December 31, 2003. The Company has an additional 204,000 option rights that can be sold to new employees or to current employees based on decision by Managing Director or Board of Directors. The option rights was separated from a debt issue and returned to the Company free of charge. The employees have acquired the options to market value based on the Black & Scholes option valuation model to a price between SEK 0.10 and SEK 0.22. The average share price in new share issues in 2002 amounted to SEK 6.0 and with the current level of equity an exercise of the options is not considered to dilute equity. During 2002 no options were exercised.

Note 3. Auditors’ fees 2002 2001 2002 2001 Group Group Parent Parent Audit Arthur Andersen - 86 94 86 Other assignments Arthur Andersen - 46 43 46 Total - 132 137 132

BIOSENSOR APPLICATIONS SWEDEN AB 16 (20) 556376-6814 The audit includes a review of the annual report and financial statements and the management of the company by the Board of Directors and Managing Director. The audit also includes assignments, advice and other services arising from the audit of the financial statements. Any other services provided are ‘Other assignments.’

The Company has elected Arthur Andersen with Kerstin Sundberg as principal auditor. In June 2002 the employees in Arthur Andersen transitioned to Deloitte & Touche AB. Deloitte & Touche with Kerstin Sundberg as principal auditor will be elected on the shareholders meeting 4 June 2003.

Note 4. Depreciation and write-downs

Depreciation is allocated for an amount of 216 (88) to administrative costs and with 2,832 (1,256) to research and development. Write-downs of 0 (3,520) have been allocated to research and development. Write-downs consist of capitalized development costs relating to assets that will not be developed further or completed.

Note 5. Other operating income

On 28 December 2000 the EU approved two applications for contributions to further development of the landmine sensor and the development of a multi sensor from Biosensor, together with amongst others Svenska Räddningsverket and Norsk Folkehjelp. The EU has granted total funds of EUR 1.9 million (SEK 17.4 million) for the projects, covering a three-year period. The company records contributions as revenue when the costs, which the contributions are meant to cover, have been incurred. In 2002 the company recorded 7,273 (4,175) as other operating income in respect of contributions from the EU.

Note 6. Interest and assimilated income 2002 2001 2002 2001 Group Group Parent Parent Interest - 489 524 488 Exchange rate gains - 310 909 310 Other financial income - 58 16 58 Total - 857 1,449 856

Note 7. Interest and assimilated costs 2002 2001 2002 2001 Group Group Parent Parent Interest expense - 1,329 1,254 1,329 Exchange rate losses - - 1,240 - Other financial costs - 42 27 42 Total - 1,371 2,521 1,371

Note 8. Taxes 2002 2001 2002 2001 Group Group Parent Parent Current year tax Corporate income tax - 53 - - Total current year tax - 53 - - Tax receivables Tax receivables included in other receivables amount to: - 216 208 163 Deferred tax assets

The company records deferred tax in accordance with recommendation no. 9 from The Swedish Financial Accounting Standards Council. The company has tax loss carry-forwards of 142,462 (108,586) that may be used indefinitely, corresponding to a deferred tax asset of 39,889 (30,404). The company has not recorded a deferred tax asset as the tax loss carry-forward can not be expected to be used within the foreseeable future.

BIOSENSOR APPLICATIONS SWEDEN AB 17 (20) 556376-6814

Note 9. Intangible assets

Patents Group

Capitalized development

costs Group

Patents Parent

Capitalized development

costs Parent

Acquisition value brought forward 3,600 11,018 Purchases / capitalized costs 1) - - 12,545 10,052 - - Accumulated acquisition values carried forward 16,145 21,070 - - Depreciation brought forward (2,880) - Depreciation for the year - - (2,184) - - - Accumulated depreciation carried forward (5,064) - - - BOOK VALUE CARRIED FORWARD 11,081 21,070 - - During the previous year the following amounts were recorded:

Depreciation (720) - - -

1) In 2002 internal personnel costs were capitalized for an amount of 3,145 (2,287).

Note 10. Tangible assets Parent and group Machinery and

other technical equipment 1)

Equipment, tools and

installations

Leasehold

improvement

Total Acquisition value brought forward 1,831 620 1,392 3,843 Reclassification (811) 811 - - Purchases 351 244 31 626 Accumulated acquisition value carried forward 1,371 1,675 1,423 4,469 Depreciation brought forward (706) (328) (424) (1,458) Reclassification 652 (652) - - Depreciation for the year (264) (318) (283) (865) Accumulated depreciation carried forward (318) (1,298) (707) (2,323) BOOK VALUE CARRIED FORWARD 1,053 377 716 2,146 During the preceding year the following amounts were recorded:

Depreciation (251) (88) (275) (614) 1) The Company leases plant and machinery with an estimated purchase value of 750 under operating lease agreements. Expensed leasing

charges for the period amount to 269 (269). Contractual lease payments under existing leases are due for payment as follows:

During 2003 269 2004 - Total 269

BIOSENSOR APPLICATIONS SWEDEN AB 18 (20) 556376-6814

Note 11. Shares and holdings in subsidiaries Both subsidiaries were liquidated during the year and there have been no operations in these in 2002.

Note 12. Prepaid expenses and accrued income 2002-12-31 2001-12-31 2002-12-31 2001-12-31 Group Group Parent Parent Prepaid rent - 9 267 9 Accrued EU-contributions - 1,292 1,856 1 292 Other prepaid expenses and accrued income - 376 347 376 Total - 1,677 2,470 1 677

Note 13. Changes in equity

Share capital

Non-registered share capital 1)

Share premium

reserve

Statutory

reserve

Unrestricted

equity

Total Amount brought forward 13,432 5,797 100,212 200 (109,085) 10,556 Paid up subscribed capital 5,797 (5,797) - - - - New share issue 4,842 - 24,193 - - 29,035 Current year loss - - - - (34,245) (34,245) AMOUNT CARRIED FORWARD 24,071 - 124,405 200 (143,330) 5,346

1) As of January 30, 2002, subscribed unpaid capital remaining as of December 31, 2001, were paid to the company and registered at the Swedish Patent and Registration Office.

Note 14. Convertible debenture loan

The convertible debenture loan in the amount of SEK 25 million bear an interest rate of 5% and was subscribed by Skandia Liv, Metallica, Svenska Kyrkan and Kommunal. The loan was issued in November 2000 and matured as of 1 November 2002. As of 31 Dec 2002 the loan had not been converted and in connection to a bridge financing agreed in April 2003 , Metallica, Svenska Kyrkan and Kommunal decided to convert there receivables (including accrued interest) to new category A shares at an issue price of SEK 10 per share and that Skandia Liv converted their receivable on the Company (including accrued interest) to a new convertible loan, maturing with one third each 31 December 2003, 2004 and 2005, in so far as no conversion have been made in advance. The new convertible bear an interest rate of 5% and the issue price varies depending on when conversion is made between SEK 7.50 to SEK 12.50 per share and is also linked to the issue price in new share issues in the Company. The conversion made by Svenska Kyrkan, Metallica and Kommunal mean that equity increase with SEK 18,161 thousand, whereof share capital SEK 1,816 thousand.

Note 15. Accrued expenses and prepaid income 2002-12-31 2001-12-31 2002-12-31 2001-12-31 Group Group Parent Parent Vacation accrual - 495 916 495 Social charges - 557 613 557 Accrued interest expense - 1,413 2,662 1,413 Other accrued expenses - 1,954 3,764 1,938

BIOSENSOR APPLICATIONS SWEDEN AB 19 (20) 556376-6814 Total - 4,419 7,955 4,403

BIOSENSOR APPLICATIONS SWEDEN AB 20 (20) 556376-6814 Note 16. Pledged assets and contingent liabilities 2002-12-31 2001-12-31 2002-12-31 2001-12-31 Group Group Parent Parent Pledged assets Blocked cash and cash equivalents: Funds for future royalty payments - 5,343 - 5,343 Prepayment warranty - 1,889 1,846 1,889 Agreement warranty - 501 490 501 Total pledged assets - 7,733 2,336 7,733 Contingent liabilities - - - - TOTAL PLEDGED ASSETS AND CONTINGENT

LIABILITIES

-

7,733

2,336

7,733 Stockholm 15 May 2003 Jan Persson Carl Lundberg Tomas Ericsson Chairman of the Board of Directors Managing Director Ulf Ericsson Jonas Frick Göran Lundberg Bo Rybeck Bengt Hagander Leif Engström (alternate) Our auditor's report was submitted on 15 May 2003 ARTHUR ANDERSEN AB Kerstin Sundberg Authorized Public Accountant